Crisis in the tea industry

Published : Feb 14, 2003 00:00 IST

Tea traders at an auction centre in Kolkata. - PARTH SANYAL

Tea traders at an auction centre in Kolkata. - PARTH SANYAL

THE Tea (Marketing) Control Order (TMCO), 2003, gazetted on January 1, has created a lot of resentment in the industry, particularly among the buyers, who have decided to set up a National Committee of Buyers and take legal action to prevent its implementation. The National Tea Auction Buyers' Committee called upon buyers to stay away from auctions until certain clauses in the order were removed.

For the first time, buyers will have to register themselves, within 60 days from the date of issue of the order, with the chairperson of the Tea Board, who is the licensing authority. The chairperson is also empowered to stipulate what percentage of tea a buyer should procure through the domestic public auction system in a calendar year. Direct purchases of tea bags, packet tea, aromatic, quick brewing black, and green tea will not be included in the computation of the total purchase. However, a registered buyer will have to declare to the registering authorities details of all purchases, including those made outside auctions.

According to informed sources in the industry, one of the reasons the tea buyers' resentment is that under the new auction rules of the Tea Board, notified as a follow-up to TMCO, 2003, they will not be able to enjoy certain facilities such as division of lots and proxy bidding to the extent they could under the rules that were in vogue until recently.

However, it is not just the buyers who have been brought under strict surveillance by the new mechanism, designed to get the tea industry back on its feet. Under TMCO, 2003, the registering authority has the power to lay down the percentage of tea that a manufacturer will have to sell in a calendar year through the domestic public auction system. Under this provision, tea directly sold in the form of tea bags, packet tea, aromatic, instant, quick brewing black and green tea, and tea exported directly, except that which is sold in auctions abroad, will not be included in the computation of the total production. In fact, this provision is similar to the one in TMCO, 1984, which gave the registering authorities the power to direct sales through auctions and made producers route 75 per cent of their produce through the domestic public auction system. In 2001, this clause was amended and the statutory percentage was withdrawn and producers were given the freedom to sell the way they desired. However, the registering authority still retained its power to stipulate what percentage of the produce will go through the domestic auction system.

However, according to the new order, the producers and sellers also will have to provide detailed accounts of how much tea has been disposed, even if it is through private sales; to whom it has been sold; and the average price realised from each party. It is this clause that is resisted by buyers, particularly the small buyers, who are not at all happy about disclosing such details. "We, in any case, have to register under the Calcutta Tea Trading Association (CTTA), why do we have to do it again?" asked a small buyer in the Kolkata tea market. It is also compulsory for bought leaf factories to be registered under the Tea Board. In fact, if a manufacturer does not have a valid registration from the Tea Board, within 60 days from the gazette notification, he will not be allowed to continue with production. Apart from these, the registering authority has also been given the power to periodically fix the price of tea leaves payable to tea growers.

Another reason for the buyers' resentment is that the prompt date, that is, the date of payment for tea bought, has been reduced to about a week, as against 14 days admissible until now. The buyers are also opposed to the payment of 5 per cent premium on the division of tea lots at the auction.

Protesting against the new TMCO, buyers boycotted auctions at several centres. Of the six auction centres in the country Kolkata, Guwahati, Siliguri, Kochi, Coonoor and Coimbatore the first two are the most important. Although the auction centres in Kolkata were open everyday, it was only after 14 days, on January 20, that some amount of trading took place. Out of around 240 lots up for sale, 48 were bought by Hindustan Lever and Tata Tea. However, they were the only buyers, and after 45 minutes of transaction, at the insistence of the boycotting buyers, who were observing a nation-wide strike on the same day, the auction had to be closed. In Guwahati, auctions took place on January 21 and 22, and this time, Hindustan Lever and Tata Tea were joined by a couple of other buyers too.

Owing to the inactivity at auction centres, the tea industry is facing a serious financial crisis. The Indian Tea Planters' Association (ITPA) has sought financial assistance from the Reserve Bank of India (RBI). According to ITPA advisor N.K. Basu, the industry is going through one of its worst situations. With no money coming in from the markets, it will be difficult to pay workers.

On January 24, at a meeting in Kolkata, buyers decided to participate in auctions from January 28. An informed source in ITPA told Frontline: "However, if the order of payment within six days and the 5 per cent premium on the division of tea lots is not scrapped, we might consider going back to the way things are, that is, the boycott will continue."

The new regulations are designed to bring about a level of transparency in the public tea auction system in the country and eliminate unscrupulous traders. Most important, they try to ensure that there is no compromise on the quality of the produce, and enable the authorities to get a clear picture of market transactions. At the same time, the TMCO, 2003, contains proposals for some major reforms in the market system.

These sweeping changes were precipitated by what has been transpiring in the industry over the last two years (Frontline, December 20, 2002). Although the auction prices were down, it in no way reflected the prices the domestic consumers were paying for their tea. Many traders used liberal auction rules to take advantage of this price differential. As a result, the producers suffered because they were denied a share of the higher prices paid by consumers.

Suhrid Sankar Chattopadhyay

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