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Re: Enabling rural cooperatives and producer organizations to thrive as sustainable business enterprises

John Rouse Italy
30.07.2012
John

Facilitators' feedback - John Rouse and Janos Juhasz

This past week's conference discussions have highlighted a number of important points regarding the topic of cooperative self-reliance and sustainability.

Encouraging farmers to save more.

Agnes Luo Laima (Zambia) argues that governments should create conditions and incentives that encourage farmers to accumulate more savings. We agree that this is critical. It is well known that rural rates of cash savings and investment are too low in many developing countries to support sustainable rural development. Furthermore, evidence shows that farmers with cash savings are more likely to be self-reliant than those without. The same is true with cooperatives. Cooperatives that succeed in accumulating surpluses and attracting member capital to invest in the cooperative business also tend to be more self-reliant and sustainable. Joseph Musuyu points out, rural SACCOs (cooperative credit and savings cooperatives) in Kenya have been relatively successful in mobilizing farmer savings, and the government is now encouraging more SACCOs to be organized alongside existing coffee cooperatives in the hope that this will encourage more sustainable coffee cooperative growth.

Is continuous business turnover a factor in cooperative success?
Joseph Musuya (Kenya) seems to think so He says it's a factor explaining the success of rural SACCOs in achieving self-reliance in his country. Interestingly, dairy cooperatives (which generate more daily transactions per member than other cooperatives engaged in marketing seasonal crops)in many developing countries have also done relatively well. What do you think about this? How might this help in achieving cooperative self-reliance?



Cooperatives are businesses

Christian Chileshe (Zambia) states in his otherwise excellent contribution that "cooperatives are substantially social institutions that have the potential to produce economic and political benefits". We have to disagree with Christian on the over-emphasis that he gives to the social function of cooperatives. Cooperatives are primarily economic organizations that seek to satisfy the economic needs of their members. They may also address other social and other needs of their members, but their primary function and purpose is an economic one. Joseph Musuya (Kenya) further adds that farmers need to run cooperatives as a business, not as an end in itself. We would have to fully agree with Joseph on that point, because if cooperatives are not managed as a business, they will surely fail.

The pros and cons of vertical integration

Several participants (Igbine-Nigeria; Luo Laima-Zambia; and Steele-Italy) have raised the question of where cooperatives should position themselves within the marketing chain. It's well known that profit margins per unit sold are highest near the top of the marketing chain rather than near the bottom. That would seem to be a powerful argument favoring the vertical integration of cooperative marketing structures to capture these margins. However, it's important to realize that not all vertically integrated cooperative structures are self-reliant and sustainable and the ones that are are built upon a sound foundation of self-reliant primary cooperatives at local level who help capitalize the structure and to protect their member equity stake in the enterprise, ensure that higher level management of the structure is responsive to their member needs. Unfortunately, many of the federated cooperative union structures one finds in Africa have changed little since colonial times and remain top-down structures, heavily controlled and financed by the government rather than by base members and, as a result, are neither democratically run nor self-reliant .

An interesting case study
Peter Steele mentions the case of smallholder potato producers in Nyabyumba, Uganda, where a 120 member marketing association of potato producers was formed from six smaller Farmer Field School groups. The case would seem to be a good example of a bottom-up approach to self-reliant cooperative and rural producer organization development. However, the case study lacks data on that one important point. The association earns a profit but it's not clear on the extent to which the organization has reached technical and financial self-reliance. is such information available?

Laws and policies that encourage self-reliant cooperatives
Lizzy Nneka Igbine (Nigeria) recommends that the promotion of self-reliant and sustainable cooperatives be made a government priority and presumably set down in legislation or formal government policy. We think that formalizing this as an objective of government might help. It certainly wouldn't hurt.



Areas of cooperative action
In her contribution Ms Igbine, Nigeria complains that “high prices of food…go to sharp practices of middlemen”. This raises the issue of the potential areas for cooperatives activities. Experience shows that in agriculture, in addition to primary production, cooperatives have great potential and are most needed in the up-stream and the down-stream sectors, i.e. in the supply of farm inputs and in the processing and marketing of farm products. These are the two sectors of the product chain take the overwhelming share of the consumer dollar spent on food and this is the money farmers should aim to get access to through cooperation.

Financial partnering with rural producer organizations and cooperatives.
Fabrice Larue (France) mentions in an interesting contribution that progressive financial institutions need to think more seriously about business partnering with some of the more mature rural producer organizations where sound investment opportunities exist, but to do so, they will have to improve their understanding of how these organizations work and analyze their investment risk. We couldn't agree more. But at the same time, cooperatives and other producer organizations also need to better understand how these financial institutions analyze investment risk and what are the expected costs and benefits of risk sharing between the two.

We forgot to remind you of one thing
We would like to remind all participants that a whole list of useful publications and manuals is available for downloading on the conference's main page in the rightmost column. Take a look! You might find something useful.

We look forward to your response to our comments.

John Rouse and Janos Juhasz