Cooperatives for Staple Crop Marketing Tanguy Bernard, David J. Spielman, Alemayehu Seyoum Taffesse, and Eleni Z. Gabre-Madhin e v i d e n c e f r o m e t h i o p i a

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Cooperatives for Staple Crop Marketing Evidence from Ethiopia Tanguy Bernard, David J. Spielman, Alemayehu Seyoum Taffesse, and Eleni Z. Gabre-Madhin RESEARCH MONOGRAPH 164

Copyright �� 2010 International Food Policy Research Institute. All rights reserved. Sections of this material may be reproduced for personal and not-for-profit use without the express written permission of but with acknowledgment to IFPRI. To reproduce material contained herein for profit or commercial use requires express written permission. To obtain permission, contact the Communications Division at ifpri-copyright@cgiar.org. International Food Policy Research Institute 2033 K Street, NW Washington, D.C. 20006-1002, U.S.A. Telephone +1-202-862-5600 www.ifpri.org DOI: 10.2499/9780896291751RR164 Library of Congress Cataloging-in-Publication Data Cooperatives for staple crop marketing : evidence from Ethiopia / Tanguy Bernard . . . [et al.]. p. cm. ��� (IFPRI research monograph 164) Includes bibliographical references and index. ISBN 978-0-89629-175-1 (alk. paper) 1. Cooperative marketing of farm produce���Ethiopia. 2. Marketing cooperatives���Ethiopia. 3. Farms, Small���Economic aspects���Ethiopia. 4. Grain���Cooperative marketing���Ethiopia. I. Bernard, Tanguy. II. International Food Policy Research Institute. III. Series: IFPRI research monograph 164. HD1491.E83C66 2010 334���.6830963���dc22 2010003993

Contents List of Tables vi List of Figures viii List of Boxes ix Foreword x Acknowledgments xii Acronyms and Abbreviations xiii Currency xiv Summary xv 1. Introduction 1 2. Ethiopian Cooperatives 13 3. Impact of Cooperatives on Members��� Commercialization 27 4. Cooperatives for Whom? 48 5. Commercialization Performance of Cooperatives 58 6. Conclusions 70 References 74 About the Authors 82 Index 83 v

Tables 1.1 Participation in staple foodgrain markets, eastern and southern Africa 3 1.2 Evolution of the number of cooperatives in selected countries, 1989���92 and 2005 6 1.3 Incidence of cooperatives in nine African countries 7 2.1 Households reporting membership in traditional institutions 15 2.2 Rural organizations during Ethiopia���s Derg regime, 1988���89 16 2.3 Number of registered primary cooperatives and members by region, Ethiopia, 2007 20 2.4 Household participation in cooperatives among smallholder farmers in Ethiopia 20 2.5 Types of cooperatives in Ethiopia, 2007 25 2.6 Grain-marketing cooperatives in Ethiopia, descriptive statistics 26 3.1 Treatment and comparison kebeles, by development domains 31 3.2 Number of treatment and comparison kebeles, by region 32 3.3 Balancing tests: treatment and comparison kebeles 33 3.4 Distribution of households across treatment and comparison kebeles 35 3.5 Probit estimations of determinants of participation in cooperatives 36 3.6 Balancing tests of matched samples 38 3.7 Effect of cooperatives on members��� cereals commercialization 42 3.8 Heterogeneous effects of membership on commercialization 45 4.1 Reasons not to join the cooperative 49 4.2 Determinants of households��� participation in cooperatives 50 4.3 Cooperative-level indicators of inclusiveness 52 4.4 Membership criteria and actual membership 52 4.5 Activities undertaken by agricultural marketing cooperatives 54 vi

4.6 Who benefits from cooperative activities? 55 5.1 Marketing performance of Ethiopian cooperatives 59 5.2 Characteristics and marketing performance of sampled cooperatives 61 5.3 Social activities and size of cooperative 63 5.4 Marketing performance of cooperatives 64 5.5 Membership, governance, and performance 69 TABLES vii

Figures 2.1 Actors and relationships in cooperative promotion and development, Ethiopia, 2007 18 2.2 Kebeles with at least one cooperative, 1991���2005 19 3.1 Geographic location of treatment and comparison kebeles 34 3.2 Propensity-score distribution among treatment and comparison observations 37 3.3 Distribution of cooperative membership impact across households, kernel-density estimates 46 5.1 Participatory decisionmaking 68 viii

