Measuring the Performances of Coffee Cooperative Societies InYirgacheffe
Woreda, Gedeo Zone, SNNPRS, Ethiopia
Muhabie Mekonnen
Lecturer, Department of Cooperatives
Mizan Tepi University, Mizan Teferi, Ethiopia
E-mail: muhabiemekonnen@yahoo.com
ABSTRACT
In coffee industry, cooperatives are meant to play an innermost role in efforts to develop the
sector. However, developing countries cooperatives are not much more to play the sectors
development as expected. Hence, this study is aimed at assessing the performance level of coffee
cooperatives in Yirgacheffe woreda of Ethiopia. The result of the analysis shows that coffee
cooperatives in the study area are moving forward in strengthening their capital and in turn
serving their members even though different obstacles challenge them.
Key Words: Cooperatives, Coffee, Performance, Yirgacheffe
1. Background of the study
The co-operative movement brings together over 1 billion people around the world. The United
Nations estimated in 1994 that the livelihood of nearly 3 billion people, or half of the world's
population, was made secure by co-operative enterprise. These enterprises continue to play
significant economic and social roles in their communities (Edward, (nd) available at
www.mtti.go.ug). Today, in an era when many people feel powerless to change their lives,
cooperatives represent a strong, vibrant, and viable economic alternative. Regardless of the type,
size, geographical location, or purpose, coffee cooperatives in Ethiopia provide a unique tool for
achieving one or more economic goals in an increasingly competitive global economy. These
goals include achieving economy of size, improving bargaining power when dealing with other
businesses, purchasing in bulk to achieve lower prices, obtaining products or services otherwise
unavailable, obtaining market access or broadening market opportunities, improving product or
service quality, securing credit from financial institutions and increasing income. However,
available literatures did not show exactly where the performance of coffee cooperatives in the
1
country. Hence, this research was made with a purpose to depict the performance of coffee
cooperatives in Yirgacheffe woreda, SNNPRS, Ethiopia.
2. Statement of the Problem
Cooperative activities play an effective role in supporting coffee farmers by supplying the price
information, capital, and transportation that small-scale farmers often lack. However, many
people do not know much about cooperative, its mechanisms and role in economic development,
and how it is considered in the world as a Third Sector of the Economy, an alternative and
countervailing power to both private business and public sector undertakings. Cooperatives can
help to overcome some of the barriers to poor people’s access to markets by generating
economies of scale; opening up access to information through better market networks; pooling
resources and improving individual bargaining power through collective action. Nevertheless,
cooperatives face challenges in the form of over-control and regulation by government; limited
access to credit; inability to scale up their activities; and inability to penetrate markets
(http://www.gsdrc.org/docs/open/HD565.pdf).
In addition, a cooperative as a representative of coffee farmers can be a stronger negotiator than
an individual farmer in the international market (Kodama, 2007). But some members of
cooperatives have an experience of selling their produce to other marketing channels. This might
be caused by the dissatisfaction of members with services rendered to them by their
cooperatives. Coffee cooperatives are effective at providing marketing services to their members:
the positive and significant impact of membership on price reveals that cooperatives do serve
their expected purpose on commercialization through better market opportunities, higher
bargaining power or reduced transaction costs (Bernard et al., 2007). The actual volume of
purchase, however, is limited due to financial constraints.
3. Study Objective
The objective of the study is to measure the performance of coffee cooperatives in the study area.
4. Scope and Limitations of the Study
It would have been ideal to conduct the research throughout all coffee growing regions of
Yirgacheffe. However, due to time and funding constraints, the study has been confined to five
coffee cooperative societies of Yirgacheffe woreda, Gedeo Zone, Southern Ethiopia. These CCSs
2
were selected for the large amount of coffee grown in the areas and location conveniences to the
researcher. The scope of the study is also delimited to analyze only the performance of already
selected CCSs in the study area.
5. Methodology and Sampling
For conducting the study secondary data were collected from societal and woreda promotion
Office documents. The collected data were again summarized and inferred using statistical
methods of analysis such as;
ratios, percentages, frequencies, means and standard deviations.
The financial performance of the cooperatives was assessed using current, debt to equity,
accounts payable to sales and profitability ratios based on cooperatives audited financial
statements. In addition, simple descriptive approaches were extended to measure operational
performances of the societies other than financial aspects.
As to selection of study units, among seven coffee cooperative societies (Aramo, Edido, Haru,
Koke, Dumerso, Hafursa and Konga), found in the Woreda, only five societies i.e. Konga,
Hafursa, Koke, Dumerso and Haru have been selected for the study purpose by taking into
account the time and financial shortages and the remoteness of the unselected Coffee
Cooperative Societies.
