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Tea consumption increases during a crisis.
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Traditional Ukrainian Tea Set. Credit: Adobe iStock
Traders in Sri Lanka, India, and Kenya watched with trepidation as Russia, one of the world’s highest tea-consuming nations, besieged neighboring Ukraine.
Watch for:
- Immediate declines in auction prices
- Extreme tea price volatility
- Insurmountable logistics (UK/German flights banned and shipping companies representing 47% of container traffic suspend bookings to and from Russia)
- Spiking prices for fertilizer exported from Russia
“In the short term, it appears that there may be a very narrow window for shipments to get away, but this will be minimal, and likely risky for shippers,” according to Universal Commodities (Tea) Trading, Inc (UCTT). “More likely is that demand in Colombo and Mombasa auctions will drop dramatically in the coming weeks for the favored tea types (mostly black, leafy teas).
In an effort to stop Russia’s unprovoked invasion of its neighboring country, the US, UK, and EU joined by Japan and Singapore, and many of the world’s democracies shut down Russia’s ability to conduct business with their banks, leading the ruble to suffer the most significant devaluation in that currency’s history.
Independently Germany's Hapag-Lloyd and Copenhagen-based Maersk and MSC suspended booking to and from Russia. Singapore-based ONE also suspended some shipments. Bloomberg, quoting Alphaliner, reports that "combined, those four carriers control about 47% of global container shipping."
Flights originating in Russia were denied permission to land in Europe and the US, and in retaliation, Russia denied entry to aircraft from 36 countries. DHL, UPS, and FedEx ceased delivery services, disrupting tea shipments by air as Ukrainian ports closed under bombardment.
Consider a stop for lunch with tea at a local Russian café. The cost is typically 1,000-1500 rubles. On Monday, the ruble fell in value to less than 1 US cent ($0.0096). A week ago, the ruble traded around $0.013, about 75 rubles to the dollar. Dollars on Monday traded as high as 118 rubles. The threat of inflation immediately soared as Russian consumers anticipated shortages and withdrew their maximum allowance at ATMs. “Even with some leeway given for “foodstuffs” being permitted [as with Iran], the decimation of the ruble is likely to severely impact the Russian consumers ’buying power,” writes UCTT.
Russians drink three pounds of tea per person on average, importing 150,000 metric tons annually. Ukraine imports 17,000 metric tons of mainly black tea across several grades. India, Sri Lanka, and Kenya make up 65% of imports. China, Vietnam, and Indonesia supply 25%.
The steep fall in the currency makes transactions with all trading partners far more expensive for Russians, making it less likely to see spending on the broken and whole leaf grades of tea.
The spring harvest has yet to begin and there is little tea on the water now. Shipments peak between May-October for India which retains landing and airspace rights in Russia and sends little tea to Ukraine.
Shipments to Russia totaled 37.6million kilos in 2020, approximately 18% of Indian exports. Russia imports a much more significant percentage of Sri Lankan tea, accounting for about one-third of exports. In 2021 Russia purchased about 30 million kilos of the 285 million kilos exported by Sri Lanka.
“The Russian market for Indian tea is extremely important as there are payment issues for shipments to Iran, another vital tea export destination,” India Tea Association chairperson Nayantara Palchoudhuri told PTI as reported in the New India Express. “Around 18% of India's tea shipments go to Russia."
“There will surely be economic consequences for tea exports in the near term,” said an ITA spokesperson, citing the immediate problem of the crash of the Russian ruble against the US$ dropping up to 15% last week alone. ITA says that although Ukraine is not a big export market for India, “Russia and Kazakhstan are the main markets in the overall exports to CIS countries. Economy Next reports that Sri Lanka’s tea industry is also worried about the developments in the Russia/Ukraine situation
Russia is also the world’s largest exporter of fertilizer, an input essential to tea that rose in price to unprecedented levels during the pandemic and will now increase even more as oil prices tops$100 per barrel.
This week, the US government notified fertilizer companies not to take “unfair advantage” of the Ukraine conflict to impose unjustified price increases. Shares of major nitrogen-fertilizer producer CF Industries Holdings Inc. surged to a record high Thursday as Russia’s attack on Ukraine threatens to disrupt global supplies of the crop nutrient, reports Bloomberg News.