Collective Responses to Crisis:

Agricultural Cooperatives and Intermediaries

in the Post-Sandinista Nicaragua

Octavio Damiani

Department of Urban Studies and Planning

Massachusetts Institute of Technology,

Cambridge USA, May 1994

A grant from the Inter-American Foundation made it possible the

field research for this paper. All views, interpretations, and
recommendations are mine and do not necessarily represent those of
the Inter-American Foundation.
LIST OF ACRONYMS

ATC Rural Workers' Association

BANCAM Peasants' Bank

BND National Development Bank

CAS Sandinista Agricultural Cooperatives

CDC Center of Cooperative Development

CCS Credit and Service Cooperatives

ECODEPA Cooperative Enterprise of Agricultural Products

ENABAS National Staple Crops Enterprise

ENAL National Cotton Enterprise

ET Territorial Enterprise

FENACOOP National Federation of Cooperatives

FSLN Sandinista National Liberation Front

INE National Energy Enterprise

INPRHU Nicaraguan Institute of Human Promotion

MIDINRA Ministry of Agriculture and Agrarian Reform

UCA Union of Agricultural Cooperatives

UNAG National Union of Farmers and Ranchers

UNAN National Autonomous University of Nicaragua

UPANIC Union of Agricultural Producers of Nicaragua

 TABLE OF CONTENTS

I. INTRODUCTION

II. THE NICARAGUAN AGRICULTURAL COOPERATIVES

a. Agrarian reform and development of cooperatives

b. The role of intermediaries and unions
c. The Pacific coast region

III. INSTITUTIONAL CHANGE AND MANAGERIAL CAPACITY

a. Reorganization and external institutional linkages: the creation of intermediaries

The role of the UCAs
Old wine in a new bottle?
An extended role for the UCAs
b. Institutional linkages with national cooperative organizations: the UCAs, UNAG,
and FENACOOP
c. Turning peasants into managers

IV. CONCLUSIONS

V. REFERENCES
I. INTRODUCTION

Policies and projects targeting the rural poor in developing countries often focus on
production-oriented interventions. These interventions usually attempt to modernize
peasants' production.1 For example, projects introduce cash crops and new production
technology to replace subsistence crops and peasants' backward technology. The use of
subsidized credit and the provision of extension services frequently promote the purchase of
inputs and agricultural machinery. Government agencies and farmer associations dealing
with the implementation of these projects often receive substantial funding. Heavy
investments in infrastructure--primarily irrigation and roads--are typically present. While
these interventions may have positive impacts on agricultural production, the results in
terms of poverty alleviation are often disappointing.2 Rural elites often take the most
advantage of projects, credit, and technical assistance.3 Projects are often plagued by
implementation problems because they are too complex and difficult to coordinate.4 The
connection between projects and policies is often weak, so farmers end up cultivating crops
for which prices decline or which are not favored by national agricultural policy5.

This paper presents an unusual story of positive outcomes both in terms of

agricultural production and the alleviation of rural poverty. It focuses on the story of 19
agricultural cooperatives in the Pacific coast region of Nicaragua created by the agrarian
reform implemented by the Sandinista government between 1979 and 1989, and of two
Uniones de Cooperativas Agrícolas (Unions of Agricultural Cooperatives, UCAs)--
intermediary organizations to which the cooperatives belong.6 In the last three years, these

1 For an excellent historical revision of agricultural development ideas and policies, see Staatz and Eicher
(1990). See Schultz (1964) as a major foundation of agricultural models based on the development of new
technologies, and Ruttan (1984) for an overview of integrated rural development programs.

2 See Chambers (1983) and Lipton (1989) for an appraisal of the effects on rural poverty of agricultural
development policies. Also see Peek (1988) for a critical view of the integrated rural development approach.

3 See Tendler (1993a & b) for a detailed account of these problems in World Bank-funded agricultural
projects in the Brazil's Northeast.

4 For example, see Grindle (1981 & 1986)

5 Timmer, Falcon, and Pearson (1983) argue that the weak connection between agricultural projects and
policies relates to the poor coordination between policies directed to production and those targeting
consumption. They stress that most countries attempt to increase food output by implementing a host of
production-oriented government projects, while using food imports and across-the-board food subsidies to
protect consumers. The authors argue for a food policy approach that integrates both production and
consumption issues.

6 Esman and Uphoff (1984) used the term intermediary to emphasize the importance of local institutions
that act as intermediaries between rural residents and both government agencies and private commercial firms.
While Uphoff did not use this category in his latest work (Uphoff 1993), I found it more appropriate for the
Nicaraguan case. As I will show later, the UCAs in Nicaragua are local, grassroots, non-governmental,
belonging to the collective action sector. But their major feature is precisely their mediation between the
coops and the market by providing services to member coops, and between the individual coops and the
national-level organization of cooperatives, by representing the member coops before the national-level
cooperatives have been cultivating new crops, adopting new techniques, and increasing the
income of their members. This is striking for many reasons:

a) They have grown and innovated in the wake of a substantial decline in aggregate
agricultural production in the region. This decline resulted from a collapse in the price of
the primary cash crop, cotton, and the fact that its continuous cultivation has led to
deterioration of the land and ever-increasing input costs to maintain yields. Within
Nicaragua, the Pacific coast has traditionally been the most developed and export-oriented
region, with an economy based on the production of cotton for export since the 1950s. The
decline in the world price of cotton since 1990 has led most cooperatives to decrease
cultivated areas sharply and to shift to subsistence crops. Some large farmers have shifted to
cattle production, but most have left their lands idle. These developments have led to a
dramatic increase in unemployment and poverty throughout Nicaragua.

b) The cooperatives included in this case have succeeded at a time of political and
economic upheaval, when traditional government policies that heavily subsidized
agricultural coops have been eliminated in favor of market-oriented policies. This is
particularly unusual because small farmer cooperatives in Nicaragua and elsewhere in Latin
America have often been hurt by the free market policies commonly being applied during
the last few years. The Sandinista regime that governed Nicaragua between 1979 and 1990
not only created the cooperatives as part of its agrarian reform program, but also protected
them from competition from imported products, and gave them subsidized inputs, credit,
and extension services. Furthermore, farmers sold their production and purchased most of
their inputs from public enterprises. As part of a stabilization program applied since 1990,
the new government has decreased expenditures by reducing the provision of most
government services. In addition, because rural cooperatives were created by the Sandinista
agrarian reform program and were at the center of the Sandinista agricultural policy, the new
government perceives them as political adversaries as well as inefficient producers. For this
reason, the new government's agricultural policy has been targeting individual farmers,
providing little access to credit and government services, such as agricultural extension and
training, to cooperatives.

c) These positive outcomes occurred as a result of the successful coops' initiative in

pursuing institutional innovations of a type unsuccessfully promoted by the Sandinista
government. These coops created Uniones de Cooperativas Agrícolas (Unions of
Agricultural Cooperatives, UCAs), groups of cooperatives at the local level that provide
them with services. The Sandinistas had created similar groups of state farms (the
Empresas Territoriales) and groups of agricultural cooperatives (the Centros de Desarrollo
Cooperativo) at the local level. By concentrating investments and services, as well as the
application of new technology, these groups were supposed to become an example for coops
and farmers in the surrounding area and to provide technical assistance and services to other
coops and individual farmers. However, these groups were plagued by internal problems
and rarely worked with neighboring coops and farmers.
organizations of the cooperative sector.
 In this paper, I examine the reasons why the successful coops being studied have
managed to achieve good results despite the factors working against them. My approach
builds on previous work in policy analysis which employs an institutional perspective in
order to identify the forces underlying positive policy outcomes.7 I pay special attention to
the relationship between coops' good performance and policies initiated during the
Sandinista period--although good performance may be related to other factors as well. Such
an emphasis contrasts with most of the literature on Nicaragua, which sees the Sandinista
policies as an example of what should not be done to promote economic and agricultural
development.8 While most of these criticisms are well grounded, the Sandinista period
represents an unusual experience of a long-term support of the poor as an integral part of
agricultural policy. Land reform and the support to peasant cooperatives were at the center
of the Sandinista agricultural policy, as the Sandinistas saw them both as instruments for
breaking down the pre-revolutionary power structure and for increasing agricultural output
(CIERA 1989). This unique situation offers the opportunity to study what policies or
particular components worked well, even when the overall results were not positive. The
results of this study provide insights not only into what role cooperatives may play in the
Nicaraguan context, but also about how to design policies that help the rural poor and
agricultural cooperatives in other contexts.