6. Results and Discussions
The performance assessment of the cooperatives was defined and characterized both
quantitatively and qualitatively to measure the societies progress towards achieving
predetermined goals by identifying key indicators of organizational performances. As described
by Karl (2001), Kaplan and Norton's balanced score card approach operates from the perspective
that more than financial data is needed to measure performance and that nonfinancial data should
be included to adequately assess performance. They suggest that any performance measurement
framework should allow managers to ask the following questions: How do we look to our
shareholders? (Financial perspective), what must we excel at? (Internal business perspective),
How do our customers see us? (Customer perspective) and How can we continue to improve and
create value? (Innovation and learning perspective). However, the balanced scorecard is flawed,
as it does not allow for one of the most important questions of all: What are our competitors
3
doing? (The competitor perspective). Therefore here, sample cooperatives performance will be
analyzed from the above five perspectives.
6.1. Financial Performance
Financial performances of the societies were assessed using financial ratio analysis methods
which enable the cooperatives internally to evaluate issues such as the efficiency of operations,
employee performance and credit policies and externally to evaluate potential investments and
the credit worthiness of borrowers, among other things. The result of financial statement ratio
analysis was presented below.
Table1. Financial Ratios for Coffee Cooperative Societies
Name of
Cooperatives
DER =
CR=
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑦
NPM =
APSR =
Total debt
Total shareholders′ equity
Accounts Payables
[
Net Sales
]x 100 [
Net Income
Net Sales
]x 100
CR2009
CR2010 DER2009
DER2010
APSR2009 APSR2010 NPM2009
NPM2010
Konga
2.86
3.53
1.89
1.87
86%
79%
34%
37%
Hafursa
1.74
2.01
1.96
1.98
91%
87%
28%
25.6%
Koke
1.37
1.19
1.93
1.89
89%
85%
22.7%
23.4%
Dumerso
1.26
1.40
1.97
1.94
98%
98%
18%
21%
Haru
0.83
1.16
1.99
1.95
96%
93%
16.3%
19%
Average
1.61
1.86
1.95
1.93
92%
88.4%
23.8%
25.2%
Source: Yirgacheffe Marketing and Cooperative Office, 2011
6.1.1. Liquidity Ratios
The ability of cooperatives to meet both its short term and long-term obligations has been
measured using Current Ratio. Generally, the larger the current ratio, the better will be the ability
of the cooperative to satisfy its obligations. Is there a magic number that defines good or bad?
Not really. However, the satisfactory rate of current ratio that is accepted by most financial
institutions as a requirement for granting loan is 2.00. Accordingly, the table above shows that
the average current ratios of societies were below the minimum requirement (2.00) though there
4
was a progress from 2009 to 2010 with respective mean ratios of 1.61 and 1.86. Except Konga
(in 2009 & 10) and Hafursa (in 2010), the rest societies were performing below the industry
standard. More specifically, to meet br1.00 of their current liabilities; Konga, Hafursa, Koke,
Dumerso and Haru cooperatives had br 2.86, 1.74, 1.37, 1.26 and 0.83of current assets in 2009
and br 3.53, 2.01, 1.19, 1.40 and 1.16 in 2010 respectively.
6.1.2. Financial Leverage Management Ratio
Using Debt to Equity ratio, the sample cooperatives proportion of assets as funded by debt and
then shareholders equity has been analyzed in this topic. As a ground rule, the higher the result,
meaning the higher leverage, can lead to increase growth in earnings when compared to not
leveraging. On average, sample cooperatives had br 1.95 and 1.93 of Debt and only br1.00 in
Equity to meet their obligations in 2009 and 2010 respectively. In financing debts, Konga
followed by Koke were better since their debt to equity proportions were less than others,
meaning they were performing well in their capital accumulations having DER values of (1.89
and 1.87) and (1.93 and 1.89) in 2009 and 2010 respectively. In a nutshell, this ratio revealed
that majority of the finances of all CCSs in the study area comes from creditors than their own
accounts. Yearly improvement was kept between 2009 and 10.
6.1.3. Efficiency Ratio
To measure how well the cooperatives are employing their resources Accounts Payables to Sales
Ratios has been selected among many efficiency ratios. According to table 1 above the average
result of APSR depicts that 92% (in 2009) and 88.4% (in 2010) of cooperatives sales were being
funded by their suppliers. This implies that at times of coffee transaction (purchases and sales)
cooperatives face a severe shortage of its own finance to pay member suppliers and the working
capital of them could be funded by their suppliers. Most of the time, members of cooperatives
supply their coffee on account basis either at their expenses or with a hope to attract incentives
provided by cooperatives. These incentives could be additional payments other than the prices
already contracted and dividends. Relatively, Dumerso (98% of APSR in both years) was highly
dependent on suppliers fund unlike that of Konga (APSR2009= 86% and APSR2010=79%) and
Koke (APSR2009=89% and APSR2010=85%), which were comparatively more dependent on their
own financial sources.
5
6.1.4. Profitability Ratios
In order to analyze the ability of cooperatives to generate the financial return required to replace
assets, meet increases in service demands, and compensate member-owners, the simplest and
widely used profitability ratio called Net Profit Margin was implemented. The result of the
computation (table 1) proves that averagely cooperatives make 0.238 and 0.252 cents on every
br1.00 of Sale in 2009 and 2010 fiscal years respectively. In earning net profit, Konga and
Hafursa lead the rest societies with respective NPM values of 34% and 28% in 2009 and 37%
and 25.6% in 2010. Conversely, Haru was the least profitable society (NPM2009 = 16.3% and
NPM2010 =19%). Moreover, except Hafursa all selected coffee societies show an improvement of
profit earning potential from 2009 to 2010.
