{"id":245,"date":"2015-04-14T21:46:46","date_gmt":"2015-04-14T21:46:46","guid":{"rendered":"http:\/\/agsci.colostate.edu\/smallholderagriculture\/?page_id=245"},"modified":"2015-04-14T21:46:46","modified_gmt":"2015-04-14T21:46:46","slug":"future-of-aid-commitment-to-cooperatives","status":"publish","type":"page","link":"https:\/\/agsci.colostate.edu\/smallholderagriculture\/future-of-aid-commitment-to-cooperatives\/","title":{"rendered":"Future Of AID: Commitment To Cooperatives"},"content":{"rendered":"

\"FOA-Competitive\"<\/a>Mechanism for Assistance<\/strong><\/span>: Over the past couple decades the mechanism for funneling assistance to smallholders has been almost exclusive via farmer organizations, particularly farmer cooperatives.\u00a0This now represents full career commitments of the senior individuals involved and the vested interest that implies. However, if one reads the documentation carefully there may be more commitment to this mechanism than to the beneficiaries.\u00a0The question remains, are Farmer Organizations the most effective means of assisting smallholder, or do they represent a multi-billion dollar, multi-decade scandal based on slander?\u00a0Furthermore, the latter claim may be easily supported with the reports\u00a0readily available, not so much by what they contain, which is honest and accurate,\u00a0but by\u00a0what is omitted\u00a0that would\u00a0separate donor facilitators promotions from sustainable innovation that\u00a0can continue beyond donor assistance. Such reporting may be the best example of how promotional reporting up the development hierarchy, and willingly accepted by the donors anxious to see some initial success, as mentioned earlier, can lead to the institutionalization of innovations well beyond their overall effectiveness in promoting sustainable poverty alleviation. While donors promoting farmer organizations as the primary mechanism for assisting smallholders may be looking beyond the initial business support services to provide various social benefits to its members or community, aren\u2019t these social benefits dependent on farmers\u2019 organizations first being a viable competitive business and second having a reasonable quorum of the beneficiary pool actively participating. In most case neither of these occurs. In the first case if the farmers\u2019 organization is not competitive the members will simply side sell to the private traders. In the latter case if there is not a sizeable quorum participating then there could be considerable free loading on the social benefits by the non-members which will very quickly develop resentment from the members footing the bill.<\/p>\n

Farmer Associations vs. Farmer Cooperatives: In proceeding with this analysis first, it might be desirable to distinguish between Farmer Associations and Farmer Cooperatives.\u00a0Farmer Associations\u00a0are primarily farmer organizations involved in information sharing and political empowering which most farmers in the USA and presumably other developed countries are members.\u00a0Farmer Associations do not normally become involved in business activities providing support services to members.\u00a0Such informational organization most likely can be useful and effective in assisting smallholder communities, provided they can obtain a reasonable quorum of those they claim to represent, and the representation is via consultation instead of individual representation and the political base in the association does not slip to become mostly representing larger farmers at the exclusion of the smallholders. Unfortunately in the context of developing country administrative environment the latter is more likely.<\/p>\n

In contrast to Farmer Associations, Farmer Cooperatives are farmer owned business providing support services such as production inputs and marketing services and have to compete as a business.\u00a0The concern is the competitiveness of the business model relative to the private competition, particularly in a financial suppressed economy, in which food can be produced and marketed with consumer prices that may average 1\/3 rd those in the US, while some of the major costs incurred in marketing, such as imported fuel and most likely spare parts with import duties that can exceed 100%, may actually be at a premium to US prices. Under this economic environment it is possible that the marketing costs, as normally expresses as a percent of the consumer price, will be substantially higher than percent marketing costs occurring in developed countries, and\u00a0still be fully accounted for. It is also reasonable that the marketing costs if expressed in the less frequent $\/kg basis could be less than in the US and other developed countries. An example is the MSc thesis from Nepal where marketing through private traders the consumer price for tomatoes in Katmandu during the peak winter production was triple the farm gate price in the Terai, but the consumer price was only 1\/5 th the US price.\u00a0The thesis was able to fully account for the differences in legitimate costs with the traders\u2019 income consistent with a mid-level civil servant. Thus, under these economic environmental conditions it\u00a0may be extremely difficult for a cooperative to obtain the envisioned competitive advantage over the private traders, unless they are extremely careful to\u00a0minimize their business overhead expenses.<\/p>\n

