Vulnerability for Class Action Litigation: A Whistleblower’s Brief*

On several pages of this website as well as in various blogs on Agriculture Development Forums I have mentioned the vulnerability for class action litigation for the misrepresentation of the effectiveness of farmer organizations for poverty alleviation of smallholder producers and their communities. This webpage is intended to elaborate on where these vulnerabilities are in an effort to promote a closer look and encourage some major adjustments in how rural poverty alleviation in undertaken. Adjustments that will be better appreciated by the beneficiary smallholders, attract greater reliance on the services offered, and ultimately be more effective at assisting them out of the entrenched poverty in which they are entrapped. Farmer organizations have been the primary mechanism for funneling assistance to smallholders for approaching 30 years and representing a full career commitment by some professionals for which the commitment has become deeply entrenched, and for which acknowledging it was not effectively serving the beneficiaries would be exceptionally difficult. However, 30 years is more than enough time to sort out any problems and allow them to evolve to their optimal effectiveness. As they are presumed to represent the smallholder farmers they have a high degree of social desirability and are often highly promoted in academic world, but perhaps more as part of the social science faculty than the business faculty. However, since the intention is to provide business services it is essential they be competitive with the indigenous business support service providers in the overall economic environment in which they are operating. This would include being competitive both in financial terms and convenience. The importance of convenience maybe greatly underestimated, but could represent up to 20% of the business value as smallholders in Zambia are reported to accept a 20% discount on what projects cooperatives were offering for an immediate cash transaction. This may represent a Financial Management Strategy emphasizing retaining good in kind as long as possible and only marketing small quantities to meet immediate cash needs. This could be as little as 10kg, or what can be conveniently carried on a woman’s head, and only a fraction of a full typically 90Kg bag. Apparently, “sticky fingers in the cookie jar” represent a greater financial risk than postharvest losses.

Slandering Private Traders

The biggest vulnerability is the vilifying of private trader service providers as the primary justification for many projects, including the current emphasis on value chains, designed to provide greater income by keeping the smallholder farmers directly involved further up the value chain between the producer and consumers. The vilification is often expressed with statements such the following taken from a recent Zambian project:

Increased market opportunities to enable farmers to improve their produce (both in quality and quantity/variety) and prices by eluding unethical middlemen dictating exploitative prices to farmers will provide a conducive environment for sustained farmer participation and growth.

Such statements are usually put forth without any supporting documentation. They are often included in RFPs, repeated in Project bids, and again included in many promotional reports all as accepted fact. However, without detailed analysis of the private traders business model compared to that of the project clearly showing a sustainable competitive advantage for the projects’ interventions, this amounts to slander. It is usually not clear where such vilifying statements originate. It could be simply a boiler plate developed from earlier projects in the intended or even another host country, and simply copied and pasted into a current RFP. It could also be an endorsement of the host country civil officers assisting with the project development. However, this has to be carefully evaluated in terms of how closely these host officers are in touch with the beneficiaries in what is most likely a Financially Suppressed Economy with a limited tax base resulting in a Financially Stalled Government that has virtually no operating funds to allow host officers to be in close contact with the beneficiaries. Also, it must be considered that these officers could have a personal vested interest in the project and how it intends to assist the beneficiaries as a source of supplemental income for seconded civil officers, either from direct salary supplements or other more Informal Opportunities.

Project Development: Also the way Projects Are Developed, when the RFP is released for bid the project has been under development for two years or more with an upfront investment of nearly a million US dollars, for which no one wants to hear that the proposed project is conceptually inappropriate. However, during these two years there really has not been enough field time to confirm if these private traders are dictating exploitive prices to the farmers or simply receiving modest profits for the services provided. It also has to be appreciated that the donors conceptualizing projects are isolated from the beneficiaries by the four levels of the Development Hierarchy that often results in the limited field visits and contract with beneficiaries during project development being well orchestrated “Dog & Pony” shows arranged by host civil officers hoping for some personal benefits from the project. Thus, it is really inappropriate for an RFP to claim, what is basically a speculatively suggestion, as irrefutable fact that does not need to be verified. In reality the first thing the RFP should direct is that the contractor verifies such statements. It should not take more than a couple weeks of time and effort, perhaps with an elaboration on the data shown in the Private Trader webpage derived from an MSc thesis at the Asian Institute of Technology in about two weeks of interviews following the market channel (value chain) of tomatoes from the Taria to Kathmandu or an Enhanced Version excerpted from the Developing Smallholder Agriculture: A Global Perspective text.

