Agricultural Cooperatives versus Model Farmers in the Malt Barley Value Chain in Ethiopia


Term Paper, 2021

33 Pages


Excerpt


TABLE OF CONTENTS

TABLE OF CONTENTS

ACRONYMS

ABSTRACT

1. INTRODUCTION
1.2. Statement of the Problem

2.1. Contract Farming and Drivers for Contract Farming
2.2. Drivers for firms
2.3. Drivers for Smallholder Farmers
2.4. Debates on Contract Farming
2.5. The Model Farmers and History of Model farmers in Ethiopia
2.6. Agricultural Cooperatives and History of Agricultural Cooperatives in Ethiopia
2.7. The essence of Political Economy
2.8. The Political Economy of Model Farmers and Agricultural Cooperatives

3. THEORETICAL FRAMEWORKS OF MODEL FARMERS AND AGRICULTURAL COOPERATIVES IN MALT BARLEY CONTRACT FARMING

4. PERFORMANCES OF MODEL FARMERS VERSUS AGRICULTURAL COOPERATIVES IN MALT BARLEY CONTRACT FARMING
4.1. Case studies on effectiveness of Model farmers versus Agricultural Cooperatives 20 Malt Barley contract farming

5. CONCLUSION

6. REFERENCES

ACRONYMS

Abbildung in dieser Leseprobe nicht enthalten

ABSTRACT

In Ethiopia, per capita beer consumption increased by 20% annually. Thus, the increase in beer demand invited the emergence of multiple foreign beer factories towards the beer production that opened the door for malt barley contract farming. Malt barley contract farming was firstly introduced by Diageo followed by Heineken beer companies. Along the value chain of malt barley contract farming, agricultural cooperatives and model farmers are known chain actors. While some literature reveals the positive outcome of agricultural cooperatives in other agricultural activities, others verify agricultural cooperatives as the ineffective one. Therefore, contextual setting attributes for agricultural cooperatives effectiveness. For measuring performances of agricultural cooperatives, and model farmers in malt barley contract farming; statuses such as: financial capital, trust, social capital and commitments are all important variables. In all measurement, model farmer's performance outweighs in aggregation, input distribution and service delivery as compared to its counterpart (agricultural cooperatives). Albeit, the establishment and administration of agricultural cooperatives autonomous and ruled by universal principles, the political economy of agricultural cooperatives and model farmers is also changeable according to the political ideology of the regime governing the country. In Ethiopia, an agricultural cooperative has got its milestone since 1991 and top officials are represented from the state and regional political merit to settle the conflict of interest that frequently happen in heterogeneous group. Model farmers are considered as wealthier and keen for technology adoption dissemination of agricultural advisory services in one to five networks. Heineken confirms the effectiveness of model farmers in running agribusiness in malt barley contract farming than cooperatives do but owing to the hidden hand pressure continue to work with cooperatives. However, some literature show that the political economy of model farmers approach as political instrument. They are considered as loyal to the regime to fulfill political constituency and favoring election in the one to five networks.

1. INTRODUCTION

Over the past decade, among the initiatives advocated in developing countries to improve smallholders market access, the adoption of modern value chain approach is centered on the principles of promoting chain actors competitiveness and enhancing coordination and trust between actors, based on existing market opportunities (United Nations, 2018). As Delelegn (2018) showcased in his studies of beer multinationals, contract farming had been presented as a possible solution to raising productivity and engaging smallholders in the modern value chains of agricultural marketing. For instance, supermarkets and processors use private quality standards and modern procurement systems which favor increased use of value chain arrangement in vertical coordination through contracting. Many scholars studied the increasing prevalence of contract farming arrangements (CFAs) in the changing food systems. Most of these studies claim that CFAs promote smallholder linkages to high- value markets and increase farm income (Addisu, 2018; Rashid, 2015).

The concept of value chain is replicated from studies on the globalization of industry. Latter it is has been introduced to agribusiness research to pronounce the intensified flow of information and coordination between different segments and vertical coordination (Humphrey, 2005). In Ethiopia, since the introduction of modern value chain of malt barley contract farming by the foreign investors engaged in beer firms, agricultural cooperatives and model farmers are known to be actors playing a pivotal role in both agricultural input and output nexus market (BIF,2018). Many studies attest that collective action approaches reduces transaction cost of agricultural input and output marketing and enable in leveraging economies scale and thus agricultural cooperatives and model farmers are cases in point (Agriterra, 2014). Evidences by Briones, 2015; Roy and Thorat, 2008; Royer et al., 2017 cited in Delelegn et al., (2018) on the theme of beer multinationals in the enhancement of malt barley commercialization via contract farming agriculture discussed the role of value chain intermediaries such as cooperatives and NGOs. They showed that cooperatives can reduce transaction costs of contracting with a large number of dispersedly-located and fragmented small farms. It is showed that cooperatives and POs (producer's organizations) can facilitate the supply of inputs to contracted farmers, aggregation of output and improve member's bargaining power as well.

