Tea Futures Traded Once, Briefly, in 1901 New York
Coffee, cocoa and sugar all trade futures. Tea has had none since a short-lived New York contract in 1901. A physically delivered contract founders on standardization: no two lots of tea are the same thing.
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Coffee, cocoa, sugar, cotton, and frozen concentrated orange juice all have standing futures contracts on the Intercontinental Exchange (ICE)6 today, letting a grower, a roaster, or a trader lock in a price months before delivery. Tea has none: no exchange lists a tea futures contract today. It had one once. Lots of 15,000 pounds of Japanese, green and black tea traded for future delivery in New York on January 21, 19012, and that trading was short-lived.
One explanation is that tea does not need hedging because its supply is too stable to move the price much. Another is that no one has found a way to make one lot of tea interchangeable with the next, and a physically delivered futures contract cannot exist without that.
What a futures contract actually requires
A futures contract is a promise to buy or sell a fixed quantity of something, at a fixed price, on a fixed future date. It only works at scale if the "something" is standardized: a bushel of wheat, a barrel of light sweet crude, 37,500 pounds of arabica coffee of a defined grade. Buyers and sellers have to be able to trust that the thing delivered against the contract in six months will be the same thing they priced today, without either side inspecting it first.
That standardization is also what invites the second group a futures market needs: speculators, who never intend to take delivery at all and are there purely to bet on the price. Their trading adds volume and narrows the gap between what a buyer offers and a seller asks, which is what lets a grower actually get a fair hedge executed rather than waiting for one specific counterparty to show up.
The leaf itself
Tea defeats the first requirement before it gets near the second. At the FAO's Intergovernmental Group on Tea in 2012, Prabhat Bezboruah, an Assam tea executive who later chaired India's Tea Board, set out the problem with a classic, physically delivered tea future2. Tea "is heterogeneous both over season and region," he wrote, so "it would be impossible to define a quality for delivery or even for squaring one's position." Such contracts may have to be "tailor made for individual gardens," and "the multiplicity of contracts will confound the market and prevent secondary trading."
His recommendation was a different instrument: an index future based on an auction average price for a defined category of tea, which he said "would eliminate the structural problems resulting from the heterogeneity of tea." He asked the Indian government to introduce one, run by the Tea Board with a stock exchange and the auction centres.
A 2020 study of India's dust-grade tea auctions, built from J. Thomas and Company sale records (Abhinandan Dalal, Diganta Mukherjee, and Subhrajyoty Roy, published on arXiv), gives the scale of the variation in its overview of the trade. On any given auction day, tea sold under one grade name, Broken Pekoe, can go for as little as Rs 60 or as much as Rs 250 per kilogram (about 80 US cents to US$3.40 at 2020 rates). The spread, more than fourfold, depends on the producer's mark, its quality, and demand.
The same paper's J. Thomas records for 2018 and 2019 carry twenty-five distinct dust-grade names, which the authors clustered into broader groups for their analysis.
The stability argument
Saul Bowden, writing on the Tea & Coffee Trade Journal's blog in 2021, gives the stability explanation as his first reason: the plant is resistant to weather swings, so there is little supply-side price risk worth insuring against, and "there isn't enough variation in prices." His second reason: futures are standardised, tea is not, and a contract per blend would leave each market too thin to trade.
The tea price does not, in fact, move in a smooth line. The Dalal, Mukherjee, and Roy paper puts the average weekly volatility of CTC prices at the Siliguri auction centre at 7 percent, and cites FAO price-elasticity estimates showing a 10 percent retail price rise cuts demand for black tea by 3.2 to 8 percent.
What the auction does instead
Lacking a futures market, tea relies on the auction to discover a price in public. The auction is a spot market only. A grower or a blender who wants price certainty three months out has no standardized instrument to buy. They can sign a private forward contract with a specific counterparty, but that carries the counterparty's own credit risk and does not trade on afterward the way a futures position does. Bezboruah noted that such forward bookings already exist in India with reputed bulk buyers, so a futures contract would have to offer better cover than they do.
India made its electronic tea auctions pan-India in 2016, so a buyer registered with any tea trade association can bid into any centre's sale rather than being tied to a local one. J. Thomas and Company, the largest auctioneer, handled over 200 million kilograms (about 440 million pounds) a year, a third of all tea auctioned in India, the 2020 paper reports. The seller's reserve price on each lot is set from a tea taster's valuation.
The idea keeps coming back, and keeps not launching
None of this has stopped economists from proposing a tea futures contract. Two 2020 papers take a more hopeful view than Bowden. Devmali Perera, Jędrzej Białkowski, and Martin Bohl, writing in Research in International Business and Finance, studied Sri Lanka's tea market and concluded that introducing a futures contract there is "viable but challenging under the existing market structure." Separately, Rajat Bhattacharjee and Santosh Kumar Mahapatra, writing in Space and Culture, India, compared India's tea with its coffee on export demand and price volatility and found "favourable grounds for the introduction of tea futures," with tea growers and manufacturers among those who would gain.
Neither paper, nor Bezboruah's index proposal, has produced an exchange listing.