Farming is one of the most profitable industries in the Caribbean, representing approximately 6% of the Gross Domestic Product (GDP), almost twice the global average. Yet, for the first time in 10 years, according to a recent United Nations Food and Agriculture Organization (FAO) report, Latin America and the Caribbean are experiencing an increase in the number of people falling into poverty of almost two million. In order to continue to develop farming in these areas, rural cooperativesare crucial.
The FAO report states the the 2008 international financial crisis as the main cause of this decay. Because of this crisis, rural peoples have experienced a “historical reversal”, where instead of choosing to move to rural areas, people are now migrating from rural areas to cities in search of security, escaping poverty and environmental vulnerability. Today, 1 in 2 rural inhabitants in Latin American and the Caribbean is poor and 1 in 5 is indigent.
The lack of sustainable agricultural sectors, private investment, financial protections, environmental sustainability and agricultural risk management has led thousands to lose their land due to debt or to simply be unable to invest in their land because they have no funds to do so.
Yet, rural areas are essential to ensure economic growth, equality and development. So, how can underdeveloped countries power their farming industry to reverse this new migration wave and ensure farmers have the resources, protection and support they need to grow their businesses?
Learn more about how cooperativism can create new pathways to drive productivity, reduce migration and empower local communities to grow and expand, below.
Rural cooperatives can take families out of poverty, empower them to make decisions, close the financial inclusion gap, reduce inequality and protect them from suffering harvest losses due to unfavorable climatic conditions.
Through cooperativism, financial institutions can meet the locals’ needs, alleviate their problems, take advantage of local resources, knowledge and experience to help them increase their profits, profits that would later on be poured back into the community. They provide assistance to locals through training, loans and financial resources.
Rural cooperatives depend on farming, which means that it grow only when the community does. By combining the purchase and sale of raw materials, as well as balancing their expenses, rural cooperatives can operate at very low costs, even lower than the expenses farmers have, allowing communities to sell their products at competitive prices yet gaining a larger revenue.
Cooperativism reduces the individual risk entrepreneurs normally have by creating a culture of collective productivity, decision making, finding creative solutions to problems.
According to The Borgen Project, while only 10% of cooperatives fail, almost 60% to 80% of businesses fail.
Cooperatives can assist their members through loans, offering them the possibility of improving their employees’ wages. They can also provide access to raw materials and machinery which would otherwise be unattainable. By doing so, they give farmers access to a new source of income, allowing them to grow and improve their products within their own communities, instead of having to travel to urban areas to do it.
However, loan access is a problem in this area, mainly because many farmers have never had financial instruments such as loans or credit cards before, they’ve never issued checks or online transactions, all of which amount to a non-existent credit history. In order to create a credit history, cooperatives need to get creative. Social media penetration is approximately 40%, while cell phone penetration in Latin America and the Caribbean is 70%, and it will reach 84% by 2020, according to the 2017 GSMA The Mobile Economy report. This means that financial institutions can calculate the farmer’s credit history from their social media or communicating discounts or products via SMS.
In order to get the community involved, institutions need to have an in-depth understanding of agricultural markets so that they can find business opportunities. This implies a change towards the value chain, where in order to make a financial decision, the impact every actor and every process has in the final product needs to be taken into consideration.
It’s important to identify the needs and abilities of clients as well as the opportunities to provide other services. Rural cooperatives must reach an agreement with local actors and find cheaper and more efficient ways to provide better services. Each financial services institutions provide can increase incomes and improve their presence in the region.
Above all, rural cooperativism builds relationships based on trust, empowering communities to grow together with companies under one common goal.