For more information please contact:
Stjepan Tanic
Farming Systems Development Officer
FAO Subregional Office for Central and Eastern Europe
Budapest Hungary
[email protected]
http://www.fao.org/Regional/SEUR/fsd
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© FAO 2002
TABLE OF CONTENTS
ACKNOWLEDGEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
FOREWORD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
WORKSHOP SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
THE WORKSHOP ACTIVITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
CONCLUSIONS AND RECOMMENDATIONS OF THE WORKSHOP . . . . . . . . . . . . . . . . . . . . 7
SUMMARY OF THE WORK IN THE WORKING GROUPS . . . . . . . . . . . . . . . . . . . . . . . . . 8
THE ROLE OF GOVERNMENTS, POLICIES AND INSTITUTIONAL FRAMEWORK
RELATED TO THE FARMERS' INTEREST GROUPS INVOLVED IN PROVISION
OF INPUT–OUTPUT SERVICES IN CEE AND THE EU EXPERIENCE . . . . . . . . . . . 14
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SETTING THE SCENE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
1
RATIONALE FOR DEVELOPMENT OF GROUP MARKETING. . . . . . . . . . . . . . . . . . . . 16
2
INSTITUTIONAL AND POLICY FRAMEWORK WITH REGARD
TO COMMERCIAL PRODUCER GROUPS (EU MEMBER STATES AND EU). . . . . . . . . . . . . . 17
2.1
TRENDS IN COMMERCIAL PRODUCER GROUP DEVELOPMENT IN THE EU . . . . . . . . . . . . . . . . . . 21
3
POLICY, LEGISLATIVE AND REGULATORY REFORMS
IN CEECS DURING TRANSITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.1
GOVERNMENT POLICY INFLUENCING THE DEVELOPMENT
OF COMMERCIAL PRODUCER GROUPS IN CEE COUNTRIES
(INCLUDING REGULATORY MEASURES FOR IMPLEMENTATION) . . . . . . . . . . . . . . . . . . . . . . 24
3.1.1
POLICY SPECIFIC TO COMMERCIAL PRODUCER GROUPS · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 28
3.2
LEGISLATIVE FRAMEWORK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3.2.1
RE–STRUCTURING OF THE COOPERATIVE SECTOR · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 32
3.2.2
SETTING–UP OF NEW STYLE COMMERCIAL PRODUCER GROUPS · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 34
4.
CONCLUSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.
RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
REFERENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ABBREVIATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
FORMATION, OPERATION AND THE ROLE OF FARMERS' GROUPS
AND ORGANIZATIONS IN PROVISION OF INPUT–OUTPUT SERVICES
IN CEE COUNTRIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
AGRICULTURE AND EU ACCESSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
AGRICULTURE AND AGRICULTURAL COOPERATION IN ACCESSION COUNTRIES . . . . . . . . . . . . 48
DEVELOPING COMMERCIAL PRODUCER GROUPS
IN ACCESSION COUNTRIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
COMMERCIAL PRODUCER GROUPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
ORGANIZATIONAL STRUCTURES AND OPERATIONAL PROCEDURES · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 56
MARKETS AND MARKETING · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 58
FINANCE · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 62
NATIONAL POLICIES, LEGISLATION AND TAXATION · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 65
ADVICE, INFORMATION, RESEARCH AND TRAINING · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 67
FURTHER DEVELOPING COMMERCIAL PRODUCER GROUPS IN CENTRAL AND EASTERN EUROPE . . . . 70
CONCLUSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
REFERENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
ACKNOWLEDGEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
FARMERS' SELF ORGANIZATION IN PROVISION OF SERVICES
IN PANNONIAN REGION OF CROATIA . . . . . . . . . . . . . . . . . . . . . . . 76
EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
BACKGROUND AND INSTITUTIONAL SETTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
LEGAL AND REGULATORY FRAMEWORK AND AGRICULTURAL POLICY CONTEXT . . . . . . . . . . . . . . . . . . 80
STRUCTURAL CHANGES IN AGRICULTURE, MARKETING AND PROCESSING SECTORS . . . . . . . . . . . . . . . . 81
TRENDS IN AGRICULTURE (COMMERCIALIZATION) IMPACTING FARMERS' ORGANIZATION . . . . . . . . . . . . . 82
CURRENT STATUS AND DEVELOPMENTS OF FARMERS' ORGANIZATIONS AND ASSOCIATIONS . . . . . 83
THE CASE STUDY REGION IN THE CONTEXT OF FARMERS' SELF ORGANIZATION . . . . . . . . . . . . 85
KEY CHARACTERISTICS OF AGRO–ECOLOGICAL AND ECONOMIC CONDITIONS OF THE PANNONIAN REGION . . . . . 86
ECONOMIC, INSTITUTIONAL, SOCIAL CONTEXT OF FARMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
BASIC PRODUCTION AND ECONOMIC CHARACTERISTICS IN AGRICULTURAL PRODUCTION
IN THE PANNONIAN REGION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
FORMATION OF FARMERS' ORGANIZATIONS – EXAMPLES . . . . . . . . . . . . . . . . . . . . . . 91
FRUIT–GROWERS ASSOCIATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
DAIRY ASSOCIATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
ASSOCIATION OF PIG PRODUCERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
CONCLUSIONS AND RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
REFERENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
FARMERS' SELF–ORGANIZATIONS IN PROVISION OF SERVICES
IN THE SOUTHERN GREAT PLANE REGION OF HUNGARY. . . . . . . . . . . . . . 101
BACKGROUND AND INSTITUTIONAL SETTING . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
INSTITUTIONAL AND POLICY CONTEXT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
CHANGES IN THE AGRICULTURAL SYSTEM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
DEVELOPMENT OF THE MARKET AND SUPPORT SYSTEM . . . . . . . . . . . . . . . . . . . . . . 105
CURRENT STATUS OF THE FARMERS' SELF–ORGANIZATIONS . . . . . . . . . . . . . . . . . . . . 106
CHARACTERISTICS OF THE CASE STUDY REGION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
AGRO–ECOLOGICAL AND ECONOMIC CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
ROLE OF THE AGRICULTURE IN THE REGION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
ECONOMIC, INSTITUTIONAL AND SOCIAL CONTEXT . . . . . . . . . . . . . . . . . . . . . . . . 110
FORMATION OF FARMERS' ORGANIZATIONS – EXAMPLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
GRASSROOTS, AGENCY–TYPE SELF–ORGANIZATIONS IN GÁDOROS . . . . . . . . . . . . . . . . . . . . . . . 112
TWIN GRASSROOTS' SELF–ORGANIZATIONS IN PUSZTEMÉRGES . . . . . . . . . . . . . . . . . . . . . . . . . 115
AN ENTERPRISE TYPE COOPERATIVE IN A DISADVANTAGED REGION . . . . . . . . . . . . . . . . . . . . . . . 119
LESSONS LEARNT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
CONCLUSIONS AND RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
REFERENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
FARMERS' SELF ORGANIZATION IN PROVISION OF SERVICES IN POLAND . . . . . . 128
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
BACKGROUND AND INSTITUTIONAL SETTING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
CURRENT DEVELOPMENT OF AGRICULTURAL ORGANIZATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 130
LEGAL FORMS OF PRODUCER GROUPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
THE CASE STUDY REGIONS IN THE CONTEXT OF FARMERS' SELF–ORGANIZATION . . . . . . . . . . . . . . . . . 133
REGION OF GRÓJEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
REGION OF BRODNICA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
FORMATION OF FARMERS' ORGANIZATIONS – EXAMPLES . . . . . . . . . . . . . . . . . . . . . . 136
SUN SAD AT NOWE GROBICE N. WARSAW · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 136
ORGANIC FARMERS' GROUP “BRODNICA” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
CONCLUSIONS AND RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
REFERENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
FARMERS' SELF ORGANIZATION IN PROVISION OF SERVICES IN DORNA,
IASI AND ILFOV REGIONS OF ROMANIA . . . . . . . . . . . . . . . . . . . . . . 143
BACKGROUND AND INSTITUTIONAL SETTING . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
BRIEF DESCRIPTION OF STRUCTURAL CHANGES IN AGRICULTURE AND THEIR IMPACT ON AVAILABILITY
