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 Jara Beekeepers Association (JBA) has registered the Jara honey mark in the National Intellectual Property Centre of Georgia - Sakpatenti.
The mark ensures the protection of Jara honey from falsification and represents a quality compliance guarantee verified by the JBA who are dedicated to preserving traditional beekeeping practices based on Quality Assurance Standards developed by the JBA last year.
In 2018, Jara honey was commercially harvested and packaged according to the standards for the first time. This year it was exported to the United Arab Emirates and the export market is growing.
On 16th of December 2019, the Georgian Milk mark organized a Georgian Cheese and Wine evening at 8000 Vintages to introduce cheese with Georgian Milk mark (GMM) to the supermarkets and encouraged them to pass information on the advantages of GMM cheese to consumers. Cheese with Georgian Milk mark does not contain milk powder or any vegetable oils, it has laboratory analysis and is produced in the enterprises which are HACCP certified.
The Guests had the opportunity to taste different types of cheese made from natural raw milk produced by thirteen enterprises: Milken Ltd, Tsintskaro + Ltd, I.E Hakob Hambaryan, I.E Karen Simonyan, I.E Tsolak Grigoryan, Tsifora –Smatskhe Ltd, Tsalka +Ltd, Dairy Products Company Tsezari Ltd, Gocha Gagashvili – brand name Tsivis Kveli, Levan Bejanishvili-brand name Shuamta, Badri Gogoladze – brand name Cheese Hut, Coop. Tanadgoma, Coop. Disvelli. The Information per enterprise is available on www.georgianmilk.ge. The website allows consumers to look up the products they are buying using a unique register number printed on a label.
The evening of Georgian Cheese and Wine was attended by Mr. Levan Davitashvili, the Minister of Environment Protection and Agriculture of Georgia, by the Swiss Agency for Development and Cooperation Project Alliances Caucasus Program (ALCP) implemented by Mercy Corps, Georgian Milk Mark Project Administrator - Business Institute of Georgia and Marketing Company GMA Representative, the supermarkets and the dairies using the Georgian Milk mark.
The evening was headed by Zaza Grigalashvili, an '8000 Vintages' Sommelier, who spoke about Georgian cheese and wine pairing.
Helen Bradbury, ALCP Team Leader: ‘We have private sector cheese enterprises in the room from different regions, these are a real dairy businesses operating for years and years. It is very important that this is Georgian Milk from Georgian cows who eat Georgian grass. Consumers want to eat natural, healthy, good country food which comes from this beautiful land, from this beautiful clean water, from happy cows and are made in communities living in countryside. Today we are at 8000 Vintages and we all know the history of wine. If you want ‘Qvevri’ wine or European style wine we know from where it comes from its name and the consumer can choose according wine value and its good for the producer, they can add more value and then this value goes back to the jobs, factories in the communities. So in the dairy sector it is going to be the same: as cheese will have the name, taste, value, style and its started to develop, the money supporting these factories goes back to women who are supplying milk, their families, they are putting money to their children education and investing in their life'.
Levan Davitashvili, The Minister of MEPA: ‘I think the most difficult sector in Georgia is adairy sector and we have a lot to do together. A good presentation of a final product the market and how we bring cheese to the consumer is very important. We can say that competition between the enterprises is unfair, but we work on this via new the regulations to change the situation in the sector, we also empower our laboratories to have better quality and safe products. Today we have Georgian Milk mark presentation which is a very good idea for providing information to the consumers about dairy products, which also gives advantages to producer'.
The Products with the mark are available in Madagoni, Spar, Ori Nabiji, Nikora, Zgapari, Fresco, Carrefour, and Goodwill supermarket chains.
Tsintskaro + and Tsipora-Samtskhe dairy products with the Georgian Milk Mark were introduced at the Cheese and Hot Drinks Festival organized by Anna Mikadze – Chikvaidze, the Head of Cheese Producers Guild and held at the Mtatsminda Park on 10th of November, 2019. The visitors tasted cheese and received information about the Georgian Milk mark.
‘What makes this festival important is to introduce cheese with the Georgian Milk mark, which says to consumers that cheese is made from natural raw milk’ - stated Anna Mikadze - Chikvaidze.
Currently seven dairy enterprises are using the Georgian Milk mark: Milkeni; Tsintskaro +; Tsipora –Samtskhe; Cheese Hut; Tsezari; Tsivis Kveli; Shuamta.
Products with the mark are available in Madagoni, Spar, Ori Nabiji, Nikora, Zgapari, Fresco, Carrefour, and Goodwill supermarket chains.
Information per enterprise is uploaded on www.georgianmilk.ge. This allows consumers to look up the products they are buying using a unique register number printed on the label.
