Perfect Marketing
Strategy For Tea
The first recorded tea
auction in Colombo took place on 30th July 1883.
Its growth has been unique and today, Colombo
is considered the largest auction centre in
the world handling on an average, about 5.5
million kilos each week. It has become the cross-road
of the journey of tea from producer to consumer.
The gavel that has been the emblem of authority
through the centuries had remained as the Harold’s
wand for the transfer of ownership. A verbal
contract becomes an irrevocable bond at the
fall of the hammer.
The origin of public auctions though unclear,
dates back in England to the seventeen century.
This system was first inaugurated amongst dealers
of rare ancient books and artefacts, where a
proper assessment of its true value, was difficult
to be determined, due to the very character
of the product. The first sale of this nature
was tried out in 1676 by a book seller called
Cooper, when he prefixed his catalogue as follows.
“Readers, it had not been unusual here
in England to make sale of books by the way
of auction, but having being practised in other
countries to the great advantage of both buyer
and seller, it was therefore conceived (for
the encouragement of learning) to publish the
sale of these books in this manner of way.”
The first recorded tea auction in London was
followed up on March 11th the same year, where
three casks of “Dust of Thea” from
China were sold by public cry under the auspices
of the East India Company. This first lot to
be sold under this unique system realised one
Pound and eleven shillings.
It was the very nature of the commodity, which
induced dealers in such products, to welcome
the public auction system. It has now become
clear as to why the tea industry, from its very
inception embraced this form of marketing, as
tea was considered a multitudinous product.
It is estimated that in the tea world, more
than 80% of the production of tea is sold through
public auctions, and this system has held the
stage for the past 170 years. For the first
time in 1837, Indian teas were sold in a similar
manner in London. Sri Lanka teas were sold for
the first time in London in 1878, just five
years before a similar system was organised
in Colombo.
There had been instances in the past when tea
prices have failed to keep abreast with other
commodity prices, as a result, this system itself
had come under heavy criticism. When taking
into account the age of the auction system,
combined with the volume it handles, and the
slow appreciation in the unit value for tea,
one is charmed into presuming that this system
has outlasted its usefulness, and that it is
not providing the producer with the best possible
prices.
Infinite variety
What is it relative to tea, that has linked
it to the auction system, and has mastered it
as the ideal channel of marketing for the past
seventeen decades. It is the very nature of
tea as a product of unfathomable diversity,
that has made it retain this system for such
a long time. It is said that the quality of
tea holds fast as much on nature as on human
being.
The jat of the tea bush, soil, altitude, climatic
changes, wind velocity, and seasons all play
their part in infusing the varying degrees of
quality into tea. It is so very sensitive to
atmospheric changes, that day to day weather
changes leaves their impressions on the quality
of the tea.
Unlike most other commodities, tea cannot be
express to the point, to be bought and sold
on firmly incorporated prescriptions. A lot
offered from the same estate in one catalogue
could be vastly different to what is offered
in another catalogue. Each lot has to be viewed
as a different entity, and has to be tasted
and evaluated before a sale is concluded.
From production viewpoint, there are over 750
registered tea factories in Sri Lanka, grouped
broadly under high, medium and low grown, depending
on the factory elevation. Each category follows
a different type of manufacture, and often with
variations within each category as well. These
plantations are further sub-divided into 31
agro climatic regions. Each estate on average,
produce about eight to fifteen different grades.
Unlike most other producer countries, Sri Lanka
offers the consuming public a wide variety of
teas of different characters and appearances.
On average eight to ten thousand lots are sold
each week averaging about 4.5 to 5.5 million
kilos. Now that production has crossed the 300
million mark, there had been instances where
the weekly offerings have exceeded eight million
kilos.
Buyers of tea on the other hand are also numerous,
dispersed in every corner of the world, operating
through a network of local intermediaries. In
Colombo, there are over one hundred shippers
who operate regularly at the Colombo tea auctions,
supplying tea to the many hundreds of their
various clients, spread out beyond seventy different
countries. Their requirements are vastly different
to one another.
The position becomes even more difficult when
taking into account the amount of importers
of tea in each country. Each market has its
own requirements that often overlap with those
of other markets. Consequently, the task of
sample distribution to cover each shipper to
every consuming country becomes an enormous
task, without which the producer will not be
assured of the highest possible price.
Complex Dam
All these various factors
are safeguarded and carefully carried out under
the auction system. What it does is to act as
a complex dam, to collect the supply of a wide
variety of teas from a large number of sources,
and channel it rationally into numerous areas
of highest demand.
