History of Ceylon Tea

Perfect Marketing Strategy For Tea

The first recorded tea auction in Colombo took place on 30th July 1883. Its growth has been unique and today, Colombo is considered the largest auction centre in the world handling on an average, about 5.5 million kilos each week. It has become the cross-road of the journey of tea from producer to consumer.

The gavel that has been the emblem of authority through the centuries had remained as the Harold’s wand for the transfer of ownership. A verbal contract becomes an irrevocable bond at the fall of the hammer.

The origin of public auctions though unclear, dates back in England to the seventeen century. This system was first inaugurated amongst dealers of rare ancient books and artefacts, where a proper assessment of its true value, was difficult to be determined, due to the very character of the product. The first sale of this nature was tried out in 1676 by a book seller called Cooper, when he prefixed his catalogue as follows. “Readers, it had not been unusual here in England to make sale of books by the way of auction, but having being practised in other countries to the great advantage of both buyer and seller, it was therefore conceived (for the encouragement of learning) to publish the sale of these books in this manner of way.”

The first recorded tea auction in London was followed up on March 11th the same year, where three casks of “Dust of Thea” from China were sold by public cry under the auspices of the East India Company. This first lot to be sold under this unique system realised one Pound and eleven shillings.

It was the very nature of the commodity, which induced dealers in such products, to welcome the public auction system. It has now become clear as to why the tea industry, from its very inception embraced this form of marketing, as tea was considered a multitudinous product.

It is estimated that in the tea world, more than 80% of the production of tea is sold through public auctions, and this system has held the stage for the past 170 years. For the first time in 1837, Indian teas were sold in a similar manner in London. Sri Lanka teas were sold for the first time in London in 1878, just five years before a similar system was organised in Colombo.

There had been instances in the past when tea prices have failed to keep abreast with other commodity prices, as a result, this system itself had come under heavy criticism. When taking into account the age of the auction system, combined with the volume it handles, and the slow appreciation in the unit value for tea, one is charmed into presuming that this system has outlasted its usefulness, and that it is not providing the producer with the best possible prices.

Infinite variety

What is it relative to tea, that has linked it to the auction system, and has mastered it as the ideal channel of marketing for the past seventeen decades. It is the very nature of tea as a product of unfathomable diversity, that has made it retain this system for such a long time. It is said that the quality of tea holds fast as much on nature as on human being.

The jat of the tea bush, soil, altitude, climatic changes, wind velocity, and seasons all play their part in infusing the varying degrees of quality into tea. It is so very sensitive to atmospheric changes, that day to day weather changes leaves their impressions on the quality of the tea.

Unlike most other commodities, tea cannot be express to the point, to be bought and sold on firmly incorporated prescriptions. A lot offered from the same estate in one catalogue could be vastly different to what is offered in another catalogue. Each lot has to be viewed as a different entity, and has to be tasted and evaluated before a sale is concluded.

From production viewpoint, there are over 750 registered tea factories in Sri Lanka, grouped broadly under high, medium and low grown, depending on the factory elevation. Each category follows a different type of manufacture, and often with variations within each category as well. These plantations are further sub-divided into 31 agro climatic regions. Each estate on average, produce about eight to fifteen different grades. Unlike most other producer countries, Sri Lanka offers the consuming public a wide variety of teas of different characters and appearances. On average eight to ten thousand lots are sold each week averaging about 4.5 to 5.5 million kilos. Now that production has crossed the 300 million mark, there had been instances where the weekly offerings have exceeded eight million kilos.

Buyers of tea on the other hand are also numerous, dispersed in every corner of the world, operating through a network of local intermediaries. In Colombo, there are over one hundred shippers who operate regularly at the Colombo tea auctions, supplying tea to the many hundreds of their various clients, spread out beyond seventy different countries. Their requirements are vastly different to one another.

The position becomes even more difficult when taking into account the amount of importers of tea in each country. Each market has its own requirements that often overlap with those of other markets. Consequently, the task of sample distribution to cover each shipper to every consuming country becomes an enormous task, without which the producer will not be assured of the highest possible price.

