Perpetuating Cooperatives – Deceptive/Dishonest? Reporting

Many pages and linked subpages in this web site are devoted to taking a closer look at the overall effectiveness of the cooperative system for funneling assistance to the smallholder producers. The basic concern is that the cooperative business model, while it may be social ideal and thus politically correct, is just administratively too cumbersome to effectively financially compete with private traders in the overall suppressed economy encountered in most developing countries that already substantially suppresses profit margins. The cooperatives model of consigned sales may also be highly inconvenient in a society that emphasis clean cash transactions, and incompatible with the basic financial management strategy that emphasis retaining assets in kind as long as possible and only monetizing them, as needed, to meet immediate cash requirements, a fairly well conceived strategy for an impoverished society with limited banking facilities, and need to reduce temptation of cash in the “cookie jar”. The question comes if this is the case, why does the cooperative model persist in the development effort.

Vilifying Private Traders – Slander!!

The use of the cooperative model was initiated in response to concerns that private traders were exploiting the smallholders by selling inputs at inflated prices and buy produce at suppressed prices. This is done through blanket vilification statements that are never really investigated to determine what costs the private traders were encountering, what their market volume is, and if their buying and selling prices were reasonable, particularly for remote off-tarmac areas where transportation costs could transparently triple compared to highway travel. This could also verify if the proposed cooperative business will actually have a sustainable competitive advantage over the competition once and external support and subsidies end.

Most likely the vilification originated with host country officials trying to promote public sector support services with a potential vested interested in them for personal financial benefits as appears to be occurring in AfDB funded irrigation project in Madibira, Tanzania, and the accompanying anonymous messages representing another country and donor. Such vilification, if not substantiated, could constitute slander and exposure those legally responsible for such statements to slander litigation by an easily organized association of private traders. While there may be some legal protection against prosecution for illegal action of official donor personnel working in host countries, this may not extend to contractors or civil litigation, and thus should not be taken as a license to wantonly slander innocent people. It is also possible that slander litigation could be pursued in the donor’s capital, particularly if any of the documents containing slanderous comments originated in the donor’s capital instead of the host country. Such cases could be sufficient clear cut to be settled well short of an actual courtroom. It would be prudent for those interested in basing a development project on the vilification of private traders to spend some time confirming their proclamations or at least requiring any implementing contractors to do so at the beginning of the project. This really should not take more than week or two and assure the project has something viable to offer the beneficiaries. Also, it might be worth considering that once the slander charges are litigated and lost those deemed libeled would now be exposed to additional class action litigation by the donor tax payers for misuse of public funds for basing projects of false premises.

Program Entrapment  

It would be difficult to image that a large number of those involved in working with development cooperatives, particularly those contracted to implement projects and in direct contract with the beneficiaries are not well aware of the limited effectiveness of the cooperative model, and both willing and capable of looking at alternatives, if required or given the opportunity to do so. They have to be well aware that the projects are attracting only a minority of the Potential Beneficiaries, and often even those participating are diverting the bulk of their business elsewhere. Most likely only consigning to the cooperative enough produce to cover their loan obligations and astutely side selling the remainder to avoid additional consigned goods being confiscated to pay a neighbors debt. They also have to be equally aware of the extensive facilitation effort needed to sustain the cooperatives even while benefiting from external facilitation and financial support, the limited attendance at cooperative meeting as well as the degree to which the facilitating NGO dominates the participatory process to leverage decisions, and turnover of “elected” leaders. Perhaps the reason a business model comparison between private trader and donor promoted cooperative is not readily done is tied to the Overall Development Process which emphasizes the donor conceptualization of what ideally should be done, specifying in detail what is to be done, with only limited if any direct involvement of the beneficiaries, and with limited opportunity for innovations. This is then reinforced by the implementing contractor “spin” reporting as the best way to assure project extensions and success in bidding for future projects. This also represents a vested interest in extending the facilitation process as long as possible for the job security it represents.

Deceptive (Spin) Reporting

Ultimately, this results in some deceptive, bordering on dishonest reporting in progress reports and periodicals of the effectiveness and contributions the project has on the beneficiaries. As such it represents a far greater commitment to the mechanism by which smallholders are to be assisted, then to improving the economic well-being of the intended beneficiaries, who are reduced to being mere pawns in the continuation of the “Great Game”.

