RIJM Volume 6, Issue 4 (April, 2017) ISSN: 2250 ...

RIJM

Volume 6, Issue 4 (April, 2017)

ISSN: 2250-3986

A Journal of Radix International Educational and Research Consortium

PATI

RIJM RADIX INTERNATIONAL JOURNAL OF RESEARCH IN MARKETING

PERFORMANCE OF RURAL COOPERATIVES ON AGRICULTURAL INPUTS AND OUTPUTS MARKETING IN NORTH WESTERN ETHIOPIA GASHAW TENNA ALEMU College of Agriculture and Environmental Sciences, Bahir Dar University Bahir Dar, Ethiopia ZEWDU BERHANIE College of Agriculture and Environmental Sciences, Bahir Dar University Bahir Dar, Ethiopia

TSEHAY KELEMEWORK College of Agriculture and Environmental Sciences, Bahir Dar University Bahir Dar, Ethiopia

ABSTRACT The study sought to ascertain the performance of rural cooperatives on agricultural inputs and outputs marketing in North Western Ethiopia by using a cross-sectional data collected from 180 respondents in six districts via pre-tested structured interview schedule and analysed by simple descriptive and inferential statistical tools, and ratio measures by taking the three consecutive years’ financial data (20011/122013/14). The liquidity analysis showed that cooperatives’ liquidity status (1.17) in the study area were below the satisfactory rate (2.00). The financial leverage (debt ratio of 0.63) showed that cooperatives were financed more of their total asset with creditors’ fund. The profitability ratio also showed that cooperatives’ profitability was weak since they earn return on their asset (5.2%) below the interest rate of the financial institution extend credit (7%). Therefore, increasing the participation of farmers in the cooperative through provision of different services and benefits, appropriation of surplus in the form of patronage refund, increasing the productivity and specialization of farmers, and continuous education and enlightenment of farmers were the utmost priority areas of interventions to improve the performance of cooperatives in the study area. Keywords: Multipurpose Cooperative Society, Liquidity Ratio, Debt Ratio, Profitability Ratio, Participation

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1. INTRODUCTION Co-operation including but not limited to in the form of Equib, Eddir, Wonfel or Jigie, Senbete, as a way of life have a long tradition in Ethiopia which can be found everywhere in the working of mutual aid institutions such as and many others. According to Zerihun (1998) cooperative is an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly- owned and democratically controlled enterprise.Accordingly, rural cooperatives are concerning in agricultural inputs and outputs marketing activities, credit provision and providing other services to the members. Rural cooperatives involved in agricultural inputs and outputs marketing had been recording poor performance as a major obstacle to nation economic growth in general and agriculture sector in particular in Ethiopia (Dawit, 2005). Likewise,the existence of inefficient marketing system in rural cooperatives benefits neither the farmers nor the country from the surplus which is derived from increased productivity (Eleni et al., 2004). In light of this Dawit (2005) identified the most critical constraints they are facing, i.e. low institutional capacity, inadequate qualified personnel, low entrepreneurship skill, lack of financial resources, lack of market information, poor members’ participation on each and every aspects of the cooperatives. The financial aspects of rural cooperatives performance on agricultural inputs and outputs marketing was also examined empirically which was found weak as a result of weak management that causes suboptimal resource allocation in their use; high loan burdening and low liquidity levels; under developed marketing management; and lack of knowledge concerning the rural society (Nadezhda, 2009). Accordingly, Kidane and Tamilarasu (2014) reported that poor financial management which creates difficulty in mobilization of finance, high interest rate, and high transaction cost, etc. are the potential challenges which contributes for the poor financial performance of rural cooperatives. Rural cooperative movement in Ethiopia in general and inAmhara National Regional State(ANRS) in particular has shown a dramatic growth not only in number but also in membership size, capital and operational diversity. This is mainly attributed to the efforts exerted by the government and other stakeholders. Cooperatives have been considered by the government as a potent instrument to lift the poor out of the realm of poverty and are expected to contribute to the country’s Growth and Transformation Plan. Cooperatives need to sustainably serve their members and meet what they are projected to contribute towards the country’s national development. In effect, it is vital to monitor how these peoples’ organizations are financially operating since finance is at the heart of not only corporate businesses but also cooperative societies. Unless the financial position and financial performance of cooperatives are healthy, it may be a nightmare for cooperative societies to sufficiently serve their members and contribute to the national economic development via proper marketing of agricultural inputs and outputs.Therefore, to the knowledge of the researcher, there is ashortage of studies on the marketing performance of rural cooperatives in agricultural inputs and outputs marketing in the study


