Iran brews new hope for Sri Lanka’s tea exports - Opportunity Sri Lanka
Iran brews new hope for Sri Lanka’s tea exports

Iran brews new hope for Sri Lanka’s tea exports

The Sunday Morning: Tea exporters have reported a noticeable uptick in tea exports to Iran over the last month, coinciding with the initiation of the tea-for-oil barter mechanism after the transfer of the first payment tranche of $ 5 million from the Ceylon Petroleum Corporation (CPC) to the Sri Lanka Tea Board (SLTB), as stipulated in the agreement between Sri Lanka and Iran in December 2021.
Speaking to The Sunday Morning Business, Imperial Teas Group Founder, Chairman, and Managing Director and National Chamber of Exporters of Sri Lanka (NCE) Chairman Jayantha Karunaratne revealed that an uptick in tea exports to Iran had been observed over the past month following the introduction of the tea-for-oil barter in August.
He explained that in terms of the agreement reached between Sri Lanka and Iran, the tea-for-oil barter mechanism would involve “the settlement of export proceeds in Sri Lankan Rupees by the SLTB. The CPC will transfer $ 5 million per month to the SLTB in Sri Lankan Rupees and the SLTB will pay tea exporters for exports of tea to Iran up to a value of $ 5 million.”
Congruently, Iranian tea importers will pay the National Iranian Oil Company in riyals.
However, Karunaratne revealed that the export of tea to Iran under this barter mechanism was limited to $ 5 million per month and that tea exports beyond that value needed to be imported under alternate arrangements entered into between Sri Lankan tea exporters and Iranian importers.
Speaking to The Sunday Morning Business, Sri Lanka Tea Board Chairman Niraj de Mel clarified that the agreement had been signed in December 2021 and that thereafter the enforcement of the mechanism had commenced from August 2023 onwards, following the release of the first tranche of $ 5 million by the CPC.
He explained that prior to the commencement of the barter mechanism, tea exports to Iran had fallen significantly: “In previous years, we used to export around 30 million kg of tea to Iran per annum; this has now halved.”
He added: “While I believe that certain tea exporters have already used this barter mechanism, I haven’t received any confirmation that any exporters have executed shipments under the mechanism. The SLTB will release payments to tea exporters only after confirmation is provided from Iran to the CPC that Iranian importers have paid the Iranian authorities. Once we receive confirmation, we will pay the respective shippers.”
The SLTB Chairman stated that the agreement would last for 48 months, under which the CPC would pay the SLTB $ 5 million in Sri Lankan Rupees per month “until around $ 240 million of the $ 251 million owed by the CPC to Iran is paid off”.
The introduction of this barter mechanism represents a significant development for Sri Lanka amidst its current foreign exchange liquidity and in light of Iran’s importance as a tea export market for Sri Lanka.
Iranian tea exports amounted to as much as $ 125 million per annum in previous years before falling to around $ 70 million in 2022.
The internal demand for tea in Iran amounts to 100,000 MT annually. Iranian tea producers yield approximately 25,000-30,000 MT per year, necessitating the import of 60,000-70,000 MT of tea from different sources.
Meanwhile, the Ministry of Plantation Industries, issuing a statement, assured all parties that the barter agreement would not violate UN or US sanctions since tea was categorized as a food item on humanitarian grounds and that none of the blacklisted Iranian banks would be involved in the equation.

OSL take:
Iran has always been a key buyer of Sri Lankan tea and the increase once again in purchases made by Iran is indicative of the overall strength and growth of Sri Lanka’s tea industry. The government of Sri Lanka is also focused on further uplifting and developing the country’s tea industry. Authorities have also introduced incentive schemes to local tea businesses in order to support growth and expansion. The many trade agreements as well as trade concessions enjoyed by the country have also helped boost Sri Lanka’s tea industry. Give the growth and business potential in Sri Lanka’s tea industry, foreign businesses/investors could confidently explore the growing opportunities in the industry. Foreign businesses could also look at forming partnerships or joint ventures with local businesses engaged in the tea industry in order to further expand.

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Article Code : VBS/AT/20230914/Z_4

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