"The Health of Farmer-Based Organizations in Ghana:Organizational Diagnostics and Governance Implications" - Gian Wouterse SIG 2015 Workshop "Integrating Multi-level Governance into the Post-2015 Development Agenda: Opportunities, Trade-offs, and Implications", Nov 9-10, 2015

1. The Health of Farmer-Based
Organizations in Ghana:
Organizational Diagnostics and
Governance Implications
Gian Nicola Francesconi (CIAT) and Fleur
Wouterse (IFPRI)

2. Motivation
 Agricultural cooperatives are increasingly recognized as
key organizations for the development of agribusiness and
smallholder value chain integration in developing
countries.
 Cooperatives are expected to play a particularly
important role in rural Africa where rural institutions and
infrastructure remain underdeveloped
 Although agricultural cooperatives exist throughout Africa
and have received some form of donor and government
support, their contribution to the development of
agribusiness has remained limited.
 Many cooperatives appear to be dormant or unable to
mobilize collective action

3. Motivation
 Clearly, having in place the organizational infrastructure
does not automatically imply collective action.
 There is need to open the cooperative black box and
assess the level, extent and intensity of the collective
domain.
 This study uses new organizational level data for Ghana to
better understand what determines cooperative health
and how and why it may be compromised.

4. Theory
The cooperative life cycle framework” specifies that the
“health” of a cooperative evolves according to a life cycle:

5. Theory
• P1: Economic justification: Farmers need an economic
justification to self-organize and collective action is
often considered as an effective means to reduce
transaction costs as it enables the exploitation of
important economies of scale in accessing markets.
• Design: Cooperatives are typically established on the
basis of equity principles, property rights tend to be
vaguely defined, allowing for patronage or the support
that a member bestows upon another given differential
usage of the services provided.
• P2: a period of membership growth and good
performance due to the ability to take advantage of
economies of scale and scope.

6. Theory
 P3: FBOs tend to experience increased heterogeneity
in members’ socio-economic preferences. Although
this process contributes to increased risk-sharing,
under vaguely defined property rights it can also give
rise to the free-rider problem.
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7. Theory
 But what constitutes cooperative health?
 The success of FBOs in developing countries appears to
depend on the co-existence of systems for risk-sharing
and efficiency-enhancement.
 A key function of cooperatives is to reduce on-farm risk.
Farmers seek to mitigate uncertainty at the level of the
farm by transferring risk to the organization in such a
way as to spread it among the members
 In cooperatives, risk-sharing increases with the degree of
heterogeneity in members’ risk preferences.
 To provide members with market access and reduce
transaction costs, cooperatives need to effectuate
investments that centralize the flow of in- and outputs
(for example warehouses)

8. Theory
 But the existence of assets in organizations where social
capital is low can result in agency-cost problems due to
elite capture and leading to decreased opportunities for
risk sharing.
 We thus define cooperative health as the alignment of
heterogeneity in risk preferences and the existence of a
collective asset.

9. Setting
 Agriculture is the dominant sector in Ghana’s economy.
 The sector employs about 60 percent of the economically
active population and contributes about two-thirds of
foreign exchange earnings.
 Staples—roots and tubers—contribute about two-thirds of
agricultural GDP. Cocoa, the largest foreign exchange
earner in the sector, contributes 12–13 percent.
 Ghana's agricultural sector is characterized by
smallholdings and traditional farming practices.
 Three-fourths of farm holdings are less than three hectares
 Production systems and technology are mainly traditional,
based on intercropping and use of simple implements and
hand tools with little use of modern inputs
 Crop production is largely rain fed

10. Setting
 Favorable weather conditions and world market prices
for cocoa have contributed to recent rapid growth in
agriculture with the bulk of this growth coming from area
expansion.
 Productivity in the food crops that smallholders dominate
has been rather variable and stagnant in many areas.
 Access to input and output markets has been identified
as a key constraint to smallholder development
 Ghana has been trying to transform its agricultural sector
and improve the lot of smallholders
 Transformative goals for small farmers include increased
participation in markets and higher productivity, enabled
in part by better access to and use of input and credit
markets.

11. Farmer-Based Organizations in Ghana
 One strategy to reduce market access constraints for
smallholders has been the promotion of Farmer-Based
Organizations (FBOs)
 FBOs are organizations owned by the individuals using
their services.
 FBOs can thus be considered as patron-owned (or user-
owned) cooperatives as opposed to investor-owned firms.
 In 2010 there were approximately 10,000 grass-root (or
primary) FBOs in Ghana involving about 350,000 farm
households
 One incentive scheme to promote rural development was
the agricultural program of the Millennium Development
Authority (MiDA).

