Agricultural and projects, particularly those developing value chains, focus on strengthening agribusinesses that offer inputs and services to farmers. Could the projects also do more to help producers build enterprises to provide themselves with services? The projects devote considerable effort to organizing farmers as well, but rarely do the efforts result in farmers building productive enterprises, at least in countries such as Ghana, the one I am most familiar with. It seems like the projects organize farmers into groups primarily to benefit from working with them in groups rather than individually.
A survey done in Ghana many years ago suggested that farmers were so accustomed to being asked to organize themselves into groups to receive any benefit—such as training, inputs, or a tractor—they had begun to do it on their own, anticipating that someone would come around to give them something. They usually cultivated a small plot collectively to prove that they were legitimate groups.
Why don’t projects aim to do more with farmer groups? Is it because of the concern that they would never have the capacity to manage? Two cases that we have developed for value chain training offer scenarios to think about the role of management. The situations are extremes but nevertheless relevant. One is from India and the other is from Malawi.
The Indian case is of producers of areca nut, a profitable crop, which is traded in auctions. Rather than merely taking its members’ produce to auctions, their coop became a commission agent at the auction. Later it began to buy in actions to trade and add value. The coop supplies all the inputs its members need including credit. It even operates a supermarket, which generates profits to subsidize other activities when needed. It raises the funds it needs by offering higher than market returns on deposits by its members. It has grown to attract other smaller village-based cooperatives to become its members. Not a typical Indian cooperative; for every one such, there may be hundreds that are barely surviving. But it demonstrates how a producer enterprise can compete with other private enterprises to offer services to its members.
The other is of a cooperative in Malawi, which too is successful. A community in the poor region of southern Malawi, noticing that a neighboring community was thriving by growing sugar cane, goes to its elders to see if they too can do it. They approach an agricultural management firm for help. The firm identified a source of funds to buy the irrigation equipment: a grant facility of the EU—although many communities had received grants and loans from the government to set up irrigation, not all of them had succeeded. They could get 3.2 million dollars in grant, but they needed to contribute half a million dollars they didn’t have. A social impact investor came to help them. It lent them against the equipment they would buy with the grant. With a social impact investor and management company on board, a local bank agrees to lend the working capital they needed.
Both the organizations help the community organize the coop and its governance. About 400 farmers contribute a portion of their holdings to come up with a contiguous 300 hectares that can be irrigated by a centre-pivot with water pumped from a river. Within months, they implement the project. The management firm operates the collective farm, to which members contribute some labor. They entered into a contract with a local sugarcane firm to supply the cane.
The outcome was everything one would wish for: they obtained yields higher than even the sugar company harvests on its farms; the collective farm created many jobs that benefited community members whose lands were not included; the coop retained 40 percent of the profits to repay the loans—members nevertheless received incomes five times what they earned from cultivating maize and cotton; and they repaid all the loans within three years. They went on to expand the irrigated area by another 312 hectares with an additional grant from the EU.
What’s the difference? The Malawi coop required a substantial grant—ranging from five to ten thousand dollars per ha—to enable the coop to produce a profitable crop. Without it, the collective enterprise would not have worked out. In addition, they needed help to organize themselves and also manage their collective enterprise—their land was managed as a single large farm. To put it in private sector development parlance, they needed both advisory and management services. Their farming was profitable enough to offer a share to the management firm. Beginning with a grant and subsidized finance, the coop is now profitable and successful. Maybe at some point, with the training they received, they may not feel the need to outsource their management.
The arecanut growers didn’t make it by themselves. They benefited from a history of coops including successful ones to emulate, policies that encouraged coops, access to finance with low interest charges, some members with the wherewithal to take the lead, and decent physical and research infrastructure in the country.
Could the model of a smallholder cooperative with a firm managing its enterprise—assuming without the large initial investment—be replicated elsewhere? Possibly, if good management can increase profits sufficiently. The model also helps to consolidate small holdings, which many argue are not viable. Would it work for maize producers in southern parts of Ghana? At least two or three companies—whom many labelled as land grabbers—tried to grow maize on large farms but they are not around any longer. On the other hand, the model can complement large investments, such as in irrigation or land development, that are being held back because of concerns about whether farmers will be able to make good use of them.