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Russia is a blend of ethnicities all of whom drink tea. The majority are Eastern Slavs, of which 81% identify as Russians, Ukrainians (3%), and Belarusians (1%). Together they account for about 85% of the population. The remaining 15% are divided among more than 100 minorities, including Tatars (3.8%), Chechens (1%), Ingush, and 30 Caucasus peoples collectively classified as Dagestani occupying the northern Caucasus Mountains. The Uralic group of Finnic peoples is concentrated in the upper Volga. The Altaic peoples who speak Turkic languages live in the southern Ural Mountains and above the Arctic Circle. Photo credit: Adobe iStock
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Azercay Tea
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Araz Yaqubov in the Istisu settlement of the Lankaran region, owner of the 70-hectare Yaşılçay (Green tea) farm. Depending on the variety and quality, the price per kilo of local tea in the domestic market ranges from $4.70 to $29.00 (8-50 Manats), according to Yaqubov. Recently, farmers say, the demand for local tea has increased markedly, making export less appealing. Photo by Mainbayar Badarch
Russian tea consumers are discerning, preferring broken leaf grades of loose leaf black tea imported from Sri Lanka and India to teas grown along the shores of the Black Sea. According to the International Tea Committee, neighboring Georgia, which in 1991 supplied the USSR with 95% of its tea, manufactured only 5,000 metric tons in 2020, with only 200 metric tons exported to Russia. The rest went to neighboring countries. As tea lands and brands shun Russia, will the nearby “Stans” fill the gap?
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Russia’s 140 million kilo thirst for tea will soon be quenched by an unanticipated and largely unfamiliar cadre of Asian suppliers, including neighboring Pakistan, Kazakhstan, Azerbaijan, Turkey, Georgia, Vietnam, and China.
Also, look to Rwanda, Tanzania, and Zimbabwe to enter the race to grow market share abandoned by Western tea suppliers. Before the Ukraine crisis, market researchers forecasted that Russia’s tea segment would generate $4.1 billion in 2022. The latest round of sanctions makes it likely that inflation-adjusted economic activity will decline from 10% to 25%. Inflation is currently 8.9%.
India’s decision to bypass international sanctions, and a production crisis in Sri Lanka, mean that India will replace Sri Lanka as Russia’s top tea trading partner in 2022 (by value). Trade with India declined 17% to $92 million during the first year of the pandemic, and India exported only $85 million worth of tea to Russia in 2021, but circumstances point to more than $100 million in sales in 2022, mainly at Sri Lanka’s expense.
Prices were already an obstacle to Russian imports of Sri Lankan tea. Export volume destined for the Russian Federation has declined from 46 million kilos in 2013 to 27 million kilos last year. Russian imports of Sri Lankan tea were valued at $124 million in 2020, the highest of all tea trading partners.
Third-ranked supplier Kenya, which sold Russia $54 million of tea in 2020, voted to censure Russia and is abiding by sanctions, making it likely that the United Arab Emirates will advance to become Russia’s second most valuable tea trading partner. China certainly can increase its share. The country shipped 15,300 metric tons of tea to Russia in 2020, less than 5% of the total 348,815 metric tons of tea China exported that year.
Western tea won’t soon return
According to the International Trade Center, the European Union has long been Russia’s primary trading partner, accounting for $322 billion in trade. The invasion of Ukraine in February reset that relationship overnight as virtually all of Western Europe, including the EU and UK, suspended business with Russia. Germany and Poland were among Russia’s top premium packaged tea suppliers. In addition to government sanctions, individual tea brands announced they would no longer supply Russia so long as Ukraine still is under siege.
As stocks dwindle, logistics is the top consideration for Russian tea sellers, already resigned to paying upfront in devalued currency when consumers are trading down in quality. The withdrawal of western competitors like Yorkshire Tea and popular German brands is of little concern to grocers who are forced to mark up local brands like Orimi and May to premium prices. In February, the tea aisle in a typical Moscow grocery store displayed aggressive discounts as 35 brands competed for attention. A month later, prices are up 10% to 15%, and no merchandising discounts are visible. In eight weeks, almost all western brands will disappear from shelves.
Will nearby “Stans” fill the gap?
Pakistan abstained from the UN vote calling for Russia to withdraw its forces, and is ignoring sanctions. Last month trucks carrying 140 metric tons of cargo from Mumbai arrived in Uzbekistan through Pakistan and Afghanistan. According to the Economic Times, the shipment was offloaded in Karachi and trucked to its Uzbek importer, a first linking Central and South Asia. Pakistan is the world’s most crucial tea importer by value at $600 million.
According to the UN COMTRADE, in 2020, Kazakhstan’s tea exports to Russia grew 49% to $14.4 million.
Shipments from Azerbaijan fell 41% to $1.5 million due to the pandemic, but Azerbaijan shows renewed promise. The country recently introduced incentives for farmers to increase to 3,000 hectares under tea and set a green leaf target of 8,500 metric tons annually by 2027.
In the first two months of 2022, Azerbaijan exported 110 metric tons of tea worth $892,000, primarily to Russia. Additional markets include Georgia, Ukraine, and Kazakhstan. However, most Azerbaijan tea is consumed locally. During the past seven years, about 750 metric tons were shipped annually to Russia, which had declined since 2011 to 337 metric tons, with the most significant drop during the first year of the pandemic when migrant tea workers were prevented from traveling, and leaves went unpicked. Exports to Georgia now account for 47% share, and sales to Russia declined to 25%. That will change as Russia struggles to source tea in 2022. Azercay is popular in Russia and fast-growing, but premium tea brands are adversely affected by currency devaluation and rising food prices.
Azerbaijan did not vote in the United Nations General Assembly against the Ukraine invasion, hinting at neutrality. Ramaz Chanturiya, Director General of the Russian Association of Tea and coffee producers “Rusteacoffee,” claimed recently: “Prices for the imported tea to Russia are seriously dependent on the dollar exchange rate, and therefore, in the near future, purchase prices for stores may increase in proportion to its change.”
Mainbayar Badarch contributed to this report.