Enhancing Development Through Cooperatives

Enhancing Development Through Cooperatives

By Elizabeth Minchew and Gian Nicola Francesconi

The power of cooperatives

The United Nations declared 2012 the International Year of Cooperatives to highlight the importance of cooperatives in promoting global socio-economic development and their impact on both poverty reduction and social welfare. Cooperatives play a central role in rural finance and contribute to the marketing of about 50 percent of global agricultural output. Despite a troubled past in Africa, farmer organizations based on cooperative principles remain widespread and are growing throughout the continent.

Africa is witnessing a decline in foreign aid but an increase in foreign investment. A growing number of private and multinational companies are entering African agri-food markets to promote agribusiness. Rural cooperatives increasingly are asked to play the critical role of organizing African farmers and ensuring that investments in agribusiness yield expected returns, while alleviating rural poverty and preserving natural resources.
However, numerous studies (see related publications below) by Wageningen University, the International Center for Tropical Agriculture (CIAT) and International Food Policy Research Institute (IFPRI) suggest that agribusiness development initiatives involving African farmer organizations tend to produce heterogeneous and contradictory impacts in terms of social, economic and environmental outcomes. This is because African cooperatives are not always, nor often, successful in coordinating farmers and linking them to emerging value chains.
This workshop took place in Ethiopia because the country has a particularly long tradition of rural cooperation. Today, Ethiopia counts more than 11,000 primary farmer organizations based on cooperative principles, providing services to more than 1 million member-households and employing approximately 36,000 individuals. The Ethiopian Federal Cooperative Agency indicates these numbers continue to grow at a rapid rate.
However, the sustainability, quality and safety of farming practices adopted by cooperative farmers remain uncertain, and their contribution to the commercialization of agricultural production is estimated at only ten percent, well below the global average of 50 percent.

Workshop objectives

The workshop’s main objective was to bridge development and agribusiness knowledge by connecting internationally renowned experts with the leaders of East and South African rural cooperatives, as well as interested donors and investors. The workshop was designed to address the following questions:

1. 
   How can rural cooperatives optimize the dissemination and adoption of improved agricultural practices?
   
2. 
   How can we provide business intermediation and credibility to rural cooperatives?
   
3. 
   How can Information and Communication Technology (ICT) be used to support the development of rural cooperatives?
   
4. 
   How can we improve the organizational design/governance structure of rural cooperatives?
   

Agenda

A significant part of the presentations and discussions that took place during the workshop focused on initiatives sponsored by USAID, the Ford Foundation, the European Union and the Netherlands Ministry of Foreign Affairs (MoFA), which aim to improve the vertical integration of farmer organizations into multiple value chains (dairy, grains, pulses, horticulture, fruits, etc.)

These include initiatives carried out by private companies and civil society organizations such as: the Netherlands Development Organization (SNV), IFPRI, ACDI/VOCA, Wageningen University, FIT Uganda Ltd., the Pan African Agribusiness and Agro Industry Consortium (PanAAC), Catholic Relief Services (CRS), the International Institute of Rural Reconstruction (IIRR), K-REP Development Agency (KDA), Veterinarians Without Borders USA, and the Technical Centre for Agricultural and Rural Cooperation (CTA). Particular emphasis was placed on the role increasingly played by the private sector and civil society in promoting and facilitating linkages between rural cooperatives and other value chain operators, both downstream and upstream, with or without the help of customized solutions based on mobile information and communication technology (ICT).
The workshop also allowed the leaders of 15 cooperatives and farmer organizations from Ethiopia, Uganda, Kenya and South Africa to present in plenary sessions and express the concerns and interests of their members vis-a-vis international experts and donors.
Finally, the workshop raised awareness about the importance of horizontal coordination among member-farmers, which depends on the governance structure, or organizational design, adopted by a cooperative.
The University of Missouri’s (MU) Professor Michael Cook and his team addressed the importance of internal management and leadership of cooperatives using the “cooperative life-cycle framework.” This framework was developed in order to train cooperative leaders and perform diagnostics of their organizations. MU has been applying and developing this framework for more than 20 years in order to support the leadership and governance of U.S.-based cooperatives. Many of the most important U.S. cooperatives consider MU’s training program compulsory for all their leaders and managers.
MU is in the process of globalizing this training program, already having introduced it in the EU, Brazil, China, Kenya and Malawi, among others. In particular, the presentation and discussion of the cooperative life-cycle framework highlighted the importance of well-defined and forward-looking organizational design and governance structure for the success of cooperative agribusiness in Africa.

Conclusions and implications

Overall, this workshop emphasized, that despite a troubled cooperative history, rural Africa is witnessing the return of farmer organizations based on cooperative principles, which appear to be significantly more autonomous and market-driven than 20th century cooperatives. Some participants maintained that this trend indicates rural cooperatives are both resilient and adaptable organizations. They provide the necessary conditions for agricultural innovation to take place, given that innovation is not about inventing something new, but perfecting what has already been invented and make it mainstream.

