Co-operatives in risk and vulnerability management

Co-operatives in risk and vulnerability management

Training of Trainers Workshop to enhance Pro-poor Policy Formulation and Implementation at Country Level. September 21 – 25, 2015Bangkok, Thailand

September 22, 2015 Bangkok

Markus HanischHU Berlin

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Today:Cooperatives in risk and vulnerability management

Curse of smallness Concepts: what we mean? Why service-ownership means coping? Agricultural Service Cooperative Types of small farmers´ risks and vulnerabilities Some examples/Country experience Features of champions Take away lessons for policy makers and trainers

Markus Hanisch, HU-Berlin2

1. The “curse of smallness“ is a curse of vulnerability


• Fair access to sales channels for market products,

• Fair access to supply channels for farm inputs,

• Access to farm machinery and transportation equipment,

• Access to information and advisory services,

• Access to credit resources, which are required to finance

Fair access to “good” land, post harvest and irrigation

services

Smallholder problems (Lerman 2007)

3. The Agricultural CoopTypes, profits and business strategy:

Markus Hanisch, HU-Berlin

Markus Hanisch, HU/FAO

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A Production Cooperative is not a Service Cooperative- Employees are owners of assets- Joint production - Joint assetsService Cooperatives- Farmers carry out activities independently- But own and control jointly a company - providing services they demand

Unlike corporations, they are focusedon service rather than profit. Althoughmembers receive a payment for theircapital contributions, it is not linkedto the profitability of the cooperative(IISD 2014)

4. Sources of risk and vulnerability

Risk in agriculture (Harwood et. al 2000)

Business risk Financial risk Service risk

Sources of vulnerability (of being exposed)

For most farmers those are “uninsured risks“(WDR 2008: 14)

Disaster, demographic changes, health shocks, in/output-price shocks, policy changes, chain-marginalization, loss of access


5. The Agricultural Service Cooperative

• …is an economic organisation (a firm)

• …is a legal form (legal person)

• …applies democratic decision-making and open

membership (but not dogmatically)

• …is a user-owned, user-controlled and

user-benefitting organisation (Dunn 1988)

A cooperative belongs to the group of “producer organization”


6. Isn´t contract farming (CF) easier and better ?


CF: private sector firm provides farmers with inputs

such as credit, fertilizer and seeds in exchange for exclusive

purchasing rights for the resulting crop (Prowse et al. 2008)

• loss of entrepreneurial autonomy and control

• production risk is inputs, technology or price forecast

• depress producer prices over time, delay payments,

• contractor likely to adjust quantity via one sided quality

differentiation

7. Why everyone loves the farmer group …Markus Hanisch, HU-Berlin8

People, and in particular people from “the development camp”, are quick in finding reasons, why farmers should form groups (Farmer Group Mantra)

Contractors take over middle men and economize on collection and contracting cost

NGOs/Developers economize on cost of reaching out credits and grants

Politicians economize on cost of buying votes Social movements hope for a fairer world Researchers economize on doing surveys

Partly explains ongoing support for farmer groups “from elites”Partly, the frequent disappointment with mixed result…and the farmer????

8. Putting first things firstMarkus Hanisch HU-Berlin9

Increase the share of value added captured by primary producers (cost,

quality, info,… )

It only is an AS-cooperative if farmers can control, shape

the rules and change their firm in accordance with their needs

An Agricultural Service Cooperative, as we discuss it today, is NOT the cauldron for all types of rural, community based enterprise, fairness, empowerment gender, inclusion, value-based, or other surely necessary and socially desirable concepts.


However…, they may create all sorts of side effects

… continued

9. Risks (rather not) tackled by service coops1. Business risk production or yield risk, Specialisation: marketing or price, or contracting risk, (institution, policy, and legal risk), (human or personal risk, and) Technological risk

2. Financial risk variations in interest rates on borrowed funds, (inadequacy of cash flow for debt payments) changes in credit terms and conditions

3. Service risk Loss of complementary services (Green Revolution) Inappropriate service cost/quality/unfair sequencing/timing


10. Markets failure coopsMarkus Hanisch, HU-Berlin

causes of risk and vulnerability Examples of cooperative approaches

Chain marginalisation Bargaining associationHigh unit and handling cost Processing cooperativePrice fluctuation and marketing cost

Marketing coop with post harvest and pool

Climate change risk Coop crop InsuranceIrrigation coop

Information cost of finding buyer and pricing risk

Cooperative auction

Financial access and risk Credit cooperativeAccess to remote markets Collection and marketing

cooperativeNo quality premium Marketing cooperative

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… development is not about freeing farmers of risk!


Farmers own and control the mechanism by which they realize scale benefits in the value chain.

Farmers reduce cost by managing risk of market failure and control the mechanism that redistributes the collective value added.

