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Contributions for Enabling rural cooperatives and producer organizations to thrive as sustainable business enterprises

FSN Forum Team FAO, Italy
09.08.2012
FSN Forum

Posted on behalf of Emile N. Houngbo, University of Abomey-Calavi, Benin

Agricultural cooperatives are a priori a credible alternative to address agricultural development problem facing Africa. Cooperatives are useful to face the problems of excessive land fragmentation and precariousness in which farmers live. The farmers, who have individually some very small portions of land, would find relief by putting together their production factors: land, labor and capital. This pooling within cooperatives must enable cooperators for example:

i) To adopt land conservation farming practices and modern production techniques that could not be applied under conditions of scarcity of land. Cooperatives are then able to create the conditions for introduction of improved fallow technologies (Mucuna pruriens, Aechynomene histrix, Acacia auriculiformis, Gliricidia sepium, Senna siamea, etc) and natural fallow in order to control land degradation. With the production factors available to cooperatives, the use of tractors for example and such the farming systems diversification must also be facilitated.

ii) To achieve economies of scale through the optimal use of production factors and reduced unit cost of the productions. This would allow cooperatives to improve their profit margins and thus to reduce poverty of the cooperators.

Cooperatives are then for the producers, a relevant way to address the agricultural risks which are: farming risks (yields falling), economic risks (prices falling, poor sales…), biological risks (plant and animal diseases, pests,) and climatic risks (drought, flooding, inadequate exposure,). In fact, the problem of agricultural development in Africa is mainly linked to risk management, especially if we take into account the fact that agriculture still dominantly rainfed in this region of the world.

However, we must recognize that cooperation does not systematically deal with all risks. It is a way to face the first two types of risks: the farming risks and the economic ones. This means that agricultural cooperatives formation is not a panacea.

Indeed, all these virtues recognized to cooperatives cannot be achieved without a judicious intervention of the State. The role of the State remains important because the biological risks and the climatic ones do not find systematically their solution through the cooperatives formation. Even at the level of economic risks, the role of the State remains also crucial. The State must be able to get involved in supporting cooperatives by the definition of good agricultural policy, such as supply chain organization. It is this policy which would allow producers to better profit of the advantages mentioned above, and thus, the State also could make back revenue through taxes that may be collected on the productions.

A second kind of intervention also returns to the State, the supervision of cooperatives. The Government must insure capacity building to the cooperatives. These are the actions to be taken so that the cooperatives can recognize the importance and develop mutual trust, efficient organization of the activities and active participation of all the cooperators in the work. Experiences show that these qualities are not always present in the cooperatives without external support. The Cooperatives of Rural Development (CAR) initiated in Benin in the '60s for especially the palm oil sector development are almost all blocked some decades ago, operationally speaking. But we must recognize here that the initiative of the CARs creation came from the State; what raises the question of the necessity of a spontaneous and voluntary cooperatives constitution by the co-operators themselves, and the free choice of the crops they could judge useful and appropriate to their conditions. The CARs were created in Benin by the law 61-27 of August 10, 1961 on the Statute for Agricultural Cooperation; law that received minor amendments, especially the Order 60/PR/MDRC of December 28, 1966 and the amendment of 1969.

In short, cooperatives are important to meet the challenge of declining production resources in Africa and to support family farming which remains primarily a way of life for the farmers before being a business. But, it still requires a good agricultural policy of the State. Two critical levels of action are concerned: the necessary support to cooperatives to enable them to face climatic and biological hazards, and the necessary support to facilitate the creation of a good climate of trust between the cooperators, the efficient organization of the activities and the active participation of all of the cooperators. But, moreover, a voluntary association of cooperative members should be preferred Agricultural cooperative promotion in Africa, and then agriculture development, depends largely on the macroeconomic policies and strategies of the different States.

John Rouse Italy
07.08.2012
John

The majority of contributions to this final week of discussions seemed to have focused on two main themes: (1) extension and training methodologies aimed at strengthening the profitability and self-reliance of rural producer cooperative businesses and organizations, and (2) new approaches in the use of ICT to promote cooperative business self-reliance and growth.

Extension and training methodologies.

Reema Nanavaty (India) highlighted the case of women agricultural workers in Gujarat, who after years of effort and partnering with SEWA and professionals from the Research Station of Gujarat Agriculture University finally succeeded in establishing a successful and profitable tree growers business cooperative

Danilo Beloglavec (Retired FAO Officer) in his contribution emphasized the importance of the human element in cooperative business success, arguing that cooperative trainers need to not only focus on strengthening the individual business management capacities of members but also educate them in how to identify and select leaders and managers based on their business and collective decision-making skills and motivation, and ensure they are adequately compensated for their performance.

