Unit 7

1. Unit 7 Agriculture Institutions: Cooperatives

2. Objectives • Define cooperatives as a form of business • Explain the origin of agricultural cooperatives in Namibia • Explain the basic economics of cooperatives • List the characteristics of cooperatives • List the types of cooperatives in Namibia • List the advantages and disadvantages of cooperatives in Namibia • Explain how to organize and operate a cooperate

3. What are cooperatives and are they needed? • Def: Cooperative is a voluntary business owned and controlled by its member-patrons and operated for them on a non profit or cost basis. • Why farmers organize agriculture cooperatives? • Problems faced by farmers: • Sell cheaply as producers and buy high as consumers. • Relatively small share of the consumer price. • Solution: Form cooperatives to gain control over the purchase of farm inputs, the marketing of farm outputs and the provision of services unavailable in the communities. Also to provide a wide range of services to help sell farmers products and help farmers purchase their needed inputs.

4. Historical Development of Agricultural Cooperatives in the Republic of Namibia Early agricultural cooperatives • Before 1990, all functions of controlling cooperative in Namibia were performed by the Registrar of Cooperatives in Pretoria, RSA, under Ordinance No.15 of 1946. This function was transferred to Namibia after independence. • Amended: Co-operatives Act, 1996 (Act 23 of 1996) • Ordinance prevented most cooperatives other than agricultural marketing & supply (AGRA coop) & consumer cooperatives from being legally registered in Namibia. • Encouragement of cooperatives in Namibia started during 1990, when government passed important legislation which encouraged the development of cooperatives. • There are currently 84 registered cooperative in Namibia. Examples; • AGRA • ALFA • PAMWE- specialize in communal areas • SENTRABOER South African cooperative with subsidiaries in Nam • ORANJE • MEATCO

5. Basic Economics of Cooperatives What the major considerations for the existence of cooperative? • (a) Commodity sector. • (b) Imperfectly competitive markets. • (c) Farmers lack market power. • (d) Cooperatives enable farmers to vertically integrate. • (e) Joint vertical integration through cooperatives often benefits farmers.

6. Principle or legal concepts of cooperatives The following are some of the main legal concepts for an entity or organization to be considered or operate as a cooperative in Namibia: (a) Ownership and Control concept: • Owners are patron who control and own the entity but not investors. • Cooperative attempt to minimize cost and attain maximum satisfaction for its owner-patron. • To ensure that no patron controls the cooperative there are bylaw that stipulate one person, one vote regardless of the amount a patron invest. (b) The concept of equitable distribution of returns over cost. • Returns after deducting cost are returned to owners on an equitable basis. This ensures that cooperative operates for the mutual benefit of members.

7. Principle or legal concepts of cooperatives……… (c) The concept of limited returns on owners capital • Owners invest in cooperatives to benefit from the services offered rather than expecting profit on investment. • This ensures that a great emphasize is placed on promoting efficiency in marketing or buying activities. (d) The voting right concept • One vote per member regardless of the amount invested by each member. • Ensure that all users are given fair treatment by cooperative and large investors or users do not dominate control of the organization

8. Types of Cooperative Organisations (a) Independent local associations • People hold direct membership and participate in all affairs of the cooperative. • The opinion and actions of each member have an influence because of small area coverage and the small number of members. • They are limited in what they can do because of their small size. • They often join other large cooperatives to conduct mass marketing, purchasing or manufacturing operations. (b) Federated associations • Composed of several local association operating together as an integrated unit. • Farmers are members of the local association which is a member of a regional association. • The banding together is to secure greater business power and efficiency.

9. Types of Cooperative Organizations….. (C) Centralized cooperative associations • Patron is a direct member of the central organization and exercise control through delegates sent from different areas to the annual meeting of the central organization. • Advantage: Centralized control that makes possible prompt and uniform decisions for all local outlets. • Disadvantage: Lack direct membership participation possible in federated cooperatives and local units also have a limited amount of autonomy. (d) Mixed associations • These cooperatives are both totally centralized and federated. • They have both the marketing and purchasing operations. • The combine into regional and national association in order to operate manufacturing enterprises or enhance bargaining power with non-cooperative concerns.

