An agricultural cooperative, also known as a farmers' co-op, is a cooperative where farmers pool their resources in certain areas of activity. A broad typology of agricultural cooperatives distinguishes between agricultural service cooperatives, which provide various services to their individually farming members, and agricultural production cooperatives, where production resources (land, machinery) are pooled and members farm jointly. Examples of agricultural production cooperatives include collective farms in former socialist countries, the kibbutzim in Israel, collectively governed community shared agriculture, Longo Mai co-operatives and Nicaraguan production co-operatives.
The default meaning of agricultural cooperative in English is usually an agricultural service cooperative, which is the numerically dominant form in the world. There are two primary types of agricultural service cooperatives, supply cooperative and marketing cooperative. 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, distribution, and marketing 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.
- 1 Why farmers form cooperatives
- 2 Origins
- 3 Supply cooperatives
- 4 Marketing cooperatives
- 5 Production cooperatives
- 6 References
- 7 Further reading
- 8 See also
Why farmers form cooperatives
Cooperatives as a form of business organization are distinct from the more common investor-owned firms (IOFs). 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. 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.
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 together 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 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 the economic benefits are a strong driver in forming cooperatives, it is not the sole consideration. In fact, it is possible for the economic benefits from a cooperative to be replicated in other organisational forms, such as an IOF. An important strength of a cooperative for the farmer is that they retain the governance of the association, thereby ensuring they have ultimate ownership and control. This ensures that the profit reimbursement (either through the dividend payout or rebate) is shared only amongst the farmer members, rather than shareholders as in an IOF.
In agriculture, there are broadly three types of cooperatives: a machinery pool, a manufacturing/marketing cooperative, and a credit union.
- 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.
- 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.
- Credit Union: Farmers, especially in developing countries, can be charged relatively high interest rates by commercial banks, or even not available for farmers to access. When providing loans, these banks are often mindful of high transaction costs on small loans, or may be refused 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.
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.
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.
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.
This section requires expansion. (June 2008)
- Landisville Produce Co-op, established 1914
- MFA Incorporated
- Organic Valley
- National Council of Farmer Cooperatives
- Southern States Cooperative
- Farmers Cooperative Association, Inc.; Frederick, Maryland
- Ocean Spray (cooperative)
- Michigan Sugar
New Zealand has a strong history in agricultural cooperatives, dating back to the late 19th century. The first was the small Otago Peninsula Co-operative Cheese Factory Co. Ltd, started in 1871 at Highcliff on the Otago Peninsula. With active support by the New Zealand government, and small cooperatives being suitable in isolated areas, cooperatives quickly began to dominate the industry. By 1905, dairy cooperatives were the main organisational structure in the industry. In the 1920–30s, there were around 500 co-operative dairy companies compared to less than 70 that were privately owned.
However, after World War II, with the advent of improved transportation, processing technologies and energy systems, a trend to merge dairy cooperatives occurred. By the late 1990s, there were two major cooperatives: the Waikato-based New Zealand Dairy Group and the Taranaki-based Kiwi Co-operative Dairies. In 2001 these two cooperatives, together with the New Zealand Dairy Board, merged to form Fonterra. This mega-merger was supported by the New Zealand Government as part of broader dairy industry deregulation, which allowed other companies to directly export dairy products. Two smaller cooperatives did not join Fonterra, preferring to remain independent – the Morrinsville-based Tatua Dairy Company and Westland Milk Products on the West Coast of the South Island.
The other main agricultural co-operatives in New Zealand are in the meat and fertiliser industries. The meat industry, which has struggled at times, has proposed various mergers similar to the creation of Fonterra, however these have failed to gain the necessary member support.
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:
Other agricultural marketing cooperatives in Canada include:
The Amazon region of Ecuador is known for producing world-renowned cacao beans. In the Napo region 850 Kichwa families have come together with help from American biologist, Judy Logback, to form an agricultural marketing cooperatives, Kallari Association. This cooperative has helped increase benefits for the families involved as well as to protect and defend their Kichwa culture and the Amazon rainforest.
In India, production of sugar from Sugarcane mostly takes place at Cooperative Sugar cane mills owned by local Farmers The Shareholders include all farmers, small and large, supplying sugarcane to the mill. Over the last sixty years, the local sugar mills have played a crucial part in encouraging rural political participation and as a stepping stone for aspiring politicians. This is particularly true in the state of Maharashtra where a large number of politicians belonging to the Congress party or NCP had ties to sugar cooperatives from their respective local areas. Unfortunately, due to a policy of "profits for the company but losses to be borne by the government", has made a number of these operations inefficient.
- Coöperatieve Nederlandse Bloembollencentrale (CNB)
- Royal Cosun
- American Legend Cooperative (mink fur) "Blackglama" brand
- Blue Diamond Growers (almonds)
- Cabot Creamery (dairy)
- Diamond of California (nuts), formerly a cooperative
- Dairylea Cooperative Inc. (Dairy), formerly Dairymen's League
- Dairy Farmers of America
- Florida's Natural Growers (citrus fruit)
- GreenStone Farm Credit Services [financial products and services]
- Humboldt Creamery (dairy), formerly a cooperative
- Land O'Lakes (dairy and farm supply)
- Maine’s Own Organic Milk Company (dairy)
- Michigan Sugar Company (sugar beets)
- Ocean Spray (cranberries and citrus fruit)
- Riceland Foods (rice, soybeans, corn and wheat)
- Snokist Growers (pears, apples, cherries)
- 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)
- United Egg Producers
These are cooperative farms, jointly owned or managed by a cooperative society.
- Cobia, David, editor, Cooperatives in Agriculture, Prentice-Hall, Englewood Cliffs, NJ (1989), p. 50.
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- Why Nicaraguan Peasants Stay in Agricultural Production Cooperatives Ruerd Ruben and Zvi Lerman
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- McBride, Glynn (2014), Agricultural Cooperatives: Their Why and Their How
- Derr, Jascha (2013), The cooperative movement of Brazil and South Africa