Disregarding Overhead Costs: The most common means of deceptive reporting is to disregard the overhead costs of operating a cooperative that, for the cooperative to be sustained beyond external donor funding and facilitation, has to be charged back to the members. Can any business operate without incurring operating costs that must be taken from the mark-up and profit margins? Frequently, in development projects the operating costs are co-mingled with the facilitation costs needed to initiate the project. These may need to be disaggregate as much as possible and reported separately. On occasion cooperative operating costs are conveyed as being distributed to the farmers as a financial benefit. Something they would never realize unless artificially subsidized by the donor funded facilitation effort, and prevents the project initiated cooperative from continuing without external funding and facilitation. Such reporting practices take what is basically a deceptive report and makes it a dishonest report.

Description: example would be the bag of fair trade coffee shown in the figure. Here the pound of fair trade coffee indicates the growers receive $1.55 of the $8.95 retail price for roasted beans. According to most English semantics, the term grower implies the farmers who actually grew the coffee trees, and not an intermediary representing the farmers such as the cooperative they are mandated to be members. However, this is fair trade and mandated to go through a cooperative. Thus most likely this $1.55 is what was paid to the growers’ cooperative for green bean upon delivery to the exporter’s warehouse, most likely at the nearest seaport or major city. What else could it be? To determine what the growers actually received it would be necessary to back up the transportation cost between the point where the coffee was purchased to the growers’ cooperative in the village, and including any off-tarmac transport that can cost substantially and transparently more than on paved highway. In addition any processing cost undertaken by the cooperative instead of the farmers in getting from the harvested cherries to parchment coffee and finally to marketable green bean coffee. Other costs would be the overhead costs for operating the cooperative that would include employees’ salaries and fringe benefits, if any, storage losses including pilferage, capital depreciation of any equipment, utilities, etc. Finally, since it is fair trade there will be a social tax designed to assist with community improvements. The bottom line might be that the growers will be very fortunate if they received $1.00 of the $1.55 claimed to be their portion. This of course with the usual consignment delays etc. associated with the cooperative business model. With all this how much easier would it be to just to side sell the coffee to a private trader for immediate cash and be done with it?

While the illustration above may be a more obvious indication of the deceptive bordering on dishonest reporting, it is almost universal in development reports to overlook the cooperative operational overhead costs. This was done in the case of the World Bank financed Farmapine Cooperative in Ghana that was trying to extend the value chain of pineapples for export to Europe. The article goes to extensive effort to demonstrate a financial benefit for the members, but also acknowledges considerable side-selling for a better price but using the proxy statement concerning farmers not honoring their contracts. The result was that one year after the article was published the cooperative collapsed under a mountain of debt. In reality the cooperative only represented about five percent of the smallholder pineapple producers and given the extent of side selling a considerable smaller market share. Thus, the project was virtually a non-entity in the pineapple industry of Ghana.

Use of Aggregate Data: Another way of spinning the reporting to give a more favorable impression and hid the reality is to concentrate of aggregate data. This was done in another fair trade report, but from Ethiopia. It contains the following passage:

The Oromia Coffee Farmers’ Cooperative Union, launched in June 1999, requested and received permission from the government to become a direct exporter of its members coffee bypassing the central auction and giving more control and market share to the producer. With ACDI/VOCA assistance, the union – representing 21,891 coffee growers – last year exported 181 tons of coffee directly to specialty buyers in Europe and the US.

While as written it sound impressive, but by doing some simple arithmetic of dividing the number of members (21,891) by the market volume (181 tons) will indicate only 8.3 kg/member. That is really a trivial amount. Furthermore, the actual benefit to the farmer is at most the price difference between the Fair Trade preferential price and the open market price. What would that be? Perhaps it would be at most US$ 0.50 per kg or a total benefit of only US$4.00. In addition if the average smallholder production is 450 kg/ha and they manage only 0.5 ha of coffee, the expected production per farmer would be 225 kg, for which the 8.3 kg/member would represent only 4% of the typical farmers production and represent an area of only 200 m2 and perhaps only 60 plants. What happened to the rest? Was it side sold to the vilified private traders who actually provide the farmers a better financial deal than the cumbersome cooperative. Thus, the question is then how many of the 21,891 members are really active vs. just allowing their name kept on the books. The final question is how someone can have the audacity to publish as a success a program that accounts for only 4% of the produce and provides an annual benefit of only US$4.00. It appears the overall article is more interested in seeing how many members can be recruited then how well they are served.

