From the ISET Economist news (http://www.iset.ge/news/?p=3311)
By Eric Livny
(Summary of a debate hosted by ISET as part of SDC-supported Inclusive Growth Dialog series.)
There are many reasons to love the concept of farmer cooperation (and cooperation more generally). To begin with, there is a great aesthetic value in seeing people coming together, sharing resources and helping each other. After all, instinctive collectivism was the basic condition of human existence from time immemorial. But, there are also powerful economic reasons for farmer cooperation.
Smallholders are often too small to independently access markets, and can be easily exploited by middlemen and local monopolies. Service cooperatives can increase the bargaining power of smallholders versus banks, service providers, input suppliers, processors and … government. This light form of cooperation is quite effective and relatively easy to manage and sustain, which explains its prevalence in North America and Western Europe.
A more ambitious (and far more demanding) form of cooperation is about pooling fragmented smallholdings into larger farms. Examples of such production cooperatives are the Israeli kibbutz and Soviet collective farms. These are said to benefit from economies of scale in primary agricultural production.
Yet, despite its aesthetic value and compelling economic reasons, farmer cooperation (of both types) has been a spectacular failure in many transition economies, and particularly on the territory of the former USSR, including Georgia. In the words of Tim Stuart, development practitioners in the post-Soviet space are often confronted “with the reality of failed farmer groups that evaporate once the project ends, with unused equipment rusting in the corner of a field, an image, which has become a cliché of dysfunctional development in the popular press. And for many people engaged in development, farmer groups are a byword for failure.”
Of course, failure and success are terms to be defined relative to expected results. For the likes of Juan Echanove, coordinator of EU’s ENPARD program, the journey of a thousand miles in farmer cooperation begins with a single step. His expectation is that the dramatic changes in the legal and financial context for agricultural cooperation in Georgia will encourage the creation of bottom up farmer organizations based on traditional forms of mutual help and resource sharing that have always existed in Georgia. According to Juan, Georgian farmers have been always establishing informal groups and associations, in many cases without any external support and by their own initiative. Such groups often focused on a very narrow but functional scaling up of everyday economic activities including joint arrangements for pasture management and feeding, livestock management, collective work on plowing and harvesting, etc.
WHO IS TO TAKE FARMER COOPERATION TO THE NEXT LEVEL?
While bottom up cooperation may indeed flourish in the new policy context, there is agreement among all analysts that for farmer cooperation to move to the next level – beyond its primitive forms – Georgian villagers have to be provided with the prerequisite skills and resources. A related question, posed by Simon Appleby, an Australian agronomist and agribusiness consultant with many years of experience in South East Asia and Georgia, is “If development agencies are the “wrong” people to be involved in farmer groups and co-ops, who are the “right” players to be involved?” To his mind, “while it may be jarring to the collectivist sensibilities of some, it is worth looking at corporations as enablers and incubators of co-ops.”
Indeed, Juan sees a very wide spectrum of possibilities for private sector involvement, with or without donor assistance. For instance, some farmer groups will emerge to gain access to better and/or cheaper inputs (fertilizers, seeds, fuel) or services (mechanization, vet services, artificial insemination). In these cases the key business partners are not the buyers of the products, but providers of services and inputs. And, importantly, donors – ENPARD, and USAID’s REAP program – will target these businesses rather than farmer groups.
Juan is quick to admit that the issue becomes trickier if the goal is to create farmer groups jointly selling their primary products. Anyhow, even in this case there will be groups such as mandarin or hazelnut co-ops who will face no problem selling their products to a myriad of middlemen, processors and exporters. If these coop do things the right way, argues Juan, they will have more or better quality product to sell. The buyers are already there, and farmer groups won’t need any help in engaging with the private sector.
Finally, there will be co-ops directly placing their products in the local markets, and there is nothing wrong with that, according to Juan. Producing more and/or at a lower cost in the nearby town marketplace would be an easy and realistic improvement. In many parts of Georgia there is simply no alternative, and we don’t always have to be looking for complex solutions.
One problem with Juan’s arguments, however, is that in none of the simple cases private sector actors would have the incentive to provide Georgian villagers with the skills and resources to do things the right way and to manage cooperation. For instance, while input providers would be quite interested in marketing their products (e.g. fertilizer) to individualfarmers, there is no advantage for them in helping organize and train groups of farmers who, once organized, i) would be much tougher to negotiate with and ii) could switch to competing providers. For exactly the same reason, no single buyer of hazelnuts or mandarins would invest time and effort to help organize and train farmer co-ops even though it may be more convenient for him/her to deal with larger and more reliable growers.
Thus, while businesses may be the (only) right players to be involved in enabling and incubating farmer co-ops, special government or donors schemes would have to be developed to incentivize potentially interested corporate actors. While costly, such schemes could be justified if the resulting supply chain relationships have the potential to be sustained without additional subsidies beyond the necessary period of incubation.
