Indian tea has always been a global product. A look at the world export figures vindicate this statement. Traditionally, India’s share of tea exports has been over 14 per cent, rising to 17 per cent in 1997.

Notwithstanding this, within the country it has been a fiercely protected commodity. Until very recently, free imports were shunned. Import for re-export purposes, however, was always allowed. It is estimated that about seven mkg of tea was imported into India for re-export purposes last year.

The present status
Tea, which is in the restricted category of the negative list under the Exim policy, is now a relatively free commodity. There is no requirement for a special import licence (SIL) for importing tea from the SAARC countries.

Post WTO, death-knell for the industry?
This assumption as under the WTO regime, India’s import restrictions will come under scrutiny. But, it might not have any impact on the domestic industry for as per the WTO requirement, tariffs could be in the range of 100-150 per cent. As the Indian import tariffs on tea are just 15 per cent at present, there exists immense scope for an increase.

Freeing of imports: Repercussion on prices
It is unlikely that there will be any major price swings feels a large section of the industry. According to Tata Tea GM marketing (international business), Kiran Desai, "There will be a two-way impact on tea prices in India with imports being free. Firstly, the world prices will move if there is a big difference in the price."

"Only if there is a big demand for say, Kenyan tea or Malawi tea, will the prices rise. And once the prices rise, Indian prices will be at par with the world levels," he adds.

"The going may be tough for those operating for the bottom-end tea," feels Assambrook Ltd chairman, Siddharta Rampuria. Countries which have lower cost s of production will benefit if they export tea to India. "The top end tea may, however, not get affected by imports," he adds.

But the bigger question is, how many companies will want to import tea at all. Only if it makes economic sense for those countries to ship large quantities of tea, will they go for imports. In the final analysis, quality of the product will matter, says Desai.

Many producers are of the opinion that major producing countries will export their tea only if they find it economically viable. For countries like Sri Lanka and Kenya, who have assured markets, exporting 2 to 3 mkg of tea to India will not be a viable option.

For a few traders it may be a one-time activity as far as imports are concerned. Companies, on the other hand, will not expend their foreign exchange for import of tea unless it finds it absolutely viable.

"Further, consumer preferences will not change overnight. There will not be enough reasons for well-established brands to take a beating in their own tea," feel the branded tea players.

The auctions: Is its relevance on the wane ?
A tea trade is almost unthinkable without an auction system, a system which has served the needs of the industry for years. The impact on prices for both the domestic and export markets depends much on the offerings made at the auctions. Over the years, however, there has been a decline in tea brought to the auctions.

According to J Thomas & Co, one of the oldest and largest tea auctioneers, chairman and managing director, PK Sen, "We have been instrumental in adapting to the changing needs of the industry," he feels.

Reacting to the decrease in auction tea over the years, Sen says, "It is unfortunate that the offerings have reduced over time as many of the Indian companies have shifted to packet tea, apart from direct exports. Hence, they route a limited amount of their tea to the auctions. However, there are a host of medium and small companies which still have to depend on auctions in a big way," he says.

"Auctions also provide a benchmark for bigger companies. Many companies, on the other hand, with larger packet tea sales may pick up more from auctions for blending purposes," feels Sen.

The industry’s contention is that increased forward deals would mean less tea coming into the auctions. According to Sen, increased number of forward deals may not be profitable always.

For example in 1998, many producers in anticipation of further price increases had heavily relied on forwards which boomeranged in the latter part of the year when the prices slide and settled at lower levels. As a result, producers who had heavily booked forward had to bear a pressure on their margins keeping to deals at increased prices.

It is quite often assumed that any amendment of the Tea Marketing Control Order (a rule which says that at least 75 per cent of the tea have to be brought to the auctions) will lead to sharp falls in auction offerings.

Reacting to this Sen says, "Anyway, it is removed de facto. If it exists, it should be administered properly and should not be observed in its breach."J Thomas in recent times has been tuning itself to upgrade its structural identity by way of reworking few of its sampling procedures in view of changing auction volumes. "Printing time has been reduced and free trade samples distribution streamlined. We have also launched a web site on the Net for a greater mark. However, conducting auctions on the Net may be difficult to comprehend at the moment. This is moreso, as tea auctions involve some amount of a human element," he says.

Tea futures: Is it in yet?
The Inter-Governmental Group on Tea which met in Canada recently, floated the idea of futures in commodity markets a mechanism to deal with price risks. Back home, although the concept of futures in commodity is fast catching on, tea seems to be a distant possibility, say few of the tea barons.

"Its out of sync with the industry, a major commodity with a 800 million kg plus production is not conducive to commodity trading largely because bulk of the Indian tea goes for domestic consumption. Secondly, a plethora of tea grades makes it impossible to arrive at a standardised format required for future trading, say the players.

There is another viewpoint, however, voiced by many, "We cannot preclude the idea altogether. Maybe an effort has to be made by assessing the feasibility of each parameter that constitutes the mechanism.

On the stockmarkets
Tea scrips were being fancied by the market and caught the attention of traders in late 1998 and mid-1999 following a long lull. With tea being a commodity stock, its profitability hinges upon a whole gamut of factors primarily geared to domestic and international production and prices.

Hence, some degree of speculation is in-built in the industry stocks. Exports, as a moderately significant proportion of the total production, has also an important bearing. Seasonal variance in the yearly production, in the form of flushes (beginning March-April, ending November), along with prices at the auction centres are factors that have a dominant role to play in affecting the market movement of tea companies.

The highs this year were predominantly a result of production drops both nationally and globally, following an in-built expectation of high auction prices. Industry watchers feel that this rising trend at the bourses is likely to continue for some time at least riding on the general election trend, and also that India has recorded substantial production drops, said an equity analyst.

Apart from strong leanings towards production and exports on account of it being a commodity, tea stocks are believed to be one of the least liquid. Hence, hectic trading at the bourses is not a very common feature for most of the tea company scrips.

The distinguishing features of tea companies includes a small capital base and a low floating stock. In fact, about 70 per cent of trading in tea scrips is limited to about 25 odd tea companies. The fact that less amount is traded is because a large chunk of it is held by the promoters, tea companies typically comprise family or proprietary businesses. Hence, the bourses always witnessed limited trading. However, the dividend outflows have been high.

Out of the 1,100 tea estates spread all over the country, nearly 700 belong to large houses, which control almost 75 per cent of the tea trading on the bourses. About 70 per cent of the remaining 400 estates belong to small companies where trading is extremely low. Sometimes brand presence is an important factor. For example, Tata Tea also has a domestic brand name that sometimes helps it cushion against small production and auction price fluctuations, the analyst added. According to market analysts, tradeability and market fancy of tea scrips may gather momentum if the tea corporates opt for some equity restructuring in the holding patterns and move in the direction of being slotted as a ‘more professionally managed company’.