Great Projects in History: Agricultural Cooperatives in Ethiopia

The Agricultural Cooperatives in Ethiopia, or ACE, project may have been the largest success story in ACDI/VOCA history in terms of number of beneficiaries. It reached five million people. And it succeeded in creating viable and sustainable businesses in a country that had an abysmally low GNI per capita. ACE brought farm households up from extreme poverty, and it set the stage for transformative industry growth and trade development success in the coffee sector.

Though agriculture accounts for 90 percent of exports and 86 percent of total employment in Ethiopia, smallholder farmers have traditionally been underserved—even exploited and marginalized. To help these farmers gain the skills and influence necessary to alleviate this situation and expand their economic opportunity, ACDI/VOCA focused on one of its traditional strengths, cooperative development.

Roots

Under the Farmer to Farmer program in Ethiopia in the mid-90s, 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 short-term recovery rate 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.

In 1997 the USAID mission in Ethiopia approved a proposal from ACDI/VOCA to launch the Cooperative Union Project 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.

The cooperative union concept immediately proved successful when 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 recordkeeping. Co-ops in other districts subsequently formed buying groups to replicate the bidding process used in Lumme, and as a result the price paid by smallholders for fertilizer has been reduced overall by $4,000,000. Lumme also introduced tractor services to member coops initially purchasing two tractors from a local assembly plant.

Launch of ACE

Building on the initial success of the Cooperative Union Project, USAID approved a five-year plan to promote cooperative unions in the country’s four major production regions. ACE was thus launched in September 1999. It sought to increase productivity, reduce food insecurity and enhance rural incomes through the establishment of competitive, profit-oriented and professionally managed cooperatives. It also expanded farmers’ access to purchasing and distribution outlets.

This was a large-scale effort. Working with nearly 400,000 farmers, ACE focused on training at all levels of the cooperative community from farm owners, cooperative directors and managers to government and union management staff. A total of 285 primary cooperatives received training and technical assistance to strengthen their operations, and nearly 2,000 cooperative board members and staff received management training. Personnel of the regional agricultural cooperative bureaus acquired the skills to extend improved management techniques to unions and cooperatives.

Coffee Specialty

As part of this groundbreaking initiative, ACE aided the Oromia, Sidama, Yergacheffe and Kafa Coffee Farmers’ Cooperative Unions. A first step was to gain permission from the government to bypass the central coffee auction and act as direct exporters on behalf of their members. Thus the farmers enjoyed more control over their affairs as well as increased market share.

In 2005 ACDI/VOCA assisted the U.S.-based ECafe Foundation and local stakeholder institutions to organize the first co-op coffee competition, followed by the first internet auction of African coffees. The auction generated more than $187,000, at an average price of $3.22 per pound, compared to the market price of $1.30. An overall premium of $75,000 was paid for these extraordinary coffees, and all proceeds were distributed to the cooperatives. A second auction in 2006 earned over a quarter of a million dollars.

In 2005, Shirkina dry-processed gourmet coffee produced by ACDI/VOCA’s client Ferro Cooperative in Sidama was designated Starbucks’ eighth Black Apron Exclusive, and throughout the early years of the decade other cooperative-produced coffees were recognized worldwide for extraordinary taste befitting the ancestral home of coffee. Today, thanks to ACDI/VOCA’s efforts, some of the world’s most coveted single-source coffees carry the names Sidamo and Yergacheffe.

Members like Etensesh Mekonen received dividends which she used to cover her thatched-roof house with corrugated iron sheeting. Other union members invested dividends back into their coffee ventures, started new businesses or paid for their children’s education. “Without cooperatives,” said Asnake Bekele, general manager of the Sidama union, “Ethiopian growers would be out of the market.”

ACDI/VOCA’s work to make the Sidama union a viable economic entity opened many doors. The union received a $400,000 working capital loan as part of a $5 million financing arrangement Starbucks developed with EcoLogic Finance, a Cambridge, Mass.-based nonprofit organization that offers affordable financial services to community-based businesses operating in environmentally sensitive areas.