OF INPUT–OUTPUT SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
UP–STREAM AND DOWN–STREAM SECTORS AND INPUT–OUTPUT AVAILABILITY . . . . . . . . . . . . . . . . . 149
BRIEF CHARACTERISATION OF TRENDS RELATING TO THE COMMERCIALISATION
OF FARMING AND FARM OPERATION GOALS POTENTIALLY IMPACTING ON FARMER REQUIREMENTS FOR ESTABLISHMENT
OF FARMERS' ORGANIZATIONS · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 153
CURRENT STATUS AND DEVELOPMENTS OF FARMERS' ORGANIZATIONS
AND ASSOCIATIONS IN THE COUNTRY AT LOCAL, REGIONAL AND NATIONAL LEVELS · · · · · · · · · · · · · · · · · · · · · · · 154
THE CASE STUDIES ON FARMERS' ORGANIZATION
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155
CASE STUDY NO. 1 – MOUNTAIN FARMERS' FEDERATION “DORNA” (MFFD),
SUCEAVA COUNTY · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 155
CASE STUDY NO. 2 – ISPA (INSTITUTIONAL STRENGTHENING PRIVATE AGRICULTURE),
IAªI COUNTY · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 161
ISPA PRESENTATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
CASE STUDY NO. 3 – FOUNDATION FOR RURAL ASSOCIATIONS (FRA), ILFOV COUNTY · · · · · · · · · · · · · · · · · · · · · · · 166
PRESENTATION OF FOUNDATION FOR RURAL ASSOCIATIONS (FRA) – ESTABLISHMENT, OBJECTIVES · · · · · · · · · · · · · · · · 167
AGRICULTURAL SOCIETY “VEGETABLE PRODUCTION VIDRA” · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 169
AGRICULTURAL SOCIETY “ANIMAL BREEDING DOBROEªTI” · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 170
COMMERCIAL COMPANY “LENUCOM NUCI” · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 170
AGRICULTURAL SOCIETY “ANIMAL BREEDING DOMNEªTI”· · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 172
AGRICULTURAL SOCIETY “ANIMAL BREEDING PERIª” · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · · 173
EFFICIENCY OF AGRICULTURAL COOPERATION ON MILK MARKETING SECTOR · · · · · · · · · · · · · · · · · · · · · · · · · · 173
CONCLUSIONS AND RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177
REFERENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180
ANNEX 1
THE LIST OF ASSOCIATIONS/FOUNDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181
LIST OF PARTICIPANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183
ACKNOWLEDGEMENTS
The workshop on Farmers' Organizations in Central and Eastern European Countries
and their Role in Provision of Input-Output Services in the Context of Accession to the
European Union and these proceedings are the result of work and joint efforts of
a number of people who have invested their enthusiasm and experience.
Intellectual input to the consultation provided by the authors of keynote papers and
country studies from Croatia, Hungary, Latvia, Poland and Romania, and experiences shared by participants during discussions were vital for the creation of
a cross-cutting picture on the issues identified and discussed.
Financial support provided by the Government of Czech Republic, within the framework of the Cooperation Agreement with FAO, was essential to have the meeting. Coordination with the Czech Ministry of Agriculture and National FAO Committee
headed by Messrs V. Havranek and J. Muchka contributed to the overall success of the
workshop. Mr J. Jesztrebi, Executive Director, Comenius, Prague, Czech Republic,
and his team provided excellent support in the organization and throughout the implementation of the workshop.
During the preparations and follow-up activities Mr J. Suchman, FAO Subregional
Representative, has actively contributed with his support to the topic as one of major
areas of potential FAO assistance to the countries in the Subregion.
Finally, a note of appreciation goes to S. Tanic and D. Minoiu for their conceptual contributions and technical backstopping during preparation and implementation of the
workshop, as well as the final revision and editorial work, needed to publish these proceedings.
1
FOREWORD
This meeting was an excellent example of growing cooperation between countries of Central and Eastern Europe, which are faced with absolutely unique exercise of transforming their economies from the centrally
planned to market oriented. This process by itself is not an easy one but is even more complex, challenging
and ambitious with the additional task – the access to the European Union. With closer integration into
Western Europe where the cooperation between farmers has a long tradition and is included into agricultural and rural policies, the countries of Central and Eastern Europe will have to pay far greater attention to
these matters as well.
In the light of accession to the EU, it would in particular be desirable for CEE candidate countries to introduce and enhance input/output market services supported and controlled by farmers based on the rules compatible with those implemented in the EU. Setting out the rules of a longer–term nature could also contribute
to lowering of the risk associated with high costs on individual farms that can be reduced by encouraging the
establishment of services that could provide environment for more efficient use of farm resources.
The issues related to farmers' organizations are not only very much related to the present changes taking
place in Central and Eastern Europe, but also are important in the global context. They are reflected in the
FAO Strategic Framework 2000 – 2015, and more specifically strategic priorities to enhance sustainable
rural livelihoods by more equitable access to resources by promoting gender–sensitive, participatory and
sustainable strategies and approaches, as well as related policy options and institutional measures to improve efficiency and adaptability in production, processing and marketing systems. Building on past FAO
initiatives one of the ways to assist in the area of institution strengthening and capacity building and to support the process of transition to market economies in the rural sector is to provide technical assistance in improving production support services throughout the CEECs. This has been identified as one of the Major Key
Areas for FAO activities over the Short and Medium Term in the European Region.
This workshop has proven to be useful for the exchange of the experiences on establishment, operation and
potential role of farmers' groups involved in provision of input/output services to farmers in participating
countries. Keynote papers and country case studies contributed to clarifying and better understanding of the
current situation, concepts and the economic role of farmers' groups as well as government role in the establishment of a conducive environment for cooperation in agriculture and improved potential for increased
farm profitability and income generation opportunities.
Jaroslav Suchman
FAO Subregional Representative
for Central and Eastern Europe
3
WORKSHOP SUMMARY
INTRODUCTION
Farmers are increasingly reliant on input supply and product marketing services. In most of CEE countries, these services have previously been provided by the state sector, or by local, government controlled
cooperatives and large state farms. In situations where private sector is developing, assistance is required
to set up an enabling policy environment and grassroots initiatives needed to encourage and to develop
producer groups and associations in order to enhance their position on the markets with respect to the increasingly concentrated processing sector.
In the Central and Eastern Europe there is a large scope for developing an understanding of the role and
potential of farmer cooperation at grassroots level, which could improve provision of the input/output
services needed to increase farm profitability and household income generation opportunities, on the one
hand. On the other hand much effort should be done to strengthen the democratic representation of farmers and cooperatives involved in agricultural production, agribusiness, food processing and marketing
and to ensure a better participation of farmers' representative organizations at the national and EU level in
policy making process.
