The association said that the increase in the numbers of small growers and bought leaf factories have brought a paradigm shift in the industry dynamics.
Big tea producers in the country are unhappy with the pan-India tea auction, saying it has failed in fair price discovery for them. State-run Tea Board has mandated that 50% of the tea manufactured must be routed through public auctions. India is the second-largest producer of tea in the world and makes up 26% of the global tea production. Indian Tea Association (ITA) has called for a review of the auction system as it has not led to an increase in auction prices over the past few years. The association said that the increase in the numbers of small growers and bought leaf factories have brought a paradigm shift in the industry dynamics. Parimal Shah, vice president at MK Jokai Agri Plantations, said that under normal circumstances the tea auction is a great platform. “Unfortunately we don’t have a system like in Sri Lanka where all the tea has to go through a centralised auction system. In India, the bought leaf factories and farmers have a lot of flexibility compared to the big producers,” he said.
He said that the phenomenal growth of bought leaf factories has changed the dynamics in favour of small operators. “In the last 10-15 years, there has been a phenomenal increase in the number of such factories which can process 5 lakh kg of leaves at an investment of just `3-4 crore. Whereas the large plantations with large tract of land and labourers the overhead costs are huge,” he said. Tea Association of India feels that price discovery for the tea producers is becoming a challenge in the current environment. “The auction system has high costs and long periods of sale, thereby making it less than ideal for tea producers. It is in this context that the ex-factory sale of tea is an attempt to make the price discovery mechanism more effective and transparent, thereby obviating layers of transactional cost,” PK Bhattacharjee of the Tea Association of India told FE.
The associations want the Tea Board to consider allowing ex-estate sales as part of the auction process to rationalise transaction costs in the immediate term and help to overcome severe constraints of warehousing space at the auction centres. T Jayaram, president of United Planters Association of Southern India (UPASI), said that cartelisation is still present in the system and the general feeling is that fair price discovery is not happening in the auctions. R Sanjith, commodities head at UPASI, said that tea might be the only commodity which has seen the price remain low over the last several years. “Price of tea has not grown when you compare it with other plantation crops. When you factor in inflation, the real price might be negative,” he added.