Competitive Business Model: The question is \u201care farmer cooperatives a lean mean competitive business model\u201d?\u00a0The answer is, \u201cnot normally\u201d.\u00a0Cooperatives have tremendous ideological support based on their ownership and management model, and promise for profit sharing dividends.\u00a0The ideological appeal also makes for good publicity and makes one wonder how much of\u00a0our development efforts is based on ease of publicity.\u00a0However, does\u00a0all this\u00a0translate into business efficiency?\u00a0If you look at the US, the cooperative system commands less than 30%\u00a0market share. This was also in a long term decline in both membership and market share, at least that was five years ago which is the last published information available. An inquiry to the USDA (United States Department of Agriculture) a year ago indicated they were not interested in updating the previous publication. Why??\u00a0Only the dairy cooperatives were able to command a majority market share.\u00a0Often the actual retail charges of US cooperative are higher than other suppliers.\u00a0For example a sheep rancher operating along the Front Range of Colorado within the service area of the AgLand cooperative claimed that AgLand’s prices were 10 to 20% higher then he could get from other supplies, and the only advantage of the cooperative was the end of the year dividends.\u00a0That is, if the dividend exceeded the extra charges incurred during the year plus potential interest that could have been earned even if only in a checking account.\u00a0If that is the case it sounds more like a lay-away savings plan then sound business operation. Other cooperatives in Eastern Colorado were experiencing similar price differential that were not compensated for by the year end dividends so members were diverting business to private suppliers. All in all this is not really a very strong business model.\u00a0It is noted that the TV commercial promoting cooperatives such as the Touchstone Electric\u00a0Cooperative in northern Colorado emphasizes the ownership management model and not the cost efficiency and savings. They allow that to remain implied without confirmation. As was the case of irrigation scheduling in an earlier section, in the US and perhaps other developed countries cooperatives a heavily promoted by governments and universities, but not as extensively utilized by the designated end users.<\/p>\n

Application to Smallholder Communities: Now\u00a0when this basically weak cooperative business model is moved to developing countries, there are some that are effective but these are usually organized by the farmers serving some of the larger more specialized producers with some high capital costs for post harvest processing.\u00a0When the cooperative model is applied to smallholders as part of development projects, the\u00a0business model tends to be modified further away from good business practices, particularly regarding\u00a0the emphasis on\u00a0production credits and providing credits to groups instead of individuals.\u00a0The latter is effectively asking a smallholder, who is basically a private entrepreneur, to become a communal farmer. The justification for these development cooperatives is to prevent exploitation by the evil private traders. It is based on statements such as the following from Zambia:<\/p>\n

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.<\/p>\n

This is put forth without any evidence to substantiate it.\u00a0Most likely such statements originated with hosts personnel and their vested interest in promoting government owned or managed support services, and continued even after such support services proved to be highly ineffective and privatized under donor pressure, but with the government retaining substantial or even majority shares in the residual organization such as ADMARC in Malawi. However, after being nominally privatized government officers continue to steer development projects toward ADMARC. Without evidence substantiating it, statements such as the one quoted above constitute slander and it would not take much of an attorney to organize some of the private traders into some form of\u00a0class action litigation against individuals within donor or contracting organizations signing off,\u00a0and thus taking legal responsibility, for documents containing such comments. The saving grace might be that development cooperatives usually don’t divert enough business away from the private traders to warrant their concern, particularly when members divert the bulk of material, contracted for the cooperative\u00a0or stipulated by the by-laws, to the private traders.<\/p>\n

Comparative Business Costs: Without such statements the justification for funneling development assistance through cooperatives would virtually disappear.\u00a0Does anyone know of any verifiable and quantitative studies comparing the costs of doing business between private traders and development cooperatives? For example, for an input supplier\u00a0such studies\u00a0would have to include among other items:<\/p>\n

initial costs of the inputs<\/p>\n

transportation costs from supplier to village for distribution<\/p>\n

distribution costs in adjusting the bulk volumes to that needed by the members<\/p>\n

market volume<\/p>\n

profit margin, and<\/p>\n

individual income<\/p>\n

Again, are these not fairly simple computations? How much time, effort, and expense would be required relative to the investment in organizing and promoting a independent supply and marketing system needed to funnel services through a cooperative? Would it take more than a couple weeks? Would such an analysis determine if the project would have a potential to be sustained beyond donor assistance? What does the absence of such simple basic computations say about the commitment to the smallholder beneficiaries relative to the publicity potential of the idealized intervention?<\/p>\n

