The Rich Returns of Investing

The following is an email exchange between three people: a supporter of
Cheetah named Mark, a friend of his named Larry (name changed since I am
printing without permission) and myself, Ray. I thought the questions that
Larry raised were important and valid and so I wanted to make sure that
everyone had a chance to think about them.

Ray - Larry is good friend - very bright fellow. You'd enjoy meeting him
when you're back in MN.
All the best to you for a wonderful Thanksgiving holiday [a day late but
hope the glow flows over].
Mark
(Larry writes:)
Hi Mark,
Thanks for the introduction to Cheetah! These ideas look creative and valid.
Of course, when we consider investing, rewards must be commensurate with
risks. Being completely clueless as to the risks of doing business in
Tanzania, I did some quick research.
Source: "Doing Business 2009, Comparing Regulation in 181 Economies" The
World Bank
Tanzania
Ease of doing business rank: 127/181 countries (2008 rank was 124/181)
Category rankings:
Starting a business - 109/181
Dealing with construction permits - 172
Employing workers - 140
Registering property - 142
Getting credit - 84
Protecting investors - 88
Paying taxes - 109
Trading across borders - 103
Enforcing contracts - 33
Closing a business - 111
No reforms (positive or negative) in 2007/2008.
Property issues and employment look to be the worst problems. I hope Ray is
prepared to deal with frequent setbacks.
I signed up for the Cheetah newsletter. I'll bet it would be fun to meet Ray
at some point.
Enjoy the weekend!
Larry

(Ray writes:)
Mark and Larry,
Thanks for thinking of us! I will look forward to meeting you in January
when I am in the states.
Today I drove deep into the southern highlands of Tanzania working on our
project with poor tea farmers. I 'suffered the setbacks' of a flat tire and
then broke the leaf springs on the pickup. We found someone to start repair,
trusting them with adequate cash for spare parts and the keys to the truck.
We then hitched a ride another half hour deeper into the countryside with no
return ride arranged.
This is one of the most beautiful places on earth and I literally felt
almost a spiritual ecstasy at times. The emerald green mountains covered
with tea and eucalyptus forests can take your breath away. The people are
likewise beautiful. The area is so fertile that the trees reach 75 or more
feet in 5 only years. They grow so fast that they often lack bark and the
trunks look like giant bamboo.
I met with the tea processor and found a way to securitize our loan for
trucks to the tea cooperative farmers. Mkonge Tea Block Farmers is a coop of
523 families making about $1 per day, among the poorest people on earth.
Net, net, we expect to quadruple their income.
I'm familiar with the indexes you sent and they don't show how hard these
people work - it would take a small book to describe it. The way to change
these indexes will come more from engaging with people than from condemning
their failures.
You're right of course. Reward must be commensurate with risk. And we
provide the opportunity to dramatically change the lives of thousands with a
small investment. That's a high reward to risk ratio, indeed. Even better,
we have a reasonable and justified expectation that we will be repaid.
We give our investors the ability to diversify their portfolio so that part
of it is working to change the lives of the poorest of the poor. The type of
returns we offer are materially modest only to the investor. The net impact
is, well, how do you measure the value of changed lives?
By the way, I returned safely to my room, quite late but in good spirits
with a healthy appetite. If you appreciate tea, I will bring you some when
we meet in January. It's some of the very finest in the world.
Peace,
Ray
Postscript: (Please see the other blog on tea farmers - you can find it by
keyword 'tea' on the left.) Since we last met these farmers, there need has
actually grown more acute. They have worked hard to grow more tea, creating
their own nursery, expanding their fields, weeding carefully, etc. These
people work so hard! But the trucks are so far behind. Now they have been
restricted to having their tea collected only three days a week - so their
production is cut in half. We were there on a day when they were allowed to
pick. Yet we saw that at every collection center, they were waiting for
trucks to arrive. This degrades the quality of the tea and reduces their
income further. We must act to help these people who are working so hard!
And the investment we make is securitized by the tea factory. How could we
not do this?

Food Part 4: Working Together Works

(Note: this is a continuation of a series. To start at the beginning go here: http://cheetahdevelopment.blogspot.com/2009/06/food-part-1-farmers-markets.html

How can a tea truck save the lives of babies? Let’s continue our trip to the tea farm in Tanzania.