Olivia Muza (Zimbabwe) added that cooperatives trainers and extensionists need to adopt a complete “value chain” approach to building cooperative business self-reliance but with a strong emphasis on promoting rural member savings.

Lisa Kitinoja (USA) provided the most comprehensive case study of the use of a value chain business approach to strengthening rural producer organization self-reliance. She did so by highlighting the successful USAID-CARE funded Agricultural Export for Rural Income (AERI) Project in Egypt. According to the report she attached, the aim of this multi-million dollar pilot project has been to enable research and extension staff, partnering with private sector firms and farmer associations, to assist small farmers in supplying on a profitable basis key markets in the European Union. According to the author of one report, several factors led to the capacity building project’s success:

•    Research and extension first focused on identifying high-value export crop market niches in European Union countries, including the food quality standards, input requirements, processing, storage and transport standards for each of those niches

•    Farmer training concentrated providing farmer association members and leaders with a comprehensive understanding of the roles and responsibilities of all players at each level of the international supply chain and then comparing alternative supply chains for supplying specific markets with different products.

•    The introduction of contractual instruments that allow the selected farmer associations (FAs) to contract with one or more exporters, and in turn to contract with each of its members.

Food for the Cities multi-disciplinary initiative Secretariat (FAO, Italy) emphasizes that capacity building efforts should not just focus on rural cooperatives and producer organizations, but also build the capacities of urban and peri-urban agricultural producers, many of them women, who are engaged in the production of high-value perishable agricultural products for the domestic and international markets.

The use of new information and communications technologies to improve coop and farmer access to market information, to facilitate social capital building and to improve coop business info systems.

Michael Riggs (FAO Italy) provides convincing case study information on a wide range of successful initiatives focusing on use of new Information and Communication Technologies (ICT) to improve rural cooperative business profitability and governance. Especially worth examining is the World Bank’s “ICT in Agriculture Sourcebook” that Riggs attaches to his contribution. The sourcebook provides a mass of new case studies on how appropriate ICT technologies can improve cooperative and rural producer organization business performance and self-reliance. Interestingly included in the sourcebook is mention given to an FAO funded project in Kenya implemented in collaboration with the Department of Cooperatives that resulted in the successful computerization of the Tulaga Dairy Cooperative and provided the basis for the development of an FAO guidelines manual on cooperative computerization. Also worth mentioning is the successful introduction of the FrontierSMS system in El Salvador, China and Indonesia which involves the establishment of computer-mobile phone networks in farmer associations. These networks help link farmer association members together and provide them with up-to-date SMS-based information on market prices, product shipment and delivery dates, meetings dates, etc.

Closing participant comment on the online discussion

Edwin Tamasese (Samoa) who happens to work out a brilliant closing comment for this online discussion on enabling rural cooperative and producer organization and self-reliance. Tamasese argues that the most important feature of successful and self-reliant cooperatives is that they are formed from the outset to address a common member business need. We two facilitators completely agree with him on this point. Much too often cooperatives get formed from the top-down and for political reasons rather than common economic need reasons. Yes, pooling resources together is an effective method for ensuring financial self-reliance independence and sustainability, but the key factor according to him is creating a group vision where the individual member identifies his or her personal business benefits in a forum that creates group business benefits. Tamasese says that he is currently doing this with several groups in Samoa. We wish him good luck in his work and thank him.

Facilitators closing comments

The over 50 interventions made during the three week duration of the online discussion on enabling the development of more self-reliant cooperative businesses and producer organizations highlighted a number of important sub-themes, namely:

•    The promotion of increased rural savings and cooperative capital. Several participants mentioned the importance of strengthening the internal savings capacities of individual rural cooperative members and encouraging them to collectively invest more in their cooperative business. It is the view of the two facilitators that more case studies of successful methods of member rural savings and cooperative capital formation need to be conducted to better understand which methods and mechanisms are the most productive.

•    Almost all participants highlighted the need to further strengthen cooperative member business and cooperative business management capacities aimed at improving business profits and sustainability. The underlying principle that should guide the capacity building process is that cooperatives are businesses and their sustainability and operational autonomy depend on the ability to earn a profit and invest part of it to finance business growth.

