The road up

 Free-market reforms fuel growth of Ethiopia's co-ops

By Perry Letson

Editor's Note: Letson is assistant vice president for communications
at ACDIIVOCA, a nonprofit international economic
development organization which is an arm of the U.S. farmer
cooperative community. For information on ACDI/VOCA, or to
volunteer for service overseas, go to www.acdivoca.org, where
current volunteer assignments are listed and candidates can
apply online, or call (800) 335-8622.

he U.S. foreign assistance program emphasizes cooperatives because its architects understood the important role co-ops played in developing rural America. Not only do cooperatives enhance the bargaining power of producers and increase farm efficiency and income, the make important contributions to civil society. They influence the self-help approach farmers take to problem solving, reinforce grassroots democracy and, ultimately, build communities.

The East African nation of Ethiopia is benefitting from America's international cooperative development work. More than 80 percent of Ethiopians work in agriculture and live more than a day's walk to the nearest road. Farms here are small and margins tight. Cooperatives can be a valuable asset in providing services and supplies to these farmers.
Ethiopia is a likely place for a new vision of co-ops to take hold for reasons other than demographics. Because of conflicts with neighboring states as well as internal disruption, Ethiopia's people desperately need the societal glue that co-ops can help provide. Yet despite the on-paper existence of 4,052 agricultural cooperatives in Ethiopia, with a membership of 4.5 million people, small-holder farmers do not always enjoy the benefits of modern cooperatives. Ethiopian farmers are still largely underserved, exploited and marginalized.

Ethiopia's checkered co-op history
Self-help cooperative community groups have been part of Ethiopian peasant life for centuries. During the rule of Haile Selassie I in the 1960s, the government began promoting Western-style co-ops, but ran up against an unwieldy land tenure system and inadequate marketing and manpower resources.

After the revolution of 1974, cooperatives took on a socialist cast. They became vehicles for farm collectivization and acted as extensions of the government, which set prices and established quotas. Many small-holder farmers had to buy grain on the parallel market at high prices and sell to the government at lower, fixed prices. Corruption and mismanagement were standard features of the co-ops, which also

became a recruiting ground for soldiers to fight in Ethiopia's increasing internal conflicts and the war with Somalia. It was not an era in which modern co-ops could thrive. Werqu Mekasha, ACDI/VOCA's country director in Ethiopia, who holds a Bachelor's degree from Purdue and a Master's from Nebraska, spent 8 years in a communist prison without ever being charged with a crime. He was suspected of sedition because he was educated and worldly.

Faced with civil unrest and economic decline, a new "Mixed Economic Policy" was announced in 1974 by the government, and within weeks the cooperative structure came crashing down. Offices were looted and disbanded. Collectively owned land was redistributed among peasants.

ACDI/VOCA's Tewodros Fesseha remembers the challenge:

"The legislature thought cooperatives were communist, the farmers thought they were governmental entities, and the professionals were convinced that they just won't work."



Democracy revives cooperatives
Now, Ethiopia is moving toward a more decentralized and market-oriented economy. The government recognizes the importance of privatizing business and rehabilitating agriculture. It is promoting business-oriented cooperatives, based on farmers' needs and founded on principles of voluntary participation, private ownership and democratic decision-making. As in the United States, the government has created an enabling environment for the development of modern, farmer-owned and farmer-controlled cooperatives.

ACDI/VOCA, with funding from the U.S. Agency for International Development (USAID), is helping to build the capacity of Ethiopia's farmer cooperatives. This Washington, D.C. based, nonprofit international aid organization is an affiliate of the National Council of Farmer Cooperatives and the Farm Credit Council. It is working to empower, the small farmers of Ethiopia to form competitive, profit-oriented and professionally managed input supply, marketing and credit cooperatives.

Under the Farmer-to-Farmer program in the mid-1990s, ACDI/VOCA carried out training in cooperative management, credit, marketing and finance. As a result, in the 1995-96 growing season, co-ops nearly doubled their rate of short-term loan repayment to Ethiopian banks, from 50 percent to 98.5 percent. And, best of all, dividends were paid to members for the first time in Ethiopian cooperative history: 25,000 farmers received an average of $10.44. While that amount would be insignificant to a U.S. farmer, the fact that a dividend was paid at all to these poor farmers is extremely significant.


As one farmer who received a dividend put it, "Cooperative members in the past were forced to sell their farm products at low prices on a quota system and give their sons and daughters for the war in the north. But today you are giving us a dividend for the product we sold to the cooperative. According to our tradition, we simply say to you, God bless you."

Today, Ethiopia's co-ops are operating with varying degrees of efficiency. Their ability to maximize member profits is limited by their small size and lack of purchasing and marketing clout. They typically do not possess the management skills and organizational structures necessary to realize their full potential, nor do they enjoy the purchasing and marketing advantages or economies of scale that could be realized through the integration of small-scale co-ops into larger business partnerships. But, thanks to U.S. assistance, things are looking up.

CUP runneth over
In 1997, the USAID mission in Ethiopia approved a proposal from ACDI/VOCA to launch the Cooperative Union Project (CUP). The purpose of CUP was to test the premise that primary cooperatives consolidated into unions would create the bargaining power, management capacity and economies of scale to solve market access and efficiency problems that primary cooperatives on their own could not.
With ACDI/VOCA assistance, the newly formed Lumme Farmers' Cooperative Union in East Shewa, the first of its kind in Ethiopia, initiated a competitive bidding process, which reduced the price of fertilizer to all cooperatives in the district by $175,000. ACDI/VOCA also provided advice on procedural issues, accounting and record keeping. Co-ops in other districts subsequently formed buying groups to replicate the bidding process used in Lumme. As a result, the price paid by small-holders for fertilizer has been reduced by $4 million. Lumme also introduced tractor service to member co-ops initially purchasing two tractors from a local assembly plant.