The region that I chose for my study comprises the Nicaraguan Pacific coast.
Because I was looking for cases with successful outcomes, this region's history of well
organized agricultural cooperatives made it attractive for my research. The Pacific coast
was the region in which the Sandinistas drew the most overwhelming rural support during
the 1979 revolution. The first agricultural cooperatives were created by former seasonal
cotton workers during the revolutionary struggle. Many of these coops became the best
organized cooperatives in the country.

The paper draws on interviews I carried out in Nicaragua between June and August
1993.9 My observations and findings build from the analysis of the agricultural cooperatives
and intermediaries included in this study and from comparisons with individual coops and
intermediaries that I visited earlier but I will not discuss here.

7 See Hirschman (1963) and Tendler (1993a & b) for examples of an institutional perspective within the
development literature. Also see DiMaggio & Powell (1991) for a discussion of the new institutionalist
literature in different disciplines.

8 For example, see SIDA (1989) and Martínez (1992). For an analysis of the negative effects of the
macroeconomic policies over the agricultural sector during the Sandinista era, see Biondi-Morra (1993).

9 I conducted in total 88 interviews, including six with officials and planners of the current government, 11
with former officials and planners of the Sandinista government, three with leaders of the national-level
cooperative movement, and 68 with leaders, staff, and members of cooperatives. The interviews were based
on open-ended questionnaires, which varied with the interview. At a first stage, the main objective was to
identify the region in which I would conduct the study given the time constraints, and to make a first
approximation of the selection of cases to be included here. I then made a first round of visits to cooperatives,
which helped me select the cases included here.
 I chose the cases to be examined using the following criteria:

a) Presence of innovative behavior, including the adoption of new crops, new agricultural
techniques, and new institutional forms.
b) Good performance in terms of agricultural production and productivity, as demonstrated
by higher yields per hectare and per worker than the regional and national averages.
c) Positive change in the income level and living conditions of coops' membership as
compared with conditions before they joined.

The first of these criteria was the most important to select the cases because, as I
show later, coops' rapid reaction to select new crops to replace cotton and their adoption of
new institutional forms turned out to be the main factors explaining their relative success. In
addition, the fact that the most successful cooperatives were cultivating crops that were new
in the region made it difficult to use the second criterion, i.e., to compare their yields with
those obtained by other coops and individual farmers.

While I restricted my analysis to one of the Nicaraguan regions and to a limited

number of cases, I believe as a result of my interviews with cooperative leaders and visits to
intermediaries in other regions that similar patterns exist throughout most of the country. I
note, however, that it will be necessary to examine further how intermediaries have worked
in other regions.

In this paper, I argue that the best outcomes are not related primarily to actions taken
to improve agricultural production, such as providing credit, extension services, training in
farming methods, or modern technology, nor to internal organizational changes that
increased individual production--despite the assumptions underlying most policies targeting
the rural poor. The cooperatives that succeeded in finding new products and markets to
replace cotton were the ones that put a priority on developing external institutional linkages,
creating local organizations and reinforcing their relationship with national-level
cooperative organizations. In addition, the coops that worked better demonstrate that the
presence of individuals with high managerial skills was more important than the knowledge
of agricultural production itself. These findings suggest the presence of complementarities
between the development of institutional linkages external to the cooperatives, the
acquisition of managerial skills, and certain production-oriented policies.

My arguments will be presented in two parts. In the first part, I examine the origins
of the Nicaraguan agricultural cooperatives, their institutional organization at the local and
national levels, and the problems that they have faced since their creation, first in the
country as a whole, and then in the Pacific coast region. The second part focuses on the
institutional responses to these problems--the emergence of intermediaries, the
strengthening of institutional linkages with national-level organizations, and the application
of management skills in the case study cooperatives. In the last section, I present the
conclusions of the study.
II. THE NICARAGUAN AGRICULTURAL COOPERATIVES

By 1989, Nicaragua had the largest number of agricultural cooperatives in Latin

America--more than 3,300, compared to 80 in Costa Rica, 1,200 in Brazil, and 2,500 in
Mexico (UNAG 1989a & b, OIT 1990). Cooperatives occupied more than 1.6 million
manzanas,10 21% of the national farmland, and they comprised 74,000 members, or 60% of
the agricultural labor force. By 1993, the number of agricultural coops had fallen to 2,300 11,
mainly as a result of the adverse political and economic environment that they faced after
the change in government in April 1990. Because the Pacific coast was Nicaragua's most
productive cotton region, it suffered most from the fall in the international prices of cotton.

In the following pages, I will provide a brief overview of the origins of the
agricultural cooperatives. As a background to the organizational changes discussed later, I
will also describe the national and local-level institutional organization of the cooperative
movement, as well as the major changes coops experienced after 1990. Finally, I will
present an overview of the problems that the Pacific coast cooperatives face.

a. Agrarian reform and development of cooperatives

Nicaraguan agricultural cooperatives were first created as part of an ambitious

agrarian reform implemented immediately after the Sandinista revolution in 1979.12 These
cooperatives were mainly of two kinds:

a) Collective production cooperatives, in which members owned and worked the land
collectively, sharing the revenues according to the amount of time worked. These coops,
called Cooperativas Agrícolas Sandinistas (Sandinista Agricultural Cooperatives, CAS),
had an average of 480 manzanas of land and 20 members, who were often former landless
rural workers.13

b) Cooperatives of individual small farmers who cultivated the land independently. These
coops, called Cooperativas de Crédito y Servicios (Credit and Service Cooperatives, CCS),
comprised 35 members on average, most of whom owned land before the revolution. Each
member had an average of 17 manzanas of land. The CCSs had the function of facilitating
the provision of government services, mainly credit and agricultural extension, and they

10 One manzana = 0.705 hectares or 1.73 acres

11 Information from preliminary results of a national census of agricultural cooperatives carried out by
FENACOOP in 1992.

12 There is an extensive literature focused on the Sandinista agrarian reform. This literature arose at
different times in response to a number of different issues. See CIERA (1989) for an official account of the
objectives, strategies, and policies guiding the agrarian reform process. See Peek (1981), Deere and Marchetti
(1981), and Deere, Marchetti and Reinhardt (1985) for early evaluations of the agrarian reform. See
Reinhardt (1989) and Baumeister (1991) for late and ex-post analysis. For a critique, see Martínez (1993).

13 A proposed Law of Cooperatives is expected to give these coops the name of "Cooperativas Agrícolas
Colectivas" (Collective Agricultural Cooperatives).
rarely performed other tasks, such as selling production or buying inputs.

In addition to the CAS and CCS, peasants also joined other forms of cooperatives
similar to the CAS, often combining collective property of the land with different degrees of
collective and individual agricultural production. By 1989, 45% of the cooperatives were
CCS, 34% CAS, and 21% other forms. CCS had 62% of the coop members, CAS 34%, and
other forms 4% (UNAG 1989a & b).

The evolution of the Nicaraguan cooperatives during the Sandinista period was
highly political. The Sandinistas considered the agrarian reform to be their most important
program because it was intended to change the power relations in Nicaraguan society by
redistributing land to the rural landless. For this reason, the newly created cooperatives
received strong support. This support took two main forms:

a) the government provided them with cheap credit, subsidized agricultural inputs and
machinery, free extension services, and a wide range of education and training programs.
The government also created or reformed already existing institutions to deal with the
agrarian reform program. The Ministerio de Desarrollo Agropecuario y Reforma Agraria
(Ministry of Agricultural Development and Agrarian Reform, MIDINRA), which designed
and implemented the agricultural and agrarian reform policies and provided extension
services, became the most powerful agency within the Sandinista government. The Banco
Nacional de Desarrollo (National Development Bank, BND) opened new offices all over
rural Nicaragua. The government also created a number of government enterprises to
provide marketing services, inputs, and machinery.

b) The Sandinistas created a national-level organization consisting of cooperatives and

individual small and medium size farmers, the Unión Nacional de Agricultores y
Ganaderos (National Union of Farmers and Ranchers, UNAG), providing it with substantial
political support and funding.

