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Request for Information: Basic Business Parameters

MadibiraInterview4OptFor those who have been following the material in this website you will appreciate that it brings to question the overall effectiveness of farmer organizations as a Sustainable Competitive business model for assisting smallholder communities. It seems that over the past couple decades the mechanism by which smallholders are assisted has become more important than the overall effectiveness of the assistance or the sustainability of the assistance without external support and facilitation. A mechanism that overlooks a reasonable well conceived preference for cash transaction and Holding Produce In- Kind as long as possible before marketing goods to meet immediate cash needs.

It also seems that to question the effectiveness of farmer organizations as a means of assisting smallholders goes against some deeply entrenched vested interest, including senior people who have devoted their entire professional careers advocating their use and the type of promotional spin reporting that continues supporting them. Some of which may be Deceptive Bordering On Dishonest reporting with the potential for Litigation. This is mostly by overlooking or ignoring the sustainable overhead costs to operate the cooperative once donor funding ends. Or keeping values in the aggregate so they appear more impressive then when prorated to individual members. However, if we are to sincerely and effectively assist smallholders, and not continue to commit large amounts of development funds on programs that have limited sustainable impact, then it is necessary that the overall effectiveness of farmer organizations to assist smallholders be fully evaluated. Most likely development personnel, particularly those working in the field, are well aware of the limited overall effectiveness of farmer organizations in providing assistance to smallholder communities, but are caught up in the Development Hierarchy that virtually mandates promotional spin reporting to assure continued funding through project extensions and new contracts.

Unfortunately, this does not effectively allow the development community to identify or evaluate other means of assisting smallholders that could prove more sustainable and effective. Thus, if people who are either directly or tangentially involved with farmer organizations for providing support service, particularly if in direct competition with private traders, could kindly respond to the questions below, it would be most appreciated and perhaps we can start moving toward more effective mechanisms for assisting smallholders. I like to think the questions listed below form the basic business parameters needed to separate a sustainable innovation from what is basically little more than a publicity stunt of the donors good intentions. These questions should not be thought as a threat to any job. Hopefully and more likely they would result in a redefinition of jobs, that would provide a more effective and more rewarding experience in assisting smallholder producers.

From the limited information obtained from direct interviews or extrapolating the parameters alluded to but not fully reported in published reports my best estimate values for each question are listed. Alluding to a concern implies a substantial issue, while incomplete reporting indicates the full reporting would be highly inconvenient to promoting farmer organizations as successful providers of smallholder assistance. Any information supporting or refuting these estimated values would be most appreciated. The results will be included on this website with responders treated as anonymous as they desired other then mentioning the country. According to most search engines this website is now one of the most frequently visited website for those searching “smallholder agriculture”.

Also included are the expectation of interested public based on several years of surveying students taking the academic course or participants taking the continuing education internet course I have taught. These values would make good initial targets as representing what the underwriting tax payers are expecting for the invested taxes.

Basic Business Parameters

1. What are the relative competitive advantages of farmer organizations vs. competing private traders service providers? Is this just dismissed as private providers being exploitative of smallholders without any supporting evaluations or are there any detailed studies looking at both business models and including any business expenses such as processing, packaging, and transportation goods, as well as the market volume, markups, profit margins, overhead expenses, and ultimately individual income?

Expectation: Farmer organization or value chain project would provide 15 to 20% better return.

Estimate: Dismissed as exploitative without support. A dangerous dismissal as, if not substantiated, could constitute slender and the persons responsible subject to possible class action litigation on behalf of the private traders. Actual estimate given the degree of side-selling would be 10 to 15% better return for Private Traders. Certainly with the cash payments the private traders provide a more convenient service.

2. What percent of the total beneficiary pool of smallholders are actively participating in farmer organizations for business support services such as supplying inputs and market produce, etc.? Is there any quantitative information or is it mostly focusing on the members and overlooking the non-members?

Expectation: At least 50% with preference for 70%. It is difficult to justify a project that can not attract at least a majority of the beneficiaries by the end of the initial funding period.

Estimate: 10% Based on the Farmapine, Ghana report and email from author correcting the hundreds of non-members to thousands of non-members. The cooperative collapsed under massive bankruptcy a year after the article was written.

