STiR coffee and tea magazine

44 STiR coffee and tea / Issue 5, 2020 (October / November) T here's a today/tomorrow distinction in any business' financial operations. To- day centers on revenues, cost management, and productivity — getting the most out of the resources available now. Tomorrow is about investments that can improve all of the above. The variables in the financial funding equations are cash flow from operations plus capital from investors, lenders, and grantors. For too many tea producers, regions, and even countries, the coefficients here are not positive: Weak cash flow-generation and eroding profitability, reduction in access to bank credit, and, even for large, well-established players, a weakening of asset base. To pick one example of each that indicates a more general pattern: (1) Profits: even before the pandemic, Sri Lanka's tea growers had seen an accelerating weakness with flat revenues and declining production; at the end of 2019, only 3 of 14 public tea estates reported a profit; (2) Loan interest: in Rwanda, whose tea industry has been expanding and where government support has been strong, interest rates doubled from 2012 (8%) to 2014 (15%); and (3) Large firm's collapse: Arpeejay, Indian's third-largest tea producer joined the largest plantation owner, Russel McCleod, in re- porting large liquidity problems in 2019 and a consequent inability to service its debt. McLeod had sold off 11 tea gardens. Duncans' debt problems had led to bankruptcy and government takeover of half its 14 tea gardens in 2016. Cash is king Cash flow from operations is the core problem for growers and processors today. The financial stresses facing them are widely tracked and reported, with less and less good news. The overall realities of the tea industry are analogous to tightrope-walking across a windy chasm; many will slip and fall off. Global overcapacity, price volatility, seasonal- ity, labor shortages and wage costs, energy and water supply, land degradation, drought and shift in rain patterns all compound unpredictability and instability. The trends are increasingly negative, with only occasional blips of growth. The pandemic adds mas- sive new stresses and changes the dynamics of every factor affecting supply, demand, and production. No one can reliably forecast medium- and long-term impacts. By Peter Keen Financing the Future: Capital Financing the Future: Capital and Credit in the Tea Industry and Credit in the Tea Industry The Covid-19 pandemic adds adds massive new stresses and changed the dynamics of every factor….

• Cover