1 of 2
Household income in the Russian Federation averaged $6,491 in December 2021, and retail sales grew by 5.4%. The US household average is $33,740. Russian households earned $9,680 in 2013 before the first round of sanctions. This year, Russia’s Vneshekonom (Foreign Economic) Bank Institute estimates that wages will decline 12%, with unemployment increasing to 6.2% and inflation rising to 19.3% by year-end. Food inflation is troubling as Russian families spend an average of 60% of monthly earnings on food. According to the Federal State Statistics Service, the average price of staples (bread, sugar, rice, and grains) increased 14% in one week in mid-March. Restaurateurs cannot source fish, vegetables, pasta, salads, sauces, and condiments. Panic-buying is evident. Some retailers raised the price of sugar, a regulated commodity, by more than 37%, triggering an anti-monopoly investigation.
2 of 2
Tea at a typical Moscow grocery is more costly at RUB246.99 rubles for 200 grams of loose leaf (up from RUB227.99 on March 1), and RUB128.99 for 25 tea bags (up from RUB74.99) before Russia invaded Ukraine.
India’s decision to bypass sanctions is a relief to tea and coffee exporters.
In late March, the two governments agreed on settling transactions outside the SWIFT payment system that has hobbled clearances at seven major Russian banks. Mir, an alternative payments system linking Russian-friendly banks, will enable five of India’s international banks to exchange rupees for rubles while hopefully avoiding entanglements from secondary sanctions when trading in US dollars. India exports $3.3 billion worth of goods to Russia and imports $6.9 billion. Last year India exported $71 billion and imported $41 billion in India-US trade.
The immediate benefit is settling overdue payments for tea already landed in Russia.
The Russian Federation and the Confederation of Independent States (CIS) were India’s most important customers for tea in 2021, importing 50 million kilos, second to Iran, which spends on average INRs100 per kilo for a better quality tea. Iran imported 40 million kilos of Indian tea in 2021.
Assam growers ship 42 million kilos of tea to Russia and three million kilos to Ukraine annually. Before the announcement, the India Tea Association predicted that “Assam will be the biggest sufferer because Russia and surrounding countries are its prime buyers,” ITA Chairman Nayantara Paul Choudhury told the Hindustan Times. A reduction in exports places a huge burden on growers who must continue to harvest rounds. A surplus of 45 million kilos would have caused rates to fall and likely close several gardens, said Paul Choudhury.
Tea exports to Russia were falling even before the Russia-Ukraine conflict, falling to $88.9 million in 2020-21 from $120 million in 2017-18, according to Commerce and Industry Minister Piyush Goyal. India seeks to expand tea exports to Iraq, Saudi Arabia, and Bangladesh.
Market Opportunity
The decision by Western suppliers to suspend tea and coffee shipments to isolate the Russian Federation is driving up prices amid scarcity that will peak before July. A Sakthivel, president of the Federation of Indian Export Organisations, a government-backed association representing 200,000 exporters, said international sanctions provide India an opportunity to expand market share.
“Now that the whole of the West is banning Russia, there will be lot of opportunities for Indian firms to enter Russia,” he told CNBC.
Logistics remain an obstacle as Maersk, the largest of the world’s shipping companies and European shipping companies, suspended service to Russia. Russia imports 97% of its tea by ship. Shippers that continue to deliver goods won't accept rubles due to the volatility of the currency. The exchange rate for rubles against US dollars plummeted to less than one cent in early March and has since recovered as Russia has propped up the currency. One hundred rubles now trades at $1.17, which is close to pre-invasion rates because Russia is demanding payment in rubles for its oil.
US Commerce secretary stated that any attempt by India to subvert sanctions on Russia would be "deeply disappointing." But Reuters reported that Washington would not set any "red line" for India on its energy imports from Russia but did not want to see a "rapid acceleration" in purchases.
US President Joe Biden has called India “somewhat shaky” amongst the Quad (Quadrilateral Security Dialog) members Australia, Japan, India, and the US. White House officials said India's stand at the UN, where it abstained on all votes censuring Russia, was "unsatisfactory but unsurprising."