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area. Hence the present study was exceptional and it makes an attempt to bring forth the performance of rural cooperatives on agricultural inputs and outputs marketing in West Gojjam Province, ANRS. As a result, the following conceptual framework was constructed and investigated.

• • •

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Organizational Performances Capital and Membership in Cooperatives General Meetings, BoDs and Employees

Financial Performances Liquidity Ratio Debt Ratio Profitability Ratio

Performance of Rural Cooperatives on Agricultural Inputs and Outputs Marketing Members’ Extent of Participation

Functional (Inputs and Outputs Marketing) Performances • Food Grain Procurement and Distribution • Fertilizer and Seed Distribution • Credit Provision

Figure 1: Conceptual Framework of the Study: Sketched by the Researchers 2. RESEARCH METHODOLOGY West Gojjam, the study area, is one of the productive provinces in North WesternEthiopia. Based on the 2007 census, this province has a total population of 2,106,596, of whom 1,058,272 are males and 1,048,324 females; with an area of 13,311.94 km2, a population density of 158.25. A total of 480,255 households were counted in this Province, which results in an average of 4.39 persons to a household, and 466,491 housing units (CSA, 2007).

Figure 2: Map of the Study Area: Sketched by the Researchers Via Arch GIS Software


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Generally, multistage random sampling had been used for this study since it accommodates different techniques at a time. At the first stage, West Gojjam Province was purposely selected for this study since it has more number of rural multipurpose cooperative societies (MPCSs)which operate on agricultural inputs and outputs marketing services, and most of the farmers are getting their agricultural inputs and transacting their agricultural outputs from MPCSs. Secondly, purposive sampling technique was used to come up with the six districts in the Province which having relatively the maximum number of MPCSs. In the third stage, out of the total MPCSs that comprised under the selected districts, eighteen MPCSs were selected via employing simple random sampling. Finally, a total of 180 cooperative members selected as respondents mainly to collect primary data through employing systematic random sampling, i.e. circular systematic sampling technique, after taking a list of members from each multipurpose cooperative in each selected district. Primary data were collected from primary sources such as respondents through pre-tested structured individual interview schedule, key informant (KI) interviews and focus group discussions (FGDs). Secondary data were also collected from different secondary sources such as baseline information of the MPCSs, development plans (five-year strategic plans, annual plans), and annual reports of each selected District, Cooperative Union and ANRS Cooperative Promotion and Development Agency (CPDA), research journals, CSA publications, etc. The collected data was analyzed by using different quantitative statistical procedures and qualitative methods that help to address research objectives. Thus, descriptive statistical tools like frequency table, mean and standard deviation are extensively used to explain the household characteristics of respondents, and other issues that comprised of the research objectives. Inferential statistical tools like chi-square and t-test also used to testify the significance of results. The qualitative data were partly analyzed on spot during data collection to avoid forgetting and to be able to identify the gaps to be covered through subsequent data collection. Ratio measures by taking the three years’ financial data (20011/12, 2012/2013 and 2013/14) like liquidity ratio, debt ratio and profitability ratio were intensively employed to capture the financial performance of the rural cooperatives. Additionally, pairwise ranking was employed to see the challenges of rural cooperatives on input and output marketing in the study area based on its degree of importance. 3. RESULT AND DISCUSSIONS 3.1.