Continuous Facilitation

The ultimate result is that cooperatives originating as part of development projects require continuous extensive facilitation and financial subsidies by donors and advisors just to remain open. An example would be another periodical report praising the coffee Fair Trade program in Haiti that required five NGO to continuously facilitate the program. Even then, perhaps somewhat better than the case in Ethiopia, some simple computation would show that the average member of the cooperative marketed less than a standard 60 kg bag of green coffee through the Fair Trade program. This was estimate to represent only 100 coffee trees and 1/20th of a hectare of land. Even by smallholder standards this does not appear realistic, and either most of the members have become inactive or the majority of the coffee is being side sold.

Finally, virtually all cooperatives initiated as part of a development project collapse almost immediately when the donor assistance ends, as happened to the Farmapine Cooperative mention above in Ghana. That seems to be a common result for the development cooperatives including the one pictured at the top of the page. This was a cooperative develop as part of a FAO sponsored women’s income generation project for processing cassava to garri, the dried less perishable form of cassava consumed extensively in West Africa. The cooperative is now locked with all the equipment inside. It does not appear to have processed any cassava for months. It took more than 30 minutes just to find the person with the key to unlock it for the consultant's visit. Meanwhile, 100 m away a small private family enterprise is processing cassava into garri at full capacity. The proprietress could easily have been a member of the defunct cooperative. Is also interesting to note the photo at the top of the page and accompanying one of the apparently successful family enterprise along with all the commentary that the farmers may be more interested in out-sourcing the value added then having it be done by a cooperative were expunged from the Submitted Version of the consulting report. This allow the final version to be more politically correct, assure the continuation of the current approach, but what does it do for the plight of the smallholder producers, and their interest in out-sourcing this value added component of the value chain?

Class Action Exposure

The degree to which this deceptive, bordering on dishonest, reporting is pervasive throughout the agriculture development effort for smallholder producers so that it involves virtually all projects, all donors, and all countries, as noted in all the cases mention represent different donors and different counties, has to result in substantial exposure to class action litigation from the funding tax payers, against the contractors who write the reports as well as the donor’s project and contractor officers that accept the reports and even encourage the deceptive reporting. Why should tax payers continue to pay for projects requiring mechanism with a clear history of very limited sustainability? Of those legally responsible it has to be recognized that the contractors are mostly trying to appease the donors, who designed the projects without taking in consideration some of the subtles that occur in smallholder communities, did not provide for alternative innovations, but instead insisted on the cooperative model being utilized. Thus, the greatest liability is with the donor’s project and contract officers supervising the projects, as well as the monitoring and evaluation officers who set the criteria for which contractors will be evaluated. As civil servants they are mandated to be good stewards of the tax dollars entrusted to them, and thus it is their mandated task to objectively see through the promotional or deceptive reporting to the underlying effectiveness, and make certain the socially desirable and political corrects innovations are also effective and appreciated by the beneficiaries when imposed on the totally different economic environment of the host country compared to the donor country. This includes developing the monitoring and evaluation criteria that will assure an objective appraisal of how sustainable a development project will be beyond the donor facilitation effort, and avoids those that make good publicity “bean counting” that usually can only be guessed at. The post donor support sustainability is normally clearly stated as the expected result in the RFPs from which projects are development.

