US sanctions on Iran might affect tea exports from India. While it is still too early to understand the impact, exports might suffer in the near term, industry sources said. This is worrying the tea industry, which has been betting on exports to enhance prices.

According to Vivek Goenka, Chairman, Indian Tea Association, tea exports to Iran fell in July-August last year following the announcement of US sanctions. However, the situation improved post the waiver and over 30 million kg (mkg) of was tea exported to Iran in 2018.

“This year the demand from Iran has been good so far and we were expecting exports to increase to 35-36 mkg. Now, that is a large quantum of tea going into this market. In case it gets hampered it will have a bad effect on markets — both for orthodox and CTC. So, it is a worrying situation; we have to see what happens,” Goenka told BusinessLine .

Orthodox rise

Orthodox prices are ruling higher so far this year compared to last year. The average selling price of orthodox tea was around ₹255.06 a kg at the recently concluded Sale-16 in Kolkata, as compared to ₹216.06 in the same period last year.

The higher prices are mainly on the back of firm demand from the Middle East and other countries importing the orthodox variety.

However, the ongoing uncertainty might impact orthodox prices.

“It is a little too early to take a stance. However, while it may not have a significant impact in the long-term, in the short term, there may be some disruptions due to negative sentiments, which may play out on prices,” said Kaushik Das, Vice-President and Sector Head, Corporate Sector Ratings, ICRA.

The impact might remain till there is a long-term solution to counter or circumvent the problem, he added.

In volume terms, Iran is the second largest importer of Indian tea, primarily orthodox, after Russia. Exports to Iran grew by 3 per cent to 30.6 mkg in January-December 2018, as compared to 29.57 mkg in the same period last year. The total value of tea exported was also higher at ₹781 crore in 2018, as against ₹750 crore in 2017.

However, Azam Monem, Wholetime Director, McLeod Russel, feels that it will be business as usual and tea exports to Iran may not be impacted.

“Everybody knew that the sanctions on Iran would kick in from May so I am not seeing any problem. The orthodox market is strong, so people have got orders and they are executing them. I feel the drop in exports last year was more of a knee jerk reaction. Each time such incidents happen people tend to become wiser and a little more confident,” he said.

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