Russia-Ukraine crisis: India's tea exports likely to be hit

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Tea planters and exporters are "extremely worried" over the possible impact on their shipments to Russia, India’s second-largest buyer of tea, in the wake of the Russia-Ukraine crisis. Western sanctions and disruption of payments in dollars, as well as transhipments to Russia, are expected as a fall-out of Russia launching an attack on Ukraine on Thursday.

"The Russian market for Indian tea is extremely important as there are payment issues for shipments to Iran, another vital tea export destination. Around 18 percent of India's tea shipments go to Russia," India Tea Association chairperson Nayantara Palchoudhuri told PTI. In the event of the conflict and possible imposition of sanctions by the US, exports to Russia would be "impacted adversely in the upcoming season", she said.

Palchoudhuri, however, said that any significant shock to the tea industry due to the crisis may not be witnessed immediately as the season is about to begin and the bulk of shipments takes place between May and October. Indian Tea Exporters' Association Chairman Anshuman Kanoria also said the industry stakeholders are "extremely worried" about the crisis.

"There will surely be economic consequences for tea exports in the near term. The impact we have seen straight away is the fall in the value of the Russian Ruble by almost 15 percent vis-a-vis the US dollar. When the Ruble becomes weak, the capacity of importers to pay also declines," he told PTI. The Ruble which was 70.43 to the dollar on October 24, last year, was worth 89.74 to the dollar on February 24, 2022.

Kanoria also said exporters are keeping a watch on how the war situation shapes up and the economic fall out of the crisis. Exporters also fear that payments which are usually in dollars may be affected if the US tightens financial sanctions. Palchoudhuri pointed out that if shipments to Russia get impacted, an oversupply situation may arise in the domestic market, resulting in a price fall.

"Russia and Kazakhstan are the main markets in the overall exports to CIS countries. Indian tea exporters while hoping that peace will speedily return are concerned about the impact on our tea exports of any possible economic retaliation by the West," Kanoria said. Exports to Ukraine are not significant with just 3-3.6 million kg being shipped out annually. European Union and the US have already promised unprecedented sanctions to punish Kremlin.

Kanoria also mentioned that the cost of operation for planters and exporters is set to go up with increasing oil prices in the international markets. Oil prices surged by nearly $6 per barrel Thursday after President Putin launched Russian military action in Ukraine. Brent crude oil jumped to over $100 per barrel on unease about the possible disruption of Russian supplies. "With the inflationary pressure, exports will get impacted not only to Russia but also to other countries," he said, adding that "freight rates continue to be sky high and the war will add to shipping costs and logistic woes".

"Flow of cargo to Russia would be affected if the war continues and it appears that the crisis will sustain. Most of our shipments go via Europe. Usually, feeder ships carry our consignments to Sri Lanka or Singapore and from there, mother vessels pick containers up and take them to European ports.

"Then, the containers are transported to Russian destinations. If sanctions are imposed, this system would be disrupted," said a logistics expert who was associated with shipment transportation to Russia.

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