December 20, 2021

Increased niger seeds aggregation capacity through improving access to finance

Soy and Oil Seeds

Ethiopia

Facilitating access to working capital financing by cooperatives to strengthen their competitiveness is one of the major objectives of the Tsehay Farmers’ Cooperative Union-2SCALE Partnership.

As a union, Tsehay sources Niger seed-an oilseed native to Ethiopia and Eritrea- for its edible processing plant from over 142 affiliated cooperatives with a total membership of approximately 120, 450 smallholder farmers. Niger seed supply from these primary cooperatives is limited, leading Tsehay to source for these seeds from other multipurpose farmers’ cooperative unions. Megenaga Multipurpose Farmers’ Cooperative Union is one of the major unions that supplies Niger seeds to Tsehay.

Located in Debre Tabor town in southern Gondar Zone of the Amhara regional state, Ethiopia, Megenaga Multipurpose Farmers’ Cooperative Union has 73 member cooperatives with a total number of 97,660 (10, 320 Female) smallholder farmers (SHFs). As a union, Megenaga’s major role under the partnership is to aggregate Niger seeds from smallholder farmers and supply them to the Tsehay edible oil factory. Farmers sell their produce to cooperatives in cash as is the norm in most of the cooperative businesses in Ethiopia. Apart from direct buying from smallholder farmers, Megenaga Farmers’ Cooperative also deals with supply of inputs such as fertilizer and seeds, grain marketing, and supply of consumer goods. It also purchases grains and various oil crops from affiliated primary cooperatives and other cooperative unions, for resale to processors, traders, urban and rural consumers.

To run successfully, and to enable direct purchase from smallholder farmers, the cooperative requires capital all year round to aggregate in cash from farmers. However, shortage of capital is often a key hindrance to the aggregation and marketing capacity of Megenaga.

The unions coach, Mr. Getalem Amha, explains:

As a primary cooperative, some of our operations are constrained due to unavailability of working capital. Initially, we expected to receive a cash advance from Tsehay Farmers’ Cooperative union, to enable us to aggregate Niger seeds from farmers. This reliance meant that in the absence of such pre-financing, our aggregation capacity was under threat.

Internal capitalization: a viable solution to constrained operations

Self-financing is an important principle for cooperatives. When members have trust and invest capital in a cooperative, they promote its competitiveness.

To build on the union’s competitiveness, and especially its aggregation capacity, 2SCALE facilitated access to different financial services for Megenaga union and other primary cooperatives in the partnership. This support included internal capitalisation, a form of self-financing where members invest capital through acquiring shares. This was mainly achieved through building and strengthening trust and relationships among new and existing shareholders, as explained by Mr. Getalem:

A total of 11,000 members bought additional shares while 7,850 bought new shares worth $ 50,000. It took a process to achieve this. In partnership with 2SCALE, we facilitated consultative meetings with stakeholders that provide technical support to cooperatives. The aspect of awareness creation to the board of directors and key managers of the cooperative and educating farmers to change the annual dividend into additional shares was also key to achieving the purchase of additional shares.

Not only did this process aid in developing the capacity of the cooperative to procure Niger seeds without expecting pre-financing from the union, but it also enhanced its competitiveness to access loans from various financial institutions. For instance, early in 2021, Megenaga union obtained a total loan of $553,192; this included, $382,978 from Abay Bank and $170,212 from RIB & LIDET SACCOs with a collateral of fixed assets and savings respectively.

The self-financing concept was advantageous to our cooperative since we managed to increase the aggregation capacity of Niger seeds and other oil seeds. Most importantly, the relationship between the union, primary cooperatives and other stakeholders was strengthened, building on to buying of share capital,

says Mr. Getalem

Improving access to financial services for farmer cooperative unions while Improving smallholder farmers' competitiveness, is key to the goals set up within this partnership. The support of 2SCALE towards bringing different stakeholders to support the aggregation capacity of Megenaga union and other cooperatives is a key step towards ensuring farmers have a reliable buyer for their produce all year round.

Share this update: