Climate Change: India’s Tea Industry Selling More Product To Iran, But Future In Jeopardy

The Indian tea industry is not only witnessing shifts among its global buyers, but also suffers from stagnant growth partly due to climate change and its impact on tea plantations.

With respect to foreign markets, Iran is about to replace Russia as the biggest importer of Indian tea this year despite a flurry of U.S. sanctions on Tehran.

Through the first nine months of this year, Iran imported about 48,237 tons of tea from India, a 115.7% surge from the first nine months of 2018 that generated earnings of $172.84 million for India.

In contrast, tea exports to Russia dropped by 11.5% in that period to 45,988 tons while earnings from this trade contracted by 13% to $97.81 million.

While Russia has historically been the biggest importer of Indian tea – typically accounting for 25% to 30% of all Indian tea exports – so far this year it has tallied a 22.85% share, versus 23.97% for Iran.

But selling anything to a pariah nation like Iran is not easy.

To get around U.S. banking sanctions, under a complex trade agreement and payment mechanism between New Delhi and Teheran, India receives payments from Iran in rupees and deposits them into Iran’s account against the oil India purchased from Iran. Iran then uses these funds to make payments to Indian exporters for goods sold to Iran in rupees. The transactions are conducted through India’s UCO Bank.

“This trade agreement has not only helped India sustain the [tea] market but expand it as well. While [tea] exports from other countries faced uncertainty, Indian exporters were able to eat into the competition and gain market share,” an Indian tea planter told the Business Standard newspaper of India.

Indeed, another tea exporting nation Sri Lanka found some difficulties in dealing with U.S. sanctions against Iran. As a result, between January and October, Sri Lankan tea shipments to Iran dipped by 9.5% compared with 2018.

A.K. Ray, deputy chairman of the Tea Board of India, an agency of the Indian government, noted rising tea exports have been accompanied by increasing export prices – about 11% higher than last year.

Ray said export prices rose because the government insisted on higher quality tea slated for overseas sales.

While tea exports to Iran have surged this year, overall tea shipments were basically flat compared to 2018. Through the first 10 months of 2019, India exported about 227,837 tons of tea, down slightly from 229,677 tons in the same period last year.

Moreover, India may fall short of its tea export targets in 2019.

Bijoygopal Chakraborty, president of the Confederation of Indian Small Tea Growers’ Associations, said: “It is good that the exports have remained steady in the current year and there has been a marginal increase in prices. This would surely help the industry. But going by the quantity, we are still lagging behind the target of exporting around [330,693 tons] of tea.”

Sumit Ghosh, the secretary of the Terai branch of the Tea Association of India, added that higher tea imports to Iran, the U.S. and Bangladesh have been offset by a decline in imports not only to Russia, but also the U.K., Kazakhstan, United Arab Emirates and Pakistan.

“The current trend of exports indicates that we might end up close to [264,554 tons] or so at the end of this year,” said a tea planter based in Siliguri in West Bengal. “But we must simultaneously keep in mind that a number of other countries like Sri Lanka, Kenya and Vietnam, which have started producing tea of late, are steadily gaining overseas markets. That is why [the] consistent promotion of Indian tea and maintenance of quality are necessary.”

Part of the stagnant growth in Indian tea exports can be attributed to a decline in production in southern India – which has endured a 10% drop in output from last year. South Indian tea varieties usually account for a 17% share in India’s total tea production and a 40% share in the country's tea exports.

Some local planters are blaming climate change.

For example, the Nilgiris district in the state of Tamil Nadu, one of the largest tea producing regions in the south, received rain for 20 days in October, but less than four hours a day of sunshine on average.

"Climatic conditions aren't conducive for crop production,” said R.M. Nagappan, president of the United Planters' Association of Southern India. “[The] April-May [period], the peak production season, is gone and recouping the crop is difficult.”

Arjunan, a small tea grower in Avalanchi in the Nilgiris, said: “We have witnessed very freak weather patterns since the beginning of this year 'til now, at regular intervals.”

A severe frost hit tea leaves from December 2018 until early February 2019, followed by sub-zero temperatures for many days, he said.

“Even as the tea bushes started recovering from the intense cold conditions in February-March, the flare-up in temperatures during April-May gave us a shock for the second time, impacting the production of leaves yet again,” Arjunan added.

This period was followed by unusually heavy rains.

“One day in August, it started pouring and never stopped for almost three days, triggering a deluge in the region,” he added.

H.N. Sivan, founder and president of the Nilgiris Nelikolu Micro & Small Tea Growers and Farmers’ Development Society, pointed out the region around Avalanchi received nearly three years of annual rainfall in only about three or four days this year. This caused a huge erosion of topsoil.

“We have lost an average of 60% of the crop this year due to these freak weather instances,” Arjunan said.

An elderly tea worker named Radhakrishnan warned: “We have never seen this kind of a rainfall in our lifetime.”

Meanwhile, Indian tea exports to neighboring Pakistan have suffered a particularly dramatic decline this year – plunging by more than 50% so far this year.

Pakistan is actually the world’s biggest tea importer – it imports about $560 million worth of tea every year, versus $490 million worth of imports by Russia, in second place.

However, political tensions between India and Pakistan have been especially bad this year, leading to a reluctance by many Indian tea planters to do business with a country often viewed as India’s number one enemy.

“Pakistani [tea] buyers usually don’t falter on payments,” said an Indian tea exporter. “Our trade relations with them were good until recently. But the [February] Pulwama attack earlier this year hit exports. And now, the situation has worsened. We are unsure if payments would come if we sent them consignment.”

After the Pulwama attack -- in which a convoy of 40 Indian police personnel were killed in Kashmir by Pakistan-based Islamist militant group Jaish-e-Mohammed -- India spiked import tariffs on all Pakistani goods to 200%, even though Pakistan kept its import duty on Indian tea at only 11%.

But Pakistan has usually been a good customer for Indian teas, especially the lower priced tea varieties from southern India. During prior periods of political strife, Indian tea exporters often rerouted their product to Pakistan through a complicated trajectory via a third party, usually Dubai, Kazakhstan or even Egypt.

“This time, however, such rerouting of tea is also not happening,” an Indian tea exporter said.

Pakistan is now importing 80% of its tea from Kenya.