6.2. Internal Business Performances
6.2.1. Membership and Capital in Cooperatives
Most of coffee cooperatives in the Woreda established in 1975 during the Dergue regime as
multipurpose cooperatives to accomplish the governmental agendas in one hand and to improve
the poor farmers’ livelihood on the other. In view of the fact that cooperatives were organized
and operated in undemocratic manners (political interference and misuse of cooperatives
resources), members were not much persuaded to admit cooperatives. However, after the
downfall of Dergue members show interest to join the societies. It is consistent with the tabulated
information described in Table 2 i.e. the percentage change in number of members from
cooperatives establishment to reorganization under Proc. No. 147/98 was so significant and it
accounts 679.5% on average excluding Dumerso society since base year data was not properly
known. This means if one literarily divides the percentage to the number of years passed in
between establishment and re-organization of cooperatives i.e. 679.5/24, the yearly average
increase of the number of members could be 28.31%. In a similar manner, the recent of thirteen
or fourteen years of membership data from its reorganization still now depicts an increasing
percentage change (64.82% on average) except Hafursa as it shows a 71.22% decrement of the
previous count due to the decrease in members trust in their managements and the loss incurred
by the cooperative. For Dumerso establishment data is unavailable. Mostly the reasons for
increase in the number of members through time was indicated as awareness creation campaigns
6
among the members annually and by furthering the price of produces i.e. 0.5/1 birr above other
investors for the coffee supplied by farmer- members. The other major reasons for the increase in
number of members could be additional benefits such as dividend and infrastructural
developments which otherwise not provided by other traders.
In twenty-four or five years of business life (1975 to 1998/99) sample cooperatives show a
substantial increase in capital formation. As stated in Table2, the percentage change in capital
from cooperatives organization to reorganization period looks like, Konga (868.07%), Hafursa
(2677.58%), Koke (644.06%), and Haru (38971.07%). Relatively Haru shows remarkable capital
formation. But for Dumerso data is unavailable. From 1998/99 to 2011 the same trend
(increasing in an increasing rate) was repeated among cooperatives capital formation. The
percentage change from 1998/99 to 2011 was Konga (2958.93%), Hafursa (1513.64%), and
Koke (4346.69%). Nevertheless, for Dumerso and Haru data was not found.
7
Table2. Membership and Capital Composition of Sample Cooperatives
S.
No
Name of
CCSs
Particulars
1
Konga
2
3
4
5
Hafursa
Koke
Dumerso
Haru
Number of Members
Capital
Remarks
Male
Female
Total
% change
Amount
%
change
Establishment
Re- Organization
Current Time
202
2,015
2,166
5
160
174
207
2,175
2,340
0
467.63
79.71
120,200.20
1,163,625.00
4,720,262.58
0
868.07
2958.93
Establishment
Re- Organization
Current Time
266
1003
773
12
76
108
278
1079
881
0
288.13
-71.22
75,318.71
2,092,034.72
3,232,093.02
0
2677.58
1513.64
Establishment
Re- Organization
Current Time
172
1000
966
2
43
97
174
1043
1093
0
499.43
28.74
58,980.00
438,846.87
3,002,527
0
644.06
4346.69
Establishment
Re- Organization
Current Time
NA
127
301
NA
9
16
NA
136
317
Establishment
Re- Organization
50
740
0
42
50
782
0
1464
79,500
0
3,106,1499.47
38971.07
Current Time
762
63
825
86
NA
NA
NA
NA
30,318
Source: Coffee Cooperatives Coordination Office, 2011
8
Established in 1975
Re- Organization year was in 1998
 The membership data was in 24/11/11
 The capital data was in 14/07/10
Established in 1975
Re- Organization year is in 1998
 The membership and capital data was on
the date of 24/11/11
Established in 1975
Re- Organization year was in 1999
 The membership and capital data was on
the date of 24/11/11
Established in 1975
Re- Organization year was in 2003
 The membership data (in 24/11/11)
 The capital data (in 16/09/2008)
Established in 1975
Re- Organization year was in 1998
 The membership data (in 24/11/11)
 The capital data (in 19/09/2008)
6.2.2. Share Capital and Registration Fees of Sample Cooperatives
Accountants and managements of cooperatives and secondary data of the societies demonstrate
that until now all societies did not issued additional shares than the initial one. Even there is a
problem of making members to pay the share value properly. If the cooperatives follow the right
procedure postulated in the by-laws, the already issued shares at times of establishment will not
be sufficient for the last thirty-five or six years (1975 to 2011) but they do. This implies that
there is a problem of handling of shares. Except Konga, the remaining cooperatives’ price of one
share was similar during establishment (br 10) and at present (br 100). However, Konga sold
each share for br 12 and br 107 during establishment and current time respectively as it was
economically better society. The price of share is determined randomly not by applying the
fundamental formula of share value = Capital/ No. of members. The maximum and minimum
numbers of shares to be purchased by an individual member were 10 and 1 respectively. Here the
societies wrongly interpreted the by-laws statement that says maximum shareholding by each
member is limited to 10% of paid up share. However, they change 10% to 10 shares.
