Price Formation, Seller Satisfaction and Degree of Competition at the Colombo Tea Auction
Sankalpana, H. S. A. Gajanayake, B and Kumara Kithsiri, K. H. S
ABSTRACT
Colombo Tea Auction is the main marketing channel to dispose bulk tea in Sri Lanka. This study was carried out to assess the price formation, market concentration, degree of competition among buyers and to examine the sellers’ satisfaction at the Colombo Tea Auction. Primary data were collected from tea producers (sellers), brokers and officers of Sri Lanka Tea Board (SLTB). Secondary data were collected from Colombo Brokers Association, SLTB and selected brokering companies. Tea price formation factors, market share and competitiveness of buyers at the auction were analysed using Multiple Linear Regression, four firm Concentration Ratio (CR4) and Herfindahal-Hirshman Index (HHI) respectively. The results revealed that, tea grade, elevation, previous auction price, valuation price and net quantity of the tea lot affected 93.9% for the price formation. Results further revealed that CR4 and HHI were 28% and 370.9 respectively indicating that the public auction is operating on a relatively more competitive scale and also showing a favourable market among stakeholders due to the relatively quick return on investment, transparency and lowering of the risks than the other marketing channels. A few buyers dominate in the auction influencing negatively to the degree of competition. The study suggests that the price given to producers should mainly depend on quality rather than on other contributory factors and for competitive trading. This should be developed as a policy revision by the SLTB and Colombo Tea Trader Association.
KEYWORDS: Colombo tea auction, Market channels, Market concentration