Agricultural cooperative


Agricultural cooperative
President of an agricultural cooperative in Guinea in an onion field

An agricultural cooperative, also known as a farmers' co-op, is a cooperative where farmers pool their resources in certain areas of activity.

A broad typology of agricultural cooperatives distinguishes between agricultural service cooperatives, which provide various services to their individually farming members, and agricultural production cooperatives, where production resources (land, machinery) are pooled and members farm jointly.[1] Agricultural production cooperatives are relatively rare in the world, and known examples are limited to collective farms in former socialist countries and the kibbutzim in Israel. Worker cooperatives provide an example of production cooperatives outside agriculture.

The default meaning of agricultural cooperative in English is usually an agricultural service cooperative, which is the numerically dominant form in the world. There are two primary types of agricultural service cooperatives, supply cooperative and marketing cooperative. Supply cooperatives supply their members with inputs for agricultural production, including seeds, fertilizers, fuel, and machinery services. Marketing cooperatives are established by farmers to undertake transformation, packaging, distribution, and marketing of farm products (both crop and livestock). Farmers also widely rely on credit cooperatives as a source of financing for both working capital and investments.

Contents

Why farmers form cooperatives

Cooperatives as a form of business organization are distinct from the more common investor-owned firms (IOFs).[1][2] Both are organized as corporations, but IOFs pursue profit maximization objectives, whereas cooperatives strive to maximize the benefits they generate for their members (which usually involves zero-profit operation). Agricultural cooperatives are therefore created in situations where farmers cannot obtain essential services from IOFs (because the provision of these services is judged to be unprofitable by the IOFs), or when IOFs provide the services at disadvantageous terms to the farmers (i.e., the services are available, but the profit-motivated prices are too high for the farmers). The former situations are characterized in economic theory as market failure or missing services motive. The latter drive the creation of cooperatives as a competitive yardstick or as a means of allowing farmers to build countervailing market power to oppose the IOFs.[1] The concept of competitive yardstick implies that farmers, faced with unsatisfactory performance by IOFs, may form a cooperative firm whose purpose is to force the IOFs, through competition, to improve their service to farmers.[2]

Headquarters of Hokuren Federation of Agricultural Cooperatives in Sapporo, Japan

A practical motivation for the creation of agricultural cooperatives is related to the ability of farmers to pool production and/or resources. In many situations within agriculture, it is simply too expensive for farmers to manufacture products or undertake a service. Cooperatives provide a method for farmers to join together in an 'association', through which a group of farmers can acquire a better outcome, typically financial, than by going alone. This approach is aligned to the concept of economies of scale and can also be related as a form of economic synergy, where "two or more agents working together to produce a result not obtainable by any of the agents independently". While it may seem reasonable to conclude that larger the cooperative the better, this is not necessarily true. Cooperatives exist across a broad membership base, with some cooperatives having less than 20 members while other can have over 10,000.

While the economic benefits are a strong driver in forming cooperatives, it is not the sole consideration. In fact, it is possible for the economic benefits from a cooperative to be replicated in other organisational forms, such as an IOF. An important strength of a cooperative for the farmer is that they retain the governance of the association, thereby ensuring they have ultimate ownership and control. This ensures that the profit reimbursement (either through the dividend payout or rebate) is shared only amongst the farmer members, rather than shareholders as in an IOF.

In agriculture, there are broadly three types of cooperatives: a machinery pool, a manufacturing/marketing cooperative, and a credit union.

  • Machinery Pool: A family farm may be too small to justify the purchase of expensive farm machinery, which maybe only used irregularly, say only during harvest; instead local farmers may get together to form a machinery pool that purchases the necessary equipment for all the members to use.
  • Manufacturing/marketing cooperative: A farm does not always have the means of transportation necessary for delivering its produce to the market, or else the small volume of its production may put it in an unfavorable negotiating position with respect to intermediaries and wholesalers; a cooperative will act as an integrator, collecting the output from members, sometimes undertaking manufacturing, and delivering it in large aggregated quantities downstream through the marketing channels.
  • Credit Union: Farmers, especially in developing countries, can be charged relatively high interest rates by commercial banks, or even not available for farmers to access. When providing loans, these banks are often mindful of high transaction costs on small loans, or may be refused credit altogether due to lack of collateral - something very acute in developing countries. To provide a source of credit, farmers can group together funds that can be loaned out to members. Alteratively, the credit union can raise loans at better rates from commercial banks due to the cooperative having a larger associative size than an individual farmer. Often members of a credit union will provide mutual or peer-pressure guarantees for repayment of loans. In some instances, manufacturing/marketing cooperatives may have credit unions as part of their broader business. Such an approach allows farmers to have a more direct access to critical farm inputs, such as seeds and implements. The loans for these inputs are repaid when the farmer sends produce to the manufacturing/marketing cooperative.

Supply cooperatives

Agricultural supply cooperatives aggregate purchases, storage, and distribution of farm inputs for their members. By taking advantage of volume discounts and utilizing other economies of scale, supply cooperatives bring down the cost of the inputs that the members purchase from the cooperative compared with direct purchases from commercial suppliers. Supply cooperatives provide inputs required for agricultural production including seeds, fertilizers, chemicals, fuel, and farm machinery. Some supply cooperatives operate machinery pools that provide mechanical field services (e.g., plowing, harvesting) to their members.