Due to the differences in the institutional and economic environment, as well as historical experiences
with the cooperative arrangements prior, during and after the political and economic changes in CEE,
there are considerable differences in development, understanding and legal treatment of emerging farmers self supporting initiatives. Those differences have resulted in a wide variety of approaches, organizational arrangements and economic roles of farmers' groups in transition economies, thus giving FAO an
opportunity for further engagement in promotion and support to farmer cooperation as a tool for improved rural livelihoods in CEE.
Many private farmers do not have the access to more efficient and cost reducing technologies and input–output markets. Increased commercialisation and linkage into the food distribution chain is inhibited not only by the lack of market support institutions and information but also by the lack of functioning
markets for farm inputs and products that have not yet emerged, which impedes successful operation of
the new privatised agriculture. The lack of cooperation between farmers has among other constraints,
been identified as an impeding factor for faster market integration of individual farms at the FAO Expert
Consultation on the Impact of Structural Adjustment Programmes on Family Farms in CEE, held in Budapest, Hungary in January 2000. Recently completed FAO Farming Systems Study, prepared within the
framework of the World Bank Rural Development Strategy revision, has identified that in the absence of
a fully functioning institutional and policy frameworks for agriculture and agro–processing, as well as of
market support services, farmers are unable to sell their produce on local and regional input–output markets.
The Workshop intended to contribute to several priorities within The Strategic Framework of FAO 2000 –
2015: (i) Sustainable rural livelihoods and more equitable access to resources by promoting gender–sensitive, participatory and sustainable strategies and approaches, based on self–help, capacity building and
empowerment; (ii) Policy options and institutional measures to improve efficiency and adaptability in
production, processing and marketing systems, and meet the changing needs of producers and consumers; by helping to strengthen agriculture and rural development support institutions and facilitate their
adaptation to changing conditions, in consultation with users and giving due importance to gender–based and other inequalities in access to services. The workshop also contributed to institution
strengthening and capacity building to support the process of transition to market economies in the rural
sector by assistance in improving production support services, including input supply, veterinary services, marketing and market information, rural finance throughout the CEECs, which has been identified
as one of the Major Key Areas for FAO activities over the Short and Medium Term in the European Region
5
The Workshop was organized within the framework of the Cooperation Agreement between the Government of the Czech Republic and the FAO/GCP/INT/790 entitled „Training Programmes in Selected
Areas“. Under the leadership and supervision of FAO SEUM/REUP, and in coordination with the Czech
Ministry of Agriculture, the Workshop was implemented by Comenius, Pan–European Society for Culture, Education and Scientific and Technical Cooperation. The venue of the Workshop was in the Hotel
Krystal, Prague, Czech Republic from 11 to 14 June 2001.
THE WORKSHOP ACTIVITIES
The Workshop was attended by 37 participants including farmers and representatives of farmers' organizations and association leaders, government representatives responsible for cooperative and agricultural
support services, research, extension and development institutions, coming from nine CEE countries:
Bulgaria, Croatia, Czech Republic, Hungary, Latvia, Poland, Romania, Slovakia, Slovenia. Besides the
keynote speakers who came from the EU, the Workshop was also attended by the Deputy Secretary General of COPA/COGECA1. At the Workshop FAO was represented by Farming System Development Officer,
Subregional Office for Central and Eastern Europe, Policy Officer, Regional Office for Europe and Cooperatives and Rural Organizations Officer, Rural Institutions and Participation Service.
The work in the plenary sessions was initiated by presentations of keynote papers describing the concepts,
economic role of farmers' groups and issues related to the development of markets and market structures
in CEECs, as well as government role in the establishment and the promotion of cooperation in agriculture
and improved potential for increased profitability and farm income generation opportunities. The keynote papers were followed by the presentation of country case studies and experiences on farmers' self–organization in provision of input/output services2. These presented a variety of approaches and situations
in the institutional and economic environments influencing establishment, operation and economic roles
of farmers' groups in participating countries. Those presentations were complemented by EU experiences
on “The association of farmers and cooperatives in the enlarged EU”, with particular reference to the
work of COPA/COGECA at EU level and their involvement and assistance to support national cooperative
organizations in CEECs. Overview of FAO cooperative assistance programmes and the presentation on
„The relevance of farmers' self organizations and key factors contributing to their role in improving input–output services and farm income generation opportunities“, marked the end of the work in plenary
sessions.
On the basis of the keynote presentations and country case studies, during the breakout sessions, through
participatory analyses of specific situations, two working groups – WG 1 “Formation, operation and the
role of farmers' groups and organizations” and the WG 2 “Government role and policy towards promoting
farmers' groups” discussed the issues presented in the keynote papers and case studies, and identified the
most important issues and solutions pinpointing potential areas for FAO technical assistance. A more detailed description and the outcome discussions in the Working Groups is presented in the summary of the
work in two working groups.
The major underlying constraints were identified from two perspectives: from the grassroots level and
from the national, government level. As regards the former, the following groups of issues were selected
as major constraints to the development of functional and fully operational farmers' groups in CEE: inadequate group management/leadership education, farmers unwillingness to collaborate due to unclear benefits from marketing cooperation, lack of start–up capital, lack of innovative/value adding
1
2
Comite des Organizations professionnelles agricoles de l'Union Europeenne/Comite general de la
cooperation agricole de l'Union Europeenne.
Case studies, as they were prepared by the authors, present not only a factual situation of these topics in
individual countries, but can also serve as an indicator of the availability of relevant information and the
state of conceptual knowledge about the issues treated.
6
entrepreneurial spirit, unclear land ownership/small farm size, unclear legislation/inadequate taxation
and inappropriate marketing skills/marketing infrastructure and market access.
As regards the government role and policy, the following major issues were identified s critical: deficient
policy making process with lack of communication between government and farmers leading to low
farmer participation in decision–making process; absence and in some cases inadequate or vague legislative framework with regard to establishment of marketing cooperation in agriculture with unclear definition of farmers' organizations and absent or unclear commercial objective; no/or little involvement of
farmers' organizations in ongoing accession negotiations and lack of information/knowledge on SAPARD
related issues.
CONCLUSIONS AND RECOMMENDATIONS OF THE WORKSHOP
There is a large scope in the Subregion for developing an understanding the role and potential of farmer
cooperation at grassroots level, which could improve provision of the input/output services needed to increase farm profitability and household income generation opportunities, on the one hand. On the other
hand much effort should be done to for to strengthen the democratic representation of farmers and cooperatives involved in agricultural production, agribusiness, food processing and marketing and ensure
a better participation of farmers' representative organizations at the national and EU level in policy making process. As for FAO, its role is crucial in this process and it is expected that FAO, through technical cooperation activities, to stimulate the cooperation in agriculture trough the provision of policy and
technical advise and expertise on the organizational structure and institutional development.
The theme and the timing of the workshop were well chosen, as the EU applicant countries from CEE need
to: (i) strengthen the democratic and independent representation of farmers and cooperatives involved in
agricultural production, agribusiness, food processing and marketing; (ii) increase the participation of
representative organizations as interest groups at the national and EU level in policy making process; (iii)
develop understanding of the role and potential of farmer cooperation at grassroots level, which could improve provision of the input/output services needed to increase farm profitability and household income
generation opportunities; (iv) and provide farmers' groups and organizations with the expertise on the organizational structure and institutional development.
