Cooperative Development Program (CDP) is one of several USAID-funded activities designed to help cooperatives become more competitive, increase their revenues and profits, and expand the benefits they provide to farmer-members. Leveraging 90 years of dairy cooperative expertise, Land O’Lakes is working with farmers, business owners and governments to learn about the structures, strategies and conditions that help dairy cooperatives to succeed. Initially, the CDP will concentrate its activities in Kenya and Uganda, and will later expand to include two additional countries.
The Competitive Environment
Dairy is a commodity that fits well with the cooperative model, especially for horizontally and vertically integrated cooperatives. Outside the U.S., Canada and other developed countries, there are few examples of successfully vertically integrated dairy cooperatives. In the developing world, there are only a handful of vertically integrated cooperatives operating as independent businesses, which are not closely tied to the government. CDP will closely examine vertically integrated dairy cooperatives in Kenya and Uganda to understand how these unique businesses evolved. What were the critical factors that led to successful vertical integration? How can we develop tools or resources that cooperatives in other countries or sectors can use to determine if vertical integration is a realistic business development option?
The Incentive To Vertically Integrate
Dairy farmers have a perishable commodity that can have value added (by creating products such as yogurt and cheese) – and ultimately increase their incomes – if there is access to a cold chain, collection centers and processing facilities. CDP is assessing two types of vertically integrated cooperatives: the federated system, and also individual cooperatives that are vertically integrated. In a federated system, farmers join primary cooperatives around bulking centers, and are incentivized to work on increasing production since they have a business interest in maximizing the capacity of their shared bulking tanks.
Cooperatives located around bulking centers may also horizontally integrate around collection centers. Cooperative unions may come together to form a federation or apex organization. The federation has the responsibility for investing in the processing facility. The simpler scenario is an individual cooperative that invests directly in processing.
The Development Hypothesis
Dairy cooperatives that achieve and leverage economies of scale through horizontal and/or vertical integration increase their commercial viability and competitiveness, and provide greater socioeconomic returns to farmer-members, especially women. In order to prove the hypothesis, CDP will collect data to ensure sufficient depth and quality of information about the participating cooperatives and cooperative members. The data will be analyzed and used to develop tools, resources and methodologies that can be widely shared. The tools will be applied to immediately support participating cooperatives in Kenya and Uganda, and, over time, with participating cooperatives in expansion countries.
The program is beginning by collecting data from strong dairy cooperatives and dairy farmers in target milksheds to better understand the environment in which they work, as well as the conditions that shape their successes and challenges.
Land O’Lakes will work with some of the world’s leading experts in cooperative management, agriculture and sociology to analyze the data and identify the components of success. In particular, we want to explore the effects of vertically integrating dairy cooperatives, and then develop tools that can be used to help cooperatives identify opportunities for investing in a processing facility or other business investments up the value chain.
Knowledge Capture and Sharing
Land O’Lakes will hold international learning events to promote knowledge sharing among cooperatives – one of the principles of cooperative development. One will be held in India, home to one of the world’s largest networks of dairy cooperatives, and the other in Kenya, where there are several vertically integrated dairy cooperatives competing with larger, independently owned firms. Participants, including cooperative managers from around the world, will present, share and network. Additionally, CDP cooperatives will be invited to participate in the International Dairy Enterprise Alliance (IDEA), a web-based portal that will house tools, resources and references on dairy or cooperative development. There are currently 16 partners committed to playing a role in IDEA, including the East African Dairy Development Project, research institutions, breeding service providers and others.
Applying What We Learn
Beginning in the third year of the project, we will work with cooperatives in our program to overcome organizational weaknesses that limit their competitiveness and help them meet their development goals. We will also seek to replicate our strategies with other selected dairy producer groups and cooperatives in our core countries and expansion countries.
The success of Land O’Lakes CDP program will be based on how successfully our cooperative partners grow, and the increasing benefits they provide to their members. After five years, the program expects to show:
- A 30 percent increase in household income for members of vertically integrated dairy cooperatives
- A 25 percent increase in revenue for vertically integrated cooperatives.
For a PDF file of this description, click here.
In March 2012, the International Dairy Enterprise Alliance (IDEA) network launched its first Cooperative-to-Cooperative Learning Series in Nairobi, Kenya. Made up of 25 cooperatives, organizations and private sector partners spanning nine countries, the event fostered a collaborative discussion among participants on best practices, technologies and innovative solutions to shared dairy industry and cooperative issues. Stay tuned for more information on the second event in the Learning Series to be held in India in 2013!
For more information on the IDEA Cooperative-to-Cooperative Learning Series held in Kenya, click here and here.
To find out more about this project, please contact:
Cooperative Development Specialist
In the U.S.:
Practice Manager, Enterprise and Cooperative Development