Tea producers and exporters, after a dip in tea prices of more than 7 per cent, anticipate a rebound in demand for the orthodox tea variant as well as price recovery for exports to Iran after the US decided to exempt India from trade sanctions on the West Asian country.
After the US announced in July its plans of putting an embargo on Iran, Indian tea firms and exporters, wary of the situation, had halted some of the shipments and some tea producers switched to CTC from orthodox tea.
Although orthodox tea production dipped by an estimated 10 per cent, prices didn’t firm up. Exporters who had stocked tea or had entered into contracts with Iranian importers tried to clear the stocks at lower prices. Average price realisation from exports to Iran dipped by over 7 per cent at $3.61 a kg.
“During the peak season of orthodox tea cultivation (March-June), sanctions were announced, which caught tea companies off guard and some of them shifted to CTC production”, said Vivek Goenka, chairman of the Indian Tea Association.
Tea companies had also halted contracted shipments because Iranian importers had been insisting on payments in dollars or euros instead of the rupee.
In 2011-12, after the Obama administration imposed trade sanctions on Iran, the Indian and Iranian governments put in place the rupee-rial payment mechanism, where up to 45 per cent of India’s purchases of Iranian oil could be paid in rupees, covering tea, rice, medicines and commodities not sanctioned by the UN.
However, lately, Iran, in the wake of US sanctions, has been insisting on payments in dollars and euros, which are convertible. On the other hand, it has been insisting on paying in rial.
“There was huge uncertainty on how payments would be made to India and thus many shipments got stuck at the Kolkata warehouse. However, for two weeks, payments from Iran have started coming, which is restoring confidence,” said Azam Monem, director at McLeod Russel, the world’s largest tea-producing company.
At the Kolkata and Guwahati tea auctions recently, large quantities of Assam orthodox tea, mostly exported to Iran, had remained unsold.
Goenka, however, said that since mid-October, around 90 per cent of orthodox tea, put up for sale in the auctions, had been sold.
“Exports to Iran are poised to increase in the coming days. Prices will also increase,” Atul Asthana, chief executive officer and managing director at Camellia Plc-owned Goodricke Group, said.
On the other hand, fearing US sanctions, some Indian companies had been routing exports to Iran via Russia, Azerbaijan, the UAE, and other countries at a discounted rate.
Although trade between India and Iran, of $10.6 billion, mostly comprises oil imports, accounting from $8 billion, Indian exports — primarily tea and basmati rice — account for $2.6 billion.