3. What is the percent of “side selling” or “side purchasing” of goods supposedly to be going through a farmer organization according to the cooperative by-laws that smallholder members divert to competing private service providers?

Expectation: not more than 10 to 15%.

Estimated: >50% and possible as high as 90%, particularly when credit clubs are involved. Is this an astute business decision on the part of the smallholder to prevent their produce being confiscated cover non-payment by other club members?

a. Is the use of the statement claiming smallholders are not honoring their legal commitments really a proxy for side-selling, and should be recognized as avoiding a very poor business model?

b. What is the primary reason for the side selling and side purchasing?

Estimated: Immediate cash settlement and avoiding leveraged loan repayment with prospects of a portion of the crop being confiscated to pay defaulting neighbor’s loan.

c. If this is mostly for immediate cash, what is the discount farmers are willing to accept for the immediate cash settlement?

Estimated: 20%

d. Should side selling considered a legal problem in which farmers are in “breech of contract” or a business problem, the farmer’s organization did not provide the envisioned competitive advantage?

Estimated: Legal problem “Breech of Contract,” but more likely avoiding a non-competitive business model and risk of crop confiscation to pay defaulting neighbor loan.

e. Could the percent of produce marketed through the project that represents loan repayments be an index on how well the project is appreciated by the beneficiaries.

Expected: Should be 25% or less if the project is well appreciated by the beneficiaries, but could be as high as 90% if farmers only consigning loan repayments to the project for marketing as noted in the Ethiopia Coffee analysis and Thailand Analyses.

4. What are the charges the farmer organizations charge for the services they offer? Are these in the form of overhead cost, surcharges, handling fees, etc.?

Expected: 10 to 15% but that is really unrealistic as most people greatly underestimate the cost of doing business.

Estimated: 30% Based on Central Growers Association in Zambia

a. Are the cooperative operating costs clearly factored into the reporting system, or does the reported accounting stop at the cooperative without extending it to the farm gate?

Estimated: Reported accounting stops with the cooperative overlooking the cooperative operating costs or allocating the operating costs as a direct financial benefit to the members. Isn’t this somewhat deceptive if the cooperative is expected to continue beyond donor funding and external facilitation?

5. What is the net financial benefit for members of the cooperative? Net being the difference between what the farmers receive and what they would have received from growing the crop being substituted for or the alternative marketing channel.

Expected: At least 10% increase in total income including all enterprised and after benefits for participating in value chain is prorated across other farm enterprises.

Estimate. It could be as low as US$5/member based on the Fair Trade Coffee Project in Ethiopia that claimed 21,900 members and marketed 181 MT of coffee for an average of 8.3 kg coffee/member with price difference between Fair Trade and open market determining a financial benefit of perhaps US$5/member. This would represent > 1% total farm income for Ethiopian smallholder coffee farmer.

6. Most farmer organizations are promoted for the dividend to be distributed to the members. How often are such dividends paid?

Expected: Within 2 years

Estimated: None Paid, No payments projected, at least as normally defined in the business world. Some projects will make initial payment for goods consigned and then declare a second payment as a dividend, but most of this simply bring the value to the regular price offered by others. This appears a distorted definition of dividend.

Other Parameters Of Interest

1. Does anyone know of any farmer organization that was organized as part of a development project that continued for two or more years after all donors funding and facilitation ended?

Expectation: over 50%

Estimated: None

2. Does anyone know of any place where there has been a spontaneous spin off of a farmer organization based on a development project setting the example?

Expectation: 25% of time this would happen

Estimated: None Business model just too cumbersome to compete.

3. How critical are these business parameters to understanding the effectiveness of farmer organizations in providing sustainable support services to smallholder communities?

4. If you convert the questionnaire to a survey what are the minimum values you would accept that would justify the investment of your tax or development dollars? It is your money!!

Please email responses to the website manager:

PS. If any Peace Corps Volunteer, VOA, DED, or other volunteers living and working in smallholder communities would like to follow-up on these issues please contact the website manager. Colorado State University offers a Peace Corps Masters program for which such efforts could potentially be used.

Similarly if there are any host country people interested in how to nudge the donor community off the reliance in farmer organizations into more effective means of assisting smallholder communities please contact the website manager.

Last Revised: 28 March 2012 .

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