Russia Panics As Tea Imports Are Held Up

Russian tea market has been struck by panic with Indian and Sri Lankan exporters holding back their shipments following a customs duty hike.

Tea industry officials fear that consumption would plunge by more than 12 per cent as a result of the government's decision to double the customs levy on tea to 20 per cent.

The hike in the import duty, which took effect on June 1, has pushed up tea prices and these are expected to rise further, said an expert from the Russian foreign trade ministry. Announced in advance, it led to large-scale hoarding of tea by the wholesalers triggering a price rise and shortages in April and May.

 

Russia could also face the problem of increased import of low-quality tea and large-scale tea smuggling.

Many tea exporters fronm India and Sri Lanka, who had already shipped this to Russia, kept their containers blocked in transit ports.

Russia is a key destination of tea exports from India, Sri Lanka and China. Officials from Indian and Sri Lankan embassies in Moscow said that they were taken by surprise when the Russian government decision to raise the import duty on tea reached them.

The single largest blow to Indian tea industry has been the loss of its biggest customer and the world's largest tea importing nation, the former Soviet Union which bought 50 per cent of all the tea exported from India.

India's tea exports to the former Soviet republics including Russia plunged by 70 per cent following the Soviet collapse. After a sharp decline, Indian exports to Russia recovered and hit a peak of 69,000 tonnes in 1995 an fell futher last year due to financing problems in the domestic Indian industry. Indian officials were expecting a recovery to the 1995 level this year.

But Indian tea exports will not be hurt as much as Sri Lanka because 80 per cent Indian tea shipments to Russia are in bulk and not pre-packaged.

The duty on bulk shipments remains unchanged at five per cent, Indian industry sources said.

Industry sources complain that the normal procedure for approving duties was not followed in this case - it should have been approved by a ministerial committee,which was bypassed probably due to interference from the finance and economic ministries.

It is not only Indian exporters who are worried by the hike in the import duty of tea. Even large Russian tea importers like Maisky Chai and Grant, who fear destabilisation of the Russian tea market, are upset.

"Through sustained efforts Maisky and other Russian tea importers had succeded in stabilising the tea market during the past six years. But now this market is in danger of being destabilised," said Igor Lysenko, head of Russia's largest tea importer, Maisky Chai.

Russian tea industry specialists fear that prices of low-value tea in the country might rise by 30 to 50 per cent, while prices for high quality brands could rise by 20 to 30 per cent as a result of the government decision.

Insiders believe that vested interests at top levels in the economic ministry were behind the hike to protect the interests of a particular tea packaging company in Russia.

Local press reports suggest that Nikitin tea packing company, the largest tea packing firm in Russia, which enjoys a virtual monopoly, will be the biggest beneficiary of the hike and has reportedly lobbied for this decision.

Nikitin is part of the powerful Alpha Group, a leading financial and trading conglomerate headed by Russia's former foreign trade minister Pyotor Aven.

Russian tea industry sources firmly believe that Aven who worked in connivance with present economic affairs minister Yakov Urinson, has succeeded in fixing this new tariff to protect the interests of the former's packing industry at the cost of the packed tea importers.

Nikitin company, which dominates the Russian packing industry, used to pack 95 per cent of the consumed tea in the former Soviet Union, but the flood of packed tea imports hit its fortunes.

The company today packs only a fourth of the tea consumed in the country. (IANS)

Russians, who are becoming increasingly quality conscious, have no faith in the quality of the tea packed in Russia as they believe it is blended with some low quality tea. That is one of the reasons why reputed Indian companies are not interested in exporting bulk tea and packing it in Russia.

"The move to support companies packing tea in Russia would also damage the overall quality of tea, bacause nobody can prevent mixing high quality tea with low grade tea," said Dr Borisov from Grant, another big Russian tea importer.

V.S. Sidath Kumar, Commercial Secretary of the Sri Lankan embassy here expressed his apprehension that quality of the tea is compromised in Russian packing factories, which is why his country is not interested in sending bulk tea to Russia. We cannot afford to compromise the quality of our tea," he told IANS. But he hoped that since high quality Sri Lankan tea was consumed by the richer strata of Russian society, the price rise would not affect his country's tea exports.

Maisky Chai, which has a packing factory in Sri Lanka, alone imports about 10,000 tonnes of tea from the island nation every year.

The Sri Lankan diplomat however expects to discuss the duty hike with the Russian government soon.

Russian tea industry sources believe that the hike in duty will not increase the revenue collection as much of the tea coming to the country is sumggled in.

There are a number of companies that charge up to $6,000 to clear containers when the actual duty for doing the job legally would cost about $15,000 according to the old tariff.

Even after the implementation of the new tariff, the charges for "black clearance" have not gone up much, thereby not benefitting the government in any substantial way.

"The government should tighten its clearance procedures instead of going for a sharp rise in duty if it wants to collect more revenue," an industry analyst said.

"Since most of the tea in the Russian market is smuggled, honest companies are also forced to go for illegal clearance just to survive," said an Indian trader. Importers would find a way to evade the higher tariff, the trader said.

"The government decision would result in decrease of imports by about 10 to 12 per cent through legal channels and increase illegal imports by 30 per cent," believe some specialists.