Tea board direction of mandatory sale will be counter productive: UPASI

The circular of Tea Board of India directing manufacturers to comply with the order of mandatory sale of 50 per cent of total tea manufactured through public auctions, will be counterproductive given the wide divergence in auction prices vis-a-vis retail prices, United Planters Association of Southern India said Tuesday.

Needless to mention that the mandatory routing of 50 per cent of the tea is a retrograde step in the free market open economy the country adopted since 1991, UPASI president Prashanti Bhansali said, reacting to the circular.

In fact, the Government in 2001 repealed the mandatory routing of tea through auctions, in line with the economic policy of liberalisation and free trade which was subsequently amended in the year 2015, after 15 years.

During this period, many tea producers have painstakingly developed domestic markets thereby getting much better price realisation for their produce, he said.

At the end of the day a business must have the liberty of deciding to whom it wants to sell its product and which platform it would prefer to use, as a same business may have different business approaches, Bhansali said.

''On one hand, Tea Board has recently taken positive steps towards the Governments current policy on 'Ease of doing Business' and has reduced regulatory compliances related to a number of mandatory licences, but on the other hand, this circular a step away from what is necessary and completely counter intuitive,'' he said.

As per the Tea Board, the mandatory routing of tea through auctions is to make the auction system robust and bring stability in the price realisation process, he said, adding that tea auctions in India have a finite load capacity as is evident from steep fall in prices witnessed presently.

Further, there is no guarantee that the manufacturers get fair prices to cover even the cost of production and that being the market dynamics, compelling one segment of the value chain to offer specific quantities of production without concomitant directive to the other segment to source tea from auctions, is not a fair system.

Further, routing of teas through auction increases the transaction cost, such as warehousing charges, brokerage, lot-money, free trade samples and having incurred all these additional costs, there is no guarantee whatsoever that the teas would fetch better prices or for that matter whether it could be sold even.

If the auction system is the best way to get the highest price, all commodities world over would have been sold through auctions only, Bhansali said.

Since the auction system has finite load handling capacity, pressurising the system by mandatory routing of teas through auction will result in more percentage of out lots, resulting in considerable loss to producers.

Importantly, mandatory routing of teas through auction defies the fundamental economic principle of competition.

Tea being an agro-based product and the policy of the Government of India is to reduce the intermediaries in marketing so that the producers get a better share in the sale proceeds, UPASI is of the view that the Tea Board direction of mandatory sale of 50 per cent tea through auction be withdrawn and instead it be left to the discretion of manufacturers to decide the mode of sale, Bhansali said.

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