India’s tea exports likely to be hit by geopolitical tensions and challenges over payment mechanism

India tea exports, which recorded approx 15 percent in 2022 to 226.98 million kilograms (mkg), may see a decline in 2023 on the back of the geopolitical situation, especially in Russia, and as Iran continues to issue initial registration, which is mandatory for import from India.

According to industry insiders, exports are likely to decline by around 10 percent during 2023 as India has been facing challenges in some of its traditional markets, including Iran, Turkey, Russia, Iraq, China and Pakistan.

During January-October 2022, exports to Iran decreased by almost 9 percent at 19.52 million kilograms valued at around Rs. 543 crores, compared to 21.45 million kilograms valued at around Rs. , according to data from the Tea Council.

Trade sources said Iran had stopped issuing the fiat registration order required to import tea from India since November last year. The Ministry of Agriculture, the Iranian government, according to available reports from some tea buyers, has been prevented from issuing the registration order.

Tea buyers advised Indian exporters not to send any tea shipment until further notice as no shipment without order registration is allowed to enter any Iranian port by customs and the shipment must be returned to the country of origin. Although the real reason behind this development is not yet known, sources indicate that there has been no improvement in the situation since November last year.

Also read: Tea exports rose 18% in FY23 to 6,582 kronor kronor, but exporters are wary of expectations on the Iran issue

“Exports are looking bleak this year because the whole issue with Iran has derailed it (export growth). We expect exports to be at least 10 percent lower this year compared to last year. Exporters are facing different challenges in some of the existing markets, and unless some promotional support comes along From the government, it is difficult to enter into new markets. Business line.

The orthodox market is affected

Iran is a vital market for Indian tea, especially orthodox tea. Any suspension of shipments to Iran will have a severe negative impact on the Indian tea market and its exports.

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

Interestingly, while exports to Iran decreased by 9 per cent, the same to UAE increased by 165 per cent at 32.95 million kilograms estimated at Rs. 999 crores during January-October 2022. Sources indicate that it is being Routing a large portion of the tea to Iran through the UAE using the third party currency mechanism allowed by the Reserve Bank of India to do business with Iran.

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

It should be noted that since the United States imposed sanctions on Iran, India could not engage in dollar-denominated trade with it. Hence, the Rupee-Rial Trading Mechanism was instituted in 2018. Under this, Indian Oil Refineries will deposit Indian Rupees into the two designated banks – Yoko Bank And IDBI Bank – to import crude oil from Iran; The fund was used to clear the country’s exporters’ receivables to Iran.

However, since there have been no oil imports by India since May 2019 due to US-led sanctions, the accumulations in rupee accounts in riyals have been significantly depleted. So indulging in this box is no longer an option.

Due to the high demand for traditional tea in the international markets, the producers have gone to increase the production of this tea this year. Das said any impact on exports of this tea could have an impact on the local market and affect prices.

Source: Tea Board of India