Economic Environment: In truth it would be very difficult to verify such statements, because they most likely are not true, and the vilified private traders are more than likely providing the smallholder beneficiaries with the most cost effective and convenient service available. It has to be recognized that these value chain projects are working in a Financially Suppressed Economy serving an impoverished society in which the final consumers have limited funds to purchase goods. This often results in families spending up to 80% of total income or subsistence production for food that provides only a Meager Diet that often will not allow a full day of diligent agronomic or other forms of manual labor. That limited purchasing power can curtail the extent private traders can exploit farmers, forces profit margins to be razor thin, and a business model emphasizing operational efficiency that would be hard to compete with. This can be easily seen by comparing the Consumer Prices in the USA with those in developing countries. Typically for consumer foods such as staple crops and vegetables produced in-country the consumer prices are only 1/3rd to 1/5th the USA prices and this includes fuel prices, essential in transporting produce to urban markets, often considerable higher than in the USA, more in line with European prices. If this is the case then, if litigation becomes necessary the degree of slander would be clearly apparent and would be best settled out of court, rather than endure the length and costly process of court hearings. It is also possible that many of these private traders have such a low market volume that they are operating below or very close to the poverty line as shown by the Banana Trader in Uganda or Tomato Vendor in Zambia. As such they are part of the rural poverty problem and should be part of the poverty alleviation effort, but excluded because of the blanket vilification of private traders service providers. To the extent such blanket vilification of private traders includes those operating near or below the poverty line with the intention of forcing them out of work and thus starving, the vilification could be considered as promoting the genocide of these traders and subject to referral to the International Criminal Court (ICC) in The Hague for investigation as a “crimes against humanity”.

Value Chain Model: In contrast to the private trader business model the value chain model tends to be administratively more cumbersome which quickly translates into overhead expenses. Too often the proponents assume that because they claim to represent the beneficiaries, they will automatically have a competitive advantage. There is really no foundation for this. However, it quickly results in limited concern for overhead costs, thus no real effort to curtail them. The value chain is really based on the farmer cooperative movement in the USA and possible Europe. This movement started some 100 years ago when there was considerable exploitation of farmers, but perhaps in an economy that may not have been as financially suppressed as common to most developing countries as discussed above, and with the farmers forced to deal with large agro-industrial corporation able to corner the market with monopoly control, instead of a multitude of competing family enterprises allowing local competition with as many as 10 dealers vying for goods. Thus, in the USA at the time cooperatives were developed private traders representing the large corporations could actually get away with some exploitive charges. However, it should be noted that the cooperative movement is the USA has been in decline for many years to the extent the US Department of Agriculture no longer tracks membership or market share. The Latest Figures are now some 15 years out of date. Much of the reason for the decline has to be related to the overhead costs of operating a cooperative and the private service providers providing more competitive services. If this is applied to the developing world it might take note that for a farmer cooperative to have a competitive advantage over private traders and cover the typical overhead costs, the private trader will need a net profit margin, after taking into consideration all costs, of at least 30%. Anything less than that and the cooperative overhead costs will likely exceed the profit margin of the private trader and the cooperative will need to be subsidized to remain in business, then collapse once subsidizes and external assistance ends.

It should also be noted that in most USA super markets less than 1% of the goods on display represent the consumer terminus of a value chain as envisioned in the development effort. It should also be noted the Farmland Cooperatives, in their attempt to vertically integrate from producer to consumers, along the lines of the “value chain” model resulted in the largest Cooperative Bankruptcy Debacle in USA history. Not really the stellar examples to base major innovations for smallholder farmers operating in the suppressed economy common to most developing countries. It also has to be noted that, while it is true the higher you move up the value chain the greater the value of the product, but it is also true that the higher up the value chain the greater the overhead costs and most like the greater the inconvenience for the members waiting to be compensated for consigned goods.

Legal Liability: The problem with donors who have included the vilifying comment in the RFP as accepted fact is they are often protected from liability. However, when an individual from an implementing contractor includes such comments in any progress report or published article promoting the project, they become fully liable for the accuracy of such comments and thus vulnerable for class action litigation on the part of the vilified private traders. The fact they are quoting it from the RFP or endorsement of the host officers, maybe grounds for eventual countersuits, but may not prevent the initial litigation and awarded settlement.

