Farmers' Cooperatives in a Global Economy

Statement adopted by the IFAP Standing Committee on Agricultural Cooperatives (29 May, 1998)

Introduction
Technological change and the modernization of agriculture
Quality and image of farm products
Maintaining farmers' incomes in a more open market economy
Strengthening the economic power of farmers in a global food market
Conclusion

Since the mid 1980s, the process of globalization of agricultural markets has progressed rapidly. The main factors pushing globalization in agriculture are technological change, and the liberalization of trade.

National agricultural policies have repercussions which go beyond national borders. Increasingly, they are affected by the framework established through international negotiations - a framework which promotes a competitive entrepreneurial structure for farming.

What is the role of the agricultural cooperative movement in a more liberal, more global marketplace? Worldwide, producer cooperatives - and other forms of farmers' business organization - represent a considerable force to strengthen the situation in the global marketplace of the farm families of which they are members. This potential is far from being fully exploited.

Agricultural cooperatives at the primary level are an extension of the farming enterprise, and integrated into it. The cooperative should be a profit centre in its own right for the benefit of its members. However, when judging the action of the cooperative and its efficiency, one should also take into account its impact on the profitability of the farming operations of its members.

Members control both the management and the capital of their cooperative. The farmers who have done best have followed their product up the food chain and so have been able to benefit from the value-added generated.

In a context of liberalization and withdrawal of government from agriculture, the services provided by farmer cooperatives and other farmer controlled businesses are of increasing importance. This is particularly true in four areas, namely:

1. Technological change and the modernization of agriculture
2. The quality and image of farm products and production methods vis-à-vis consumers and environmentalists
3. Maintaining farmers' incomes in a more open market economy with less government support.
4. Strengthening the economic power of farmers in a global food market increasingly concentrated in the hands of a few large transnational companies.

In many ways, these extra demands on farmer cooperatives are in response to the institutional gap left by the withdrawal of government - withdrawal from funding research, lack of public confidence in government regulatory agencies following deregulation, privatization and cost recovery of government marketing services, inspection, extension, veterinary services etc.

Agriculture is undergoing almost another green revolution with the rapid development of biotechnology and new farm management methods. It is important that farmers have access to new and improved seed varieties and livestock. However, there is a marked trend towards the reduction in government spending on agriculture, including on research and development. This is regrettable. Increasingly, the fruits of scientific progress are being concentrated in the hands of large transnational companies, protected by patent rights. In order to balance the strength of these companies, and their control of new technology, farmer cooperatives can become involved in research on behalf of their members e.g. in the seeds sector.

As well as developing new technology, cooperatives have the necessary local structures and networks to distribute technology and farm inputs at reasonable cost. In fact, cooperatives are one of the most effective delivery mechanisms for farm inputs.

Farmer cooperatives are also well placed to provide education, information and advice to farmers on new farm management practises e.g. concerning the environment.

Thus, by working together in cooperatives, small players like farmers can have access to technology. However, development is not only 'technical progress'. It is also a change in attitude to improve performance, and this involves training. In Africa, for example, 75 per cent of food production is done by women. Cooperatives can help change mentalities as well as promote technical progress - both are necessary for the modernization of agriculture.

In most industrialized countries, consumers are increasingly concerned about the quality and safety of the food they eat, as well as the conditions under which it was produced. This is largely in response to the rapid industrialization of agriculture. Who do consumers trust? Following the BSE crisis, consumers in the UK and other countries no longer have confidence in scientists or public regulatory bodies to guarantee food safety. Instead, they are placing their trust more and more in brand labels, especially retailer brands.

Retailers can strengthen brand images by integrating backwards down to the farm level to control the total production process of their products. Farmer suppliers would be obliged to sign contracts to conform to certain production practises and use specified inputs.

There is no reason why farmers should leave contact between consumers and the food chain to the retailers. Through their cooperatives, farmers can have a link with the consumer. This can be done through means of quality labels, or marks indicating region of origin for speciality products. Coop brands can give an authentic guarantee to consumers directly from the farmer who produced the product.

