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Type Working Paper - Finland: Department of Economics and Management
Title Cooperatives as a Tool for Poverty Reduction and Promoting Business in Tanzania
Publication (Day/Month/Year) 2013
URL https://www.researchgate.net/profile/John_Sumelius/publication/264623374_Cooperatives_as_a_Tool_for_​Poverty_Reduction_and_Promoting_Business_in_Cooperatives_as_a_Tool_for_Promoting_Business_in_Tanzani​a/links/53e99d260cf2dc24b3cabf63.pdf
The overall aim of this report is to provide an analysis and make policy recommendations
on how Finland can promote inclusive people-centred businesses for
poverty reduction by supporting the cooperative business model in Tanzania. The
approach is to find concrete examples of genuine, business-driven cooperatives
comprising poor members that are profit-driven and are improving the situation
for those members. This report also identifies the particular features that characterize
such cooperatives. The guiding policy programmes for this economic development
have been Finland’s Development Policy Programme 2012, the Second
National Strategy for Growth and Reduction of Poverty of the United Republic of
Tanzania (MKUKUTA II) and the Country Strategy for Development Cooperation
with Tanzania 2013-1016 by the Ministry for Foreign Affairs of Finland.
The total number of cooperative members is about 1.6 million, whereas the actual
number of people that benefit from cooperative services could be around 8 million.
Cooperative organizations are guided by the following Cooperative Development
Policy, 2002 (2003); Cooperative Societies Act, 2003, Cooperative Societies
Rules 2004 and a Cooperative Reform and Modernization Programme (CRMP)
(2005 – 2015).
The cooperative sector consists of a four-tier structure with cooperative primary
societies at the grassroots, secondary societies (unions) and apexes in the middle,
and a federation at the national level. The only levels stipulated by law are the
primary societies and the federation. It is this prerogative of the primary societies
to choose whether or not to form secondary societies and it is the prerogative of
the secondary societies to form apexes. However, not all members of the primary
societies are aware of the voluntary character of these unions.
The study was based on semi-structured interviews based on a set of questions
and a formal questionnaire whereby 11 cooperatives were interviewed. In addition,
representatives of different local cooperative organizations, state, international
and donor authorities concerned with cooperative development in Tanzania
were interviewed. A workshop held on 24.6.2013 discussed preliminary findings
together with representatives of the major stakeholders. At the same time the
overall scenario of Tanzanian cooperatives was presented from the viewpoint of
their strengths, weaknesses, opportunities, challenges and threats.
Effective functioning of cooperatives in Tanzania is characterized by a number of
features. 1) The primary cooperative society is strong and works as the driving
force of cooperative development, business promotion, job creation and poverty
reduction. The members have control of the cooperative. 2) Financial services, i.e.
services offered by SACCOs (Savings and Credit Cooperative Societies), AMCOs
(Agricultural Marketing Cooperative Societies), cooperative banks and cooperative
insurance companies, are close to the members of the primary society. 3) Members
are trained to know their rights, to know how to run a cooperative efficiently,
to maintain their autonomy and independence from external pressures. 4) The
secondary structures (unions or similar) are light. Primary members may sell ii
through other channels than the union. 5) The secondary structure provides relevant
information to the members and carries out business negotiations with both
foreign and domestic buyers. The secondary structure does not deal with any
money or physical commodities directly. 6) Activities carried out by the secondary
cooperatives are transparent. 7) In cases where the cooperative is clearly market
oriented developing new products partnership with a foreign investor seems
beneficial. 8) The partnership between the cooperative and the foreign investor is
based on that between cooperatives themselves.
Concrete examples of effective, profit-driven business that improve the situation
for the poor segment of population in Tanzania can be found in the close cooperation
between AMCOs and SACCOs. In this case the primary societies market
coffee through an AMCO. Members of SACCOs receive higher prices more timely
payments and transparency of the organization is better. A large part of the coffee
is sold as fair trade coffee directly overseas to Japan. SACCOs provide shortterm
credit for inputs and smaller investments. The primary societies cooperate
with the local cooperative bank in order to acquire appropriate financing. On the
whole, living conditions of the members seem to have improved. One decisive
factor is that all business activities are in the hands of the members. Another critical
condition is that the secondary structure is light with few employees, it facilitates
entry or exit, dealing with knowledge management, disseminates information
and manages business negotiations with buyers. Members have the option to
sell through other marketing channels as well. Women’s participation is encouraged
by inter alia, giving them a part of the coffee yield. Such a model of partnership
could be repeated in many other areas and for other agricultural products in
Tanzania. Such model partnerships are in accordance with the principles stated in
the Finnish Development Policy Programme 2012 and the NSGRP II- MKUKUTA II.
Another concrete example of a business-driven cooperative has been found in the
processing of milk. The cooperative collects and processes milk, markets dairy
products through a dairy owned together by a foreign investor. The cooperative
has been able to grow and create employment, reduce aid dependence and contribute
to the tax base for the government. It is clearly a cooperative in line with
the Country Strategy for Development Cooperation with Tanzania 2013-2016.
