Dossier

New generation cooperatives

In an increasingly market-driven world, agribusiness cooperatives are strengthening vertical and horizontal links along the value chain to be more reliable and profitable.

New generation cooperatives have much to offer farmers around the world. © Jake Lyell/Alamy Stock Photo
New generation cooperatives have much to offer farmers around the world. © Jake Lyell/Alamy Stock Photo

Thursday, 16 March 2017

New generation cooperatives are adding value to agricultural production and empowering rural smallholders. Key ingredients are value chain integration, public-private partnerships and business-development services. There are lessons for sustainability and expansion.

In this increasingly market-driven world, new generation cooperatives can ensure that small producers get advice and support to grow better quality, more consistent crops that attract regular and committed buyers from a wider range of markets.  

Cooperatives can strengthen vertical and horizontal links along value chains, which respond to market incentives. As market needs change, the global cooperative movement requires support to revitalise both governance structures and business strategies during a period of transition. 

History of cooperatives  

Agricultural cooperatives have been in existence in different forms for more than 100 years. The road from farm to market can be both rocky and winding and groups have suffered with corruption, lack of transparency, state interference, and donor funding and subsidies, making them unsustainable.  

However, a new cooperative model linked to the specialisation of agriculture and value chain development is emerging. New cooperatives are designed to provide farmers with links to markets that are more reliable and more profitable, from the beginning. Many new cooperatives offer finance, as well as business services to their members. They may also assist in linking their members to existing financial institutions and business service providers to get them a better deal, says the International Labour Organization (ILO), in a value chain development briefing paper

While some new cooperatives are driven by big business, such as large agribusiness firms needing to work with farmers in groups, others spring up from the grassroots, when farmers come together to access a market. Often, founding members will have a common background – they are from the same area and grow the same types of crops. 

Overall, cooperatives have had a positive impact on farmers’ technological innovation, productivity and technical efficiency. In Ethiopia, for example, dairy marketing cooperatives have improved farmers’ access to artificial insemination and cross-bred cows, boosting milk productivity. Cooperatives have also produced a positive and significant impact on seeds and fertiliser adoption and application by Ethiopian farmers. The benefits don’t just affect the farmers using cooperatives; there can be a flow-on effect to other farms in the area, such as promoting the adoption of sustainable technology by neighbouring farmers.  

Changing the style of cooperatives 

What brought about the change from old style to new generation cooperatives? Professor Michael Cook, a leading agricultural cooperative specialist from the University of Missouri, says that, in the US a generation of cooperatives emerged in the 1990s and early 2000s as a reaction to the agricultural crisis of the 1980s. The more progressive farmers wanted to continue pursuing the advantages of collective action while improving the rules and policies of the internal organisation which existed in traditional cooperatives, he says. As the agricultural depression of the 1980s continued, rivalry increased in this competitive environment. “Bottom line, new generation cooperatives required more upfront capital from members, which in turn created a greater incentive to follow the new rules regarding delivery of quantity and quality. The new rules also acted to balance supply with demand and consequently reduce volatility of commodity pricing.”  

New cooperatives may encourage young people who are giving up on farming for the promise of a different life in a big city. The average age of farmers in Africa is around 50 to 55, says Pierre Van Hedel, director of the Rabobank Foundation. “Young people find the idea of selling mobile phones in large cities much more modern and appealing, but that market is already pretty much saturated. There should be more incentive for younger generations to pursue a career in farming and this requires that they can purchase and sell their products through a cooperative,” Van Hedel says. “If their farms are slightly larger, they can substitute manual labour for machines and start using more modern technologies, including more accurate weather forecasts, superior sowing seeds and cattle species, and soil investigation,” he says. These inputs can be supported through new cooperatives. 

Women may also benefit from joining cooperatives, states the ILO in a leaflet about cooperatives in Africa. Their presence in traditional agricultural cooperatives has been limited by factors such as landownership practices, role divisions and the types of agricultural jobs available. However, the ILO says, “Women are becoming increasingly cooperatively organised in agriculture,” with benefits for productivity, incomes and quality of life for both members and the community. In Tanzania, for example, the ILO-SIDA (Swedish International Development Cooperation Agency) and CoopAFRICA supported the Nronga Women Dairy Cooperative Society as part of an HIV/AIDS project. The ILO assisted 400 dairy women to keep proper records of milk sold and used by the family, and to follow other profit-focused business practices. This enabled the women to better understand their business and search for new markets for their products. “Women are no longer scared to take risks and start new business ventures,” emphasises the ILO. 

It may be too early to know if new generation cooperatives are going to work better than their predecessors. Gian Nicola Francesconi, CTA’s Senior Technical Advisor for Co-operative Agribusiness Development, says that in Africa, new generation cooperatives are at an infant stage of development; they are emerging but are far from being a success story. “We know that traditional or community-based organisations have repeatedly failed to promote agribusiness and rural employment. Traditional cooperatives have contributed to create a ‘dependency syndrome’ among rural communities in Africa, serving mostly as passive channels for governmental and non-governmental subsidies. Yet, it is difficult to see how smallholder farmers in developing countries can lift themselves out of poverty without organising themselves and in the absence of collective action. New generation cooperatives have the potential to mobilise farmers’ investments into human and physical resources for adding value to agricultural production,” explains Francesconi. 

