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 are pooled and members farm jointly.
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.
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. 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, Amul, the largest food product marketing organization in India and Zen-Noah, a federation of agricultural cooperatives that handles 70% of the sales of chemical fertilizers in Japan.
Purpose
Cooperatives as a form of business organization are distinct from the more common investor-owned firms. Both are organized as corporations, but IOFs pursue profit maximization objectives, whereas cooperatives strive to maximize the benefits they generate for their members. Agricultural cooperatives are therefore created in situations where farmers cannot obtain essential services from IOFs, or when IOFs provide the services at disadvantageous terms to 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. 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.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 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 the larger the cooperative the better, this is not necessarily true. Cooperatives exist across a broad membership base, with some cooperatives having fewer than 20 members while others can have over 10,000.
While economic benefits are a strong driver for forming cooperatives, they are not the only consideration. Similar economic advantages can also be achieved through other organizational forms, such as investor-owned firms. A key advantage of the cooperative model for farmers is that they retain governance over the association, ensuring that ownership and control remain with the members. This structure means that profit distributions—whether through dividends or patronage rebates—are shared exclusively among farmer-members, rather than external shareholders as in IOFs.
Agricultural cooperatives play a critical role in rural socio-economic development, food security, and poverty alleviation, particularly in regions where agriculture is the main source of employment and income. These cooperatives provide smallholder farmers with access to resources, education, tools, and markets that might otherwise be inaccessible. By organizing into producer cooperatives, farmers can also increase their resilience to economic and environmental shocks. These organizations help build the capacity of smallholders to adapt to challenges in ways that reduce vulnerability and enhance long-term sustainability. Some studies suggest that membership in a producer organization is more strongly correlated with improved farm output or income than other interventions, such as technical training, certification, or credit alone.
File:Co-op elevator in Hays, Kansas.png|right|thumb|300px|Hays Coop elevator and offices, one of hundreds of grain-oriented agricultural marketing coops in the U.S. Interior Plains
In agriculture, there are broadly four types of cooperatives: a manufacturing/marketing cooperative, a purchasing/supply cooperative, a machinery pool, and a credit union.
- 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.
- Purchasing/supply cooperative: The same considerations of smallness of scale that motivate the creation of marketing cooperatives explain the establishment of purchasing/supply cooperatives that 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.
- Machinery pool: A family farm may be too small to justify the purchase of expensive farm machinery, which may be 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 jointly. Machinery pools are regarded as a type of specialized purchasing/supply cooperative.
- Credit Union: Farmers, especially in developing countries, can be charged relatively high interest rates by commercial banks, or credit may not even be available for farmers to access. When providing loans, these banks are often mindful of high transaction costs on small loans, or may refuse 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. Alternatively, 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.
Origins and history
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.
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.
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.