STiR coffee and tea magazine

STiR coffee and tea 19 India, Indonesia, and Sri Lanka exporters rely so much on Russia that they are determined to discover a route of safe economic passage. Russian buyers at auction account for 20% of India's tea exports and nearly the same percent- age from Indonesia. In 2020 Sri Lanka exported 30,400 metric tons of tea to Russia, about 10% of Sri Lanka's tea exports. Bartering grain and fertilizer is promising. India has a history of bartering for wheat with the Soviet Union, but any country aiding Russia can suffer a backlash. Origins willing to ship cheap tea without concern for foreign exchange dollars hold an advantage. Low-priced tea from Tanzania, Burundi, and Uganda may find Russian buyers in Mombasa, but transport remains an issue. Neither China nor Vietnam recognizes sanctions. China is actively thwart- ing efforts to cripple Russia's economy by processing payments and making available reserves held in yuan. China is also participating in Russia's ruble- based payment system. The Belt and Road rail network is practical for tea arriving from Vietnam and China, but 85% of Russia's tea market is leafy and lower-grade black teas China's $17.7 trillion economy is 10 times greater than Russia's $1.7 tril- lion gross domestic product, causing cynics to observe that running up an enormous debt that will make Russia a conveniently adjacent "cornfield and gas station." Unlike the West, where households spend less than 15% of their earnings on food, a 2021 consumer survey of Russian households found that 60% spend half their monthly income on food. Demand for tea will remain high. Market researchers estimate 98% of the country's 144 million people drink tea, but they are likely to trade down to lesser grades of tea. Russians are not rich, earning a per capita average of $11,700 US last year, down from the pre- pandemic average of $12,100 a year, according to World Bank statistics. Flight of the multinationals Coca-Cola, PepsiCo, and Starbucks, each with billion-dollar tea brands, an- nounced that they will no longer do business in Russia. Unilever, the world's third-largest tea company, halted all Russian imports and exports and stopped advertising its entire portfolio but will continue to sell food products manufactured at five Russian facilities. Nestle (Nestea 1 ) an- nounced closing three factories that make powdered and liquid beverages and employing 5,000 workers. UK-based Ahmad Tea and Unilever/Ekaterra each have about 6% market share (down from 10% in 2010). Avalon and Akbar are well-established niche brands with a single-digit mar- ket share. Azurcay (5% market share) is experiencing fast growth in specialty retail and grocery. The brand was founded in 1996 in Azerbaijan. Chinese tea brands, mainly marketing green, and oolong tea can be found in specialty tea shops. Local brands like Krasdonar [Krasnodarskyi] are popular in Sochi This is the first modern instance of tea companies independently retaliat- ing with their economic might to affect political change. 1 https://www.nestea.com/ru/ 2 https://www.washingtonpost.com/business/2022/03/04/ sanctions-food-prices-ordinary-russians/ Thomas L. Friedman writing in the New York Times, explains that Russia "completely underesti- mated the ability of companies and individuals all over the world to participate in and amplify eco- nomic sanctions on Russia — far beyond anything governments initiated or mandated." Removing European and US tea brands from the market will not significantly reduce consumption. The impact of withdrawing even well-known brands like Lipton is minimal as foreign packaged tea is now priced too high for facing 40% food inflation. Winding down the war "I think that the trade in foodstuffs, including tea, should be restored to normal fairly quickly once hostilities end," said ITC's Gibbs. But a cease-fire in Ukraine is uncertain. A long-term insurrection means sanctions could remain in place for years. Like bread and milk, tea is viewed as an essen- tial. Brand owners say government directives 2 dis- courage grocers from increasing prices. "It's not a fast process," explained one brand owner who was astounded to see price adjustments within a week after sanctions were announced. Rules controlling prices and limiting purchases to prevent hoarding did not list tea. Retailers agreed to limit markups to 5% on dairy, baked goods, and sugar. Tea is not alone; other commodities are con- tending with the same problems, observes Gibbs. Gibbs said, "I personally believe that it's a blip – it's going to take time to sort things out, but new opportunities are invariably out there waiting to be explored – and we have to find them." Leading tea exporters and exports to Russia (2020). China Georgia India Indonesia Iran Kenya Sri Lanka Vietnam Total Production 2,986,016 5,000 1,257,530 126,000 19,000 569,536 278,493 186,000 Total Exports 348,815 1,800 203,565 45,265 7,000 518,921 262,726 130,000 Exports to Russia 15,300 200 39,200 8,500 600 25,100 30,400 13,000 %age of total exports going to Russia 4.39 11.11 19.26 18.78 8.57 4.84 11.57 10.00 Increases in retail prices for essential goods in supermarkets must keep within government guidelines. Grocers, for example, were advised to limit price increases to 5% for dairy, bread, and sugar. Tea is considered an essential foodstuff and therefore not subject to sanctions, but food inflation at 40% in some categories limits sales. The average Russian family in 2020 spent half of its earnings on food.

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