A 22 km route in Shiraki pastures, Dedoplistskaro municipality has received the status of becoming part of the official Animal Movement Route (AMR) last week. The unofficial route, which had been used for livestock seasonal migration for decades, had not been officially registered as the AMR before. As a result of a joint effort between the ALCP the Shepherds Association, The Ministry of Environmental Protection and Agriculture (MEPA), the National Agency of State Property and the Ministry of Economy & Sustainable Development, the route and297 ha land, is now officially registered as the AMR by National Agency of Public Registry of Georgia.
The section of the route is now protected from saleas according current regulations, AMR land is not allowed to be sold or rented. A water point located in this area will be restored soon as well, within the planned Water Point’s project of the ALCP and MEPA.
On October 29th, theSwiss Agency for Development and Cooperation (SDC) project the Mercy Corps Georgia implemented Alliances Caucasus Programme (ALCP) hosted the President of the Swiss National Council Marina Carobbio Guscetti, First Vice President of the National Council Isabelle Moret, Second Vice President of the National Council Heinz Brand, Secretary General of the Federal Assembly at Swiss Parliament Philippe Schwab, Ambassador of Switzerland to Georgia Patric Franzen, Deputy Head of Embassy of Switzerland in Georgia Alvaro Borghi, and the Regional Director of the Swiss Cooperation Office in Georgia, Danielle Mewly Monteleone. The Mayor of Marneuli, MP’s of Marneuli and Rustavi and the Deputy Governor of Kvemo Kartli region were also present. The visit was part of an official visit of Swiss officials to Georgia, to open the new Swiss Embassy in Tbilisi, celebrate sixty years of UNICEF Switzerland, highlight the importance of the Swiss role in mediation and representation between Georgia and Russia and visit some of the outcomes of the significant investment through SDC in economic development in Georgia.
The delegation was introduced to the ALCP’s work in Georgia and the programme’s regional outreach in Armenia and Azerbaijan, emphasizing equitable impact and women’s economic empowerment in the dairy and honey sector’s and the regional programme of vocational agri-journalism trainings in fourteen universities in Georgia, Armenia and Azerbaijan. The delegation visited the Women’s Room in Marneuli municipality highlighting gender sensitive budgeting training delivered through UN Women and the projects for and started by women through funding facilitated by the Women's Room. They then visited Milkeni Cheese Factory in Rustavi where the importance of sustainable community based enterprises supplied by local farmers was emphasized, as was the growing influence of the new dairy quality assurance mark, the Georgian Milk Mark www.Georgianmilk.ge/Milkeni.
To date, the ALCP has facilitated thirty-two cheese factories, creating a regular market for 23,000 farmers, seventy percent of whom are women; the Women’s Room Municipal Service is now operating in twenty-eight municipalities of Georgia with more than 17,000 regular rural women users, facilitating to date $2.4 million USD in government, civil and private funding for women’s initiatives and projects.
Honey testing requirements for export and laboratory testing capability and reality in Georgia were the main topics of the ALCP Second Honey Sector Advisory Committee meeting on 9th of October, 2019. The meeting gathered up to forty key stakeholders of the sector, including the Georgian Beekeepers Union (GBU), the Minister and Deputy Minister of Environment Protection and Agriculture of Georgia, Head of the National Food Agency, the Laboratory of Ministry of Agriculture (LMA), private laboratories, a honey exporter company Kakhetian Traditional Winemaking KTW.
A laboratory service subsidy scheme was presented at the meeting, that serves for supporting honey export development through creating accessible and affordable laboratory testing services for the Georgian beekeepers and honey exporters, which still remains as one of the key constrains for exporting Georgian honey abroad.
“For me, the honey sector is one of the most complex sectors in agriculture and I think the format of this meeting helps us with finding the best solutions to keep the sector going. I am pleased that today’s topic concerns honey laboratory testing, as we are determined to make honey as an export product. We have already made some important steps, like, participation in Apimondia 2019 and other important events for honey promotion. I think we can elaborate and agree on a future working model” – Levan Davitashvili, the Minister of Environment Protection and Agriculture of Georgia.
“Access to affordable laboratory services will not only decrease prime cost of honey, but will ensure quality honey to be sold at local and international markets” – stated Mikheil Tetruashvili, the GBU board member.
The Minster of Environment Protection and Agriculture of Georgia appointed a focal point in the Ministry to improve communication with beekeepers. The meeting participants agreed to continue work on the topic together with the MEPA and NFA.
The meeting was facilitated by the Swiss Agency for Development and Cooperation (SDC) project the Mercy Corps Georgia implemented the Alliances Caucasus Programme (ALCP).
Photo Source: The Ministry of Environment Protection and Agriculture of Georgia
