Carl Cervone

The Lemon Award: a Case Study on Financial Transparency & Good Governance in Cooperatives

March 26, 2012

This is the original case study I prepared for TechnoServe’s Lessons Learned from the Coffee Initiative, released in 2013

Doyo’s Turnaround

Year 1 – the Worst Performing Client in Ethiopia

Doyo is a large, multi-purpose cooperative formed during the communist regime in Ethiopia and “reactivated” by TechnoServe in 2009.

Doyo is TechnoServe’s closest client to the city of Jimma, making it the most practical site for bringing visitors and an ideal demonstration site. On the other hand, this proximity to Jimma created challenges for the cooperative such as high competition and low participation from members.

These challenges were compounded by weak leadership. While the cooperative received a total of 68 tons of cherry from its members in 2009, one of the cooperative’s leaders privately collected and sold more than 100 tons of farmers’ cherry to traders. The fact that leaders such as this one were more focused on their private businesses than the cooperative’s success eroded farmers’ trust in the business.

For these reasons, Doyo was one of TechnoServe’s weakest performing clients in 2009, struggling to make a profit. They were unable to give any second payment to their farmers that year.

The “Lemon Award”

Doyo’s poor performance across all three business indicators – quality, volume and cost control – earned them the “lemon award” at TechnoServe’s annual award ceremony for active clients. The “lemon award” was saved for last, after first recognizing the accomplishments of all the strong performing cooperatives with trophies and certificates.

The prize given for the “lemon award” was a bag of coffee with another cooperative’s name on it. It also came with a premonition: Doyo would make a radical change over the coming year and handover the “lemon award” to another cooperative at the next award ceremony.

Year 2 – the Turnaround

Doyo lived up to their promise and made a significant turnaround in 2010. Despite being a low crop year, where production was reduced 50% overall, Doyo more than doubled its cherry volumes. They attributed this to a change in leadership and the embarrassment they felt by being named the worst cooperative in 2009.

Alongside higher volumes, Doyo improved its quality and was able to secure direct sales to US buyers Peet’s Coffee & Tea and Intelligentsia. Their coffee was described as “clear and sweet, with bright lemon acidity and floral aromatics” and was promoted nationally as a special offering by Intelligentsia. The quality and high prices enabled them to repay their investment loans ahead of schedule and still attain a net profit of over $10,000. The profits were used to pay dividends to 769 member farmers who delivered cherry to the cooperative in 2010.

At the next award ceremony, Doyo’s turnaround was shared with other cooperative leaders as testament to the benefits of good leadership. The new leaders had the pride of handing their “lemon award” to a different cooperative, and to give that cooperative some parting words of advice.

Year 3 – Sustained Success

In the past harvest (2011), Doyo’s metamorphosis from a “client at risk” to a model cooperative enabled it to receive its own bank financing directly from the Cooperative Bank of Oromia. They more than doubled their cherry volumes once again, and they were one of the top performing cooperatives in the entire program. They repeated their sales to Peet’s Coffee & Tea and Intelligentsia, and attracted interest from additional buyers in the US, Europe and Australia.

At the same time, the two cooperatives that were given the “lemon award” in 2010 also made a turnaround in 2011. Although those cooperatives were not lucky enough to get their name on a coffee bag, as Doyo did, they reformed their leadership and achieved the production targets for the harvest.

Lessons Learned

The experience of Doyo underscores the importance of publically recognizing both positive achievements and failures. We believe that the act of recognizing the worst performer, and even embarrassing the leaders by calling them on stage, sends a powerful message. The message is that failure should not be ignored, nor should it be entirely attributed to external events; people should feel a sense of responsibility and accountability for failure.

For this to work, the indicators of success (and failure) must be explicitly known and applied consistently. In Ethiopia’s case, all cooperatives were expected to attain the “Three Pillars” – high volume, high quality and low operating cost (cost control) – and their performance was evaluated objectively against those criteria. Thus, the best performing cooperatives were recognized for attainment of some or all of the “Three Pillars”. Doyo was noteworthy in 2009 for missing all three.

The turnaround story observed at Doyo and at subsequent “lemon” clients should provide optimism for other struggling cooperatives. For this turnaround to occur, they had to first admit failure and then vow to make a change. Admitting failure is often difficult – making such an admission in public is even more difficult, but forces the issues to come out. The next step of enacting change is the hardest. It often required old leaders to step out and new leaders to step up. TechnoServe played a supportive role in implementing the change process, but ultimately it had to be driven by the cooperative and its members.