As much as the auction system is a blessing
to the seller, it is also a boon to the buyer.
All buyers who function at the auction are assured
of equal opportunities to purchase everything
that any of his competitors could buy. The auction
system is the nerve centre of the tea industry,
and is very receptive to world market stipulations.
Accordingly, if a buyer of tea is to face the
pressure of competition, he has to guarantee
that his competitors are made to pay a price
at least comparable to what he is paying, or
paid, to avoid price cutting. He also has to
ensure that the value of his stocks is not downgraded
below prevailing market levels. The auction
system offers all the above facilities. The
ability of the auction system to ensure a world-wide
distribution of all teas produced at a fair
price, in keeping with international market
forces, is surely a matchless achievement.
Ideally, what the auction system seeks to establish
is a free and flawless market, where values
are determined in the open and aggressively,
and where buyers and sellers respond positively
to their needs. Largely, the tea action has
approximated to this idea. This is borne out
among other things, by the fact that the principle
of sale by public action has now been introduced
to other major agricultural export commodities.
Producers need to sell a crop that is growing
all the year round. They are assured of a constant
cash flow, while at the same time receiving
a fair market price. Buyers know that they can
purchase tea, week in week out, in open and
fair competition Those who purchases little
or no tea at the auctions, still relies on the
system to provide the bench mark against which
to base the prices they pay direct to producers
or intermediaries.
A marketing mechanism such as the auction arrangement,
which has stood the test of time, should be
further protected. This system provides reliable
market information, not only of Colombo, but
also gives an insight to what is happening in
other auction centres in the world. It is the
standard form of operation carried out in all
auction centres, that makes the auction such
a valuable barometer of the tea market.
A Few Drawbacks
There could be some imperfections
in the system. The commonest of them all is
the inability of the seller to exercise control
over the prices of his product, at the time
of sale. It must however be noted that no lot
is sold without allowing maximum competition
to have its say. Although the seller has the
discretion of fixing a minimum price on any
lot, he rarely exercises this option, as tea
is a perishable commodity, and the ultimate
bid is the highest price available in the prevailing
market.
Over the years, consideration has been given
to alternate methods of trading large quantities
of tea. Screen trading, and the use of a futures
market has been suggested, but there has always
been insufficient support to set these up, either
as a means of complementing the existing auction
network or of actually replacing it.
One of the outstanding merits of this system
has been its ability to dispose of all teas
offered at a fair price, after invoking competition
from all buyers. In a way, thanks to this marketing
system, the tea industry has at no stage experienced
a super abundance of unsaleable teas. Instances
of this nature could only happen where the marketing
system is not geared to handle large volumes.
The two most fundamental prerequisites of marketing
any commodity, are the ability to maintain uniform
quality levels throughout the year, and its
capacity to make uniform release of supplies
each week as the market demands.
These basic requirements are not always attainable
in the production of a commodity such as tea.
The crop has to be harvested continually irrespective
of demand. Tea is offered for sale as they are
produced, and not as they are required. Neither
has the producer the competence to control the
character of his produce, as quality depends
on the vagaries of nature.
In an attempt to meet the general quality standards,
the producer in fact widens the difference between
his best and the worst invoices. Thanks to the
present auction system, the tea producer is
relieved of the need for standardisation of
the product. There are no pressing needs to
discover new horizons in the marketing of tea.
The present auction system, where values are
determined in open competition, continues to
perform its most important function by enabling
the trading of tea to be conducted against a
background of knowledge and stability.
If there were no auctions, what would happen
to the tea trade? Would it be like a body without
a spine? Someone who can neither stand nor sit
up, and for that reason must in due time perish.
Or will it turn out to be a river without its
banks. An uncontrolled flow that would sometimes
flood all before it, and at other times, make
the entire surroundings fertile.
If public auctions are to be replaced with private
sales, how would producers know at what price
to offer their teas? If the price is relatively
high, the misgiving would be that the buyer
has overpaid. If it appears low, the doubt would
be that the producer has undersold. Neither
is permissible in today’s context of trading.
All teas sold either by private treaty or by
public auction, are always guided by action
trends.
Sri Lanka, the mainstay of whose economy is
tea, appointed a special commission in 1967
to investigate among other things, the system
of marketing. After a through investigation,
the commission could not but recommend that
“the auction system should be retained
as the principle channel of sale.”