Since the private traders are a highly fragmented group of mostly family enterprises for which the vilifying statements are trying to undermine their ability to make a living, the number of people potentially being hurt and entitled to participate in any class settlement will easily be in the thousands. Thus, if it comes to slander litigation the settlement could be substantial. Perhaps this could be as much as US$20,000,000 (Twenty Million US dollars), plus legal and administrative costs for each project and each country. Also if the publications containing such vilifying comments are distributed from the home office in places like Washington, DC or London, then it would be possible for the case to be litigated in the donor country, where the jury or magistrate deciding the case would also be the tax payers whose taxes are being squandered, and offer the prospects of higher settlements? Given how easy it is to “organize” farmers to join development projects, even if they don’t actively participate, how easy would it be to organize private traders to participate in a settlement? Seeing all the USA TV commercials seeking members of a class to participate in already reach settlements, would it be necessary to have all beneficiaries identified before initiating the litigation? The saving grace as why this has not occurred to date, is that most projects are diverting such a small percent of the market share, often little more than what is needed to repay input loans obligations representing perhaps only 10% of the members marketed produce, that they are really not substantially impacting the private traders. However, this also means they are having little impact on the beneficiaries and alleviating their poverty. Thus this is mostly a mechanism to highlight just how ineffective most development projects are in assisting smallholders to escape poverty, and stimulate some long overdue changes.

Prudent Move: At this point over the next couple years the prudent move for chief of parties or team leaders heading a project based on the vilification of private traders would be to carefully make a comparative business analysis similar to that done for tomatoes in Nepal, as mentioned above, between what their project is offering and what the private traders are doing to make certain the projects have a clear sustainable competitive advantage both financially and conveniently, and the farmers are relying on the project for the bulk of services offered so there is a high probably the project will continue when external assistance ends. Perhaps using the criteria mentioned in the webpage on Basic Business Parameters or something similar. These criteria have actually been recognized as important by the USAID Inspector General’s Office, although with the comment collecting the data would be too time consuming and expensive. That is hard to image as I can do a reasonable job from my desk on a USA Land Grant University campus using published reports, some simple internet searches, and some basic computations, nothing approaching rocket science. Also, my MSc student at the Asian Institute of Technology in Thailand (AIT) was able to do so with only a couple weeks of field time and with a very limited budget. Even if project or contract officers do not feel the need, it would be prudent for team leaders or chief of party to undertake the analysis, and work with the donor representative to highlight that the basic premises on which the project was developed may not be correct, and see what program adjustments could be made. The analysis might also highlight how a business can be competitive in an overall suppressed economy, and provide guidelines for improving the efficiency of a project’s cooperative business model. This most likely would be cheaper than any legal costs from class action slander litigation. Also, if the donor is not interested, it would be good to develop a solid paper or electronic trail so, if necessary, a counter suit against the donor could be made in case any litigation losses and a counter suit is needed.

The real problem here is that without the vilifying comments against the private trader service providers there is little justification for most projects. Also, if the vilifying comments are not true the project will have little, if any, impact on the poverty alleviation of the smallholder beneficiaries. In this case the project will be little more than a publicity stunt of the donor’s good intentions, while squander substantial donor tax money that potentially could be devoted to more effective means of assisting the beneficiaries. In this case it might be better to take a closer look at the Private Service Providers as having a symbiotic relationship with the smallholder producers within their community, and see what might be done to assist them better serve the smallholder beneficiaries. After all they are the default providers once a value chain projects funding ends and it collapses.

Down Stream Litigation

Now what happens if the slander litigation losses even with an out-of-court settlement, as it most likely will? You would be managing a program based on a false assumption. Now, would it be appropriate for the taxpayers, whose taxes are being squandered to form a class and demand the project management refund the donor treasury for the money wasted? This of course will be limited to the value of the contract, typically around US$ 10,000,000 (ten million US Dollars), but again it would be expensive. Again while the primary people responsible would be those developing the project and including the slanderous comments in the RFP, the most exposure would be on the implementing contractors for not verifying the comments, and if not verifiable, work with the donor representatives to look at alternative means for assisting the smallholder beneficiaries.

Spin Reporting

The other major source of litigation would be the Spin Reporting that covers-up the limited participation and reliance of the beneficiaries on the services offered, while focusing on appeasing the donors. The spin reporting often looks at results in the aggregate so the numbers appear more impressive, but when dis-aggregated will show very limited results, or stop the accounting at the farmer cooperative instead of continuing to the farm-gate and what the farmers really benefit, if anything. This effectively attributes the overhead costs of operating a farmer cooperative, which often is 30% or more, as a financial benefit to the farmers. It also overlooks the Basic Business Parameters, mentioned previously, that would measure to degree the beneficiaries are relying on the projects for the services offered vs. diverting them to the often vilified private service providers. If these parameters had reasonable values, one would expect them to be highly touted in any reporting as they would clearly demonstrate the success of the project in serving the beneficiaries.

