EXPLORING OPPORTUNITIES FOR INVESTING IN PARTNERSHIPS WITH FARMER ORGANISATIONS: Demystifying smallholder cooperatives performance - Part 2

By George Z Goliati and Opher Mwale

Kasungu: A warehouse that remained unused due to cooperatives failure

Previously, we looked at Malawi's momentum in farmer organisations (FOs) development. We learnt that a number of smallholder farmer cooperatives have been developed as one of major strategies in commercialisation of smallholder agriculture. However, the question remains on whether these farmer groups are meeting their purpose or not. 

According to a study conducted by Mapila et al. (2010), farmer organization development in Malawi has been retarded and has failed to meet the needs of its most disadvantaged members. Only 8% of the agricultural cooperatives surveyed in 2007 were considered to be sustainable, 78% had an average sustainability score and 14% were considered to be unsustainable. A 2016 study on cooperative societies indicated that 80% of agricultural cooperatives in Malawi have average monthly turnover of US$1,167 or less with the majority of them (48%) having average monthly turnover of less than US$200, only 5% of agricultural cooperatives have average turnover of over US$5,833 per month (GoM, 2016). The findings of the study (GoM, 2016) further showed that no agricultural cooperative societies had retained their surplus based on the 25% of profit principle, clearly reflecting the poor turnover and poor performance of the cooperatives in the country. The study also revealed that 59% of the total financing of the agricultural cooperative societies in Malawi was from grants and donations, 31% from shares of the cooperative members, and 10% from loans. These findings indicate that less than one-third of the agricultural cooperative societies in Malawi depend on membership shares, which is a threat to their sustainability and an indication of poor performance (Maganga, 2017). 

In spite of several investments to improve capacity of farmer organisations, a number of problems still remain unaddressed. A 2020 Rural Livelihoods Economic Enhancement Programme (RLEEP) project performance report revealed that despite some farmer groups formed through the project had grown into cooperatives and strengthened market linkages, most of them were still weak in terms of capacity and insufficiently linked to markets. 

Maganga (2017) cited that some researchers have observed that although farmer cooperatives are highly recommended mechanisms to reduce poverty and hunger in Africa to enable the poor to participate in productive and income generating activities (Getnet, 2010), they have not been successful. In Malawi, lack of business management capacity is a common characteristic of the country’s agricultural cooperatives (Maganga 2017). 

Nkhoma (2011) identified four groups of factors which she concluded contributed to the failure of agricultural cooperatives in Malawi. These included their failure to provide marketing services to their members, failure to successfully manage their businesses, failure to provide incentives for starting a cooperative, and failure to preserve their assets and capital. Lwanda et al. (2013) indicated that the performance of the selected smallholder agriculture cooperatives was influenced by organisational and management problems. Organisational problems gave rise to low levels of equity and debt capital, reliance on government funding, low levels of investment, and subsequent loss of members. Management problems were strongly linked to low levels of education, lack of production and management skills training and weak marketing arrangements. 

Maganga noted that smallholder agricultural cooperatives are quite complex. Their structures are different from those of large cooperatives which resemble corporate structures. According to Maganga (2017) citing Rowland (2007), for a complex organisation, one cannot accurately foresee outcomes and therefore cannot directly control their accomplishments. The cooperatives are characterized by the following nature: (i) they are created as joint businesses owned by poor farmers most of whom are illiterate, (ii) the members establish cooperatives primarily as markets for their produce and they expect the cooperatives to buy the produce at higher than average prices, (iii) in some cooperatives, the members also expect the cooperatives to supply them with goods such as farm inputs at affordable prices, (iv) in other cooperatives, the members also expect the cooperatives to facilitate the provision of services such as loans and donations of various goods by other entities, (v) the enterprises that they create have such limited income generating capacity that they cannot afford to employ a manager to run the cooperative and (vi) the members have little or no business management skills. Despite this, they are compelled to run the cooperative.

Maganga (2017) further notes that a cooperative is an enterprise which is owned and controlled by its users and is established for the purpose of distributing benefits to them based on how much business they are doing with the enterprise. An agricultural cooperative is a cooperative with special characteristics in which the users are farmers only. Since cooperatives are formed to meet needs, their objectives are different from those of investor oriented firms (IOFs) which are primarily established for the sake of generating a return on investments for their owners. In Malawi, accessing government and donor grants is also used often as an incentive for establishing an agricultural cooperative (Maganga, 2017). Zulu (2007) as cited by Chibanda et al. (2009) supported this observation stating that some smallholders establish cooperatives to access government grants rather than to develop a business.

According to the above findings, it may explain why smallholder farmers are still facing challenges with access to markets despite forming farmer organisations. It shows that farmer organisations are challenged with management capacity, which is related to their literacy levels, in order to meet their purpose. This means that the cooperatives, as majority of FOs, may not be able to utilise the grants to grow their capital base and eventually sustain their businesses on their own. In other words, government and donor investments may not produce the desired outcomes if the factors determining capacity of farmer organisations are not checked.  Therefore, we found that it may be worth to invest in partnerships with FOs for strengthening of their management capacity to ensure effective government and donor investments. However, determining whether such investments, in partnerships with FOs, will be successful or not is paramount.