Concurrently, according to (ATA, 2018) on the role of agricultural cooperative emphasis is given in ensuring the stability and longevity of contract farming arrangements, and delivering an equitable distribution of benefits. Cooperatives are essential for augmenting win-win outcomes from contract farming. From a farmer's perspective, it can help to rebalance the power relations between firms and farms: collective bargaining, and the creation of relationships with rural credit and transport providers, can help reduce the risks farmers face. Moreover, cooperatives provide a forum for farmer dissatisfaction (on prices, timing and extension), and it is more likely that a firm will recognize social and environmental responsibilities. From firm's perspective, cooperatives reduce transaction costs per unit and address information and communication blockages. They are also an important channel to foster trust and good farmer-company relations, and provide peer embedded incentives for members to repay loans. However, cooperatives are not necessarily a panacea for successful contract farming. There is ample evidence that many of them collapse (ODI, 2017).

In contrary, other studies verified no generic evidences to exist regarding only the worth of agricultural cooperatives claiming that no one size fits all context scenario. A study conducted by Dawit etal., (2020) in the case of malt barley contract farming nexus cooperatives showed that cooperatives lack performances and there exist mistrust between malt buyers such as beer firms and malt firms. Similarly, Dawit etal., (2011) came out with the result that, despite the number of agricultural cooperatives established are many with the objectives of safeguarding the interests of smallholders to act towards the betterment of farmers in the malt barley value chain, timely aggregation of produces and ensuring marketing activities of cooperatives for malt barley remained weak. Similarly, according to Heineken, cooperatives are reported as ineffective organization. The services rendered by cooperatives shows delay in inputs' distribution, late aggregation, limited working capital (BIF, 2018; Debela, 2016). However, in consequent to government's hidden hand pressure, Heineken has been urged to work with them. According to different results of studies, model farmers are the most performer partners (Debela, 2016; Tefera et al., 2016).With regard to model farmers, in Ethiopia, despite some debates aroused over the controversy of model farmers selection, the use of model farmers (MFs) has been a core approach of farmer to farmer extension since participatory extension system in the 2000s (MoANR and ATA, 2014). In this context, model farmers are understood to be farmers that display a higher level of productivity due to their ‘best agricultural practices', which they are expected to disseminate to other farmers through peer-to-peer learning in farmer networks. Model farmers have high social capital, limited social hierarchies, high community trust, collaborative values, and where farmers are organized in groups. They are also considered wealthier as a result of their entrepreneurial business acumen (FDRE and Spielman, 2016; MoANR and ATA, 2017). In the context of contract farming, Benincasa (2019) reported, model farmers as having superior performance in contract farming and recommends they continue to be used in the commercialization of agriculture.

1.2. Statement of the Problem

In Ethiopia, among the nine crops that the Agricultural Commercialization Cluster (ACC) policy initiative aimed in increasing production and productivity through input use and creating market access, malt barley as industrial cash crop is mentioned. In the country, increased urbanization spurred by rising income, per capita beer consumption has increased rapidly at an annual rate of 20% and thus invited foreign investors flocking in beer investments. In beer production, 30% of raw barley is used in combination with 70% malted barley and the country has 11 beer firms and four malt factories. Assela Malt Factory is the pioneer one with production capacity of 36,000 metric tons per annum and Gonder Malt Factory with 16,000 metric tons only serving as input for Dashen Beer. However, the landscape of the beer business in Ethiopia is constrained with the supply of major input deficit of malt barley. According to ICARDA (2016), in the year 2015, malt importing reached at 66,000 metric tons, which is about 65% of the total annual demand. Evidence from Ethiopian Customs Authority also reveals that, in 2016 approximately 90,000 metric tons of both roasted and raw malt were imported. On its current growth rate, by the year of 2025, malt barley and malt import could reach more than 400 million $ compounding the thinly available hard currency in deficit. In general, only half of the supply of malt is domestically procured while the rest is imported (ECA, 2015).

Thus, to circumvent the burgeoning of malt barley demand, beer firms such as Diageo and Heineken firstly introduced malt barley contract farming as modern value chain approach. Still now, prior to the inception state of two malt factories named as Boortmalt Company at Debrebirhan with a malting production capacity of 60,000 tons per annum and off takes malt barley from 40,000 smallholders. Secondly, Souflet malting company is also newly established at Bolelemi industrial park and sources malt barley from 25,000 smallholders at its inception phase. The entry of Boortmalt and Soufflet along with feeding the beer firms, enable Ethiopia to cover its malt demand domestically and retain half of the malt demand being imported (FBC, 2020).

