Russia now imports more tea directly from India, in part because product destined for Russia is no longer offloaded at the port of Odessa, Ukraine.
India's exports of tea to Russia are booming, as Russian importers scramble to fill the gap in supplies created both by Sri Lanka's crisis and by repercussions of its war in Ukraine. Tea shipments to the Russian Federation in April rose to 3 million kilos, up 22% from the 2.54 million kilos in April 2021. Growth is likely to accelerate.
Prices at auction were low in April 2022, dragged down by pressure to factor in much higher transport costs, averaging INR144 per kilo compared to INR187 per kilo in April the year before. Prices since April escalated by around 50% for orthodox tea and are up 40% for CTC (cut, tear, curl) grades.
Trade with Russia virtually halted in March following its invasion of Ukraine. Because of this stoppage, Russia's imports of Indian tea during the first quarter of 2022 fell to 6.8 million kilos, compared to 8.3 million kilos in 2021. Russia imported 32.5 million kilos of Indian tea in 2021.
International sanctions on Russia exempt food, including tea. Trade financing and payments, however, were crippled by removal of Russian banks from international payments systems. Now India's revival of a rupee-ruble settlement system will ease transactions for imports and exports.
In July, the Reserve Bank of India announced that Indian companies can now settle in rupees payments made in Russian rubles. The agreement bypasses, but does not technically violate, US and EU sanctions. Russian banks that are not blacklisted by the US Treasury’s Office of Foreign Assets Control (OFAC) can open vostro accounts – deposit/transaction accounts for trade purposes — with their Indian counterparts.
The agreement will increase overall bilateral trade, which totaled $13.1 billion of imports and exports in fiscal 2021–22, according to the Federation of Indian Export Organizations (FIEO). That figure is expected to rise as much as 40% this year, due in part to India's vastly higher imports of Russian oil, which is being sold to Indian refiners at a 30% discount.
In Moscow, shortages of select tea are evident in grocery stores as stocks of European brands are depleted. Russia buys more tea not only from India but also from China and other countries, including Iran, Turkey, Georgia, and Pakistan.
Russia traditionally has a taste for orthodox black tea, buying much of its tea from Sri Lanka. However, as Sri Lanka's financial condition deteriorated and the economy in Russia declined, households switched to buying blends made with less expensive CTC from Assam.
An executive at one of Russia’s top two tea brands reported that “after spring fluctuations, the Russian tea market is stabilized. Main producers solved logistic problems and are now bringing in tea steadily. As a result of the strengthening of the ruble, shelf prices for packed tea went down. But of course, it’s higher than before the war.
"Regarding Indian prices, yes, orthodox prices are higher than last year. The main driver is the Sri Lankan crisis, as auction prices skyrocketed in the last couple of months. As a result, orthodox buyers like Russia and the Middle East have switched to purchasing Assam teas," said the executive.
Harvest year totals (January–March 2022) show the UAE as India’s top tea customer at 10.2 million kilos, up 140% from 4.2 million kilos during the same period in 2021. Iran has significantly increased tea imports to become India’s third largest tea buyer at 7.5 million kilos, up 64% through March.
India produces about 23% of the world’s tea. Its tea exports declined more than 20% during the past five years to around 200 million kilos. The country was once the world's top tea exporter, but for decades ranked only among the leading five suppliers, trailing rival Sri Lanka primarily due to India’s strong domestic demand. India will consume an estimated 1.3 million metric tons of tea in 2022. China and Kenya export twice as much tea by volume as India, and they earn far greater revenue.