Indian producers working on alternate routes for shipping tea to Iran

Tea producer are anxiously watching how Iran and India reacts with each other as even India can't risk losing its crucial oil trade partner

Indian tea producing firms and exporters are trying to work out alternate routes to ship tea to Iran in order to bypass the sanctions imposed by the US on this West Asian country making direct shipments to Iran unfeasible. 

US announced sanctions last year and a waiver to some countries including India was given. The waiver will be withdrawn on May 4, 2019, making trade with Iran difficult.

A large tea exporter hinted at exploring alternate routes which might go through Egypt, UAE, Russia and other Commonwealth of Independent States (CIS) countries.

Under this arrangement, tea from India will first shipped to a merchant importer from any of these countries who, in turn, will have to export to Iranian buyers with whom Indian exporters have contracts with. Last year, many Indian bulk tea producers entered into forward contracts with the Iranian buyers on lucrative terms as Iran feared a heavy currency devaluation which would raise their import costs substantially. 

“Iranian buyers had even paid in advance to Indian producers to get the tea this year as they, like any of us, knew that the exemption from the US sanctions will end in a 6-month timeframe. So its not that Iran or we were not prepared for this,” a tea producer said.

According to Vivek Goenka, chairman at the Indian Tea Association, after Iran became a 30 million kg (mkg) pure orthodox tea market, Indian exporters were planning to increase exports by another 5 mkg this year. Many of the bulk tea producers have also been focussing on increasing orthodox tea production. It is important for Indian tea companies to export, “this 30 million kg of pure orthodox tea to Iran as there are no other pure orthodox tea markets like Iran,” Goenka said.

	Quantity in mkg	Value in dollar million
2018 (January to December)	30.60	114.26
2017 (January to December)	29.57	115.20

Source: Tea Board India

The other issue that needs to be worked out for export to Iran is payment terms. Currently, most of the Indo-Iran tea trade is done under the Rupee-Rial payment mechanism which was worked out in 2011-12 between India and Iran. Under this mechanism, up to 45 per cent of India’s purchases of Iranian oil can be paid back in rupees covering tea, rice, medicines and commodities not sanctioned by the UN. Indian tea producers were taking advantage of this mechanism to the fullest.

“Although a major part of the payment from Iran has already been made in advance, it needs to be decided what will happen to the shipments after the forward contract quantity is extinguished and how payment will be made,” the exporter said.

However, Indian tea companies are upbeat that some mechanism will be worked out between the US, India and Iran. Tea producers are anxiously watching how Iran and India resolve the issue as India can’t risk losing its crucial oil trade partner. 

Expressing his confidence in the Indo-Iran tea trade, Atul Asthana, managing director and CEO at the Goodricke Group said, “Prices in the orthodox tea market are already going through the roof. Iranians cannot stay away from tea - what else are they going to drink as beverage then?”

Iran annually consumes around 128 mkg of tea. Of this, around 30 mkg is sold directly by India, 50 mkg is imported from Sri Lanka and the rest is a mix of indirect imports from Russia, CIS, Turkey and other countries. Kenyan producers have been trying to enter this market, but without any success so far.