The original Lumme Union has since expanded to include another district, Adama, and has now become the Lumme-Adama Cooperative Union, serving 12,000 farmer members. Expanding from two to seven tractors, the union now provides tractor service to a wider membership and to non-members on a fee basis in order to increase the business base. Also, four new district-level cereal cooperative unions similar in size and scale to Lumme-Adama have been established.


The Lumme-Adama union has also bought and stored grain from primary cooperative members. Extensive training in cooperative management has been given to union managers and staff, and to local cooperative members. All four unions, as well as 24 primary societies, have hired professional managers.

ACE project
Once the cooperative union concept proved successful, USAID approved a 5-year plan to expand it to the country's four major production regions. ACDI/VOCA's current project, called Agricultural Cooperatives in Ethiopia (ACE), was launched in September 1999. It seeks to increase productivity, reduce food insecurity and enhance rural incomes through the establishment of competitive, profit-oriented and professionally managed cooperatives.





The focus is on small-holder farmers in the Oromia, Tigray, South and Amhara regions. Besides working with primary co-ops, ACE is assisting in the establishment of 27 secondary level commodity-specific unions. They will allow members to take advantage of economies of scale in purchasing and marketing and will provide focal points for organizational activities, particularly training.

This is a large-scale effort. Working with nearly 400,000 farmers, ACE focuses on training at all levels of the cooperative community, from farm owners, cooperative directors and managers to government and union management staff. Training and technical assistance will be provided to 285 primary cooperatives to strengthen their operations, and nearly 2,000 cooperative board members and staff will receive management training. Personnel of the regional agricultural cooperative bureaus will acquire the skills to extend improved management techniques to unions and cooperatives.

Until now, farmers have had little access to credit to fund crop marketing activities, but with USAID support the ACE program has enticed a private commercial bank to enter into a loan guarantee program. Using USAID funds to guarantee 50 percent of net losses, the Bank of Abyssinia has made $625,000 in local currency available to cooperative unions to purchase grain from their member cooperatives for later sale. This has boosted the bargaining power of the unions, which can now pay dividends to their member cooperatives. ACE will also help set up 27 saving and credit cooperatives and, eventually, a national federation of cooperatives.



"The bureau, supported by ACDI/VOCA and with USAID funding, is revolutionizing the cooperative movement in Ethiopia," says Zerihun Alemayehu, head of the cooperative promotion bureau in the prime minister's office. "Cooperatives under the previous regime were characterized by mismanagement, corruption and embezzlement. Farmers were exploited and marginalized from their efforts. The new model cooperatives currently being promoted by the government and ACDI/VOCA are democratic, business-oriented and professionally managed with increased income to member farmers as the primary objective."

U.S. volunteers key
Much of ACE's work will be carried out by 175 U.S. volunteers on short-term ACDI/VOCA assignments. (See Galen Rapp's account of his volunteer service in an accompanying article.) Many ACDI/VOCA volunteers are members or employees of U.S. agricultural cooperatives and farm credit banks. Beyond applying their practical skills revolving around organization and information, they are demonstrating their personal concern and are injecting hope and a valuable cooperative spirit.

One of them is farm management specialist Ron Atkinson, a veteran of six ACDI/VOCA assignments, who trained 20 extensionists in Ethiopia this past summer. "I felt better about this assignment than just about any of my others because the participants were so eager to learn," he says. "They were attentive, showed up on time and couldn't wait to tackle the case studies." The 20 trainees will in turn train others in order to multiply Atkinson's contribution.


He reflected, "These farmers face a challenge because of the scale of their farms. About the only way they can make it is by banding together to create some sort of volume. They seem eager to do that when prices are low, such as in today's coffee market. The trick will be to keep the union going when prices improve." The 2001 Cooperative Agriculture International Volunteer Award, presented by the National Council of Farmer Cooperatives and ACDI/ VOCA, was won by Professor Doug Bishop of Bozeman, Mont. Since his retirement from Montana State University, Bishop has engaged in what eems like a regular commute to Ethiopia, going eight times to develop curriculum and teach cooperative organization and management. His manual on co-op structure and management (developed in part with materials from USDA's Rural Business-Cooperative Service) is the essenial text for Ethiopia's cooperative promoters. He has also helped to revise the curriculum at Ethiopia's Cooperative institute, which will be a critical resource base for sustaining the cooperative movement.

Bishop's contributions have gone beyond the terms of his 3 week assignments. After each visit, he remains in contact with the host organization in Ethiopia and he has sent hundreds of documents, videos and books to reinforce his work. ACDI/VOCA's Werqu has described Bishop as "being completely in tune with the culture of the country" In fact, Bishop's son adopted an Ethiopian baby, and now the fate of a far away nation has become a family affair.

ACDI/VOCA's project has given Americans the opporunity to take co-op reform and development in Ethiopia personally and to share our success. Ethiopia, a nation with a recent history of difficulty, but one blessed with extraordinary beauty and talent, has made an important, and so far rewarding, commitment to the cooperative form of business.




March/April Table of Contents