What Is Happening With Fair Trade Coffee Production?

India's tea auctions have run on electronic platforms for five years, and the Federation of All India Tea Traders Associations says price discovery is still failing. FAITTA asked the Tea Board of India to evaluate the system before the 2021 nationwide rollout. Auction prices rose in 2020, but the cause was pandemic disruption, not normal market demand.

Average tea prices climbed 31 percent from 2019 to 185 rupees, about $2.53, per kilogram, driven by lower production, container shortages, displaced workers and shrinking processing capacity. Small growers now outproduce registered plantations for the first time. These structural strains echo debates around fair trade coffee production, where growers seek pricing that reflects real costs.

Five years after India's tea auctions shifted to electronic platforms, they remain mired in a price discovery failure. The Federation of All India Tea Traders Associations (FAITTA) points out that digital auctions have failed to achieve their original goal of fair pricing, and the 2020 pandemic further strained production, transportation, and exports. Meanwhile, small tea growers' total output has surpassed that of registered plantations for the first time, becoming a new force in the industry. This article examines the structural challenges currently facing India's tea industry—from disputes over auction mechanisms to changes in production, declining exports, and the need for mechanization—providing enthusiasts of premium black teas such as Darjeeling and Assam with comprehensive regional updates and purchasing references.

India's tea auctions have been on a digital track for five years, yet chaos remains unresolved. The Federation of All India Tea Traders Associations (FAITTA) has issued a warning: price discovery, the core function underpinning digital auctions, is at risk of failing.

In January of this year, FAITTA, India's largest organization of specialized tea traders, asked the Tea Board of India to conduct a systematic evaluation of electronic auctions before the nationwide rollout plan for 2021 is implemented. The open outcry model that had been used for centuries was abolished, with the intention of allowing off-site buyers who were unwilling to set up offices in Kolkata, Coonoor, Kochi, Guwahati, Assam, and ten other auction centers to participate in trading.

Opening auctions to external bidders typically results in "fair market" prices, with the highest bidder winning an individual lot—but a single bid may also be an outlier. If a bidder is determined to secure a particular estate, he will naturally outbid other participants, but such a single transaction should not become a factor distorting price benchmarks or long-term trends.

Auction prices did rise in 2020, but the driving force was not normal market forces—it was the chain reaction triggered by the pandemic: insufficient production, shortages of land and sea shipping containers, displaced workers, illegal outflow of imported tea for re-export, and shrinking processing capacity. Compared with 2019, reduced production drove last year's average tea price up 31% to 185 rupees (about $2.53) per kilogram.

FAITTA Chairman Viren Shah, in an interview with The Financial Express, pointed out that the structural rules governing auctions urgently need revision, blaming the problem on "the wrong logic of lot breaking." Shah warned that in the long run, the highest-bidder-wins approach could have serious negative effects, weakening buyers' willingness to participate in auctions and ultimately running counter to the Tea Board's original intentions and the demands of stakeholders.

Shah further stated: "If the auction system operates under its current configuration, it may unnecessarily drive up tea prices." In other words, he believes that "prices generated by electronic auctions do not reflect real supply and demand conditions."

The Tea Board's "Electronic Auctioneer User Manual" explains: "The auctioneer updates the number of sold and unsold lots in each auction cycle." The manual also mentions that "after the bidding time for activated lots ends (configured by the administrator), the lot breaking process begins." All received bids are organized and broken down, and the system can automatically eliminate lots that meet or exceed the reserve price. At the auction site, users can view reports by selecting the corresponding season, sale number, auction date, and auctioneer.

Auction prices in 2020 were about 35% higher than in 2019 (an average of 80 rupees more per kilogram). Shah wrote: "This is the result of a fair price discovery mechanism working under supply and demand conditions. Last year's tea production was 1.25 million tons, about 100 million kilograms less than the previous year's 1.35 million tons. This year, average retail tea prices have risen by 70 rupees per kilogram."

Will production continue to decline?

The spring tea harvest has not yet begun, but one trend seems clear: small growers' total output has surpassed that of registered plantations. Bijoygopal Chakraborty, president of the Confederation of Indian Small Tea Growers' Associations, estimates that small growers produced 631 million kilograms of tea in 2020, higher than the 625 million kilograms from registered tea gardens.

Chakraborty said: "Even in 2019, our small tea growers' contribution was only slightly below that of the organized sector at the national level. This year, our share has exceeded that of the industrial estates, and we hope this momentum continues in the coming years. Many growers are first-generation rural entrepreneurs—this is truly a remarkable achievement."

In the first 11 months of 2020, India's tea exports fell 18.2% to 188 million kilograms. Lower prices were partly due to a bumper tea harvest in Kenya.

India's tea production fell 9.7% in 2020, but favorable weather in West Bengal has eased concerns about 2021. Fear of the coronavirus has somewhat abated, and the likelihood of lockdowns is also decreasing. The reason remains unclear, but even without widespread vaccine distribution, India's Covid-19 case numbers have plummeted to fewer than 10,000 per day.

Mechanization is equally crucial for retaining young people in agriculture. According to Kambuto, by 2030 the economic value of African agribusiness will reach $1 trillion. He said: "Kenyan youth need to pay attention to the agricultural sector and remain innovative."

For domestic tea enthusiasts who wish to taste authentic premium black tea from Indian estates, Front Street recommends paying attention to Darjeeling and Assam products imported through reliable channels to ensure flavor and quality.

The above content is compiled by CoffeeHunters, a coffee news website.