In some cases, there were negative connotations towards cooperatives in CEE, not only because of disappointing experiences during communism, but also because of experiences in the last decade. During the
economic reforms, the former socialist cooperatives were transformed and privatized, taking over cooperative assets, which they frequently used to provide services to newly established farmers. In many cases,
those new “cooperatives” not only continued to operate as they did before, but also took a monopolistic
position on local markets.
Due to the differences in the institutional and economic environment, as well as historical experiences
with the cooperative arrangements prior, during and after the political and economic changes in CEE,
there are considerable differences in development, understanding and legal treatment of emerging farmers self supporting initiatives. Those differences have resulted in a wide variety of approaches, organizational arrangements and economic roles of farmers' groups in transition economies, thus giving FAO an
opportunity for further FAO engagement in promotion and support to farmer cooperation as a tool for improved rural livelihoods in CEE.
On the basis of reports of both working groups presented and discussed in the closing plenary session,
participants of the Workshop also adopted following conclusions and recommendations:
1.
The workshop has proven to be useful for the exchange of the experiences on establishment,
operation and potential role of farmers' groups involved in provision of input/output services to farmers in participating countries.
7
2.
3.
4.
5.
The participants acknowledged the presentations of keynote papers and country case studies which contributed to clarifying and better understanding, the current situation, concepts
and the economic role of farmers' groups as well as government role in the establishment of
a conducive environment for cooperation in agriculture and improved potential for increased profitability and farm income generation opportunities.
Recognising that there are wide differences in the legal position and practical treatment of
farmers' self organizations that emerged during the transition processes, and in order to
avoid misunderstandings and misinterpretations on terminology used in the workshop documents, participants recommended that a comparative review of terminology used regarding farmers' groups should be prepared.
The workshop participants commented and adopted the reports of the two working groups,
including proposals for solutions and interventions that will be consolidated and used by
FAO to propose follow–up activities, projects and advice to all stakeholder groups concerned.
With the view to assure a wide dissemination of the workshop results, participants recommended that the papers, conclusions and recommendations be published by FAO as workshop proceedings. In addition, they recommended that the keynote papers and
corresponding country presentations and studies be published in national languages.
SUMMARY OF THE WORK IN THE WORKING GROUPS
On the basis of the keynote presentations and country experiences, during the break out sessions two
working groups under the guidance and moderation of FAO officers and international experts discussed:
(i) the status in provision of input–output services on farmers in CEE; (ii) the status, activities and the role
of producer associations and interest groups in CEECs; (iii) appraisal of constraints to service provision at
farm level; (iv) defining and meeting farmers needs for inputs and product marketing; (v) the relevance of
EU experiences and requirements related to the role of farmers' interest groups in provision of input–output services to producers; (vi) the role of governments and institutions in creating the environment for formation and functioning of farmers' interest groups (experiences from EU and CEE); (vii) farmers' interest
groups and their role and potential for improving market access in CEE.
The Working Group 1 focused on formation, operation and the role of farmers' groups and organizations
in provision of input–output services with the emphasis on:
• appraisal of specific types of input/output services that farmers' interest groups might provide
for farmers to improve efficiency and profitability of farm operations and access to the input
and output markets, and explore practical aspects of operation of the farmers' interest groups
and organizations in CEE from farmer's perspective in the context of EU accession;
• identification of the problems of market access by private farmers that emerged during privat-
ization process, and which are not adequately linked with the existing input–output marketing
and distribution channels and proposal of the innovative strategies for improved provision of
services to farmers.
The Working Group 2 focused on the role of governments, policies and institutional framework related to
the farmers' interest groups involved in provision of input–output services in CEE and the EU experience
with the emphasis on:
• current policies and institutional arrangements and their influence on the formation of farmers'
interest groups and provision of services, and the role of governments and institutions in creating the environment for formation and functioning of farmers' interest groups in CEE in the
context of EU accession.
8
• identification of constraints in policies, legislative and regulatory framework inhibiting the es-
tablishment of marketing farmers' groups and organizations, including identification of those
policy areas which affect the input supply and product marketing chains.
Applying the Delphi method approach, booth groups, on the basis of preliminary list of issues, identified
major problems/ issues that were discussed and appraised. This was followed by a participatory exercise
in which participants reached consensus on issues acceptable to the group as a whole and on solutions to
identified problems. Finally the groups came with the proposal of entry points for support to producers'
groups involved in provision of input/output services as well as potential areas and priorities for FAO technical assistance. Identified issues, solutions and possible interventions/technical assistance are presented
in the corresponding tables prepared by each Working Group.
Working group 1 Formation, operation and the role of producers' groups and organizations
Identified issues, solutions and possible interventions/technical assistance
ISSUES/
/PROBLEMS
Inadequate group management and leadership
skills/ education
Farmers' unwillingness
to collaborate / unclear
benefits derived from
cooperation
INTERVENTIONS/
/ASSISTANCE REQUIRED
POSSIBLE SOLUTIONS
• train farmer leaders in leadership (innova-
tion) management in collaboration with
Ministries of Agriculture and international
projects;
• develop/improve education programmes to
improve communication skills and motivation, stimulate innovation, creativity etc.;
• promotion of participatory approaches and
methods of the advisory services to stimulate
marketing cooperation among farmers;
• develop contacts between similar farmers'
groups from different countries in CEE and
the EU to exchange experience and disseminate good grass roots practical examples;
• provide training in: marketing, leadership
meetings, presentation skills, finance, legislation, taxation, members agreements, buyer
contracts, quality assurance, negotiation,
management of post–harvest facilities, EU
standards and directives.
• stimulate farmers' motivation to cooperate
trough economic incentives (financial support and lower taxation), a better organization, efficient management and the potential
benefits as a result of joint market access;
• training of farmers and cooperation concept
promotion by extension services;
• introduce payments based on supply of
agreed specifications and signed membership agreements, reward higher quality supply with better prices and discourage trade
with non–members;
• financial transparency and equitability to assure fair cost and other benefits calculations;
• simplify rules and procedures;
• knowledge transfer from the success stories
to the others.
9
• introduce vocational training for leaderships and promotion of young leadership;
• introduce courses/topics on cooperative management
in the curriculum of high education (ag. universitises);
• training for trainers programmes (training for advisors) in participative methodologies / approaches
(FAO support);
• provide technical support for training, hand–books,
publication of brochures on farmers' self organization;
• create a farm management support advisory service
network with farmers participation with the financial
support of national governments, and international
donors;
• introduce management and book–keeping services in
advisory services for farmer groups;·
organize Regional training courses on producer groups management for young farmers, identify key national and
regional training centres and set up a roster of consultants
• support meetings of farmers' leaders between countries.
• organize study tours, seminars, lectures, visits etc. to
promote good examples and exchange of experience
and ideas, advertise good practices (local journals and
TV), prepare and disseminate printed materials about
farmers cooperation in CEECs;
• identification and promotion of successful courses and
training for popularization of cooperative arrangements among farmers/processors and traders;
• international workshops for similar farmers (dairy
producers, vegetable producers etc);
• improve training and prepare materials for advisors on
economic roles / functions of farmers' interest groups;
• provide technical support to organize farmers' interest
groups at country level;
• de–politicize farmers' lobbying and dialogue with government representatives.
