Tea producers plan direct marketing to beat slump
Economic Times - 3/7/2002
In an unprecedented move, the United Planters Association of Southern India (Upasi) has commissioned ORG-Marg to examine the prospects for direct marketing by tea producers to overcome the acute crisis caused by the steep fall in commodity prices. Upasi president I J J Rebello and secretary-general Ullas Menon told ET that the project report would be submitted soon and look at all options, including co-operative marketing.
ORG-MARG would, Upasi said, be mapping the value-chain to try and understand why the steep fall in growers’ realisations was not being reflected in prices paid by consumers of tea and why the gap between the two was growing every day. "Once the mapping of the value-chain is done, Upasi will be able to understand who is reaping the margin and at which part of the value-chain. Upasi will then commission a further study to see how the growers can enter this part of the value-chain so as to reap the benefits of this margin,’’ they added. Direct marketing would supplement and not replace sales in auctions, they said.
From Rs 69 per kg in ’98, the average auction price of tea had declined to Rs 46 in ’01. During the first five months of the current year, the price had further dipped to Rs 42 per kg. All the tea producers in the south had incurred losses on their plantation operations in the financial year ’00-01 and also in ’2001-02. If the present trend was any indication, the losses would further mount for the third successive year in ’02-03, Upasi said.
According to agency report, industry has objected to the review of the Tea Marketing Control Order saying the proposed reintroduction of mandatory sales through the auction system is a draconian measure.
"The present auction system is riddled with complications and cannot handle large volumes of tea, it only adds to the number of middlemen and ensures that the retail prices remain high," a member of Upasi’s tea committee said. He said in these circumstances to reintroduce the mandatory sales through auctions will be draconian and wreak havoc on the already troubled tea industry. In the liberal economic environment the grower should have the liberty and choice to communicate directly with the consumer which is not the case in the auction system.
He said with the middlemen like transporter, warehouser, blender and unloader taking their cut, tea sold in auctions at Rs 50 per kg is sold at the retail level at Rs 150 a kg. Big buyers have a monopoly over the auction system and due to large volumes, do not allow division of lots. With business being conducted at breakneck speed of around three lots a minute there is hardly any time to adjust prices.
A F Ferguson suggests futures in basic grade
International management consultant A F Ferguson & Co has recommended that tea futures should be introduced for the ‘basic grade’ that the industry agrees upon. In its report submitted to Tea Board, Ferguson had said that in the absence of such a ‘basic grade’, tea futures might be introduced on some ‘index’ based on tea prices. According to Ferguson such an index could be for instance, the average auction price of a major category of tea at each centre. The consultant said that once tea futures were introduced in the market, would help the industry in number of ways. It would enable producers hedge a portion of price risk linked to the overall market volatility and reduce risk margin at each level of tea supply chain leading to reduction in the price to the consumer. Ferguson said industry awareness would have to be; created as there were no international benchmarks for reference as tea futures are absent in all the producing countries worldwide. —Agencies