Damot Cooperative Union in Amhara region: A CU planning to participate in WFP`s regular procurement

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1 World Food Programme Ethiopia Purchase for Progress Case Studies FARMERS ORGANIZATION: Farmers Cooperative Union Damot Cooperative Union in Amhara region: A CU planning to participate in WFP`s regular procurement Damot Multipurpose Farmers Cooperative Union at a Glance Location: Bure, West Gojjam, Amhara Region Established: 2000 Legal Status: Legal, with by-laws Affiliates: ECX member since 2008 Member PCs: 53 Farmer members: 75,500 (80% small-scale) Female members: 7,795 (10% of total) Employees: 33 (12 female) Leadership: Board (7 members, 1 female) Controlling Committee (5 members, 1 female) Membership fee: 600 ETB/PC (44 USD 1 ) (one-time payment) Membership share: Min 20 at 1,500 ETB (110 USD) each (max 10% of total shares) Shares sold: 2,000 Assets: 18 million ETB (1,318,898 USD), flour mill, 2 Damot CU s manager, Sefefe Mekonnen, in his office modern WH at 2000 Mt each, 2 traditional WH at 500Mt each, office building with furniture, 40Mt truck, 2 tractors, 2 freight cars at 5Mt each, 1 trailer, 3 motorcycles and 1 car P4P capacity rating: 2 High P4P as a bridge to regular procurement Damot Cooperative Union in Bure, Amhara, is a well-established cooperative union (CU), located in a productive area and seeking opportunities to increase its commodity aggregation. Purchase for Progress (P4P) considers Damot a high capacity CU, expected to graduate in two to three years from P4P to the World Food Programme s (WFP) regular procurement. P4P is providing a crucial link connecting Damot to a competitive market like WFP`s regular procurement. As demand for bulk purchases increases, the volume the CU is able to aggregate rises too; without P4P, Damot would not have a large enough market for quality products to undertake the upfront costs of purchasing and handling high quality commodities. Additionally, Damot s manager, Sefefe Mekonnen, credits P4P with introducing Damot to WFP s procurement process, assisting the CU to gain experience with packaging, cleaning, warehouse management, fumigation and competitive tendering. By first attempting this process under the guidance and support of P4P, Damot was able to gradually build its capacity. P4P, has lower aggregation requirements than WFP regular procurement, and operates with less of the urgent pressure of WFP s regular pace, quality, and quantity standards. Sefefe looks forward to working more with WFP. We clearly understand P4P s goals, objectives and requirements, says Sefefe. We are ready to deliver on-time because otherwise food insecure people will suffer more. Damot offers a wide array of services, including a profit dividend; marketing commodities; agricultural inputs like fertilizer, improved seeds and pesticides; bulk consumer commodities like sugar and salt; market information (Damot will look up prices on the internet from ECX, Addis Ababa, the Bureau of Agriculture and Rural Development, and Cooperative Offices and phone them to its PCs); agricultural tools and tractor rental; seed cleaning; and commodity transportation. The CU allows PCs to store their crops in CU warehouses for free when prices are low. With only 5000 Mt of storage, Damot s relatively skilful management allows the CU to rotate about 15,000 Mt of commodities each year. The CU has a plan to construct another warehouse with a capacity of 2,000Mt, next year. With enough storage we increase our bargaining power, explains Sefefe. Greater storage capacity will also enable them to aggregate in the higher quantities required by WFP regular procurement. 1 For this and all other currency conversions between Ethiopian Birr (ETB) and US Dollar (USD), rounded figures from: Coinmill.com. The Currency Converter. Accessed 3 August P4P Ethiopia s CU capacity rating is based on criteria including assets, services offered to member PCs and volumes aggregated. Currently, 3 low, 6 medium, 5 high level CUs are selected for P4P intervention.

