Goodricke Group to sell just 50% of tea through auctions

Kolkata: In a bid to reduce costs, tea planter Goodricke Group Ltd has decided to sell less of the commodity through auctions this year. Goodricke, which produced a record 21.5 million kg tea in 2008, currently sells around 70% of its crop through auctions.

It will try to bring this down to 50%, Arun Narain Singh, Goodricke’s newly appointed managing director and chief executive officer, said.

“Selling directly to the merchants and exporters would mean that we would be able to reduce costs by as much as 5% by saving on overheads such as sampling, warehousing, brokers’ commission and so on,” he said on the sidelines of the company’s annual general meeting on Tuesday.

However, an official of the Calcutta Tea Traders’ Association, which conducts the auction in Kolkata, said that Goodricke, which follows a January-December accounting year, had sold more tea through auctions in 2008 than in 2007.

“I think Goodricke benefited by doing so. I wonder how in a buoyant year, it would realize better value for its produce if it bypasses the auction system, which undoubtedly leads to better price discovery,” said this official, who refused to be named as he didn’t want to be dragged into a controversy.

Peter A. Leggatt, chairman of Goodricke and a director of its UK-based parent Camellia Plc., said, “Tea produced by Goodricke was able to attract premium prices both at auctions and private sales for its quality... Quality itself will ensure better prices.”

Goodricke, which posted gross sales of Rs294 crore and net profit of Rs17.6 crore in 2008, realized Rs228.51 a kg on an average for tea produced in its gardens in Darjeeling.

The company’s average realization for tea produced in the Dooars in north Bengal was Rs99.70 a kg, and that for Assam, where it has two gardens, was Rs120.27 a kg.

Goodricke’s average realization across these segments was ahead of auction averages. The company, which has 17 tea estates in Darjeeling, the Dooars and Assam, has appetite for growth through acquisitions, said Leggatt.

“We could consider buying more gardens, particularly in Assam, where we have only two gardens, but they should ideally be close to our own estates. But there is no opportunity right now,” he said.

Meanwhile, at the annual general meeting, Goodricke announced plans to launch a tea-based soft drink in four fruit flavours, which would take on carbonated beverages.

Goodricke has applied to the government for necessary clearances to launch the product, Singh said, but he didn’t indicate when his company would be ready with it. “We will certainly launch it this year,” he, however, said.

Goodricke, which exports around 5% of its produce, or a little over 1 million kg, to countries such as Japan, United Arab Emirates, Germany and the UK, fears exports could decline in 2009.

“Many buyers, especially in CIS (Commonwealth of Independent States) countries are deferring shipments because bank credit isn’t available to them immediately,” Singh said.

But increase in domestic demand is expected to offset the decline in exports. Domestic demand has been growing at 3% year-on-year, said Singh, adding that price realization should improve in the years ahead because Indian tea producers can’t keep pace with rising demand.

Meanwhile, a drought in Assam has led to a dramatic fall in production in the first quarter of the year, industry officials told AP recently.

AP contributed to this story.