•    There was considerable discussion on how to efficiently deliver cooperative business management training and skill development services to cooperative members and managers. Three skill areas that should receive greater emphasis in cooperative business training programs include: improved strategies for mobilizing member capital to finance cooperative business growth; the advantages and disadvantages of using new ICT technologies to collect and monitor business cooperative performance.

•    The pros and cons of vertical integration of cooperative business structures within or alongside existing agricultural product value chains was also discussed. However, there was consensus that most successful vertically integrated cooperative businesses were built slowly from the bottom up and not from the top down.

•    Virtually all participants seemed to favor the introduction of new laws and policies that give value to and encourage the mobilization of cooperative member capital and savings to strengthen cooperative self-reliance. One participant suggested that one of the best ways to ensure greater rural cooperatives self-reliance would be to require both donor and governments providing aid to cooperatives to monitor recipient cooperative progress towards technical and financial self-reliance.

•    Participants presented a number of useful case studies on allegedly successful cooperative business development. However, no clear verifiable evidence was presented on the degree to which these cooperatives had achieved technical and financial self-sufficiency.

•    Another popular topic discussed was the potential role that ICT technologies could play in strengthening rural cooperative business self-reliance. Of particular interest was the presentation of the World Bank guidelines manual on ICT in Agriculture and its specific mention of two cases: one involving the development of a PC-based mobile phone-network for collecting and quickly disseminating market price and supply price. The other involving an FAO-supported pilot project that succeeded in computerizing a Kenyan dairy cooperative in Tulaga. The Facilitators might add that the experience gained from the implementation of this latter pilot project served as an important input in the development of FAO’s own guidelines manual on cooperative computerization.

In closing we would like to thank all of the participants for their useful comments on topic of how to promote increased rural cooperative and producer organization self-reliance and hope that you have found our facilitation of the discussions stimulating. One thing for sure is that it has generated a number of questions and recommendations regarding follow-up to the conference that we would like FAO and its member governments to consider:

A list of questions

Do cooperatives deserve special taxation treatment (e.g. tax exemption, capital injections) by the state/government or should they be treated as ordinarily?

Should coop principles to be strictly observed or can some flexibility contribute to business efficiency? In this respect, we should emphasize that in addition to formal cooperatives we consider all forms of member owned and controlled self-help rural economic organizations “cooperatives” in a broader sense.

Rural cooperative businesses suffer from a range of problems hindering business efficiency and sustainability as pointed out in the discussions: poor organization and management capabilities, problems in accessing national and international markets, dependence on donors (the typical “when the project is closed the cooperative also disappears), isolation in own communities, lack of capital, lack of consistence product quality and supply, lack of entrepreneurial thinking and capacities of farmers, too small size of cooperatives and lack of integration into larger associations/secondary cooperatives. How can these broad issues affecting cooperative self-reliance be more effectively addressed by outsiders without creating more dependence on external support?

How can the new ICT technologies be used to strengthen member access to agricultural and other information, to improve cooperative business accounting systems and to forge working links with other rural and urban organizations and private sector agencies active in rural areas?

Our final recommendations

To member governments:

There are many more successful cases of self-reliant and sustainable rural cooperative business enterprises in developing countries that meet the eye. More objective case studies of these cooperatives need to be done so that government, donors and NGO agencies promoting cooperatives gain a better understanding of the key internal (member capitalization, business management and member governance) and external (legal, policy, financial and extension and training) conditions that have influenced that success.

Financial and technical aid to cooperatives and rural producer organizations should be tied to the assisted cooperative’s achievement of well-defined, measurable self-sufficiency indicators.

ICT can help bridge communication gaps. Appropriate ICT is the answer.

Proposals for FAO:

Given the need to provide technical advice and field assistance to FAO member countries on how to create a more vibrant, self-reliant and sustainable network of independent farmer organizations to support more equitable and sustainable rural development, FAO should give serious consideration to establishing a special technical unit on cooperative and producer organization development staffed with experienced personnel in the field of cooperative business and producer organization development. To that end, FAO should urgently re-establish one or two full-time positions for officers in charge of cooperative development and reorganize some kind of cooperative unit/team.

FAO should devote resources (capital and human) to become once again an authority in agricultural/rural cooperative development.

FAO’s approach should be down-to-earth, realistic and practical. The organization should not enter into high-level academic discussions on principles and definitions, it should focus on the selection and promotion of tangible, efficient and sustainable business solutions for and training cooperatives and other rural self-help organizations.

