STiR coffee and tea magazine

48 STiR coffee and tea / Issue 5, 2020 (October / November) ACTUATE ACTUATE * Don't Miss a Single STiRing Issue of the World's Leading Coffee and Tea Industry Magazine. ACTUATE a paid subscription to STiR (coffee and tea magazine) Visit www.stir-tea-coffee.com/subscribe Email info@octobermultimedia.com *SYNONYM: STiR, influence, inspire, propel, rouse, excite... w w w. s t i r - t e a - c o ff e e . c o m w w w. s t i r - t e a - c o ff e e . c o m guarantors. In India, small farmers are unable to obtain any bank loans to buy seed and fertilizers. Private money lenders that charged 25-35% on the typical $2,000 financing now demand 50-60%. The gap between oversupply and lagging demand makes it increasingly hard for Indian pro- ducers to obtain any bank funding. The Economic Times newspaper headlined the situation in Darjeeling (May 7, 2018) as "Fund-starved Darjeeling tea companies face an existential crisis." Ratings of many firms had dropped from A (good though not the best AAA) to BBB, which "makes it difficult to get working capital from the banks." Banks cut off loans except to A-rated producers and imposed tight limits even on these. Since then, the situation in Darjeeling worsened greatly: escalating costs, massive crop loss from political strife, a surge of legal and illegal increase in teas, competitive teas from Nepal, and soil erosion and underinvestment in bush renewal. The State Bank of India's general manager commented that "We consider the rating changes while lending, but more than, that we follow a cash-flow-based financing policy." The cash flow isn't there. Even if it were, time is not on the side of most players in most countries. There can be a long gap between investment and payoff. One obvious instance is the shift to organic farming. This typically reduces yields for four years. The many tools of precision agriculture are outlays that start generating value quickly but still demand money not tied up in today's operations. Drones that handle core functions of aerial surveys, light spraying, crop monitoring, tracking of water levels, weed growth, etc., cost as low as $1,800. Ones with multi-device and extra payload capabilities are in the $15,000 range. Maintenance, training, and other costs add up for the more complex systems and can be as high as 25% of the capital costs per annum. The benefits can be spectacular: up to 90% reductions in spraying and weeding costs: Water savings of up to 90%, chemicals reduced 30-50%. But the investment must be paid in advance of the payoffs. Social impact and social development bonds rather than loans have been a source of large infrastructure funding. These aim at attracting a diversity of investors who take a long-term view. Kenya's Gura hydroelectric project, led by the Tea Development Agency, attracted financing through the international Clean Development Mechanism. This is a complex scheme sponsored through the Kyoto Protocol where industrialized countries purchase saleable credits for projects that reduce emissions in developing economies. Initiated in 2005, the impact and future of CDM is hard to evaluate. Energy and water costs are a growing burden on producers. Here, the capital investment is in infrastructures that serve many parties across a region. Historically, agencies such as The World Bank have spearheaded and underwritten the costs. Less than a decade ago, its total budget for loans to remediate climate change was $2.4 billion (2011). It doubled in 2012 to $4.6 bn. Another doubling in a year was announced at the end of 2018: to $200 bn globally for 2021-2025. Here again, there is a gap between investment and return. Hydroelectric plants can take a decade or more to build. This is a bleak picture and it is made bleaker by all the disruptions and uncertainties created by the pandemic. That seems certain to constrain the ability of governments in many tea growing nations to raise and commit funds to loans, subsidies, trade financing and infrastructure building. That applies, of course, to many industries. Every capital-intensive opportunity must come with a capital-funding solution. That is the unmet challenge for tea. Every capital- intensive opportunity must come with a capital-funding solution

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