Challenges on the ground 

For smallholders, joining a cooperative association can change the way they market their products. They may attract higher prices for their products, taking advantage of improved storage facilities managed by the cooperative and marketing assistance. Yet starting a new generation cooperative can be easier said than done. Farmers need to make significant upfront investments so they can hire professional managers and buy value-adding assets, and this is difficult when rural smallholders are usually facing major liquidity constraints. “The other problem is that new generation cooperatives require changes in rural customs through the relaxing of traditional cooperative principles of inclusion, equity and patronage – or the support that cooperatives unconditionally bestow to their members,” explains Francesconi. “Legal reforms, as well as training and coaching, can promote and facilitate change in rural customs and cooperative governance,” he says.  

Agricultural cooperatives often struggle to make the transition from farmer or community-based to consumer or market-driven organisations. A new strategy is required, one that takes into account emerging value chains for agri-food commodities and their requirements. Producers need to meet targets for volume and quality and adhere to deadlines. Next, agricultural cooperatives need to link to the emerging value chains. Public-private partnerships (PPP) can assist, especially those between private companies who will buy commodities from cooperatives and NGOs experienced in working in rural development. NGOs may assist with building and supporting professional management, even financing such positions, although this should not be seen as a long-term arrangement as it is essential for cooperatives to become self-sufficient. 

Help can be at hand when NGOs, donors and governments agree to take up some of the risk and costs associated with upfront investments. Public funds earmarked for development work can be used to make and sustain investments until cooperative farmers are able and willing to manage these costs themselves.  

Increasingly, agribusiness firms in Africa are contracting smallholder farmers to produce their goods. Private agribusinesses may be in a position to improve their farmers’ productive economic capacities as well as their links to farming inputs and markets. If farmers and buyers are to form sustainable value chain links, producer organisations must be strengthened. 

Training for leaders  

Leadership training is vital for farmers to get the most from their cooperative. Leaders and managers must be able to anticipate organisational problems that may arise over time, and take the necessary precautions to ensure member farmers remain focused and united. Agricultural cooperatives are complex organisations, but in Africa they are often led by poor farmers with scant entrepreneurial and organisational experience. Extension services focus on book-keeping, business planning and farming technology, so cooperative leadership events (CLEs) are designed as capacity building platforms, for training and coaching cooperative leaders and managers. 

In Malawi, capacity strengthening was a focus at a Cooperative Leadership Event (CLE) attended by more than 200 leaders, managers and stakeholders of local agricultural cooperatives. CLEs bring together public and private stakeholders and promote and facilitate new impact investments for the rise of new generation cooperatives. Recommendations from the event covered a range of issues, mostly aimed at policymakers, such as the Trade Ministry, to promote cooperative agribusiness. The events are organised by Enhancing Development through Cooperatives (EDC) in collaboration with Oxfam, and provide a forum to thrash out policy issues and find solutions to common challenges. The focus is on strengthening the leadership, governance and management of agricultural cooperatives. EDC offers training, coaching, and mutual learning experiences to groups of at least 200 leaders and managers of agricultural cooperatives. These events are also used to collect additional cooperative-level data to feed further research and guide policy debates with governments, donors, and investors (see Madagascar field report). 

The way ahead 

New generation cooperatives have much to offer farmers around the world, especially those in developing countries. A study by CTA showed that economic incentives are necessary to increase the number of African agricultural cooperatives and the productivity, efficiency, and sustainability of their farmers. However, incentives alone will not bring about an increase in produce sold. CTA’s analysis states that economic incentives must be better targeted to selectively promote the development of agricultural cooperatives with defined membership rules, decision and claim rights, and a common purpose. Entry to the cooperative needs to be regulated, such as through entrance fees, and exit from the group must be facilitated. Members need clear rights in decision-making and a clear understanding of benefits. They need to be involved in choices about the quantity and prices of produce to be sold, and to be able to voice their opinions through regular committee discussions and other forums. 

For ILO’s value chain briefing paper and leaflet on cooperatives, see https://tinyurl.com/j46qusu and https://tinyurl.com/qzbl95w, and for CTA’s study, see https://tinyurl.com/jozxquq.

Wendy Levy

Other dossiers

Facts and Figures

New generation cooperatives have much to offer farmers around the world. © Jake Lyell/Alamy Stock Photo

SOURCE: Cooperative Leaderships Events in Malawi and Uganda, 2016

The Technical Centre for Agricultural and Rural Cooperation (CTA) is a joint international institution of the African, Caribbean and Pacific (ACP) Group of States and the European Union (EU). CTA operates under the framework of the Cotonou Agreement and is funded by the EU.