GUMUTINDO COFFEE CO-OPERATIVE ENTERPRISE LTD

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Background
Gumutindo Coffee Co-operative Enterprise Ltd (GCCE) is a union of 11 primary co-operative societies on
Mount Elgon, Uganda. GCCE was formed as an independent union in 2003, from a joint project set up in
1998 by Twin/Twin Trading Ltd (UK) and Bugisu Co-operative Union in Mbale, Uganda. GCCE bought
and renovated its own warehouse and factory premises at 8-12 Mwanyi Road, Mbale, in 2005, and
operates from there.

The 11 societies have about 6,500 member farmers between them. All societies are fairtrade certified
and ten of them are organic certified, with the eleventh in conversion to organic. Women members are
723 (11%). The overall membership has reduced slightly in 2010 because some previously registered
members had no coffee, so they have been taken off the list.

Membership

Members
7000

6000

5000

4000

3000
Members
2000

1000

Moving from scattered individual farmers to societies as members of Gumutindo

By the third season, 2000-01, it was clear that Gumutindo could not keep working with an ever-
increasing number of individual scattered farmers. It was impossible to co-ordinate and train so many
when there were no up-country structures, or to assure the quality of the coffee they delivered. The
decision was taken to buy parchment from primary societies only, and to encourage individual farmers
to join a Gumutindo member society near them. Many of them did, some did not. Some who did not
join a nearby society at this time were later able to revive an old society or form a new one, and join
Gumutindo as a society at a later date. Busamaga Growers Co-operative Society was the first society to
supply Gumutindo in 1999-2000. It was followed by Bumayoga GCS in 2000-01.

UCDA and the gourmet project

Gumutindo agreed with Uganda Coffee Development Authority (UCDA, the government body which
regulates the industry) that it would “take over” the farmers from UCDA’s Gourmet Project, and
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Gumutindo assisted these farmers to form Buginyanya GCS, a new primary society, launched in 2001.
This expansion was a strategic decision to include the high altitude coffee from Buginyanya, benefiting
from its intrinsic cup quality. Following a similar path, Gumutindo organised the farmers from another
high-altitude society which was no longer functioning, Nasufwa GCS, to revive their co-operative and
begin trading again, in 2002-3.

Organic conversion
The move from individuals to societies as members was also necessary for organic production, as the
farmers in an organic scheme need to be in blocks, rather than scattered with many non-organic farmers
in between them. Gumutindo began the organic conversion programme in 2000, and exported its first
certified organic coffee in 2002, from Busamaga and Buginyanya. It has a policy to produce 100%
certified organic coffee, but because it is constantly expanding this goal is never reached, as there are
always new farmers joining, who must convert to organic production over several years. The organic
programme at Gumutindo represents an enormous investment in training farmers and checking that
their farming practices follow organic standards. Today Gumutindo is employing 20 field officers and an
organic field supervisor, to work with farmers who are already certified organic and those in conversion
to organic production.

Registering Gumutindo Coffee Co-operative Enterprise Ltd

In July 2003 BCU lost its fairtrade certification due to the level of “non-member business” it was doing.
This presented the Gumutindo project with both an emergency and an opportunity. It had to transform
itself very quickly from a project within BCU to a legally-registered independent co-operative union
which could be certified as fairtrade and could export coffee in its own name. On October 20th 2003
Gumutindo Coffee Co-operative Enterprise Ltd (GCCE) was registered under the Uganda Co-operative
Act. It was the first new second-level co-operative registered in Uganda for many years. BCU agreed to
allow the new organisation to continue to use the warehouse and offices, but instead of sharing the
fairtrade premium with the farmers as before, it now charged rent to the new co-operative union.

Fairtrade certification
GCCE Ltd applied for and gained fairtrade certification in time for the 2003-4 export season, and has
retained it ever since.

Mwanyi Road HQ
In July 2005 BCU ceased trading due to losses. Its premises were taken over by a Swiss businessman
who gave notice to Gumutindo to leave the office and warehouse it had occupied since 1998. The push
did not come too soon. In 2004-5 Gumutindo had exported 14 containers and the small warehouse at
BCU had been full to bursting, resulting in mix-ups over different shipments. Gumutindo put in a bid for
a run-down complex of 3 warehouses and associated offices on Mwanyi Road, Mbale (“Coffee Road” in
Luganda). It paid cash for the property from capital reserves, then borrowed from Shared Interest UK
for the cost of refurbishment. The refurbishment ended up costing more than the premises, but
resulted in a high quality environment for coffee handling and storage, with cross-ventilated
warehouses that are several degrees cooler than the old store, a fully equipped coffee cupping
laboratory, and offices with enough space for the first time. The offices boast direct satellite connection

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to the internet, and a networked system of computers. Handsorting is now done on conveyor belts,
which has speeded up the process, improved the quality of the product, and increased the earnings of
the 100 or so women who carry out this seasonal work at Gumutindo.