In the area of the environment, a similar situation applies. Environmental non-governmental organizations are supplying eco-labels for some products e.g. in the fish and forest industries. Farmer cooperatives could play a leadership role in this area too in reassuring the public about the environmentally-friendly practises of the farmers in the cooperative.

While farmers' professional organizations are involved in tough negotiations with government concerning the withdrawal of government support to farmers, farmer cooperatives must increase their efforts to help maintain farmers' incomes.

It is important that farmers' professional organizations help to organize farmers into cooperatives, and support cooperatives in their efforts to establish market power and stability for farmers. There should not be a separate logic for professional organizations and another for cooperatives. Both types of organization should be linked closely, with the professional organizations representing the policy interests of farmers, and the cooperatives the commercial and technical interests.

Farmers in the developing countries are particularly vulnerable. As a result of structural adjustment programs, governments abandoned the collection, financing and marketing of farm commodities. Farmers have to get organized, through cooperatives and other farmer-controlled business structures, to take over many of the functions previously carried out by the State, if they are to survive, and if rural poverty is to be eradicated. The World Bank and other development institutions should focus more resources on filling this institutional vacuum, through strengthening farmers' organizations.

In the industrialized countires, cooperatives can help members to improve incomes through consolidation, innovation and diversification. With more uncertainty in the market, following the trend towards liberalization, cooperatives require more risk capital from members. At the same time, members are in a more fragile situation on their own farms, and are looking to their cooperative to help them reduce risk and instability.

Nevertheless, cooperatives can create innovative support mechanisms for their members e.g. balancing of markets for fruits and vegetables, or other mechanisms, for managing, or avoiding, market crises. Cooperatives could also think about revenue stabilization schemes for members, or special measures to help young farmers who are often heavily in debt when they take over their farms.

As the food chain becomes increasingly concentrated in the hands of a few large transnational companies, cooperatives must find ways of cooperating with each other, both nationally and internationally. This is known as "intercooperation".

Intercooperation involves establishing strong business links among cooperatives. For example, cooperatives can have common offices or agencies for export promotion.

The agricultural cooperative movement has a worldwide dimension that is not exploited sufficiently. It needs to develop into an integrated, diversified and mutually-supportive business system like its competitors. This potential can only be realized through strengthening alliances and exploiting synergies, at the local, national and international levels.

IFAP members in developing countries had the experience of cooperatives being used by governments to distribute disaster assistance or financial support to farmers. They were tax exempt. Today, cooperatives in the developing countries have been privatized, and farmers have shares in them. They are no longer tax exempt, and must be commercially oriented, and not a vehicle of government. Often such cooperatives are fragile; they seek to network with other cooperatives in the industrialized countries, particularly for the acquisition of inputs and credit.

Outside the cooperative movement, farmer cooperatives can play a vital role in negotiating with private sector companies on behalf of their members. This involves, for example, bargaining for inputs or negotiating licensing agreements for biotech products. Cooperatives can also negotiate with the retail chains on behalf of their members, and establish jointly-agreed codes of good behaviour in marketing farm products. Consumer demand for products with an identifiable origin opens up new possibilities for cooperatives in this area.

In a global market dominated by large transnational companies, cooperatives need different forms of capital acquisition to survive. Often they are obliged to enter into joint ventures with private companies. Cooperatives are changing because farming is changing. Large cooperatives inevitably work in their day to day operations like private companies. But while cooperatives need to grow, they must train and educate their members to follow.

National economies are becoming steadily integrated into a global market economy. Companies are sourcing internationally, and trade often reflects internal transfers among transnational companies. This process is being promoted by national governments which are involved in deregulating, privatizing and liberalizing their national economies. At the same time governments are withdrawing support to agriculture.

Farmer cooperatives, and other farmer-controlled business organizations, are faced with the task of organizing the commercial strength of farmers so that they can compete in the new, more open market environment. They will increasingly be called upon to innovate, and cooperate among themselves. They will also be vital partners with farmers professional organizations in negotiating on behalf of farmers with other partners in the food chain. But most important, cooperatives are an important vehicle for individual family farmers to improve their economic situation through working together.

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E-mail: ifap@ifap.org
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