Belarusian threw pig
In mid-March 2022, the Eurasian Economic Commission (EEC) Council canceled import duties on a number of important categories of goods, including raw materials for food, pharmaceuticals, metallurgy and construction, shipping components and others. It was among the finished tea products, Ramaz Chanturia, general manager of the Roschaikofe association, told socialbites.ca.
“AET threw a pig at Russia at the suggestion of Belarus. Previously, Brazil or India were even afraid to consider the proposal to cancel import duties on finished tea supplies. Now it has become a gift from heaven for them. The deadline for the temporary reset of taxes should come in September. But suppliers may force an extension of zero rates,” Chanturia said.
According to him, the decision of the EEC will lead not only to the dominance of foreign tea at higher prices on the shelves of Russian stores, but also to a decrease in domestic production in the country. Until recently, import rates of finished tea products in Russia averaged 9.7-10%. Now it resets like taxes on raw materials.
“The risks of tea shortages increased in the fall. With 10 percent rates for imports of finished tea products, the risk of famine is much lower than zero,” said the head of Roschaikofe.
He added that the situation is further complicated by the rising cost of shipping. Our freight rates have nearly tripled in the last year, largely due to the trade war between the US and China. Subsequently, a large number of containers that make up about 5% of the global fleet actually went out of circulation. Since the beginning of 2022, the cost has increased by another 20%. Now, in the summer, Russia may not be able to count tens of thousands of containers due to sanctions,” he said.
As the head of Roschaikofe explained, the capacity of a standard 40-foot sea container is 5-7 tons of finished tea or 20-25 tons of raw materials. This will drastically reduce the supply of foreign raw materials on which the Russian tea processing industry is based, as the shipping of instant tea is now more profitable due to the higher added value. It is much more profitable for foreign suppliers to send small batches of instant tea to Russia than to export cheaper raw materials in large volumes.
What do they think in “We are Rusprodsoy”?
Rusprodsoy has previously proposed the zeroing of taxes on tea and coffee. The initial version of the organization’s letter to the Ministry of Economic Development included a request for zero taxes on finished tea products. Chanturia stressed that this was a big surprise for Roschaikofe.
The document concerned the zeroing of import duties on a number of goods used in the manufacture of finished tea and coffee products in Russia. It included filter paper for tea bags, various valves for coffee packaging and others. But a major German tea importer, part of Rusprodsoyuz, has added a clause regarding zero rates for finished tea products without our agreement. As a result, the letter had to be withdrawn immediately,” he explained.
Rusprodsoyuz confirmed to socialbites.ca that they had sent a letter to the Ministry of Economic Development, but later admitted the mistake and withdrew it. As emphasized in the organization, resetting import duties should only apply to tea materials.
“It is unacceptable for Russia to facilitate the import of packaged products in the case when it has its own production capacities for packaging raw materials and is sufficient not only for the domestic market, but also for export supplies of processed and packaged tea and coffee in our country,” he said. It is summarized in Rusprodsoyuz.
The opinion of Russian manufacturers
Russian tea production is 100% dependent on foreign raw material sources. There are no fields in Russia that can provide industrial tea production. Most of the existing ones are located in the Krasnodar Territory. But the Moscow Tea Factory told socialbites.ca that the capacity of these plantations covers a very small part of the total consumption in the country.
“As we have been working on old raw material and packaging stocks since the beginning of the year, we have not yet felt a significant increase in costs. We have slightly increased prices for positions with tea raw materials that we have already purchased, ”said the Moscow Tea Factory.
The organization added that the increase in tea prices, which buyers are now noticing in stores, was due to a number of factors. These include settlements of tea raw materials in US dollars, purchases of filter paper for tea bags in euros (produced in Austria) and an overall increase in the cost of packaging materials.
“It is important to understand that the price of raw tea is also increasing. Its currency value is also increasing and the old logistics channels are not working. It is hard to even imagine what the freight cost will be, which has already increased significantly during the pandemic,” he said.
To avoid even greater negative consequences for Russian producers, Roschaikof plans to persuade EAEU governments to cancel March’s zero tax decision on instant tea imports by the end of May. “If this measure is not lifted, we risk going back to the 1990s, when the tea industry in Russia was focused only on the sale of foreign brands,” said Chanturia.
Also, the head of Roschaikofe added that Russian tea exports, which is currently a priority for the government, may be under threat. “We ship tea not only to EAEU countries, but also to Eastern Europe, the Middle East. Export volumes have been increasing in recent years, but zero taxes on imports of finished tea products can frustrate many years of effort,” he said.