Registration fees determined by all cooperatives were less than 10 br.
Name of
CCSs
Amount
of
authorize
d shares
Sold
Unsold
Price of one share
At time
of
establish.
At
present
Max
Min
At time
of
establish.
At
present
Table 3. Share Capital and Registration Fees of Sample Cooperatives
Number of shares
to be purchased
by a member
Konga
15,000
11,040
3,960
12
107
10
1
2
6
Hafursa
Koke
Dumerso
Haru
2,000
4,000
N/A
6,000
1,068
3,096
N/A
1,081
932
904
N/A
4,919
10
10
10
10
100
100
100
100
10
10
10
10
1
1
1
1
2
2
2
1
5
6
10
2
Source: Yirgacheffe Marketing and Cooperative Office, 2011
9
Registration Fee
6.2.3. Borrowings
As it is obvious for all, cooperatives face a problem of shortage of finance since their
foundations are very weak and formed by poor peoples. Therefore, at the time of conducting
their business they face a problem of money whether to run the operation or payment for its
employees. At the end, their only option could be to go to lending financial intermediaries and its
partnering organizations i.e. Banks, Cooperative Unions, and Microfinance Institutions even
though these institutions did not allow the required amount. This was mainly due to three
important reasons; lack of collaterals to be provided by cooperatives, incapability to pay the
previous liabilities and mostly cooperatives in that woreda were not audited by external auditors.
As statistics of the societies shows only 1/4th of the required amount was delivered by financing
intermediaries. Mainly the objectives of borrowings could be to purchase fresh cherry (coffee),
fixed assets, develop projects and for expansion and social development purposes.
Typically, the sample cooperatives owed finance was sourced from Commercial Bank of
Ethiopia, Development Bank of Ethiopia, Yirgacheffe Coffee Farmers Cooperative Union
(YCFCU), Leta Micro Finance, and Rural finance. In addition, Abyssinia, Awash, and Dashen
banks were cooperating in transferring fair trade premiums. As indicated in Table 4 huge amount
of money was circulated between borrowers (financial intermediaries) and borrowing
organizations, cooperatives.
10
Table 4. Borrowings of Sample Cooperatives
Year
Konga
Creditors/Amount
2005
2006
2007
2008
2009
2010
2011
Hafursa
Creditors/Amount
Name of Cooperative Society
Koke
Dumerso
Creditors/Amount
Creditors/Amount
CBE
YCFCU
DBE
YCFCU
CBE
YCFCU
CBE
YCFCU
2,416,330
NA
NA
NA
2,482,320
3,215,837
3,704,288
NA
NA
NA
NA
-
NA
NA
NA
NA
NA
NA
NA
NA
NA
1,400,000
150,000
-
1,241,600
2,605,367
1,991,592
2,630,000
3,288,845
38,022
259,750
840,000
1,054,500
981,920
618,000
-
100,000
1,054,500
981,920
618,000
-
2,630,000
1,876,526.02
1,820,526.02
969,919.78
1,738,000
1,738,000
1,951,497.10
2,900,000
3,000,000
3,000,000
3,000,000
3,985,000
1,817,229.75
754,865.80
Source: Coffee Cooperatives Coordination Office, 2011
11
Leta Micro
Finance
56,000
-
Haru
Creditors/Amount
CBE
YCFCU
597,200
-
100,000
625,000
675,000
529,000
505,091
2,194,872.95
Rural
Finance
500,000
-
6.2.4. Plan and Achievement of the Cooperatives Coffee Collection and
Income Generation
Traditional Ethiopian coffee cultivation practices are still dominant among Yirgacheffe farmers.
Coffee trees are managed by hand and fertilized with organic matter. Building on the long
history of coffee production in the area, growers follow traditional cultivation practices rather
than investing chemical fertilizers, pesticides and herbicides. This time in Yirgacheffe woreda,
except Dumerso and Aramo coffee cooperatives, the rest five were organic certified coffee
cooperatives marketing both washed and sundry coffees annually and available for the Ethiopian,
Japanese and American markets. Out of the seven cooperatives, two societies (Hafursa and
Konga) are beneficiaries of FLO/Fair Trade/coffee sales and the rest are only registration.
YCFCU has obtained special permission from the Ethiopian coffee and Tea Authority to bypass
the central coffee auction and export directly to the customer abroad. As primary societies
provide fair price and dividend to the farmers, unions do for the primaries. In the first place, if
the primary societies offer their coffee to the union until December 30 of E.C., 25% additional
payment other than the market price will be paid by the union as YCFCU exports the coffee. In
addition, if the union gets profit it will pay 70% as dividend. But if it faces loss, primaries will
not be liable to pay that. Secondly, if they supplied in between January 1-30, only 10 %
overpayment will be paid. Lastly, if their delivery is after January 30, the union will take the
delivery by a country market price.
