Indian tea companies are bullish about increasing trade with Iran after Uco Bank clarified to tea companies that the Rupee-Rial trade agreement with its West Asian neighbour will continue, while exporters expect the Iranian tea market to grow by over 15-20 per cent this year.

In 2018, tea exports to Iran, India’s second-most important tea market, shot up only by around 3.5 per cent in terms of volume. However, Indian producers and suppliers argued that the low growth was due to a lack of clarity on whether the Rupee-Rial trade agreement would continue in the face of US sanctions on this major oil-producing country and if at all payments would come on time as Iran is likely to face a shortage of US dollars in its exchequer.

“However, it is clear now and Uco Bank is handling the payments. Iran as a market, is also expected to grow by 15-20 per cent this year”, Vivek Goenka, chairman at the Indian Tea Association (ITA), said.

The ITA, as well as, exporters to Iran reasoned that during 2016 and 2017, when the threat of US sanctions was not looming on Iran, India had a stabilised tea trading environment with this country, tea exports surged by over 74 per cent at 29.57 million kg (mkg).

Data from the Tea Board of India also highlights that after India got an exemption from US to trade with Iran, exports to this country increased by over 109 per cent at 5.9 mkg in January this year.

During 2011-12, after the former Obama administration in the US effected its previous trade sanctions on Iran, the Indian and Iranian governments put in place the Rupee-Rial payment mechanism for trade, where up to 45 per cent of India’s purchases of Iranian oil could be paid back in rupees covering tea, rice, medicines and commodities not sanctioned by the UN.

Although the $10.6 billion worth of trade between India and Iran majorly comprises oil imports from Iran, accounting for $8 billion, Indian exports to this country – primarily tea and basmati rice - make up for $ 2.6 billion.

Goenka, who is also the director at Warren Tea Ltd, expects that the surge in Iranian demand for Indian tea, particularly the orthodox variant, will help improve prices by at least 10 per cent this year.

Tea Board data shows that in January, which is one of the leanest months in the tea industry, the average price of tea, per kilo, exported directly to Iran, improved by 5.5 per cent at Rs. 263.20 leading to forex earning of Rs. 155.29 crore in January alone from the tea trade with Iran.

“The uptick in demand is expected to continue in the second half of the year as well”, Atul Asthana, CEO and managing director at the Camellia PLC owned Goodricke Group, said.

Moreover, according to Asthana, US sanctions will also help India further its direct exports to Iran and replace Ceylonese tea from Sri Lanka.

In the prime orthodox tea market (handmade tea in the traditional method), Ceylonese tea primarily competes with Indian tea.

While India enjoys favourable trade terms with Iran, this West Asian country pays Sri Lanka in dollars which are now scarce in Iran.

Indian tea is also routed to Iran via Russia and UAE. Some of the Indian exporters bill the tea to a merchant buyer in these countries, who thereafter ships it to Iran. At times, this produce is also billed to a foreign subsidiary of an Iranian tea buyer.

In November last year, several major tea companies in India had curbed production of orthodox teas over uncertainty in trade with Iran.