Creating a Marketing Creating a Marketing CooperativeCooperative: : Kyrgyz Sheep Kyrgyz Sheep Breeder's Association, Breeder's Association, Kyrgyz RepublicKyrgyz Republic

The country:• Beautiful scenery • Isolated mountain valleys• Poor communication/roads• Rugged terrain, rugged farmers• Mainly vertical transhumant husbandry• 130 years of Russian and 70 years of Soviet dominance• Soviet-directed production of wool sheep

Background pre-soviet

• Livestock herding was the predominant occupation- mainly horses and meat sheep

• Landscape and climate/ weather directed the, largely vertical, transhumance

• Land-ownership was informal• but use was guided by tribal/clan elders

• Social relations dominated rural life• Limited trade

• exchange of food products; hide/skins, artisanal wool products

Transition

0

2,000

4,000

6,000

8,000

10,000

12,000

1990

1992

1994

1996

1998

2000

2002

Sheep

Sheep inventory declines:

0200400600800

1991 1997

State/collective

Private x 100

Peasant x 100

Cooperative

Association

Joint stock

1992-96 Lack of liquidity in rural areas• Sheep were used to pay farm debts and temporarily were the “common currency” in rural areas•New owners (without land ) did not have resources to purchase or barter feed for their animals. Few have experience in managing livestock.

Owner numbers increase:

Reasons include changing terms of trade, cut in feed imports, ill conceived farm privatization, poor urban demand

Increase in number of farmers

1997• 45.000 house hold farms• 19.000 farming

homestead• 25.000 peasant farmers• 345 agricultural coops• 276 agr assoc/56 joint

stock ….but few with experience in farming and still dominance of former collective leaders….….cooperation was expected to increase power in buying/selling animal products, and increase production efficiency.

Field notes from late 1999

Farmer quotes – “…every one is on his

own, or has friends and connections…”

– “I don’t even trust my brother…”

were not promising for a farmer cooperative movement, but this changed after 2000 when farmers “discovered” that they were dependent on each other.

Livestock cooperatives in general

• Work well, if based on a single commodity or issue– Dairy cooperatives in India (“Operation Flood”), Tunisia

etc. were involved in milk trading, quality control and provision of dairy related inputs.

– Beekeepers/honey cooperatives in Turkey, Romania– Water user cooperatives etc

• Limited experience with wool or meat selling coops or grazier coops.

• Originally initiated by farmers themselves (Land’O Lakes, Swiss dairies, Dutch and Balinese water management coops. etc.)

• Limited social goals

Kyrgyz Sheep Development Project

Objectives• Increase profitability of and efficiency of sheep

and wool farming• Privatize provision of several services (animal

health, breeding)• Improve management and conservations of

natural grazing resourcesthrough• Organizing sheep and wool farmers into farmers’

associations or groups through which essential services can be channeled (largely co-financed by IFAD)

• Developing competitive marketing structure• Establishing and training of an advisory service

Objective: Organizing sheep and wool farmers into farmers’ associations or

groups through which essential services can be channeled

Concept (pyramid)• Village based sheep producer

organization– Village based (where needed organized

around clan or extended family)– Registered with State as limited liability

societies– Open membership and free entry and exit– Also function as grazing associations

• Regional organization• National = Kyrgyz Sheep Breeder

Association

History of cooperatives in KG

• Family/clan based cooperation before 1900; limited sales of wool (mainly processed); risk insurance by gifting, joint grazing

• Forced collectivization in the late twenties (many herders fled to China)

• Even then the sheep kolchoz still employed vertical migration– Brigades and chabans (herders)

• Kolchoz organized ( and created dependency) on motorized transport, supplemental feeding, guaranteed off-take and prices.

History of cooperatives

• EU-TACIS dabbled in organizing farmer cooperatives in 1993-95 based on western “democratic” model >> i.e. general assembly, board of directors, shares, formal voting etc.

• …based initially on the “Law on state support and protection of private entrepreneurship “ i.e. there were no laws that supported or regulated cooperatives (apart from another old law on consumer coops).

• Government guaranteed “any number of coops” during project preparation. But preparation team did not pay attention to social issues and mode of collaboration under local conditions.

History of cooperatives 2• Project started to identify groups, first with help

of a newly created extension effort (ATAS) but without robust selection criteria or explanation. About 375 signed up but nearly all were ex-collective (leaders)

• Foreign consultant group started training and weeded out some. Slow process. Finally about 100 coops, and focus was on marketing

• Laws changed• First law on consumers cooperative• Then coop law 1 and coop law 2 (all lengthy

processes and negotiations)• Final registration in 2001under Cooperative

law 2.• New Board elected in 2001 (more independent

farmers, old style kolchoz leaders lost control.)

Registration All SGPs were registered as a cooperative All had legal stamp allowing them to do business Registration costs varied; about 1500 som Project helped by paying about 50% of costs (500

som*) Some had to pay bribes “chapka” for registration

to administration – if not, they needed more frequent visits (but…..the chapka costs were more or less equal to the additional travel costs if chapka was not paid – about 100 – 300 som)

* Then about 20 som/US$

Registration process

Oblast Surveyed Selected Workshop RRegisteredIK 34 22 14 6Chui 23 19 11 6Talas 19 18 ? 10Naryn 2 2 2 1

0

50

100

150

200

250

300

350

400

1996 1998 2000 2001 2002

Coops.Established

Period Selection

Project preparation and 1996

Any number of associations (with “stamp”)

10/1998 First KSBA formation meeting

1/2000 105 coops being trained

1/7/2000 102 registered, but only 10 % paid subscription

2001 Coop “portfolio” consolidation to only those with real plan and purpose

Comment on registration process

• Expectation was inflated, in part unwarranted but in part by exaggerated promises by (foreign) consultants.

