Cooperatives as a Tool for Poverty Reduction and Promoting Business in Tanzania

Research summary

Marketing channels of agricultural surplus is important for improving food security in most African countries. The cooperative business form offers one way for smallholder and intermediate size farmers to sell their surplus. Twelve Tanzanian cooperatives were studied by semi-structured interviews to find out if the cooperative business model can reduce poverty and address food security. Four types of cooperatives were identified: traditional cooperatives, reforming cooperatives, new cooperatives and co-operatives with some innovations. Both cases of poorly working unions and more recent success stories were found. Features characterizing good cooperative work in Tanzania were identified. Recommendations on policy level how to support cooperative action is given.

Description

Conclusions:
Effective functioning of cooperatives in Tanzania is characterized by a number of features. 1) The primary cooperative society is strong and works as the driving force of cooperative development, business promotion, job creation and poverty reduction. The members have control of the cooperative. 2) Financial services, i.e. services offered by SACCOs (Savings and Credit Cooperative Societies), AMCOs (Agricultural Marketing Cooperative Societies), cooperative banks and cooperative insurance companies, are close to the members of the primary society. 3) Members are trained to know their rights, to know how to run a cooperative efficiently, to maintain their autonomy and independence from external pressures. 4) The secondary structures (unions or similar) are light. Primary members may sell through other channels than the union. 5) The secondary structure provides relevant information to the members and carries out business negotiations with both foreign and domestic buyers. The secondary structure does not deal with any money or physical commodities directly. 6) Activities carried out by the secondary cooperatives are transparent. 7) In cases where the cooperative is clearly market oriented developing new products partnership with a foreign investor seems beneficial. 8) The partnership between the cooperative and the foreign investor is based on that between cooperatives themselves.
Concrete examples of effective, profit-driven business that improve the situation for the poor segment of population in Tanzania can be found in the close cooperation between AMCOs and SACCOs. In this case the primary societies market coffee through an AMCO. Members of SACCOs receive higher prices more timely payments and transparency of the organization is better. A large part of the coffee is sold as fair trade coffee directly overseas to Japan. SACCOs provide short-term credit for inputs and smaller investments. The primary societies cooperate with the local cooperative bank in order to acquire appropriate financing. On the whole, living conditions of the members seem to have improved. One decisive factor is that all business activities are in the hands of the members. Another critical condition is that the secondary structure is light with few employees, it facilitates entry or exit, dealing with knowledge management, disseminates information and manages business negotiations with buyers. Members have the option to sell through other marketing channels as well. Women’s participation is encouraged by inter alia, giving them a part of the coffee yield. Such a model of partnership could be repeated in many other areas and for other agricultural products in Tanzania. Such model partnerships are in accordance with the principles stated in the Finnish Development Policy Programme 2012 and the NSGRP II- MKUKUTA II.
Another concrete example of a business-driven cooperative has been found in the processing of milk. The cooperative collects and processes milk, markets dairy products through a dairy owned together by a foreign investor. The cooperative has been able to grow and create employment, reduce aid dependence and con-tribute to the tax base for the government. It is clearly a cooperative in line with the Country Strategy for Development Cooperation with Tanzania 2013-2016. New dairy products have been created and are mainly sold in Dar es Salaam. Approximately 2200 members are young. Their living conditions and living standards seem to have improved. The success factors include market orientation, partner-ship between the local and foreign cooperatives, high demands for products, expanding markets, inclusion of young producers and facilitating their needs and establishment of collection centres and efficient milk collection. This type of cooperative is clearly business and market oriented and plays a role in the national dairy market.
A third concrete example of a cooperative that has been successful in reducing poverty is a dairy cooperative managed by women in the Kilimanjaro region. The women of this cooperative have been empowered and the households’ incomes have improved through the sales of milk and milk products. The ability to pay school fees for the children and get access to medical services has become easier. Availability of extension, access to market information and other services has improved. The social status of women at household level has risen as they can contribute to household incomes and tax revenues to the government. Generally, this type of dairy cooperative has contributed to the realization of the Millennium Development Goals (MDGs). Dairy cooperatives are an effective way to increase the incomes of women through local marketing activities. Problems encountered in these cooperatives are poor facilities, inadequate technology, relatively low management skills, lack of capital for expansion and promotion. Although the markets are local the impact in a particular community may be large. Technical deficiencies exist and would need improvement.
Some cooperatives, more specifically the coffee unions, do not seem to be succeeding in reducing poverty in link with good governance and accountability. The procedures they follow do not completely correspond to those qualities indicated by the MKUKUTA II, cluster III first goal, which is designed to ensure systems and structures of governance, uphold the rule of law are democratic, effective, accountable, predictable, transparent, inclusive and corruption-free at all levels.
The Cooperative Societies Act 2003 of the United Republic of Tanzania recognizes two structures only. The primary society at the local level and the federation at the national level. This allows greater flexibility and space for primary societies to exercise freedom and autonomy of making choices on business development for their members. The act is clear. The existence of a policy implementation frame-work called the Cooperative Reform and Modernization Programme whereby co-operatives can exploit opportunities offered by the government for achieving their own business objectives.

