Flat Prices Provoke Critics of India’s Tea Auctions

Darjeeling cut-tea-curl (CTC) is again filling auction warehouses and last week a green tea set an all-time high price at the Coonoor auction in South India, but all is not well with India’s auctions.

India’s largest tea producers are chafing under a rule that 50 percent of the nation’s manufactured tea must be publicly auctioned. This is because prices are falling and “the auction system has high costs and long periods of sale, thereby making it less than ideal for tea producers,” observes PK Bhattacharjee in the Financial Express. India currently produces 26 percent of the world’s tea and is experiencing a 26-year high in tea exports, but the price premium has shifted to direct sales. The price earned for auctioned tea is around $2 per kilo.

The Indian Tea Association (ITA) has called for a review of the auction system because tea prices on average have not increased for several years.

Under normal circumstances the auction is a great platform, explains Parimal Shah, vice-president at MK Jokai Agri Plantations. “Unfortunately, we don’t have a system like in Sri Lanka where all the tea has to go through a centralized auction system. In India, the bought leaf factories and farmers have a lot of flexibility compared to the big producers,” he said.

The advantage is shifting to smaller factories that can process 500,000 kilos of tea for an investment of $500,000 to $600,000, he said. “Whereas the overhead costs are huge at large plantations with large tracts of land and laborers,” he said.

Not every bought leaf factory is driving prices down. The Vigneshwar Estate Tea Factory, a bought-leaf factory that has operated for 30 years in the small town of Aravenu, earned $4.92 (INRs322) a kilo April 15, a new peak for any CTC grade sold in South India. Ramesh Bhojarajan, managing partner at Vigneshwar Factory, told The Hindu Business Line that “for the past few years, this tea has been winning Golden Leaf India awards in the entire Nilgiris category, beating even entries from corporates.”

The highest price was for a specialty winter tea from Avataa Tea that brought $36.69 (INRs2401) per kilo, topping the company’s previous record of $31.87 per kilo, according to Avataa director G. Udayakumar.

Globally there are other anomalies at auction. In Kenya, the Tea Directorate is concerned about an unusually steep six-week decline in prices. Tea production there is returning from a slump, which may partly explain the fall to $2.58 (Sh260) for black CTC, the lowest price in a year, according to reports in The Nation. In January, tea was trading at $2.82 (Sh284) per kilo and reached $2.91 (Sh293) per kilo in late 2017. Production in February was 27.92 million kilos compared to 22 million during the same period in 2017.

  1. Sanjith, commodities head at United Planters Association of Southern India (UPASI), said the “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.”

Sources: Financial Express, The Hindu Business Line, Daily Nation