In the value chain of malt barley contract farming, several actors are involved with roles and responsibilities. Smallholder farmers are found at the upper stream and intermediaries such as, model farmers, agricultural cooperatives, traders, micro finance institutions and NGOs are found in the facilitation and coordination roles in technical efficiency, input supply, risk mitigation, financial loan supply and output aggregation. However, the performances of each intermediary vary in parameters, for example, in terms of capital, managerial efficiency, and social acceptance. There is also found only comprehensive but over sighted studies of malt barley contract farming. However, deeply knowing its parts of intermediaries paves the way for all inclusive results. Thus, the knowledge gap that little to no literature has been found that specifically focuses on analyzing the relationship among the activities and the performance status of agricultural cooperatives and model farmers aspired to conduct this seminar consolidated from a review of results from sparingly found related studies.

Currently, a few literature reveal growing interest towards model farmers in buyers/ processors of malt barley contract farming. In repercussion to inefficiencies and weak roles of agricultural cooperatives, firms/ buyers/ processors claim their insatiable business ties with cooperatives and thus renewed interest in engaging with model farmers is being exhibited (Heerink, 2010; Francesconi and Wouterse, 2019). For example, according to Heineken (2018) cooperatives are reported as ineffective organization. The services rendered by cooperatives shows delay in inputs' distribution, late aggregation, limited working capital. However, in consequent to government's hidden hand pressure, Heineken has been urged to work with them (BIF, 2018; Debela, 2016). Model farmers / lead farmers are commercial farmers who are gate keepers of resources. Most innovative agricultural adoption practices are undertaken via model farmers. They are wealthy and their social stand in the community is figurative and different results of studies, in contract farming depicts model farmers to be the most performer partners (Debela, 2016; Tefera et al., 2016). With regard to model farmers, destined to have agricultural extension roles, studies on model farmer's role in contractual farming sparingly found. However, no or counted number of studies exists pertinent to specific comparison of the performance of model farmers and agricultural cooperatives in malt barley value chain. Therefore, the general objective of this seminar paper is to unveil the comparative advantages and shortcomings of agricultural cooperatives and model farmer's performances in malt barley contract farming by reviewing studies from scanty publishing. It specifically focuses on:

1. To compare performance statuses of agricultural cooperatives and model farmers in malt barley contract farming
2. To unveil the political economy of agricultural cooperatives and model farmers

2. CONCEPTS OF CONTRACT FARMING, MODEL FARMERS AND AGRICULTURAL COOPERATIVES

2.1. Contract Farming and Drivers for Contract Farming

Contract farming (CF) is not a new issue and was applied in the 1940s in some African countries. However, it has been revitalized recently in repercussion to the structural adjustment programmes in liberalization of economies (FAO, 2018). Contract farming is an institutional arrangement between firms and farmers. It provides a bylaw that both parties abide-by to the principles stipulated in the agreement. In this context, farmers supply agricultural produce of specific quantities and qualities of produce within framed time at a reasonable cost, whereas, firms/ processors or traders buy the produces with the price stated in the contractual agreement (Technoserve, 2015). Concurrently, according to Eaton and Shepherd, contract farming is seen as a way to link smallholder farmers to markets, thereby addressing a major challenge in the transformation of agriculture in developing countries from subsistence farming to market driven production (Eaton and Shepherd 2001). Generally, contract farming refers to a range of initiatives taken by private agri-business companies to secure access to smallholder produce. Companies provide services to farmers and in return receive access to some or all of the farmers' produce. Contract farming schemes typically involve the provision of inputs (seed, fertilizers, and pesticides) on credit, often with extension advice, but may also includes a range of other services such as ploughing and crop spraying. Costs are recouped when the produce is sold (ODI, 2017).

The reasons for engaging at contract farming are multiple for buyers (firms) and growers (farmers). Contracting parties want to reduce overall market uncertainty and transaction costs. For the firms, the priority is to secure a reliable, predictable flow of raw materials that meet their specifications in terms of quality and volume at reasonable cost. Farmers want access to assured markets, credit that is reasonably priced and adapted to their needs, and technical skills and innovations that will help them satisfy market requirements (Technoserve and IFAD, 2011).Nevertheless, to harvest the benefit of contracting and executing the agreement in the principal agent relationship, the institutional environment and institutional (or contractual) arrangements play a vital role to govern transactions between parties. Here the term “institutional environment” describes property rights, enforcement mechanisms, human behaviors, and power relations in an economy.

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Excerpt out of 33 pages

Details

Title
Agricultural Cooperatives versus Model Farmers in the Malt Barley Value Chain in Ethiopia
Author
Year
2021
Pages
33
Catalog Number
V1162483
ISBN (eBook)
9783346566317
ISBN (Book)
9783346566324
Language
English
Keywords
agricultural, cooperatives, model, farmers, malt, barley, value, chain, ethiopia
Quote paper
Tesfa Sisay (Author), 2021, Agricultural Cooperatives versus Model Farmers in the Malt Barley Value Chain in Ethiopia, Munich, GRIN Verlag, https://www.grin.com/document/1162483

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