Problems faced by agricultural cooperatives

There are many problems faced by these cooperatives but the five major ones are:

1)Tough competition from MNC's[3]

2)They face a lot of government intervention i.e the various policies and legislations that affect these cooperatives

3)Inadequacy of professional and dynamic managers with complete knowledge and understanding[4]

4)Inadequacy of capital

5)The extent of participation by the members and method of empowerment of members should be revised


Examples

Canada

Israel

  • Granot central cooperative

United States

Marketing cooperatives

Agricultural marketing cooperatives are cooperative businesses owned by farmers, to undertake transformation, packaging, distribution, and marketing of farm products (both crop and livestock.)

Examples

New Zealand

New Zealand has a strong history in agricultural cooperatives, dating back to the late 19th century. The first was the small Otago Peninsula Co-operative Cheese Factory Co. Ltd, started in 1871 at Highcliff on the Otago Peninsula.[5][6] With active support by the New Zealand government, and small cooperatives being suitable in isolated areas, cooperatives quickly began to dominate the industry. By 1905, dairy cooperatives were the main organisational structure in the industry. In the 1920–30s, there were around 500 co-operative dairy companies compared to less than 70 that were privately-owned.[7]

However, after World War II, with the advent of improved transportation, processing technologies and energy systems, a trend to merge dairy cooperatives occurred.[8] By the late 1990s, there were two major cooperatives: the Waikato-based New Zealand Dairy Group and the Taranaki-based Kiwi Co-operative Dairies. In 2001 these two cooperatives, together with the New Zealand Dairy Board, merged to form Fonterra. This mega-merger was supported by the New Zealand Government as part of broader dairy industry deregulation,[9] which allowed other companies to directly export dairy products. Two smaller cooperatives did not join Fonterra, preferring to remain independent – the Morrinsville-based Tatua Dairy Company and Westland Milk Products on the West Coast of the South Island.

The other main agricultural co-operatives in New Zealand are in the meat and fertiliser industries. The meat industry, which has struggled at times, has proposed various mergers similar to the creation of Fonterra, however these have failed to gain the necessary member support.[10]

Canada

In Canada, the most important cooperatives of this kind were the wheat pools. These farmer-owned cooperatives bought and transported grain throughout Western Canada. They replaced the earlier privately and often foreign-owned grain buyers and came to dominate the market in the post-war period. By the 1990s, most had demutualized (privatized), and several mergers occurred. Now all the former wheat pools are part of the Viterra corporation.

Former wheat pools include:

Other agricultural marketing cooperatives in Canada include:

  • Gay Lea Foods Co-operative Limited (dairy)
  • Agropur

India

In India, most of the sugar production takes place at mills owned by local cooperative societies. The members of the society include all farmers, small and large, supplying sugarcane to the mill.[11] Over the last fifty years, the local sugar mills have played a crucial part in encouraging political participation and as a stepping stone for aspiring politicians.[12]. This is particularly true in the state of Maharashtra where a large number of politicians belonging to the Congress party or NCP had ties to sugar cooperatives from their local area. Unfortunately, due to a policy of "profits for the company but losses to be borne by the government", has made a number of these operations inefficient.[13]

Israel

United States

Origins

The first agricultural cooperatives were created in Europe in the seventeenth century in the Military Frontier, where the wives and children of the border guards lived together in organized agricultural cooperatives next to a funfair and a public bath.

The first civil agricultural cooperatives were created also in Europe in the second half of the nineteenth century. They spread later to North America and the other continents. They have become one of the tools of agricultural development in emerging countries. Farmers also cooperated to form mutual farm insurance societies.

Also related are rural credit unions. They were created in the same periods, with the initial purpose of offering farm loans. Some became universal banks such as Crédit Agricole or Rabobank.

References

  1. ^ a b c Cobia, David, editor, Cooperatives in Agriculture, Prentice-Hall, Englewood Cliffs, NJ (1989), p. 50.
  2. ^ a b John M. Staatz, "Farmers' incentives to take collective action via cooperatives: A transaction-cost approach," in: Cooperative Theory: New Approaches, ed. J.S. Royer, Washington, DC: USDA ACS Service Report 18 (July 1987), pp. 87-107.
  3. ^ Chambo, Suleman Adam (28–30 April, 2009). "Agricultural Co-operatives: Role In Food Security and Rural Development" (PDF). Expert Group Meeting on Co-operatives. http://www.un.org/esa/socdev/egms/docs/2009/cooperatives/Chambo.pdf. 
  4. ^ Prakash, Daman (April 18 2000). "Development of Agricultural Cooperatives: Relevance of Japanese Experiences to Developing Countries" (PDF). IDACA-Japan. http://www.uwcc.wisc.edu/info/intl/daman_japan.pdf. 
  5. ^ Petchey, Peter (November 1998). "La crème de la crème". Welcome to the Hocken: Bulletins of the Friends of the Hocken Collections (26). http://www.library.otago.ac.nz/pdf/hoc_fr_bulletins/26_bulletin.pdf. Retrieved 13 February 2011. 
  6. ^ "Catherine Mathieson". Dictionary of New Zealand Biography.
  7. ^ Philpott, H.G. (1937). A History of the New Zealand Dairy Industry: 1840-1935. Wellington: Government Printer.
  8. ^ Ward, A.H. (1975). A Command of Cooperatives. Wellington: The New Zealand Dairy Board.
  9. ^ Fonterra Co-Operative Group Ltd.. Reference For Business.
  10. ^ Hembry, Owen (14 April 2008). "Meat mega merger hits a bumpy road". The New Zealand Herald. http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10503899. Retrieved 13 February 2011. 
  11. ^ [1]
  12. ^ http://www.rediff.com/money/2007/jul/09sugar.htm
  13. ^ [2]

See also


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