Stagnating volumes and production to hit Russian tea industry
Russia, the world's fifth largest consumer of tea, has seen its consumption volumes stagnate due to demographic changes and the situation looks to worsen once it enters the World Trade Organization. Despite tea sales increasing from around $2.9 billion in 2010 to $3.3 billion in 2011, the market has actually shrunk 1-2% in volume during that period. Experts say that the tea market has reached its physical limits in Russia, with more than 90% of its residents already drinking tea. The market may only rise in value terms, as the share of people drinking better quality tea increases with prosperity, while the actual population continues to shrink. Furthermore, Russia is also facing shrinking domestic production, which has dropped by 30% since 2008. More pressure on production is expected in relation to its future WTO accession, which will force a reduction of import duties on packaged tea, from 20% at present to 12.5% in four years, thereby further transferring production capacity to other countries.