Critics of the auction system are many, and
what they are doing is rather like criticising
the sun, cursing the heat, while taking for
granted the light it provides.
How Ceylon Teas were first marketed in London
A special system for the marketing of tea existed
in London long before Ceylon teas were taken
to England. Chinese tea, followed by Indian
tea, had been sold by public auction since the
early 18th century under the direction of the
East India Company as the only seller, and a
small circle of tea merchants as buyers. This
group of buyers and sellers soon expanded and
in 1880, there was W. J. Thompson & Sons,
George White & Company, Wilson Smithett
& Company and Gow Wilson & Company acting
as brokers, and a large assembly of buyers,
the most popular of them all being Twining,
Travers, Mennell, Ridgway, and Hornimans.
The initial progress made in the sale of Ceylon
teas at this public auction is unknown, but
it is recorded that a small parcel of 23 pounds
of tea manufactured at Loolecondera was valued
in London way back in 1873, but found too small
for inclusion in a catalogue for public sale.
According to Forrest who had researched very
much on this subject, had found the following
entries in the Public Ledger that goes to confirm
that Ceylon teas did not come under the hammer
until 1875.
Wednesday 18th August 1875 – Sundry exports
from Ceylon to New York. Tea, Duke of Argyll,
two boxes.
Thursday 24th August 1875 – Sundry exports
from Ceylon to London. Tea, Duke of Argyll two
boxes.
28th October 1875 ---- Ten chests of Ceylon
tea were offered for sale along with 277 chests
of Indian tea. These teas were carefully examined
by a panel of tea tasters at Mincing Lane and
their findings were as follows.
Ceylon “At the public sale the first consignment
yet received, comprising 10 half chests was
sold at 1shilling 11 ½ pence for Orange
Pekoe, and 10 ½ shillings for Pekoe Souchong.
These prices were considered fairly satisfactory.
The appearance and style of the leaf is very
good, but the quality of the liquor somewhat
dull and capable of much improvement.”
This was the start of a story that later in
the 1960’s became our main terminal market
for Ceylon teas, where over 60% of our production
was consigned to. It was only after this sale
that Ceylon teas made an impact on London buyers,
and teas from Condegalla, Loolecondera, Windsor
Forest (Galamuduna) Westhall, Hope and Sogama
were seen on a regular basis at the London auctions.
In 1884, Ceylon had consigned 2.5 million pounds
of tea to London, and three years later, the
figure had increased to 15 million, and to 34
million in 1890.
Colombo- The Most
Popular Market Place In The World
The history of the tea
industry is one of hardships overcome and which
finally turned to good use. The success achieved
in the cultivation and manufacture of tea was
only one aspect of the problem. With the rapid
expansion in tea cultivation taking place from
about the early 1870’s, it was felt that
a proper marketing system had to be evolved
soon. Further the spirit of competition among
the producers was so strong that it was their
ultimate aim to market their own produce under
their own estate marks.
The system to be developed, had to simplify
the disposal of produce on the one hand, and
at the same time, offer all assistance to the
consumer to derive the best from this exhilarating
drink. The most visible choice at that stage
was to accept the public auction system that
was already in existence in Britain. By then,
it had already been tried and tested with Chinese
and Indian teas in London. It had by then turned
out to be a great success. With British interests
controlling the plantations in the island, the
most transparent option was to go the “London
Way.”
Tea auctions emerged in the 1880’s as
a natural concomitant of the produce marketed.
Marketing of a product such as tea with a divergence
in every aspect, caused by the producer country,
elevation of plantations, processing methods,
and general concepts of quality, lead to the
near possibility of tea being considered not
as one commodity, but a collective name for
several. The very nature of tea as a product
of infinite variety has from the very inception
got itself wedded to the auction system.
Tea is a difficult commodity to grow, and an
equally difficult commodity to sell. Most primary
products are relatively homogenous, and lend
themselves to a system of grading. Tea on the
other hand is subjected to endless seasonal
variations, with the result, it is incapable
of adapting itself to bulk disposal. In this
instance, the plantation community took to the
path of least resistance and decided to adopt
the time tested auction system, which was originally
tried out in London way back in the 17th century
for the sale of rare books and artefacts.
Sri Lanka’s tea industry was only sixteen
years old when the first auction was held in
Colombo. The auspicious day was 30th of July
1883 and the first auction of tea was conducted
at the offices of M/s Somerville and Company
Limited, by William Somerville himself. It meant
that sixteen years after James Taylor planted
17 acres of tea at Loolecondera Estate Deltota,
tea production had increased to such an extent
that there had been sufficient tea to sell by
public auction.