Gumutindo Production

Parchment purchases (tonnes)

1000
900
800
700
600
500
400
300 Parchment purchases
200 (tonnes)
100
0
1998-9
1999-2000
2000-1
2001-2
2002-3
2003-4
2004-5
2005-6
2006-7
2007-8
2008-9
2009-10
2010-11

Farmer advance price and second payments, and society buying commission

7000
Second payment to organic
6000
farmers
5000 Second payment retained
at society
4000
Second payment to all
3000 members
Society buying commission
2000

1000 Quality/Organic advance

0
Advance price
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11

The figure for 2010-11 is the target, the rest are actual.

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Sales in tonnes

600

500
400

300
Local sales
200
Export sales
100
0

The figure for 2010-11 is the target, the rest are actual. The outturn of green coffee from parchment
averages about 82%.

Unit value of export sales US$/lb

Value of export sales per lb

3

2.5

1.5

1 Value of export sales per lb

0.5

0
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11

2010-11 is a target, the rest are actual

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Total value of export sales in US$

Total value of export sales

5,000,000
4,000,000
3,000,000
2,000,000
1,000,000 Total value of export sales

0
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2010-11 is a target, representing 38 containers.

Export Customers

Customers
14
12
10
8
6
4 Customers
2
0

GCCE now has 12 international customers, plus several local customers who buy small quantities of
good coffee for local sale and consumption, and the poorest qualities for selling on for export.

Marketing
GCCE sells its coffee almost exclusively into the specialty markets in USA, Europe and Asia. All its coffee
is sold under fair-trade terms and more than 90% as certified organic.

GCCE has a bilateral marketing agreement with Twin Trading Ltd, whereby Twin Trading works closely
with the key managers to build their capacity to market coffee, and assists them in price negotiation,
price fixing and customer relations. GCCE pays a commission to Twin Trading based on the added value
of the coffee sold, using as a baseline the fairtrade (FLO) minimum prices for non-organic and organic
coffee. This agreement has been in place since 2007-8, during which time more than US$1 million has
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been added over 3 seasons, and about the same amount again is expected to be added in the current
season. The Twin Trading person responsible for the execution of this agreement is Richard Hide, senior
coffee marketing officer, richard.hide@hotmail.com, +44-7810-022-923.

Business systems and organisational development

GCCE also works with Twin Trading's parent organisation, TWIN (UK), to build its internal and
certification systems, both on the business side and organisationally regarding the structures and
operation of the co-operative.

Coffee value in the growing market

Gumutindo's market is growing, both in the number of customers and in the volume they require. Over
the last 5 years Gumutindo's reputation as a reliable supplier of excellent quality, double-certified
Arabica coffee has become well-established in a range of markets. Production is increasing as a result of
farmer investment in coffee, due to the good prices paid in recent years, and Gumutindo is expanding its
membership in a controlled manner.

Quality control at society level

The amount of defects increased as volumes and world market prices increased, and by 2005-06 this
had become a serious financial issue. The handsortings were being sold locally at a low price, even
though they were both fair-trade and organic certified. In 2007-8 Gumutindo was given consistent
support by Twin in marketing coffee for the first time, with the result that prices gained were
significantly over the fair-trade minimum, and even the “off-grades” (the handsortings and the low
grades) were exported at good prices. This meant that Gumutindo has become competitive again for
future years. However, Gumutindo is very “quality-conscious” as an organisation, and therefore it
decided to introduce a new system at society level in early 2008. The parchment coffee delivered by the
farmer to the society is sampled and hand-hulled at the society; the green sample is weighed and then
sorted for defects, then weighed again. If the weight of defects is more than 5%, a deduction is made
from the farmer price. This encourages the farmer to be more careful when picking and processing
his/her coffee on-farm. It is a somewhat risky policy, in that when there is stiff competition the farmer
can sell his coffee elsewhere if he expects to be penalised at the society. And Gumutindo itself realised
in 2007-8 that it can export the off-grades and not lose money on them as in previous years, so buying
defective coffee from farmers is not as disastrous now as it has been in the past. However, Gumutindo
feels strongly that there must be an emphasis on the best quality in everything, from farm level to
export.