Complex Dam

All these various factors are safeguarded and carefully carried out under the auction system. What it does is to act as a complex dam, to collect the supply of a wide variety of teas from a large number of sources, and channel it rationally into numerous areas of highest demand.

As much as the auction system is a blessing to the seller, it is also a boon to the buyer. All buyers who function at the auction are assured of equal opportunities to purchase everything that any of his competitors could buy. The auction system is the nerve centre of the tea industry, and is very receptive to world market stipulations.

Accordingly, if a buyer of tea is to face the pressure of competition, he has to guarantee that his competitors are made to pay a price at least comparable to what he is paying, or paid, to avoid price cutting. He also has to ensure that the value of his stocks is not downgraded below prevailing market levels. The auction system offers all the above facilities. The ability of the auction system to ensure a world-wide distribution of all teas produced at a fair price, in keeping with international market forces, is surely a matchless achievement.

Ideally, what the auction system seeks to establish is a free and flawless market, where values are determined in the open and aggressively, and where buyers and sellers respond positively to their needs. Largely, the tea action has approximated to this idea. This is borne out among other things, by the fact that the principle of sale by public action has now been introduced to other major agricultural export commodities.

Producers need to sell a crop that is growing all the year round. They are assured of a constant cash flow, while at the same time receiving a fair market price. Buyers know that they can purchase tea, week in week out, in open and fair competition Those who purchases little or no tea at the auctions, still relies on the system to provide the bench mark against which to base the prices they pay direct to producers or intermediaries.

A marketing mechanism such as the auction arrangement, which has stood the test of time, should be further protected. This system provides reliable market information, not only of Colombo, but also gives an insight to what is happening in other auction centres in the world. It is the standard form of operation carried out in all auction centres, that makes the auction such a valuable barometer of the tea market.

A Few Drawbacks

There could be some imperfections in the system. The commonest of them all is the inability of the seller to exercise control over the prices of his product, at the time of sale. It must however be noted that no lot is sold without allowing maximum competition to have its say. Although the seller has the discretion of fixing a minimum price on any lot, he rarely exercises this option, as tea is a perishable commodity, and the ultimate bid is the highest price available in the prevailing market.

Over the years, consideration has been given to alternate methods of trading large quantities of tea. Screen trading, and the use of a futures market has been suggested, but there has always been insufficient support to set these up, either as a means of complementing the existing auction network or of actually replacing it.

One of the outstanding merits of this system has been its ability to dispose of all teas offered at a fair price, after invoking competition from all buyers. In a way, thanks to this marketing system, the tea industry has at no stage experienced a super abundance of unsaleable teas. Instances of this nature could only happen where the marketing system is not geared to handle large volumes.

The two most fundamental prerequisites of marketing any commodity, are the ability to maintain uniform quality levels throughout the year, and its capacity to make uniform release of supplies each week as the market demands.

These basic requirements are not always attainable in the production of a commodity such as tea. The crop has to be harvested continually irrespective of demand. Tea is offered for sale as they are produced, and not as they are required. Neither has the producer the competence to control the character of his produce, as quality depends on the vagaries of nature.

In an attempt to meet the general quality standards, the producer in fact widens the difference between his best and the worst invoices. Thanks to the present auction system, the tea producer is relieved of the need for standardisation of the product. There are no pressing needs to discover new horizons in the marketing of tea. The present auction system, where values are determined in open competition, continues to perform its most important function by enabling the trading of tea to be conducted against a background of knowledge and stability.

If there were no auctions, what would happen to the tea trade? Would it be like a body without a spine? Someone who can neither stand nor sit up, and for that reason must in due time perish. Or will it turn out to be a river without its banks. An uncontrolled flow that would sometimes flood all before it, and at other times, make the entire surroundings fertile.

If public auctions are to be replaced with private sales, how would producers know at what price to offer their teas? If the price is relatively high, the misgiving would be that the buyer has overpaid. If it appears low, the doubt would be that the producer has undersold. Neither is permissible in today’s context of trading. All teas sold either by private treaty or by public auction, are always guided by action trends.