A detailed description of the first Public Tea
Auction is not available, but reproduced below
is an extract from the Ceylon Observer dated
30th July 1883 that reads as follows:--
“The first public sale of tea in Colombo
-- This came off the office of M/s Somerville
and Company this afternoon. The results showed
that there are buyers, but there was a considerable
difference between seller’s and buyer’s
idea of prices, which will rectify itself by
and by. We congratulate Messrs Somerville on
being the pioneer to start a local sale and
trust that there will be a long prosperous succession.”
From the first, we can now draw up an honours
list of the first three marks that were offered
for sale through the medium of the public auction.
Tea from Kabaragalla in the Maturata district
is still handled by Somerville and Company,
but Agars Land (no apostrophe today) in the
Balangoda district, and Oodawarra (Oodoowarre)
in the Badulla district now appears in the catalogues
of other brokers.
There are no records of any further sales until
about the first half of 1885. It can now be
acknowledged that although the first sale of
tea by public cry was no roaring success, the
trade thereafter geared themselves to welcome
the auction system as the principal channel
of marketing, thanks to William Somerville.
Thus began the Colombo Tea Auction that has
continued to date with a short respite during
the war years. The modest start made at the
first auction by offering five lots, has expanded
vastly to an average weekly offering of five
million kilos. There had been a few instances
where offerings have swelled up to over eight
million kilos.
As a result of the second World War, the Colombo
tea auction was suspended on 14th September
1942, but was once again resumed in January
1947. During this period, all teas were contracted
to the British Ministry of Food. Until the 21st
December 1946, the Tea Commissioner purchased
all the tea produced in the country for the
British Ministry of Food at fixed prices for
each estate with adjustments being made from
time to time for increases in wages and other
costs.
At the time the first auction was held, there
was no central body to control and directs the
affairs of the tea trade. Conditions of sale
were in fact published in the Ceylon Observer.
The formation of the Colombo Tea Traders Association
in 1894 gave the tea trade further credence,
and one of the major undertakings was to revise
the conditions of sale that was already in force.
The original members of the Colombo Tea Traders
Association (CTTA) included M/s Forbes and Walker
Somerville and Company, E. John and Company,
and T. J. Lipton and Company.
With the formation of the CTTA, tea auctions
were shifted from broker's offices and other
commercial sale rooms to the Ceylon Chamber
of Commerce. Since then, the Chamber has continued
to provide facilities for holding the weekly
auctions. Up to about the latter part 1988,
the auction rooms of the Ceylon Chamber of Commerce
were housed in a rented building. With vast
expansion of activities taking place the need
to construct their own office was greatly felt.
The first tea auction at the new location was
held on 4th September 1989. According to the
By-Laws and conditions of sale of tea by public
auction, the CTTA has since then continued to
hold their weekly auctions at the Chamber located
at No.50, Nawam Mawatha, Colombo 2.
The high degree of corporation between producers,
buyers, brokers and bankers centralised through
the Chamber has been responsible for ensuring
that however large the tea crop may become,
as was the case last year, the Colombo auctions
has provided a suitable market environment for
the convenient disposal of the produce, This
system has always ensured the producer the best
possible price for the product based on prevailing
market sentiments.
Historical Data
Auction centres of the
world
| Sri
Lanka |
First
auction held in Colombo |
30th
July 1883 |
| |
London |
28th
October 1878 |
| |
|
|
| Bangladesh |
First
auction held in Chittagong |
16th
July 1949 |
| |
London |
16th
April 1951 |
| |
|
|
| East
Africa |
First
auction held in Nairobi |
7th
November 1956 |
| |
Mombasa |
14th
July 1969 |
| |
|
|
| |
Limbe |
12th
December 1970 |
| |
First
Kenyan sold in London |
18th
January 1928 |
| |
|
|
| India |
First
auction held in Calcutta |
27th
December 1861 |
| |
Cochin |
4th
April 1947 |
| |
Coonoor
|
23rd
March 1964 |
| |
Amiritsai
|
30th
April 1964 |
| |
Gauhati
|
25th
September 1970 |
| |
Siliguri |
29th
........1976 |
| |
Coimbatore |
3rd
January 1981 |
| |
First
auction held in London |
10th
January 1837 |
