New ideas put agriculture co-operatives at the heart of rural development

Stalinism and the forced collectivisation practices of the Soviet Union have infused agricultural co-operatives with all sorts of negative historical connotations. The state-controlled model served as inspiration for many developing countries for quite some time and still survives, to some extent, in certain corners of the world. In recent years however, co-operatives have been able to gradually acquire a new positive character.

As the world celebrated the International Day of Co-operatives last month, it is clear that the idea of co-operatives as clunky, state-led organisations is out of date. Co-operatives today operate much like modern businesses, prizing efficiency, productivity, and transparency. This is not to say that co-operatives are the ideal business model in all situations. For example, highly democratic procedures can slow down decision-making and reaction times to market developments and, in agricultural co-operatives, women are often underrepresented in decision making. In other ways however, co-operatives can be more robust than private enterprises: driven by a combination of longerterm social, economic and ethical interests rather than high-risk short-term profits, many have proven particularly resilient in the recent global financial crisis.

Across the globe, co-operatives now count more than 1bn members, provide 100m jobs, and in 2008, the 300 largest co-operatives in the world had a turnover of $1.6tn, comparable to the size of Canada’s economy. In the agricultural sector, numerous case studies are emerging on how co-operatives have helped farmers, especially marginalised small producers, organise themselves collectively to overcome barriers and constraints and make a more decent and secure living. Co-operative contributions to growth, employment, poverty reduction and food security, as well as their role in sharing knowledge, building capacities, and providing business development services to members, came to the fore in 2012 during the United Nations international year of co-operatives. Beyond the benefits of collective action and enlarged membership, agricultural co-operatives have also become the loci of new forms of institutional innovations that improve small producers’ access to markets, information, resources and policy-making processes and strengthen their resilience in times of crisis.

One significant constraint that some co-operatives have addressed is access to finance, a service without which small producers cannot increase their productivity or move out of poverty. The seasonal nature of agricultural production makes it highly dependent on the availability of short-term credit, but with poor access to financial services, many small producers turn to money lenders in times of need. These lenders, claiming high transaction costs and default risks of lending to the poor, often charge exorbitant interest rates or even force situations of bonded labour, thus perpetuating a cycle of exploitation and indebtedness.

To tackle this perennial problem, small producers and service providers in several less developed countries are jointly developing novel institutional arrangements, such as warehouse-receipt systems in which stored produce is used as a collateral guarantee to obtain short-term credit, or loan guarantee funds which are designed to reduce the risks for lenders by providing insurance for loans against potential losses.

In Niger, the warehouse receipt system is an innovation designed to provide poor rural producers with a means to access rural credit. The success of this arrangement lies in the linkages between producers’ grassroots co-operatives and microfinance institutions. Members deposit their non-perishable cash crop at harvest time and can obtain partial payment for the crop directly, a loan from the microfinance institution using this crop deposit as collateral, or simply deposit the stock and wait for the market price to rise. This arrangement has greatly increased the income of small producers. For instance, in Niger, during the 2008-2009 season, Mooriben Federation members sold their millet and peanuts at a price increased by 89% and 330% respectively (pdf) and 18% of food stocks were bought back at the original rate by hungry farmers, offering a vital lifeline in times of crisis. Similar arrangements in Ghana, Madagascar, Uganda, Tanzania, India and elsewhere have had anequally positive effect on farmers’ incomes and food security (pdf).

When small producers are better organised, they can increase farm productivity and improve their livelihoods. Agricultural co-operatives in developing countries also drive innovations, which transcend the benefits of collective action and organisation.

If there is one lesson to draw from the Soviet Union experience, however, it is that farmers should not be forced to organise themselves. Co-operatives and other producer organisations are most effective when they are voluntary, driven by their own problems and interests. Only then will these organisations stimulate innovation and a continuous improvement in the livelihoods and opportunities of their members and their families.

Muhammad Ramzan Rafique
Muhammad Ramzan Rafique

I am from a small town Chichawatni, Sahiwal, Punjab , Pakistan, studied from University of Agriculture Faisalabad, on my mission to explore world I am in Denmark these days..

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