Russia is not budging on its high tariffs on value added tea that are blocking growth of Sri Lankan tea exports. Despite tea and talks, and Sri Lankan government plans to increase value added tea exports, the Russian ambassador for Sri Lanka, Mr Vladimir Mikhaylov, indicated that Russia will not reduce import duties on value added tea for at least a few more years.
“We have zero tariffs on bulk tea and relatively high tariffs on packed tea, but please understand that this position is taken to protect Russian producers. Our government should think about employment in the Russian Federation than employment in other countries,” said Mr Mikhaylov speaking at the Tea Exporters Association Annual General Meeting(AGM) last week.
On Monday the 2011 national budget proposed a Rs 10 cess, on bulk exports of tea, to discourage low value bulk and encourage value added exports. “The tea sector must move forward with very high value added exports with Sri Lankan brands. Therefore, I propose to increase the export cess on bulk tea to Rs. 10 per kg,” said President Mahinda Rajapaksa in his budget speech this week.
Nevertheless, value added tea exports have already hit a wall. Russia is the single biggest buyer of Sri Lankan tea, and Russia’s high tariffs on value added tea is stymieing Sri Lanka’s value added exports.
Russia is expected to cut its import duties a few years after it joins the World Trade Organisation (WTO) and is anticipating WTO accession in 2011.
“On the information I have, we believe next year we will join the WTO. After that, after maybe three years, tariffs will be reduced,” said Mr Mikhaylov.
The Minister of Plantation Industries, Mahinda Samarasinghe meanwhile, said Russian tariffs on value added tea will reduce to 12.5% from the current 20%, once Russia joins the WTO.
“Fortunately we have an agreement with the Russian government that when they accede to the WTO the tariffs will go down to 12.5% from 20%,” said Minister Samarasinghe speaking at the Tea Exporters Association AGM. The Minister did not say by when the Russian tariff reduction would take place.
Despite the high tariffs in Russia Mr Mikhaylov said there is still scope to increase Sri Lanka’s share of the Russian tea market, as Sri Lankan tea is popular in Russia and has a good name.
Tea takeover
Local tea exporters said Russia is trying to expand its domestic value added tea industry by discouraging value added tea imports into Russia - by hitting value added imports with high import duties.
“Further pressure was placed on exporters, with Russia, the largest importer of Ceylon Tea, looking to enhance support to its local industry to expand facilities for value addition, through protectionist measures, by imposing higher tariffs and non-tariff barriers on the import of tea in retail packs,” said the Chairman of the Tea Exporters Association, Jayantha Keragala. Exporters said already value added tea exports to Russia have dipped because of the high Russian tariffs. Unless alternatives are found, Sri Lanka’s overall tea earnings are expected to reduce as value added exports bring much bigger incomes than bulk exports.
“This led to an inevitable decline in the volume of value added exports to that market (Russia), which hitherto accounted for a very high percentage of the total exports of Ceylon Tea in that form, globally. This trend is expected to continue and unless we can identify alternative strategies to counteract this growing deficit, the total value of the country’s tea exports is bound to depreciate,” said Mr Keragala.
Tea exporters say other export markets in the Middle East, a major tea buying bloc, are also in trouble. “The mounting political and the resultant commercial volatility, compounded by the ever-increasing availability of cheap Vietnam teas, in the Middle Eastern region, is creating further challenges for exporters. These markets, which collectively account for the largest volume of imports of Ceylon Tea, are regularly subject to negative aspects that impact on our industry and affect its equilibrium,” said Mr Keragala. The Iranian market for instance, is choked by sanctions that make it difficult for Iranian buyers to pay local tea exporters.
“A case in point is the Iranian market, where the international embargos imposed, severely affected its current foreign exchange circumstances, which, in turn, disrupted payments on imports,” said Mr Keragala. However, despite the somewhat gloomy horizon, this year at least, earnings from tea exports are expected to grow close to $1.5 billion. |
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