Tea exports from India are likely to remain muted this fiscal due to lack of clarity over payment mechanism with Iran and Indian CTC (crush-tear-curl) teas remaining uncompetitive compared with the offerings of African counterpart Kenya.
Exports of tea dropped 17 per cent during the April -January period of the 2020-21 at 172.46 million kg (mkg) compared with 207.99 mkg in the same period the previous year. In value terms, export was down six per cent at ₹4,470 crore compared with ₹4,743 crore during the review period, according to data from the Indian Tea Board website.
The drop in exports in FY-21 was mainly due to lower production, primarily of the orthodox variety, due to the lockdown induced by the Covid-19 pandemic last year and higher prices of the Indian CTC tea. While industry experts are not expecting any significant decline in tea production this year if the pandemic is brought under control, however, they still feel that exports may remain muted unless the payment issue with Iran is resolved.
Iran payment mechanism posing a challenge
According to Anshuman Kanoria, Chairman, Indian Tea Exporters’ Association (ITEA), while it is a “bit early” to comment on the estimated quantum of exports this year, the industry is closely “waiting and watching” for an improvement in payment mechanism with Iran.
Iran is one of the major markets for Indian orthodox tea, accounting for nearly 21 per cent of the country’s total exports of tea. In view of the economic sactions against the Islamic republic, normal trade has been affected leading to payment problems.
Orthodox tea accounts for less than 10 per cent of the country’s annual tea production, which is about 1,300 mkg. However, nearly 90 per cent of the 110 mkg of orthodox tea produced every year is exported. Production of orthodox tea in 2020-21 was lower by about 50 per cent, thereby affecting exports. This apart, exports to Iran were impacted due to payment-related issues.
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 the import of crude oil from Iran and 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 in view of the US-led sanctions, the accumulations in the rupee-rial accounts have depleted drastically.
“Iran is a consistent market in terms of demand but we are waiting and watching for some improvement in payment formalities and we are hopeful of something being worked out soon,” Kanoria told BusinessLine.
During the period April-January 2021, tea exports to Iran were down by 39 per cent at 24.72 mkg, compared with 40.70 mkg same period last year.
Indian CTC uncompetitive
According to Anup Kumar, Managing Director, SSK Exports Ltd, while the demand for orthodox tea has been steady, the demand for CTC tea has been impacted due to the high prices of Indian tea compared to Kenya.
CTC accounts for nearly 60 per cent of the country’s total tea exports at around 150 mkg. So any impact in demand for CTC affects the overall exports. The lower price of Kenyan tea is impacting exports of Indian CTC to some markets, which are more price sensitive, industry experts pointed out.
“If you see in 2020 also demand for CTC was not too good as prices were too high and I feel that in 2021 we will see some slowdown in demand unless prices come down,” Kumar said. Export prices were higher as domestic prices surged on lower production.
Apart from this, the recent changes in food safety standards by Europe and the problems in the availability of logistics in terms of shipping containers, are also posing a challenge for exporters.
The industry has also been facing delays in getting GST refunds which is impacting their cash flows, Kanoria said.
Source : The Hindu Businessline