Working group 1; Identified issues, solutions and possible interventions/technical assistance (Continued)
ISSUES/
/PROBLEMS
POSSIBLE SOLUTIONS
INTERVENTIONS/
/ASSISTANCE REQUIRED
Lack of start-up capital
• initial financial support by governments (bor-
Lack of innovation /
/value adding initiatives
and entrepreneurial
spirit
• improved information on new technologies, mar- • secure state financial support for the producer
kets and products;
• programmes for product quality improvements /
standards and diversification of on-farm activities;
• development of marketing centres / channels;
• improve management skills and farmer technical
abilities.
groups with a higher output value or higher value
added;
promote innovative issues through cheap channels: TV, radio, internet web sides, dissemination
of training materials about new technologies;
• promotion of standard and quality products, new
technologies and possibilities to introduce
changes on the farm level – materials, education,
exchange of experiences;
• support / stimulate joint use of assets and resources (machinery pools, processing facilities,
international technical assistance, certification of
products by the state, control services);
• provide information on technologies / approaches for adding value and diversification options;
• organize farmers brainstorming sessions.
Unclear land
ownership /
/ small farm size
• adequate agricultural policies and priorities and
• provide finance for land purchasing to the entre-
Unclear legislation/
/inadequate taxation
• stimulate farmers' lobby to the government and
• allow / stimulate/ create lobby groups to allow for
rowed capital by members with state guarantee
and/or long-term credits with subsidized interest
to farmers) to start cooperation to increase farm
income and secure the formation of capital;
• arrangements with buyers and international finance should be investigated;
• subsidies for purchase of new machinery or plant
materials in order to innovate their activities;partial support for administrative purposes legal advisory services / accountancy services;
• local authorities enable buildings / meeting
rooms to be used at no cost.
set up relevant and functional institutional structures;
• completion of land privatization process with
transparent privatization criteria and give priority
for farm consolidation programmes to increase
the farm size;
• retirement schemes for elderly farmers;
• improve taxation for the agricultural land and introduce taxation on non-cultivated land.
parliament strengthen legal advisory service;
• EU harmonization and adoption of a law in accordance with the COPA / COGECA principles;
• increase the efficiency of the legislative act, i.e.
a more practical approach;
• develop by-laws in accordance with the local
needs.
10
• revolving fund for co-financing the establishment
of cooperatives;
• special credit schemes financed from environmental and set-aside taxation;
• establishment of state credit guarantees through
commercial banks
• establishment of national programmes for producers groups and provide grants based on 33%
of total capital for added value investments and
based on 100% commitments of specific product
(e.g. SAPARD);
• provide technical assistance (FAO) and donor
support to demonstrate possibilities in cooperation (including the national advisers’ opinions).
preneurs, good leasing conditions, property registration through reduced transaction costs (tax,
fees etc);
• set provisions for long term land leasing – minimum 10-20 years;
• technical assistance to define agricultural policies/programmes aiming at land consolidation
and concentration.
an active dialogue between government and all
types of agricultural interested groups;
• provide training and information on legal aspects
of farming and cooperation
• initiate an international project (FAO) on the taxation for farmers self organizations taking into
consideration the practices of EU member states.
Working group 1; Identified issues, solutions and possible interventions/technical assistance (Continued)
ISSUES/
/PROBLEMS
Inappropriate
and deficient
marketing ,
markets
and market access
POSSIBLE SOLUTIONS
INTERVENTIONS/
/ASSISTANCE REQUIRED
• educate farmers in order to be able to access and
• organize fairs and exhibitions at low costs for co-
use market information with modern instruments
or to employ an advisor;
• improve market information system organized by
the governments;
• develop more and better / sustainable links with
buyers and input suppliers;
• focus on quality control procedures and crop
specifications / EU standards and HACCP;
• network / maintain basic buyer preference
materialin
• creased awareness of importance of marketing
and joint access to market;
• promote the use of trade marks;
• EU member states experience should be transferred to candidate countries;
• improve business and managerial skills;
• removal of market barriers, state intervention and
local monopolies .
11
operative experience exchange;
• support introduction or development of quality
control and provide information on international
quality standards / approaches and membership
agreements;
• co-finance set up of a marketing agency on information and training;
• insist on 100 percent commitment;
• enable member farm site inspections / access;·
• organize seminars on communication strategies
and presentation of products to buyers ·
• support to promotion of regional trademarks ·
• develop and distribute a database of buyers,
Internet networks and information bulletins;·
• organize buyer / supplier / farmer meetings
(clubs);·
• provide training / information on on-farm post
harvest technologies (added value);·
• develop partnership research programmes (pest
control, storage improvement) managed by producer groups with government / donor private
farms;
• provide assistance in development of materials
and training of farmers in business management
and marketing.
Working group 2 Government role and policy towards promoting producers' groups
Identified issues, solutions and possible interventions/technical assistance
ISSUES/PROBLEMS
Agricultural Policy
• lack of communication between government and farmers leading to low farmer
participation in policy and decision-making process;
• insufficient /inadequate financial/economic incentives targeting marketing
producer groups.
Agricultural Input-Output Markets
• local monopoly in supply of inputs
which impedes access for farmers to
cheaper inputs and new technologies;·
• insufficient state support for the development of the market infrastructure
(wholesale markets, retail outlets, auctions, etc.);
• low emphasis on product quality by producer groups leading to insufficient
competitiveness of their commodities
and weak market power in both national
and EU markets;
• inadequate provision of consultancy services in business management and marketing to newly established
entrepreneurs in agriculture, processing
and marketing;
POSSIBLE SOLUTIONS
INTERVENTIONS /
/ ASSISTANCEREQUIRED
• institute mechanisms to assure active
• · Rising awareness on the importance of
• enhance cooperation between producer
• · technical assistance in marketing and
participation of farmers' organizations
in the definition/changes of policies,
legislation and regulations;
• shortening the time required for the
elaboration of agricultural policies and
approval of corresponding laws and regulations;
• strengthen the guarantee system for
credits giving priority to young farmers
who want to set-up a business and also
to those farmers seeking cooperation in
agriculture;
• government support for the development of credit cooperatives in rural areas;
• formulate consistent policy targeting
marketing producer groups.
groups and traders and processors;·
• create favourable conditions for education and training of producer groups and
farmers' organizations in business cooperation;·
• creation/strengthening of agencies involved in promotion of agricultural
products on the EU and world market;·
• dissemination of market information
about internal and external markets
12
farmers' producer groups and organizations in policy making process;·
• technical assistance to producer groups,
farmers' organizations and government
officials on institutional set-up and
training on role, principles and operations of marketing producer groups ;·
• pilot project on setting-up producer
groups for provision of input-output services to farmers at county level
promotion of agricultural products
through setting-up/strengthening promotion agency;·
• training of producer groups and farmers' organizations on post harvest technology improvements and product
promotion and marketing related issues;·
• pilot project on setting-up producer
groups for provision of input-output services to farmers at county level
ISSUES/PROBLEMS
Legislative / regulatory framework
• no differentiation between different
types of businesses in agriculture, processing and distribution of commodities;
• long procedures for the formulation, enactment and approval of laws and regulations in agriculture
• inadequate or vague legislative framework with regard to establishment of
marketing producer groups with unclear
definition of farmers' organizations;
• lack of participation of farmers and their
representative organizations in the process of formulation of laws and regulations;
• inadequate taxation system which creates disincentives for farmers to cooperate.
