Fine Cuppa

Russia is sipping more fine teas as the influence of rising average income increases average spending above US$ 5 per kilo in the wholesale markets.

The switch to premium quality beverages is taking hold across Russia along with the rising purchasing power of Russian consumers. Trade sources say sales of hot drinks increased by 3.6% in volume terms and by 5.2% in current value terms in Russia in 2003.

The higher growth rate in value terms is a consequence of consumers switching to premium goods, as a result of changing preferences and taste, as well as rising average incomes, Asia Siyaka Commodity Brokers reported.

Among the favourite hot beverages is tea.

The head of the Russian Tea and Coffee Association, Ramaz Chanturiya, told Reuters that consumption of imported tea rose to 157,500 tonnes in 2003 from 156,500 tonnes in 2002.

However, the value of the consumed tea in wholesale prices rose to $800 mln from $600 mln, as consumers started drinking higher quality and therefore more expensive tea.

Lankan teas know for quality is in demand as a result. But Russias policy encouraging packing within its shores is eating at the profit margins.

Sri Lanka shipped an estimated 62,576 tonnes of tea last year, above that 59,563 tonnes exported the previous year.

India meanwhile, packed off 43,236 tonnes of tea, a drop from 46,876 tonnes in 2002.

However, Chanturiya told the wire service that the share of packaged tea in tea imports shrank to 27% in 2003 from 30% in 2002, as more tea packaging facilities have been established in Russia in the meantime.

Value added tea exports to Russia face higher duties on packed teas, while Russian authorities provide concessions to firms setting up packing plants within its borders.

In order to decrease production costs, the majority of companies prefer to set up or use domestic plants for producing and packaging of tea in Russia.

What is more discouraging, Lankan officials say is that a number of international tea packers are setting up shop in Russia.

The firms have a tendency to source on price rather than quality, affecting Sri Lankas chances in the long term as it attempts to improve its quality and as a result price.

-LBO Newsdesk: lboemail@vanguardlanka.com