20 February 2008

Dubai: Dubai wants to launch the world's first tea futures contract if it finds favourable response among major tea producers and other key industry participants, officials said on Tuesday.

They argued that international tea trade will benefit from a "well-functioning futures market" as it would provide a good pricing guidance for the commodity.

"If there is a possibility of a successful tea futures contract, then Dubai might be the place for it since we are ideally positioned between the tea producing and major consuming countries," Dubai Multi Commodities Centre chief executive officer David Rutledge told Gulf News.

However, experts said it would not be easy to create a benchmark for a tea futures contract because of the wide variety grown in various countries.

"We have 24 different types of tea in Sri Lanka. If you want to have a futures contract, how do you create a standard?" said Sri Lanka Tea Board director general H.D. Hemaratne.

He said a forward contracts system in his country had not been successful because of a lack of participation from key industry players.

"Brokers and producers would not participate in a futures market if there is a trend of rising prices, and buyers would not enter the market if there is a price declining trend," Hemaratne told Gulf News.

Rutledge himself acknowledged that establishing a description of tea that can be used as a benchmark would be difficult. He said other teas could be delivered at specified premiums and discounts around that agreed standard description.

There has been no tea futures contract developed till date because of a lack of initiative linking Indian Ocean producers and other tea growing countries, he said. New York has thought about such a contract but Dubai believes it is better placed to start a tea futures market because its strategic geographical location.

"If someone is going to do it, [then it should] better be in this part of the world," Rutledge said.

Sanjay Sethi, director of Dubai Tea Trading Centre, said discussions will be held with tea industry leaders to see if the idea can be implemented.

"We want feedback whether it is something that is acceptable to the industry. If it is the need of the market then we want to be the first to do it," Sethi said.

By Shakir Husain

© Gulf News 2008. All rights reserved.