The support given to cooperatives made them a centerpiece of Sandinista

agricultural policy, in contrast to the situation in most developing countries, in which
agricultural cooperatives have been at most an instrument of poverty alleviation policies.
However, despite their preferential treatment and importance, Nicaraguan cooperatives
faced many problems. The Contra war that started in 1982 demanded great sacrifices.
Coops had to select members to send to the front, and had to continue to pay their normal
salary for periods lasting from three to six months. It is estimated that more than 5,300 coop
members lost their lives in the Contra war. Coops also lost more than 1,300 dwellings and
15,000 head of cattle (UNAG 1989a). In addition, the organization of cooperatives was
strongly affected by political and military factors. For example, the small size and collective
nature of the CAS--undoubtedly the highest-priority type of coop from the government's
perspective--was more influenced by military objectives than by economic considerations.
In fact, many CASs were organized as local defense organizations that were supposed to be
able to ward off attacks by the Contra forces. The government also responded to many
cooperatives' problems with solutions based on political rather than economic rationales.14

In addition to these problems, the newly created cooperatives often lacked

management skills, in part because most of their members were illiterate, and more
generally, unfamiliar with management of coop enterprise. Although the government
implemented a literacy program (the "Alphabetization Crusade") to provide basic education
for the peasantry, the results were not dramatic enough to improve coop members' capacity
to learn managerial skills (Colburn 1984).15 In addition, government policies did not help
foster a managerial mentality among cooperative members. Government monopolies
controlled the marketing of products for domestic consumption, such as beans, corn, and
rice, paying low prices to farmers and coops in order to subsidize urban consumers (Colburn
1984). The government strongly controlled the crop mix and the agricultural technology
applied by agricultural cooperatives according to the national and regional plans, refusing to
provide credit to those coops that did not comply. These policies discouraged coop
members from learning managerial skills because decisions about production and marketing
were mostly out of their control. Furthermore, the subsidization of credit, inputs, and
machinery distorted prices, encouraging coops to use too much capital instead of the
abundant labor available to them. Finally, the war expenses caused macroeconomic
imbalances that drove the economy into high inflation and prolonged recession.16 This had a
negative impact on the provision of some government services.

As a result of these problems, the cooperatives faced great difficulties when the new
government made a drastic shift to free-market policies beginning in 1990, which led to the
elimination of government intervention in the marketing of all agricultural products, direct
subsidies and the provision of some government services (notably agricultural extension). 17
14 For example, the government repeatedly forgave large debts to cooperatives to maintain their support in
the war against the Contras. This criteria led to the de-capitalization of the BND. Another example resulted
from negotiations that the government held with the UNAG and the Asociación de Trabajadores del Campo
(Rural Workers' Association, ATC) regarding the reduction of the length of the workday to three hours
immediately after the revolution. While the government initially argued that such a short workday was
unacceptable because it affected production dramatically, the arguments quickly turned into political
arguments. The workers argued that a short workday would compensate them for the exploitation suffered
during the Somoza times (Colburn 1984, Baumeister 1991). The government ended up agreeing to increase
the workday to only four hours in 1984.

15 Most of the coop members that I interviewed said that they had participated in recent training activities
focused on managerial skills (e.g. accounting). The majority expressed that they were unable to take full
advantage of these training activities because of they had a poor background in mathematics. UNAG and
FENACOOP have repeatedly stressed that the lack of managerial skills remains as one of the primary
constraints for the development of agricultural coops. For example, see UNAG (1989) and FENACOOP
(1993).

16 The Gross Domestic Product (GDP) has not grown since 1981, falling 13.4% between 1981 and 1992.
The GDP per capita fell 38.6% (CEPAL 1993) during the same period. Inflation ranged from 334% in 1985
to 33,500% in 1988 (Ricciardi 1993).

17 These measures were part of a stabilization program applied immediately after the new government took
over in April 1990. The program included the devaluation of the national currency, the reduction of the
money supply and availability of credit, an increase in the charges for government services, and the
In addition, the international prices of the principal Nicaraguan agricultural exports have
been declining. This has resulted in the decline of the cultivated area of cotton to
insignificant levels, and has negatively affected sugar and coffee production.

Cooperatives reacted in a variety of ways to this new adverse environment. In many

cases, members dissolved the coops and divided the land among themselves, leading to the
decrease in the number of coops.18 A second type of reaction involved internal
organizational changes, such as the decision by coop members to shift from collective to
individual production. This process could take different forms, ranging from preserving the
collective property but undertaking most agricultural production individually to the total
division and the transformation of a CAS (a collective production coop) to a CCS (a coop of
individual, independent producers). A third type of reaction has been the creation of
organizations of cooperatives at the local level. Organizations of this type--which are the
primary focus of this study--now perform a wide range of functions, including the marketing
of inputs and outputs, credit administration, lobbying local government offices, and
representing members before the national-level organization of cooperatives.

In the next pages, I offer a brief overview of the organizational framework of the
Nicaraguan cooperative sector, explaining in more detail the changes implemented at the
national and local levels during and after the Sandinista era.

b. The role of intermediaries and unions

During the first two years after the 1979 revolution, members of agricultural
cooperatives were represented by the Asociación de Trabajadores del Campo (Association
of Rural Workers, ATC), a national-level organization that also included all individual small
farmers and landless rural workers. ATC found it extremely difficult to satisfy different--
and sometimes conflicting--demands from such a diverse membership.19 As a result, many
small farmers started to leave the ATC to join the Unión de Productores Agropecuarios de
Nicaragua (Union of Agricultural Producers of Nicaragua, UPANIC), which represented
large farmers opposed to the Sandinista government. This phenomenon prompted the
Sandinistas to create UNAG in early 1981 (Colburn 1986; Martínez 1993). UNAG was to
provide cooperatives and small individual farmers with their own national-level
elimination of most social programs (Nitlapan 1990a, 1990b, & 1990c). The devaluation aimed to benefit the
traditional agricultural exports--cotton, coffee, and sugar--and to provide additional credit for these crops.
Although the program was successful in reducing inflation (9.9% in 1992), the GDP only grew 0.5%--which
meant a fall in the GDP per capita--and the unemployment rate reached 55% in Managua.

18 Research focused on the emerging land markets is relatively recent so there is still no complete evaluation
of land sales by agricultural cooperatives. See Amador and Ribbink (1993) for an analysis of the recent
development of Nicaraguan land market and some case studies. See Jonakin (1994a) for a study of land sales
by collective production cooperatives in the departments of Chinandega and León.

19 See IHC (1987 & 1989) for a discussion of this problem by ATC's and UNAG's leaders. Also see Serra
and Frenkel (1988) and Serra (1991) for a detailed history of ATC and UNAG, and of the problems associated
with their diverse membership.
organization, with the ATC remaining as the organization of agricultural wage workers.
UNAG's membership quickly grew to 125,000, comprising both cooperative members and
individual farmers not participating in coops.

UNAG's leadership frequently faced some of the same dilemmas as ATC. 20 Its
membership included both coop members and individual middle-sized farmers, groups
whose interests at times conflicted. In addition, it was subject to the influence of the Frente
Sandinista de Liberación Nacional (Sandinista Front of National Liberation, FSLN), which
created both UNAG and ATC, and from which the leadership of both organizations was
drawn. Both the characteristics of UNAG's membership and the close ties to the FSLN
influenced substantially the nature of UNAG's demands to the government, the kind of tasks
undertaken, how UNAG's organizational structure evolved, and how cooperatives were
represented within that structure.21

During the first few years, UNAG's motivations and actions were predominantly
political. Because of its ties to the FSLN, UNAG sometimes had to convince its
membership to support unpopular policies, such as recruiting cooperative members for the
military service during the Contra war (IHCA 1989). The close relationship with the FSLN
and the government influenced the regional structure of UNAG and the cooperative sector,
which began to reflect the geographical organization of government agencies, the military,
and the FSLN (Serra 1991; Serra & Frenkel 1989).

