Chapter Four

CHAPTER FOUR STRUCTURE OF COOPERATIVES IN ETHIOPIA 1. INTRODUCTION Cooperatives are business enterprises voluntarily organized and democratically controlled by member users. Co-operatives exist in all countries of the world and operate under diverse political systems, from communism to capitalism. The majority of these co-operatives are, through their national apex organizations, ultimately in membership of the International Co-operative Alliance (ICA), the representative world body of co-operatives of all types. The motivation to form co-operatives has three particular aspects: • The need for protection against exploitation by economic forces too strong for the individual to withstand alone. • The impulse for self-improvement by making the best use of often scarce resources. • The concern to secure the best possible return from whatever form of economic activity within which the individual engages whether as a producer, intermediary or consumer. It is the belief that each of these aspirations can most advantageously be pursued and secured in concert with like-minded people that provide the stimulus to co-operative action. The underpinning values are those of self-help, voluntary participation, equity, democracy, and a common bond of common need and purpose. The cohesion of the group is maintained by ensuring that individual members cannot secure power or gain advantages at the expense of the others. Co-operatives reward participation in the co-operative venture rather than rewarding capital. Self-interest is a primary motivator in cooperative enterprises, with economic gain being the primary objective. In these respects, co-operatives differ little from capitalistic enterprises; self-interest is simply pursued in a different way from the capitalist enterprise. Thus, the rate of interest paid on share capital is fixed and limited, and not subject to variation according to the amount of profit made. Secondly the use and distribution of surplus is restricted to one or more of the following purposes: • Allocation to reserves, where it becomes collectively-owned capital and is thereafter nondistributable • For use on, or donation to, common-good, community project • Distribution to members in proportion to the trade each member has done with the co-operative. In other words, the distribution is made not in relation to capital held, but by declaring a bonus or dividend per cash unit of trade done The Tier System of Ethiopian Cooperatives Tier is the layer or level or rank of something. When we use the term tier in Cooperatives, it means the level of organization of cooperatives. In Ethiopia, the three tier system of cooperatives was adopted. These includes primary Coop , Coop union, Coop Federation and Cooperative League. The Structure and organization of co-operatives There are two principal forms of co-operative organizations: primary co-operatives and secondary cooperatives. The basic unit in the co-operative systems is the primary co-operative. A primary co-operative is one in which the shareholder are individuals; each of them having an equal share in its control.

Secondary co-operatives Secondary co-operatives (also variously described as “union” or “federal” co-operatives) can be organized for many different purposes. It is quite possible, and quite common, for a primary cooperative to be a member of several secondary co-operatives, depending on its needs and the local co-operative structure. The secondary co-operative can, because of its larger volume of business or its wider representational base, undertake functions, provide services, and make representations, which 1

would be beyond the capacity of all but the very largest primary co-operatives. Secondary cooperatives are a from of vertical integration providing the opportunity for economies of scale, scope for development and improved administration. Secondary co-operatives can in turn form other secondary co-operatives - sometimes called tertiary co-operatives. In many countries there is one apex federation representative of all other co-operatives in the country and providing, at the national level, representative, advisory and professional services to the co-operative movement as a whole. These national co-operatives can then be affiliated to international organizations such as the International Co-operative Alliance. Types of Cooperatives in Existence Ethiopia •

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Agricultural o M/P farmers cooperatives are the dominant primary cooperatives in Ethiopia, milk producers/ Dairy, Coffee, fattening, horticulture, forestry, Fishery, Poultry, etc Non Agricultural: SACCO, Banking, housing o Service: SACCO, Consumer, Banking, housing, Electricity, Telecommunications, transport cooperatives. o Producers: Building block producers, processing, M/P farmers cooperatives, mining, manufacturing

Levels of Cooperatives in Existence 1. Primary • Agricultural Cooperatives o M/P farmers cooperatives are the dominant primary cooperatives in Ethiopia • Non Agricultural Cooperatives o Service: SACCO, Consumer, Banking o Producers: Building block producers, processing, M/P farmers cooperatives 2. Secondary (Union) • Agricultural –M/P farmers cooperative Union are the dominant primary cooperatives in Ethiopia • Coffee Union • SACCO Union • Non Agricultural 3. Federations A. Regional federations I. Agricultural Marketing Federations • Debub Farmers Cooperative Federation • Oromia Farmers Cooperative Federation II. Coffee Marketing Federations III. SACCO Federation (Yet to be established) B. National Federation • No Cooperative National federation established so far. 4. Cooperative Banks • Oromia Cooperative bank S.C. (with 25 branches) • Addis Cooperative Bank (Under establishment) 5. Cooperative League 2

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No Cooperative League developed in Ethiopia So far.

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