POSSIBLE SOLUTIONS
INTERVENTIONS /
/ ASSISTANCEREQUIRED
• adjustment of the taxation system to re-
• technical assistance and legal advice to
• complete legislative and institutional
• technical assistance in order to acchieve
flect specificity of agricultural activity,
and regional characteristics;
• shortening the time required for the
elaboration of laws and regulations;
• establish mechanisms to assure direct
participation of farmers'' representative
organizations in the process of formulation/amending laws and regulations.
producer groups, farmers' organizations
and government officials on institutional
set-up of marketing producer groups;
EU enlargement and SAPARD
• incomplete harmonization with EU ag-
ricultural legislation and regulations in
particular in the field of product quality
standards, phyto-sanitary and veterinary
EU norms;
• no involvement of farmers representative organizations in the ongoing accession negotiations and lack of
transparency on issues related to negotiations of terms of accession regarding
agriculture;·
• lack of information of producer groups
on CAP and on the;·
• low interest in enlargement due to lack
of information on the functioning of
market and trade conditions in the EU
countries and on the possible opportunities;·
• perceived excessive financial conditions
(e.g. investments required in advance of
receiving allocation) imposed on producer groups in order to access the financial assistance through SAPARD;
• low or in some cases missing allocations
for the use of SAPARD funds to support
farmers' organizations in the national
SAPARD plans.
harmonisation with EU with particular
reference to product quality and standards, and market institutions;
• establish communication and exchange
of information between farmers' organizations in CEECs and the EU;·
• involvement of farmers' organizations in
accession negotiations and provision of
more information about benefits/challenges farmers can derive/face from the
EU accession;
• establish guarantee fund with participation of state, commercial banks, producer groups, with possible help from
international financial institutions;
• ensuring conditions for training specialists on issues related to the implementation and management of the SAPARD
programme.
13
the compliance of national regulations
of quality and standards with those applied in the EU;
• assistance in information exchange and
knowledge transfer between producer
groups and farmers organizations in
CEECs and those in the EU;
• setting-up an European Training Centre in Europe for training leaders of producer groups and farmers' organizations
from CEECs on all related aspects of
CAP and the requirement of the EU accession ;
• training national specialists in SAPARD
agency on issues related to the implementation and management of the
SAPARD programme;
• training of all agricultural and rural
stakeholders in designing business
plans in compliance with SAPARD requirements.
THE ROLE OF GOVERNMENTS, POLICIES
AND INSTITUTIONAL FRAMEWORK RELATED
TO THE FARMERS' INTEREST GROUPS INVOLVED
IN PROVISION OF INPUT–OUTPUT SERVICES
IN CEE AND THE EU EXPERIENCE
Barbara Migone
INTRODUCTION
One of characteristics of the transition period in CEECs has also been the need to transform the existing
cooperative structure and to set–up the framework for the creation of a new form of commercial producer
group defined by law. The rationalization of the previously State run cooperatives into operational and
profitable enterprises was seen as a prerequisite for their efficient functioning in both input and output
markets. During the transition years the pre–existing cooperatives of the socialist period faced financial
difficulties, liquidation and bankruptcy due to the previous virtual lack of market exposure and oversizing.
The Paper will illustrate the main transformations in the structure and organization of agricultural input–output markets as a consequence of government policies in CEECs (Central and Eastern European
Countries) and of private sector initiative. Following a brief description of the motivations farmers may
have to participate in producer groups, the discussion will then be shifted to the past, present and planned
government policies and EU (European Union) regulations towards producer groups in EU Member
States. The illustration of recent trends in producer group development in the EU is presented as reference
for possible and foreseen developments in CEECs in the near future in the context of EU accession. The Paper then addresses the involvement of CEECs' Governments in the formulation and implementation of
policies and regulatory measures and in the legislative transformation of the pre–existent State managed
cooperative sector and the institutional framework for the creation of farmer managed producer group
forms in CEECs during the transition period. The financial assistance foreseen by the EU specifically for
producer groups in CEECs through SAPARD (Special Accession Programme for Agriculture and Rural
Development) is examined.
An evaluation is made of the contraints in CEECs to the increased involvement of producer groups in input–output markets and the governments' interventions in support of the development of the role of producer groups are illustrated and assessed. The final section provides recommendations as to the measures
to be adopted by the CEECs' governments in order to create a favourable framework in which producer
groups may operate and market, so as to achieve the viability and sustainability of their concerns. Recommendations are also given as to the possible role of the FAO (Food and Agriculture Organization) in this
context.
SETTING THE SCENE
The countries of Central and Eastern Europe which are included in this study (Bulgaria, Croatia, Czech
Republic, Hungary, Latvia, Poland, Romania, Slovak Republic and Slovenia) have a similar historical
background as regards the economic policies undertaken by their governments in the decades following
14
the Second World War and prior to the transition period which generally began in the early 1990s. These
countries were to different degrees under the influence of the Soviet Union, whose economic policies were
based on the concept of centrally planned economies. These economies were generally based on the ownership by the State of the means of production and operated through public sector entities, as determined
by socialist theory.
Agricultural policies were similarly generally based on planning of production from the Ministries of
Planning and of Agriculture. State run cooperatives prevailed to different degrees, depending on the
country, and in some cases were the only form of organization allowed to operate. These cooperatives had
to follow directives determined at central level as to the type of produce that they should produce and the
production levels that they should attain. These directives were consistent with the need to reach production targets at national level which would guarantee food self–sufficiency for the population of each country. The criteria was to feed the people on the basis of established per capita requirements, thus attaining
the social goal of adequate nutrition levels for the population. Similarly, the type and quantity of inputs to
be used for production were decided at central level. In this context, markets generally did not exist in the
traditional sense of buyers and sellers meeting or establishing contracts on the basis of demand and supply. The market under State control in practice consisted in the predetermined flow of inputs and outputs
between different points. In countries where individual farmers were allowed to market their surpluses,
limited market transactions took place at local level.
The beginning of 1990s marked a choice on the part of the countries included in this study to adopt the
western european economic model based on a mixed economy with a vivacious private sector. There was
the desire to attain higher living standards and a degree of self–management. In EU Member States this
model has not been unregulated but has been based on the stabilization of agricultural markets. The policy
adopted by the European Union for several decades since its inception was to place food self–sufficiency
top of its priority list and to guarantee adequate income levels for its farmers, as indeed shown by the significant subsidization of the agricultural sector and the allocation of more than two–thirds of its budget to
agriculture.
The stabilization of agricultural markets has also been a priority of CEECs during the transition period.
The policy choice of CEECs was therefore to retain a degree of regulation of the agricultural sector, in line
with the policies adopted by the EU at a similar stage of economic development in the post–war period.
This has been done on a macroeconomic policy level through the development of market information systems financed by PHARE, (EU facility for the assistance of ex–Eastern block European Countries), and
TACIS ( EU facility for the assistance of ex–Soviet Union), and the monitoring of the implication of EU accession scenarios for the agricultural produce and products of CEECs. It has also been Government policy
in some CEECs to stabilize markets through direct financial measures such as intervention purchases of
outputs at guaranteed minimum prices and advance payments; export subsidies; and grants, subsidies
and vouchers for inputs. (Country level details are provided below in Section 3.1) Governments of CEECs
have therefore generally retained the role of price control for agricultural products, although in some
countries the tendency in recent years has been to reduce direct State intervention in the provision of subsidies to producers, also in line with current EU policy.
The agricultural policy adopted by CEECs during the transition phase and the related legislative and regulatory instruments derived from the legacy of the agricultural policy of the pre–transition period, which
had to be urgently tackled. The first legacy was the significant presence of State owned entities involved in
the production of agricultural inputs and outputs. The policy which was adopted by CEECs was to initiate
the reform of the cooperatives, whether through privatization or liquidation, and to create a legislative
framework for newly created commercial producer groups. (Country level details are given in Section
3.2).
