A majority of the tea growers in the country are against the mandatory routing of tea through auctions, saying they should have the freedom to choose the best channel for sale of their produce.
According to a directive by the Tea Board of India, producers should mandatorily route 50 per cent of tea manufactured by them through public auctions. This, the board feels, would help make the auction system robust and bring stability in the price realisation process.
However, Tea Board Chairman, PK Bezboruah, at a recent biennial general meeting of the Tea Association of India, expressed apprehensions regarding the efficacy of this given that buyers are not required to abide by the same mandate. According to him, either all teas should be routed and sold on auction platform or auctions should be done away with.
“I feel when it comes to auctions it should be either all or nothing. If a buyer does not buy at auction then the prices automatically come down and then these prices are used as benchmark by buyers at private sales,” he said.
For tea growers, who have an existing set of buyers buying through private channel, it might be difficult to route 50 per cent of their produce through auctions.
“Every producer might have his own network of buyers who may be buying from them. In fact, some of these buyers have specific requirement and producers tend to cater to these. So it might not be right to ask them to route their sales through auctions. It should be the prerogative of the seller to decide how he would want to sell his produce,” Vivek Goenka, Chairman, Indian Tea Association, told BusinessLine.
Instead of making it mandatory for sellers to route their teas through auctions, it would be better to revamp the auction system to make it attractive for sellers to prefer the platform, he said.
According to a senior official in a tea manufacturing company, packateers and other buyers, who participate in the auctions, prefer to buy medium quality teas and lower grades from the auction and purchase premium and better teas through private sales. They are not governed by any such directive and not forced to buy 50 per cent of their teas from the auction.
“There is a lack of transparency in the private sales and therefore, small growers are denied a fair price. With GST, there is obviously a lot of transparency. So why private sale pricing cannot be tracked,” he said.
According to him, there is no auction in coffee, rubber, etc and prices are scientifically arrived at by the market forces independent of any rules that govern them. However, in the case of tea, the private sales and export prices are linked to auction.
“This is the reason for us to oppose tea auctions. Let independent free trade find a price,” the official said.
The input cost — which has been increasing at a CAGR of 10 per cent in the last 10 years — has impacted the bottom line of tea companies, while prices have not grown at this rate. Nearly 70 per cent of the input costs are wage, fuel, fertiliser and others which are fixed in nature, while the selling price of tea are benchmarked with auction prices that are floating in nature.
This results in the producers not being able to pass on the rising input costs to the buyer, another official pointed out.