International cooperation from farmer to farmer....

The role of cooperatives in the commercialisation of agricultureAgrihub Ethiopia June 12th 2013

Mascha Middelbeek© Agriterra 2013

Outline

• Agriterra• Assessment and support process • Assessment findings• Conditions for commercialization• Cooperatives and Finance

Agriterra: an agri-agency

• Organisation for international agricultural cooperation• Founded by farmer organisations and cooperatives• Development cooperation from farmer to farmer, from

cooperative to cooperative• Africa, Latin America, Asia and Eastern Europe

Constituency

Farmers Cooperatives Rural women

Our aim

Contribute to the elimination of hunger and poverty in the rural areas

How?By strengthening farmers’ organisations and cooperatives

Why?Strong agricultural organisations and agribusiness are essential for

economic development, democratisation and a better distribution of income.

In Ethiopia

Agribusiness

Goal: making cooperatives ready for investments (bankable)How: advice on business planning, (financial) management,

entrepreneurship and linking cooperatives to capital and investors, technical support, support with implementation of business plans

Clients:cooperatives and farmer-led businesses with ambitions to grow

Mode of operation in Ethiopia

• Programs– Cooperatives for Change (C4C) with SNV– Farmers Fighting Poverty

• Currently working with 12 unions in 4 regions• Partnering direct with FCA and RCPAs• Agriterra Representative Ethiopia; local service provider Meset

exclusively contracted by Agriterra

Cooperative support processselection – action planning

• Either direct or indirect contact made with coops– Through FCA, ATA or on union interest

Assessment process• Scoping• Company assessment (4 days) – measuring organizational

strength, need assessment and business competences• Financial management and health• Management and governance• Reputation• Business case – organization driven

• ScopeInsight profiling (2 days)

Cooperative support processselection – action planning

• Action plan developed based on relevant business case• Action plan, contract signed and directly financed to union

Business development support

• Agripoolers from Netherlands– Assist in strategic need areas– knowledge transfer

• Local capacity builders– Management and financials capacity building– Cooperative development– Farmer development in Agri-practises– Business plan development– Gap trainings

• Local Agriterra team support and follow-up– Qualified staff - a phone call away– Regular site visits– Scopings, company assessments, business planning– Strategic planning assistance

Score comparison 13 Unions – 4 regions

Internal management:

Large variations

Operations:less variations, generally quite

low

Fin. mgmt:less variations,

quite good

Fin. Perf.:less variations, generally quite

lowSustainability:less variations, generally quite

low

Supply:less variations, generally quite

high

Market:Quite varied, generally not

very high

External risks:Large variations, average to low

Enablers:All quite high

Results compared

Assessment findings

– Low sense of ownership and trust of members in their coop– Output marketing performance in general low– Unions and their PCS only market 5-10 % of available produce– Internal competition between input and output marketing– Weak procurement systems and structures in place– Lack of timely finance mechanism

For cooperatives being drivers of commercializing agriculture, their output marketing capacity needs to grow and their positions in value chains being strengthened.

Role of coops in commercialising agriculture

• Cooperatives have proven to be significant players in commercializing agriculture.

• But only if they are seen as business entities, not as instrument for developing the rural areas or social reform

• Research shows – that less policies and flexible rules and regulations are most

beneficial for cooperative development– that the lesser the interference in relation to governance the

better the cooperative functions (Bijmans, et al)• Without a committed and loyal membership, the legitimacy of the

cooperative can be doubted• Therefore of utmost important that enablers respect the member-

driven character and let the members be in control of their own processes

Role of coops in commercialising agriculture

Three cooperative relations– Transaction - User-benefit– Finance - User-owned– Voice - User-controlled

Three relationsProcure

Finance

Marketing

Strengthen & invest

Transaction Member financing Voice

trust

It start from optimizing the transaction relation

Cooperatives and Finance

Cooperatives under capitalized work capital / investments

Equity – member and non-member finance• Entrance fee by members • Portion of result (different %)• Certificates/ shares / other equity• Preferred shares• Proportional member contributions (based on turnover)• ‘Member loans’

Liabilities• Long-term financial debts (bank loans)• Leasing (financial or operational)• Short-term bank loans• Current liabilities (trade liabilities and other)

Cooperatives and Finance

Terms of succesful internal capitalization

- Sound transaction relation: competitive revenues for farmers (turnover -/- contribution) vs market prices (traders)

- Sound cooperative structure (management – board)- Sound registration of members and MIS - Trust- Solid system of financial reporting

Cooperatives and Finance

Raising equityInternal capitalization needs to be formally arranged and registeredThink, arrange, register, act!

Why?• Trust between cooperative and members• Minimize discussions (along the way)• Sustainable cooperation and funding • Guarantee capital required in case of external funding

Study tour to Netherlands

• NL coops are highly capitalized, mainly by member finance• Many different cooperative models

– Traditional model– Enterprise model

• Disappearance of federated structures (consolidation, mergers, shortening the cooperative value chain) 5 generation proces

• Marketing model often – buy / sell with different degrees of delivery agreements

• Specialized and focused• Flexible policy environment and low level of regulation

Study tour to Netherlands

• Autonomous and genuinely membership driven, setting own set of rules and regulations in bylaws

• Audit , legal and accountant service in private domain, sometimes in cooperative companies

• Professionalizing governance and management bodies- Draft profile for board members- Recruit managers with private sector competences- If allowed, consider inclusions of some professional non-

members- Professionals at management of PCS

Concluding

• Great momentum for change• Need for tailor made and intensive approaches (business

planning, procurement and logistics, internal capitalization)• Promoting a healthy membership dynamic and increase

involvement of PCS• Focusing on increasing output marketing performance• Need for more flexibility in cooperative business and finance

models (Traditional model, Cooperative enterprise model, etc)• Autonomy and right to fail and develop according to own growth

path

Thank you

Contact

Agriterra Representative Ethiopia- Cor Jan Zee- Hailet Berhane- Micheas Wario

Agriterra ArnhemMascha MiddelbeekPO Box 1586800 AD ARNHEM The Netherlands+31 (0)26 4455445

middelbeek@agriterra.orgwww.agriterra.org Twitter: @mmmiddelbeek

Observation NL

• Strong cooperative agricultural sector• Agricultural cooperative in many sectors have above 50% of

market share• Very flexible policy framework• Many different models: traditional, executive and enterprise

model• Professionalization of board by including non member

professionals and outlining profiles• High level of internal capitalization

Access to finance

• CBO/Rabo coaching track– Business planning trainings– Access to finance from local banks

• Credit guarantee development• MIS systems • Internal capitalization and increased share participation

Role of coops in commercialising agriculture

• Success factors- Well functioning business discipline- Sound governance and committed leaders- Professionalizing governance bodies (managers and board)

- Draft profile for board members- Recruit managers with private sector competences- If allowed, consider inclusions of some professional non-

members

– Communication with members;

Projects support in Ethiopia

• Development of Niger oil seed refinery – SSNNP• Malt barly value chain Gondar and Assella• Malt barley value chain Sebata• Chick pea value chain development & seed multiplication –

Oromia• Niger seed seed supply – Amhara• Sesame & linkages to market – Amhara Tigray• Flour milling – Amhara & Oromia• Vegetable production and access to market – Oromia

• Setit, Dansha, Tsehay, Merkeb, Admas, Melka, Galema, Raya Wakena, Dida, Meki Batu, Metema, Ras Gayint