Boxes 2.1 Amecha Area Multipurpose Cooperative 22 2.2 Awara Cooperative 23 ix

x Foreword Dfarmers��� uring the 1980s, agricultural-sector reforms in many developing coun- tries led to the dismantling of rural producer organizations (RPOs)��� organizations, associations, and cooperatives. This was part of a larger process aimed at reducing the role of the state in the economy, eliminating inefficiencies in food production, and encouraging the growth of competitive markets in the agricultural sector. These reforms assumed that the private sector would replace the state as the key source of agricultural inputs and marketing services for smallholder farmers. While this has occurred in some countries with respect to cash crops, it is far less common in the case of staple foodcrops���crops that are critical to the livelihoods of the vast majority of smallholders in the developing world. In recent years, RPOs have reappeared on the international development agenda as a potentially important means of linking farmers to markets, increas- ing agricultural productivity, and ultimately reducing rural poverty. Innova- tive RPO models are being held up as the key to helping smallholders better manage the procurement and distribution of inputs, aggregate their surplus farm output, and bargain for better terms of trade in the marketplace. These same models are also being leveraged to help government agencies and non- governmental organizations to better identify and reach out to the rural poor with an array of social and economic welfare programs. However, it is not clear how effective these RPO models may be, particu- larly for smallholders who cultivate food staples. What is missing is a suffi- cient body of evidence on where, when, and how RPOs benefit the rural poor��� a significant gap in light of the checkered history of cooperatives in many countries. While evidence suggests that cooperatives play a constructive role when high-value agricultural commodities such as dairy and horticultural products are involved, there is far less evidence of their contribution to increasing returns to farmers who cultivate staple foods, particularly cere- als. This is because food staples are quite different from high-value crops in that they rarely offer the lucrative returns to farmers that high-value crops do. Staples are also more susceptible to distortions caused by urban-biased price-control policies and the competing price effects of food aid and food imports.

FOREWORD xi Ethiopia presents an important case in point. Low productivity, high trans- action costs, limited use of modern inputs, and minimal levels of commercial- ization among small-scale, resource-poor farmers are defining characteristics of agriculture in Ethiopia. The results���endemic rural poverty and chronic food insecurity���are all too well known. Yet farmers, policymakers, and administrators in Ethiopia have made concerted efforts in recent decades to reverse this situation. One particular effort has been to strengthen the role of farmers��� cooperatives in marketing farm output, thereby reducing the costs of moving agricultural commodities from farmers to consumers and improving farmers��� bargaining power in the country���s expanding market economy. This study provides some new empirical evidence that may help us under- stand the conditions under which cereal marketing cooperatives are promot- ing smallholder commercialization and generating rural welfare improvements in Ethiopia. We hope that this evidence will provide new insights for policy- makers, researchers, and development practitioners who are encouraged by the re-emergence of RPOs as a means of benefiting the rural poor. Shenggen Fan Director General, IFPRI

xii Acknowledgments WResearch e gratefully acknowledge the support of our colleagues at the Ethio- pian Development Research Institute, the International Food Policy Institute, and the Ethiopian Strategy Support Program. We are particularly indebted to Shenggen Fan, Paul Dorosh, Joachim von Braun, Abey Meherka, Abera Demeke, Dawit Kelemework, Shahidur Rashid, Kwaw Andam, Tigist Mamo, Etenesh Yitna, Fikru Wubshet, Yetnayet Begashaw, and several anonymous referees. Any and all errors are the sole responsibility of the authors.

Acronyms and Abbreviations BoARD Bureau of Agriculture and Rural Development BoCP Bureau of Cooperative Promotion CBO community-based organization ECS Ethiopian Cooperatives Survey EDRI Ethiopian Development Research Institute ESCS Ethiopian Smallholders Commercialization Survey FCA Federal Cooperatives Agency GDP gross domestic product GoE Government of Ethiopia IFPRI International Food Policy Research Institute NGO nongovernmental organization RPO rural producer organization SNNP Southern Nations, Nationalities, and Peoples regional state xiii

Currency Ethiopia Ethiopian birr (ETB) xiv