ECONOMYNEXT – Sri Lanka’s tea sector is braced for a fallout from Russia’s invasion of Ukraine and sanctions which has led to a collapse of the Russian ruble as weekly auctions starts Tuesday.
Out of 286 million kilograms of tea exported in 2021, Russia bought 29.7 million kilos, the third largest buyer after Iraq and Turkey. In January Russia bought 2.5 million kilograms of tea becoming the second largest buyer.
The steep fall in the currency has made imports expensive to Russians. Cutting some banks off from SWIFT payment system has created further problems, though whether food will be excluded is not clear.
Sri Lanka’s weekly tea auctions start on Tuesday.
“In the case of Russia buyers have warned of affordability issues because of the steep depreciation of the ruble,” Dinesh Fernando Chief Operating officer, Ceylon Tea Brokers said.
“So they cannot pay the same amount in dollars as they did earlier. Russia has been buying all grades of tea, from high growns to low growns. If prices fall there could be a big impact on the industry.”
Industry sources say some buyers from Ukraine has also told to hold shipments.
The Russian ruble which was around 75 to 77 to the US dollar two week ago fell to around 85 to the US dollar on Friday and fell below 100 on Monday.
Western nations have also imposed sanctions on Russias central bank which sold a billion US dollars on Thursday but has since halted interventions.
A clean float can help stabilize a currency but Russians are also withdrawing cash from banks, forcing the central bank to print money which can be exchange for foreign exchange in unofficial market or for real goods, firing an inflationary spiral.