The Russia-Ukraine conflict has caused numerous impacts on the world’s tea export. In this article, FGC will provide many important points about how it has affected tea exporters because of transportation interruption, Russia’s exclusion from SWIFT, and high competition in other markets.
Contents
Introduction
Since early 2022, Russia-Ukraine conflict has gained a variety of concerns. In addition to raising worries regarding global security, the long-lasting war has a negative influence on many sectors of the global economy. In particular, the tea industry has suffered a lot.
What to know about the Russia-Ukraine conflict?
The conflict between Russia and Ukraine has expanded since February 2014. Then on 24th February 2022, the world witnessed Russia’s full-scale invasion of Ukraine, making it the largest conflict in Europe since World War II. This ongoing war has caused thousands of deaths as well as numerous displaced people.
Moreover, this conflict has also led to serious damages in other aspects of life, including food, economy, energy, and security. It is because Ukraine and Russia are the main exporters of wheat, barley, corn, and cooking oil. Russia is a key supplier of fertilizer, petroleum, oil, and fuel. Disruptions to the flow of these products are worsening other supply chains, raising food and gas costs, and creating shortages in some areas like Sri Lanka and India.
Source: https://www.npr.org/2023/02/22/1157106172/ukraine-russia-war-refugees-food-prices
What is the importance of Russia in the global tea industry?
After being brought to Russia in the 17th century, tea has seen an increase in popularity. Tea is widely regarded as Russia’s national beverage and is consumed in most Russians’ daily lives. Russia was ranked as the fourth-largest tea import nation in 2021, at about $414M. It imports about 150 thousand tons of tea every year, and Russians drink an average of three pounds of tea per person.
In 2021, India, Kenya, and Sri Lanka were three key tea suppliers for Russia, which accounted for 61.8% of Russian tea imports. Among them, the largest supplying market has been Sri Lanka, at around $112M. Russia is one of the biggest global tea importers of loose tea, including black and green tea. While black tea has been dominant in Russia for a long time, organic tea is a new trend and increasing demand.
Due to the high demand for tea as well as the development of tea culture in Russia and surrounding areas, this nation is a significant key element in the world tea industry.
How does the Russia-Ukraine conflict affect tea exporters?
Due to the continuous Russia-Ukraine conflict, ever-tightening sanctions, and pressure from the West and other countries, global tea manufacturers keep leaving Russia and its market, causing a loss in their revenues.
India
As a result of Russia-Ukraine conflict since February 2022, trade in the Black Sea region has been disrupted, and exports to Russia, a crucial market for Indian manufacturers of pharmaceuticals, engineering, and tea, nearly collapsed. According to the Tea Association of India present, the shipment of Indian tea, which has been damaged by Covid-19, is aggravated even further because of this war. Not only in Russia but tea trading of India in the whole Commonwealth of Independent States has also been affected. This might lead to the redundancy of tea in the Indian domestic market, causing an oversupply situation and price fall.
Kenya
A month after the invasion, the tea export volume of Kenya to Russia declined by 74% due to market access challenges, according to the Tea Board of Kenya. Regarding tea volumes, Russia used to be the fifth-largest buyer of Kenya, but its position dropped to eleventh in March 2022. Instability and financial difficulties experienced by Kenya’s biggest buyers have put its tea industry under pressure.
Sri Lanka
According to data, tea exporting volumes and proportions of Sri Lanka had significantly changed in the five months to May 2022. It is recorded that tea exports from Sri Lanka to Ukraine dropped by 55% and to Russia decreased by 19.4% to 8.4 million kilograms. Additionally, there was a decline of 57% in exports to Turkey which borders Ukraine.
What are the factors affecting the global tea trade?
The ongoing Russia-Ukraine conflict causes many challenges for global tea exporters because of the following factors:
Transportation interruption
Tea is a vulnerable good that may suffer damage or quality degradation if kept in containers or exposed surroundings for a long time. Tea shipments by air have been adversely affected because of the ongoing conflict. Flights of Russian origin were denied permission to land in Europe and the US, and as a reaction, 36 other countries were banned access into Russia. Besides, as Ukrainian ports like Odesa had to shut down due to bombing, DHL, UPS, and FedEx stopped providing delivery services.
Inflation and scarcity of gas and fuel also negatively impact international freight charges. Due to the increasing security concern, many shipping lines have refused to ship to and from Russia, leading to shipping cost and delivery time increases. According to a record, the planned amount of imported tea in Russia had decreased by half in March and April 2022.
Russia’s exclusion from the global payment system SWIFT
The exclusion of Russia from the global payment system SWIFT has put businesses that supply tea to Russia in a challenging condition. It is because of the difficulties in conducting transactions, which is not smooth as it was in the past. For tea exporters, the disruption in the payment process had an impact on their export plans to Russia.
One of the results of these sanctions is that the ruble experienced the most significant devaluation in that currency’s history. The decrease in currency value results in difficulties in trading with partners because they have to pay significantly higher, causing a decline in tea demand of all grades. The ruble plunged a record 30% because of new sanctions.
With the ban, Russia could not access any financial markets around the world. VISA and Mastercard’s operations in Russia were recently halted. This means that any Mastercard issued in Russia cannot be used for transactions outside of Russia. Even Visa cards issued in this nation cannot be used within Russia, impacting both tea exporters and importers in Russia.
High competition in prices and other markets
Because of many restrictions in Russian markets, tea exporters are trying to approach other markets such as Asia and Europe. However, it will be quite challenging because of high competition and strict standards in the new targeted markets. Along with the rising of energy and fertilizer prices, the availability of a large quantity of tea can lead to product price falling, causing serious loss to businesses.
Conclusion
The war has been ongoing every day, and no concessions have been seen between the two countries. Therefore, it is necessary for tea exporters to adjust their strategy to adapt to the circumstances. Perhaps they should diversify their supply chain by focusing on other importers instead of Russia or surrounding regions.
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Source:
https://stir-tea-coffee.com/tea-report/russia-attacks-ukraine-tea-industry-unsettled/
