Agricultural Cooperatives

Background 

Although frequently the subject of chatter in the development community, cooperatives exist and thrive in a number of economies. For example, an estimated 22 percent of New Zealand’s GDP is generated by cooperative enterprises, and cooperatives are responsible for 95 percent of its dairy market and 62 percent of its grocery market. Such groups are a central part of the global economy: The International Cooperative Alliance estimates that more than 800 million people around the world are members of a cooperative.

Agricultural cooperatives are a type of farmer-based organization (FBO), but not all FBOs are cooperatives. Farmer-based organizations are generally self-help organizations with the aim of generating income or offering welfare services for farmers and can include groups, associations, cooperatives, federations, syndicates, and farmer-controlled companies.

In an ideal agricultural cooperative there would be: buy-in from participants; democratic, equitable ownership of the organization; training mechanisms; support from governments and/or NGOs; linkages with input providers; access to yield-enhancing or processing equipment; the provision of warehousing and transport services; and linkages with other cooperatives.

Lending to a group helps mitigate risk and increase the likelihood of repayment, meaning that lenders prefer to offer loans to groups rather than individuals. Now, financial providers are beginning to offer even more complicated financial products to cooperatives: in drought-prone eastern Ethiopia, for example, farmer groups have recently been able to hedge against the risks presented by drought by collectively purchasing index-based weather insurance in an innovative pilot program run by Nyala Insurance S.C.

Individual farmers do not need their own pieces of expensive or large equipment: it makes more sense for them to buy one shared piece of equipment, or pay small fees to borrow such equipment when they need it. The Lume Adama Grain Farmers Cooperative Union of Ethiopia, for example, provides rental access to tractors, seed and grain cleaners, harvesting machinery, and transport trucks for its members. For transport to markets, warehousing, and irrigation, it always makes financial and logistical sense for farmers to group together to access these services.

For items like fertilizer that cannot be shared in the same way as a tractor, cooperatives are in a better position to negotiate lower prices for goods because they are buying in bulk and minimizing transport costs by doing so. Additionally, groups have the option to buy such inputs on credit when necessary.

The aforementioned examples describe “primary” cooperatives, in which farmers group together to form a collective. But oftentimes just as important are “secondary” cooperatives, which refers to the groups formed by cooperatives working with one another, creating even larger economies of scale. These secondary levels of cooperatives are oftentimes more capable or better-equipped to provide more complex services than primary ones, particularly those related to processing and value-addition, and ensuring goods pass food safety standards and are exportable.

History of Cooperatives in Africa 

Many of the earliest African agricultural cooperatives—in the formal, institutional sense of the word—were formed in cash crop markets by European colonial settlers as they attempted to make their colonies’ production processes more efficient and profitable.

Upon independence, African governments saw these groups as the key to spurring broader economic growth, and began devoting more and more attention to them. This attention soon, however, turned stifling. In many cases, farmers were forced to join cooperatives and were not allowed to market their products outside of the institutions. Furthermore, the groups had strict price controls that were designed to limit farmer profits and maximize government earnings. Unsurprisingly, farmers began to lose interest in cooperatives as their ownership over them diminished, and the groups, now effectively run by the government, grew to become mismanaged, inefficient and corrupt.

By the 1990s, many African governments began to loosen their grip on cooperatives, allowing them more autonomy and to once again become user-owned and user-controlled. The shift was complicated; many cooperative leaders took advantage of their new autonomy to defraud the organizations, and without the government propping up these inefficient institutions many had no real chance of survival.

Now, however, cooperatives are enjoying a renaissance and a significant increase in popularity. Cash crop markets in particular have seen many of these groups emerge, due to the fact that the value chains for such crops tend to be more organized, and because farmers have a lot to gain from the ability to play a larger role in the marketing of their goods.

Successful cooperatives around the world 

Agricultural collectives have been successful in a wide range of economies and within a wide range of sub-sectors. In Argentina, for example, the International Fund for Agricultural Development (IFAD) offered its support to a rural beekeeping cooperative. The group offered holistic training to beekeepers, which was particularly important given that many of them were newcomers to the field. It also offered access to credit and increased bargaining power. By pooling their resources, the small-scale beekeepers were able to build a honey extraction room, and directly market their product to international, premium buyers. Thanks to the initiative, the group increased its turnover by nearly 24 percent within a year.

Probably the most successful and famous agricultural collectives are those related to dairy. Cooperatives produce about one-third of the world’s total dairy products. This is largely because raising milk cows requires significant technical know-how; and also because milk is a primary product that requires many steps to produce, maintain and distribute. Membership in an organized collective gives farmers access to all the necessary links in the dairy value chain that would otherwise have been beyond their reach.

Amul, an Indian dairy cooperative based in Gujarat state, is probably the most famous dairy cooperative—if not agricultural cooperative more broadly—in the world. The organization, which began in the 1940s as a protest against unjust milk cartels, establishes direct linkages between milk producers and consumers by eliminating middlemen while also offering producers control over the procurement, processing and marketing of their milk. Amul offers farmers mobile veterinary clinics, training workshops, management programs, quality management systems, and access to transport—while also supporting dairy-related research and development.

