Bleak outlook. Tea exports likely to be hit by geopolitical tensions, challenges over payment mechanism

India’s tea exports, which had registered almost a 15 per cent rise in 2022 at 226.98 million kg (mkg), might witness a dip in 2023 on the back of the geopolitical situation, particularly in Russia, and with Iran yet to resume issuance of registration of proforma, which is mandatory for importing from India.

According to industry insiders, exports are likely to drop by almost 10 per cent during 2023 as India has been facing challenges in some of the traditional markets, including Iran, Turkey, Russia, Iraq, China, and Pakistan.

During January-October 2022, exports to Iran had dropped by almost nine per cent at 19.52 mkg valued at about ₹543 crore, as against 21.45 mkg estimated at ₹548 crore same period in 2021, Tea Board data suggests.

Trade sources said that Iran had stopped issuing the order for registration of Proforma required for importing tea from India since November last year. The Ministry of Agriculture, the government of Iran, as per available reports from some tea buyers, has been prevented from issuing the order of registration.

Tea buyers have advised their Indian exporters not to consign any tea cargo until further advice as any cargo without order registration is not allowed to enter any Iran Port by the customs and the cargo has to be returned to the origin country.

Though the factual reason behind this development is not known yet, but sources suggest that there has hardly been any improvement in situation since November last year.

• Also read: Tea exports rise 18% in FY23 to ₹6,582 cr, but exporters cautious on outlook over Iran issue

“Exports look bleak this year as the whole issue with Iran has derailed it (exports growth). We are expecting exports to be lower by at least 10 per cent this year over last year. Exporters are facing various challenges in some of the existing markets and unless some promotional support comes in from the government it is difficult to enter into newer markets,” Anshuman Kanoria, chairman, Indian Tea Exporters Association told businessline.  

Orthodox market to get impacted

Iran is a vital market of Indian tea, particularly orthodox tea. Any suspension of shipments to Iran would lead to a severe adverse impact on the Indian tea market and exports.

According to Kaushik Das, Vice President and Co-Group Head, Corporate Sector Ratings, ICRA, there is a good demand for Indian tea in international markets, however, exports are impacted due to various challenges, including those related to lack of proper payment mechanism. 

Interestingly, while exports to Iran has dropped by nine per cent, the same to UAE has increased by 165 per cent at 32.95 mkg estimated at ₹999 crore during January-October 2022. Sources suggest that a significant chunk of tea to Iran is being routed through UAE using the third-party currency mechanism permitted by the Reserve Bank of India for doing business with Iran.

• Also read: Small tea growers made India self-reliant in production

It is to be noted that ever since the US imposed sanctions on Iran, India could not engage in dollar-denominated trade with the country. Hence, a rupee-rial trade mechanism was put in place in 2018. Under this, oil refineries from India would deposit Indian rupees in the two designated banks – UCO Bank and IDBI Bank – for import of crude oil from Iran; the fund was used to clear dues of exporters from the country to Iran.

However, since there have been no oil imports by India since May 2019 due to US-led sanctions, the accumulations in the rupee-rial accounts have been depleting drastically. So dipping into that fund is no longer an option.

Orthodox production across the country in 2022 was up by nearly 15 per cent at 130.58 mkg as against 113.84 mkg in 2021. Production of orthodox tea during Jan to April 2023 is up by 7.7 mkg from 19 mkg in 2022. 

“Given the higher demand for orthodox tea in international markets, producers have gone in for higher production of such teas this year. Any impact on exports of these teas could have an impact on domestic market and affect prices,” Das said. Source: Tea Board of India