However, a contractor monitoring and evaluation consultant, when provided the criteria for evaluating cooperative effectiveness in a critical agriculture development project, initially endorsed then dismissed the criteria as too embarrassing. The six criteria put forth are basic business parameter that anyone providing a business service normally would automatically consider before beginning a business and continually review while providing a business service to assure the business remains competitive with the competition. Each parameter should also have targets such percent active participation, market share, competitive advantage, etc. As it is, it is possible to easily list 14 areas were the cumbersome cooperative business model can loss the envisioned competitive advantage to competing private traders. The avoiding of such criteria that would separate a sustainable innovation from a temporary contribution, which is basically a publicity stunt of the donor’s good intentions, could be so blatant that it could override the normal due diligence and good faith exemption from liability project, contract, and monitoring & evaluation officers enjoy. Such officers either, despite undergraduate and graduate degrees from some of the top schools, are simply not intelligent enough and need to be summarily dismissed or the persistence of deceptive reports represents virtually no concern or commitment for the plight of the smallholder beneficiaries as proclaimed by the rhetoric. Instead the commitment is virtually 100% to imposing a donor country socially desirable, political correct mechanism on the beneficiaries at all costs, regardless if they don’t fully appreciate it, it does not take their needs into consideration, they are actively shying away from full participation, and which may actually have limited acceptance in the donors home country. How much of the current interest in Value Added is actually modeled after the Farmland Bankruptcy Debacle? In the case of development cooperatives the model imposed on the smallholder producers could be substantially modified from the cooperative model in the donor’s country, particularly the use of credit clubs, to become such a horrendous business model that the donor personal promoting it would not voluntarily participate, that is unless they are volunteering to help payoff their neighbors mortgages to avoid foreclosures.

Perhaps individuals, insisting on these reporting procedures, should be talking with their personal attorneys to see just how much class action exposure they may have. It is highly unlikely donors will publicly acknowledge they have a policy of promoting deceptive/dishonest reporting, and if confronted will hold the individual project, contract and monitoring & evaluation officers fully responsible. Wasn't this the case with the torture scandal in the prison in Iraq? Would any of those enlisted personnel, who were convicted and sent to prison, really be acting without clear direct, perhaps mostly oral, orders from senior officer or contracted civilians?

It is also very possible, if the seconded host government officials helping implement a development project, that is clearly identified with a specific donor with implied endorsement of the seconded staff conduct, are quietly involved in some informal income opportunities, such as demanding share capital payments or de facto selling land to people outside the beneficiary villages as was the case in Madibira or other similar actsthe project could inadvertently do more to inspire serious anti-western terrorism against the donor country, then enhance the national security for the donor. Such activities are often accepted by many long term permanent expatriates as typical of host country governances. This is all conditional that there is not something more sinister taking place and the donor’s underlying objective is more to undermine the host country’s economy as put forth in John Perkins “Confessions of an Economic Hit Man”, than sincerely provide poverty alleviation for the smallholder beneficiaries, and the smallholders are nothing more than pawns in the continuation of the “Great Game” so well described over a century ago in Rudyard Kipling's“Kim”, and concerning some of the same lands currently being heavily contested.

Wouldn't it be simpler to quietly collect enough of the “embarrassing data” which represents basic business analysis to clearly indicate the cooperative model is not working nearly as effectively as desired, and remove in from current and future projects? The development effort can then move forward toward developing more effective assistance programs, and avoid any unpleasant legal entanglements. This may require working with the national legislature, if necessary. The donor’s tax payers deserve a better return on their development investment and the smallholder producers and their communities deserve more effective assistance that accurately addresses their needs and understands how they undertake their business.

The concern for the misrepresentation, lack of including basic business parameters that would separate projects that are fully appreciated by the beneficiaries from those that are more publicity stunts, and spin reporting has resulted in an inquiry to the USAID Office of Inspector General with the assistance of the good offices of Senator Mark Udall of Colorado. The inquiry has been assigned case number 12-0189 and produced a formal reply from the Assistant Administrator for Audit. The reply acknowledged that the information was important but not available and indicated intention in the future to collect the business parameters data. How much the reply was simple an administrative ploy to put off an inquiry and how much a serious effort for future project efficiency remains to be seen. Anyone who has seen any effort to include the business parameters I would appreciate hearing from them or anyone wishing to follow up on the are welcome to do so.

If anyone has an alternative to litigation to bring forth the necessary changes in these programs please contact the web site organizer.

Last Revised: 24 Feb. 2010..

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