Iraq still has to pay a portion of its 2006 Indian tea bills

Iraq, the largest buyer of Indian tea, has defaulted on payments of Rs50 crore in 2006. This accounts for 20% of the 42 million kg of tea exported to Iraq between January and December 2006. This is the first default on such payments in India’s tea-exporting history.

Worse, the Export Credit and Guarantee Corporation of India, which provides risk insurance to exporters, stopped extending cover to all exports to Iraq in 2003, when the West Asian nation was identified as a war zone, increasing the risk of defaults on payments.

The Tea Board of India has been receiving complaints of deferred payments and arbitrary deductions in payments from the exporters. Payment defaults are not considered normal under any circumstance.

The Iraq government procures low-grade food products, which it distributes free of cost in the war-torn country, according to tea traders.The tea exported to Iraq fetches around Rs52 per kg, because it is of slightly lower quality, according to data available from the Tea Board. This includes different grades of tea such as Orange Pekoe and Pekoe. In the international market, these grades of better quality sell at $2 (Rs88) per kg.

The Tea Board has sought a meeting with the State Company for Food Stock under the Iraqi ministry of trade, at Jordan, in March or April. “We are trying to sort out the matter by approaching the Iraqi officials and seeking a meeting of our board representative in Dubai with them,” Basudeb Banerjee, chairman, Tea Board, told Mint. The Iraqis are yet to set a date for the meeting.

“The Indian side will be represented by the board chairman, board’s officer in Dubai and some of the affected exporters. We have received memoranda from some major exporters on the payment defaults on their consignments sent out in April-May 2006,” a board official told Mint. He said almost 80% of the consignments sent to Iraq last year were facing payment issues, as reported by smaller players to the Indian Merchant Tea Exporters Federation. The federation has been interfacing with the board on the issue.

Some exporters said the constant shuffling of officials in an unstable political scenario might be causing the delay. Some of it could also be from delayed deliveries due to congestion in the Iraqi port of Umkaser, which receives the shipments.

Officials of the Indian tea industry are jittery, even as they are going to negotiate, because Iraq has emerged as the single largest market for tea, replacing the Commonwealth of Independent States as a top consumer. Indian tea industry has been looking for a big market and was only too happy to see Iraq develop as a destination. Now the tea exporters want to nurture it, rather than lose it.

“It is a 40-million kg market and hence quite important for us”, said O.P. Agarwal, owner of Ambo Exports, which was India’s second-largest tea exporter last year after Hindustan Lever Ltd, which owns the Taj Mahal brand.

shehla.r@livemint.com