10. Kinds of Cooperatives by Functions (a) Marketing Cooperatives • Cooperatives through which farmers sell their products. • They may collect members products for sale, grading and packaging and other functions. • Objective: Obtain the greatest possible amount for the product of the farmers-owners. • Marketing cooperative are very important in Namibia. About a third of Namibia’s total annual raw agricultural product value are marketed through cooperative. AGRA and ALFA are the nations largest agricultural marketing cooperatives in Namibia.

11. Kinds of Cooperatives by Functions.... (b) Supply or purchasing cooperatives • Cooperatives through which members buy their farm supplies. • Some purchasing cooperatives are engaged only in either wholesaling or retailing e.g. Likwana Farmers Cooperatives in Caprivi region that buys agricultural inputs for its members. • The objective is to effect saving for member farmers on the input they buy. • Saving, from buying at lower prices (discounts from large input purchases) as well as higher quality and better adapted supplies and equipment.

12. Kinds of Cooperatives by Functions…… (c) Service cooperatives • Cooperative that provide members with improved services or services that members could not otherwise obtain. • Some their services include: credit, insurance, electric power, irrigation and drainage e.g. the largest service cooperative in Namibia is the Farm Credit System. (d) Processing cooperatives • Cooperative engaged in the packaging or processing of the farmers product. • Meat processing, fruit packaging and vegetable canning association are example. • Processing cooperatives are also engaged in the marketing service of wholesaling the finished products e.g. AGRA and ALFA

13. Advantages of Cooperative • Greater Bargaining power • Cost reduction/increased returns • Quality Product and services • Market Expansion • Expansion into new supply Market

14. Disadvantages of Cooperative (a) Financial and Capital: Cooperatives are unable to secure additional funds like non-cooperatives that can sell additional shares. More capital are require in modern large firm sized in order to make entry into new fields effective and competitive. How to secure these amount of capital is a major problem for cooperative. (b) Management Making: Problems with selection of boards of directors. Cooperatives rely on their patron-members for their director and they might not poses the needed skills needed to run a large and complex manufacturing and distribution enterprise. (c) Decision-making: Cooperatives tend to react slowly to changing business and economic conditions because decisions are usually taken by consulting all members and sometimes takes a long time.

15. Organizing and Operating a Cooperative Preliminary steps of organizing a cooperative: • Sign up the required number of members. • Obtain the pledged capital and arrange for capital loans. • Draft the legal organisation papers to include the bylaws, article of incorporation, membership application procedures, production/marketing agreements, etc. • File articles of incorporation with the Ministry of Agriculture, Water and Forestry. • Arrange first meeting of members. • Elect board of directors from charter members.

16. Operating a cooperative Purpose: Cooperatives are often called non-profit because profits from their operations are distributed to members who then pay taxes on them. Ownership: Cooperatives are owned by members and exist solely for the purpose of serving the members unlike corporations that operate to serve their investors

17. Financing Cooperatives • Equity capital: Money invested by owners and is normally put into the business and left there indefinitely. • Debt Capital: Borrowed money, usually from non owners and periodic interest payments are made on it and there is a specific date when it must be repaid. • In addition to the above two form of capital for cooperatives there are other method/form of capital called the In between: • Marketing contract: Mutual agreement between farmer and cooperative stipulating that the farmer will deliver all contracted commodity produced to the cooperative. Cooperatives will process and market all commodities delivered. • Pooling: Products with the same grade are pooled together and marketed together. Members are paid the average price received by the pool. Pooling gives highest return to those who produce the best quality and spread the risk of fluctuating prices among members.

18. End!!! Thank you. Questions??