Sri Lanka-Iran barter deal to hit India’s tea exports 

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Last Updated15/01/2022

The barter trade agreement between Iran and Sri Lanka put India in a disadvantageous position.
Sri Lanka will send orthodox tea or whole leaf teas to Iran to pay off its oil purchase dues.
Iran buys orthodox teas only for its domestic consumption, and India has been one of the biggest suppliers of orthodox teas to the West Asian nation.

Sri Lanka has entered into a barter trade agreement with Iran to pay off its earlier debts against oil purchases.
Sri Lanka will send orthodox tea or whole leaf teas to Iran to pay off its oil purchase dues.

India has been one of the biggest suppliers of orthodox teas to Iran.
In 2019, India had exported about 53 million kg of tea to Iran.
Tea exports to Iran plunged to 29 million kg in 2020 and fell to 21 million kg in the first 10 months of 2021 due to the payment crisis.

Tea was first introduced commercially by the British in 1824 to compete with neighbouring China's tea production monopoly.
Tea is an evergreen plant that mainly grows in tropical and subtropical climates.
Well-drained fertile acidic soil on high lands with moderate to high rainfall is needed to grow tea.
The main tea-growing regions are in the Northeast (including Assam) and in north Bengal (Darjeeling district and the Dooars region). Tea is also grown on a large scale in the Nilgiris in south India.

India is the world's second-largest producer of tea after China.
89% of the tea produced domestically is consumed in the country itself. Making India largest consumer of tea in the world.
Tea worth $704.36 million was exported overseas in FY21; Russia, Iran, UAE, the US and China are leading markets for export of Indian tea
Despite this reputation, India has not been able to capitalise on its potential for tea export; India is the fourth-largest exporter (11% of global exports) after Kenya (28%), China (19%), and Sri Lanka (14%).
A variety of reasons such as lack of access to capital, inefficient supply chains and non-adaptability to changing trends and technologies can be held responsible.

India was the largest tea exporter to Iran before the US sanctions, but after that the rupee-rial trade with Iran came to a grinding halt.
The United Nations had imposed sanctions on Iran a few years ago but allowed Iran to import food products like tea, and India to import petroleum products.
India and Iran agreed on a Vostro payment mechanism, through which a portion of oil import proceeds was converted to rials and then to rupee.
UCO Bank was authorised to deal with all payments in rupee. Gradually, India established itself as the largest tea exporter to Iran, replacing Sri Lanka, which did not have any special payment mechanism in place with Iran.
The system was severely affected when the US imposed further restrictions on Iran and oil imports were stopped after May 2019.
The Vostro account thus shrank and since end-2019 payments were severely affected. The Central Bank of Iran restricted rupee allocations and all payments were delayed for a long time.

Exports to Iran may further come down by 15% in 2022, said Mohit Agarwal, Director at Asian Tea and Exports, which exports tea to Iran.
The situation is unlikely to improve unless India starts importing oil from Iran.

The situation can be improved once India starts importing oil from Iran.
India have to support Iran in international platforms so it manages to get access to dollar payment system which is currently blocked by the US.
Use of Chabahar port and further development of INSC to improve Iran's financial position and help them earn foreign currency.

Sri Lanka-Iran barter deal to hit India’s tea exports&nbsp;