Over time, UNAG became less influenced by the FSLN, and began to exert more
influence on the government than other organizations. The principal reason for UNAG's
influence was its large size; moreover, the Sandinistas felt that allowing the organization
some independence would win the support of the rural population, among whom the Contra
enjoyed their greatest popularity . The support of coop members was key to the Sandinistas,
as they comprised a high proportion of the conscript army members, and the collective
cooperatives (CAS) were organized as a defense structure against the Contra (Colburn 1986,
Martínez 1993). This more independent UNAG played an influential role in agrarian reform
and agricultural policy. UNAG's pressure, for example, influenced the shift of the agrarian
reform program in 1982 from its initial emphasis on the creation of state farms to the
provision of land to collective production cooperatives. UNAG also played an important
role in 1986, when the agrarian reform shifted towards providing titles to individual farmers
who had been irregular tenants before the revolution (IHCA 1989; Luciak 1987; Reinhardt
1989).

Over the years, UNAG undertook its own marketing and industrial activities. In
1984, it obtained funding from the Swedish government to create the Empresa Cooperativa
de Productos Agropecuarios (Cooperative Enterprise of Agricultural Products, ECODEPA).
ECODEPA started a network of input supply and consumer stores, which currently has 60
stores spread all over rural Nicaragua. These stores also provide credit for working capital

20 See interview to UNAG's leadership in IHCA (1989).

21 For an account of UNAG's history, see Serra (1991) and Serra & Frenkel (1989).
to cooperatives and individual small farmers and purchase staple grains (especially corn and
beans), which are then sold in the cities. UNAG also created CARNIC, the largest beef
processing facility in Nicaragua, processing 40% of the country's beef exports.

UNAG's shift towards marketing, processing, and financial tasks took a whole new
dimension after the defeat of the Sandinistas in the 1990 election. 22 The new government
immediately began to privatize agricultural enterprises and suspended government
intervention in the marketing of agricultural inputs and products. In addition, it restricted
agricultural credit and closed a high proportion of the BND's rural branches as a part of
stabilization measures. UNAG's leadership felt that the organization had to occupy the
space left by the increasingly diminished role of the state in marketing, processing, and
financial tasks. This led to the creation of the Banco Campesino (Peasants' Bank,
BANCAM) in 1993 to target credit to cooperatives and small farmers.

This shift towards commercial activities led to substantial changes in UNAG's

organizational structure after 1990. The organization's leadership felt that each of the main
activities needed its own management structure, and converted ECODEPA and CARNIC
into cooperatives with their own management and organizational structures. UNAG
continued to be the umbrella organization and to handle more political issues, as the
negotiation of agricultural policies with the government.

UNAG's leadership was also concerned with the possibility of conflicts over
expropriated lands received by cooperatives. As a result, the leadership more closely linked
to the cooperative sector promoted the creation of the Federación Nacional de Cooperativas
(National Federation of Cooperatives, FENACOOP) within UNAG. FENACOOP was to
deal with problems specific to the cooperative sector, especially conflicts over land. Crop-
specific associations within UNAG would represent individual members (mainly medium-
size and some large farmers) who were not members of agricultural cooperatives.
FENACOOP and the crop-associations, along with ECODEPA and CARNIC, became the
main components of UNAG's decision-making structure.23

One of the first measures of the newly created FENACOOP was to call for the
transformation of the former UNAG's local chapters into Uniones de Cooperativas
Agrícolas (Unions of Agricultural Cooperatives, UCAs), groups of cooperatives at the local
level. This decision was made during a general assembly of FENACOOP in April 1990.
Because FENACOOP's leadership expected that former landowners expropriated by the
Sandinista agrarian reform would attempt to take over land from cooperatives, they wanted
to create organizations capable of mobilizing a large number of people to defend the land.

22 The most recent developments described in the rest of this section are based on my own interviews with

23 UNAG's board of directors comprises 13 members, four representing FENACOOP, three from the crop-
specific associations, three from ECODEPA, and three from CARNIC. The BANCAM will also be
represented in UNAG's organizational structure.
FENACOOP's leadership also envisioned that the UCAs would become local chapters of
their organization.24 However, because the creation of the UCAs was such a top-down
decision, only cooperatives in areas where UNAG's local representative had close contacts
with the organization's national leadership initially created them. Only ten UCAs were
established immediately after the creation of FENACOOP. In most UCAs, UNAG's local
representative became the president and manager of the UCA and the UCA took over the
house in which the local chapter of UNAG used to work.

Because of their initial success in preventing land takeovers, the number of UCAs in
Nicaragua increased rapidly to 55, where it stands now, comprising in total 588
cooperatives.25 Most UCAs focus on the acquisition of funds and administration of credit
for member cooperatives, inputs supply, and occasionally, on extension services and
training. Local UNAG chapters and the UCAs overlap substantially, with many of the
former local UNAG representatives having become leaders and managers of the UCAs.

The UCAs included in this study were among the first ten created in 1990, and the
first ones in the Pacific coast region. In the next section, I will briefly describe the main
problems that cooperatives and UCAs in the Pacific coast have been facing since 1990.

c. The Pacific coast region

The Pacific coast region--especially its northern part--had been the most dynamic of
the Nicaraguan regions before the Sandinista revolution. Peasants occupying small plots
cultivated staple crops (mainly beans and corn) until the early 1950s, when cotton emerged
as a major export crop. Cotton producers were large capitalist farmers who used modern
technology and hired seasonal labor for low wages. They frequently raised cotton in
conjunction with cattle, selling beef for domestic consumption and for export to neighboring
countries. By the mid-1960s, cotton had replaced coffee as Nicaragua's primary export
crop, all of it being cultivated in the Pacific coast region. Cotton occupied 40% of the
country's cultivated land (Wheelock 1980), and cotton and cattle producers had displaced a
high proportion of the peasantry from the Pacific coast.26 Part of them emigrated to less
fertile regions in the central highlands. The rest became seasonal workers in the cotton
fields. The Pacific coast become the region with the highest concentration of landless
workers in Nicaragua, and demand for labor was so large that thousands of workers from

24 The literature about Nicaraguan agricultural cooperatives makes almost no reference to the existence of
the UCAs. I found only one reference (Alemán et al 1990) to the UCAs as organizations of significant
importance in the description of recent changes in Nicaraguan coops. A corrected version of this paper

25 Information provided by FENACOOP.

26 Sugar and bananas were also cultivated in the northern Pacific coast. Sugar was substantially more
important in terms of exports and employment. Production was concentrated mostly in lands owned by
Somoza and his close associates. These lands were the first that the Sandinistas expropriated after the
revolution, creating state farms that continued to produce sugar for export. In the southern part of the region,
subsistence crops, mainly beans, rice, and corn are important, as well as coffee in the highlands of the
department of Carazo.
Honduras and Salvador used to arrive every year during the harvest season. Seasonal cotton
workers in the Pacific coast became the basis of the Sandinista revolution. Even before the
end of the revolutionary struggle in July 1979, they created the first collective production
coops on lands abandoned by Somoza and his close associates. Over the years, many of
them became some of the most productive and best organized coops all over Nicaragua.

Because of cotton's high international price, farmers cultivated the crop year after
year in the same plots. In order to do so, farmers needed to apply increasing amounts of
inputs, especially a wide variety of pesticides to control various cotton pests, most notably
the boll weevil. In the 1970s, the Nicaraguan Pacific coast had become one of the regions
with the highest consumption of pesticides per acreage in the world (Murray 1985). The
costs of production of cotton became extremely high. As a result, the fall in the
international price of cotton had dramatic effects in the cultivated areas, which decreased
from 150,000 to 1,300 manzanas between 1990 and 1993. In the last two years, most of the
former cotton areas have not been cultivated at all, and unemployment and poverty have
risen to unprecedented levels. These problems are being aggravated by high levels of soil
deterioration due to the cultivation of cotton year after year and the excessive use of
pesticides on cotton crops.

Cooperatives have been facing the challenge of finding new crops to substitute for
cotton, in a context of a drastic change in government policies. A significant number have
not been able to survive. In fact, the number of cooperatives in León, the most important
department the Northern Pacific coast region, fell from 410 to 140 between 1989 and 1992.
In Masaya, the main department in the southern part of the region, the number fell from 170
to 140.27 Nevertheless, in spite of the deteriorating overall situation, a number of
cooperatives continued to perform well. I now turn to an examination of the organizational
changes that the cooperatives in this study have undertaken to help them to overcome some
of the problems outlined above.