To start with, FAO should carry out a stocktaking action on what it had done in the past and what it has to build upon in terms of ideas, programmes, projects, guides, training materials, etc.

Based on the above a draft - at least medium-term – cooperative development programme/work plan/road map should be prepared for discussion, revision and approval at an international workshop with the participation of all potential collaborating partners, counterparts, cooperative practitioners and experts.

John Rouse and Janos Juhasz

FSN Forum Team FAO, Italy
07.08.2012
FSN Forum

Posted on behalf of Nora Ourabah Haddad, FAO, Italy

Dear FSN Participants,

After three weeks of intense discussion and fruitful exchanges, I would like to take the opportunity of the closing of the FSN discussion on "Enabling rural cooperatives and producer organizations to thrive as sustainable business enterprises" and to thank  our facilitators John Rouse and Janos Juhasz for their valuable contribution. Indeed, we are very grateful for their accepting to avail their time and long standing experience on cooperatives and producer organizations to ensure the success of this discussion.

We also thank our participants for their insightful inputs and in-depth contributions throughout these last weeks.  Our team will  compile them and use them to enrich  upcoming discussions and debates during fora and events to be held as part of FAO's awareness-raising initiatives related to the International Year of Cooperatives (IYC, 2012) and the World Food Day (16 October 2012) on the theme of agricultural cooperatives.  Most importantly, we expect to integrate all these inputs and contributions in the Global Plan of Action being prepared by the Rome-based agencies and the UN interagency coordination for the IYC and Beyond.

We would also like to thank our colleagues from FSN secretariat team, in particular Renata Mirulla, for her precious support to our Team in organizing this successful FSN.

Please feel free to contact us directly at FAO, for any request or information regarding follow-up to this FSN Discussion or information relevant to FAO's initiative on the International Year of Cooperatives (2012) and Beyond.  Please send your query directly to me: nora.ourabahhaddad@fao.org and also to: rosalud.delarosa@fao.org.

We look forward to your continued support in strengthening the role of agricultural cooperatives and producer organizations to reduce poverty and achieve food security in the world.

Nora Ourabah Haddad
email: nora.ourabahhaddad@fao.org

FSN Forum Team FAO, Italy
06.08.2012
FSN Forum

Contribution posted on behalf of Edwin Tamasese

The most important thing for a cooperative to work sustainably is not to form it from the outset. Cooperatives form on common need. When a cooperative is formed too early in the piece it does not allow the participants to gain relevant insight into why, how and into what areas they can work together. Creating a cooperative based on common need it therefore critical. Too many times cooperatives get formed for political rather then common need reasons. Yes, pooling resources together is a much more effective method of ensuring good wealth distribution, but this must be combined with the ability to work with the natural psychology of participants which is personal benefit. The key is creating a group vision where the individual identifies personal benefit in a forum which creates group benefit. I am currently building this with several groups in Samoa. End of the day, results will speak for themselves, but the best way to test a theory is to put it into practice.

Regards,

Edwin Tamasese
Managing Director
Soil Health Pacific Ltd
Apia,
Samoa

Michael Riggs FAO, Italy
02.08.2012
Michael

Dear all,

Farmer organizations work better with information and communication technology (ICT). This is not only a catch phrase, but the title of an in depth module about the role of information and communication tools and processes that can support cooperatives in developing countries.

Coordinated by the World Bank, this resource brings together good practices, relevant impact, and means to address challenges. It is available online at http://www.ictinagriculture.org/ictinag/sourcebook/module-8-farmer-organ...

In November of this year, the World Bank will be hosting an online discussion about recent advances in the use of ICT to support cooperatives, and persistent challenges in the field. The discussion will take place on the e-Agriculture community platform (www.e-agriculture.org), with more details available as the time approaches.

John Rouse Italy
02.08.2012
John

Financial self-reliance versus technical self-reliance:

Much of the discussion so far has been on how to promote better cooperative financial self-reliance. Not much has been said on how best to promote more cooperative technical self-reliance. For example, how do you help cooperative members and leaders become successfully manage the cooperative business without the need for continued external assistance. In the past governments have tended to address this problem by temporarily assigning trained officers to help manage the cooperative business, but this approach hasn't worked very well. It has only created more cooperative dependency on outside support. Some governments feel uneasy about promoting greater cooperative independence from their support. How do you think this problem should be addressed?