Household Characteristics

Households are important institutional unitsfor most development process including the development of cooperatives because of their influences on utilization of different agricultural extension services including marketing services provided by cooperatives. Hence, an assessment was made to see the characteristics of respondents in the study area.


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Out of the total samples (180), 26.7% (48) were Active Participant Members (APMs) who scored >0.5 which is composed of 85.4% (41) and 14.6% (7) male and female headed households respectively, and the rest 73.3% (132) were Passive Participant Members (PPMs) who scored less than 0.5 which is composed of 56.1% (74) and 43.9% (58) male and female headed households respectively. The mean age of the total sample respondents were 47.1 years with minimum and maximum age of 28 and 74 years respectively. The result of t-test indicated that there is a statistically significant difference (t= 1.66) between the mean age of APMs and PPMs at less than 10% probability level. The PPMs are more aged than APMs. The average family size of APMs and PPMs was found to be 6.2 and 5.81 respectively. However, independent sample t-test indicated no significant mean differences between the two categories at 10% probability level. The educational level of sample respondents presented that 8.3% and 91.7% of APMs and 81.8% and 18.2% of PPMs are illiterate and literate respectively, and the inferential result showed that there is a significant mean difference ( = 82.341) at less than 1% probability level. According to the survey result, the mean years of membership in MPCSs for APMs and PPMs are 35.24 and 25.22 respectively. The inferential result also showed that there is a statistically significant mean difference (t= 1.77) at less than 10% probability level. Similarly, there is a statistically significant mean difference (t= 1.89) at less than 10% probability level between APMs and PPMs in their years of farming experience with the mean value of 35.24 and 25.22 respectively. Additionally, the mean annual income of APMs and PPMsare 45,924.12 and 22,134.22 Birr 1 respectively. This result showed that there is a significant mean difference (t= -11.123) between them at less than 0.01 significance level. Moreover, farmers with long experience in farming may have better and wide knowledge to perceive risks and constraints to effective transfer of new technologies (Muthyalu, 2013). According to the survey result, the average land holding size of APMs and PPMs was 2.32 ha and 1.22 ha respectively. There is a statistically significant mean difference (t= -13.145) at less than 0.01 significance level. Additionally, the survey result clearly shows that, on average a household had 5.75 TLU (6.83 for APMs and 4.66 for PPMs) with a standard deviation of 2.44 (2.36 for APMs and 2.52 for PPMs). The number of TLU owned by APMs was half times greater than PPMs. There was a significant mean deference (t=-5.630) at less than 0.01 level of significance between APMs and PPMs. The reason for the differences is socio-economic status of PPMs to own such important assets. Generally, related to household characteristics of sample households, the same result had been found by Muthyalu (2013). 3.2.

Ratio Analysis

Financial ratios have been extensively used and testified to investigate the financial performances of cooperatives (Boyd et al., 2007, and Sobohet al., 2009).Nevertheless,adopting financial ratios to gauge the performance of cooperatives is not the result of economic theory (Sexton and Iskow, 1993).

