MUMBAI: India is likely to export 15 million kg of tea to Iran in 2012, about a third more than a year ago as a new payment mechanism that skirts Western financial sanctions boosts trade, the managing director of the second-biggest producing firm said. India is the world's second-largest tea producer and fourth-largest exporter. Iran buys about 8 per cent of its annual exports, and most of its purchases are premium, or "orthodox," grades. "We expect Iran to take around 15 million kg this year," Deepak Atal, managing director of Amalgamated Plantations, told Reuters in an interview on Wednesday. "Things are much better than last year on the Iran front." "The payment mechanism which was put in place is working well," he added. Last year, Iran bought 11 million kg of Indian tea, 28 per cent less than the previous year, after India's central bank, under pressure from the United States, ended a clearing mechanism used to settle trades. India is a major trading partner of Iran and its second-biggest buyer of crude after China. To avoid the sanctions which are aimed at cutting funding for Iran's nuclear programme, India now pays for 45 per cent of its oil purchases using its local currency the rupee and Iran can also use rupees to pay for its purchases from India. EXPORTS, OUTPUT TO SLIP Despite the increased sales to Iran, India's overall exports of tea, comprising orthodox, crush-tear-curl and dust varieties, are set to fall as production declines, Atal said. India's 2012 tea production is expected to ease 1.5 per cent to 973 million kg from a record 988.3 million kg in 2011 as drought affected output in the first six months of the year, he added. "Exports will be lower than last year," Atal said, without specifying a figure. "Fundamentally exports should have been strong due to the weak rupee, but that is unlikely to happen because of pressure on the domestic supply side." India exported 186.7 million kg of tea in 2011. Lower output has boosted domestic tea prices by about 25 rupees a kg from a year ago. Atal said he expected prices to ease in the next two to three months but end the year at a premium. "There will be some correction in prices in the next two-three months as these are the highest producing months, but again prices will pick up at the end of the year," he said. "We will see average prices 15-18 rupees higher than last year." Violence in the top tea producing state of Assam has yet to disrupt supplies from the region, but it is a concern, Atal said. "If things are not resolved early, then there might be an effect on exports and prices," he added.

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