Less production pushes tea prices up

While pan-India e-auction of tea has brought in more buyers into the system, fall in production has pushed prices by 8%

Tea prices are up by eight per cent this season, with the second flush quality hitting the market, coupled with a fall in production.

‘First flush’ tea is harvested in late March; the ‘second flush’, considered superior in quality, is picked in late June (there is also ‘monsoon flush’, picked after the onset of rain).

The industry says a 43 per cent drop in production in May in South India would have pushed up prices further, had Kochi-based buyers not boycotted e-auctions. That boycott resulted in a piling up of an inventory of about four million kg, which is why prices in the south are still low at an average of Rs 95 a kg.

Following the Tea Board’s order, e-auction was made mandatory from June 23 at all the major auction centres  -- Kolkata, Guwahati, Siliguri, Kochi, Coimbatore and Coonoor. The system integrates the process, from invoice creation to delivery from warehouses, enabling better control.

Santosh Kumar Sarangi, chairman, Tea Board of India, says prices were Rs 81-82 a kg in the south last year around the same time. “This time, while average prices would be around Rs 95 a kg (there), they've touched Rs 105-115 a kg for some varieties,” he said.

In the north, the average is Rs 129-130 a kg at the moment, a rise of seven to eight per cent from last year.  The Tea Board is mulling a meeting soon with the buyers in Kochi, who have stayed away from participating in the pan-India e-auctions.

 

“Kochi as a centre traditionally has been handling smaller lots compared to the rest of India. They had issues related to allowing smaller lots for auctions and that we are considering. We are hopeful they'd soon participate in the auctions,” said Sarangi.

Some of the provisions in the new pan-India e-auction rules, such as division of lots, absence of any terms in splitting the lots and banning of proxy bidding were why some traders have opposed the auctions, especially at Kochi.

While some insiders feel the pan-India auctions have pushed up prices, Azam Monem, whole-time director at McLeod Russel, said prices are always a factor of demand and supply. “Auctions have brought more buyers into the system. But, production is down both in north and south. Prices, as a result, are up.”