2 Their services do not include post-harvest handling for member primary cooperatives (PCs), except for basic cleaning. Fumigation sheets in particular are hard to find, says Sefefe, who does not know where to buy them and hopes P4P can assist in their purchase. For now, P4P Ethiopia will provide this service free of charge. The CU also requests P4P support for quality control tools like moisture testing equipment, seed cleaning, and training about post-handling techniques and understanding markets. The CU wants to increase its human capital with management trainings. Finally, Damot CU s worst constraint is lack of credit. The Ethiopian government has put a hold on all loans this year, so while Damot requested million ETB (700,000 to 1.5 million USD) from several banks, they only received 1 million ETB (73,272 USD) from a microfinance institute. In the past, they ve received as much as 5 million ETB (366,360 USD) annually from Abyssinia Bank and the Commercial Bank of Ethiopia. Despite having no history of default, consistently paying on time, and maintaining good relations with their banks, the CU does not receive the full amount of credit it requests. Pricing and marketing Damot aggregates commodities from farmers (64% members) through PCs. In the last 9 months, Damot aggregated the following: 2,851 Mt maize, 1,248 Mt wheat, 645 Mt oilseed, 384 Mt Teff, 20 Mt pepper and 5 Mt beans While aggregating, Damot CU pays its PCs based on the going local price it assesses, plus a 5 ETB (0.37 USD) per 100 kg markup to compensate for its comparatively higher quality standards and to promote farmers. Our aim is not profit. Our aim is to give services and to give money back to farmers pockets, says Sefefe. For example, last year the CU distributed 70% of its 8 million ETB (586,177 USD) profits to its member PCs. The PCs member farmers received an average 500 ETB (37 USD) dividend. When selling commodities, Sefefe says that P4P pays the highest prices, but also has among the strictest quality requirements. Flourmills pay the next highest prices, followed by ECX and finally traders, even those who demand high quality. This year, prices fluctuated weekly, says Sefefe, because of the freeze on bank loans. When WFP or another buying agent is in the local area, prices rise, and then drop again when the buyer leaves; PCs experience the same rise when Damot is making its purchases, and farmers in turn only get higher prices when their PCs are buying. Both PCs and CUs remain in the market for shorter periods of time than low-paying traders because of limited financial availability. The CU will store its commodities in its warehouses when prices are too low, so it rarely sells at a loss. In 2009 though, Damot sold wheat at a loss because poor harvests and food Some of Damot CU s many assets: tractor, warehouse, trucks, and trailer shortages from the drought in 2008 had raised the price of commodities at purchase, but subsidized wheat imports at the time of sale dropped prices below the profit margin. Overall, the price of maize is now low. The price of 1 quintal maize (a local unit of measure; 1 qt = 100 kg) during the case study in 2010 was 215 ETB (16 USD); it was 700 ETB (51 USD) in 2008, a drought year, the highest price Sefefe has seen. The price of inputs continues to rise while commodity prices fall, says Sefefe. It is P4P s reliability, as well as its higher prices, that make it a good buyer. Having regular buyers like P4P or flourmills helps the CU plan ahead. Damot CU aggregated commodities before bidding on, and winning, a soft tender from P4P. Its only complaint in dealing with P4P was that the time allotted for fumigation, packaging and cleaning was too short. Purchase for Progress Procurement processes with Damot CU Commodity Tender Floated Tender Closing Contract Award of Contract Signature Delay in days for Evaluation White Maize 21-Jan-10 2-Feb-10 3-Mar Mar Damot s General Assembly: beyond agriculture Damot CU, like most farmers organizations in Ethiopia, has an annual general assembly (GA) meeting with its membership to make governing decisions for the cooperative. Six representatives from each of Damot s 53 PCs make up the body of the GA. The GA is led by a Board of Directors and Controlling Committee elected from its membership, with a maximum of two 3-year terms for any leader. Damot s GA quorum is high three quarters of its PCs must be represented for

