Indian Tea Exports likely to be Hit

Tea exports usually starts to gain momentum during June-July and continue till March-April of the subsequent year. Given that the sanctions will come into force from November, the industry might only be able to sell directly to Iran till October. Post that, however, sales are likely to be routed through the UAE or Russia, said Jagjeet Kandal, Managing Director, Amalgamated Plantations.

The dual impact of US sanctions and the steep fall in the Iranian Rial against the Dollar have not yet impacted India’s tea exports to Iran, the industry is concerned about the long-term impact of the sanctions. Going by the record, even if direct exports are hit, volumes remain intact through third-country trade.

But what is more worrying is the erosion in value and margins.

In volume terms, Iran is the second largest importer of Indian tea, primarily orthodox, after Russia. India exported 31.19 million kg (mkg) of tea to Iran in 2017-18, which is a 29 percent rise over Financial Year 2016-17.

From January-May 2018, India exported close to 10.36 mkg of tea to Iran — a 14 percent jump over the same period last year.

“There is certainly concern (due to the US sanctions on Iran) and payments are deferred and delayed in some cases. We are waiting for letters of credit to be issued by banks over the last two weeks,” Azam Monem, Chairman, Indian Tea Association, informed.

However, in value terms, there has been a near 8 percent drop in unit realization at ₹236.33 a kg during the aforesaid period this year, as compared to ₹255.57 last year.

It is to be noted that in April-May 2018, exports dropped by nearly 11 percent to 3.03 mkg (3.41 mkg) in volume terms and the per-unit price was also down at ₹222.64 a kg (₹247.27).

According to Kaushik Das, VP and Sector Head, Corporate Sector Ratings, ICRA, the sanctions will kick in only in November this year by when a majority of the high-quality orthodox Indian teas are likely to have already been exported. “I do not expect any material impact on tea exports in the immediate term. However, what is likely to be the effect in the long-term will depend on the form and extent of the sanctions,” he said.