Agricultural cooperative

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

A broad typology of agricultural cooperatives distinguishes between agricultural service cooperatives, which provide various services to their individually-farming members, and agricultural production cooperatives in which production resources (land, machinery) are pooled and members farm jointly.[1]

Agricultural production cooperatives are relatively rare in the world. They include collective farms in former socialist countries, the kibbutzim in Israel, collectively-governed community shared agriculture, Longo Maï co-operatives in Costa Rica, France, and some other countries, CPAs in Cuba, and Nicaraguan production cooperatives.[2]

The default meaning of "agricultural cooperative" in English is usually an agricultural service cooperative, the numerically dominant form in the world. There are two primary types of agricultural service cooperatives: supply cooperatives and marketing cooperatives. 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 transportation, packaging, pricing, distribution, sales and promotion 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.

Notable examples of agricultural cooperatives include Dairy Farmers Of America, the largest dairy company in the US,[3] Amul, the largest food product marketing organization in India[4] and Zen-Noah, a federation of agricultural cooperatives that handles 70% of the sales of chemical fertilizers in Japan.[5]

Purpose

Cooperatives as a form of business organization are distinct from the more common investor-owned firms (IOFs).[1] 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 an unsatisfactory performance by IOFs, may form a cooperative firm whose purpose is to force the IOFs, through competition, to improve their service to farmers.[6]

A practical motivation for the creation of agricultural cooperatives is related to the ability of farmers to pool production and/or resources.

Origins and history

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.[12]

During the eighteenth and nineteenth centuries in certain areas of Greece, back then, under Ottoman rule, a particular form of cooperative organization was developed. Networks of adjacent rural communities were organized as a local production system designed to produce specific agricultural or craft products which were then destined for international markets. Derived from the Byzantine guilds, they were enabling better control of the production and tax collection by the Ottoman administration.[13]

One of the first civil cooperatives, was the Rochdale Society, formed in 1844 in Rochdale, England. While it was a society of textile workers, and thus not an agriculture cooperative in the strict sense, it also aimed to rent land, to be cultivated by members "who may be out of employment or whose labour may be badly remunerated". The Society's first enterprise was a retail store, but it very soon also established a corn mill.[14]

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.

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.)

See also

• Winemaking cooperative
• Zvi Galor, Israeli expert on cooperatives

Further reading

• McBride, Glynn (2014), Agricultural Cooperatives: Their Why and Their How
• Derr, Jascha (2013), The cooperative movement of Brazil and South Africa