Russia Faces Retail Shortages of Coffee and Tea

Sanctions imposed on Russia related to the war in Ukraine do not cover imports of food. Nevertheless, as one of the world's largest importers of tea and coffee, Russia is facing retail shortages of both products due to bottlenecks in logistics as well as other factors like exchange rate volatility, the disappearance of trade finance and the block on international transfers via the SWIFT banking network.

Ramaz Chanturia, general director of the Russian Association of Tea and Coffee Producers (Roschaikofe), said that the main problem is shipping. Previously, Russia imported most of its coffee and tea via Europe, but this route is now closed. And even beyond Europe, few logistics operators are now willing to load Russia-bound containers on their ships.

Companies have been forced to switch to new import corridors via China and via Russia's far eastern port at Vladivostok.  But the capacity of these routes remains limited by the need to complete shipment by existing rail lines.  Shippers are shifting to new transport corridors through Iran, Turkey and the Mediterranean Sea as well as Russia's Black Sea port city of Novorossiysk. But the shift requires time to fully implement.

"During March and April, Russia's scheduled  imports of both tea and coffee fell by almost 50%. Retail chains still hold stocks in their warehouses, but these will soon be exhausted. For this reason, we expect supply turbulence in the coming months," Chanturia said.

Logistics risks have induced suppliers to triple their estimates for delivery times to as long as 90 days. They decline to guarantee delivery dates and require payment in full before shipping. Letters of credit and other trade finance instruments have disappeared.

Russians prefer tea bags to loose tea, which has become a challenge for domestic tea packagers because filter paper has been targeted by the EU sanctions. According to Chanturia, about 65% of the tea sold in Russia is provided in the form of single tea bags.

Some 7–10% of Russia's consumption of tea is supplied by domestic farms. To prevent shortages, authorities in some tea-growing regions have been working to expand the crop. For example, in Krasnodar Territory, on the Black Sea coast, 400 hectares of land have been allocated for tea plantations. Last year's harvest of 400 tons in that region is expected to grow significantly.

Russians have always heavily favored tea, but consumption of coffee has been growing at nearly double-digit rates in recent years, driven by the rapid expansion of coffee shop chains and take-out kiosks in cities. Sales of natural coffee, including specialty coffee, has been climbing fast, taking market share from instant, which has long dominated the Russian market.