AID Must Consider Social Factors in Establishing Cooperatives in Developing Countries

ID-80-39: Published: Jul 16, 1980. Publicly Released: Jul 16, 1980.

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Cooperatives are seen as one way to improve the effectiveness of U.S. foreign assistance in developing countries by enabling the urban and rural poor to help themselves. The efforts by the Agency for International Development (AID) to foster cooperatives have not been uniformly successful. The primary reason is that AID has not adequately considered the complex political, cultural, and economic factors affecting the development of cooperatives at the basic levels. AID provided $27.4 million in fiscal year 1978 and $35.0 million in 1979 to encourage cooperatives in developing countries. GAO reviewed programs in the Philippines, where AID is assisting farmer irrigation organizations and regional marketing cooperatives; Paraguay, where AID is sponsoring a private central cooperative, CREDICOOP, which provides credit assistance to 29 rural cooperatives; and Liberia, where AID has provided funding for a farmer cooperative system. Strong local institutions are important to assure that farmers participate in and benefit from AID-supported cooperatives. AID programs have not devoted sufficient effort to this aspect. Developing-country governments must be asked to provide appropriate legislative framework, financial support for building warehouses and processing facilities or capital for loan funds, and budget support for those agencies charged with organizing cooperatives and providing training. They also need to intervene to prevent domination by traditional elites, such as landowners and middlemen. Farmer organizations tend to do better when organized around specific goals that can be achieved quickly as a group effort. AID reports to Congress do not examine what actual benefits, if any, cooperatives or their members receive. They measure success in terms of increased sales volume and membership, they do not determine how many members are active or if economic benefits are distributed equitably. They have not provided significant data on key issues, such as how cooperatives can better serve farmers, how a broad sharing of benefits can be achieved, or what other steps can be taken by the host governments, cooperatives, and AID for effective development of cooperatives.

Assistance to irrigation cooperatives in the Phillipines has concentrated on building a network of strong local-level organizations. Success of the system is attributable, in part, to its ability to quickly deliver a tangible benefit as well as the intensive field support provided to the individual associations. Minimal assistance is directed toward the village institutions which form the base of the system, and fieldworkers have difficulty in providing the needed support. Strong village societies are essential to the success of the cooperative credit and marketing system. These societies may be strengthened with additional technical and financial resources. AID assistance to CREDICOOP in Paraguay has provided needed input and services to farmers and advances have been made in the development of a self-sufficient institution. However, self-sufficiency problems in the rural cooperatives which predate the creation of CREDICOOP continue. AID actions have not been satisfactory. The inclusion of nonfarm members has provided additional resources to the system, but continuing the balance without the infusion of external capital is an issue which needs to be addressed by project managers. The operation of the cooperative system has been dependent on host-government support and favorable prices and export demand for the principle crop, cotton. Any unfavorable changes in the political climate or the cotton market could have a devistating impact on the cooperative system. In Liberia, efforts to build a cooperative system responsive to farmer needs have met with little success so far.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Administrator, AID, should develop mechanisms to assure that farmers are benefiting from the assistance provided to regional and national organizations; devote more efforts to obtaining farmers' views on their problems, needs, and priorities in designing and developing cooperative systems and to promoting farmer-participation in controlling cooperative activities; make sure that development funds are not dissipated because recipient countries cannot or do not provide the necessary financial, personnel, or logistic support; set realistic goals for cooperatives, particularly regarding intended beneficiaries; and improve the quality of cooperative project evaluations by focusing on actual benefits to the majority of participants. The Administrator, AID should (1) In the Philippines; assess the feasibility of providing more resources to help village cooperative societies, explore ways to provide more AID and other donor resources and to obtain necessary support from the Philippines government if additional assistance is warranted, and if additional AID and other donor and Philippines Government support is not forthcoming, explore alternatives which will assure that the AID assistance now being provided to regional marketing cooperatives will reach the intended beneficiaries. (2) In Paraguay; take appropriate actions to determine: the causes for cooperatives not repaying delinquent loans and identify and carry out appropriate solutions, the effect on the majority of poor farmers of the new membership strategy which limits cooperative membership to low-risk farmers (those most likely to repay loans), and the potential of CREDICOOP continuing assistance to farmers after AID assistance is withdrawn because of a majority of nonfarm membership. (3) In Liberia; reexamine AID strategy for assisting farmers and define the role of cooperatives in that strategy, and not support the planned phase II followup project unless substantial progress can be demonstrated in overcoming the obstacles which are hampering success of the current project.

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