In Ethiopia in general and in Yirgacheffe in particular, coffee grading and quality control occur
at the producer, regional and central levels. This integrated control system help to grade coffee
before auction and export that is important for all those involved in the production, collection,
export, and consumption. Coffee grading and quality control is not only encourage good quality
coffee production but also create lasting business relationships with overseas buyers. Before
exporting, coffee is brought to the quality control center in order to: verify the original character
of the coffee, check if the green and cup qualities have met the export standard and ensure the
country and the Yirgacheffe’s reputation for high quality coffee supply. At present ECX, provide
coffee grade for cooperatives’ collected coffee. The grade given throughout the last seven years
found to be in the intervals of 2-4 for Konga, Hafursa, Koke and Dumerso. It was 2-3 grades for
Haru cooperative society only. ECX also provides coffee quality inspection test result certificate.
12
Increases in the price of coffee and dividend payment were the major motivating factors to
supply more coffee for cooperative societies. On the other hand, limited capacity of the coffee
processing site shortens the collected coffee and income acquired from that.
The percentage achievement of CCSs for both coffee collection and income generation varies
from society to society and year to year (Table 5). In general, the income and coffee collection
achievement levels of the societies were found in between the least achieving society, Dumerso
(13.69% coffee collection and 19.12% income generation) and Haru (103.86% coffee collection
and 100% income generation), which performs above the expectations.
13
Table 5. Plan and Achievement of Sample Cooperatives Coffee Collection and Income Generation
S.No
1
Name of the
Society
Konga
Descriptions
Coffee
collection
Income
generation
2
Hafursa
Coffee
collection
Income
generation
3
Koke
Coffee
collection
Income
generation
4
Dumerso
Coffee
collection
Income
generation
5
Haru
Coffee
collection
Income
generation
2005
2006
2007
Years
2008
2009
2010
2011
Planned
NA
NA
NA
NA
1,395,582
1,395,582
1,395,582
Achieved
% Achieved
Planned
Achieved
% Achieved
Planned
Achieved
% Achieved
Planned
Achieved
% Achieved
Planned
Achieved
% Achieved
Planned
Achieved
% Achieved
Planned
Achieved
% Achieved
Planned
Achieved
% Achieved
Planned
826,232
NA
NA
2,345,322.63
NA
NA
617,917.5
NA
NA
1,875,564.71
NA
900,000
522,215
58.02
2,117,642.20
1,672,941.75
79
NA
64,716
NA
NA
1,006,343.81
NA
220,151
NA
NA
NA
NA
NA
NA
714,463
NA
NA
2,698,565.75
NA
1,000,000
340,333
34.03
3,741,454
1,367,619.9
36.55
NA
60,934
NA
NA
1,145,906.43
NA
261,348
NA
NA
NA
NA
NA
NA
492,285
NA
NA
NA
NA
NA
NA
NA
NA
527,480.5
NA
NA
3,165,768.69
NA
738,481
459,287
62.19
3,689,567.50
2,989,910.25
81.04
600,000
82,134.04
13.69
3,437,552.60
657,072.31
19.12
500,000
448,269.99
32.12
NA
2,689,619.94
NA
NA
498,982.5
NA
NA
2,918,788.84
NA
650,000
295,130
45.41
4,761,184
3,658,244.04
76.83
500,000
NA
2,853,352.92
NA
700,000
802,884.14
57.53
13,331,845.75
5,620,188.94
42.16
1,000,000
631,522
63.15
7,150,000
3,404,523.59
47.62
650,000
545,315
83.90
4,752,214.80
3,509,441.60
73.85
500,000
184,416
36.88
3,237,506.75
2,028,576.04
62.66
-
976829.56
69.99
13,628,618.69
8,791,466.06
64.51
800,000
458,981
57.37
7,868,207.16
6,506,279.69
82.69
750,000
372,167
49.62
6,144,456
4,562,559.88
74.26
700,000
197,656.38
28.24
5,939,825.24
2,371,876.54
39.93
700,000
Achieved
% Achieved
Planned
Achieved
% Achieved
228,648
103.86
779,533
734978.75
94.28
269,480
103.11
1,148,051
1,024,669.25
89.25
315,191
103.44
1,378,531
172,240
34.45
2,655,000
1,340,721
50.5
185,538
26.51
2,800,000
1,289,443.01
46.05
NA
-
227,879
32.55
6,505,904.75
3,501,625.88
53.82
Source: Coffee Cooperatives Coordination Office, 2011
14
2,474,199.89
NA
505,337
215,228
42.59
2,208,191.50
967,637.32
43.82
NA
49,697
NA
NA
1,101,351.71
NA
304,705
1,378,561.52
100
6.3. Members and Employees Returns
6.3.1. Patronage Dividend
Despite the better prices, fair-trade premiums and additional payments (at the time of on account
purchase of coffee), cooperative members preferred to sell their coffee to cooperatives for
dividends. Even though dividends varied from year to year, farmers could expect 0.1–0.75
birr/kg as dividends from April to September. Cooperatives are unique business organizations
that distributed dividend for their members based up on participation or the amount of coffee
produce supplied by an individual member. Nonetheless, a maximum limit of the coffee produce
considered for dividend was 4000kg per individual. This was manifested in table 6. For example,
in 2005, only 757,746 kg out of total 826,232 kg was considered for dividend. The Dividend
Payment/kg was found to be 5cents/kg (Dumerso) to 75 cents/kg (Koke). As Konga was the
strong cooperative society, it occupied the highest dividend payment (448,083.10) for its
members. Dumerso and Haru cooperatives did not distributed patronage dividend for many
years.
