Abstract:
Tea auctions have played a key role as the main vehicle for primary
marketing of tea in India for ever since the first Indian auction centre
was set up in Kolkata in 1891. Price formation process in tea auction is
itself a complex process and the outcome is a result of a complex interplay
of various factors. The present study tries to find out factors which play
an important role in the price formation mechanism of Indian tea. For
the country as a whole more than 50 per cent of sales are routed through
auctions. Auction buying is much more fragmented and there exists a
sizable gap between wholesale and retail prices. Southern producers are
relatively more dependent on auctions as a mode of primary marketing
of tea. There is also a clear seasonality in prices of tea within a year. One
of the variables explaining the variance in auction prices is unit export
price. Higher export price raises the bargaining position of sellers at
auctions. Export volume also has an influence on the price formation at
auctions as higher export reduces domestic availability and hikes up
domestic price. Further, lots offered and quantity sold are inversely related
with average price realization at auction, whereas lots sold are positively
related with average price realization.
