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BUSINESS
Tea futures exchange to benefit growers, traders
By
Devajit Mahanta
India
is a premier tea producing country in the world, produces over 700 million
kg of tea per year. The production of tea which was about 418 million kg in
1970, has increased substantially. To ensure the interests of planters as
well as that of the consumers, the government has made it obligatory on the
part of each tea manufacturer to sell at least 75 per cent of their crop
through public auctions conducted at regular intervals in the various
auction centres in India.
Futures trading would help producers to hedge against risks of price
volatility, which was particularly true for the small and medium tea
growers of north and south India.
Bowing to the pressures from divergent sources of stakeholders and
association, the Indian Government had set up a committee under the
chairmanship of Prof AM Khurso in 1979 to assess the role of future trading
in the prevailing economic conditions and marketing/distribution system in
the tea sector in which future trading is possible. The committee also
examines the extent to which such trading may be permitted for any benefit
to producers and consumers. The committee in its report had indicated as
follows: “Tea being export oriented, the facility of futures trading would
be to the advantage of the exporters and will contribute to export
promotion. The necessary institutional framework would have to emerge
before the actual opening of futures trading.” The Committee, therefore,
recommends that the Tea Board and the concerned interests should work
towards the evolution of such a framework so that futures trading in tea
are possible.”
After more than a decade has passed since the Khusro Committee made its
aforesaid recommendations, in February-2005, The United Planters
Association of Southern India (Upasi) has initiated a dialogue with the two
leading multi-commodity exchanges - National Commodity and Derivatives
Exchange (NCDEX) and Multi-Commodity Exchange (MCX) - to start futures
trading in tea in the country. Upasi is the only organization in the
country which has got a license from the Forward Markets Commission (FMC)
to start tea futures. But, till date the project has not been kicked off as
brokers, the major players in the tea trade are yet to decide on their
participation in the Upasi Commodities Exchange Ltd (UCEL). According to
market sources, when futures trading is introduced through the exchange,
transactions would take place between producers and buyers directly, which
might curtail or even eliminate the role of the intermediaries. The tea
broking firms, which have been in the business for several decades and some
even for a century, might be looking for some way out to protect their
interests. The United Planters’ Association of Southern India (Upasi) is
getting ready to launch the world’s first tea futures exchange “Upasi
Commodity Exchange Ltd,” for which it has been granted a license by the
Centre under Sec. 14 of the Forward Contract (Regulation) Act, 1952. The project
Coordinator of Upasi. Anandan said that initially Upsai deal with CTC and
Orthodox verities in dust form. India will soon have an online
trading exchange for tea futures to usher in a price discovery mechanism
and risk management in the key plantation sector. Once the tea prices are
available online, growers, processors, and domestic/export buyers will not
only be able to monitor the price movement, but also take risk-averse
measures for protecting their interests.
The market players will be able to take advantage of the facilities of
hedging and managing their risk. To ensure success of tea futures
sufficient training should be given to all stakeholders so that they are
fully conversant with mechanism of operating tea futures.
Readers can send their feedback at devajitmahanta@gmail.com
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