1

Ethiopian Official Money


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Liquidity is the ability of the cooperatives to meet current demands for loans, saving deposit withdrawals and to meet other necessary expenses (Jemal, 2008; Biruk, 2015). Liquidity management which is measured by current ratio is frequently used in different literatures to evaluate the financial performance of cooperative firms (Barton et al., 1993; Kenkelet al., 2002; Richards and Manfredo, 2002; Boyd et al., 2007). Liquidity ratios measure the short-term solvency of a firm. High liquidity reflects an ability to repay debts and is valuable for obtaining debt capital. It also reflects a management team’s disposition for using its cash and other short-term assets efficiently.The satisfactory rate of current ratio that is accepted by most lenders as condition for granting or continuing commercial loan is 2.00 (Kidane and Tamilarasu, 2014). With this yardstick when the reference years (2011/12, 2012/13 and 2013/14) were observed, all cooperatives in the six districts performed below the desirable standard (Table 1). In 2011/12 the average current ratios for the eighteen selected cooperatives in the six districts was 1.209, 1.189 and 1.114 in those three consecutive years respectively. The highest (1.975, 1.945, 1.902) and lowest (0.425, 0.585, 0.645) current ratios in three consecutive years (ascending order) were scored by Meshenti and Ta’emBirhan MPCSs respectively. In those three consecutive yearsthe performance of the cooperatives in their liquidity ratio have been continually decreased, i.e. three, five, and nine MPCSs couldn’t liquidate in general since their ratios were less than one, which implies that their current liabilities are rising faster than their current assets. Though the cooperatives got credit from financial institution, in most cases the government being their collateral, the ability to get cash (credit) by their own to meet their short-term demand for money was endangered. Lenders may not be willing to extend short-term loan to these cooperatives i.e. lenders require current ratio to remain at or above 2.00 as a condition for granting loan. In line with this finding, Jemal (2008) used ratio analysis to evaluate performances of cooperatives by taking the two years’ financial data (2001/2 and 2002/3) in the study districts of Tigray and the liquidity analysis showed that the cooperatives under investigation were below the satisfactory rate (a current ratio of less than 2.00) for two consecutive years. Similarly,Biruk (2015) on his survey result conducted on the financial performances of saving and credit cooperatives in East and West Gojjam Provinces declared that, the overall liquidity position in the study periods is showing unhealthy condition. The same result had been profound by McKee (2008) on a survey sample of 58 North Dakota agricultural input supply and grain marketing cooperatives which experienced decreases in liquidity, as measured by the current ratio, between 2002 and 2007. The current ratio for this group declined from 1.66 (e.g., 1.66 units of current assets to 1 unit of current liabilities) in 2002 to 1.35 in 2005, then increasing to 1.43 in 2006.Similarly, Yuvaraj and Biruk (2013) reported that, the financial health on the liquidity position of Gohesaving and credit cooperatives union was unhealthy in condition. The union failed to satisfy the deposit withdrawal request due to the fact that the union has no liquid reserve funds to address the request; deteriorating liquidity position provides members with unsafe place to deposit their money.Likewise,Kidane and Tamilarasu (2014) found the same result with the aforementioned authors. However, Dorsey and Boland (2009) reported that certain level of liquidity is essential to the operation of a business, but that excessive liquidity tends to reduce efficiency. Generally, Kehoe and Levine (2001) stated that research in the overall economics literature supports the idea of increased liquidity with decreased profitability.