As Simon Appleby explains based on his experience in South East Asia, the government could compel large food processors to take on co-ops as supply chain partners. Government (and donors) could also use carrots, such as tax holidays, low interest loans, or grants. That said, there would be no need for the government to play an active role in micromanaging farmer groups. With corporations providing suppliers with a comprehensive support package (finance, inputs, training, and guaranteed forward contracts), co-ops would pop up in response to business opportunities. Given their small size (3-5 families) and blood or friendship bonds on which they are often based, internal management issues of typical co-ops would not be very complicated. According to Simon, over time co-ops could diversify their activities from basic post-harvest treatment, storage, and logistics, to deep processing, foodstuffs trading and financial services, but this process may take many decades. Rushing the process, however, carries huge operational and financial risks.
THE CASE OF TKIS NOBATI
The challenge of incentivizing corporations to integrate smallholder co-ops into their supply chains is not a trivial one. Mind it that corporations – e.g. large processors – have other options. They can choose to go it alone by developing own supply base or contract large farms that don’t need incubation, and can be trusted to deliver on time and in consistent quality.
Yet, as one can also learn from the recent Georgian experience, there would be situations in which businesses have the incentive to engage in nurturing formal or informal farmer groups. While exceptional, these situations provide an excellent sense of the underlying economics.
In 2008, upon graduating from ISET, Gaga Abashidze has taken over a small family business which has been for years buying and processing rose hips gathered by Georgian villagers in the Shida Kartli region. The business model was extremely simple. Villagers harvested and delivered the fruit. Gaga processed and exported rose hip juice to Europe and Japan. Villagers saw no advantage in cooperation, and Gaga saw no need to engage them as a group.
Things changed when Gaga “discovered” the lucrative market of organic rose hip products, which required adopting a more complicated business model. First and foremost, moving to organic production required certifying all stages in the process, from harvesting to post-harvest treatment/storage to processing. Now, as Gaga quickly understood, there was simply no way to certify hundreds of villagers. To acquire international organic certification his supplier had to be a legal entity which could be trained and certified. Of course, once incorporated, his supplier could also come into possession of necessary equipment, contributing to the efficiency of harvesting, post-harvest treatment and storage, reducing processing costs and improving the quality of the final product.
Gaga had two options of re-organizing his supply chain: help create, and work with, a farmer organization, or expand own business. In weighing these two options, Gaga chose the farmer organization/outsourcing alternative for two main reasons.
- Many of the startup costs could be shouldered by the village community, including labor and land. While there was little to be saved in labor costs by hiring own workers, the co-op could be eligible for donor assistance to offset capital, training and certification costs.
- Gaga knew that the co-op would be a reliable business partner. On the one hand, he had a long history of working with individual members of the group and trusted its leadership. On the other, having access to a lucrative export market he could afford paying a premium for organically certified rose hips, essentially killing any incentives for the group to switch to a different buyer. As much as Gaga needed the group to supply him with a certified product, the group needed him to gain access to the organic export market. Thus, both parties were to be locked into a sustainable win-win relationship.
This particularly account of Tkis Nobati, a small Georgian cooperative in the vicinity of Saguramo is not meant to detract from the role of other players (e.g. the Regional Communities Development Agency, which channeled donor funding, and Elkana, which assisted in the bio-certification process). Rather, the point is to draw attention to the economic rationale for private sector engagement with Georgia’s budding agricultural co-op movement.
The most important insight to be gained from the exceptional story of Gaga Abashidze and Tkis Nobati cooperative is that while the costs of private sector engagement in incubating smallholder “supply” co-ops could be subsidized by donors or governments in the short term, supply linkages thus created are likely to be quite fragile. In the presence of alternative suppliers, co-ops would have to be very well managed to maintain consistent quality and reliability. Otherwise, we may see many more disturbing images of “equipment rusting in the corner of a field”.
To conclude, farmer co-ops can indeed serve many different purposes. Yet, significantproductivity improvements in Georgia’s agricultural sector would only be possible on the basis sustainable supply relationships between farmers and downstream processors and retailers. Only such linkages (embodied in explicit or implicit forward contracts) can provide the basis for new technology adoption and investment.
As Georgia starts exporting to new markets—to Europe under the DCFTA, for example—there will be stronger incentives for smallholder farmers to come together in order improve product quality and achieve market access. Cooperatives and farmer associations may certainly provide the organizational vehicles to take advantage of new export opportunities. Additionally, however, the Georgian parliament and government may want to consider amending the Law on Cooperatives in a manner facilitating corporate involvement in the creation of smallholder co-ops. For example, corporations could be allowed to acquire a stake in co-ops (or “smallholder partnerships”) in return for investment in commonly managed storage or processing facilities.