III. INSTITUTIONAL CHANGE AND MANAGERIAL CAPACITY

Policies and projects targeting the rural poor in developing countries usually focus
on modernizing agricultural production. Most of these projects attempt to increase peasants'
agricultural output by introducing cash crops and modern technology. Projects often
provide basic infrastructure to allow peasants access to markets, as well as heavy subsidies
through the provision of cheap credit and a wide range of government services, primarily
agricultural research and extension, and training. Government agencies and farmer
associations dealing with the implementation of these projects often receive substantial
funding. Heavy investments in infrastructure--primarily roads and irrigation--are typically
present.28 While these policies and projects oriented to alleviate rural poverty have involved

27 Information provided by local delegates of UNAG in León and Masaya.

28 See Staatz and Eicher (1990) for a historical revision of agricultural development ideas and policies.
heavy expenditures, results have often been disappointing.29 The World Bank, for example,
evaluated as satisfactory only 65% of its 887 agricultural projects between 1970 and 1985,
compared to 79% of the rest of its portfolio.30

The Sandinistas' approach towards rural poverty and agricultural development was
in many ways similar to the World Bank and other international donors. Although the
Sandinistas ideological approach and its emphasis on land redistribution was indeed
different, the government focus on the "modernization" of agriculture, the availability of
heavy subsidies to promote the use of credit, inputs, and agricultural machinery, and the
provision of a wide range of free government services, such as agricultural extension and
training, had striking similarities. These policies involved heavy budget expenditures, and
the agricultural sector still showed poor results.31 While it is true that the counterrevolution
contributed enormously to the poor performance of Nicaraguan agriculture, other problems
mentioned earlier were evident. In the period after 1990, the agricultural sector was deeply
affected by the sharp fall in credit, the fall in domestic consumption, and declining prices for
some crops (e.g., cotton). Average yields for most crops in the late 1980s in all Nicaraguan
regions were similar to or lower than before the revolution.

If the evolution of the Nicaraguan agricultural sector has been poor, what does
explain the good performance of the cooperatives in this case? The most recent literature
analyzing Nicaraguan agricultural coops have focused on changes in their internal
organizational structure to explain their performance.32 In many collective production coops
that have been examined, their members have been increasing individual production at the
expense of the areas cultivated collectively. Consequently, analysts often argue that these
changes reflect the search of cooperative members for ways to realize more efficient
production.33 Most authors also stress the top-down policies of the Sandinistas' policies
toward the CAS, arguing that the MIDINRA forced collective production by making it a
condition (until 1984) for receiving land under the agrarian reform.34 Hence, coop members
had no choice but to work the land collectively. When they were freed from the
compulsory mechanisms, they started to increase individual production.

29 See Chambers (1983), Lipton (1989), and Peek (1988) for a critique of the approach to poverty in
agricultural projects.

30 From an unpublished World Bank report.

31 For an extensive analysis of the evolution of the agricultural sector during the Sandinista period, see
Biondi-Morra (1993).

32 For example, see Jonakin (1994a) for a recent analysis of land sales, internal organizational changes, and
land use among Nicaraguan collective production cooperatives.

33 There is an extensive literature analyzing the problem of efficiency in collective farming as compared
with individual holdings. Among others, see Lipton (1974 & 1993) and Putterman (1989). For an analysis of
the Nicaraguan case, see Jonakin (1994b).

34 Among others, see Baumeister (1991), Colburn (1986), and IHCA (1989).
 In the following pages, I focus on the factors underlying the positive transformation
of the 19 cooperatives in this case. In contrast to the literature focusing on coops' internal
features, I focus on the coops' relationship with their outside world. I argue that while
internal organizational changes in the Nicaraguan cooperatives have been widespread and
may have a substantial positive effect on productivity, they are one part of an ongoing
process whose results have yet to be evaluated. This paper focuses on another type of
organizational change, which involves the development of external institutional linkages by
creating intermediaries and by reinforcing coop relationships with national-level cooperative
organizations. In addition, the successful coops illustrate the fact that the presence of
individuals with high managerial skills was more important than the knowledge of
agricultural production itself.

a. Reorganization and external institutional linkages: the creation of

intermediaries.

Most individual agricultural cooperatives in Nicaragua are too weak to face free
market conditions. The majority of their members are illiterate, so they are unable to
establish a minimally acceptable accounting system and to deal effectively with key
institutions, such as banks, suppliers, and potential buyers. In addition, most of the coop
members have had little or no experience in dealing with market institutions. Thus, coop
members do not know alternative markets for their products and lack access to information
about international prices. Most of the cooperatives in Telica and Tisma, the local areas in
which the cases analyzed here are located, share these characteristics, so they reacted to the
fall of cotton by minimizing their relations with the market in order to minimize risks. As
one coop leader argued: "With the fall of cotton, most of us decided to cultivate beans and
corn. We don't have anything to sell and we don't make any money, but at least we are able
to feed our families." This attitude is typical of most of the coop members I interviewed.

In contrast to other cooperatives and farmers in the region, the coops I am profiling
initiated rapid changes in production in response to the cotton crisis. Until 1990, they had
specialized in the cultivation of cotton, obtaining yields higher than the national average.35
After the decline in cotton price, coops in Telica started to cultivate other crops, primarily
sesame, soybean, sorghum, and tempate.36 In Tisma, some of the cooperatives are shifting
to cattle production and others have shifted to the production of sorghum.37 Sesame,
35 The coops in Telica often obtained higher yields due to soils and climate being more appropriate than in
Tisma.

36 Tempate is a Nicaraguan native tree, whose scientific name is Jatropha curcas. Its seeds are used to
obtain vegetable oil and a good quality substitute for gas-oil. The Engineering School at the Universidad
Nacional Autónoma de Nicaragua (Autonomous University of Nicaragua, UNAN) has been investigating the
industrial process in the last five years with the support from the Austrian government aid agency and INE.
INE has found the technology profitable and it expects to produce 25% of the domestic demand for gas-oil
from tempate within the next five years.

37 Sesame and sorghum were not new in the Pacific coast, but the coops in Telica and Tisma have been
obtaining higher yields than the national and regional average. Soybean and tempate are new crops, which
soybean, and sorghum are appropriate for the type of soils and climate of the Pacific coast.
Although coop members in Telica and Tisma had no experience cultivating these crops, they
were able to learn quickly because the required techniques were easier than cotton
production, which is a very demanding crop in terms of input and machinery use. Cattle
production, also makes sense in some of Tisma's cooperatives where soils are poorer and
continued cultivation of cotton has dramatically reduced soil fertility. More important,
demand for most of these products has been growing. The demand for sorghum is
associated with a fast-growing poultry industry, as well as with pork and cattle farmers who
produce for the domestic market and use sorghum as the main component of feed.
ECODEPA and other private firms purchase sesame for export to countries such as Canada
and Mexico. The Instituto Nacional de Energía (National Energy Institute, INE), the
government energy agency, purchases Telica's tempate in order to produce gas-oil at a lower
cost.

The role of the UCAs

How were coop members able to find out about these new crops and obtain funding
to initiate them? The successful cooperatives in Tisma and Telica shared many of the
typical weaknesses of agricultural coops in Nicaragua, such as the high levels of illiteracy
and their lack of experience with market institutions. The crucial decision they made,
however, was to create linkages with each other rather than close their doors to the outside
world. Coops in both Tisma and Telica formed UCAs; the UCA in Tisma comprises seven
cooperatives and in Telica, of 12 coops. Both UCAs carry out tasks that, while uncommon
in Nicaraguan individual coops, are common for cooperatives in other developing countries.
For example, Telica provides extension services and sells inputs, while Tisma provides a
rental machinery service. However, Telica's and Tisma other major functions require high
managerial skills: both organizations lobby government agencies, search for new products
and markets, and search for new sources of credit (see Table No. 1).