3 the meeting to continue, while other CUs will accept as few as just over half of their membership represented. Participation in the Damot GA is mandatory. If a PC misses more than two GA meetings, it can no longer be affiliated with Damot CU. To ensure participation, the CU pays for PC members transportation costs. The CU covers nine districts and the furthest distance is 85 km. Damot uses a laptop computer attached to a large display and speakers at their meeting, making it more high tech than most other GAs and also more accessible to the large audience, 318 people last year. They use the meeting, announced by letter, to discuss issues and business for the CU. Topics include the PC/CU relationship, commodity quality, marketing problems and input supply. But Damot also uses the meeting to raise awareness about a number of other issues relevant to farmers lives, including HIV/AIDS, children s rights, women s leadership, gender equity and women s workload. The official meeting helps institutionalize needs specific to women and children, centering them as an integral part of the organization as a whole. Finally, by opening the GA meeting up to discussions beyond agriculture, Damot CU understands that the constraints faced by smallholder farmers go beyond inputs and prices. Damot demonstrates a commitment to holistic development in its region. Despite efforts, women s participation lags Aside from addressing women s issues in the main body of the general assembly, Damot CU has taken measures to increase gender equity within its organization. On the weekend of 17 July 2010, Damot held a special election to appoint two women to its leadership, one to the Board and another to the Controlling Committee. There are plans to replace two of the four department heads with women, bringing women into management positions. Sefefe, Damot s manager, says that trainings from the Woreda Women s Affairs, Federal Cooperative Agency (FCA) and Woreda Cooperative Offices convinced the previously all-male leadership to open themselves to women s participation. Sefefe s personal experience is that women employees are more honest and committed than men. He gave the example of their cashier, a woman who deals with 500 million ETB (36,636,080 USD) per year, who has never stolen from the CU. However, women s participation overall is low. Women make up just 10% of the total farmer membership. At the general assembly meetings, few women are present (as few as 25 out of 318). This is because so few PCs have women in the leadership; some have as many as two women but most have none. At the meetings, we give [women] a chance, say this is the time for women, says Safefe, but some sit back silent. Damot s experiences illustrate the difficulties in empowering women farmers in Ethiopia. Damot CU is a high capacity organization taking some measures to specifically encourage women s participation. Yet a gap in grassroots PC participation means most of the CU s efforts do not reach women smallholder farmers. Sefefe says cultural influences keep women in the house and not out in meetings or leadership. He also notes, however, that in the many savings and credit cooperatives in the Bure area, the majority of members are women. Inputs and marketing are men s work, says Sefefe, so the services offered by multipurpose farmers cooperatives may appeal more to men than women. These gendered expectations of the division of labor discourage women from benefiting from the CU s dividends and services. Record keeping: PCs need support Sefefe assures P4P that Damot CU has access to PC records and registrars, and can meet P4P beneficiary counting requirements which is very important to know the number of smallholder farmers benefiting from the program. He says the CU has no need of training or supplies to provide this data. Upon investigation, however, not all of Damot s members PCs have the capacity to provide the necessary data to Damot. Shende PC, for example, keeps its accounts by hand, limited to the farmers name, volume and price of each purchase. Shende purchases from members and non-members alike, and does not differentiate between membership in their records. To distribute dividends, which are based on amount sold to the PC, Shende staff must tediously cross-check members names with their amount of commodities sold, most often in frequent, small amounts and therefore recorded in several entries over multiple pages in the log. The Shende PC management says it will need training to systematize its bookkeeping and maybe a computer (also with training) to meet P4P s recording needs. Findings 1. Aggregated stock as collateral. Damot CU was able to receive credit by using its commodity stock as collateral. 2. Centering gender at the general assembly. Damot CU uses its General Assembly meeting to raise issues like gender equity, women s workload, HIV, and children s needs to its membership 3. Special elections and employment quotas. Damot CU held a special election to add two women to its management committee and also plans to replace half of its department heads with women.