The Rural Development Agency (RDA), representing Georgia at the 47th Apimondia Congress 2022 in Istanbul, Turkey, was awarded a Gold Medal for outstanding design of a trade stand in the 36 square meters category. Georgia was selected from among twelve other nominees.
This year was distinguished by the strongest ever representation of Georgian beekeeping at the Apimondia Congress. Now it is the third time that Georgia has attended. Eight honey producing and exporting companies exhibited on the winning Georgia stand, showcasing honey, queen bees, and other beekeeping products including cosmetics.
The congress proved highly profitable for the Georgian representatives in establishing linkages, potential partnerships and experience sharing with beekeeping associations the Beekeeping Association of Slovenia, the Slovak Beekeepers Association and the Turkey Beekeepers’ Association. The potential for Jara honey to apply for Fairtrade certification was discussed with Fairtrade International representatives. Representatives and judges of the London Honey Awards also visited the Georgian stand. A few Georgian companies have won silver and bronze at the award in 2022. A strong representation to the third London Honey Awards in 2023 by the Georgian Beekeepers Union members will be facilitated by the programme.
The 47th Apimondia Congress 2022, the most significant event in beekeeping worldwide, will take place from 24th to 28th August in Istanbul, Turkey. For the third time and with the strongest representation to date, the Georgian Beekeepers Union (GBU) and eight member companies will showcase the Georgian honey sector with the full financial sponsorship of the Rural Development Agency (RDA) under the Ministry of Environmental Protection and Agriculture of Georgia (MEPA).
The eight honey producing and exporting companies who will exhibit different types of Georgian honey, including, bio Jara honey are: KTW Agro Keda, Rukhi Queen, Geo Natural, Cooperative Racha Natural Products, Api Geo, Tapli Sakhlshi, Cooperative Ska, Ska-Kodala.
A short movie on Georgian beekeeping produced for the event will be showing in the Georgian booth. An e-poster presentation in the Beekeeping Economy section in the academic conference side of the Expo entitled A Revival of Georgian Traditional Beekeeping – Jara Beekeeping will be showcased as well.
On June 22nd, On the occasion of the 30th Anniversary of Diplomatic Relations between Switzerland and Georgia, as well as Austria with Georgia, Ambassador of Switzerland to Georgia, H. E. Heidi Grau and Ambassador of Austria to Georgia, H. E. Thomas Muehlmann planted a tree in the Goderdzi Alpine Garden. The Minister of Agriculture of Ajara AR, Zaza Shavadze and the Deputy Mayor of Khulo, Nadim Vasadze joined the event. The Goderdzi Alpine Garden is an important tourist destination in mountainous Ajara and a testimony of biodiversity and cultural richness of the region.
Both ambassadors picked up on the theme of needing to balance development with sustainability and care for nature and that the garden is an excellent example of this. While the Director of Batumi Botanical Garden, Irakli Archaia emphasized the importance of the garden and initiated the idea of copying the model of the garden in other municipalities. The minister of Agriculture of Ajara, Zaza Shavadze stated thatcreating and supporting new opportunities for rural development is the key goal of the strategic framework of relations of Switzerland and Austria with Ajara region.
H.E. Heidi Grau noted the excellent results achieved by ALCP in creating job and income opportunities for the rural population, including by supporting the production of Jara honey, and was pleased to announce that
‘Switzerland is engaging in a new phase of the ALCP project, together with Austria and joined by Sweden, until 2026, with a total budget of USD 6.5 million. This will allow to further facilitate production in beekeeping, dairy and meat, wild botanicals and silk, as well as support the development of the Goderdzi Botanical Garden, for the benefit of women and men living in mountainous regions,’ Ambassador of Switzerland to Georgia, H. E. Heidi Grau said.
The delegation visited Wool House in Klde Village, Samtskhe-Javakheti, the Georgian Milk Mark dairy enterprise, Natural Produktsia Ltd in Dioknisi Village, Khulo and honey processing factory, Agro Keda Ltd.
The Austrian Ambassador H.E. Thomas Muehlmann underlined, that support in further development of the wool sector, as well as support in uniting the voices of beekeepers through support to their professional union created new opportunities for development for the rural population.
‘Support to rural and local development is a key aim of the new framework strategy of Austria with Georgia. We believe, that with joint efforts European countries will bring more experience and novelties to Georgia, which will trigger further development of the country,’ Austrian Ambassador H.E. Thomas Muehlmann said.
On June 16th the Journalism Resource Centre celebrated the opening of the first local TV media TOK TV in Tsalka municipality. Three local journalists attended journalism courses on reporting for one month. As Tsalka is a multiethnic municipality the journalists represent Georgian, Azerbaijani and Armenian communities.