While the term exploitive is extremely difficult to define and quantify, as it may fit into one of those “I don’t know how to define it or quantify it, but I know it when I see it” statements.\u00a0Under any definition it would be very difficult to demonstrate in the suppressed economy found it developing countries.\u00a0The economic environment fully suppresses what private traders can charge, and profits, which can be razor thin, are mostly associated with business efficiency, with many of the private traders actually living near or below the international poverty level.\u00a0Please note that as market volume goes down the minimum mark-ups have to go up to prevent the traders from slipping below the poverty level.<\/p>\n

If anyone takes a close look at the evil private traders’ business model they might find the ultimate in business cost cutting efficiency in terms of keeping capital costs down, make the most effective use of the commercial transportation available, minimizing the personnel involved, particularly full time personnel, etc.\u00a0This is most likely essential\u00a0just to make a modest living consistent with the risk involved.\u00a0One might also find it a highly fragmented business model, which makes for good competition but forces the minimum mark-up to be somewhat high. One would think the first thing one does in setting up a business model such as a cooperative it to evaluate the competition, to see what improvements can be made, if any.<\/p>\n

Unanswered Questions: Instead there appears to be an assumption of a competitive advantage, and then a lot of promotional reporting that is accurate in what it contains, and is most likely essential to appease the donors and assure future funding in terms of project extension or future projects.\u00a0However, most of the reporting avoids those issues that will separate donor and advisors\u2019\/facilitators\u2019 promotions from sustainable innovations that will continue beyond donor assistance. It appears impossible to find answers to the following basic business questions:<\/p>\n

1. As mentioned above, the verifiable and quantitative costs of doing business comparison between the development cooperatives and the competing private traders. This would have to extend all the way to the farm gate and not end at the cooperative, thus avoiding the overhead costs of the cooperative, and inflating the perceived benefits to the farmer.\u00a0The overhead costs should be only the sustainable overhead costs, mostly the local hired staff, which would be needed to sustain the cooperative without the external support and expatriate facilitation.<\/p>\n

2. The percent of the total beneficiary pool actually involved in the cooperative?\u00a0If this is less than 50% or some other reasonable target that would be acceptable to the tax payers that are ultimately providing the public funds, then some explanation as to why the rest are not participating should be included.<\/p>\n

3. The total market share of the cooperative relative to that of the competing private traders.<\/p>\n

4. The overhead costs, commissions, surcharges and\u00a0other charges the cooperative charges it members that are needed to meet the cooperative costs, or that will at least be needed once the initial donor assistance and possible subsidizes end.<\/p>\n

5. The percent side selling of goods contracted or by-law obligated that are deliberately diverted to the private traders.<\/p>\n

What does the side selling represent?\u00a0Most of the time it is attributed to a breech in contract on the part of smallholders, but why would they do that unless they were getting a better deal\u00a0elsewhere?\u00a0Thus, doesn’t the side selling, that often constitutes the majority of the produce, really represent\u00a0the failure of the\u00a0cooperative business model to meet the farmers expectations, and the farmers, who were justifiably not involved in the\u00a0project\u00a0identification and design,\u00a0possibly leveraged into accepting\u00a0it as part of\u00a0some initial participatory process in which nothing else was open for consideration, finally getting to exercise their prerogative and simply taking their business elsewhere?\u00a0Also, how much of this\u00a0can be attributed to not wanting to pay their neighbors share on\u00a0any group loans? Are they acting any different than anyone else? In the end, does the extent of side selling really represent the ultimate in unleveraged participatory input in which the farmer beneficiaries simply walk away? Why, in light of the extensive side selling are there no adjustments in the cooperative business model?<\/p>\n

It also must be noted that if the development effort is expecting to provide social benefits to the community from cooperative\u2019s profits then no benefits will be available from goods that are side sold.<\/p>\n

6. How much of a discount from what the cooperative receives are the farmers accepting\u00a0from private traders for an immediate cash settlement.\u00a0If the sustainable overhead were factored in, would that actually be to the farmers\u2019 financial advantage? Again it seems the importance of cash to smallholders is well recognized, so why are the\u00a0donor promoted cooperatives not making\u00a0any adjustments in their business model?<\/p>\n

7. How about all those dividends promised in the by-laws?\u00a0How come they are rarely mentioned in the reporting as being paid or even projections of when they will be paid?<\/p>\n

8. As the true test of a cooperatives success, how many have survived for two or more years after donor funding\u00a0ends?\u00a0Two years usually represents\u00a0two full agriculture cycles and should be sufficient to sort out any problems\u00a0in transferring from donor assistance to\u00a0non-assistance.\u00a0If they have survived, what have\u00a0been the adjustments that allowed them to survive, that could then be used to improve the overall business model of the cooperatives?<\/p>\n