In addition spin reporting would include revising consulting reports to assure they are politically correct and in compliance with accepted project doctrine, when trying to convey a more accurate assessment of finding and better representing the smallholder beneficiaries. A process that could have additional liabilities to compensate the consultants for distorting and misrepresenting the facts as they have been presented and preventing programs from evolving to more effective mechanisms for assisting the beneficiaries, as well as limiting honest consultants future consulting opportunities. If the modified consulting report should be shown to be factual accurate, there could be considerable additional liability for deliberately continuing with an ineffective project and squandering additional taxes.

The problem here is often the donors are virtually demanding the spin reporting with such comments as “show us your success stories”. However, this comes with substantial plausible deniability. That would include such comments as “yes, we want your success stories, but we don’t want you to lie about it”. Thus if litigation comes, it is the contractor or at least the head of the projects and/or the compliance officers who will be most vulnerable and quickly “hung out to dry”.

Since spin reporting is specific to given projects, the liabilities would be limited by the value of the project, and most likely any jury or magistrate would consider the extent of the spin reporting in awarding any damage. Certainly the Ethiopia Fair Trade example mention in the reference on Deceptive Reporting would merit nearly full compensation as the project was hard pressed to have a 1% impact. Other such as the Farmipine and Haiti examples would not be as bad. The person most vulnerable would be those authoring any reports, which in most cases would be the Chief of Parties, Team Leaders or Compliance Officers. This is somewhat unfortunate, as they are under pressure to produce positive reports, regardless of overall success of the program. The people who should be held liable would be the project and contract officers who are not insisting on objective reporting, and providing the criteria that would effectively measure the degree the beneficiaries appreciate the program as shown by the reliance on project activities for the services offered. It has to be recognized and appreciated that most project and contract officers tend to get extensively tied up in the administrative details of the contracts they are administering to have time to scrutinize in detail project progress reports to penetrate any spin reporting, even though it is really their mandate. Instead they are often content to accept the spin and appreciate the apparent success of their projects. Thus, the public is really dependent on the M&E officers to set reporting criteria that will minimize any spin. Therefore, perhaps the most liability should go the donor’s M&E officers since it is there specific mandate to represent the underwriting taxpayers and assure taxes entrusted to their care are wisely spent and not squandered. Interesting in representing the taxpayers they also have to Represent the Beneficiaries to make certain they fully appreciate the efforts being made on their behalf. Their failure to insist on the reporting criteria that would effectively measure the success of the project instead of simply what might make good publicity could be grounds for direct class action litigation and overcome some liability protection based on making a sincere effort, as their effort would be less than sincere.

Prudent Action: At this point the prudent action by any contractor obligated to utilize farmer organizations would be to discretely collect the Information Requested on basic business parameters or something similar, and quietly review the results with their project and contract officers to see if they can make changes in the program to more effective in assisting the beneficiaries. For project officers and contract officers it would be prudent to select a few contracts and simply request they provide the information requested. This would determine the degree material this webpage has merit, represents an endemic problem across all donors and countries, and there is reasonable vulnerability for class action litigation, or this is simply an individual ranting. This could quickly be estimated within a couple weeks, relying mostly on data already available or easily computed, and acknowledging what additional data would be needed. If this analysis has merit, then review what adjustments might be appropriate to provide more effective projects with a greater probability of assisting smallholders out of poverty. Based on the preliminary estimates more detailed evaluations could be undertaken. However, this should be easily integrated with other on-going data collecting activities and not require any additional funding.

For donor M&E officers, it would be wise to very carefully review the basic business criteria mentioned in the Referenced Webpages and perhaps insist on these criteria being reported, including setting target values for the different criteria. Target values that would appease any interested layman taxpayer who might become a juror if litigation becomes necessary. This does not have to be done publicly as it most likely be necessary to “bite a bullet” of perhaps decades of ineffectiveness, at least not over the next couple years. Thus, it can be done quietly and internally within donor organizations or between donor and active contractors. Hopefully that can result in the substantial changes needed to make the rural poverty alleviation effort more effective, and avoid the prospects of litigation.

