Friday, October 7, 2011

Long supply chain makes tea expensive for domestic consumers

By Steve A. Morrell

While a kilo of Tea sells for Rs. 350 on average at the Colombo Tea Auction, local consumers end paying something in the range of Rs. 900 to Rs. 1,000 for a kilo tea, and this too for tea dust not fit for export, as the product passes through a long supply chain from plantation to kitchen.

The Island Financial Review spoke to officials of the Tea Board and brokers, none of whom wanted to be quoted. They said domestic tea consumers paid more for a cup of tea because too many go-betweens charged a mark-up.

"There is nothing wrong with this because everyone tries to make a profit," an official of the Tea Board said. "This is to be expected".

A retailer selling a kilo of tea at about Rs.900 to Rs.1,000 per kilo, makes the largest profit per kilo which is about 25 perecent.

A representative of the Planters’ Association of Ceylon, also not wanting to be named said local sales amounted to around 5 percent of total production. "This has no significant impact on production, profits, or losses," this source said.

Brokers said the domestic tea market was big business. And most Tea sold locally is bought ex-auctions. Grades that attract retail buying is mainly BOPF, and Dust grades, particularly because of the strength of these grades. Local buyers prefer stronger Tea because of their spicy foods.

They also said from stage one of their purchases (ex-auctions) a series of value added stages are exacted before the final product reaches retail shelves. Transport, taxes, cleaning, packeting, also tea bagging which is an expensive exercise, and various other stages each cost excessive sums of money.

Additionally the whole-seller also runs the risk of not getting his money back, when the retailer says sales were poor, brokers said.

At least two months credit was offered at each stage of the supply chain.

source -

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