June 15th, 2017

Farm Cooperatives: The Economics of Organizing

Farm Cooperatives: The Economics of Organizing

In the first installment of this Cooperative Initiative, the many advantages – and possible pitfalls – to organizing small organic farms via cooperatives were discussed. Here we shall delve further into the positive economic impacts and cultural influence wielded by cooperatives of all types throughout the world. The impressive track record of the cooperative as a business model in general, is intended to serve here as a confidence-builder for organic farmers and food market managers, as well as potential agriculture investors.

Defining the Cooperative

Let us first formally define the cooperative and its common operational principles to more fully understand why this model has enjoyed so much success worldwide. According to the International Cooperative Alliance and the International Labor Organization, a cooperative is “an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically controlled experience.” Furthermore, the following seven Operational Principles commonly define cooperatives:

1. Voluntary and open membership

2. Democratic member control

3. Member economic participation

4. Autonomy & Independence

5. Education, training & information

6. Cooperation among cooperatives

7. Concern for the community

Cooperatives are thus formally defined as strictly focused on people and human preference, somewhat of a departure from present-day business cultural norms.

Impact: Quality Employment Worldwide

According to a 2014 report compiled by CICOPA, cooperatives directly or indirectly involve at least 250 million people, on a sample of 74 countries, which comprises 75% of the total human population. The vast majority of cooperative employment is realized in the G20 nations, which represents 12% of the total employed human population. According to the cooperative member interviews conducted, the employment advantages over non-cooperative jobs or involvements include: generally improved work conditions, a higher resiliency – with less layoffs – in the face of economic crises, and a higher tendency to formalize (legalize) employment. Cooperative employees also added that their cooperatives tend to focus on economic rationale, a quest for efficiency, flexibility, a sense of participation, a family-type environment, pride & reputation, and a preference on human values – contrasting with most of the corporate or ‘standard’ business environments that employees around the world are presently experiencing. During an address marking the 2013 International Day of Cooperatives, then United Nations Secretary General Ban Ki-moon stated that cooperatives “can help build resilience in all socio-economic spheres in times of global uncertainty.”

On the Other Hand, Worldwide Unemployment

According to the ILO in 2013, global unemployment hovers around the 200 million mark. To further compound this dilemma, the measures historically taken to prevent higher unemployment often lead to poorer job quality, as vulnerable jobs and employees fall below the poverty line in each region. The ILO further reports that, “currently some 397 million workers are living in extreme poverty; an additional 472 million workers cannot address their basic needs on a regular basis”. Worldwide informal employment is therefore on the rise, with Central America reporting approximately 70% informal employment within their employed populations, with even higher figures now reported in South & Southeast Asia. Migrant labor has increased to approximately 232 million internationally, representing 3.1% of the entire human population, creating an ever-increasing opportunity for dubious employers to engage in malicious or criminal activities – even slavery – with migrant workers, an area of gravest concern now for human rights organizations worldwide.

Impact: Social & Health Benefits

According to CICOPA, the worldwide cooperative movement increasingly provides other benefits to members, as evidenced by “the huge development of services to citizens and the community, such as social services, health care, and education, sometimes with the inclusion of other stakeholders (users, local representatives, etc.). This expansion marks a new pathway towards strengthening the relationship between the cooperative movement and society around us.” Many cooperatives are also seen offering opportunities to disadvantaged workers of all types.

Impact: Access to Finance

Globally, cooperatives are reporting that the main business dilemma they face is access to credit and finance. This presents a ripe opportunity for farming cooperative investors to play a significant role in world food security and is forcing creative new solutions, such as solidarity funds and non-banking financial instruments. Thus, the door is wide open to the like-minded entrepreneurial spirit, to establish entirely new methods of how farming and industry engages in the business of doing business, while maintaining the flexibility and open-mindedness of the cooperative model. From these examples, we can derive the important optimisms that cooperatives are the new unions.

Farming Cooperatives: Unrealized Benefit

It is quite evident how people, communities, and economies benefit from cooperatives around the world – particularly in the relatively few examples we have of organic farming cooperatives. However, organic farming and agriculture in general are not major players in the global coop picture. Though several types of cooperatives exist worldwide, farming is an example of Producers’ cooperatives, according to CICOPA, “through which individual producers of goods or services (such as farmers, fishermen, taxi drivers, artisans, etc.) organize themselves entrepreneurially together in terms of inputs, processing, and commercialization.” The ISIC system of the UN shows us that agriculture, forestry, and fishing as a category, presently accounts for only 3% of worldwide cooperatives, suggesting that in particular, the burgeoning organic farming industry has much to learn – and to benefit – from following the global industrial example concerning cooperatives. By continent, Europe represents 82% of the world’s cooperatives, followed by South America & Asia at over 8% each. What is glaring in these numbers is that the dominating economic might of North America contributes less than one-half percent, while Africa figures are not even documented. With the G20 nations claiming the lion’s share of cooperatives, this points directly to the developing world – by far the population sector that exhibits the greatest need and potential improvements – to aggressively adopt and implement the cooperative business model, as their representation in the cooperative arena is severely lacking.

Small and Developing Nations as the New Organic Front

Despite problems arising from internal politics, regional control figures, and cultural resistance, the developing world stands as perhaps the greatest potential market in the burgeoning organic food industry. However, due to their own present limitations, these nations stand to benefit more internally from a shift to organics, rather than as global export players. With the emergence of the internet and the global sharing of information, small-nation farmers are increasingly aware of the value which organic farming inherently has. Consumers everywhere, despite the absence of a formalized unified front, are quietly denouncing chemical farming in favor of higher nutrition and overall quality of life for their families and communities. This is resulting in the increasing willingness of the consumer to seek out reliable and higher-quality food sources, even at a higher price tag. Small organic farms thus stand to reap the benefits accordingly and must only ‘crack the egg’ of finding safe and affordable passage of their produce to the appropriate markets. This leads us back to the pertinence of, and need for, the organic farming cooperative. More on this in our next installment of The Organic Small Farm Cooperative Initiative.

Conclusions

• Cooperatives are people-oriented organizations united in common purpose and thus wield benefits in many areas including economic gains.

• Small organic farmers in general, stand in a good place worldwide to adopt cooperatives to solidify their own market positions, yet we see that organic farming is only a minor player in worldwide cooperatives.

• Europe presently accounts for the vast majority of the cooperatives in the world and her positive example is potentially solid education and guidance for other nations to follow suit.

• Cooperatives successfully exist worldwide as a bellwether against economic crisis and increasingly dubious business practices.

• The organizational structure of cooperatives lends itself well to seek out and implement creative solutions to dilemmas such as access to finance and credit.

• Organic farmers in small and developing nations are in the best positioned to benefit as suppliers to yet unfulfilled food markets and cooperatives may be the most attractive option they have, to accomplish this.

Summary

The very nature of the cooperative model spurs the creation of solutions and positive results for members and the communities they live in, while maintaining independence from outside controlling entities. Europe and the industrialized world – with their inherently well-developed business and finance regimes – presently dominate the cooperative efforts around the world. Ironically, developing nations stand to reap the greatest relative benefits, yet are nearly non-existent in the cooperative arena. In particular, organic farming as an industry stands to benefit in nearly every nation worldwide, but is woefully missing from the cooperative roll call. Thus the organic farmer, organic consumers, and the organic farming investor all stand at a most promising culmination of potential benefit, realizable with the practical application of focused business vision and will.

(Read more about The Organic Small Farm Cooperative Initiative)