Located only 800m from the South Ossetian border, the village of Kvemo Nikozi was swept by the invading Russian troops in August 2008. Three years later, it became a subject of an interesting economic experiment: a farmer coop.
Nikozi cooperative is anything but a grassroots initiative. The Ministry of Agriculture and the Agricultural Development Fund (ADF) played a key role in bringing all the stakeholders together, planting the seeds of cooperation, and providing all the essential inputs to keep this exotic flower alive.
Nikozi is also not quite a cooperative. For most intents and purposes, it is managed as a private business by two partners – Pridon Gaprindashvili and Vasil Sadzagvishvili. Together they form a management board responsible for all the day-to-day decisions. While a three member supervisory council (representing the village community) is supposed to approve key strategic and financial decisions, it is not clear how much real authority this council has.
The idea – promoted by the government – was to create jobs for local villagers, whether they owned land or not, by tying them to the new farmer organization. And the coop was quite successful in this regard. With a 140ha of open field vegetables – tomatoes, peppers, beats and onions – it employs about 50 members on a full-time basis and hundreds of seasonal workers, many of whom are IDPs from nearby settlements.
Of the 143 members, 80 agreed to lease their small plots of land (1.2ha each) to the coop at 200 GEL/year; others joined by making a symbolic contribution of 1 GEL. Members are not obliged to work: those who do draw a salary and a small dividend. Those who don’t, are only entitled to a dividend. Both salaries and dividends are decided by the two directors, though a formal approval by the supervisory council is required.
The benefits of cooperation in the case of Nikozi farmers were quite obvious. The local peasants have never had much experience with individual farming. Prior to Soviet collectivization they used to work the lands of the local lords, Pavlenishvili, heeding to their “mouravi”. After the Bolshevik revolution, the princely estate was transformed into a sovkhoz (“Tavtari”). The sovkhoz lands were privatized in the post-independence period yet little benefit accrued to the peasants due to war and economic collapse. The land they have finally come to own was not usable without irrigation, agricultural machinery and infrastructure, all of which lay in ruins. The most mobile, including Vasil Sadzagvishvili, migrated to Tbilisi. Those who stayed behind lacked the knowledge and the entrepreneurial skills to function in a market economy.
All of that changed with the 2008 war and the establishment of the Nikozi coop. The government built and rehabilitated, with USAID help, the Tiriponi and Saltvisi irrigation systems on the Greater Liakhvi river. Narrowly sliced pieces of land were consolidated into a single 140ha holding – among the largest in Georgia. A highly concessionary 1.2mln GEL loan from the ADF covered the costs of a pump station and pipes to supply modern drip irrigation to the entire farm. Annual agreements were signed with the ADF-controlled Mechanizatori LTD to provide much needed agricultural machinery. Seedlings and relevant agricultural knowhow were furnished by other ADF daughter companies. On the marketing side, Nikozi is now linked to the new Fruit and Vegetable Refrigeration plant (a public-private partnership) in Natakhtari; other clients include Tbilisi Government’s Food Service LTD, the Georgian military, as well as Azeri tomato processing plants, and Georgia wholesale markets. If all that is not enough, ADF is taking care of legal documentation, financial planning and reporting.
These days, despite hitting many snags along the way, Nikozi farmers are collecting their first harvest. Yet, there are many financial, organizational and technological problems to be resolved in a fairly short period of time. The ADF loan is supposed to be repaid within the next three years; the land lease agreements with the individual cooperative members will expire at roughly the same time, setting the timeframe for Pridon and Vasil to learn to stand (and walk) on their own feet. And, indeed, a lot of learning must happen between now and then: what and how to produce (effectively and efficiently), how to market, how to bring additional investment and diversify production so as not to sell into the glut and utilize available human resource all year round, and, finally, how to engage the village community in order to transform nominal farmer cooperation into the real thing.
Comments
Dear Eric
My question is about possibility of common farmers to establish such type of cooperative. As you mentioned, Nikozi is not quite a cooperative and it is a private business. Also, Nikozi was established with a very big support from government and ADF. Considering the above cited matter, would it be possible to introduce Nikozi as a good example of cooperative to convince farmers that cooperation is beneficial?
will indeed be interesting to track how this develops over a longer time. Thx for the post.
