Overview of Cooperatives Program

1. Overview of Cooperatives Program June 12, 2013

2. The Cooperatives Program, through the strategy, coordinates actions that address seven key bottlenecks constraining the sector 1 2 3 4 5 6 7

3. Developing advance certification system is one of the seven interventions of the Agricultural Cooperatives Sector Development Strategy • Background • A lack of clear indicators signaling which coops are well-functioning impairs coops’ full development in terms of incentives to excel, regulators’ and service providers’ focus; and farmers’ and value chain actors’ meaningful relationships with coops.The Agricultural Cooperatives Sector Development Strategy recommends to develop an advanced certification process for well-functioning cooperatives, based on criteria that relate to effective and self-sustaining operations of their activities and the existence of a professional management and governance structure. • Objectives • To serve as a sign of quality for farmers, service providers, and value chain actors, reducing transaction costs and making membership more attractive • To give co-operatives aspirational guidelines • To align management and member incentives so that they are consistent with international best practices • To serve as an enabling tool without undermining the autonomy of cooperatives or making the system compulsory • To make provision for annual renewals to incentivise co-operatives to continue upholding the certification standards • To provide a framework to which service providers can work when supporting co-operatives and help stakeholders assess service providers’ effectiveness.

4. Strengthen public sector audit • Context: The current cooperative auditing system lacks the capacity and strong oversight needed to provide high-quality, reliable audits to cooperatives. • Limited capacity: Although the current cooperative proclamation requires an audit at least once per annum, only ~40% of cooperatives actually fulfill this requirement. This is mainly because of limited number of auditors, severe resource constraints and low technical capacity of the auditors. • Result: A large number of coops remain unaudited and a significant amount of cooperative resources are abused every year, but the sources remain unknown. Without a strong and independent audit structure, such cases cannot be addressed, and the problem has continued to affect the performance of cooperatives. • Example: More than 13 Billion Birr was channeled through agricultural cooperatives for input credit in 2011/12. However, without a strong and independent audit service, this money may be exposed to misappropriation and make the repayment rate lower than expected. • Prioritized actions: • Increase public sector audit capacity by strengthening the regulatory directorate of FCA and establishing and quickly growing a federal cooperative audit firm • Increase investments in public sector legal capacity • Over time, ensure financial sustainability by migrating services to cooperative movement, requiring coops to pay for such services and enabling the entry of additional private sector service providers Source: 2012 IFPRI report

5. Increase capacity and audit service’s autonomyand over time migrating services to cooperative movement Fee-based auditing system overseen by cooperative movement 1) Set up a parastatal institution 2) Increase public sector audit capacity FCA Currentoversight body (2012) Long-termoversight body (2016 onwards) Short-termoversight body (2013-2016)