Agri Business

Why Indian tea exporters remain upbeat on Iran market despite disruptions

Pratim Ranjan Bose Kolkata. March 24 | Updated on March 24, 2020

The beverage is considered an ‘essential’ item in the Gulf nation, and the Indian variety is popular there

India’s tea exports to Iran have been gaining momentum since 2013. They broke all records in 2019 (January-December) to reach 53.45 million kg (mkg), with Iran replacing Russia as the largest buyer of Indian tea.

Can India repeat this success in 2020? It can, say tea industry sources, for valid reasons.

The challenge, however, is imminent. Iran is devastated by the dual attack of the Covid-19 outbreak and a crude oil price war, which limits consumption potential. Export activity has slowed down over the past two months. Sooner than later, there could be a political upheaval in the Gulf nation, say experts.

Non-tea exports

But it’s not just tea exports that are at stake for India. On the contrary, tea contributed a little over 4 per cent to India’s $3.5-billion export bill in FY19.

Over the past two fiscals, India’s exports to Iran have risen 52 per cent, riding on the efficient implementation of a bilateral rupee-rial mechanism. It allowed receivables for exports to be adjusted against the payables for India’s huge crude imports ($13.5 billion in FY19)

India’s rice exports were the biggest gainer of the payment mechanism, posting 67 per cent year-on-year growth to $1.6 billion in FY19. This was followed by soya oil cakes ($210 million), organic chemicals and electric machinery, among others.

Rice exports down

Since then, though, the story has changed.

India stopped oil imports from Iran since May 2019 following fresh US sanctions. According to the Commerce Ministry, rice exports remained substantially lower in April-January 2019-20. On an annualised basis, India’s total exports to Iran are down 4.3 per cent this fiscal.

But tea is an exception to this trend. In FY19, India exported tea worth nearly $154 million to Iran. This fiscal, it reached $173 million in the first 10 months. Sources say the figures are likely to rise by the end of this month, as exports under the old contracts are on.

Sujit Patra, Secretary of the Indian Tea Association (ITA), is hopeful that India will end up exporting more teas to Iran in 2020. In the worst-case scenario, assuming Tehran is rationing its total imports, he expects tea to be the least affected as it is listed as an essential item in Iran.

No fluke

The underlying assumption is India’s gains in the Iranian tea market came out of hard work and not by fluke.

The assumption has merit. Iranians require an abundant supply of quality tea. The country consumes roughly 80 mkg of tea a year, of which 60-70 mkg is imported. The costlier orthodox variety is the most preferred, but they also consume some CTC (crush, tear, curl) tea.

Till 2012, Sri Lanka was the lead exporter of tea to Iran, with India’s share hovering around 14 mkg. This changed in 2013, with the Indian industry making a strong pitch and exports to Iran reaching 23 mkg.

Since then India’s entire growth in total tea exports has come from Iran. Apart from cornering the lion’s share of the orthodox market, India has also broken into Iran’s high-quality CTC market, which was earlier the sole preserve of Kenya.

Sustained effort led to the creation of the perfect blend to suit Iranian taste buds and the market is now flooded with ‘Indian tea’ brands. A parallel effort at the back-end has seen India’s orthodox production increase a clear 29 mkg over the past seven years.

The best part is Indian teas have also fetched better value. The average value Indian exports to Iran increased 5 per cent to $3.91 a kg in 2019.

Rupee-rial trade

But there is still a catch. The rupee-rial exchange is crucial to exports to Iran. It is seen to have offered some price advantage to Indian exporters in the past. Now that India has stopped importing oil, will the account remain operational? Banking sources say it will.

The Commerce Ministry doesn’t publicly share any trade balance figure with Iran, and the balance in the rupee account is a closely guarded secret with the RBI. But banking sources say there is enough balance in the pool to support Indian exports to Iran.

The domestic tea industry must be banking on this mechanism for its Iranian export plans despite the disruption caused by the pandemic.

Published on March 24, 2020

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