12. Data
 Primary data on 500 FBOs collected in 2010.
 Randomly selected from a list compiled by the Ministry of
Food and Agriculture (MoFA), which included only
organizations at the village level (i.e. no unions,
federations or other forms of apex organizations).
 Six (out of ten) administrative regions, and all three main
agro-ecological zones of the country (coastal, rainforest,
sahelian).
 Semi-structured interviews were conducted with three
board members (president, secretary and treasurer) from
each sampled organization.
 Risky-dictator games were played to assess the
heterogeneity in risk-preferences and thus the potential
for risk sharing.

13. Methods
 Conform our theory, we define two indicators of
cooperative health:
1. the degree of heterogeneity in risk preferences
2. the existence of a collective asset
 Using cluster analysis we can categorize FBOs on the
basis of their health and distinguish four types
N=500 Homogeneous risk
preferences
Heterogeneous risk
preferences
Total
Collective
Asset
15% (type 3a) 11% (type 2) 26%
No collective
Asset
39% (type 1) 35% (type 3b) 74%
Total 54% 46% 100%

14. Findings
 Most FBOs (39 percent) are of type 1 (homogenous
risk preferences and no collective asset) while many
others FBOs (35 percent) fall in typology 3b: no
collective asset and heterogeneous risk preferences.
The rest are either of type 3a (15 percent) or type 2
(11 percent).
 Given that typology 2 is supposed to characterize
healthy organizations i.e. those that provide their
members with both risk-sharing (due to
heterogeneous risk preferences) and cost-saving (due
to the collective asset) services, we can infer that
the health of sampled FBOs is generally poor.

15. Methods
The health types are correlated with three performance
indicators
1. the participation of an FBO in the MiDA program
(external incentives)
2. the growth in membership recorded by an FBO
since establishment and
3. the type of problem predominantly faced by an
FBO (access-barriers to markets or lack of
internal cohesion).

16. Findings (1)
 Type 1 FBOs are significantly more likely to
participate in the MiDA program
 Organizational health lower in those FBOs
that lack an economic justification
No. of
observations:
500
Participation in
MiDA
Aggregate
participation for other
typologies
t-test
Type 1 0.49 (0.50) 0.37 (0.48) 2.06**
Type 2 0.05 (0.22) 0.12 (0.32) -1.81*
Type 3a 0.09 (0.28) 0.16 (0.36) -1.66*
Type 3b 0.37 (0.49) 0.35 (0.48) 0.34

17. Findings (2)
 Type 2 FBOs grew significantly faster in terms
of membership compared to other types i.e.
healthier FBOs grow faster
No. of
observations:
500
Membership
growth
Aggregate growth for
other typologies
t-test
Type 1 1.14 (2.27) 1.07 (1.96) 0.32
Type 2 1.68 (2.38) 1.03 (2.04) 2.15**
Type 3a 0.81 (1.69) 1.15 (2.14) -1.26
Type 3b 1.00 (1.90) 1.15 (2.18) -0.77

18. Findings (3)
 FBOs of type 3a and 3b are, respectively,
significantly less and more likely to be
confronted with problems of market-access.
No. of
observations:
500
Lack of internal
cohesion
Barriers to
markets
t-test
Type 1 0.42 (0.50) 0.39 (0.49) 0.57
Type 2 0.10 (0.30) 0.11 (0.31) -0.28
Type 3a 0.21 (0.41) 0.14 (0.34) 1.68*
Type 3b 0.27 (0.45) 0.37 (0.48) -1.65*

19. Findings
 The vast majority of the FBOs in our sample appear to
be characterized by sub-optimal health
 This low health may explain why FBOs are often unable
to provide their member-farmers with services that
would enhance their participation in markets.
 FBOs have the potential to simultaneously provide risk-
sharing and efficiency-enhancing benefits to Ghanaian
farmers.
 The realization of this potential may however require
an important shift in the way FBOs are governed.
 Although external incentives can promote the
establishment of FBOs, for FBOs to perform an effort is
required to prevent misalignment of heterogeneity in
members’ risk preferences and the effectuation of
collective investments.

20. Implications for governance
 We find that when external incentives may have
motivated farmers to self-organise, cooperative health
is generally low.
 FBOs appear to either maximise risk-sharing between
members while failing to mobilize resources for
collective investments that should help member-
farmers participate in markets or favour efficiency-
enhancing investments while failing to foster the
necessary risk-sharing mechanisms to maintain internal
cohesion.
 Only a few “healthy” organisations appear to be able
to “walk the line” or align the heterogeneity in
members’ risk preferences with the level of collective
investments.