The second legacy which required priority intervention was the virtual lack of markets and the consequent
need to gear the marketing channels to competitive internal and external markets. In some CEECs there
has been a policy shift from government intervention in market stabilization to the support by governments of the privatization of the existing marketing structures and the development of new ones, also with
15
external assistance. Nevertheless, the development of new marketing structures has in some cases not
been a sufficient condition for their efficient functioning, given their low coverage of the marketing of primary and processed agricultural products. Small–scale producers continue marketing informally or selling to retailers. Governments have also supported the privatization of marketing structures which provide
services to agricultural producers by passing specific laws to this purpose. In view of the new opportunities, the private sector itself has become a significant provider of market services in certain contexts. Governments have retained a measure of control over storage facilities, given the links with their intervention
in market stabilization.
The third legacy to be urgently faced was the inadequate expertise and experience in management of private entities, with particular reference to marketing strategy. The managers of the pre–transition agricultural cooperatives did not need to worry about profitability since the State owned entities rested on State
subsidies to compensate for their deficits. The newly created entities would need to adopt business plans
including marketing strategies. The need to develop skills in setting–up and managing profitable entrepreneurial ventures has begun to be envisaged by agricultural policy in CEECs. Examples include the provision of support to farmers through scientific and organizational services and through programmes
aimed at improving education and training, as well as assistance for the creation of commercial producer
groups jointly marketing their produce or jointly providing inputs and services to their members. In the
context of this study the present and potential role of producer groups in CEECs will be closely reviewed
and the support envisaged by the EU during the pre–accession period to the development of the role of
these entities will be examined.
Due to the high degree of vertical integration reached by producer groups in the EU, and increasingly so in
CEECs, the Paper focuses on the output side in practice mainly on organizations whose members undertake
both production and marketing activities, thus not resembling trade associations exclusively providing marketing services. On the other hand, groups supplying inputs and services are generally specialized. The term
“commercial producer group” has been adopted to cover all possibilities. In some cases only “group” is used
to simplify, but the full definition is implied. “Cooperative”, when used, refers to the pre–transition State run
organizations currently undergoing transformation, or in cases, such as cooperative credit, when applicable. “Association” or “Union” is also used in the Paper, specifically related EC (European Commission) Regulations, in the event of higher–tier non commercial organizations, representative and promotional, also
being considered.
Examples of past and present policies of EU governments towards commercial producer groups are provided below. CEECs could draw their own conclusions from the experiences of EU Member States in the
last decades. Likewise, CEECs could possibly gain from studying trends in cooperative development in EU
Member States, some of which CEECs are presently experiencing. The increasing vertical integration of
cooperatives and market concentration, the increasing export orientation linked to high quality production and development of niche markets, the decreasing role of the agricultural sector with the associated
rising importance of part–time farming, the increasing importance of environmental issues and the creation of mixed forms of organization and collaboration between cooperatives and private firms, are all of
primary importance to the debate concerning the development of marketing producer groups in CEECs.
The following Section will provide a brief reminder of the reasons behind the perceived need for cooperation and the basic characteristics of the producer group form of organization.
1
RATIONALE FOR DEVELOPMENT OF GROUP MARKETING
Farmers have alternatives which reflect their economic and financial convenience when they are left entirely to their own decision–making.
The incentive to join a group can be determined by the average size of the farm, with small farmers feeling
a greater urgency to join a group to gain market advantage and power. The push for the development of
a complex multi–tier marketing structure can also come from the presence of a large number of farmers in
16
a sector, thus creating a marketing base with the potential to cover significant shares of the internal market and to aim for profitable export market ventures.
The same basic considerations apply for farmers from the EU and CEECs. However, farmers from CEECs
find it more difficult to function independently, due to their lack of experience in private farm management and to the small size of the holdings, and consequently require support, as well as technical assistance, in order to access inputs and to market their agricultural produce.
The commercial producer groups are one form of marketing channel for the produce of their members.
The issue of the comparative advantage through the exploitation of economies of scale gained by the
farmer from membership is an explanation for the involvement of groups in this sphere. The same considerations apply to the involvement of commercial producer groups in the supply of inputs and services to
their members.
The preconditions for cooperation to develop are not only economic in nature as the commercial producer
group form of organization has certain intrinsic managerial and social implications:
Financial:
• adequate capital ownership by members, ensuring their involvement in the group;
• adequate access to credit, by individual members or by the group.
The relative importance of these two elements determine the capital gearing ratio. Commercial
producer groups in EU countries have experienced high loan to capital ratios, indicating that
they have not been entirely self–financing and have had to rely on the banking system, including cooperative credit institutions.
Managerial:
democratic control on the part of the members, traditionally “one–man–one–vote”.
This system is based on the principle that all members have the same weight in decision–making within the group regardless of their financial holding. In this sense it is a democratic form of
organization. As indicated in Section 2, this has been modified in the experience of some EU
countries.
Social:
Commercial producer groups have social connotations in that they are traditionally
non–profit making, with significant re–investments for the further development of the enterprise.
This basic principle of cooperation which is normally present in EU countries, with some exceptions detailed in Section 2, indicates that the commercial producer group is fundamentally a
social entity undertaking economic activities. The group in this way contributes to employment
creation, distributing post–tax dividends to its members so as to guarantee an adequate source
of income for their families, and then re–invests the remainder in the structures of the group itself.
The advantages perceived by the farmers themselves are also affected by the institutional framework in
which they operate, as detailed below.
2
INSTITUTIONAL AND POLICY FRAMEWORK WITH REGARD
TO COMMERCIAL PRODUCER GROUPS (EU MEMBER STATES AND EU)
This section focuses on different ways selected by EU governments in the past decades in order to influence the institutional framework in which commercial producer groups operate. CEECs may decide on an
17
individual basis to draw some conclusions on the successes or failures resulting from certain decisions
and from certain developments in producer group history in the EU, as adapted to their own context. Examples are also given of EU Regulations granting subsidies for commercial producer groups in EU Member States.
EU governments have adopted varying approaches towards commercial producer groups which have also
been influenced to a certain extent by their ideological stance. There have also been approaches maintained by countries, independently from the governing party or parties. On one side of the spectrum, although governments have not created producer groups or set–up State Farms, as in CEECs, the
experience in some EU Member States has been that commercial producer groups have at times been an
expression of an interventionist policy by their inclusion in economic planning exercises. In this context,
the groups were in practice instruments for the achievement of the objectives of government policy such
as regional development and employment creation. In addition, the EU experience has included examples
of strong involvement of political parties in producer groups and associations, resulting in the identification of producer groups and associations with political parties. By contrast in other EU Member States the
absence of government intervention has prevailed or has been relatively low, in such a way that producer
groups and associations were considered as any other form of economic entity which did not require a separate treatment geared to their intrinsic characteristics described in Section 1.
