Tea traders are contending with an economic barricade and formidable logistics hurdles as governments worldwide seek to prevent Russia from transacting regular business, according to Dan Bolton, publisher, Tea Journey Magazine and podcast host, Tea Biz Blog.
“Allied nations sanctioning Russia currently represent more than 50 percent of the world’s economy. Eight of 10 of Russia’s most important trade partners are participating in sanctions. The breadth and severity of the economic response to Russia’s unprovoked invasion of Ukraine are unprecedented.
Brokers say that tea shipments from traditional supply origins have already stopped since there is little chance containers will make it to Russian or Ukrainian ports,” according to Bolton.
He continued, “Ocean carriers representing more than half the world’s container shipping capacity announced this week that they would no longer accept container bookings to or from Russian and Ukrainian ports except for food and humanitarian goods delivery.
Tea and coffee are considered food, but few ships will be available, insurance will be extremely expensive and all cargo will be subject to lengthy inspection for contraband.”
Immediate impacts, as reported by Bolton, include:
• Declining sales volume at tea auctions in India, Sri Lanka and Kenya
• Price volatility due to sanctions that make payments in U.S. dollars uncertain for tea in transit
• Rising energy costs as oil prices topped $113 a barrel
• A significant spike in the cost of fertilizers from Belarus and Russia (fertilizer prices were already elevated at $705 a short ton for urea and $725 per ton for potash)”
“Add to the above bottlenecks caused by hundreds of ships delayed or idled at ports, a shortage of truckers to deliver thousands of containers of goods that are piling up in warehouses, elevated freight rates, the suspension of DHL, UPS, and FedEx services to Russia, the closing of U.S. and European airspace and extreme weather conditions.
Russia’s unprovoked invasion of Ukraine and ongoing deadly assault on its citizens is creating a global rift in the tea lands as some producing countries consider workarounds,” added Bolton.
“India’s tea auction in Coonoor is a favorite of Russian buyers, but 32 percent of the tea has remained unsold in recent weeks. Demand is evident, but sellers are concerned about receiving payments as Western nations along with Japan, Singapore and South Korea individually excluded Russian banks from making SWIFT system transfers within their jurisdictions. The U.S. and E.U. and allied countries also limit Russia’s Central Bank from accessing reserves.
Russia owes Indian exporters about $500 million for shipments in transit, funds jeopardized by sanctions. India is considering low-cost loans in rupees and letters of credit to guarantee settlement. India’s state-owned banks may lend funds up to the amount owed from payments pending from Russia and Ukraine.
India is also considering rupee-based tea sales, which frustrated the U.S. after imposing sanctions on Iran. Like Russia, Iran is a major tea buyer,” explained Bolton.
Sanctions
China, the world’s largest producer, is allied with the Russian Federation, but India, Sri Lanka and Kenya supply 65 percent of Russian tea imports. China, Vietnam, and Malaysia account for only 25 percent of Russia’s tea.
In recent years Russia has imported about 150,000 metric tons annually. In a typical year, Ukraine imports 17,000 metric tons. During the first six months of 2021, tea imports increased to 77,400 metric tons compared to the 76,200 landed during the same period in 2020.
Russia imports tea from 45 countries in quantities that vary by season. Statistics for 2020 released by the Russian Foreign Trade Customs for the spring quarter show that India accounted for 32 percent of imports by volume (27 percent by value), Sri Lanka 19 percent volume (27 percent value), Kenya 12.8 percent (11 percent by value), Vietnam 10 percent (6 percent by value), China 9.9 percent (9.5 percent by value) and Indonesia 4.5 percent (3 percent by value) of the 37,500 metric tons landed during that period.
Sales for the first quarter were $101 million, of which $91.5 million was for black tea (34,400 metric tons) and $9.6 million green (3,100 metric tons).
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