Others reinforced this perception of cooperatives as agents of change by saying innovation often comes from discredited movements involving large and spontaneously organized populations. Professor (need first name here) Ruben, Netherlands Ministry of Foreign Affairs, also argued that countries with large and consolidated cooperative movements tend to be less affected by price volatility, which translates into less uncertainty and risk for agribusiness.
The workshop emphasized that both the private sector and civil society are multiplying their efforts to improve the integration of African rural cooperatives into value-added chains, mostly though the provision of business intermediation and credibility with the help of ICT. Yet these efforts appear to remain scattered and uncoordinated, calling for further efforts to reduce duplications and optimize outreach.
Over the last few years, CRS has built an Agro-Enterprise Learning Alliance (AELA) for Eastern and Southern Africa, involving public, private, civil society and farmer organizations mostly operating at the regional or international level. AELA probably represents the most large-scale and ambitious attempt to centralize and harmonize support to rural co-ops in Africa by providing physical and virtual brokerage and training services for agribusiness development. However, the coordination of this bottom-up, highly participatory and multi-country undertaking is turning out to be rather complex and time-consuming, since leadership remains unclear and fundraising and investments have not yet materialized.
IFPRI and CTA are pursuing a similar region-wide aggregating strategy to promote the use of innovative ICT solutions among African farmer organizations. IFPRI’s AgriConneXions program and CTA’s ICT4Ag initiatives are engaging mostly with regional farmer organizations to develop ICT platforms that facilitate agribusiness development. As in the case of AELA, IFPRI’s and CTA’s programs appear to face significant challenges in combining scope with impact, as complex and large scale interventions struggle to trickle down and generate tangible benefits for rural populations.
Although these regional and continent-wide efforts have the potential for broader and longer-term implications, smaller initiatives implemented through local organizations (national NGOs, social enterprises, village-based farmer organizations) like those sponsored by the Ford Foundation in Kenya and Uganda or by the Netherlands MoFA and SNV in Ethiopia and Uganda, appeared to be more functional and have greater impact. Attempts to harmonize and coordinate support to African farmer organizations may be more successful if they link and bridge smaller and more localized initiatives, rather develope international or regional mega-programs.
Most, if not all, initiatives presented and discussed during the workshop seemed to consider rural co-ops and farmer organizations as black boxes whose internal dynamics are too complex to be fully understood and governed by outsiders. Although all of the initiatives mentioned above aim to strengthen the external market linkages of African rural cooperatives, internal problems and conflicts related to members’ side-selling (or free-riding) and shirking (avoiding investing in the cooperative), elite capture and corrupted management, misallocation of equity capital, etc., remain widely neglected.
However, rural cooperatives cannot possibly integrate into value chains and promote agribusiness unless their governance structure or organizational design is well defined in such a way to counteract the rise of internal frictions. Development programs involving rural cooperatives and farmer organizations could significantly benefit from the incorporation of agribusiness management theory, like that embedded in the cooperative life-cycle framework, to improve intra-organizational governance.
The conclusions drawn for this workshop emphasize the need to develop an overarching or hub program to facilitate linkages and networking among localized initiatives that support cooperative organizations directly owned and controlled by farmers, who must also be the primary beneficiaries. Such a program also should offer organizational training for improving current leadership and governance of cooperative agribusiness.
CIAT committed to further engage other workshop participants throughout the last quarter of 2014 to develop a five-page concept note that will better define the way forward and raise the necessary funds for implementation. This concept note will be presented at the second Enhancing Cooperatives Through Devleopment workshop January 12-13 in Washington, D.C.

Related publications

Francesconi, G.N. and F. Wouterse (2014). “Promoting the role of Farmer-Based Organizations for value chain integration: The tension between a program’s targeting and an organization’s investment strategy”. Forthcoming in Agricultural Economics.

Francesconi, G.N. and F. Wouterse (2014). “The Health of Farmer-based Organizations in Ghana: Organizational Diagnostics and Policy Implications”. Forthcoming in Journal of Development Studies.
Francesconi, G.N. and R. Ruben (2014). “FairTrade’s Theory of Change: an Evaluation based on the Cooperative Life Cycle Framework and Mixed Methods". Journal of Development Effectiveness, 3ie, DOI: 10.1080/19439342.2014.918164
Abate, G.T., Francesconi G. N. and Getnet K. (2014), “Impact of Agricultural Cooperatives on Smallholders’ Technical Efficiency: Evidence from Ethiopia”. Annals of Public and Cooperative Economics, 5:22.
Francesconi, G.N. and R. Ruben (2012). “The Hidden Impact of Cooperative Membership on Quality Management: A Case Study from the Dairy Belt of Addis Ababa”. Journal of Entrepreneurial and Organizational Diversity (JEOD) Vol. 1, Issue 1: 85-103.
Francesconi, G.N. and N. Heerink (2010). “Ethiopian Agricultural Cooperatives in an Era of Global Commodity Exchange: Does Organizational Form Matter?”. Journal of African Economies, pp. 1–25.