Robizon, I think it is too early to judge. Not every top-down initiative is doomed to fail. If in two-three years, Nikozi stands on its feet and is able to repay the loans, we will be able to conclude that this (expensive and politically motivated) experiment was successful.
What I did learn is that effective farmer cooperation would be impossible to establish given the typical (not very high) quality of human capital in the villages. Pridon and Vasil came to Nikozi from the outside to provide leadership and manage the cooperative. I would think that the training and placement of such "leaders" should be an essential ingredient in any government or donor-driven effort to develop farmer cooperation. This may not be sufficient, but certainly necessary. One person who understands agriculture and business and has the necessary people skills can make a huge difference.
What in your view was behind the success of cooperatives that you've studied as part of your internship with ACF?
Eric, during my research I derived the following conclusions about success and failure of cooperatives: first of all I found that the lack of leadership and managerial skills is the main determinant of failure of modern cooperatives in Georgia. From my sample only 30% of cooperatives work successfully and all of these cooperatives are “Nikozi” type private family businesses and not a pure pattern of cooperatives. Second of all the number of conflicts the members have to each other make their work inefficient. Most of them try to avoid their responsibilities (cooperative was perceived as a public property and that’s way they think that “hard worker” members will do everything) and this bears disagreement between them. This problem was in cooperatives where members were not friends or relatives. Thirdly there was a case when cooperative worked well before taxation, and when they registered and start paying taxes their profit decreases significantly and that’s why this cooperative closed. One more reason of failure is that all the cooperatives I observe were established with grants provided by NGOs and because members did not have share in investment and it was like present, they do not care much if this organization will not be successful(for me it was very surprising).
After all of this I think that success is not possible if one of the above problems exists. Unfortunately today we face all of these constraints.
Nikozi Experiment is one example should be done in the South Caucasus region. Nowadays, the main problem of peasants is not machineries or technological problems, the most important one is in the marketing side.The wrong marketing structure and the fragile links with Food services and plants create negative effects in the agriculture. The governments should do the same things in marketing side of agricultural products which Nikozi did in one village.
I have one question about Nikozi experiment and want to make clear this point. Somehow the structure of Nikozi experiment resembles Soviet collectivization ( not totally). You mentioned that peasants are working together,can it cause less productivity in production process and can the failure of Soviet collectivization tell us something?
it is fact that if peasant works in his or her land, the incentive and hard work of him will be more,because of all the yields go to his or her pocket. But in Nikozi structure create less competitive environment. In economic perspective,can it cause problems in the long-run?
Vusal, I think that at this early stage individual farmers' incentives are a very small worry in Nikozi. Peasants get paid a modest salary for their work, like in any other business. In this sense, Nikozi is not really a coop. There are no more free-riding opportunities than in any regular business.
The main challenge for Nikozi farmers is to be able to produce, and as you rightly note, to sell their products at a good price. Everybody involved are still learning what and how to produce. The soil is not very rich in minerals after decades of neglect. Some of their crops failed this year (e.g. onions). They have to choose the right crops, learn the sowing and cultivation techniques, apply the right kind of fertilizer, etc. The marketing side should also be improved. With the kind of terrible packaging they are now using for e.g. tomatoes, they can only sell to ketchup factories :-(.
There is so much labor redundancy at this point (especially in low season) that any work gets done regardless of incentives (i.e. whether people are making a 100% effort or not). In the longer run, a farm coop must not be run as a kolkhoz. It should be properly managed and people should be paid according to their contribution (dependent on their skills and effort). This would reduce the incentives problem.
There is so much labor redundancy at this point (especially in low season) that any work gets done regardless of incentives...
I think this pretty much sums it up what to think of the plans to develop agriculture in order to address the unemployment problem. If agriculture is truly developed (i.e. high productivity) it will make the unemployment problem worse. The other common justification for developing agriculture - improving food security - is equally flawed. What doesn't meant that developing agriculture is wrong. It's just the common justifications are non-starters.