The link between professional agribusinesses and living income in Ethiopia

In December of 2021, we launched the Business Intelligence Intel Group (B.I.I.G.) Data Newsletter. This is the first edition, focusing on living income in Ethiopia.

Professional agribusinesses are catalysts for development

The untapped potential of agribusiness

The majority of the world’s poor live in rural areas and work in agriculture. Studies have shown a direct link between agricultural productivity and poverty reduction and, hence, many development projects encourage agribusinesses-led development.

The effect of a 1% increase on crop yields in poverty reduction: 15% of East Asia is in poverty, and a yield increase leads to a 0.48 reduction. 40% of South Asia is in poverty, and a yield increase leads to a 0.48 reduction. 46% of Sub-Saharan Africa is in poverty, and a yield increase leads to a 0.72 reduction. 16% of Latin America is in poverty, and a yield increase leads to a 0.10 reduction.

However, the majority of agribusinesses in rural areas struggle to access markets and finance that they need to grow and flourish. At the same time, because of the global population growth, urbanization, and market liberalization, there are more opportunities for agribusinesses than ever before. However, to seize these opportunities, agribusinesses need to become more market-oriented and competitive. This translates into the need to develop their management skills and competencies – and overall ability to run as a professional business.

Professional agribusiness definition and measurement

SCOPE Dimensions of Professionalism. Internal Management: governance, management, business planning, internal organization, membership. Operations: logistics, storage, processing. Sustainability: social issues, environmental issues. Financial Management: administration planning, reporting, monitoring, financial services to farmers. Production Base: provision of inputs, collection from farmers, strength of supply base, extension services. Market: market risks, market strategy. External risks: climate, natural, biological, environmental, social, and political risks. Enabling Environment: capacity builders, NGOs, sector organizations, community, government.

SCOPEinsight’s definition of a professional organization is one that “can manage its resources and processes using its human capital (leaders, management, staff, and members) efficiently and effectively and thereby achieving the organization’s goals”. This definition and the way we measure professionalism is aligned with the global guideline for farmer professionalism – the IWA29 – which is the precursor to an ISO standard.

The SCOPEinsight methodology provides an assessment and scoring system (from 1-5. See below) where professionalism is assessed through multiple dimensions. Each dimension is composed of different subdimensions, which are further broken into several specific indicators (questions).

A model for predicting agribusinesses’ contribution to members’ living income

1) Build theoretic model using expert knowledge: Together with experts, a model is built to find a working theory and formula of living income. 2) Segment data sets: Use machine learning to find the main drivers of living income. 3) Analyze trends with the SCOPEinsight data: Run the model to view the distribution of agribusinesses' ability to influence the living income of its members.

We have collected vast data about agribusinesses over our 11-year existence. We use this data to feed into the Business Intelligence Platform, creating deep insights and actionable data. The Business Intelligence Advanced is one of the features of the Business Intelligence Platform. We developed the “B.I. Advanced” in three steps: 1. Segment our data to choose relevant info for the model. 2. Create a theoretical model. 3. Analyze trends using our data and predictive analytics (i.e., the science of using past and current data to predict future events by finding and identifying patterns). (See graphic to the left.)

For Living Income, we first built the theoretical model with the help of NewForesight Consulting. The theory (see graphic below) assumes specific farm level drivers and cooperative (agribusiness) drivers.

Main drivers of living income: Living income = Price x Yield x Farm Size - Cost of Production + Diversification

And while there are many externalities (such as the policy/regulatory environment) that influence living income, there are a few drivers which agribusinesses have within their control. For example, yield can be influenced by the agribusiness (i.e. correct use of inputs, pest management, productivity, etc). Using machine learning, we found that for living income, the following dimensions (from SCOPE assessments) were important: market, production base, sustainability, operations, enabling environment, and internal management.

The Ethiopian Cooperative Sector

Many cooperatives, but lacking business skills

Agricultural cooperatives have a long history in Ethiopia, and most farmers are organized into cooperatives. The Ethiopian Federal Cooperative agency recently stated that there are 98,511 cooperatives, 395 cooperative unions, and 4 federations with over 31.7 billion Birr capital in the country. Despite the appearance of organization of farmers, at least a quarter of rural Ethiopians are living in poverty. While overall poverty in Ethiopia has dropped over the past decade, the rural-urban poverty divide is wider than it ever was. Many of Ethiopia’s cooperatives lack basic business and organizational skills. This results in an overall characteristic of cooperatives with poor governance, weak management, and whose performance is marked by low productivity.

The professional level of agribusinesses in Ethiopia. Most agribusinesses are maturing. Source: SCOPEinsight BI Platform.

Since 2011, SCOPEinsight has assessed over 500 agricultural organizations in Ethiopia. This data shows that most farmer organizations have an “immature” or “maturing” level of professionalism. This means that the organizations generally have:

  • ●    Weak business & financial planning
  • ●    No/weak strategic & operational planning
  • ●    Low access to finance
  • ●    No support systems/technologies
  • ●    Are vulnerable to external shocks/low resilience
  • ●    Engage in environmentally unsustainable practices

A pathway for graduation

SCOPE Basic assessment tool scoring scale provides a pathway for agribusiness graduation. A SCOPE score of 1-1.9 is very immature. A SCOPE score of 2-2.9 is immature. A SCOPE score of 3-3.9 is maturing. A SCOPE score of 4-4.9 is basic professional. A SCOPE score of 5 is basic best practices.

The SCOPEinsight assessment system is based on a ranking – from 1 to 5 – that is intended to measure the professional capacity of an agribusiness. The ranking provides a pathway for agribusiness graduation.

This scoring system along with our Methodology (above) form the basis of SCOPEinsight’s system of strengthening agribusiness professionalism. When combined with the Living Income Model, capacity builders can have a clear roadmap for improvement.

It is important to note that the SCOPE Basic Assessment tool is for emerging agribusinesses and that scoring a 5 is not the end road for agribusiness improvement.

Ethiopian cooperatives have room to grow

Taking into consideration the drivers of living income, where agribusinesses can exert influence, the graduation model, and the state of agribusinesses in Ethiopia, we see that there is considerable room for improvement. Below, we have mapped the dimensions which correspond to living income and the Ethiopian professional landscape. As we can see, most agribusinesses score below 3 in the dimensions which exert the most influence on member’s living income.

Ethiopian Cooperative Professionalism Landscape. The highest dimension is Enabling Environment, while the lowest is Sustainability. Source: SCOPEinsight BI Platform.

Living income in Ethiopia

Cooperatives have enormous potential

75% of cooperatives have the potential to create an enabling environment for living income. Source: SCOPEinsight BI Platform.

The living income in Ethiopia is estimated by the WageIndicator.org is connected to be 4,847 Birr per month (for a family) in rural Ethiopia. However, the average farmer earns less than the living income at 2,954 BIRR per month. We analyzed a subset of our data (n=150) of agribusinesses in the country shows that about 75% of cooperatives have the potential (if certain aspects of their business operations are strengthened) to create an enabling environment for their members to earn a living income.

Cooperatives can influence some of the drivers of living income. In the graphic below you can see the percentage of influence that cooperatives have over these drivers. And since we know that the dimensions of professionalism which relate to these drivers are market, production base, sustainability, operations, enabling environment, and internal management, we can assume that strengthening these areas of operations would be beneficial.

Of the main drivers of living income, cooperatives have influence over price (25%), yield (75%), cost of production (75%), and diversification (75%).

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