New dairy products have been created and are mainly sold in Dar es Salaam. Approximately
2200 members are young. Their living conditions and living standards
seem to have improved. The success factors include market orientation, partnership
between the local and foreign cooperatives, high demands for products, expanding
markets, inclusion of young producers and facilitating their needs and
establishment of collection centres and efficient milk collection. This type of cooperative
is clearly business and market oriented and plays a role in the national
dairy market.
A third concrete example of a cooperative that has been successful in reducing
poverty is a dairy cooperative managed by women in the Kilimanjaro region. The
women of this cooperative have been empowered and the households’ incomes
have improved through the sales of milk and milk products. The ability to pay
school fees for the children and get access to medical services has become easier. iii
Availability of extension, access to market information and other services has improved.
The social status of women at household level has raisen as they can
contribute to household incomes and tax revenues to the government. Generally,
this type of dairy cooperative has contributed to the realization of the Millennium
Development Goals (MDGs). Dairy cooperatives are an effective way to increase
the incomes of women through local marketing activities. Problems encountered
in these cooperatives are poor facilities, inadequate technology, relatively low
management skills, lack of capital for expansion and promotion. Although the
markets are local the impact in a particular community may be large. Technical
deficiencies exist and would need improvement.
Some cooperatives, more specifically the coffee unions, do not seem to be succeeding
in reducing poverty in link with expectations envisaged the Finnish Development
Policy Programme 2012 goal of good governance and accountability. The
procedures they follow do not completely correspond to those qualities indicated
by the MKUKUTA II, cluster III first goal, which is designed to ensure systems
and structures of governance, uphold the rule of law are democratic, effective,
accountable, predictable, transparent, inclusive and corruption-free at all levels.
The Cooperative Societies Act 2003 of the United Republic of Tanzania recognizes
two structures only. The primary society at the local level and the federation at
the national level. This allows greater flexibility and space for primary societies to
exercise freedom and autonomy of making choices on business development for
their members. The act is clear. The existence of a policy implementation framework
called the Cooperative Reform and Modernization Programme whereby cooperatives
can exploit opportunities offered by the government for achieving their
own business objectives.
The Finnish Ministry for Foreign Affairs is recommended to implement the following
1. Develop interactions between the Tanzania Federation of Cooperatives (TFC)
and cooperative apex organization in Finland in order to share the experience
of effective performance of cooperative management. This might include
exchanges of TFC and apex staff with the aim of familiarizing both
parties to the circumstances of cooperative activities in both countries.
2. Support the expansion of light secondary structures such as the G32 KNCIJVE
LTD network to other parts of Tanzania. This can be achieved through
training activities drawing upon the experience of G32 (or a similar organization,
the Dundiliza network of SACCOs) and by scaling-up their activities.
The experience of G32 can be used in other areas, by other AMCOs of coffee
or AMCOs of other agricultural products. New cooperative officials of such
secondary structures could be trained in the area of managing business negotiations
with buyers, financial services with respect to cooperation between
banks and the primary societies, marketing, grading of coffee products
and price stabilization through reserve funds. iv
3. Give support to women dairy cooperatives e.g. the Kalali Women Dairy Cooperative
Society by renovating milk plants for the improvement of the processing
of raw milk and milk products to increase production capacity, avoid
contamination and improve hygiene.
It is also recommended to continue with the established partnership between the
Moshi University College of Co-operative and Business Studies (MUCCoBS) and
the University of Helsinki in the field of cooperative education and research.
The United Republic of Tanzania could provide policy level support cooperative
action in the following ways:
1) Guarantee that primary societies ensure the freedom of associations to make
decisions at the member’s level.
2) Develop cooperative actions at the village level to empower farmers to look
for other opportunities to address risks, improve access to financial services,
enhance economic opportunities and democratization processes.
3) Improve systems that deliver information to primary societies.
4) Enhance women’s and the youth’s participation in cooperatives.
5) Improve professional management of cooperative businesses at all levels.
6) Help the primary societies to have reserved funds to stabilize prices, especially
coffee prices. The Government of Tanzania could support these measures
by ensuring that the officials of the secondary structures cooperate fully
with cooperative banks or other banks to create stabilization funds. The
Government of Tanzania could also guarantee that the officials have enough
knowledge and competence for creating such stabilization funds.
In order to expand the provision of financial services to the levels of members
and cooperatives strategic policies should be formed for future use as follows:

7) The Government of Tanzania could support provision of financial services
by encouraging the independent and well-functioning of the SACCOs which
are characterized by good governance.
8) The Government of Tanzania could support professional management of
cooperative businesses by proving training facility to managers of primary
societies. Training of secondary cooperatives in management issues is another
area which the Government of Tanzania could support by ensuring
that the Cooperatives Act, 2003 is implemented appropriately in Tanzania.
Finland could, encourage the Government of Tanzania to implement these reforms
through policy dialogue within General Budget Support, agricultural and
rural development.

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