Strong Leader = Successful Team?!

The ISET Economist, a blog about economics in Georgia and the South Caucasus by the International School of Economics at TSU (ISET)

By Nino Kakulia, Irakli Kochlamazashvili & Salome Gelashvili

The cooperative movement in Georgia started back in 2013 with EU support through the launching of the ENPARD project, a major component of which is the development of agricultural cooperatives across Georgia.

According to the Agricultural Cooperatives Development Agency, there are 1,500 agricultural cooperatives in Georgia, and more than 250 of them have been supported by the ENPARD program (for the locations of these cooperatives see the map).

Not all those newborn cooperatives will be successful, and their sustainability depends on many factors.

THE THEORY SAYS…

According to the literature, managerial skills, stakeholder involvement, a competitive environment, and access to finance are the determinants of sustainability for agricultural cooperatives. Some recent research has shown that good managerial skills are the main contributors to the success of an initiative. Further research has proved that strong leadership, paired with enthusiasm for collective action has led to more successful cooperation, whereas lack of management experience and knowledge has caused failures. Some studies have also found that managing cooperatives is more challenging compared to the one-member one-vote system involved in managing private firms, because of the complicated decision-making process in cooperatives (despite being more democratic). Having said that, the importance of having a strong leader is crucial for cooperative success.

THE PRACTICE SHOWS….

Lia Mukhashavria, founder of the ENPARD-supported agricultural cooperative Guriis Tkhili, is an example of a strong leader who used her knowledge and experience to start a hazelnut processing cooperative in Guria.

Lia is a Tbilisi-born lawyer and human rights activist who graduated from the Law Faculty of Tbilisi State University (Georgia) in 1989, the Law School of Temple University (US) in 1995 and the Frankfurt School of Finance & Management (Germany) in 1999, and worked for several international and local organizations from 1990-2014. The knowledge and experience generated during these years motivated her to leave Tbilisi, and in 2015 Lia moved to her home village in Guria in order to set up a hazelnut processing cooperative.

Prior to moving to Guria, she collected information about the best production technologies in hazelnut production, market size, and prices, and visited farmers in Georgia and abroad, including the famous kibbutz in Israel. Eventually, together with four experienced hazelnut growers, she established her cooperative, which unites 97 members who together have about 150 ha of hazelnut orchards in four different villages in the Lanchkhuti municipality (Shukhuti, Mamati, Atsana and Ninoshvili). The cooperative relies on a well-equipped hazelnut processing plant (162 m2) which is now ready to receive its first harvest for processing. The factory can process 5 tons of unpeeled hazelnut per day and has become a working place for 100 people working in two shifts. Instead of selling low price, in-shell hazelnuts on a ‘on-the-spot’ basis, the cooperative members plan to establish long-term contracts with clients and sell shelled hazelnuts directly to the market without involving intermediaries. This will allow them to keep higher added value from their sales.

FACE TO FACE WITH CHALLENGES

While establishing the cooperative, Lia encountered challenges related to motivating people who were not enthusiastic about cooperation. They were (and still are) reluctant to share knowledge with each other. Lia calls this phenomenon “glekhis chkua” (peasant’s brain). Furthermore, age and gender imbalances are extremely pronounced in rural areas, meaning that only 20% of the population in the villages is young, according to Lia. Also, farmers were quite skeptical about Lia as a female leader, despite her reputation and accomplishments, which they respect and are proud of.

Another major challenge was to attract funds for building the nut processing plant. Led by Lia, the core team of the cooperative managed to benefit from the state program “Produce in Georgia.” The cooperative was provided with 1,700 m2 of land at the symbolic price of 1 GEL/ha, with an obligation to invest GEL 136,000 for factory construction. In addition to this, Guriis Tkhili received a seven-year preferential agro credit to the amount of GEL 76,000 (the government subsidizes 8%, and Guriis Tkhili pays the rest - 3%). Furthermore, under the ENPARD program (CARE consortium), they got a recoverable grant of GEL 76,220 for the equipment needed for drying, cracking, calibrating, sorting and packaging hazelnuts in bulk.

Yet another challenge was to manage the large number of members with resources spread across numerous villages. In order to manage the cooperative efficiently, Lia appointed 15 members as managers. Each manager deals with a group of farmers whose orchards are situated on adjoining land plots. The managers are responsible for obtaining data on total production, land ownership, and the finances of the managed group of farmers. The core management team includes one agronomist, one factory manager, and one person (Lia herself), responsible for sales and communication.

NEXT STEPS TOWARDS SUSTAINABILITY

According to Guriis Tkhili’s estimation, at least 80 tons of unpeeled hazelnuts will be processed at the factory this year. This in spite of the damage caused by the stink bug epidemic in western Georgia, fungal diseases, and unfavorable weather conditions, leading to a low harvest and low-quality hazelnuts in most parts of Guria. Fortunately, there was a quite good yield up in the Gurian mountain villages, which will be the major source of hazelnuts for the factory this year.

As to the markets, Lia hopes to sell a decent quantity of shelled hazelnut directly on the international market in Turkey. She’s had negotiations with Ukrainian, Spanish and Belgian partners, and is considering selling shelled hazelnut on the Middle East and China markets in the future.

She also plans to open shops for hazelnut and nut products, and envisions tourism as an opportunity. She believes that her cooperative, combined with the beauty of Gurian villages, will attract agro- and eco-tourists to the region. This will contribute to the creation of new jobs and income diversification for farmers.

However, what Guriis Tkhili has achieved so far was very much dependent on Lia’s strong leadership skills; real success is yet to come, when other sustainability factors - such as cooperative member involvement, which will help guarantee stable production volume (avoiding side-selling) and decent quality (proper maintenance of hazelnut orchards); access to finance for avoiding cash problems (financing operational costs); and a good marketing strategy - will be also in place and operational.