Merits of Litigation

Naturally, it is not possible for any litigation to proceed unless the case as substantial merit. Thus any value chain project that is assisting over 50% of the potential beneficiaries, they are funneling over 70% of their business needs through the project resulting in a 10% overall increase in economic well-being, this would be a highly successful project, and there would no grounds for litigation. Even if a project attracted less than 50% of potential beneficiaries, and they only used the project for inputs and marketing only enough produce through the project to pay for the inputs representing only 10% of their business while side selling the balance or 90% of their business, thus having virtually no overall economic impact on the farmers or community. If this was accurately stated, there would be no grounds for litigation and such objective reporting could lead to some evolution in the way projects were designed and implemented. If this level of objective reporting was done when cooperatives were first introduced into smallholder development projects, the shortcoming of the business model would have been highlighted decades ago, the concept would not become so deeply entrenched, and most like development effort would have moved on to consider alternatives. However, if a project is attracting less than 50% of the potential beneficiaries, and they are only relying on the project for loan repayments, etc. If this is reported or implied as a successful project and a model for future projects there would be ample grounds to litigate the misrepresentation of the success.
Of course as a US citizen I can only be directly concerned with projects directly using USA tax dollars where I have a direct vested interest in seeing they are wisely invested. I have to leave it to citizens of other donor countries to address the issue for their invested taxes.

Impact of Litigation

Of course if litigation becomes necessary, things will get messy very quickly as everyone potentially affected will try to protect them elves, and pass blame on others, quickly resulting in an adversarial relationship among people who need to be closely collaborating. It will also make for a very public spectacle that is best avoided. It will most likely take only a couple highly publicized law suits before the necessary changes will be forced upon the donors or there just won’t be any contractors willing to bid on projects. Hopefully, that can be avoided and postings like this will stimulate the necessary changes.

Intent of Webpage

The intent of this webpage is encourage a much closer look at the poverty alleviation effort for smallholder producers and make certain it is effective and fully appreciated by the beneficiaries. There is no intention of reducing the funding for rural poverty alleviation or reducing the number of people involved, if they are first and foremost dedicated to assisting the impoverished smallholders independent of the means for doing this, and not more committed to the mechanism by which the assistance is conveyed. Definitely, encourage some substantial modification in job descriptions, but not the number of people committed to assisting smallholders, other than the multitude of publicists assigned to make ineffective projects appear successful. One would hope that many of those currently being obligated to spin results will welcome such an action that would allow them to more effectively assist their beneficiaries and provide more straight forward objective reporting. Such projects would not require an army of publicists to promote them.

Since the intention of this webpage is more to stimulate change than pursue major litigation, there is really no need to rush into lawsuits. Thus, there is no reason to make any legal moves for a couple years to see if substantial changes are forthcoming. Thus, there is no need to form an NGO such as the Citizen Committee for Effective Foreign Assistance until July 2016. That will be after the Millennium Development Goals of a 50% reduction in extreme poverty set for 2015 have expired and the limited success in overall poverty alleviation can be assessed. However, after that if changes have not been forthcoming, and projects are still mired in appeasement reporting then the litigation will be the last resort. During this interval many projects will be completed, new projects initiated, and other projects renewed or extended. All of which will provide a good administrative point to take a closer look at the merits of the contentions in this webpage, and if having merit make the substantial adjustments to reduce any vulnerability for class action litigation. On the other side, if not addressed over the next couple years, it will also give creditability to a claim the deceptive reporting is intentional and appeasement more important than serving the beneficiaries which could enhance any settlements. It would also give credibility to the idea the cooperative model is too deeply entrenched and can only be adjusted through litigation.

The bottom line remains there is no reason the tax payers should be burden funding projects that are virtually deliberately ineffective. That is unless there is something more sinister taking place as implied in John Perkins’s “Confessions of an Economic Hit Man”. It also might be worth considering, if the use of cooperatives is appeasing the host government, whose officers pursuit of informal income opportunities have substantially alienated public, including smallholder farmers, will projects provide additional similar opportunities and further alienate the smallholder public from their government. This could easily be the case in Madibira, Tanzania where the substantial economic benefits from the new 3000 ha rice irrigation scheme were being overshadowed by the Project Management Unit of seconded civil officers effectively evicting intended beneficiaries in favor of outside “personal friends” with the expectation of some informal payments. If so what are the prospects such projects will be more an incentive for anti-donor terrorist activities rather than enhance donors’ national security?

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*This rather provocative webpage, as well as all webpages on this website, is the work of the website manager, who is solely responsible for its contents. It in no way reflects the opinions of Colorado State University, the College of Agriculture Sciences, Department of Soils & Crop Sciences, the Office of International Program or any other entity at CSU or elsewhere for which I have been affiliated with. CSU is only providing server space as part of the standard benefits it provides emeritus faculty and retired staff for email and personal websites.

3 June 2014