The formation of the UCAs has made an enormous difference for the member
coops. Through the UCA, coops learned about production alternatives to cotton, found
markets for these new products, and obtained alternative sources of credit to cultivate them.
The UCA-Tisma, for example, gave the cooperatives the idea of cultivating sorghum and
sesame, and suggested shifting to cattle production in two of the cooperatives whose soils
were impoverished due to continued cotton cultivation. The UCA obtained technical
assistance and credit to cover part of these changes from the INPRHU, a Nicaraguan non-
profit organization that manages Dutch funds. The UCA-Telica brought the cooperatives
the idea of cultivating tempate, sesame, soybean, and sorghum. In this case, the manager of
the UCA knew about the tempate through his contacts in FENACOOP. FENACOOP had
been visited by representatives of the Austrian government aid agency, who were working
on a project with the INE, the government energy agency, to fund the commercial
production of gas-oil from tempate. INE wanted to promote the tempate in the Pacific
coast, and was looking for cooperatives with good
Table No.1. Characteristics of the UCAs in Telica and Tisma.
have worked for many reasons explained in this section.
 UCA-Telica UCA-Tisma
Location (department)
León Masaya
Number of cooperatives
12 7
Total number of members
228 139
Total land area 7,487 manzanas 1,280 manzanas

Main cash crops and products

at present
Main services provided
Main source of revenue
Main source of credit
Tempate, soybean, sesame,
sorghum Sorghum, cattle
Input sale, extension services, Rental of machinery,
credit administration credit administration
Rental of machinery
Input sale
Foreign cooperation agency and Non-Profit
BND

Notes: * 1 manzana = 0.705 hectares = 1.73 acres

managerial capacity to initiate the cultivation of the crop. FENACOOP recommended the UCA-
Telica and arranged a meeting between representatives of the Austrian agency and Telica in its
offices in Managua. This allowed the UCA manager to learn about the
tempate and to negotiate funding for the cooperatives to cultivate it. Because INE will buy the
tempate at a good price to produce gas-oil, the crop has a safe market. For these reasons, other coops
and individual producers in the Pacific coast are now very interested in cultivating tempate. In
addition to promoting the tempate, the UCA-Telica suggested the idea of cultivating sesame,
soybean, and sorghum.

Soybean marketing involves the establishment of new contracting relation with private
industry. The UCA-Telica sells soybean through a contract that its manager worked out with
Gracsa, an oil processing firm in the city of Chinandega, 30 kilometers northwest of Telica. This
relationship is interesting because contracts with private industries are usually seen as exploitative, as
these firms often pay very low prices. Technicians from Gracsa and from Agrocentro, a firm selling
inputs in Chinandega, contacted the UCA manager to discuss the idea of cultivating soybean and
sorghum at the same time. The manager was able to work out a contract under which Gracsa would
purchase all of the output, paying a price set in US dollars before the planting began. The contract
included the provision of the seeds from Agrocentro.

In addition to searching for new products and markets, the UCAs were able to find sources
of funding to cultivate them. This was crucial because the coops in Telica and
Tisma, like many other Nicaraguan coops became ineligible for credit from the BND in 1991
because they had defaulted on previous debt. The UCA-Tisma, for example, obtained funding from
international donors through a Nicaraguan non-profit organization. The UCA-Telica has been able
to obtain credit for working capital from the BND for eight of the 12 cooperatives since 1992. One
of the factors in their success was that the UCAs appeared to be stronger organizations in the eyes of
the donors and bank officials than individual cooperatives. As one official from the local branch of
the BND stressed: "We look for sufficiently well organized groups because we did not want to
throw away our money." Another important factor in the success in Telica was that the two
extension agents hired by the UCA-Telica designed simple but well developed project proposals for
each cooperative, including projections of land use, investments, expenses, and revenues. The UCA-
Telica manager attended the meetings with bank officials accompanied by the extension agents, who
helped him with the formal presentation of the projects. Such a strategy is uncommon among
cooperatives because they lack the skills to employ it, so the bank officials were impressed by such a
formal proposal.

Old Wine in a New Bottle?

The success of the UCAs in this case stands in contrast to failure of the Sandinista
government's efforts to create a similar kind of structures elsewhere. These organizations consisted
of groups of state farms and groups of cooperatives at the local level that received heavy investments
and privileged attention from government services. These groups were supposed to become an
example for coops and individual farmers in the surrounding areas.

During the first few years after the revolution, the Sandinistas gave the strongest support to
state farms (CIERA 1989; Deere & Marchetti 1981; Deere, Marchetti, & Reinhardt 1985).
MIDINRA and other government agencies provided them with technical assistance, machinery, and
investments in infrastructure. Groups of state farms located close to each other became Empresas
Territoriales, (Territorial Enterprises, ET), which were supposed to provide services to cooperatives
and farmers in their surrounding area, such as fumigation, soil preparation, harvest of cotton, sale of
coffee plants, or help with the harvest. ETs' activities had few spillover effects, however, because
state farms were plagued of management problems. State farms ended up being highly self-
sufficient and self-centered, becoming increasingly isolated from their surrounding area and from
other state units (CIERA 1989). As a result, the provision of services in the rural areas became
deficient, which in some parts of the country contributed significantly to the popularity of the Contra.

After this failure of state farms to generate more broadly enjoyed benefits, MIDINRA
started to promote groups of cooperatives at the local level. MIDINRA created four of these groups
in the southern Pacific coast (department of Carazo) in 1986. It considered them to be "pilot
projects" and gave them the name of UCAs. Although they had the same name, these organizations
were very different than the UCAs created after 1990. Not only were these UCAs created by the
government, but also their main function was to serve as a channel for the government to provide
coops with infrastructure (silage, storage), machinery, and technical assistance--a drastic shift from
the earlier emphasis on supporting coops by the provision of land and extension services. MIDINRA
did not wait to evaluate the results of the pilot project and rapidly began implementing it in other
regions in 1987. These new organizations were called Centros de Desarrollo Cooperativo (Centers
of Cooperative Development, CDC).38 Because UNAG and the cooperatives perceived the CDCs as
top-down organizations, they did not support them enthusiastically. In fact, rather than supporting
the CDCs, UNAG promoted its own network of inputs and staples stores. At the same time, UNAG

38 For an account of the objectives of the CDCs, see CIERA (1989), vol. V.
geographically organized its activities with cooperatives.39 The local chapters of UNAG comprised
groups of cooperatives. The local chapters had a local representative, and discussed issues such as
the amount of credit needed for every crop and cooperative, the need for improving government
services, and the presence of potential lands for agrarian reform.

Most of the national and local cooperative leaders who I interviewed had little idea that the
name of the UCAs had existed before 1990. As one of FENACOOP's top leaders said:
"At that time, the UCAs and the CDCs were the same thing with a different name. The
CDC was just a new name that sounded better because it suggested that the peasantry
participated in some way. We took the old name and created an organization that has
nothing to do with the previous organization."

Only after 1990 were the UCAs able to emerge as strong organizations, largely for reasons
not directly related to their effect on agricultural production. As discussed earlier, the defeat of the
Sandinistas in the 1990 election precipitated the creation of FENACOOP, which in turn pushed for
the establishment of the UCAs. These UCAs are the same that the ones created in Telica and Tisma
in June 1990. Short afterwards, a group of peasants backed by former landowners invaded one of the
cooperatives in Telica. These peasants had been promised land by the landowners. As one coop
member said:

"When 'Juan de Dios Muñoz' [one of the cooperatives of Telica] was invaded by a group of
peasants sent by the former landowners, we met with the other cooperatives to decide what
to do. We first sent a small group that asked them to leave, but they refused. As a result,
all the cooperatives supported the decision to send a group of around 30 well-equipped men
as a "show of force". We showed up there, telling them that they had eighteen hours to
leave or we would expel them by the use of force. In fact, we were able to mobilize two
hundred well equipped men, all of them with experience in the counterrevolution. When
they went back the following morning, they had all left."

Land invasions occurred all over Nicaragua, but most UCAs succeeded in avoiding
takeovers. This initial success in preventing takeovers legitimized the UCA to the coop members,
who were also concerned with land invasions, but initially saw the creation of the UCAs as another
decision from above. The UCAs' success demonstrated that they served members' interests, and that
cooperatives could trust each other. Another coop member expressed his feelings about the UCA in
this way:

"The defense of the land was our very first action as an UCA, and we felt very proud of it.
We felt that we were strong and, more importantly, we all knew that all the cooperatives
would support the one running into trouble. If anything like that happens again we can
trust the others to come to our aid."

