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Why farmers form cooperatives
Cooperatives as a form of business organization are distinct from the more common investor-owned firms (IOFs).12 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
A practical motivation for the creation of agricultural cooperatives is sometimes described as "overcoming the curse of smallness". A cooperative, being an association of a large number of small farmers, acts as a large business entity in the market, reaping the significant advantages of economies of scale that are not available to its members individually. Three typical examples are a machinery pool, a marketing cooperative, and a credit union. A family farm may be too small to justify the purchase of a tractor or another piece of farm machinery for its own use; a machinery pool is a cooperative that purchases the necessary equipment for the joint use of all its members as needed. A small 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 of its small members and delivering it in large aggregated quantities downstream through the marketing channels. A small farmer may be charged relatively high interest rates by commercial banks, which are mindful of high transaction costs on small loans, or may be refused credit altogether due to lack of collateral; a farmers' credit union will be able to raise loan funds at advantageous rates from commercial banks because of its large associative size and will then distribute loans to its members on the strength of mutual or peer-pressure guarantees for repayment.
Supply cooperatives
Agricultural supply cooperatives are cooperatives that supply farmers with required inputs for agricultural production including seeds, fertilizers, fuel, and services.
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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
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:
United States
- American Legend Cooperative (mink fur) "Blackglama" brand
- Blue Diamond Growers (almonds)
- Cabot Creamery (dairy)
- Cotton Incorporated (cotton)
- Diamond of California (nuts), formerly a cooperative
- Dairylea Cooperative Inc. (Dairy), formerly Dairymen's League
- Florida's Natural Growers (citrus fruit)
- Gay Lea Foods Co-operative Limited (dairy)
- Land O'Lakes (dairy and farm supply)
- Ocean Spray (cranberries and citrus fruit)
- Riceland Foods (rice, soybeans, and wheat)
- Sunkist Growers, Incorporated (citrus fruit)
- Sun-Maid (raisins)
- Sunsweet Growers Incorporated (dried fruit, especially prunes)
- Tillamook County Creamery Association (dairy)
- Lone Star Milk Producers (dairy)
Origins
The first agricultural cooperatives were created 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
- ^ a b c Cobia, David, editor, Cooperatives in Agriculture, Prentice-Hall, Englewood Cliffs, NJ (1989), p. 50.
- ^ 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.
See also
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