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.
Radio Free Europe/Radio Liberty, an international media organization broadcasting in twenty-seven languages in twenty-three countries, published an article about Jara: Georgia’s Cliff-Top Honey Harvest by an international photographer/journalist Amos Chapple. He reached out to the Jara Beekeepers Association (JBA) and travelled to Ajara to see Jara beekeepers climbing heights for Jara honey harvest. Radio Tavisupleba (Radio Liberty Georgia) also put a Georgian version of the article on its website.
On April 13th, an online event of the Journalism Resource Center (JRC) International Conference in Agricultural Journalism and Agricultural Education brought together regional academic and media representatives from Georgia, Armenia, Azerbaijan, Moldova and Ukraine. The enthusiasm for, dedication towards and interest in agri journalism and its importance for people and youth were striking.
The Deputy Regional Director of the Swiss Cooperation Office (SCO) did the opening speech. The representatives from Georgia showed that they understand the demand for and are fully engaged in the media market for agri journalism.
‘Agri journalism is an integrated course for bachelor’s students. After Training of Trainers for lecturers we will develop a separate course. We also see the demand from students. Cooperation with media and government agencies is crucial in this regard.’ - A representative from Brusov State University in Armenia.
A freelance journalist from Baku talked about the usage of multimedia tools in agri journalism. The field of agri journalism is attractive but seems difficult to attain to media representatives from Moldova and Ukraine. A Producer of Volinsk Branch of National Public TV and Radio Company of Ukraine expressed his willingness to co-operate with the JRC to copy some activities related to agri journalism.
‘I am surprised by hearing about Georgia and Armenia, where agricultural education works so well’. - The LikTV Founder in Moldova, who empathized with the difficulties expressed by the representative of Ukraine and stated that universities in Moldova need to work on establishing agricultural journalism.
The ALCP Team Leader spoke about the programme support for agri journalism development in an interview on Agrogaremo TV. An agri journalism course alumni shared his experience and motivation with the JRC. A short documentary video by the JRC tells us a story about agri journalism development.
Nena a honey export company has been exporting since 2019. Chestnut and Jara honey have been sold in twenty shops in New York, Pennsylvania and New Jersey from January, 2021. Nena also exported Jara honey to Japan. And by the end of February, Bio Jara honey, a new product will be exported to the USA. Canada is a promising market and has repeated its order for the fourth time.
Producing honey in Jara hives has officially been granted Intangible Cultural Heritage status by the National Agency for Cultural Heritage Preservation of Georgia. The Jara Beekeepers Association (JBA) applied to the Agency back in 2020.
Jara is traditional wild beekeeping, a practice which almost died out but which has since 2014 begun a slow revival with the facilitation of the ALCP. The ancient tradition with strong roots in traditional agriculture, culture represents a unique way of life. The status recognizes Jara’s need to be preserved for future generations earning a place amongst other honourable Georgian traditions, including, Qvevri wine-making and Georgian song and dances. This status and will contribute to its further preservation and promotion.
It also brings hope and feeling of pride to those beekeepers who are continuing or are now taking Jara beekeeping up.
Jara has been on a fascinating journey since 2014. This journey includes The first commercial harvesting, registering the Jara honey mark, being promoted at the international exhibitions, first Bio certification, being taught at the VET college and reaching export markets in the US and Canada. And we can be sure, more things are on their way.
Christmas is a magical time awakening the holiday spirit in us. They say, Christmas is the spirit of giving without a thought of getting.
Before Christmas this year, the managers of the municipal Women’s Rooms in Kakheti, who like everyone else have adapted themselves to remote working due to the COVID-19 pandemic, established an online Christmas Charity Auction on Facebook to help families in need affected by the pandemic. The managers selected seven families in need for help. Their stories are heartbreaking; of a single mother, a victim of domestic violence, raising her children by herself, grandparents raising orphans, a child with disabilities and families with many children living in extreme poverty. Up to five hundred people joined in the auction donating or buying things in the auction with the money raised going for donation. The auction raised more than two thousand Gel over two weeks and besides money, the families received sweets, books, gifts; and special food for a girl with Celiac Disease.
The Christmas of the seven families was changed for the better. The Christmas Charity Auction finished on the 7th of January, though the online group on Facebook remains active, as the Women’s Rooms are planning to continue sharing the act of kindness with families in need and are open to anyone willing to contribute to any future auctions.
There are twenty-eight Women's Rooms in twenty-seven municipalities of four regions of Georgia. Find more about Women’s Rooms here.
An article Challenges Emerge for Women Entrepreneurs as a Result of the Covid-19 Pandemic has been published on Civil Society Portal in Georgia as part of an essay competition. The woman entrepreneur-Zeinab in the article is the Director of the dairy enterprise Tsintskaro+Ltd in Tetritskaro, Georgia. The Alliances Programme, an SDC and ADA project implemented by Mercy Corps Georgia, has been facilitating this dairy since 2016. Zeinab wrote this article by herself and won the Civil Society Portal essay competition. The article comes at the right time. We all need this kind of encouraging information during the pandemic period.
You might be interested in information on how businesses in Georgia are dealing with challenges caused by COVID-19 and can check our report COVID-19 Effects on the ALCP Clients Businesses.
