Russia-Ukraine crisis: India's Tea planters and exporters likely to be hit

Tea planters and exporters are "extremely worried" over the possible impact on their shipments to Russia, the largest buyer of Indian tea, in the wake of the Russia-Ukraine crisis.

Western sanctions and disruption of payments in dollars, as well as transhipments to Russia, are expected as a fall-out of Russia launching an attack on Ukraine on Thursday.

"The Russian market for Indian tea is extremely important as there are payment issues for shipments to Iran, another vital tea export destination. Around 18 per cent of India's tea shipments go to Russia," Indian Tea Association chairperson Nayantara Palchoudhuri told PTI.

According to the provisional data of the Tea Board India, the country shipped out 30.89 million kgs (mkgs) of tea to Russia during the January-November period of 2021, while the same to Iran was at 23.06 mkgs.

Tea export to Russia was at 37.15 mkgs in 2020, followed by Iran at 33.38 mkgs.

In the event of the conflict and possible imposition of sanctions by the US, exports to Russia would be "impacted adversely in the upcoming season", she said.

Palchoudhuri, however, said that any significant shock to the tea industry due to the crisis may not be witnessed immediately as the season is about to begin and the bulk of shipments takes place between May and October.

Indian Tea Exporters' Association Chairman Anshuman Kanoria also said the industry stakeholders are "extremely worried" about the crisis.

"There will surely be economic consequences for tea exports in the near term. The impact we have seen straight away is the fall in the value of the Russian Ruble by almost 15 per cent vis-a-vis the US dollar. When the Ruble becomes weak, the capacity of importers to pay also declines," he told PTI.

The Ruble, which was 70.43 to the dollar on October 24 last year, was worth 89.74 to the dollar on February 24, 2022.

Kanoria also said exporters are keeping a watch on how the war situation shapes up and the economic fall out of the crisis. They also fear that payments, which are usually in dollars, may be affected if the US tightens financial sanctions.

Palchoudhuri pointed out that if shipments to Russia get impacted, an oversupply situation may arise in the domestic market, resulting in a price fall.

"Russia and Kazakhstan are the main markets in the overall exports to CIS countries. Indian tea exporters while hoping that peace will speedily return are concerned about the impact on our tea exports of any possible economic retaliation by the West," Kanoria said.

Exports to Ukraine are not significant with just around 3 million kg being shipped out annually.

European Union and the US have already promised unprecedented sanctions to punish Kremlin.

Kanoria also mentioned that the cost of operation for planters and exporters is set to go up with increasing oil prices in the international markets.

Oil prices surged by nearly USD 6 per barrel on Thursday after President Vladimir Putin launched Russian military action in Ukraine. Brent crude oil jumped to over USD 100 per barrel on unease about the possible disruption of Russian supplies.

"With the inflationary pressure, exports will get impacted not only to Russia but also to other countries," Kanoria said, adding that "freight rates continue to be sky high and the war will add to shipping costs and logistic woes".

"Flow of cargo to Russia would be affected if the war continues and it appears that the crisis will sustain. Most of our shipments go via Europe. Usually, feeder ships carry our consignments to Sri Lanka or Singapore and from there, mother vessels pick containers up and take them to European ports.

"Then, the containers are transported to Russian destinations. If sanctions are imposed, this system would be disrupted," said a logistics expert who was associated with shipment transportation to Russia.

In 2020, India exported 207.58 mkgs, down from 252.15 mkgs shipped out in the previous year, across the world.