The pan-India auction of tea has not been able to generate competition for a fair price as many producers were compelled to sell lower than their production cost, the India Tea Association’s (ITA) Assam branch said on Wednesday.
“It would appear that despite all efforts of the Tea Board at introducing pan-India auctions, the platform has been unable to generate competition for a fair price discovery. Many producers are compelled to sell tea well below the cost of production,” it said, adding it will have serious consequences in the future on the industry’s sustainability.
The association said efforts being made by producers to explore alternative private channels of sale for better price are also inhibited by the Tea Board’s mandate that “50 per cent of the tea manufactured must be routed through public auctions”.
“Selling tea through auction entails a higher transaction cost on account of sampling and warehousing. Further, there is no guarantee that the tea will be sold above the production cost,” association said.
It has, therefore, petitioned the Board to withdraw the order.
According to sale figures of the new season Assam tea sold between Sale 14 and 31, ACTC (crush, tear, curl) and dust tea fetched an average price of Rs 156.12 a kg, down by Rs 7.47, as against Rs 163.59 in the corresponding period last year.
CTC-dust combined average price for tea from the Assam valley was lower by Rs 5.67 as compared with last year and buying pattern was also shifting towards low range.
“… between 2014 and 2016, there has been a 15 per cent drop in buying in the Rs 180-200 range while, at the same time, there has been a corresponding increase of 13 per cent in the lowest category of Rs 100-Rs 129,” the association said.
The tea-lobby group said that an analysis of the last 10 years revealed that tea prices have not been able to keep pace with the inflationary trends, putting considerable pressure on margins.
Input costs during this period have increased at a compounded annual growth rate (CAGR) of more than 10 per cent per annum while tea prices have grown at a CAGR of only 6-7 per cent.