Co-operatives in risk and vulnerability management. © FAO: http://www.fao.org

1. 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, 2015
Bangkok, Thailand
September 22, 2015
Bangkok
Markus Hanisch
HU Berlin
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2. 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

3. 1. The “curse of smallness“ is a curse of vulnerability
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• 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)

4. 3. The Agricultural Coop
Types, 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 assets
Service Cooperatives
- Farmers carry out activities independently
- But own and control jointly a company
- providing services they demand
Unlike corporations, they are focused
on service rather than profit. Although
members receive a payment for their
capital contributions, it is not linked
to the profitability of the cooperative
(IISD 2014)

5. 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
Markus Hanisch, HU-Berlin5

6. 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”
Markus Hanisch, HU-Berlin6

7. 6. Isn´t contract farming (CF) easier and better ?
Markus Hanisch, HU-Berlin7
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

8. 7. Why everyone loves the farmer group …
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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????

9. 8. Putting first things first
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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

10. 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.
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 However…, they may create all sorts of side effects
… continued

11. 9. Risks (rather not) tackled by service coops
1. 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
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12. 10. Markets failure coops
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causes of risk and vulnerability Examples of cooperative
approaches
Chain marginalisation Bargaining association
High unit and handling cost Processing cooperative
Price fluctuation and
marketing cost
Marketing coop with post
harvest and pool
Climate change risk Coop crop Insurance
Irrigation coop
Information cost of finding
buyer and pricing risk
Cooperative auction
Financial access and risk Credit cooperative
Access to remote markets Collection and marketing
cooperative
No quality premium Marketing cooperative
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13. … development is not about freeing farmers of risk!
Markus Hanisch, HU-Berlin13
 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.

14. … and collective action does not stop at group level:
Race to size and position
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SFC Project 2012
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15. Okay, better present some interesting cases now …
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16. 11. Three most prominent projects
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SFC Project 2012
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17. Markus Hanisch, HU-Berlin17
Ethiopia: Coffee price crisis
Oromia (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

18. Markus Hanisch, HU-Berlin18
Level playing field: Government relaxed export restrictions
Released New Coop Law: Coops as business organisation
No state management
Independent farmer entrepreneurs
Strategy full-scale reorganization of value chain

19. B: Business / market & financial risk
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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)

20. New Value Chain Organisation
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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)

21. Tripartite Model of Value Chain Re-Organisation
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Uganda
(own source)

22. C: National Smallholder Farmer Organisation of
Malawi (NASFAM)
https://www.youtube.com/channel/UCD7pjZP1VlgPzbb6Ml1N3oA
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https://www.youtube.com/watch?v=4NzD33iffdk

23. Lessons: Three most prominent projects
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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.

24. 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)
Markus Hanisch, HU-Berlin24

25. Several potholes
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 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.

26. Take away lessons
For 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?
Markus Hanisch, HU-Berlin26

27. 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?
Markus Hanisch, HU-Berlin27

28. Thank you!
Markus Hansich, HU Berlin28