An Extended Role for the UCAs

Although defending the land against the claims of the former landowners was the major
reason for creating the UCAs, their success convinced both the leadership of FENACOOP and of the
39 At the same time, UNAG organized its individual members under associations formed for producers of
particular crops.
coops themselves that the UCAs were potentially very important in the changing political and
economic environment. At that time, FENACOOP's leaders were more interested in their political
dimensions, but most of the coops' leaders thought of them more in their potential economic
functions. One of the UCA-Tisma leaders, for example, argued that "... we were having a hard time
obtaining credit because we had defaulted on previous debt. In the eyes of the banks and foreign
donors the UCA looked much stronger as an economic unit than the isolated cooperatives." A Telica
leader also noted that "... it was obvious for most of us that the new government would suspend or
privatize most government services, especially marketing of inputs and products and extension
services. We thought that we had to occupy that space, or private entrepreneurs--maybe the same as
before the revolution--would do it." Thus, cooperatives thought that the UCAs could present a
strong image before the banks--as they presented a strong image to those who had invaded their land.
Obtaining credit, as well as undertaking important tasks that government agencies used to provide,
was essential for the cooperatives because they needed to find alternatives to the cotton production.

The UCAs in Telica and Tisma, as well as other UCAs in Nicaragua, did not undertake
services unusual for cooperatives in other developing countries. What was unusual was that the
UCAs "took off" economically after achieving an initial success in a political and military tasks.
This contrasts with most projects and programs targeting the rural poor in developing countries,
which are based on the premise that mixing political and productive objectives often result in
negative economic outcomes.

In the Nicaraguan case, however, one could argue that the organization of collective action
by coop members for political and military objectives had a substantial effect on the way in which
they later organized agricultural production. During the Sandinista period, coop members had
frequent meetings, usually to consider politically-oriented problems. For example, assemblies
discussed the situation in the war zones and the need for selecting coop members to send to the front.
Alternatively, they discussed measures to increase their capacity to defend the coops in case of
attacks by the Contra. These frequent meetings gave coop members extensive experience with group
discussion and decision-making. During one of my visits to one of the coops in Telica, for example,
I arrived with the UCA's extension agent. Before I started talking to coop members, they asked the
extension agent to have a meeting to discuss some technical problems with the tempate. What
followed was a lively discussion in which coop members disagreed with the recommendations of the
extension agent. Some coop members complained that the number of plantings per hour required to
pay their salaries was too high. Another member argued that the amount of fertilizer used was too
high, or that transplantation was taking place too late. Such a discussion shows a collective problem-
solving process that I found unusual when compared to other countries I have visited.

b. Institutional linkages with national cooperative organizations: the UCAs, UNAG, and
FENACOOP.

As discussed previously, the UCAs would have not been created without the influence of
two national organizations, UNAG (the National Union of Farmers and Ranchers) and FENACOOP
(the National Federation of Cooperatives). The links between the cooperatives to these national level
institutions is key to explaining the success of UCA-Telica and UCA-Tisma, as well as to
understanding the specific tasks that they carry out.

How did the UCAs in Telica and Tisma create strong linkages with UNAG and
FENACOOP? The principal connection was through the strong informal ties of UCA managers with
the leadership of UNAG and FENACOOP in Managua. Telica's manager had been the local
delegate of UNAG in León since 1986. Tisma's President had been a leader of the Asociación de
Trabajadores del Campo (Association of Landless Rural Workers, ATC) since the 1979 revolution,
and a mayor of the municipality of Tisma from 1984 to 1990. Thus, they both knew UNAG's and
FENACOOP's leadership well, and shared the same ideology and perspectives on the struggles
within the cooperative sector. Because FENACOOP considers the UCAs to be local representatives,
the leaders of these UCAs travel almost every week to participate in meetings and negotiations with
the government, mainly about land policies and credit.
How do the UCAs benefit from their linkages with UNAG and FENACOOP? UNAG and
FENACOOP are major sources of information regarding what is likely to happen in terms of policy,
trends in the international markets and domestic prices. This information is essential in an
environment as uncertain as the one cooperatives have faced recently. Isolated cooperatives have no
way to learn anything about international markets and what is taking place in national government
policy. The close contact with FENACOOP and UNAG not only gives them a sense of security, but
also provides useful information about agricultural markets essential to make decisions, for example,
regarding what to cultivate and what technologies to use. FENACOOP collects information about
international prices and has a small but well prepared professional staff in agricultural economics.
Because it frequently receives missions from European countries, FENACOOP also has updated
information about what crops are potentially good for exporting, mainly to European countries. In
addition, UNAG and FENACOOP have privileged access to information about the Nicaraguan
government policies because the government frequently consults them when designing agricultural
policy. As I explained earlier, this centralized source of information has been key for Telica and
Tisma, as well for other successful UCAs that I visited.

The evidence presented above suggests that the national level organizations represent a
significant and lasting contribution of the Sandinista regime--as the peasantry had no representative
organizations before the 1979 revolution. It also suggests that the centralization of marketing
information and technical capacity in national organizations, and the reinforcement of the linkages
between cooperatives and these institutions may be more critical to success in an uncertain and
changing context than the traditional policies directly targeting agricultural production, such as credit
and technical assistance.

c. Turning peasants into managers

The previous discussion suggested that state intervention and funding from international
donors in Nicaragua and elsewhere, which focused on transforming agricultural production, had
quite limited effects. As part of these policies, cooperatives in both Telica and Tisma received
substantial funding and technical assistance in the cultivation of cotton. Local branches of the BND
provided them with credit for working capital every year, as well as capital for the purchase of
machinery and other improvements. MIDINRA provided free extension services through local
branches in Telica and Masaya, with eight and four extension agents respectively working full time
for the coops included in this study.

These policies not only did not work very well, but also failed to provide coop members
with managerial and market experience. Highly subsidized credit and frequent forgiveness of their
debt distorted coop members' idea of credit, making them see it as a transfer of funds from the state
that they did not need to repay. This in turn led to many problems. For example, cooperatives found
it so cheap to buy new machinery that they often did not care about maintenance. As one coop
member in Tisma said: "Buying a new tractor was often cheaper than repairing a broken one.
Interests rates were so low that in the times of higher inflation, we were able to pay back loans with
which we had used to buy a tractor by selling a motorcycle." Another coop member in Telica said:
"Our cooperative used to pay back loans, but when we saw that the government forgave everybody's
debt every two or three years, we realized that it did not make any sense to repay."

In addition, the excessive participation of the government in marketing left coop members
with little idea about how markets for agricultural products work. In Tisma and Telica, the coops
sold the cotton to ENAL--the government enterprise purchasing and exporting cotton. When they
had a surplus of corn and beans, the coops had to sell them to the Empresa Nacional de Granos
Básicos (National Staple Crops Enterprise, ENABAS)--another government enterprise which then
sold these products in Managua and other Nicaraguan cities.

Coop members lacked market experience, as well as knowledge about management

techniques such as accounting and budgeting. The Sandinista government practiced centralized
agricultural planning. The office of MIDINRA in Managua decided what crops would receive credit
from the BND in every local area, according to a certain set of decision rules. In the words of a
former MIDINRA extension agent in Tisma:

"Our office in Masaya annually received the agricultural production plan for Tisma and
other areas in the department of Masaya. Rather than responding to the demands from the
cooperatives, our mission as extension agents was more to convince the coops that the
crops in the plan were the best choice--even when in some cases members did not want to
cultivate them."

Surprisingly, the key for the successful performance of UCA-Tisma and UCA-Telica relates
to managerial rather than production skills. In contrast to most of the individual coop members, who
are illiterate and do not have any managerial and marketing experience, the managers of the UCAs in
Telica and Tisma have outstanding experience in both fields. This experience enabled to effectively
search for and evaluate new crops and markets when the price of cotton declined, and to obtain credit
for the projected changes in production.

How did these managers gained the experience they needed while existing agricultural
policies failed to build managerial capacity among coop members? In both Telica and Tisma, the
managers had substantial experience in production and marketing decisions because they had
occupied political positions during the Sandinista government. As discussed previously, the manager
of UCA-Telica had been a local delegate of UNAG in Telica since 1986. The manager of UCA-
Tisma had been a mayor of the municipality. When the new government suspended the provision of
funding to UNAG, the organization had to lay off most of the local leaders, who used to receive a
monthly wage. Local mayors also lost their jobs. Many of these local leaders--among them the ones
in Telica and Tisma--became managers of UCAs.