Sri Lanka, the mainstay of whose economy is tea, appointed a special commission in 1967 to investigate among other things, the system of marketing. After a through investigation, the commission could not but recommend that “the auction system should be retained as the principle channel of sale.”

Critics of the auction system are many, and what they are doing is rather like criticising the sun, cursing the heat, while taking for granted the light it provides.

How Ceylon Teas were first marketed in London

A special system for the marketing of tea existed in London long before Ceylon teas were taken to England. Chinese tea, followed by Indian tea, had been sold by public auction since the early 18th century under the direction of the East India Company as the only seller, and a small circle of tea merchants as buyers. This group of buyers and sellers soon expanded and in 1880, there was W. J. Thompson & Sons, George White & Company, Wilson Smithett & Company and Gow Wilson & Company acting as brokers, and a large assembly of buyers, the most popular of them all being Twining, Travers, Mennell, Ridgway, and Hornimans.

The initial progress made in the sale of Ceylon teas at this public auction is unknown, but it is recorded that a small parcel of 23 pounds of tea manufactured at Loolecondera was valued in London way back in 1873, but found too small for inclusion in a catalogue for public sale. According to Forrest who had researched very much on this subject, had found the following entries in the Public Ledger that goes to confirm that Ceylon teas did not come under the hammer until 1875.

• Wednesday 18th August 1875 – Sundry exports from Ceylon to New York. Tea, Duke of Argyll, two boxes.
• Thursday 24th August 1875 – Sundry exports from Ceylon to London. Tea, Duke of Argyll two boxes.
• 28th October 1875 ---- Ten chests of Ceylon tea were offered for sale along with 277 chests of Indian tea. These teas were carefully examined by a panel of tea tasters at Mincing Lane and their findings were as follows.

Ceylon “At the public sale the first consignment yet received, comprising 10 half chests was sold at 1shilling 11 ½ pence for Orange Pekoe, and 10 ½ shillings for Pekoe Souchong. These prices were considered fairly satisfactory. The appearance and style of the leaf is very good, but the quality of the liquor somewhat dull and capable of much improvement.”

This was the start of a story that later in the 1960’s became our main terminal market for Ceylon teas, where over 60% of our production was consigned to. It was only after this sale that Ceylon teas made an impact on London buyers, and teas from Condegalla, Loolecondera, Windsor Forest (Galamuduna) Westhall, Hope and Sogama were seen on a regular basis at the London auctions. In 1884, Ceylon had consigned 2.5 million pounds of tea to London, and three years later, the figure had increased to 15 million, and to 34 million in 1890.

Colombo - The Most Popular Market Place In The World

The history of the tea industry is one of hardships overcome and which finally turned to good use. The success achieved in the cultivation and manufacture of tea was only one aspect of the problem. With the rapid expansion in tea cultivation taking place from about the early 1870’s, it was felt that a proper marketing system had to be evolved soon. Further the spirit of competition among the producers was so strong that it was their ultimate aim to market their own produce under their own estate marks.

The system to be developed, had to simplify the disposal of produce on the one hand, and at the same time, offer all assistance to the consumer to derive the best from this exhilarating drink. The most visible choice at that stage was to accept the public auction system that was already in existence in Britain. By then, it had already been tried and tested with Chinese and Indian teas in London. It had by then turned out to be a great success. With British interests controlling the plantations in the island, the most transparent option was to go the “London Way.”

Tea auctions emerged in the 1880’s as a natural concomitant of the produce marketed. Marketing of a product such as tea with a divergence in every aspect, caused by the producer country, elevation of plantations, processing methods, and general concepts of quality, lead to the near possibility of tea being considered not as one commodity, but a collective name for several. The very nature of tea as a product of infinite variety has from the very inception got itself wedded to the auction system.

Tea is a difficult commodity to grow, and an equally difficult commodity to sell. Most primary products are relatively homogenous, and lend themselves to a system of grading. Tea on the other hand is subjected to endless seasonal variations, with the result, it is incapable of adapting itself to bulk disposal. In this instance, the plantation community took to the path of least resistance and decided to adopt the time tested auction system, which was originally tried out in London way back in the 17th century for the sale of rare books and artefacts.