ACDI/VOCA's work has also helped cooperatives develop money-saving practices. In collaboration with Regional Cooperative Promotion Bureaus and others, the project restructured primary cooperatives into new rural businesses.

In addition to financial management, the farmer co-ops with which ACDI/VOCA worked came to offer a host of services to their members. Most of the ACE food grain unions bought and stored grain from primary cooperative members. Others purchased tractors to provide plowing and hauling services for members. To guide trained staff members and ensure everything runs efficiently, all 25 cooperative unions, as well as 363 primary societies, hired professional managers.

Access to Finance

Until ACE, farmers had little access to credit to fund marketing activities, but the project attracted a commercial bank to enter into a loan guarantee plan. Using USAID funds to guarantee half of the potential net losses, the Bank of Abyssinia made $1.2 million available to cooperative unions to purchase grain from their member cooperatives for later sale.

Using the loan guarantee fund, the Ude primary cooperative went into the grain marketing business, making a profit of $1,376. Out of this sum, it paid $963 in dividends to its members.

A final accomplishment of the ACE program was the establishment of 84 rural financial service providers. Mulu Tekle Mariam is one of the more than 16,000 members of these new institutions. Mulu borrowed $200 from an ACE savings and credit cooperative and replaced an ox that died. Another member, Tiulahun Hirpo, invested a $112 loan into his trading business. These are only two of the many examples of people who have benefited from loans provided by ACE saving and credit cooperatives.

Overall Impact

ACE activities included:

strengthening the capacity of regional cooperative offices and bureaus
increasing the bargaining power of cooperatives
increasing the membership and participation of women in cooperatives
increasing environmental awareness and improving natural resource management at the farm level
upgrading the skills of cooperative members and management, the staff of the cooperative promotion bureaus, educators and support professionals enabling them to develop, manage and support sustainable organizations
diversifying and broadening services, products and value-added products

Mr. Zerihun Alemayehu, head of the cooperative promotion bureau in the prime minister's office, said, "The bureau, supported by ACDI/VOCA with USAID funding, is revolutionizing the cooperative movement in Ethiopia. Cooperatives under the previous command economy 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."

What did ACE mean at the household level for farmer members? An impact assessment found that cooperatives had a very positive impact on the quality of live and household wealth accumulation of its members. The impacts (and percent of co-op farmers identifying that impact in the study) were in educating children (84 percent), purchasing consumer goods (77 percent), improving their homes (67 percent), improving diet (64 percent), buying livestock (54 percent) and hiring labor (51 percent).

U.S. Volunteers Key

Much of ACE’s work was carried out by 175 U.S. volunteers on short-term ACDI/VOCA assignments. Many ACDI/VOCA volunteers were members or employees of U.S. agricultural cooperatives and farm credit banks. Beyond applying their practical skills revolving around organization and information, they demonstrated their personal concern and injected hope and a valuable cooperative spirit.

One of them was farm management specialist Ron Atkinson, a veteran of many ACDI/VOCA assignments, who trained 20 Ethiopian extensionists. He said, “I felt better about this assignment than just about any of my others because the participants were so eager to learn. They were attentive, showed up on time and couldn’t wait to tackle the case studies.” The 20 trainees in turn trained 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 Dr. Doug Bishop of Bozeman, Montana. Since his retirement from Montana State, Bishop engaged in what seemed 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 is the essential text for Ethiopia’s cooperative promoters. He has also helped to revise the curriculum at the Ethiopia’s Cooperative Institute, which has been a critical resource for sustaining the cooperative movement.

The Bottom Line

Though we and Ethiopians alike appreciate the value of a strong civil society, the name of the game in a country as poor as Ethiopia is livelihoods. As ACDI/VOCA’s former Ethiopia Country Representative Brutawit Dawit Abdi says, “The best NGO is a businesslike one that appreciates the bottom line.”

Ethiopia, a nation with a history of difficulty, but one blessed with extraordinary beauty and talent, has made important progress. ACDI/VOCA is proud to be a small part of this story.

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