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The Sustainable Development of Rural Cooperatives (RCs)

 

It  is well recognized that the Rural Household Responsibility launched in 1980s in China made a great contribution to the achievement of national food security of China. From the economics perspective however,  the scale of economy is much efficient. It seems that scale of economy would be the future of China’s agriculture if China aims to foster agricultural development and realize the modernization of agriculture.  Rural Cooperatives (RCs)  can reach scale of economy and whilst protect farmer members’ interest, increase farmers’ income and promote common wealth, if appropriately operated.

China’s experience shows that RCs are playing an active role in pre-production, during production and after harvest. They are well involved in agricultural technology extension and training, products quality control and marketing. The data from Ministry of Agriculture shows that the number of RCs more than doubles in the past two years.  There were 510 thousand RCs in China by the end of 2011, covering 16% of rural households. It looks that there is a positively trend of RCs development in China. The key questions are how these RCs have a healthy development? How can farmers members equally/fairly benefit from the RCs development? I think three issues are of paramount.

Firstly, identify the property rights to protect member’s interest

The definition of UN to cooperatives is that a farmers’ cooperative is “…an autonomous association of persons united voluntarily … through a jointly-owned and democratically-controlled enterprise. It is a business organization owned and operated by a group of individuals for their mutual benefit.”  Therefore we can read that the fundamental element is to own the property rights jointly with the common goal to gain mutual benefit. The ownership of the property right “jointly” shall not be something floating in the air, it has to be, I think, a quantitative property right allocated to each individual. In other words, the property rights shall be clearly identified. It is to be the basis of other rights and responsibilities, including governance, distribution and risk bearing.

So the first thing to solve is the property right. In some RCs, only a handle of people owned the majority of the RC stocks and most of the members only own a small portion. It jeopardizes to become an enterprise owned by a few people. Besides, the property right will determine the distribution. A “Rural Cooperative” physically owned by a few people can not protect the interest the farmer members, and in turn reduce the incentive of farmers to join it and impact its sustainability. In some areas, local government contributes some of public resources to support RCs development, including land, water resources etc. These resources shall be carefully reviewed, identified and allocates to members otherwise farmers cannot benefit from the government supports, and even more, some of the national property will just evaporate/be misappropriated.  

To ensure the ownership of  the property for members, farmers shall be allowed to buy stocks/invest for the RC, and equally important, to make the stock share as even as possible. 

Some may argue about the issue of poor HHs: how can they have the capital?  I think the investment for RC shall not be limited by capital, but also includes other format of property, such as the land. In China, the land distribution is relatively equal, meaning even poor households also have a certain amount of land. Besides, we know  the government provides huge amount of financial assistance to support RCs every year. Can some of the government financial assistance be used to set up a guarantee  fund, which will provide guarantee, similar to a collateral ,  to leverage a loan for poor farmers?  Then farmers can use the loan to buy shares. I do not like the approach to provide grant to poor farmers directly. The main reason is that the farmers do not have the incentive and pressure to work for the RC, since the stock share is free. It is not good for the capacity building of poor farmers in self-governance, and harmful for the enhancement of risk awareness. So a better way is to set up an effective system to trigger credit and use the loan to obtain shares of RCs.

 Secondly, improve the internal governance and empower rural farmers

As we discussed, the property right is the foundation. Once this issue is settled down, the governance of RCs becomes important.  RCs shall meet the requirement of the Rural Specialized Cooperatives Law (2007) and set up three committees: the Board of Supervisors, the Council and the General Meeting of Members.  If the property rights are relatively equal, then the member can have relatively equal right of governance , e.g. each member having one vote. This implies that the RC is not only united by stock share, but  more likely to be a union of “free people” . This is very important.  The farmers organizations shall be ultimately managed by farmers and benefit farmers.  So far the lack of participation of members in RCs is rather obvious. Many RCs are controlled by a few “big farmers/big  shareholders”. Ordinary  farmers do not have much intensive to join.

The development of RCs could be a good opportunity to empower poor farmers in self-governance and self-development.  “ Rural Democracy” was set up as a goal by Government of China for the “New Countryside Construction”  and have gained some results. With the RC as an economic institute, the rural democracy has a more concrete foundation. The participation of farmers, particularly the poor farmers, will make RCs true cooperatives owned by farmers. Its sustainability is therefore being possible.

Last but not least, is to enhance the team spirit and culture

From the long term development strategy, the critical element is to train farmers on cooperation spirit. Chinese farmers are traditionally small holders engaged in small farming economy, which does not require much of cooperation.  Thus the lack of team spirit has its profound cultural and historical reason. Moreover, china launched a national wide programme on “big Rural Cooperatives” and “ Big Leap” in 1950s which have been proved a failure and caused huge economic damage.  Elder farmers remember the experience and do not trust rural cooperatives so much.  Therefore the enhancement of awareness through training and education on team spirit is very important. Besides, RCs  shall focus on the service provided to farmers. If farmers benefit from RCs, their trust will increase. Only with the support from farmers can RCs have sustainable development.

The cooperation spirit or team spirit could become an endogenous factor contributing to the development of RCs. For instance, in the course of RCs development,  in some cases there is a need to re-arrange the land, and some farmers’ property, e.g., fruit trees on the land, have to be damaged; in other cases that the development  of RC means some members need to invest more time and resources.  Members will be willing to support RC only if they have the team spirit and they have the common development goal. The commitment of farmers to team spirit will eventually make RCs, the very special enterprise to be very competitive in the markets. 

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