Julien Custot FAO, Italy
02.08.2012
Julien Custot

Dear FSN moderator,

As FAO Food for the Cities multi-disciplinary initiative secretariat we would like to contribute in the current discussion on enabling cooperatives and producer organizations. It is very important that the 2012 World Food Day (WFD) is giving recognition of the role cooperatives play in improving food and nutrition security and contributing to the eradication of hunger.

Since 2007 half of the world population lives in urban areas and these people are active players of the food systems as consumers and/or food producers or processors. When looking at the role of cooperatives into the agriculture and food sector, it should be avoided to focus only on rural areas. We also have to consider how cooperative interact with cities and contribute to stronger urban-rural linkages.

In 2007, the FAO “Food for the Cities” multi-disciplinary initiative has produced the “Urban producer’s resource book” (http://www.fao.org/docrep/010/a1177e/a1177e00.htm). Some key issues have been identified with regards to group organization as an – overriding and essential - prerequisite to accessing resources, providing a voice and lobbying power and to increase the legitimacy and image of Urban and Peri-Urban Agriculture (UPA).

Organization of urban producers can help to access the resources of production – land, water, inputs, tools, markets, training etc. In urban setting financial availability – credit and loans allowing investment in better, safer and more profitable UPA activities can be an issues. A bank can provide a single large loan to the group rather than individual small loans to each member. Seed, fertilizer etc. can be bought in bulk for all members and produce can be marketed together, cutting the costs. The policy and regulatory environment – to acknowledge the demand and need for UPA and to support and regulate urban agriculture for the benefit of all is crucial. Local government and institutional support – through extension departments, water and health authorities, city planners, NGOs and other support organizations to provide the information, training and assistance needed to better integrate UPA into the cities needs to be ensured. Environmental and food quality/safety standards – to ensure health, safety and environmental concerns are met and hence also to combat the negative view of UPA can be much easily claimed.

Finally, analysis of the above mentioned issues from a gender perspective – focusing on the constraints faced by women urban producers and their group strategies for overcoming them needs always to be considered. Often there is a gender division in terms of activities with, in many cases, women being the main group involved in processing and marketing, whilst men are involved in production. By working together, a group can take advantage of the skills of different members especially in urban context where division of labour can be more important than in rural areas. Some people may be good at figures, some are good with their hands, some are very quick to learn technical things and others are good with people. Members can also learn from each other. Groups give members, especially women, more self-confidence and status. People are usually more willing to try something new if they are not alone, or can at least ask others what they think.

In urban areas as well as in other settings, it is also important to consider the consumer’s role within the food system. Multi-stakeholder platforms around the food and agriculture issues at local level, such as the establishment of food councils, can contribute in empowering cooperatives of small producers, processors or retailers in small, medium and big size cities all over the world.

With kind regards,
Francesca Gianfelici and Julien Custot
FAO Food for the Cities multi-disciplinary initiative
www.fao.org/fcit

Dr. Lisa Kitinoja The Postharvest Education Foundation, Estados Unidos de América
02.08.2012
Lisa

Dear FSN Forum members,

following my earlier post regarding the AERI EL SHAMS project in Egypt "Agricultural Exports and Rural Incomes - Enhanced Livelihoods from Smallholder Horticultural Activities Managed Sustainably", I found a few key documents in my files from our literature review that will provide more details.
The Chief of Party was Tom Herlehey -- he prepared a summary "Lessons Learned" (linked) presentation that did a good job of covering the basics.
Burt Swanson wrote an article (linked) about the project from the extension education angle for a conference held in 2004.
LK
 

Olivia Muza Consultant, Zimbabwe
02.08.2012
Olivia Muza

This is a very topical issue and the basis on which most of the rural development solution lies. Strengthening the operation of rural cooperatives and producer organisations improves business etiquette in general and increases accountability at various level of rural development.
 
Rural cooperatives should address rural savings, business development, investments, capacity and sustainability issues which are the missing links in current development initiatives. Cooperatives should address the complete rural development challenge. Sectoral based policies and initiatives that address fragmented development issues will simply not work.
 
At the same time, producer organisations should come up with a complete value chain developmental approach that not only seeks to increase production but also to improve markets, relationship building with buyers, product development, packaging, agro-processing and value addition.
 
The relevant infrastructure is critical for both rural cooperatives and producer organisations development. Combined with the latest technology there is need to develop avenues for increasing and effectiveness for rural development.
 
Thanks