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Tea Brokers Battle for Business (cont.)
All over the world, the brokerage business is the most concentrated sector of the tea trade, with few players in each region. Yet, this situation is less oligopolistic than it sounds, because entire realms of the tea trade bypass brokers. First, huge producers are often huge retailers, such as Unilever and Tata Tetley. They simply grow their own tea, so no need for a broker. A second factor is sale by governmental treaty, mediated by a Tea Board. Thirdly, tea is increasingly sold directly by producers to wholesale buyers.

This third factor is vastly complex, including wholesale buyers who warehouse the tea, then resell and re-export to smaller wholesale buyers. The smaller wholesale buyers usually cannot generate economy-of-scale contracts directly with producers. For example, Hälssen & Lyon GmbH services many prestige small specialty outfits, who buy wholesale from the larger-volume, reliable, distinguished Hamburg experts.

Many U.S. specialty retailers confidentially depend on Hälssen & Lyon. The upscale specialty consumer never realizes the tea was ever in Germany or ever re-exported. Yet another marketplace process that bypasses brokers is commissioning, which is a contract in advance of harvest to buy the output. Commissioning goes further than the “agent” relationship, because purchase is guaranteed up to four years before harvest. This arrangement remains rare, but does provide more stability to growers.

Some large plantations will allocate acreage to organic only if commissioned in advance. In such a case, the buyer assumes future delivery of type of tea desired, and the grower is relatively confident that the initial fixed costs will be recovered.

The brokers still in business are busy, and most tea hubs have multiple major brokerages. Sri Lanka has only one tea hub, Colombo, forcing all the brokers in the nation’s eight “houses” to rub elbows. John Keells Ltd., under managing director Lallith Ramanayake, brokers tea in large volume from many plantations of diverse types and sizes. Sudath Munasinghe is director, Tea department, and a quoted source for international wire services. Keells maintains corporate connections across much of Sri Lankan industry, such as RPK Management Services Ltd., a joint venture between John Keells Holdings Ltd. and Richard Pieris & Co Ltd. Another Keells synergy involves the tourism/hotel business, which will flourish long-term.

Keells is sophisticated in domestic and international partnerships, providing vast linkages for financial stability. The new chairman of Keells Holdings is Vivendra Lintotawela, who as the head of the largest-capitalized company on the Colombo stock exchange provides top networking advantage. Another leading Ceylon broker, Bartleet & Co. Ltd., is widely known for joint managing director Bryan Baptist’s mastership of the art of tea tasting. Thus, Bartleet is especially valued for grading tea.

Throughout the world, brokers worry about government officials’ ability to modernize. Governmental agencies can frustrate or help with everything from taxation, registration, anti-smuggling, trade promotion to computerization. As brokers move forward on the internet, they face new rules governing export globalization, rules which must be followed more closely than is customary in Asia and Africa. Modern-thinking and hard-working Tea Board officials are increasingly helpful. A fine example is Anindita Ray, deputy director at Tea Board of India, who, at time of this writing was away from her busy, efficient Calcutta desk for a Delhi meeting on Intellectual Property, a most timely subject.

Ray is in the right place at the right time, with a background rare at any Tea Board: private-sector experience and post-graduate business training. Asia and Africa, the location of the brokering hubs, are generally slow to modernize governmental agencies. Global competitiveness dictates that the nation with the more proactive, energetic business environment takes marketshare away from others. Even the U.K.’s two remaining brokerages are changing. Wilson Smithett and Thompson Lloyd & Ewart continue to diversify, with less actual brokering.

Mike Bunston, chairman of Wilson Smithett, reports a twin focus on contract buying from African companies and expanding a proprietary premium tea line, St. James. Neither of these activities are traditional brokering duties, indicating corporate flexibility appropriate to changing market conditions. Thompson Lloyd & Ewart actually owns a small percentage of the leading Tanzanian tea company, Tatepa, which positions the very old broker more closely to the producer/packer sector, another contemporary flexibility designed to keep British brokers in business. Robin Harrison, a veteran senior executive at Thompson, is another broker sought by Reuters and AP for international tea trade information. Brokers speak as the representatives of the tea industry, far outweighing their small numbers.

Purely “broker” services are rarely performed by companies in Europe. In Germany, Cha Do Teehandelgessellschaft serves as agent and consultant. Managing director Lütz E. Tönnis describes one role as, “consultant for growers, advising them what grades and quality standards the markets are looking for.” Tönnis specializes in large-volume organic plantations, and has won exclusive agenting for Bombay Burmah Trading Corporation. Today, Cha Do is moving China forward on eight projects totaling three thousand metric tons of organic tea. The multilingual Tönnis describes his process as “mutual commitment” and relationship building.

Whatever the nation, brokers deal in sensitive information. This hard-to-get knowledge fosters the image of brokers as prestigious, professional and somewhat secretive. The sociological basis of occupational prestige is too complex for detailed discussion in this writing, but one factor is an obvious need for specialized information in the job’s functioning. A second factor is the appearance of “white-collar” office professionalism (as opposed to, for example, farming). Two other factors in ranking occupational prestige are authority over clients and autonomy in decision-making. Here, too, brokers score higher than other segments of the trade.

These occupational-prestige factors are separate from financial remuneration. Paradoxically, brokers do not grow, manufacture, nor even own tea, but possess a uniquely autonomous base of authority. Wealthy executives who must use brokers respect and fear their opinions. In the Information Age, brokers sit at the confluence of multiple streams of data. Brokers provide the necessary human element that must be involved in creating information based on subjective factors, such as quality of tea or trustworthiness of another person. Computers are faster than humans, but machines cannot make human judgements.

Brokers constitute less than a single percent of all executives in the tea trade, but will continue to generate attention disproportionate to this tiny fraction. Brokers have autonomous power over the tea that moves under their jurisdiction, and an executive with money at stake will bite his tongue rather than express hostility to a broker. Auctions are only the most prominent component of brokers’ work. Somewhat like surgeons, lawyers and dentists, brokers are attacked for their fees and pain-inducing methods, while remaining respected and feared. The internet forces frugal brokerage downsizing, but brokers will never suffer extinction from computers, unless those who drink the tea are themselves machines.

Randy Altman, in addition to being a knowledgeable writer on the subject of tea, has advised the United Nations and other transnational organizations, and has held directorships and officerships at various non-profit corporations. He also holds several adjunct academic appointments.

Tea & Coffee - October/November 2001

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