In recent years, multinationals have grown increasingly supportive of farmer cooperatives. Nestlé, for example, offers support for farmer cooperatives, and uses the organizations as a means to distribute seedlings, inputs and training. Not only does this help to ensure that their suppliers are producing consistent goods and achieving higher yields, but it is also helpful in certifying items—both in terms of the quality or grade, and in terms of its ability to be classified as “fair trade” (a label which is becoming increasingly important as demand for such goods increases).

Agricultural Collectives in Ghana 

Ghanaian cooperatives started out in cocoa, with colonialists organizing labor to try and make production more efficient. By the 1920s, the 14 primary firms in control of the cocoa industry had begun to establish a set price to pay Ghanaian farmers, so as to maximize their portion of end profits.

In response, Ghanaian farmers began pooling their efforts and power to negotiate increased land rights and higher prices. There were even “cocoa hold-ups,” in which farmers took a stand against repressive policies, and withheld their cocoa from the market as they demanded higher prices.

Following the departure of the British, the new Ghanaian government took over the existing cooperatives, making them more democratic as they rolled out rights to the groups. Eventually, however, these rights were rolled back as the government took an ever-increasing cut of profits. In 1960, the government appropriated the assets of the Cooperative Bank for the Ghana Commercial Bank, and in 1961, took the resources of the Ghana Cooperative Marketing Association and turned them over to the United Ghana Farmers Council, a government body.

Since the government began to loosen its grip on cooperatives in the 1990s, these groups have grown significantly in popularity. The number of active cooperatives grew from 1,000 in 1989 to 2,200 in 2004 (1,080 of these were agricultural), and then to 4,777 (3,069 agricultural) in 2008. Most of the time, these collectives are offering mutual labor support, welfare services (especially related to food security), production, and input procurement, with the latter two occurring on a small, but growing, scale. In many cases, these organizations collect a fee from members in order to provide these services.

Despite this impressive growth, Ghanaian cooperatives have struggled to overcome a number of hurdles and have been only modestly successful in boosting production. One major reason for this is poor linkages: farmers’ links to larger, secondary cooperatives is weak, leaving them with reduced bargaining power. Although success has been modest, the social solidarity offered by cooperatives does have intrinsic value and helps keep systems intact.

Ghana boasts some shining examples of cooperative success. In particular, Kuapa Kokoo Limited, which was founded in 1993 in the wake of market liberalization, has become a major force in the cocoa industry. The organization now has 5 subsidiaries with over 50,000 members in 1,650 villages that supply over 10 percent of Ghana’s cocoa.

The organization has successfully increased profits and boosted the status of its members. Kuapa Kokoo has an excellent organizational structure, which seamlessly and transparently connects different levels of the organization with each other and with the broader economy. Kuapa also embraced value-adding strategies that make its products both more desirable and provide higher incomes for the collective. In addition to achieving fair trade certification, Kuapa and several partners established the Day Chocolate Company (now Divine Chocolate Company, DDC) in 1998 in the UK. The chocolate products sold by DDC are derived from the finest beans and are sold in over 10 countries worldwide. Kuapa Kokoo has a 46 percent stake in the venture.

Kuapa Kokoo owes much of its success to its well-developed organizational structure, which can be described as “a mix of a cooperative, a limited liability company and a trust.” The collective has a 3-tier structure of elected officers at village, area, and national levels. Seven elected members from the village level elect three amongst themselves to the area council. And then one member from each of the 28 area councils is in turn elected to the national executive council. From there, four members are voted to the board of Kuapa Kokoo Limited and another four to Kuapa Kokoo Farmers Trust. Farmers in every village can therefore have a direct impact on board membership.

The group has also done a good job of forming and leveraging international partnerships, first by becoming fair-trade certified, and then by going on to work with companies Twin Trading, The Body Shop, Christian-Aid, and Comic Relief to establish the Day Chocolate Company in the UK.

Kuapa Kokoo has also done a commendable job of reinvesting into its communities. The company works to improve the living conditions in farmers’ communities by developing sanitation facilities, increasing access to potable water, and establishing schools. The collective has even helped farmers earn incomes beyond the harvest season by investing in maize mills, palm oil extractors, and soap making training.

Conclusions

The story of agricultural cooperatives across Ghana, and across Africa more broadly, has unfortunately been one mostly defined by unfulfilled potential. After decades of government control, most cooperatives continue to be ill equipped to begin meeting the demands of market forces.

Success stories such as Kuapa Kokoo demonstrate that cooperatives can survive and thrive in the free market, but that in order to do so, they need to have a solid and robust organizational structure. Cooperatives are far from a panacea for African agriculture, but can be an effective way for farmers to sustainably, and more effectively, help themselves.