U.S. sanctions imposed to punish Iran are harming Kenya tea growers and exporters.
Iran is an important trading partner, paying good prices for large orders of Kenya’s tea. When a previous round of sanctions was lifted in 2016 exports surged and profits rose for traders supplying CTC (cut, tear, curl) to Iran’s 80 million tea drinkers. Last week the Kenya Tea Development Agency (KTDA) said earnings are down 17 percent due in part to financial restrictions reinstated in November 2018.
The inability for the two countries to trade in dollars led to a surplus greater than the local export market can absorb, KTDA officials told Business Daily. Iran is the world’s fifth largest tea importer, purchasing $280 million from Kenya last year. About 20 percent of Iran’s 88,000 metric tons of tea imports are from Kenya with Sri Lanka, India, and China supplying the rest.
Edward Mudibo, managing director of the East African Tea Traders Association (EATTA), which manages the tea auction in Mombasa, said sanctions have cut demand as traders are scared to transact with Iran for fear of not getting paid as banks shy away from remitting money from the country.
Tea revenue from exports hit a record high in 2018, earning $1.4 billion (KSH140.9 billion) during the calendar year. Production totaled a record 493 million kilograms, but average prices dipped to KSH259 ($2.58) per kilogram, down from 2017’s average price of $2.98 per kilogram. As a result export earnings are expected to decline to $1.32 billion (KSH133 billion) in 2019. Domestic consumption increased marginally to 38 million kilograms compared to 2017 when Kenyans drank 36.6 million kilograms (about 8 percent of the total tea produced).
Kenya stopped importing Iranian oil in October. Washington granted waivers to eight countries, including France, India, and Germany, who continue to buy oil from Iran, but these expire in March. Sanctions are broad, naming 50 Iranian banks and subsidiaries, more than 200 shipping vessels and the nation’s airline. International corporations and banks are likely to comply, but unlike the previous sanctions the UN Security Council and the European Union are not backing the U.S. In fact, the EU has established a special clearing house to allow European countries to continue to trade with Iran. Tea trading nations Kenya, Sri Lanka, and India are excluded but seeking other ways to circumvent sanctions.
Pakistan imports the largest quantity of Kenyan tea at 13.9 million kilograms followed by Egypt (5.2 million kilograms) and UK (4 million kilograms). Iran had hoped to purchase 20,000 metric tons in 2019, up from 3,200 metric tons in 2016. Kenya’s tea production is expected to decline 12 percent to 422 million kilograms in 2019, according to the Tea Directorate.