This was because most of the time these cooperatives were operating at loss or if they earn profit
it would be transferred for unpaid debts. Furthermore, it might be due to the reason that the union
managements embezzle the exported coffee return of the societies especially during the initial
periods of the union establishment though it has been resolved in the present days.
15
Table 6. Dividends Allocated By Cooperatives
Total amount of
coffee
considered for
dividend(kg)
Dividend
Payment/kg
Total Dividend
Amount
0.10
0.10
111,178.50
87,039.02
NA
-
NA
-
71,538.05
-
227,332.50
0.05
8,677
-
11,366.50
-
-
-
-
Total Dividend
Amount
Total Dividend
Amount
1,111,785
870,390.2
Dividend
Payment/kg
Dividend
Payment/kg
227,263.80
NA
Total amount of
coffee
considered for
dividend(kg)
Total amount of
coffee
considered for
dividend(kg)
0.30
NA
Haru
Total Dividend
Amount
Total Dividend
Amount
757,746
NA
Dumerso
Dividend
Payment/kg
Dividend
Payment/kg
2005
2006
Hafursa
Total amount of
coffee
considered for
dividend(kg)
Konga
Cooperatives/ Dividend
Koke
Total amount of
coffee
considered for
dividend(kg)
Year
867.7
-
0.10
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2007
NA
NA
127,036.07
221,889.50
0.10
22,188.95
NA
NA
240,776.31
2008
NA
NA
NA
188,731.5
0.20
37,746.30
-
-
-
2009
NA
NA
231,242.15
353,977
0.25
88,494.25
2010
NA
NA
361,767.80
234,366.75
0.5
117,183.375
NA
NA
69,489.65
-
-
-
-
-
-
2011
NA
NA
448,083.10
-
-
-
169,521.5
0.75
226,029.10
-
-
-
-
-
-
Source: Coffee Cooperatives Coordination Office, 2011
16
6.3.2. Cooperatives Fair-trade Premium
In Ethiopia, fair trade guarantees a minimum of $1.26/pound (a living wage) and access to credit
at fair prices to poor farmers organized in cooperatives. These fair payments are invested in food,
shelter, health care, education, environmental stewardship, and economic independence. Fair
trade promotes socially and environmentally sustainable techniques and long term relationships
between producers, traders and consumers. The value of the fair trade premium varies according
to the international coffee price level: the greater the distance from the guaranteed minimum
price, the higher the premium. When the international coffee price is above the guaranteed
minimum price, it will follow the international price, and always stay 5 US cents above.
Among the five sample cooperatives, only Hafursa and Konga were the beneficiaries of fairtrade premium. The rest were registered before few years ago but still the certification and the
payment is on process. After their certifications, cooperatives will got benefits of creating
marketing opportunity, premium payment for farmer suppliers, 60% pre-payment can be got
from coffee receivers and when the societies prepared themselves to pass the criteria set by
certificate providers, it will enables them to achieve the intended objectives. The money
collected from fair-trade depends on the amount of coffee exported to foreign markets. The
purpose of the premium was for infrastructural developments not for other societal objectives
and a separate account will be opened by a premium committee having a member of three to
handle activities relating with fair-trade. The societies have to transparently administer the cash
collected from premium. To run projects from fair-trade account, general assembly has to be
aware and approved the case. There are some problems related with fair-trade. These includes,
non-certified cooperatives sold in the name of fair-trade, premium is not allocated for the desired
projects approved by the general assembly, the premium money didn’t transferred transparently
and timely, problem of record keeping and criteria of fair-trade was not aware by all members.
Table 7 below could be an evidence for the fair-trade premium collection of CCSs where in only
Konga and Hafursa benefited from the premium since they were the only societies which passes
the criteria set by fair-trade certifiers.
17
Table 7. Fair-trade premium for certified CCSs
Year
2005
2006
2007
2008
2009
2010
2011
Konga
76,000
216,000
223,089.37
81,312.12
Not still
received
Not still
received
Cooperatives/fair-trade premium
Koke
Dumerso
Hafursa
Not still paid Not still paid
NA
NA
NA
NA
NA
284,555.89
Haru
Not still paid
328,467.54
Source: Coffee Cooperatives Coordination Office, 2011
6.3.3. Cooperatives Employment Creation
The present reports shows that Ethiopian cooperatives have created a sizeable number of salaried
jobs for both members and non-members; yet, their biggest employment creation potential lies in
the field of direct and indirect self-employment. Coffee cooperatives in Yirgacheffe woreda do
have a comparative job creation advantage over other types of enterprises: they are labor
intensive by nature, they are cost-effective because of member commitment and participation,
they generate economies of scale and scope through horizontal and vertical integration, they
establish links between the informal and the formal sectors, and they put economic and social
development on a broader base. Moreover, these cooperatives offer their members with decent
and permanent jobs through stabilizing existing self-employment in rural areas; mobilize savings
among the poorest and assisting them to accumulate capital for productive investment.
