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World's first tea futures exchange to begin operations in March

D Jose in Thiruvananthapuram

The world's first tea futures exchange will start functioning at Kochi in Kerala from March 2003.

The United Planters Association of Southern India, which has been given the license for running the exchange by the Forward Markets Commission recently, has started hunt for a renowned company to develop and provide software for online trading and derivatives and a potential institutional clearing merchants.

Upasi has already selected an agency to draw up byelaws and business plans in consultation with the industry and other stakeholders of the proposed exchange.

The agency will also undertake training and development and mock trading, said Upasi Tea Committee chairman N Dharmaraj.

He told rediff.com that a two-day workshop would be organized next month to create awareness and provide exposure to the growers and buyers in collaboration with the Indian Institute of Plantation Management, Bangalore.

He said the proposed exchange would have trading hubs or terminals at Coonoor and Coimbatore in Tamil Nadu and possibly at Kolkata in West Bengal also to ensure maximum participation.

"The exchange will run three contracts of orthodox leaf grade, CTC leaf and dust grades with hedging facility. Trading through Internet would be possible from the beginning as the exchange will be online," headed.

Foreign buyers will not be able to join or trade through the exchange, as the FMC has not yet given the foreign currency clearance.

However, agents of foreign buyers located in the country will be able to participate in the trading. Dharmaraj is hopeful that permission for trading in foreign currency would also come in due course.

The exchange would function almost on the lines of the Pepper Futures Exchange, which is also located at Kochi. Dharmaraj said that the exchange would benefit both buyers and sellers since it will have facility for scientific analysis of supply and demand.

India is one of the largest producers of tea in the world. The country's tea is popular in several countries for its fine quality. Tea is mostly cultivated in high ranges of northern and southern India. The best qualities are CTC and Orthodox Assam Tea. The country's total tea production in the last year was 840 million kg.

The country also imports tea in view of its large domestic market. The domestic consumption of tea is about 600 million kg.

As a beverage tea has a better penetration than coffee in the country. The penetration of tea is 77.2 percent compared to 8.8 percent of coffee, according to trade sources.

The central government has set a target of producing 1 billion kg of tea by 2003. The current turnover of the tea industry in the country is Rs 100 billion.

Export from the country last year was 200 million kg. The major consumers of Indian tea are Russian and CIS countries, which accounted for about 90 million kg of the total exports in 1998. This is equivalent to 43 per cent of India's total tea exports.

The other consumers include most of the European countries, the United States of America, Japan, West Asia and the Asia-Pacific region.

The growers are not highly enthused by the proposal to introduce futures trade since the price has been witnessing a steady clash over the past few months.

"While we spend about Rs 65 for producing a kg of tea, what we are getting now is only about Rs 45. Most planters are finding their survival tough. What we need immediately is help to lift the price," said Ramakrishna Sharma, a leading planter at Thiruvananthapuram.

Several small and medium planters in Kerala have been abandoning the tea estates in the wake of the unprecedented fall in the price. Kochi was selected for setting up the exchange in view of its proximity to a major port.

Besides, Kochi also has the oldest and largest auction centre in south India. The port city at present has two national futures exchange for pepper and coconut and an international futures exchange for pepper.

The proposed rubber futures exchange is also likely to be located at Kochi, turning it into an ideal location for commodity futures exchange.

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