This is different from contract farming! This is different from state sponsored crop insurance! This is different from state owned value chain agents. This is how farmers around the world have learnt to control

exposure to risk.

… and collective action does not stop at group level: Race to size and position


SFC Project 2012

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Okay, better present some interesting cases now …


11. Three most prominent projects


SFC Project 2012

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Ethiopia: Coffee price crisisOromia (ACDI/VOCA, 2007)Market liberalization and coffee crisis, lack of quality private service providers,lack of export market access

Extensive Campaign and Training for NEW MODEL- Organization, Structure and Management- Bookkeeping and Accounting, -Marketing- Finance and Credit, Tailored Technical Assistance:- Bylaw drafting- Roles and responsibilities of the Board of Directors- Management (manager and accountant)- Agronomics, Harvesting, Drying, Post-Harvest- Processing

A: Chain marginalisation, market risk


Level playing field: Government relaxed export restrictionsReleased New Coop Law: Coops as business organisationNo state managementIndependent farmer entrepreneurs

Strategy full-scale reorganization of value chain

B: Business / market & financial risk


Uganda

1. Primary village cooperatives collect and clean coffee, sell potato, maize

2. And larger area cooperatives that also provide complementary market information, extension, inputs, storage and credit and process and market produce

3. Re-established cooperative union exports produce

(own source)

New Value Chain Organisation


Uganda

• U. Cooperative Alliance together with Donor Agency established a project to revive the cooperatives and establish new tripartite model.

• 3 Years management support (salary and training), the foundation of area cooperatives providing field extension and price information.

• Legal requirements to allow unions and area cooperatives to export and changes in banking system allowing for credit and saving institution within area cooperative, single taxation and government support policies for communities made the project a success (Kwapong 2012, Hanisch and Kwapong 2010).

• Gov. interference was a problem

(own source)

Tripartite Model of Value Chain Re-Organisation


Uganda

(own source)

C: National Smallholder Farmer Organisation of Malawi (NASFAM)

https://www.youtube.com/channel/UCD7pjZP1VlgPzbb6Ml1N3oA


https://www.youtube.com/watch?v=4NzD33iffdk

https://www.youtube.com/channel/UCD7pjZP1VlgPzbb6Ml1N3oA

https://www.youtube.com/watch?v=4NzD33iffdk

Lessons: Three most prominent projects


SFC Project 2012

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There are hundreds of projects with good success and hundreds with multiple flaws.

The common features of champions in cooperative development are their comprehensive approaches,

and their rigorous chain strategy.

Risk, what we mean … Agriculture, loaded with risk, Self-help is limited, small holders lack capacity

& exposed to random shocks, High quality services HQS help managing risks, Don’t crowd out private services. If the private sector markets

work … ;-)

Success is the result of learning to cope with risk

Don’t exclude small holder from taking action! Initiate learning at the on-farm level

Only risk related to size benefits collective action (CA)


Several potholesMarkus Hanisch, HU-Berlin25

Ethnic heterogeneity and financial inclusion (Rommel 2010/Uganda).

The poor lack rights and resources to invest in groups (Münkner 1977, Bernard and Spielman 2008).

Grouping per se does not solve problems but gives rise to new problems, collective action is costly.

As value chains grow more complex, group organisation across stages is a challenge, internal governance (Bijman and Hanisch 2012).

Collective action plus contracting demands an honest contractor! Where markets and infrastructure exist group formation may not be

needed.

Where infrastructure lacks, contractors will not invest.

Take away lessonsFor government: How can cooperatives be supported ? Don’t free farmer of risk, promote holistic approach –value added Provide for enabling (flexible)and compatible cooperative legislation Recognize cooperative as a business form, not as a social enterprise Apply single taxation rules, level playing field (export license, trade) Use clear and fair competition rules/export/licensing Allow for coop growth at rates top retailers grow! Provide secure land rights for stimulating land and credit market Make clear rules &criteria for funding, exit strategy? (Dorward 2005)! Recognize that coops are hindered by a lack of social and human capital Platform: Support members and managers and researchers and private

companies to ‘learn from each other’ Acknowledge that cooperatives may have a life cycle, and that support

could be tied to age of manager and size of business Transformation of existing structures may be too difficult – relaunch?


Take away lessons… for developers

Introduce Coop as new and modern type of PO Make it a farmers` firm Campaign Not another contractor, distinguish! How is the coop different? Develop vision were do we want to be in 5 years? Network research, advocacy, extension, private sector Value addition and redistribution is crucial Value Chain! Credible involvement of Government and NGO not just sponsors Cristal clear: What is in it for the farmer?


Thank you!

Markus Hansich, HU Berlin28

Co-operatives in risk and vulnerability management

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