Sample coffee cooperatives have created both permanent and temporary employments. The table
below confirms that Konga employs maximum number of peoples permanently (8-15 permanent
employees) by paying a maximum amount of money accounting br 50,460 to 133,200 annually
followed by Dumerso (92,400 to 111,500 for 5 permanent employees annually). Conversely,
Koke constitutes the least employment rate by extending for only 4-6 peoples but in terms of
payment it precedes the least paying society i.e. Haru, remunerating its workers br 15,440 to
30,320 annually. The rest founds in between the two extremes means that they employ 5-8
18
peoples and arranges annual salary of br 24,600 to 58,480. On the other hand, temporary
employees are also benefited from cooperatives in mass. In the year 2011 only, 31(Dumerso and
Konga) to 58 (Haru) daily laborers per day for three to five months were employed by getting a
wage payment of br 37,238.75 (Dumerso) to 259,120 (Konga). The number of temporary
employees was taken on average. Konga is the leading cooperative society in payment of
temporary employees. This enables the society to perform well as employees are satisfied and
motivated for work. Personal observation of the researcher was in confirmation with the
secondary data. On average, in 2011 alone, sample cooperative societies employed around 42
and 8 individuals temporarily and permanently respectively (Figure1 and 3).
19
Figure 1 Number of Permanent Employees of Sample CCSs
Figure 2 Payments for Permanent Employees of Sample CCSs
16
140,000
14
120,000
12
2005
10
2005
100,000
2006
2006
8
2007
6
2008
4
2009
2
2010
0
80,000
2007
2008
60,000
2009
2010
40,000
2011
2011
20,000
0
Konga
Source: CCCOs, 2011
Hafursa
Koke
Dumerso
Fig3. Number and Payment of Temporary Employees of Sample CCSs in 2011
259,120
118,387.50
31
Konga
41
Hafursa
147,262.50
51
Koke
Number
37,238.75
31
Dumerso
64,440
58
Haru
20
Payment
Source: CCCOs, 2011
Haru
6.4. Innovation and Learning Perspective
As different sources of information indicates that coffee co-operatives in the study area were
partially praised and partially criticized for their approach to innovation and learning practices.
In the first place, sampled co-operatives increase innovation because they channel technical
information about production to farmers. This role is particularly important in cases where
farmers’ knowledge base is deficient, government funds are limited, and the economic potential
to be realized by adopting agricultural innovation is high. Educating the members on production
methods is one way of improving the quality of their produce; another way is to adapt a qualitydependent payment system that would give an economic incentive to the members to provide
higher quality products. Societies also reach farming inputs consisting of supplying genetically
improved coffee seedlings, credit services, water pumps, materials and spare parts to their
members. However, some improved farm practices such as fertilizer, insecticide and herbicide
uses were not employed so as to keep the organic nature of the coffee but only labor-intensive
practices were extended. Coffee trees are treated with farmyard manure and compost; hand
weeded and protected from pests with ashes. The trees are hand pruned and stumped to
rejuvenate old coffee and spread the branches. A year before planting coffee, temporary and
permanent leguminous shade trees (nitrogen fixers) are planted within the recommended light
needs for coffee, about 50 percent. Coffee growing regions and all cottage coffee remain organic
under traditional practices. Cooperatives did updating activities and offered multidimensional
trainings for the farmers regarding coffee production, pruning, use of planting new coffee,
compost preparation and utilization, land fragmentation, shading, irrigation, soil conservation
and preparation of quality coffee.
One thing that cooperatives need to be improved as innovation and leaning practices concerns
were regarding the provisions of Information and Communication Technologies that can help to
upgrade and improve operations and to provide efficient and responsive services to customers
and so as to eliminate “ghost kilograms” and rampant coffee thefts. This all types of benefits
were already left because of ignoring ICTs among studied cooperatives. Moreover, cooperatives
have to make their coffee processing sites latest and cost effective model.
21
6.5. The Competitors Perspective
Local coffee markets are often characterized by market failure. Both local middlemen purchasing
at village level and the large multinational exporters that they sell to, may take advantage of a
situation of market concentration and lack of competition, which creates a problem of double
marginalization. Such types of coffee marketing situations are practiced in Yirgacheffe woreda.
Isolation and asymmetric information makes it difficult for local coffee producers to obtain
competitive prices from the purchasers. However, in many areas of Yirgacheffe, coffee cooperatives have been formed by small scale producers who market their coffee themselves. The
most successful among those are the ones that are certified either fair-trade, organic or both. The
labeling systems make it possible to receive more stable prices and price premiums. These cooperatives may potentially redress a situation of imperfect competition and force private
purchasers to increase the price offered to coffee producers, also those who are not co-operative
members. Empirical studies from the woreda with local coffee price data from 2005-2011
indicated that co-operative presence had a positive influence on the prices offered by private
purchasers. These findings were supported by field survey in the same area. Members of
cooperatives were motivated by the price level they were offered.