• Registration process led to rent seeking• Understanding of registration is poor

– lack of understanding of democratic process– lack of understanding of independent

association– registered cooperatives are more commonly

exposed to rent seekers such as tax police, tax inspection etc.

• Poor financial management• Cooperative fee poorly understood (“…we paid,

but did not get anything back”)

Foreign consultant team

Kyrgyz management(since 2000)

Focus on formalities/legalLimited understanding of development issues Limited recognition of transition issues

Stuck on lack of working capital

Entrepreneurial/ less focus on formal and legal

Greater local involvement and focus

Greater focus on farmer needs and poverty issues

Better public relations

New concepts (in wool payment, shows, prices etc.)

Major activities in cooperative developmentGroup development Marketing development

Local producer groups

Local producer groups mainly

seen as collection points

National Cooperative

Regional groups not established

National Coop (KSBA) as major

(centralized) marketing

organization

Lim

ited coordination

Issues 2/2000• Realistic membership?

– Most members either “followed” the leader or expected goods and services, and were disappointed that they did not materialize

• New membership– Not clear how new member could sign up or

what the entry and exit criteria were.

• Range of SGP activities– Initially limited to wool trading and training

• Relation KSBA and SGPs– Cloudy- most members had not paid dues

• Promote linkage to other project activities– Grazing and pasture management– Animal health

Activities Undertaken by KSBA/SGPs in various oblasts (during year 2000)

Type of Activity Osh Batken

Chu Issyk-kul

Talas

Naryn

Jalalabad

Meetings 14 2 13 21 12 12 11

Joint shearing 12 2 8 14 23 6 7

Joint use of pasture land

18 2 13 21 25 12 11

Facilitate for loans from KFAC

6 1 5 5 5 2 4

Request for Vet. drugs

2 1 2 2 2 2 2

Training courses for farmers and women

1 - 2 1 1 1 1

Requests to solve problems

4

2 1 1 2 2 2

Major activities in cooperative development

Local producer groups National Sheep Producer Association

•Collection and sorting of wool from members

•Purchase of wool from members•Training members in wool quality, artisanal wool processing (mainly women)•Organizing national farm shows•Input supply (veterinary products)• Providing a political voice for (small) farmers

Cooperating w

ith other project com

ponents

•Joint grazing •Organization of rangeland water supply

• All components•Animal Health component • Pasture component• Rangeland component

Major other issues• Lack of understanding

– Government• MoF• MAWR

– Others• Livestock institute

• Lack of working capital

• Farmers start to understand

- of concept, of independence, of role in rural development

– often seen as possible source of legal or illegal revenue

– fighting loss of central planning role

–concept that KAFC would provide finance failed

KAFC = Kyrgyz Agricultural Finance Company (Bank supported agricultural credti provider

Progress 2001The KSBA has made considerable progress, and has among others       obtained further confidence of farmers by continuing the system of part payment upon delivery, and a second payment after it has sold the sorted product (mainly wool) some live animals and meat;       introduced a system of a quality based payment for wool, with considerably higher prices for quality wool which will provide an important incentive for producers to pursue quality production, consequently farm gate prices improved;       explored other marketing opportunities for wool, felt, cashmere, meat etc.;       started a pilot in the provision of inputs such as animal health products, shearing equipment etc.;       organized or participated in farm shows and animals auctions;       improved the link with wool/garment industry and as well as development organizations;       trying to strengthen its 115 subsidiary local sheep producers cooperatives (currently representing 1250 members with approximately 125,000 sheep) through training and services. The latter is not yet satisfactory, and needs further plans, including an efficient use of KSBA limited staff and financial resources.

Current activitiesSPGs• Collection and selling

of wool• Joint shearing • Joint dipping (animal

health activity)• Joint grazing

KSBA• Collection and selling of

wool• Training and extension • Input provision• New product

development• Organizing shows• Pilot water

rehabilitation• Training

Achievements• Introduced the idea that working together on a common

goal may benefit group and group members• National meetings provided forum for a discussion of

issues among farmers from different regions (which is deemed to have helped in the transition)

• National forum that could have dialogue with Government (and request them to focus on farmer issues)

• Trained over 500 herders in group formation and management

• Trained sheep producers (and women) in technical skills (shearing, felt making, wool sorting etc.)

• Trained limited number of local producers in marketing • Created a tax paying wool trader and generated some

competition with private traders• Focus on representation of smaller farmers

Future

– Rangeland water supply– More pasture work and group lease– Group pasture lease– More marketing

• New initiatives• But there are risks

– MoF wants to see money– MAWR reluctant to give up power

• KSBA not yet fully self sufficient (another 2 years)

• Further building on the organization (some donors are interested) and scaling up

Lessons

You can create any organization with promises and free goodies. However they are short lived

• Creation of real cooperative is a lengthy process.

• Extensive piloting is needed before main streaming.

• Formal organization of cooperative in an imperfect world may be detrimental to its members

• One good charismatic and knowledgeable leader can in the second phase of the project make greater impact than expatriate experts

• Lengthy process of explaining concept to MoF and other Government officials is needed.