‘We will report on the issues that are important in increasing transparency and accountability among the general population and local officials. Reports related to agricultural issues will be one of the main topics for our work. Local people will be engaged in the decision-making around ongoing local development. Especially, this is important after the newly opened tourist attraction in Dashbashi Canyon.’ - Local Journalist Nazi Meshveliani said.
The Cheese and Tea Exhibition showcasing Georgian traditional, as well as foreign produce was held at Mtatsminda Park on May 1st, 2022. Ten dairies with the Georgian Milk Mark (GMM) - Milkeni, Tsintskaro +, Meskhuri Gemo, Bebo’s Kveli, Suamta, Leanka, Alpuri Javakheti, Dertseli’s Nobati, Naturaluri Rdzis Gemo, Tsezari presented their products at the event organized by Anna Mikadze-Chikvaidze, the Head of the Cheese Producers Guild. Visitors tasted cheese and got to know about the GMM. Butter with spices, a new product by Milkeni, was their favourite.
‘The GMM contributed a lot to make this event happen. I am thankful to them for giving me an opportunity to discover amazing products, like butter with spices. I am glad that the GMM promotes raw milk production’ - Event founder Anna Mikadze-Chikvaidze praised the development of the GMM in her Facebook posts.
Created in 2019, the GMM has twenty dairies currently using the mark. The GMM products are available in Madagoni, Spar, Tserti, Magniti, Smart, Ori Nabiji, Nikora, Zgapari, Fresco, Carrefour, Goodwill, Daily, Billion and Willmart supermarket chains.
A comprehensive online portal www.georgianmilk.ge provides a profile per enterprise allowing consumers to look up the products they are buying using a unique registration number printed on the label.
For three days from 11-14 April, the Women’s Rooms Union of Georgia NGO hosted an Armenian delegation of the Mayors of Alaverdi, Tumanyan and Tashir municipalities of Armenia, their three Women’s Rooms managers, representatives of Lori Region Governor’s office and the Association of Lawyers Community NGO. These three municipalities in Armenia have now all instituted Women’s Rooms and were in Georgia to learn more about their operation and potential and to strengthen links in the region.
They met the mayors and deputy mayors of Akhmeta and Telavi municipalities, and a representative of Kakheti Governor’s office and visited the rooms. The Women’s Room managers of both municipalities did presentations on their work.
‘It was a very interesting and useful visit. We have just established the Women’s Room service in our municipality and, as we’ve copied the Georgian model, it was necessary for us to see how this it works here,’ – Suren Tumanyan, the mayor of Tumanyan municipality said.
‘After this visit we clearly see how to use our Women’s Rooms and make sure that our women and girls are involved in local decision making through the Women’s Room as it was done in Georgia,’ – Edgar Arshakyan, the mayor of Tashir municipality said.
One of the main goals of the municipal Women’s Rooms in Georgia is to support women’s entrepreneurship by helping them write business proposals, connect with other women entrepreneurs and access the trainings and information. Participants visited social enterprise Skhivi, where women are making traditional enamel jewelry and accessories, the shop of entrepreneur Tamar Mikeladze, who is making handmade soaps and candles under the brand name Kumpa, and a local female beekeeper.
‘We are impressed with the results of Georgian Women’s Rooms regarding women’s economic empowerment. The managers here had business plan writing and fundraising trainings to help local women to start their own businesses. We are looking forward to doing the same in Armenia,’ – Sasun Khechumyan, the mayor of Alaverdi said.
‘In Lori region there are five municipalities in total, out of which three municipalities have already opened the Women’s Rooms. We are ready to support the opening of this service in the other two municipalities as well,’ – Alik Sahakyan, the representative of Lori Governor’s office said.
This study tour has laid the foundation for future cooperation between Georgian and Armenian municipalities. Alaverdi and Akhmeta municipalities have decided to become twin towns and the Women’s Rooms Union is going to continue cooperation with these Armenia municipalities.
Background information: From 2011 to date the SDC and ADA funded Mercy Corps implemented Alliances Caucasus Programme has been facilitating the establishment and scaling up the municipal Women’s Rooms in Georgia and Armenia. 32 Women’s Rooms in Georgia and three Women’s Rooms in Armenia have been opened so far. The Women’s Rooms are owned by local governments and are used to facilitate access to public decision making, goods and economic opportunities. The Women’s Rooms Union was formed in 2021 to represent the rooms and facilitate their interests.
The information about the visit was posted on a Facebook pages of Telavi and Akhmeta City Halls.
Local TV Tanamgzavri made two news items about the visit. Please, follow the links below:
Meeting at Telavi City Hall * Visiting Local Women Entrepreneurs
Follow the link to watch The Women’s Rooms Promo Video