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All of the cooperatives in the sample districts used financial leverage (finances a portion of assets with debts). The MPCSs under investigation were financing more of their total asset with creditors’ fund. In 2011/12 the average proportion of debt-asset ratio was 60.8% (Table 1). This implied that 60.8% of the total asset of the cooperatives was financed with creditors’ fund. In 2012/13 the average debt-asset ratio increased to 62.7%. Also in 2013/14, the average debt ratio reaches to 66.3%. Only Ta’emBirhan and SiwutMinyitim MPCSs from DegaDamotdistrict,Geray and GanWuha MPCs from Jabitehnandistrict, and Ambessa MPCSs from North Achefer district have shown slight decrease in debt-asset ratio in 2012/13 and 2013/14 as compared to their preceding year except Geray MPCSs which recorded slight increment in 2013/14 from previous year. When we observe the three years’ data of how the cooperatives were financed, creditors have supplied on average more than 63% of the cooperatives finance. According to William et al. (2003) the smaller the proportion (in most cases RJSSM: Volume: 04, Number: 09, January 2015. Boyd, S., M. Boland, K. Dhuyvetter, and D. Barton. (2007). "Determinants of Return on Equity in U.S. Local Farm Supply and Grain Marketing Cooperatives": Journal of Agricultural and Applied Economics, 39(1):201210. CSA (Central Statistics Authority). (2007). The 2007 population and housing census of Ethiopia: Central Statistics Authority, Addis Ababa, Ethiopia. David, S. Chesnick. (2000). Financial Management and Ratio Analysis for Cooperative Enterprises: Rural Business-Cooperative Service. U.S. Department of Agriculture, Research Report 175. January 2000. Dawit, Alemu. (2005). The status and challenges of agricultural marketing in Ethiopia, Melkassa Agricultural Research Center, EARO: Paper presented at a panel discussion organized by the Ethiopian Association of Agricultural Professionals (EAAP), Addis Ababa, Ethiopia. Dorsey, S., and M.A. Boland. (2009). “Vertical Integration in the U.S. Food Economy”: Journal of Agricultural and Applied Economics, in press. Eleni, Gabremadhin, Bonger, and Suresh, Babu. (2004). Ethiopian Development Research Institute and International Food Policy Research Institute Washington. Jemal, Mohamed. (2008). Analysis of the role of cooperatives in agricultural input output marketing in Eastern Province, Tigray Region: Mekelle University, Ethiopia. Kehoe, T., and D. Levine. (2001). "Liquidity Constrained Markets versus Debt Constrained Markets": Econometrica, 69:575-598. Kenkel, P., A. Gilbert, and B. Spence. (2002). “Post-Merger Financial Performance of Oklahoma Cooperatives”: Southwestern Economics Association, Mobile, AL. Kidane, Mengistu, and A. Tamilarasu. (2014). A Study On Financial Stability Analysis of Tokumma Agricultural Primary Multipurpose Cooperatives in Horo Guduru Wollega Province, Oromia Regional State,

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Ethiopia: SCHOLARS WORLD-IRMJCR. Volume. II, Issue I, January 2014 [19] Online: ISSN 2320-3145, Print: ISSN 2319-5789. McKee, G. (2008). "The Financial Performance of North Dakota Grain Marketing and Farm Supply Cooperatives”: Journal of Cooperatives, 21:15-34. M. Muthyalu. (2013). Analyze the Performance of Multipurpose Cooperatives in Input and Out Agricultural Marketing in Adwa District, Tigray Region, Ethiopia: IFSMRC AIJRM Vol-01-No-01- Jan-Jun 2013 ISSN 23081341. Nadezhda, Pashkova. (2009). Food marketing cooperatives of Crete: A financial assessment within the EU context, Department of Business Economics and Management. Richards, T., and M. Manfredo. (2002). "Post-Merger Performance of Agricultural Cooperatives". Agricultural Finance Review, 63(2):175-192. Sexton, R., and J. Iskow. (1993). "What Do We Know About the Economic Efficiency of Cooperatives: An Evaluative Survey", Journal of Agricultural Cooperation, 8:15-27. Soboh, R.A.M., E.A.O. Lansink, G. Giesen, and G. Can Dijk. (2009). “Performance Measurement of the Agricultural Marketing Cooperatives: The Gap between Theory and Practice”. Review of Agricultural Economics, 31(2):446-469. William, J. R., S.F. Haka, M.S. Bettner, and R.F. Meigs. (2003). Financial Statement Analysis. In: McGraw Hill (ed.), Financial Accounting: McGraw-Hill Companies, Inc, New York, U.S.A., PP 602-645. Yuvaragi, and Biruk. (2013). Financial Performance Analysis of GOHE Cooperatives Saving and Credit Union in Bure District, Ethiopia ics, College of Business and Economics, Debre Markos University, Ethiopia: (www.theinternational journal.org RJEBS: Volume:02, Number:06) Zerihun, Alemayehu. (1998). Cooperatives Movement in Ethiopia: Unpublished Paper Presented in the National Workshop in Addis Ababa, Ethiopia.

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