India’s 162-year-old tea auction system is under severe stress as buyers of tea from the domestic as well as overseas markets are preferring to purchase teas from the producers privately, whereby they can get a credit for two months or more as compared to 13 days in case of purchases from the auction centres.
Nearly 70% of the big buyers are now purchasing teas privately, according to industry executives. Two years ago, 52-54% of the teas used to come to the auction centres, but now the figure has fallen to 44% or 600 million kg out of the total production of 1,350 million kg, they said.
‘Tea producers are falling over themselves to sell teas to buyers directly. In private sales, buyers get the first pick of the quality directly and therefore pick and choose the best teas. These prices are usually at an apparent premium over auction prices,” said Mohit Agarwal, director, Asian Tea. “Generally, the credit periods in private sales range from one month to six months, with no penalty for delayed payments, compared to two weeks for auctions.”
This acts as a disincentive for buyers to operate in auctions as reduced auction competition leads to softening of next week’s private levels. “As a result producers are incentivising buyers to operate outside the auction system, to their detriment and to the detriment of the industry,” said Agarwal.
Jayraman Kalyanasundaram, secretary, Calcutta Tea Traders Association, said, “The big buyers prefer to buy privately. When we say big buyers, we mean who is buying 10 lakh kg of teas annually. Teas coming to auctions started dwindling over the years and now it has fallen to 600 million kg. A new tea auction system – Bharat auction – has been introduced for auctioning of CTC and dust tea from April this year. We are yet to see the impact of this new system.”
Tea producers, however, said the experimentation with the new auction system has been against the will of the majority of the industry and will not lead to any increase in prices.
“The complicated operations of the new auction system along with the new proposed user fees will push even more buyers out of the auctions,” said Agarwal.
Tea prices have remained muted this year due to higher carry over stock from last year. Orthodox teas, which did very well last year in the global markets due to the absence of Sri Lankan orthodox tea, have seen a 30% fall in prices this year.