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Farmer Groups: Why We Love Them and When They are Successful

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.

  1. 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.
  2. 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.

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Fourth Georgian Milk Mark (GMM) Dairy Exports to the USA

Dairy Enterprise Leanka Ltd from Kakheti region sent 837 kg different types of cheese (Sulguni, Smoked Sulguni, Georgian cheese) via the exporter company Geoproduct Ltd for sale in New York and Philadelphia, USA. The dairy is a member of the Georgian Milk Mark the quality assurance label for Georgian natural milk and its products bare the GMM. The company expects further increased orders in the near future.


12/07/2021
Jara Teaching Ready to Go

Eleven Vet colleges with beekeeping programmes have already received Jara equipment from the Georgian Beekeepers Union (GBU) and Jara Beekeepers Association (JBA). These eleven colleges are ready to integrate the Jara materials into their beekeeping programmes some from September this year and others in the spring semester next year.  The Deputy Minister of Education of Georgia, the Minister of Education of Ajara, and the Mayor of Keda visited the Keda VET College and expressed their support to Jara teaching.

‘We received the package of equipment for Jara teaching. The beekeeper students, enrolled last year, are looking forward to getting lessons related to Jara producing; officially, we are starting teaching from a new semester’ – Ilia Kharazishvili, the head of the beekeeping programme at Kachreti College.

The handover of Jara equipment is a follow-up activity of the Training of Trainers in Jara Honey Production for VET Colleges, which was held on May 18th-19th  hosted by the Georgian Beekeepers Union (GBU) and the Jara Beekeepers Association (JBA) in Keda, Medzibna Village. The National Center for Educational Quality Enhancement and sectoral skills organization Agro Duo are supporting the GBU and JBA with Jara teaching integration in the VET colleges.

We started cooperating with the Georgian Beekeepers Union and Jara Beekeepers Association for integrating Jara into our beekeeping programme, however, we are going to involve them in updating the whole beekeeping programme. We need their consultancy to share with us all standards to improve the programme’ - Bela Avalishvili, the head of Opizari VET College in Akhaltsikhe.

These colleges are  VET College at Batumi Shota Rustaveli State University; Black Sea Keda VET College; Black Sea Shuakhevi VET College; VET College Opizari in Akhaltsikhe; VET College Gantiadi in Gori; VET College Aisi in Kachreti; Training Center Farmers' House in Sagarejo, a brunch of Public College Aisi; VET college Iberia in Bagdati; VET College at Shota Meskhia Zugdidi State Teaching University; VET College at Georgian Technical University - Didi Jikhaishi in Imereti; and VET College Horizonti in Guria. 

Last year Akhali Talga VET College in Kobuleti and Khulo integrated the Jara materials into their one-year beekeeping programme, which is attended by twenty-eight beekeeper students. The GBU and JBA also delivered the Jara equipment to these colleges in 2020.

09/07/2021
Georgian Milk Day

On Friday, July 9th, from 10 am until 2 pm, the Business Institute of Georgia (BIG) who manages the Georgian Milk Mark, and the Georgian Milk Federation held a Georgian Milk Day. 

The Georgian Milk Mark which started in 2019 now has twenty one dairies currently using the mark. This B2B (Business to Business) event was to bring together the twenty one dairies who presented their products for show and tasting with invited hospitality and retail sector guests. COVID-19 has taken a toll on both sectors and it is hoped that bringing them together will be advantage to them both, in terms of sales for the dairies and supplying quality Georgian products for the HoReCa and retail sectors.

The Minister of Environmental Protection and Agriculture of Georgia, the Head of the Agrarian Committee of the Parliament, First Deputy Head of Environmental Protection and Natural Resources Committee of the Parliament gave a speech at the opening of the event. The National Food Agency, the State Laboratory of Agriculture, the Rural Development Agency and the Georgian National Tourism Administration participated in the event.  From June 1st 2021 a new regulation requires HoReCa sector actors to become HACCP certified. The NFA had an information desk at the event to answer questions and provide information.Everyone visited the GMM dairies and viewed and tasted their products.

 The event was supported by Alliances Caucasus Programme (ALCP) which is co-financed by the Swiss Agency for Development and Cooperation (SDC) and the Austrian Development Cooperation (ADA) implemented by Mercy Corps Georgia.

Here you can see photos of the event Gallery .

You can see here media reports:

https://bm.ge;

https://www.interpressnews.ge;

https://www.palitranews.ge;

https://mepa.gov.ge;

MEPAGeorgia

https://formula.ge

Businesspartner

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Georgian Honey Success in London

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The purpose of the LONDON HONEY AWARDScompetitions is to inform honey-growers, honey producers, beekeepers, processors, and retailers, who distribute their standardized products legally, to preserve and to ameliorate the quality of their branded product by promoting high-quality honey products in every aspect of the spectrum of its use and consumption.

The awarded Georgian honey producers are Nena Chestnut Honey / KTW, Nena Jara Bio Honey / KTW, Ninotsminda Honey (Alpine) / Cooperative KODY and Chestnut Honey / Rukhi Queen

 You can see here the post of the embassy on Facebook.

