The Russian tea sector is facing tough times as the ever-tightening sanctions against Russia and the tough business environment in the country puts serious pressure on the sector.
According to official data from the Russian Federal State Statistics Service (Rosstat), as of July 2024, the rate of inflation in Russia is estimated at about 4% on a year-on-year basis. Still, most independent analysts believe the rate of inflation is actually several times higher than the official figures of Rosstat. The record rate of inflation is also observed in the tea sector of Russia.
In accordance with the recent report published by the local Moskovskaya Gazeta business paper, the high rate of inflation and the current problems with exchange rates (caused by sanctions imposed by the US on the Moscow Exchange) lead to the ongoing growth of prices for tea in the Russian market, as well as the growth of costs for local producers and processors.
According to Dmitry Leonov, deputy chairman of the Russian Food Union (Rusprodsoyuz), at present, the average retail prices for black tea in Russia are 1243.4 rubles (US$14)/kg and 1349.8 rubles/kg in the case of green tea. This is a high figure for Russia, despite the fact that in recent months the purchasing power of many local citizens has significantly increased due to the booming military and industrial sectors, which creates thousands of new jobs throughout the country.
In this regard, most local analysts expect the decline of tea production in Russia this year, as despite historically high demand for tea among Russians, according to data of the Russian Tea and Coffee Association, its consumption has been steadily declining since the 2010s.
Data from the Russian INFOLine research agency showed that last year tea production in Russia had already decreased to 135.900 tons (-7.4%), and there is a high possibility the same negative dynamics will be observed for the entire 2024 year.
In sales’ terms, according to Nielsen data, during the period of February 2023- February 2024, tea production in Russia fell by 6.2% in volume terms, while exact figures are not disclosed.
As for production, most of the raw materials for tea production in Russia are grown in the Krasnodar region (located in the North Caucasus region of Southern Russia). Last year, the gross tea harvest in the Krasnodar Territory amounted to 402.300 tons, which is 10% less than in 2022 (446.800 tons). The local Matsesta Tea holding remains one of the major tea growers and received a harvest of 312 tons of fresh tea leaves in 2023.
About 60% of tea is imported into Russia from abroad. These are mainly tea leaves, which are imported into Russia as raw materials, being packaged locally.
According to INFOLine analysts, about 80% of imports come to Russia from five countries: Sri Lanka, India, Kenya, China, and Vietnam. Currently, the dependence on imported raw materials remains the Russian tea market's main problem. In Russia, except for the Krasnodar Territory, there are almost no climatic zones suitable for tea plantings, while the existing plantations in the Krasnodar Territory and the Adygea Republic cannot meet the domestic demand.
In terms of market structure, the major players in the Russian tea market are mostly domestic companies, such as:
- Orimi Group of Companies: About a third of the market, with its main brands Greenfield, TESS, and Princess Noori
- MAY-Foods: 20% of the market, with the RICHARD, CURTIS, MAYSKY, Lisma, and Zavarkin brands
- SDS-FOODS LLC: Distributor of Ahmad Tea
Prior to February 24, 2022, a substantial part of the market was controlled by foreign players, however, after the beginning of the Russian-Ukranian war, most of them have been forced to significantly cut their presence in the local market and even completely leave it.
For example, last year, the Dutch company JDE Peet's stopped selling its foreign tea brands on the Russian market, and currently only its local brands are still present in Russia. In addition, last year, the local tea producer United Tea Company acquired the Russian assets of Ekaterra and primarily the factory in St. Petersburg, which had the capacity to produce 16,000 tonnes of Lipton tea annually.
At present, 93% of the market accounts for domestic producers, while the share of foreign players continues to decline. In recent years, many of the leading local players have signed long-term contracts with retail chains for the production of tea under private labels. According to analysts, as the current economic situation in Russia remains tough, private label tea is becoming more in demand due to the low price.
In general, the Russian tea market is characterized by strong traditional consumer preferences. Black tea is the most popular variety in Russia, occupying about 80% of the market.
There is also the ever-growing interest in non-standard types of tea, which are becoming an alternative to sweet carbonated drinks or bottled iced tea with added sugar.
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