Sri Lanka’s tea industry was only sixteen years old when the first auction was held in Colombo. The auspicious day was 30th of July 1883 and the first auction of tea was conducted at the offices of M/s Somerville and Company Limited, by William Somerville himself. It meant that sixteen years after James Taylor planted 17 acres of tea at Loolecondera Estate Deltota, tea production had increased to such an extent that there had been sufficient tea to sell by public auction.

A detailed description of the first Public Tea Auction is not available, but reproduced below is an extract from the Ceylon Observer dated 30th July 1883 that reads as follows:--

“The first public sale of tea in Colombo -- This came off the office of M/s Somerville and Company this afternoon. The results showed that there are buyers, but there was a considerable difference between seller’s and buyer’s idea of prices, which will rectify itself by and by. We congratulate Messrs Somerville on being the pioneer to start a local sale and trust that there will be a long prosperous succession.”

From the first, we can now draw up an honours list of the first three marks that were offered for sale through the medium of the public auction. Tea from Kabaragalla in the Maturata district is still handled by Somerville and Company, but Agars Land (no apostrophe today) in the Balangoda district, and Oodawarra (Oodoowarre) in the Badulla district now appears in the catalogues of other brokers.

There are no records of any further sales until about the first half of 1885. It can now be acknowledged that although the first sale of tea by public cry was no roaring success, the trade thereafter geared themselves to welcome the auction system as the principal channel of marketing, thanks to William Somerville.

Thus began the Colombo Tea Auction that has continued to date with a short respite during the war years. The modest start made at the first auction by offering five lots, has expanded vastly to an average weekly offering of five million kilos. There had been a few instances where offerings have swelled up to over eight million kilos.

As a result of the second World War, the Colombo tea auction was suspended on 14th September 1942, but was once again resumed in January 1947. During this period, all teas were contracted to the British Ministry of Food. Until the 21st December 1946, the Tea Commissioner purchased all the tea produced in the country for the British Ministry of Food at fixed prices for each estate with adjustments being made from time to time for increases in wages and other costs.

At the time the first auction was held, there was no central body to control and directs the affairs of the tea trade. Conditions of sale were in fact published in the Ceylon Observer. The formation of the Colombo Tea Traders Association in 1894 gave the tea trade further credence, and one of the major undertakings was to revise the conditions of sale that was already in force.

The original members of the Colombo Tea Traders Association (CTTA) included M/s Forbes and Walker Somerville and Company, E. John and Company, and T. J. Lipton and Company.

With the formation of the CTTA, tea auctions were shifted from broker's offices and other commercial sale rooms to the Ceylon Chamber of Commerce. Since then, the Chamber has continued to provide facilities for holding the weekly auctions. Up to about the latter part 1988, the auction rooms of the Ceylon Chamber of Commerce were housed in a rented building. With vast expansion of activities taking place the need to construct their own office was greatly felt.

The first tea auction at the new location was held on 4th September 1989. According to the By-Laws and conditions of sale of tea by public auction, the CTTA has since then continued to hold their weekly auctions at the Chamber located at No.50, Nawam Mawatha, Colombo 2.

The high degree of corporation between producers, buyers, brokers and bankers centralised through the Chamber has been responsible for ensuring that however large the tea crop may become, as was the case last year, the Colombo auctions has provided a suitable market environment for the convenient disposal of the produce, This system has always ensured the producer the best possible price for the product based on prevailing market sentiments.

Historical Data

Auction centres of the world

Sri Lanka	First auction held in Colombo	30th July 1883
	London	28th October 1878
Bangladesh	First auction held in Chittagong	16th July 1949
	London	16th April 1951
East Africa	First auction held in Nairobi	7th November 1956
	Mombasa	14th July 1969
	Limbe	12th December 1970
	First Kenyan sold in London	18th January 1928
India	First auction held in Calcutta	27th December 1861
	Cochin	4th April 1947
	Coonoor	23rd March 1964
	Amiritsai	30th April 1964
	Gauhati	25th September 1970
	Siliguri	29th ........1976
	Coimbatore	3rd January 1981
	First auction held in London	10th January 1837