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Continuous Teaching from the GBU

On May 27th-28th, more than two thousand beekeepers in all regions of Georgia attended a training on bee treatment practices as a response to the massive bee colonies collapse this year. The Georgian Beekeepers Union (GBU) initiated and advocated the first nationwide trainings with the Rural Development Agency (RDA) based on the online research data gathered. The GBU developed a trainer’s handbook and Varroa Treatment guideline, which was translated and available for Azerbaijani and Armenian beekeepers; and delivered a Training of Trainers for eighty-five beekeepers. 

‘Beekeepers received important information about new methodology how to treat Varroa. This was the first training organized in coordination with the GBU, which is the main actor in the beekeeping sector and our collaboration will continue.’ – Lasha Shalamberidze, the Head of the Regional Relations Department at the RDA.

‘I think, a key outcome of these trainings is that our Union expanded its team across Georgia. We now have the representatives in each municipality and we will continue teaching and delivering important information to the beekeepers.’Aleko Papava, the Head of the GBU.

LATEST NEWS
Fourth Georgian Milk Mark (GMM) Dairy Exports to the USA
24/08/2021
Dairy Enterprise Leanka Ltd from Kakheti region sent 837 kg different types of cheese (Sulguni, Smoked Sulguni, Georgian cheese) via the exporter company Geoproduct Ltd for sale in New York and Philadelphia, USA. The dairy is a member of the Georgian Milk Mark the quality assurance label for Georgian natural milk and its products bare the GMM. The company expects further increased orders in the near future.
Jara Teaching Ready to Go
12/07/2021
Eleven Vet colleges with beekeeping programmes have already received Jara equipment from the Georgian Beekeepers Union (GBU) and Jara Beekeepers Association (JBA). These eleven colleges are ready to integrate the Jara materials into their beekeeping programmes some from September this year and others in the spring semester next year.  The Deputy Minister of Education of Georgia, the Minister of Education of Ajara, and the Mayor of Keda visited the Keda VET College and expressed their support to Jara teaching. ‘We received the package of equipment for Jara teaching. The beekeeper students, enrolled last year, are looking forward to getting lessons related to Jara producing; officially, we are starting teaching from a new semester’ – Ilia Kharazishvili, the head of the beekeeping programme at Kachreti College. The handover of Jara equipment is a follow-up activity of the Training of Trainers in Jara Honey Production for VET Colleges, which was held on May 18th-19th  hosted by the Georgian Beekeepers Union (GBU) and the Jara Beekeepers Association (JBA) in Keda, Medzibna Village. The National Center for Educational Quality Enhancement and sectoral skills organization Agro Duo are supporting the GBU and JBA with Jara teaching integration in the VET colleges. ‘We started cooperating with the Georgian Beekeepers Union and Jara Beekeepers Association for integrating Jara into our beekeeping programme, however, we are going to involve them in updating the whole beekeeping programme. We need their consultancy to share with us all standards to improve the programme’ - Bela Avalishvili, the head of Opizari VET College in Akhaltsikhe. These colleges are  VET College at Batumi Shota Rustaveli State University; Black Sea Keda VET College; Black Sea Shuakhevi VET College; VET College Opizari in Akhaltsikhe; VET College Gantiadi in Gori; VET College Aisi in Kachreti; Training Center Farmers' House in Sagarejo, a brunch of Public College Aisi; VET college Iberia in Bagdati; VET College at Shota Meskhia Zugdidi State Teaching University; VET College at Georgian Technical University - Didi Jikhaishi in Imereti; and VET College Horizonti in Guria.  Last year Akhali Talga VET College in Kobuleti and Khulo integrated the Jara materials into their one-year beekeeping programme, which is attended by twenty-eight beekeeper students. The GBU and JBA also delivered the Jara equipment to these colleges in 2020.
Georgian Milk Day
09/07/2021
On Friday, July 9th, from 10 am until 2 pm, the Business Institute of Georgia (BIG) who manages the Georgian Milk Mark, and the Georgian Milk Federation held a Georgian Milk Day.  The Georgian Milk Mark which started in 2019 now has twenty one dairies currently using the mark. This B2B (Business to Business) event was to bring together the twenty one dairies who presented their products for show and tasting with invited hospitality and retail sector guests. COVID-19 has taken a toll on both sectors and it is hoped that bringing them together will be advantage to them both, in terms of sales for the dairies and supplying quality Georgian products for the HoReCa and retail sectors. The Minister of Environmental Protection and Agriculture of Georgia, the Head of the Agrarian Committee of the Parliament, First Deputy Head of Environmental Protection and Natural Resources Committee of the Parliament gave a speech at the opening of the event. The National Food Agency, the State Laboratory of Agriculture, the Rural Development Agency and the Georgian National Tourism Administration participated in the event.  From June 1st 2021 a new regulation requires HoReCa sector actors to become HACCP certified. The NFA had an information desk at the event to answer questions and provide information.Everyone visited the GMM dairies and viewed and tasted their products.  The event was supported by Alliances Caucasus Programme (ALCP) which is co-financed by the Swiss Agency for Development and Cooperation (SDC) and the Austrian Development Cooperation (ADA) implemented by Mercy Corps Georgia. Here you can see photos of the event Gallery . You can see here media reports: https://bm.ge; https://www.interpressnews.ge; https://www.palitranews.ge; https://mepa.gov.ge; MEPAGeorgia https://formula.ge Businesspartner
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