 "As Iran opens up, Indian tea exporters may lose competitive edge")
Although the current Rupee-Rial agreement has so far worked for both countries by shielding off revenue from tea export realisations outside normal foreign exchange regulations, Iran may eventually ask for the trading to shift over to the Dollar norm.
While it may not impact the ongoing tea trade and exports immediately, Iran will surely be scouting for fresher and greener pastures which may help it save on forex outflows.
"Eventually Iran will be asking for the tea trade to shift over to the Dollar. But we don't expect it to happen right at this time", vice chairman of Indian Tea Association (ITA), Azam Monem told Business Standard.
According to the association, since the domestic availability of Dollar is low in Iran, in the first step, it will try to "obtain the world's default currency" first before it lets out the same flow out of its coffers.
Years of economic blockade had limited the country to stockpile its Dollar reserve and India had successfully pitched in the Rupee-Rial agreement.
So long, India was able to shield off atleast 12 per cent of its tea trade earnings from the Dollar-Rupee volatility on this account. However, this part of the tea trade will eventually shift over to Dollar based transactions.
In the second place, Monem believes, Iran will definitely "look for more direct options now as sanctions have been lifted".
However, Indian orthodox tea exports to Iran continues to outbid the Sri Lankan competition by atleast a dollar per kg of tea.
India sells its tea to Iran between $ 3-4 a kg while the same variant and quality of tea from Sri Lanka is priced between $ 4-5 which gives the sub-continent country an edge over its neighbouring island-state.
Stakeholders in the trade are now realising the changing dynamics in this scenario and hence, the Indian Tea Board, alongwith the ITA and other merchant exporters are visiting the sand-laid country next month.
Iran is crucial for Indian tea trade as one of the highest price realisations come in from this country. Not only it features as the second-largest importer as well as revenue contributor to Indian tea exports, it is undoubtedly one of the key markets for the prized orthodox tea variant.
According to data from Tea Board, off the total tea exports revenue of Rs. 3,613.90 crore during January-November 2015, Iran contributed the second largest pie at Rs. 425.11 crore or 11.8 per cent.
Under the prevalent circumstances, it may touch between Rs. 470-500 crore in the current fiscal year.
"India has undoubtedly been one of the largest benefactors during the pro-sanction era", an official at ITA said.
Also, it needs to be noted that while Russian tea exports contributed Rs. 599.52 crore to the Indian balance of payment sheet for 38.96 million kg (mkg) - the highest in the segment in 2014, Iran, the second-largest tea export market for India, contributed Rs. 496.36 crore for just 18.68 mkg of exports.
Furthermore, under a trade agreement, Iran has agreed to purchase 30 mkg of Indian tea annually while the present volume stands between 18-20 mkg which opens up further potential for Indian merchant exporters.
Both ITA and the Tea Board is optimistic that this beverage trade may get a boost despite sanctions being withdrawn if India focusses on exporting more quality orthodox tea.