Recommendations:
The mission of this study was to propose how Finland can support cooperative ac-tions with the aim to promote business and reduce poverty in Tanzania. It is recom-mended that the Ministry for Foreign Affairs of Finland carries out the following:

1. Develop interactions between the Tanzania Federation of Cooperatives (TFC) and Cooperative Apex organizations in Finland in order to share the experience of ef-fective performance of cooperative management. This might include the exchange of TFC and such apex representatives with the aim of familiarizing both parties to the circumstances of cooperative activities in both countries.

2. Support the expansion of light secondary structures such as the G32 KNCI-JVE Ltd network to other regions of Tanzania. This can be done through training activities that draw upon the experience of G32 (or a similar organization, the Dundiliza network of SACCOs) and by scaling-up activities of such organizations. Activities consist of the dissemination of information the facilitation of business negotiations with buyers and lobbying. The experience of G32 can be used in other areas, by other AMCOs of coffee or of other agricultural products. Potential cooperative officials of such secondary structures could be trained in specializations such as managing business negotiations with buyers, financial services, marketing, grading of coffee products and price stabilization through reserve funds.

3. Support women owned dairy cooperatives. For example, the Kalali Women Dairy Co-operative Society by renovating milk plants for the improvement of processing raw milk and milk products, to increase production capacity and avoid contamina-tion.

It is also recommended to continue with the established partnership between the Moshi University College of Co-operative and Business Studies (MUCCoBS) and the University of Helsinki in the field of cooperative education and research. Research and teaching at MUCCoBS can gain from this.

The United Republic of Tanzania may on policy level support cooperative actions in the following way:

1. Primary societies need the freedom for Associations to make decisions at the member’s level.

2. Develop cooperative actions at village level to empower farmers to seek other opportunities to address risks, gain access to financial services, encounter more economic opportunities and improve the democratization processes.

3. Help the system that delivers and disseminates information to primary societies to improve.

4. Women and youths participation in cooperatives should be encouraged and en-hanced. With regard to gender participation, the role of women as land owners might be emphasized when coffee is traded.

5. More professional management of cooperative businesses is needed (human capital in cooperative management) at all levels.

6. Primary societies should have reserve funds to stabilize prices, especially coffee prices. The government of Tanzania could support this by ensuring that the offi-cials of the secondary structure work with cooperative banks or other banks to create stabilization funds for this purpose. Furthermore, the government of Tan-zania should also guarantee that these officials have enough knowledge and competence for creating such stabilization funds.

7. Financial services should be in close proximity and easily available of members and the cooperatives. The government of Tanzania may support encouraging the independent and well-functioning SACCOs, which are characterized by good governance.

8. Professional management of cooperative businesses is needed (human capital in cooperative management). The government of Tanzania may support this by providing training for managers of primary societies. Training of secondary co-operatives in management issues is another area that the government of Tanza-nia might support.

9. Secure that the Cooperatives Act 2003 is implemented.

Finland could encourage the government of Tanzania to implement these reforms through policy dialogue within General Budget Support, agricultural and rural devel-opment, and private sector development.

More information

Research publication

Research info

Research title
Cooperatives as a Tool for Poverty Reduction and Promoting Business in Tanzania

Research timeline
1.3.2013 - 1.12.2013

Keywords
co-operatives financial services people centred business poverty societies Tanzania

Region
Africa

Countries
Finland, Tanzania, United Republic Of

Institution
Department of Economics and Mangement
Agriculture and Forestry
University of Helsinki, Finland

Head of research
John Sumelius

Research team
John Sumelius; Faustine K. Bee; Suleman A. Chambo; Shimelles Tenaw; Stefan Bäckman,

Partners
Department of Economics and Management, Faculty of Agriculture and Forestry, University of Helsinki, Finland Moshi University College of Co-operative and Business Studies MUCCoBS),Tanzania

Contact information
john.sumelius@helsinki.fi
+358-(0)5415153
Open link

Record last updated
27.5.2015