Indian tea producing firms and exporters are trying to work out alternate routes to ship tea to Iran in order to bypass the sanctions imposed by the US on this West Asian country making direct shipments to Iran unfeasible.
US announced sanctions last year and a waiver to some countries including India was given. The waiver will be withdrawn on May 4, 2019, making trade with Iran difficult.
Speaking to Business Standard, a large tea exporter hinted at exploring alternate routes which might go through Egypt, UAE, Russia and other Commonwealth of Independent States (CIS) countries.
Under this arrangement, tea from India will first shipped to a merchant importer from any of these countries who, in turn, will have to export to Iranian buyers with whom Indian exporters have contracts with. Last year, many Indian bulk tea producers entered into forward contracts with the Iranian buyers on lucrative terms as Iran feared a heavy currency devaluation which would raise their import costs substantially.
Iranian buyers had even paid in advance to Indian producers to get the tea this year as they also knew that the exemption from the US sanctions will end in a 6-month timeframe.
According to Vivek Goenka, chairman at the Indian Tea Association, after Iran became a 30 million kg pure orthodox tea market, Indian exporters were planning to increase exports by another 5 million kg this year. Many of the bulk tea producers have also been focusing on increasing orthodox tea production. It is important for Indian tea companies to export, “this 30 million kg of pure orthodox tea to Iran as there are no other pure orthodox tea markets like Iran,” Goenka said.
Currently, most of the Indo-Iran tea trade is done under the Rupee-Rial payment mechanism which was worked out in 2011-12 between India and Iran. Under this mechanism, up to 45 per cent of India’s purchases of Iranian oil can be paid back in rupees covering tea, rice, medicines and commodities not sanctioned by the UN. Indian tea producers were taking advantage of this mechanism to the fullest. Iran annually consumes around 128 million kg of tea. Of this, around 30 million kg is sold directly by India, 50 million kg is imported from Sri Lanka and the rest is a mix of indirect imports from Russia, CIS, Turkey and other countries. Kenyan producers have been trying to enter this market, but without any success so far.