9.\u00a0Of course, the\u00a0ultimate test of effectiveness is, how many\u00a0cooperatives have\u00a0been spontaneously initiated in neighboring communities using the development cooperative as a model?\u00a0If the model is so good there should be\u00a0fairly high percent of spin-offs.<\/p>\n

Please look at any quarterly progress or other reports available and see how these issues are addressed.\u00a0Are they addressed at all, or if addressed are they comprehensively evaluated, or skillfully danced around?\u00a0Perhaps project officers administering development projects that involve voluntary cooperatives should ask the respective team leaders to respond to the above questions. It might save some embarrassment if their stewardship of the public fund entrusted to their care is publicly questioned.<\/p>\n

Promotional Reporting: An example of how skillful promotional reporting can be is the Choices article on the Farmapine Cooperative in Ghana. This is a World Bank funded pineapple marketing initiative. The article is based on the MSc thesis by the author. In the brief discussion on sampling techniques he mentions he interviewed 60 pineapple producers. Thirty were sampled from the 272 Farmapine members and the other 30 from the \u201chundreds\u201d of non members. What does the word \u201chundreds\u201d imply? What would that imply about the percent of the beneficiary pool actually participating? However, in an email exchange with the author the word \u201chundreds\u201d was an editorial adjustment requested by the author\u2019s academic advisor from \u201cthousands\u201d. What does that do to the percent participating? In that case it is unlikely that the cooperative was able to exert any substantial influence on the overall marketing of pineapples. Further on the article mentions the unreliability in working with smallholders because they were selling to private traders offering a better deal. They didn\u2019t mention if immediate cash payments were involved. No mention was made of the percent side sold, but left it up to the reader to interpret. It had to be substantially enough to justify mentioning it as a problem. The article does some elaborate computations on the benefits to the cooperative, but makes no mention of the overhead costs needed to operate the cooperative thus making it unclear if the accounting stopped at the cooperative or extended to the farm gate, or were covered by the donor subsidies, and thus Farmapine as a cooperative would not be sustainable once donor funding and facilitation ended. Wouldn\u2019t it be interesting to ask some of the competing private traders what their opinion is of Farmapine or other development cooperatives, and if they consider them a competitive threat to their business?<\/p>\n

If these questions represent the difference between a donor’s promotion and a sustainable innovation, why are they not part of the routine quarterly progress reports to the\u00a0donor?\u00a0The implication is the information is never collected, or if it was, it was not favorably supporting\u00a0the cooperatives, and was cut out as too embarrassing. If\u00a0the information\u00a0was collected and supportive of the cooperatives,\u00a0it would certainly be highlighted in the progress reports.\u00a0Why are the donors not taking the lead and insisting this information be included in the progress reports?\u00a0Also, why is it not a requirement in the RFPs to make the initial analysis of the competition, and provision to revise the program if necessary?\u00a0Does this justify the statement about the four layers of isolation between donor and beneficiaries mentioned in a previous section?<\/p>\n

Beneficiaries vs. Mechanism: Without answers to the above set of basic business questions, what are the prospects for the cooperatives to continue after donor assistance ends?\u00a0Isn’t part of the project design a favorable projection on the sustainability of the innovation past donor assistance?\u00a0If there are no real intentions on seeing this come about, is the use of cooperatives for funneling assistance at least bordering on scandal?\u00a0Also, the lack of information on the above basic business questions clearly implies that\u00a0despite all the rhetoric promoting smallholder assistance, there\u00a0is\u00a0very little, if any,\u00a0sincere commitment to assisting the smallholders.\u00a0Instead, the commitment is almost exclusively to the mechanism by which the assistance is to be provided, that has to be imposed on the smallholder regardless of how weak the overall business model and extent the beneficiaries are operating around it. If there was a sincere commitment to assisting the smallholder, this information would have been forthcoming a couple decades ago, the limitation of the cooperative mechanism would have been recognized, and the rural poverty alleviation effort would have moved on to find something more effective, mostly likely\u00a0by working with those evil private traders that just happen to be providing the farmers with the most cost effective support services. Does any one have any verifiable data to contradict this statement?<\/p>\n

Last Revised: 4 July 2007 .<\/p>\n","protected":false},"excerpt":{"rendered":"

Mechanism for Assistance: Over the past couple decades the mechanism for funneling assistance to smallholders has been almost exclusive via farmer organizations, particularly farmer cooperatives.\u00a0This now represents full career commitments of the senior individuals involved and the vested interest that implies. 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