FUTURES MARKET FOR TEA..

(article in Business Line)

IGG SUGGESTS FUTURES MARKET FOR TEA

P S SUNDAR
Coonoor, July 30

The Intergovernmental Group (IGG) on Tea of FAO has suggested the possibility of introducing effective futures market for tea trade.

In its background paper, the IGG has observed, “With coffee as a precedent, tea futures contracts seem achievable. And, while not a panacea to all of the producers and exporters problems, futures provides an effective way of dealing with the price and revenue fluctuations”.

It expressed surprise that while there is a vibrant futures market for cocoa and coffee, there is no futures market for tea.

“One reason is that cocoa and coffee are seasonal with higher risk of market disruptions and a greater need for shortage and thus exposure to the risk of price falls for those owning stored produce”, the paper noted.

“The tea market is more segmented. Nevertheless, the differences are a matter of degree. Cocoa and coffee are also segmented but tea is more segmented. Hence, it would seem that the practices adopted in, say, coffee to match the need for standardised futures contracts with highly diverse physical product are a good starting point for tea futures”, the IGG has observed.

It has, however, cautioned that further work is required in moving ahead towards tea futures contracts.

“This includes building the knowledge base on tea trading and market practices, obtaining industry agreement on what varieties or grades can form the basis for a standardised futures contract”, it has stressed.

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