The Russian tea industry will face a serious shortage of raw materials this year, due to the ongoing war with Ukraine and unprecedented sanctions imposed on the country – which could result in significant growth of tea prices in the local market.
Ramaz Chanturia, general director of the Russian Association of Coffee and Tea Producers, said the biggest concerns of domestic tea producers are currently the supply of raw materials, which is under serious threat due to difficulties in logistics. This is especially important, he noted, as Russian tea producers almost completely import raw materials for their needs.
However, Chanturia said the situation may stabilize thanks to the opening of new trade routes, which is in development.
“Now, everyone is worried about how the supplies will turn out,” Chanturia said. “I would say that in the very short term, the situation is complex but still manageable. However, we expect serious turbulence in the market within the next one to two months.”
According to Chanturia, transport corridors have narrowed, delivery times have increased, and requirements for full prepayment have risen – all due to sanctions. He added that March-April specifically showed a drop in planned imports by almost half.
“While the situation in retail chains remains stable – as there are enough stocks – manufacturers also still have some stocks, as production is concentrated in Russia, given that up to 95 percent of tea sold in Russia is produced and packaged within the country,” said Chanturia.
Still, it is expected these stocks will be completely exhausted within the next several months, and that may create some serious problems for producers and force them to increase prices.
Currently, new railway routes for the supplies of raw materials for the needs of the Russian tea sector are currently being worked out, which involves transportation via the Far East, China, as well as through Iran, Turkey, through the Mediterranean and Black Seas to the port of Novorossiysk.
In the meantime, despite the generally complex situation related to Russia and its tea market, most local producers – as well as global, major brands operating in the local market – remain somewhat optimistic regarding their future prospects.
An official spokesman of Ahmad Tea Russia (one of the top tea brands in Russia) said that despite the difficult situation, the company continues to actively work on creating new tea blends and expanding its range in order to maintain the loyalty of its customers and to be closer to every tea gourmet. The company said that this allows it to maintain a stable share in the Russian tea market.
In a statement, an Ahmad Tea Russia spokesperson said: “In general, the tea category has not been an exception to the general FMCG market trends, and we are now seeing a decline after a strong growth in March, driven by stock purchases. Of course, the disruption of supply chains and fluctuations in the exchange rate had an impact on supply disruptions not only in the tea segment. In the short term, we expect the market to stabilize. We always try to perceive any changes as a new opportunity for growth, to try something new.”
One of the ways to support tea producers in Russia amid the conditions of economic recession in the country – according to local experts – could be the abolishment of duty-free imports of packaged tea products. Thus, the Russian government decided to extend the regime of duty-free supplies until Sept. 30, 2022.
Russian tea producers appealed to the government with the request to return duties to the previous level – up to 10 percent – without any effect. Zero duty on the import of packaged tea into Russia has been in force since March 28, 2022. At that period, the Russian state decided to temporarily reset import rates for 485 types of goods in order to increase the stability of the economy in the face of the war and sanctions against Russia. However, according to producers, such a measure had the opposite effect on the tea industry.
Representatives of the Russian state were not available for comment.
According to NielsenIQ, retail tea sales in Russia fell by 4.6 percent year-on-year between March 2021 and March 2022. Of these, sales of leaf tea decreased by 6.6 percent, while tea bags decreased by 3.6 percent.
According to analysts, such dynamics could be mainly related to the consequences of a period of rush purchases around the start of the war, as well as a new wave of sanctions, when sales of tea in Russia jumped by more than 20 percent.
World Tea News contributor Eugene Gerden is an international freelance writer, specializing in the global coffee and tea industries.
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