Imported Tea Supply Has Stalled at Pakistan Port Due to Dollar Crisis

Bulk Black Tea

Pakistan

Published Apr 6, 2023

Pakistan's ongoing economic crisis driven by the dollar shortage and massive flooding has had a significant impact on the import of tea. Many containers have been stuck at the port as a result of Pakistan's continuous dollar crisis. This is causing Kenyan tea to have difficulties entering the Pakistani market. In March 2023, the price indices for tea in Pakistan already reached an all-time high; and this trend is anticipated to continue as the supply chain disruption persists. As for the supplying market, it is projected that the Kenyan tea sector would see dropping prices due to stockpiling in Pakistani ports.

Pakistan is currently experiencing economic crises due to the dollar shortage and flooding, which has led the country’s food inflation rate to reach an all-time high of 47.2% in March 2023. The unstable economic situation has left local customers struggling to pay for basic necessities, including tea.

Over the years, Pakistan has struggled to balance its local production of tea with its consumption. Therefore, tea has to be imported to fulfill local demand. Kenya is the largest trading partner of Pakistan for tea. Pakistan tea imports from Kenya surpassed 234,000 mt in 2022, an increase of 13% YoY. Due to Pakistan's growing tea consumption and the improved bilateral relations between the two countries, Pakistani tea imports from Kenya have increased over several years. However, many containers currently have been stuck at the port as a result of Pakistan's continuous dollar shortage which has interrupted the supply chain for tea.

Source: Trademap

To ease the dollar shortage crisis, the Pakistani central bank has mandated that suppliers defer payments for 180 days or secure 180-day letters of credit (LCs) from local banks. Nevertheless, this initiative has failed because suppliers are finding it difficult to obtain LCs as a result of disarray in Pakistan's banking system. The government's refusal to process cargo through customs unless suppliers agree to 180-day payment terms has led to 95% of the 8,500 containers in port awaiting letters of credit. According to our Origination Manager based in Kenya, tea supply from Kenya has been halted in the Pakistani port estimated at 4.8 mt due to limited access to USD currency in Pakistan. Pakistan's overall tea imports dropped by 46% MoM to USD 28.19 million in February 2023 compared with imports of USD 49.19 million in January 2023

Consequently, the disruption in tea import has caused the price of tea, a major beverage consumed in Pakistan during Ramadan, to skyrocket. According to the Pakistan Bureau of Statistics, price indices for tea in Pakistan recorded an all-time high of 325.18 in March 2023, a 28% MoM increase. Imports are currently in crisis which may lead to severe shortages and Pakistan will not be able to fulfill demand in the domestic market.

Source: Pakistan Bureau of Statistics

Given the current situation, it is likely that Pakistan's tea prices will remain high. Purchasing tea for local customers may become challenging. In March 2023, the price indices for tea in Pakistan already reached an all-time high; and this trend is anticipated to continue as the supply chain disruption persists. As for the supplying market, it is projected that the Kenyan tea sector would see dropping prices due to stockpiling in Pakistani ports.