The tea that the farmers pick must be transported from the farm to the factory. Its value deteriorates quickly with time – in a matter of hours. The tea must be retrieved from 28 collection points spread over 30 kilometers and then taken another 30 kilometers to the factory. The roads are very rough, winding and narrow. The peak season is when it is raining so they are filled with mud and slippery besides.

The delivery is provided by a contractor hired by MTC that operates around two trucks to their benefit. The contractor is paid by MTC 20 shillings per kilogram or almost 15% of the value of the tea. The contractor does not have an incentive to deliver the tea quickly because their payment is nearly assured. As a result, the tea is often delivered in poor condition affecting the ability of Mkonge to negotiate a good price for their tea. At peak tea production time, the contractor has their attention diverted by high demand of other farms and may fail to even pick up tea in time for delivery.

What the Mkonge family farmers need are a couple of trucks to deliver the tea themselves. We calculate that the trucks will be paid for in about 18 months and then incomes will rise almost 10% per family just to receive the difference in shipping. But this improvement should afford Mkonge farmers the ability to negotiate a better price for their tea, as well. Here’s a picture of the type of truck that they need (it has a 7 metric ton capacity):




You may see this as a truck. It is so much more.

It is documented that a 10% rise in income = a 6% decrease in infant mortality. This is the index of human health that describes the relative health of the entire community. There is a direct relationship between income and health among the world’s poor. Consider that in Tanzania about 11% of babies fail to make it to age 1. Or that a woman’s chance of dying in child birth makes every child born a risk to the entire family.

Do not get lost in the numbers and statistics. I spoke today to a young man at Tumaini University who has become my friend over the last year, Hosea Mpogole. He just lost his six month old baby. These are real people with real losses. There are many who have lost multiple children.


Infant mortality is the index to all human health. Babies don’t survive when human health conditions are poor. For example, yesterday, I met a woman suffering with malaria and still trying to keep her job at an office. When you ask people if they have ever had it, most have survived it multiple times. But it is a constant threat to life. One woman said, ‘It is the prayer of the day.’

And it isn’t just health that is affected. Increased income is directly correlated to a variety of factors. Consider that increased incomes…
= lower birthrates
= higher education rates
= less child oppression
= less domestic violence & more stable families
= more rights for women

OK, back to Mkonge: It is tempting to think that maybe we should donate a couple of trucks. This is the wrong approach for a variety of reasons:

1. It has been demonstrated that economic growth saves more lives than income redistribution. This is economist-speak for saying that investment is better than donations. Here is why:

2. The biggest opportunity for Mkonge is not the trucks. These trucks will have a limited life and need to be replaced. The biggest opportunity is to teach this association how to save and invest. Then they will be able to replace their trucks as needed and invest in a variety of other things that will continue to raise their income. To this end, Tumaini University will be engaging with us and assisting in teaching these skills and monitoring the maintenance and usage of the trucks.

3. Donating the trucks is not sustainable. They will need to be replaced. Who is prepared to make this kind of indefinite commitment? No one.

4. Donating the trucks fails to teach Mkonge how to profit on their investments. By requiring repayment, discipline is built in that teaches this important skill that will reap benefits for many generations. Again, Tumaini University will engage with us to assist in this.

5. If Mkonge demonstrates success in purchasing and paying for trucks the model can be replicated among many other tea associations in the area, across Tanzania and perhaps elsewhere. Based on Mkonge’s history of joint commitment and the fact that MTC is willing to pay Cheetah directly for the contractor’s value, repayment seems very secure. Literally, thousands of lives might be saved and the quality of life could rise for tens of thousands. Mkonge represents around 3000 people just in their association.

Mkonge is a living example of how bringing farmers together can change lives. It also shows how investments in the food value chain can raise incomes and do so more effectively than by donation. This is why Cheetah is looking for agri-business investments that achieve these kinds of objectives.

Next time you have a cup of hot tea or a glass of ice tea, think of the people of Mkonge and their babies. And perhaps to appreciate what a blessing you have – just look at the fact you have ice in the glass and that you don’t have to worry about the water or ice making you sick.

As we made the journey back to Iringa town, the sunset was spectacular as it sank among the mountains in the region.