The way co-operatives interact with IOFs in the market is an important aspect of their function,
particularly in market situations characterized by imperfect competition. Very often, agricultural
co-operatives including coffee societies had been formed as a response to market failure, to
counterbalance monopsony or oligopsony power in the processing sectors (Rhodes 1983, Fulton
1999, LeVay, 1983 as cited in Milford, 2004). Coffee co-operatives in the study area had the
ability to improve competition, increase innovation, makes use of economies of scale, and
empowers the poor by increasing their social capital and their participation in civil society.
However, these cooperatives were mainly hindered by financial constraints to run activities since
banks were reluctant to offer credit and members were generally poor. It has therefore often been
the case that governments or NGOs have intervened and supplied the cooperatives with both
financial and managerial support. By doing this, they have hoped to achieve the benefits of the
co-operative structure, and the aim has also often been that the cooperatives should be selfsustainable after an initial period of external support.
22
A co-operative will usually performs well because it offers the members certain benefits. These
might include a closer location, lobbying of public authorities, services such as credit schemes,
education, and purchases of inputs for production, or organization of joint infrastructural
developments such as roads, schools and so on. As supplies shrink, prices rise, and competition
for coffee increases. When this happens cooperatives were challenged to collect coffee from their
members. Most of the time farmers will enthusiastically turn coffee in to the co-operatives
knowing that the prices being paid by cooperatives would be higher than that of IOFs. This made
the fact that the co-operatives could pay when buyers receive the coffee in the US or Europe
worth it. However, in these years of high prices, local buyers were now paying a price
competitive with cooperatives. The barriers of cooperatives such as lack of finance to entry into
the intermediary coffee market would allow a few colluding buyers to either enjoy monopolistic
control over the purchasing of coffee produced by the small farmers. The price offered to the
producer is therefore assumed to be below what the market price would be under perfect
competition. It was further indicated that the existence of coffee cooperatives could, to some
degree, restore competitiveness to the market. Cooperatives were able to offer stronger lobbying
power, access to market information as well as direct purchasing agreements with foreign
importers translating into higher prices for its member producers. As a result, it was speculated
that private intermediaries would be forced to offer a higher price to non-cooperative producers
in areas where cooperatives operate so as not to lose market share, thus to some degree, restoring
competitive prices to the market increasing the economic welfare of the producers.
Generally, because of the fair trade system and the higher exporting potencies, all of the cooperatives were able to offer higher prices than the IOFs. The higher price, the credit schemes,
their lobbying activities and education programmes helped cooperatives to be competitive in the
market. On the other hand, due to delayed payment, extended procedures for exporting, financial
problems, lack of trust, stories about co-operatives where the management had taken the
members' money and the meeting obligations make members to be more prone to break their
agreement with the co-operative and sell to intermediaries who would pay on the spot instead of
waiting for a delayed payment and avoids the aforementioned bureaucracies. Primary and
secondary data of the societies revealed that the cooperatives’ optimal market share was
preceded by IOFs even though cooperatives lead in quality assurance and price of coffee
produces.
23
7. Conclusion
Coffee Cooperatives found to be one of the most effective but challenged rural-centered
institutions which are helpful in improving the economic lives of their members through
enabling patrons to generate income, employed under their societies, benefited from dividend
and fair-trade premium (converted in to infrastructural facilities), selling their produce in a better
market for reasonable prices and improving the production and productivity of small holder
farmers which at the end impacts on a bit increment of their assets. Nevertheless, there is still
much more to be done in the future in order to maximize the cooperatives’ economic potential to
make a difference on members’ livelihood. To this end, all available resources of cooperatives
will have to be mobilized and deployed without any further delay.
The performance analysis of the cooperatives signify that all the sample cooperatives were:
performing below the lenders expectations or below the industry standard, highly dependent on
creditors’ fund, the sales of cooperatives were more (>85%) funded by the suppliers, and they
were profitable in the last two accounting periods but the profitability need to be increase more
than this to raise its financial capacity and to satisfy cooperative members.
8. Recommendations
Based up on the findings of the study, the following recommendations are forwarded.
 Creditors, the main suppliers of cooperatives finance, have to provide the required amount of
credit at the right time and place.
 GOs and NGOs have to extend their financial supports to the cooperatives more than other
times as cooperatives role becomes magnified
 The promotion office of the woreda has also play credit provision facilitation roles above the
promotional, manpower training and conducting of researches for Coffee Cooperative Societies.
 The cooperatives themselves on their hand have to enlarge their business operations
geographically and volume of transaction and properly handle the share capital equity.
 May be in the long run if cooperative banks established, it will resolve financial problems
 Enhancement of Business Operations of Cooperatives
 electricity, road, water and transportation facilities should be fulfilled
 promotional programs and awareness creation campaigns have to be extended
 Strengthening the Support of Partnering Organizations and Agencies
24
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Demeke, T., 2007. Performance of Coffee Marketing Cooperatives and Members’ Satisfaction in
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