Africa’s tea sector is welcoming Islamabad’s offer to barter rice for tea to resolve an impasse in imports by Pakistan, where an economic crisis prompted the government to throttle outbound payments in February.
Pakistan, which is one of the world’s largest importers of tea from Kenya’s Mombasa Tea Auction, has attempted to shore up its finances by refusing to process cargo through customs unless suppliers agree to 180-day payment terms. Pakistan customs officials estimate that, as a result, 95% of the 8,500 containers in port await letters of credit, including almost 5 million kilograms of tea shipped from Africa via Kenya.
The Bank of Pakistan in February tightened payment terms on all imports to ease an economic crisis triggered by massive flooding, food inflation, and a shortage of foreign exchange.
Some 300 containers of tea have been stranded in Pakistan’s main port, Karachi, for the past month. Shipping agents have advised Pakistan that foreign lines will halt services if the backlog is not resolved. DHL announced it would scale back operations, suspend imports, and limit outbound shipments.
Zeeshan Maqsood, an executive member of the Pakistan Tea Association (PTA), told the Dawn Newspaper that importation delays have led to shortages of tea and higher prices as retailers ration supplies. Retail prices for tea surged by Rs500 to Rs1,600 per kilogram over a two-week period in late February and might climb as high as Rs2,500 per kilogram (about $9.50 per kilogram) during the weeks before celebration of Ramazan on March 22, Maqsood said.
To resolve the impasse, Islamabad has offered to barter 150,000 metric tons of rice in exchange for tea of equivalent value. The deal would be handled by the Kenya National Trading Corporation, a state-owned enterprise. Kenya’s secretary of agriculture traveled to Pakistan to take part in negotiations.
Mombasa traders would like the swap to proceed, according to East African Tea Trade Association (ETTA) managing director Edward Mudibo. He told Business Daily Africa, “We welcome this arrangement because it will work in our favor given the economic situation in Pakistan.”
Africa supplies 90% of the black tea imported by Pakistan, which has a tea market valued at $1.12 billion in 2023, according to a forecast by Statista market research.
Much of this tea reaches Pakistan via Kenya and its Mombasa Tea Auction, the world’s second-largest tea auction. Lots arrive daily in Mombasa from across Kenya and from other African countries. These include Uganda, Rwanda, Burundi, Congo, Malawi, Madagascar, Mozambique, and Ethiopia.
As for the 300 containers stranded in Karachi, the tea could include lots from any of these countries. It is common for brokers certified by EATTA to consolidate lots when shipping to ensure full container loads (FCLs). Kenya, however, is the biggest supplier by far.
Pakistan’s foreign reserves lately fell to $3.2 billion, a recent record low. The government received a $700 billion loan from China. It is negotiating with the International Monetary Fund for a massive bailout, which would become its 23rd IMF loan package since 1950.
The central bank hoped to ease the crisis by forcing suppliers to defer payments for 180 days or secure 180-day letters of credit (LCs) from local banks. The strategy is failing. Suppliers have struggled to secure letters of credit due to disarray in Pakistan’s banking system. Some suppliers refuse to seek LCs or defer collection.
In 2021 Pakistan imported $574 million worth of bulk black tea at an average value of $2.50 per kilogram. In grocery outlets, packaged tea sells for about $4.20 per kilogram. Pakistan’s tea sector supplies Afghanistan with 87% of its tea, so the delay in imports will have an impact there.