Two-part structure of Gumutindo

In setting up the new farmer organisation in 2003, it was not immediately clear what status the
employees of the Gumutindo project should now have. The history of large scale co-operatives in
Uganda has not been a good one, especially in the aftermath of liberalisation. Co-operative unions in
Uganda have often been either corrupt or inefficient or both, have not always been run for the benefit
of their members, elected officials have diverted funds and misused their power over management, and
almost no unions were able to survive the onslaught of the liberalised market in the 1990s. The project
manager discussed with Twin at length what structure the organisation should have to ensure some
greater level of sustainability, and eventually decided that the employees should not be under the direct
control of the board of the co-operative union, but rather should be employed by a legally separate

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management services company that held a contract with the co-operative. Thus Gumutindo
Management Agency (GMA Ltd) was set up as a 100% employee-owned company, limited by
gurarantee, not having a share capital, perhaps the first of its kind in Uganda.

Management services contract

GMA Ltd has a three-year rolling contract with GCCE Ltd, with all roles and responsibilities specified.
GCCE Ltd is the owner of the coffee, the fairtrade certificate, the organic certificate, the export license
and the export contracts, the Gumutindo logo, and the great majority of the assets of the business.
GMA Ltd has a small stake in the assets, and provides agreed services on the basis of a fixed-price
contract based on cost which is reviewed annually, with an additional margin based on the value of the
export contracts. The management and staff of Gumutindo thus have an incentive to grow the business,
both in volume and in value per contract. This benefits the membership in turn.

It is hoped that this separation of management from ownership will strengthen Gumutindo and allow it
to resist the historic tendency in Uganda for co-operatives to be mismanaged.

Staff at Gumutindo

Staff
45
40
35
30
25
20
15 Staff
10
5
0

Ownership of Gumutindo by the farmers

With an organisation that grows out of a project, the sense of ownership can be tenuous. It was not the
farmers who set Gumutindo up. They willingly, eagerly joined it once it was there, but they did not lift a
finger to create it. It has been very much a management-led organisation, with support from Twin. This
is both a strength and a weakness. From the perspective of sustainability, it is not ideal. But from the
perspective of creating a dynamic business, it is a good thing while it lasts.

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Conflict of interest between the short term needs of the farmers and the long term needs of
their business
The potential conflict of interest between the need of small farmers for cash today, and the long term
investment and cash reserve needs of any growing business, (including one owned by farmers), will
create serious difficulties if the farmers do not feel that the business really belongs to them. Ironically,
the problem seems to be most intense when coffee prices are high and farmers are doing well, rather
than when prices are low. When the price is high the farmers know that they can get a good price
whether they sell to Gumutindo or elsewhere. When prices are lower they know they will get a better
deal from their own organisation. Unless they develop a sense of psychological ownership of their
business, they will not see the need to patronise it when they have a choice in the marketplace. Since,
like anyone else, farmers want to see concrete benefits; this of course means that Gumutindo must
continue to offer them positive advantages, even if these are not always more cash in the pocket today,
which is not always possible.

Employee-ownership at GMA Ltd

The employee-ownership aspect of GMA Ltd is also not simple. Employees in Uganda are not generally
empowered in their relationship with their managers. The culture is one of deference to authority, and
good jobs are very scarce, so there is great fear of losing one’s job. This means that managers are
seldom challenged by their staff. There is also a culture of punishment for transgression, but not of
reward for initiative, in Africa generally. People feel they will be safer if they do not try anything new, or
step outside their known role. This means leaders find it difficult to delegate effectively, and staff do
not step in to alleviate the burden. The typical “big man” syndrome in African politics pervades the
whole of society. This is not to say that Gumutindo is a dictatorship. But the default position of African
employees is not to challenge their boss if they want an easy life. The idea that they themselves employ
their own Managing Director is utterly foreign to them. Making employee ownership a reality will be a
long task.

Capacity at the level of the society committees and board of GCCE Ltd
Management capacity is still generally weak in Uganda, after decades of violent upheaval. There has not
been sufficient time since peace was re-established in 1986 to train a new generation of capable
managers, and for them to gain experience. There is also a culture of individualism in Uganda that
militates strongly against co-operative effort. Gumutindo’s board has sometimes not supported its
manager, and has occasionally been guilty of undermining his authority with farmers. This behaviour
helps no-one at all, but it persists. The board members have a poorly developed understanding of their
role and duty as the givers of strategic direction to the organisation. They see it as a source of cash,
rather than as a source of their economic security and power. Their view is always predominantly short-
term. There are exceptions, especially the treasurer, Oliva Kishero, who shows a mature understanding
of why Gumutindo exists and what benefits it provides, but they are exceptions rather than the rule.
Overcoming this deep-seated attitude is a major challenge for the organisation.