Brewing a tea cartel a headache for producers

Rajendra Jadhav Mumbai

Brewing up a tea cartel is proving more difficult than a cuppa for six major producers of the most widely consumed beverage, who decided last week to join forces without explaining exactly what they plan to do.

TO GO WITH STORY TITLED BACK TO TEA** A farmer picks tea leaves, Oct. 14, 2002 in Longjing Village, China. China is rediscovering tea, that most quintessential of Chinese drinks. In Shanghai, China\'s largest and richest city, average annual consumption has more than quadrupled since 1992 to 900 grams (two pounds) per person, said Liu Qigui, head of the Shanghai Tea Institute, a government group promoting tea. (AP Photo/Eugene Hoshiko). Credit: AP

India, Indonesia, Kenya, Malawi, Rwanda and Sri Lanka, which account for more than 80 percent of tea output, agreed in Colombo to form the International Tea Producers Forum, an organisation they said was aimed at stabilising prices, promoting the beverage and ensuring sustainable production.

Although they plan to set up an executive committee in November, their manifesto had few precise mechanisms, and industry experts say any attempts to act like a real cartel and control prices or limit production will be stymied by the commodity’s complexity and the piecemeal nature of its market.

The forum’s founding nations, which produce about 1.9 billion kilograms of tea a year, face similar challenges such as labour shortages, climate change and a need to improve agricultural practices.

However, they are unlikely to agree on production quotas or price fixing mechanisms due to the different varieties, and amounts, that each nation produces.

“Nobody will accept a quota. What you produce, you have to sell. Tea cannot be stored. Tea is [a] perishable commodity. So no country will… accept a quota,” said Deepak Atal, the managing director of Amalgamated Plantations, the second-biggest tea producer in India, which is the third-biggest tea exporter.

Kenya is the top exporter, according to the latest data from the UN Food and Agriculture Organisation (FAO), followed by China, which was invited to join the forum as an observer.

The forum is the first attempt to create unity among the main tea producers since a cartel was formed 80 years ago to lift the price by curbing exports. The measure worked, and prices rose by more than a quarter within six months.

Back then, British firms such as Finlays controlled most of the tea trade, but today’s tea market is filled with a plethora of sellers hawking a vast array of varieties, which complicates any attempt to control exports and prices.

“In [the] 1930s, the industry was controlled by [a] few British companies… That’s why it was easier to agree on export curbs,” said a tea broker based in Kolkata. “Today there are hundreds of tea garden owners and exporters.”

Unlike other commodities such as rubber or sugar, tea has no futures market and no benchmark grade, which makes pricing largely arbitrary. Physical tea is often sold on a weekly basis, via auction.

According to the Tea Board of India, tea prices in India have risen about 40 percent in the last five years.

World tea production was expected to grow at 1.87 percent annually in the next decade, the FAO said last year, slightly lower than the 1.99 percent pace over the previous decade, to reach 3.28 million tons by 2021. – Reuters