4 4. Quality products bring higher prices, provided there is a buyer. WFP, flourmills and other buyers will pay higher prices for good quality commodities, but the market is limited, especially for buyers with standards as high as WFP. CUs benefit from P4P s quality control support by gaining access to these markets. 5. Buyers presence in a local market impacts prices. When buyers of relatively high quality commodities like P4P, CUs and PCs are making purchases, the average local market prices rises (as these buyers on average pay more per metric ton than traders). The price falls when these buyers leave the market. 6. Even when CUs have recordkeeping capacity, PC capacity limits P4P beneficiary counting. Though Damot CU has the technical skills and computer equipment needed to manage detailed records, its member PCs are unable to provide the basic data required by P4P and its donors. Record keeping support must target the PC-level Conclusion The participation of Damot CU in P4P procurement is a bridge, enabling the farmers organization to develop the capacity to compete for a competitive market like WFP`s regular procurement programmes. The quality of commodities impacts the final price; awareness of price difference based on quality should deepen at the farmers level. The participation of women in leadership must be advocated at all levels, especially PCs to raise the present level of women s participation. CU constraints need to be discussed among supply side actors and solved accordingly. Finally, recording keeping both at PC level needs to be strengthened. Interviews Cited Damot Multipurpose Farmers Cooperative Union Mr. Sefefe Mekonnen, manager (male, 28 years old) : 12 July 2010 Location: Bure, West Gojjam Zone Amhara Region, Ethiopia Interview language: Amharic and English Interviewed by: Yibeltal Fentie, P4P Ethiopia Shende Primary Cooperative Mr. Yehun Atenafu, manager (male, 38 years old) Mr. Getinet Yigzaw, accountant (male, 32 years old) : 13 July 2010 Location: Wonberma Woreda, West Gojjam Zone Amhara Region, Ethiopia Interview language: Amharic Interviewed by: Yibeltal Fentie, P4P Ethiopia

5 Appendix: Summary of key issues and indicators to be tracked over time and followed up Key issues/indicators Structure Women s participation Services Volume of commodities aggregated Warehouse capacity Major commodities being traded Pricing and payment Source of market information Contracts Major sellers Collecting commodities from sellers Length of season in market Major buyers during the study and preferred market channel Major market places Getting commodities to market Selling at loss Supply side actors Volume of credit received Fulfillment of WFP`s requirements Tendencies to graduation (ST to WFP`s RP, non-wfp tenders, part in ECX, WH mgt) Recording keeping No. of PCs and farmers supplying to P4P Major challenges and achievements Description of current status General Assembly Board and Controlling Committee Manager Staff 12 employees out of 33 (1 in leadership out of 4 departments); 2 out of 10 in Board and Controlling Committee; 10% of membership marketing commodities; inputs (fertilizer, improved seeds, pesticides); consumer commodities; market information; tools; seed cleaning; transport; tractor rental; office tools; plans include trashing and combining machines 2010 so far: about 5,154 Mt; 2009: about 4,671 Mt 5,000Mt and planned to construct warehouse with a capacity of 2,000Mt Maize, wheat, teff, oilseed, peppers, beans market info, pays up to 5 ETB (0.37$)/qt higher price to PCs, pays immedly to PCs, receives from P4P upon delivery, receives immediately from other buyers internet, ECX, Addis Ababa, BOARD, Cooperative Offices Collect from PC without contract but sells to buyers based on contracts Farmers though PCs (64% member farmers) Damot CU provides transport from PCs to CU warehouse CUs remain in the market for shorter periods of time than low-paying traders 50% flourmills; 10% P4P; 35% consumers in arid North; 5% wholesaler in Addis and other markets. WFP is the preferred channel at this time Addis Ababa, Mekele, Wollo Buyers collect from Damot CU s warehouse In 2009 due to low price of wheat None 1 MIlo ETB (73,272 $) in 2010, 5 million ETB (366,360 USD) per year previously Contracts/quality fulfilled, commodities delivered as per agreement, no default Currently participating in ST, partly participating in ECX, relatively good Warehouse management Limited attempt, P4P requirement not yet implemented 10 out of 53 PCs supplied 1,000Mt to P4P; No record for farmers Capital, quality control, storage (r/ship with members, well-established office)