To continue this series go here: http://cheetahdevelopment.blogspot.com/2009/06/food-part-5-full-pot-of-honey.html

Food Part 3: What's in a Cup of Tea?

(Note: this is a continuation of a series. To start at the beginning go here: http://cheetahdevelopment.blogspot.com/2009/06/food-part-1-farmers-markets.html



How can a tea truck save the lives of babies? Come with me on a trip within Tanzania.

I left the relatively dry mesas around Iringa town and headed south into the highlands of Mfinga. It was about a one hour drive on a tarred road and we stopped and viewed some pottery on the way. One potter in particular really caught my eye as having some very beautiful work. I purchased two of his pieces.

When we left the tarred road we continued the ascent slowly by dirt lanes into the cool and moist hills. In another hour we were in the heart of tea country. The emerald green tea bushes were brilliant and seemed to sparkle even on the cloudy day.







The tea value chain has three main components. The tea is raised and picked primarily by small farmers who are organized into cooperative associations. It is bought from them by a processer, in this area a company called Mfindi Tea Company (MTC). MTC processes the green leaf and sells it to packers: in Tanzania, this includes the locally famous Chai Bora and in the rest of the world, Lipton, Tetley, Twinings and many other brand names. 95% of the tea grown in Tanzania goes for export. This is one of the relative successes of the local economy.

Lets start with the processor, MTC. In the picture below you can see the tea go from rough chop to fine chop to fermented brown. Although the line is moving very fast, there are containers that hold the tea for a while so that the tea moves down the line in a few hours.






Grades of tea are automatically sorted by machines and are picture here. The best is top left and the poorest is top right:

Heating requirements for the factory is supplied by wood, mostly eucalyptus trees, that are forested in the same area and is a renewable resource. One kilogram of tea requires 2.5 kilograms of wood:

Referred by the African Development Foundation, I met with Mkonge Tea Block Association. This is a group of 523 small farm families that together are one of the major suppliers to MTC.

Jointly they have accomplished much including establishing their own micro-finance cooperative, their own pharmacy, their own kindergarten, and their own tea nursery where we saw 1,200,000 tea plants growing! They are preparing to expand the area that they are cultivating and their joint effort has achieved this. Below you can see a picture from inside one of the nurseries. It is covered loosely with dried ferns to create a semi-shaded area. The high altitude makes for a cool climate so the business student from Tumaini is wearing my jacket.

Not only that, the members negotiate as a group to get a higher price from MTC. You can see the results of their efforts in the history of growing production and market value in the chart from their office bulletin board pictured below (notice the trends in the bottom two rows with both the negotiated price and production more in a dozen years):

Let’s put this success into clear perspective. They negotiate prices as a group from MTC. Starting July first, they will receive 145 shillings per kilogram (about $0.05 per pound!). This year they should exceed 2 million kilograms, at their highest price ever. This bumper income will equal about $425 per family per year. This just takes them from among the poorest of the world’s poor earning less than $1 per day to the next level earning less than $2 per day. The average family will make about $1.16 per day.

But this is more impressive when you take into account that this is the income before other commitments are paid like building the microfinance bank, planting the tea nursery or paying for fertilizer. This group’s ability to marshal its resources to benefit its future is amazing when you consider how small their income is to begin with.

To achieve this they work back-breaking hard bent over 18 inch bushes for long hours in their tea farms. At its peak season, they are often hand picking leaves until after midnight. The average family will pick almost 4.5 (American) tons of leaves per year. This is picking just the tips of each branch (as shown below). It takes a lot of leaves to make a pound, much less a ton. The leaves with an extended branch (as shown below) are of poor quality and too many of these can cause a load to be rejected. That’s Mr. Nyanzali (manager of Mkonge) on the left, a manager from the tea factory in the center, and a student from Tumaini University on the right. Behind them are tea leaves spread out for the first quick drying.

We still haven’t shown you how a tea truck can save the lives of babies. For that you’ll have to keep on reading. In our next installment we’ll also show you how a small investment can save babies, change the lives of 3000 people, and be sustainable.

To continue this series go here: http://cheetahdevelopment.blogspot.com/2009/06/food-part-4-working-together-works.html