During their previous tenure in political positions, both managers participated in training
courses that MIDINRA gave to leaders of UNAG and ATC. These were 6-month courses that
included organizational and management techniques, primarily budgeting and accounting. Almost
no attention was given to issues related to agricultural technology. In addition, as a local
representative of UNAG, the managers used to be part of a local commission comprising one
representative each from the local branch of BND, the local office of MIDINRA, the FSLN, and the
local chapter of UNAG. This commission dealt with every detail of agricultural production at the
municipal level. At the beginning of every cycle, the commission had long meetings to decide the
allocation of credit among cooperatives and individual farmers. The UNAG representative
represented coops and farmers in the negotiation process. In this context, the manager of UCA-
Telica says:

"The BND officer would tell the others the amount of credit available to the municipality.
The Midinra representative would explain the crops and areas included in the plan for the
municipality. Then the discussion would go for a long time concerning the amount of
credit that every coop and individual farmer would receive. The delegate of the FSLN had
certain veto power over who would receive credit. The UNAG representative was like a
mediator between the commission and the local coops. We discussed with the MIDINRA
representative about how much fertilizer or labor a crop would need, or how much fuel the
tractors would consume for that crop, insisting on correcting indicators suggested by the
extension agents that cooperatives felt were wrong. We would negotiate increases in wage
levels or would suggest changes in technology that the coops felt necessary."

The political positions in which they worked provided the managers of Telica and Tisma
with excellent experience in negotiation and gave them a good idea of the institutions involved in the
life of a cooperative. They also became familiar with agricultural planning concepts, technologies
and costs of production for different crops, and budgeting methods. Negotiations of debt from
previous years gave them knowledge about credit and interest rates. Finally, their prior experience
gave them important contacts in major Nicaraguan institutions, including UNAG, FENACOOP, and
enterprises owned by their workers. All these skills and experience are unusual for the average
cooperative leader.

In summary, the cases discussed in this paper show that investments in human capital
implemented during the Sandinista era had greater effects than production-oriented policies. These
investments in human capital had mainly political and military motivations. They grew out of the
formal training of local leaders, and most frequently of their on-the-job training by participating in
credit and planning committees. It also relates to the practice of collective decision-making acquired
by coop members during the Sandinista period. This training based on management techniques and
organization has paid off through the good managerial skills currently present in intermediary
organizations.

IV. CONCLUSIONS

This paper has focused on the relative success of a group of agricultural cooperatives in the
Pacific coast region of Nicaragua created by the Sandinista agrarian reform during the early 1980s,
and of the two intermediary organizations of which they are part. The Pacific coast region has been
traditionally the most developed, export-oriented in the country, but it has suffered a tremendous
economic decline since 1990 due primarily to the fall in the international price of cotton. Despite
this decline, the coops described in this paper were able to diversify their traditionally specialized
production by cultivating new crops instead of cotton, and to open market channels for their new
products. In addition, they were able to locate technical assistance to cultivate these new crops, and
to obtain credit to initiate these changes.

These achievements contrast with the situation of other cooperatives and individual farmers
in the same region, who have left most of their former cotton land idle. More important, these
successes occurred even though cooperatives have faced tremendous external constraints since their
creation. Although the Sandinista government provided them with substantial support, marked
macroeconomic imbalances and excessive government influence on crop selection and management
negatively affected all agricultural coops. After 1990, the new government instituted market-
oriented policies that have led to higher production costs and risks for agricultural cooperatives. The
government has also applied measures to reduce the budget deficit, which has led to a reduction in
the coops' access to government information and credit. Moreover, in addition to these problems,
demand and prices for the principal agricultural products of Nicaragua declined both in the domestic
and world markets.

What explains such a positive outcome in the cooperatives presented in this case? This
study has identified three major factors:

a) First, cooperatives adapted old structures that the Sandinistas had promoted
unsuccessfully.
These organizations, the Uniones de Cooperativas Agrícolas (Unions of Agricultural
Cooperatives, UCAs), provide their member coops with services. The Sandinistas had created
similar groups of state farms (the Empresas Territoriales) and groups of agricultural cooperatives
(the Centros de Desarrollo Cooperativo) at the local level. By concentrating investments and
services, as well as the application of new technology, these groups were supposed to become an
example for coops and farmers in the surrounding area and to provide technical assistance and
services to other coops and individual farmers. However, these groups were plagued by internal
problems and rarely worked with neighboring coops and farmers. In addition, UNAG and the coops
saw them as top-down initiatives created just to channel government funds and services, so they did
not support the effort.

Like other groups created during the Sandinista era, the UCAs resulted from a top-down
decision of FENACOOP, the national-level organization of cooperatives. FENACOOP's leaders
promoted the creation of the UCAs after the defeat of the Sandinistas in the 1990 election because
they feared that former landowners might attempt a takeover of the land that coops had received
from the agrarian reform. The initial success of the UCAs in a political struggle legitimized them to
their members. The UCAs in this case, as well as elsewhere in Nicaragua, were successful in
resisting land takeovers because they were able to mobilize a large number of well-equipped men.
This initial success made cooperative members feel proud of themselves, it created trust among
cooperatives, and made them feel strong enough to initiate other tasks.

In contrast with ETs and CDCs, UCAs do not channel government resources according to
government plans, but instead operate independently with their own resources. The external
constraints of the post-Sandinista era made the search for new sources of credit and design of project
proposals the first of the UCA's tasks. Afterwards, they were faced with the need for services that
the government suspended or started to privatize, primarily the marketing of agricultural products
and inputs and agricultural extension.

b) These intermediary organizations had strong links with key national organizations,
mainly UNAG and FENACOOP.

Leaders of FENACOOP not only promoted the creation of the UCAs, but they considered
them to be the local chapters of their organization. In addition, a high proportion of UCAs' managers
are former representatives of UNAG, which gives them direct access both to UNAG and
FENACOOP. The relationship with FENACOOP and UNAG were essential for the success of the
UCAs and their member coops because these linkages provided the coops with a centralized source
of information about domestic and international markets, trends in government policy, and contacts
with foreign donors.
 c) The relative success of the coops in this case had to do with an extraordinary capacity of
key members of the UCAs, particularly the managers.
In contrast with the production-oriented skills emphasized by most agricultural projects,
these actors had received substantial training in managerial and organizational skills. Because they
were local UNAG leaders, they had experienced a long and intense "on-the-job training" by
participating in local committees to allocate credit, along with representatives of the MIDINRA, the
BND, and the FSLN.

In short, the story of this paper is not about good agricultural policies, but about the creation
of an outstanding capacity to organize tasks collectively with positive impacts in terms of agricultural
production. Although political and military motivations led to the development of the UCAs in the
first place, cooperatives were able to apply to agricultural decisions the methods of discussing and
organizing tasks that they learned from dealing with political issues. In addition, the UCAs are
viable organizations because they are tied to FENACOOP, the strong national-level organization of
the cooperative movement, and under the umbrella of UNAG, the national-level organization of
small and medium size farmers. Both powerful organizations are another legacy of the Sandinista
period.

These results have implications concerning the kinds of programs and projects that donors
may want to support if they want to have a positive impact on agricultural production and rural
development. The cases described in this paper suggest that investments in human capital during the
Sandinista era were key for the success of the UCAs. UCAs had small team of people with high
managerial and organizational skills, and with strong contacts with higher level organizations of the
cooperative movement. These people were peasants who became local leaders of UNAG and
received "on-the-job training" in political, organizational, and managerial skills. Thus, not only
should having good managers with good networking abilities should be promoted among UCAs, but
these people should also be recruited from the peasant class. Moreover, it is clear that organizational
and managerial skills are just as important to develop and institutionalize as production technology-
oriented skills.

Donors often face the choice of supporting small individual projects that are supposed to be
more grassroots and to better fit the needs of the local people, or of targeting higher level regional or
national organizations that are often seen as centralized, bureaucratic, and far from needs of the
people. The Nicaraguan experience suggests that the strengthening of organizations like UNAG and
FENACOOP, which moved beyond the interest group representation to entrepreneurial undertakings,
may be more effective under certain circumstances than supporting small isolated projects with low
capacity to develop in adverse conditions. The creation and long support given to organizations like
UNAG and FENACOOP, and the training received by their local leaders are among the few things
that seem to have had a significant impact in the coops that are working well today.
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