OROMIA COFFEE FARMERS COOPERATIVE UNION (OCFCU)

Financial challenges and a Range of Supporting Services to Its Member Cooperatives

ByDessalegn Jena

    

July, 2014Nairobi

1

Outline1. Role of Agriculture and an Overview of the Financial

sector in Ethiopia2. Efforts of Financing the Agricultural Sector3. ‘Unique’ challenges associated with farmers’ access

to finance 4. Efforts to Finance the Cooperative Sector5. Establishment of CBO6. Establishment of OIC7. OCFCU’S success in the Last Decade8. OCFUC’s Support to Farmers9. OCFCU’s Plan (Immediate – Short-term)

2

Role of agriculture in Ethiopia

Agriculture plays vital role in national economy

 Agriculture accounts 46.3% of GDP 83.9% of export and 80%of labour force.

Small scale producers  contribute more than 90% of agricultural products.

3

An Overview of the Financial sector in Ethiopia

• Formal Financial SectorsCommercial BanksMicro Finance Institutions (MFIs)Insurance Companies

• Semi-formal Financial SectorsCooperative FinancingSaving and Credits (SACCOs)

• Informal Financial sectors

4

Efforts of Financing the Agricultural Sector

• Government BanksThe loan is advanced by guarantee of Regional Governments

•  Micro Finance Institutions (MFIs)Newly established system to mitigate risk of default

•  Financial Inclusion• Warehouse Receipt Financing

5

‘Unique’ Problems Associated with Farmers’ Access to Finance

Agriculture is a less attractive field of business to the established financial institutions:

Agricultural sector is considered as high risk Perishable products and collateral issues High transaction costs (for banks)

Small farm sizeGeographically dispersed clients

Poor Financial management

6

Efforts to Finance the Cooperative Sector

Establishment of the  Cooperative Bank of Oromia (CBO)  with the following objectives:To provide ful-filaged commercial bank servicesTo solve the financial challenges of cooperatives To reach the rural community where the other banks don’t reach,

To expand saving habit in rural communities

7

Current status of CBO

 As of Dec 31,2013 Asset                 Br.7.3 billion birr Capital                =901.34 million birr Loan portfolio       =3.2 billion birrCoops’ Loan           = 27-30%Recovery rate          =98.5%Branch network =     102

8

CBO’s Financing experience..

Beneficiaries of FinancingCooperative  societiesRural and Urban SACCOs Cooperative Unions Cooperative Federations

Activities financed:Production activities Processing  activitiesMarketing activities

9

Role of CBO in addressing the financial needs of Cooperatives

• The loan advanced to cooperatives  30%of total loan portfolio:

2012              $12,300,000. 2013               $15,000,000

10

Establishment of Oromia Insurance Company (OIC)

• OIC  was established  with a total share capital of $ 7.7 million subscribed capital and $ 2.4 million initial paid-up.

•  Cooperatives and farmers in Oromia  Regional State, own subscribed  shares capital  of $1.3  in the company .

 

11

Objectives of OIC

To provide ful-filaged insurance services To provide Index based Livestock insurance To provide  Farm insurance To support  CBO as sister company To address the insurance need of the farmers etc 

12

Role of OCFCU in establishing CBO and OIC

Initiation  of idea and implementation Major share holderMajor client Participating  in Governance

13

Objectives of OCFCU To Provide market information to Co-op societies  To sell their coffee product at better price at local and 

international market, To improve and maintain the quality, productivity and 

sustainability of coffee production  To  provide coffee farmers  with social services To represent the coffee farmers at  all forums

14

Farmer

Collector

Supplier

ECX

Exporter

Buyer

Roaster

Farmer

Cooperative

Union

Buyer

Roaster

Retailer

consumer

Retailer

Profit

Profit

Fair TradePremium

Cooperative Auction

The Coffee Value Chain

consumer 15

OCFCU’s success in the Last Decade

Membership (coops) :                  34—311Farming households:          22,500—288,201

Coffee sales (volume):    126  –-9000 tonsProfit generated:       $ 24,000— $ 6.7 mil.Dividend paid      :        $22,000—$ 3.4 mil.Fair Trade premium     $74,000---$ 1.6 mil.Capital:                          $90,000 - $15.5 mil.Farmers  earning of FOB               35% --80%

16

Social Activities

School and related facilities                  81Health post and related facilities         20Potable water                                          89All weather Road                                    50kmBridge                                                         7Coffee processing mills                            4Ware house                                              46Flour mills                                                   5 Coffee museum                                         1                     

17

OCFUC’s Support to Farmers Loan advancement to members  Capacity building (including extension & advisory services)           

Provision of marketing services Supply of small farm  tools, beehives, etc Establishing and supporting savings and credit associations Energy efficient cooking stoves Job creation (thousands of seasonal and permanent employees)

Value chain supporting facilities  18

Value chain supporting facilities

127 wet mills 26 dry coffee hullers 2 coffee Processing and Grading Machines 11 Trucks 9 vehicles 5  Buses (services )

19

OCFCU’s Plan (Immediate – Short-term)

Coffee roasting industry establishmentHoney processing industry,Expansion of processing plantCoffee complex construction Expansion of income generating projects 

20

Thank You!

21