The Role of the Tea Broker in Today’s Marketplace
With more than 75 percent of the world’s traded teas sold through public tea auctions, tea brokers are key players in the tea trade. By Yumi Nakatsugawa
Each tea auction centre in the world has several tea-broking companies that play a key role in the tea trade. They are representatives of tea producers, and find the way of the next journey of tea, which will complete when it is consumed by end users. The best way to learn what tea brokers do, both in the front stage and behind the scenes, is by visiting John Keells PLC, the oldest tea broker in Colombo, Sri Lanka.
Currently, the Mombasa Tea Auction in Kenya boasts the world’s largest trading volume, where over 430,000 metric tonnes were sold in 2017. This position has been brought about by the increasing production in Kenya and its neighbouring countries, in addition to the closure of the London Tea Auction in 1998. The oldest tea auction centre in Britain since 1680 had been handling mainly East African teas in its last several decades of existence. On the other hand, the Colombo Tea Auction is known to be the largest in a single producing country. It began in 1883 – the island was called British Ceylon at that time – and just five lots of tea were auctioned at its historical start.
Now eight tea brokers in Colombo conduct auctions every week, usually on two consecutive days: Tuesdays and Wednesdays. An average of 6000 to 7000 metric tonnes of tea is sold weekly, which accumulates in 50 weeks to more or less 300,000 metric tonnes a year. This quantity exceeds 90 percent of the country’s total production.
The eight tea-broking companies in Colombo have their own strengths and characteristics. The names and the year of establishment are:
- John Keells PLC (1870)
- Forbes & Walker Tea Brokers (Pvt) (1881)
- Bartleet Produce Marketing (Pvt) Ltd (1904)
- Ceylon Tea Brokers PLC (1963)
- Eastern Brokers Ltd (1979)
- Mercantile Produce Brokers (Pvt) Ltd (1984)
- Asia Siyaka Commodities (Pvt) Ltd (1998)
- Lanka Commodity Brokers Ltd (2003)
In addition to tea, some of them are involved in other commodities’ auction brokerage such as rubber and coconut. John Keells originally started as a tea broker 148 years ago but expanded its business field extensively. It is presently known as the leading conglomerate in Sri Lanka, operating hotels, transportation, food chains and information technology, etc.
Modernizing Tea Auction Centres
India has six tea auction centres and all of them completed computerization by July 2016. The Colombo and Mombasa Auctions have been preparing towards this for years. However, it appears that the transformation to e-auction will not materialize in the near future in Sri Lanka. Each lot is still sold only when the presiding auctioneer makes a drop of a wooden hammer with a rap. Apart from the efficiency and streamlining procedures, manual auctions retain lots of strong points, most importantly the transparency of sales as well as face to face communications among tea traders. Furthermore, the old-fashioned “cry out” sales can definitely draw much more attention and enthusiasm of visitors.
Tea, coconut and rubber auctions take place in the building of the Ceylon Chamber of Commerce located in Colombo’s bustling business district. The building is custom-made for auctions having two auditoria on the first and second floors. Tea auctions are conducted in the two auditoria and a flat-floored room on each sale day.
When the auction begins, normally three representatives of a broker, with the presiding auctioneer in the middle, and two assistants on the right and left, come onto the podium and immediately start to sell catalogued lots one by one in sequence. Nowadays, bidding speed is designated quite strictly from 3.5 to 5 lots per minute depending on the categories of tea. It means one lot should be sold within only 12 to 17 seconds. The timetable is almost precisely followed, helping to retain the concentration of participating traders. It could be said that such disciplined punctuality is secured only in the tea auctions in this country; everything else seems to go easy under the pleasant tropical breeze.
The presiding auctioneer speaks rapidly and constantly from the beginning until the very end, almost as if he doesn’t draw breath. Although it sounds like a mantra to uninitiated visitors, each trader will clearly know who bought which tea at what price, or which tea was skipped as unsold lots. That is the strong point of the ‘open cry’ system. In the process of the manual auction, auctioneers recognize the bidder by the tone or direction of the voice, gestures, or even the preference of each buyer. No hesitation or reconsideration seem to be permitted, and every buyer needs to decide either to buy or not straight away. Although sales are conducted in English, a lot of their own terms or jargon are used to speed up the bidding, which makes the tea auction more mysterious for temporal spectators.
One significance of the Colombo Auction is the ‘Ex-Estate’ category, in which manufactured tea is kept on estates until the buyer and price are finalized in the auction. Since many of the tea estates have cooler climates than in Colombo, storage conditions are more suitable on estates. Therefore, for the better quality teas, which will be listed in Ex-Estates catalogue, only samples of 3.5kg from each invoice, are sent to the brokers prior to the sales. In the John Keells’ warehouse, the Ex-Estate samples are carefully stored in the fully air-conditioned room separately from others.
The current John Keells’ tea warehouse is located in the Kerawalapitiya Industrial Zone in Wattala, the northern suburb of Colombo. It was established in 2001, and ISO 22000 certified. Two other brokers, Forbes & Walker and Asia Siyaka, also installed their warehouses in the same area.
Inside the Warehouse
The inside of the John Keells’ warehouse is spectacular. A huge number of tea sacks are piled from floor level up to its high ceiling on a system of racks. When new invoices from tea factories arrive, they are unloaded, weighed and systematically stored. Electric forklift trucks are moving here and there, one of them steered by a woman driver. All data of individual invoices are entered and processed by computer operators, and immediately transferred to the main office to compile a catalogue. After the auctions, sold lots are delivered to each buyer.
In the tea sample room, the staff subdivides the teas into tin boxes or wrap them with paper. Approximately 300 buyers are registered to operate at the Colombo Tea Auction, and 100 of them are regular and active buyers. For those main buyers, samples are delivered in a series of returnable numbered tin containers. Such tea sampling and data processing keep going endlessly as long as tea is produced in the island. Thursdays are the closing days for the particular auction that is to be conducted in three week’s time.
As soon as the weekly auction is concluded, buyers must follow set financial procedures. They are required to pay the 10 percent deposit of the purchased value to each broker by Friday at 14:00 in the same week. The brokers retain merely one percent from it as the brokerage fee.
John Keells employs several manufacturing consultants who constantly visit tea factories to discuss various aspects of the industry including tea quality and market trends. At the same time, both producers and buyers visit the John Keells’ main office in order to exchange information or opinions.
The average sales price at the Colombo Tea Auction has become the world’s highest in recent years. At the same time, the rapid economic development of the country after the end of the civil war in 2009 has been pushing up the cost of tea production year by year. In the second half of 2018, exporters could not be optimistic because the market started to show a downwards trend, triggered by the sharp decline of the Turkish lira and the economic sanctions on Iran by the United States. Both Turkey and Iran are the major Ceylon tea importers and their tea buying capability is now affected. The serious hope of the whole tea industry must be a change for the better in order to sustain profitability.
Yumi Nakatsugawa is a freelance writer specializing in food and restaurant management. Based in Japan, Yumi may be reached at: [email protected]