The legislation in the EU Member States refers to the different options which have been given in EU countries concerning the different forms of ownership, membership and of conducting business, the degree of
democratic control, and finally market control and restrictions by governments. The experience in EU
countries is diverse and measures can have advantages and disadvantages. For example, the opening–up
of commercial producer groups to mixed ownership, to non–farm membership, to the possibility of conducting business with non–members and to distribution of dividends differing from the democratic rules
may all generate growth opportunities while decreasing the control by the original membership:
• definition of groups, the EU experience ranges from a lack of specific national legislation for
groups to legislation at regional level;
• legality or illegality of mixed forms of ownership such as joint ventures between groups and joint
stock companies;
• legality or illegality of non–farmer membership of groups, the norm being that farmers have
been the sole members, but with certain entities deciding to extend participation in the groups
to individuals whose other occupation was outside farming;
• legality or illegality of conducting business with non–members, business being normally con-
ducted exclusively amongst individuals who have formed a group precisely for the benefits to be
derived from, for example, the supply of produce by members for joint marketing by the group,
but with certain entities allowing the conducting of business with non–members, therefore
leaving members a margin to select their own buyers;
• influence on the degree of democratic control within groups and between different levels of group
organization, in some cases dividends have been paid annually to members by means of a formula reflecting patronage and investment, modifying the principle of one man – one vote;
• setting of anti–trust rules in cases of market domination by one single group and in cases in
which few retailers are dominant, with the EU itself also intervening in anti–trust;
• legislative restrictions such as compulsory selling through marketing structures managed by
groups for members.
The financial EU support for producer groups, as for farmers in general, has been based on the Common
Agricultural Policy, in turn based on intervention pricing. The CAP has absorbed more than two–thirds of
the Community budget and its purpose has been to support farmers' incomes through subsidies. This system resulted in over–production and was also outdated by the increasing weight of part–time farming.
18
Consequently, the trend in the EU has shifted towards a reduction in direct assistance to farmers with the
adoption of more selective interventions, for example emphasizing environmental issues and the measure
descibed below, specifically designed for producer groups and their associations.
One recent example of subsidies for the agricultural sector has been a Council Regulation (EC) (European
Communities) No 952/97 of 20 May 1997 on producer groups and associations thereof, applicable to 9
Member States (Italy, France, Belgium, Greece, Spain, Portugal, Ireland, Austria and Finland), in the
case of France specific Regions, and to specific products, including: cereals, potatoes, wine of fresh grapes
and grape, table olives and olive oil, fresh fruit and vegetables, vanilla, live trees and other plants, bulbs
and roots, cut flowers and ornamental foliage, plants used in perfumery and lavender, lucerne, live bovine
animals, beef and veal carcases and quarters, live sheep and goats, sheep and goat carcases and piglets.
By this Regulation the producer groups are defined as having being formed with the objective of adjusting
as a group the production and the supply of their members to the requirements of the market. The groups
can be composed by single producers or by single producers and organizations which either produce or increase returns from agricultural products, formed exclusively by agricultural producers. A producer can
be either a primary producer only or also a primary producer who is involved in processing, always referred to the selected products. Member States can decide to accept producer groups which also include
other types of members from the ones listed above, with the proviso that the group's statute envisages that
the members mentioned in the Regulation retain control of the groups and of their decision making. Associations are defined as being formed by recognized producer groups, pursuing the same objectives as
group on a larger scale. (ref. Council Regulation (EC) No 952/97, Article 5)
The general conditions, detailed in the Box 1, which the producer groups and associations have to satisfy
by this Regulation clearly illustrate the importance of the joint marketing, quality control and information
exchange services provided by these organizations.
The assistance foreseen by Council Regulation (EC) No 952/97 (Article 10) refers to the set–up and
administrative costs only, as follows:
“1. The Member States concerned shall grant aid to
recognized groups and associations, during the
three years following the date of their recognition,
to encourage their formation and to facilitate their
administrative operation. The amount of such aid
may be paid over five years.
2. The aid granted to producer groups recognized
after 1 July 1985 for the first five years following the
date on which they were recognized:
(a) shall, for the first, second, third, fourth and fifth
years be respectively a maximum of 5 %, 5 %, 4%,
3% and 2% of the value of the products coming from
the members, as defined in Article 5 (1) (b), in respect of which they are recognized and which are
marketed;
(b) may not exceed the actual cost of the formation and administrative operation of the group;
(c) shall be paid in annual instalments over at the
most seven years following the date of recognition.
19
3. The amount of aid granted to the associations:
(a) shall be equal to a maximum of 60%, 40%
and 20% of the actual formation and administrative operation expenditure for the first, second and third year respectively;
(b) may not, however, exceed a total of
ECU120 000.
4. Larger amounts than those provided for in
paragraphs 2 and 3 may be fixed for a specified period by the Council, acting by a qualified majority
on a proposal from the Commission, in respect of
certain regions and certain products encountering special difficulties in adapting to the conditions and economic implications of the common
agricultural policy.
5. For Portugal the percentages set out in paragraph 2 (a) shall be doubled and those set out in
paragraph 3 (a) shall be 100 %, 80 % and 40 %.”
Text box 1 – Conditions to be satisfied by producer groups and their associations
Council Regulation (EC) No 952/97
• Producer groups or their associations shall contribute with the activities for which they request recognition to the attainment of the objectives of article 39 of the Treaty, relative to efficiency in agricultural production and consequent development in agriculture;as regards the producers listed as being acceptable
as members of producer groups, they shall determine and apply common productions norms, in particular as regards the quality of the products or the use of organic practices; common norms for placing
goods on the market; and norms related to dissemination of information concerning their production,
specifically harvested produce and availability;
• the articles of association shall include, for the producers who are members of groups and for recognized
groups which are members of an association, the obligation to place on the market all the production, applicable to the type of product by which they are linked to the association or union, according to the rules
of supply and of placing on the market established and controlled respectively by the group or association. The Member States can allow that this obligation be substituted by the obligation of having the
group or association itself cover these tasks, either declaredly on behalf of its members or on behalf of the
group or association. The group or association may also allow its members to partly place their production on the market. For producer groups these norms do not apply for contracts signed up prior to joining, producers being obliged to inform the group of the scope and duration of the existing obligations;
• groups or associations shall allow members to leave after three years, with a one year advance notice,
provided it is coherent with national laws or provisions;
• groups or associations shallshow that their activities are economically adeaquate;
• groups and associations shall exclude that their actions are discriminatory, and therefore contrary to the
Treaty, as regards their members and economic partners;
• groups and associations shall have an acceptable legal entity which is compatible with national laws;
• groups and associations shall keep separate accounts for the foreseen activities and be subject to controls;
• groups and associations shall not to have a dominant position on the market, unless this is necessary for
the achievement of the objectives of article 39 of the Treaty;
• as concerns the more limited membership of producer groups accepted by this Regulation (restricted to
individual producers or individual producers and organizations for producing or increasing returns from
agricultural products, consisting solely of agricultural producers) it is compulsory for members to comply to the above–mentioned common norms related to production, market placement, dissemination of
production information, as should be indicated in the Statute, as from the date of the formation of the association, or as from the date of their joining the group;
• the placing of good on the market in accordance with the above–mentioned common rules concerns the
following operations: centralization of supplies, preparation for sale and supply to bulk buyers;
• detailed rules of application shall be followed, as indicated in subparagraphs two to five of Article 29 (1)
of Regulation (EEC) No 4253/88 (9), concerning: the criteria which the above–mentioned common
norms shall meet; the minimum cultivated area, production and sales for the relevant product or group
which shall come from the members and, if necessary, the minimum size of the membership; the covered
area, including the minimum crop area, turnover and the proportion of the national level production for
the relevant product or product group coming from the groups which the associations represent and, if
necessary, the minimum size of the membership.
(Adapted from Article 6)
In addition to price support and subsidies at EU level, EU governments have supported their commercial
producer groups directly. This support has been extended, in Italy for example, through fiscal advantages
to groups, conceptually in line with their traditional social non–profit making characteristics. Another example of government support to the development of groups has been via direct support to the development of cooperative credit institutions, and consequently to group members, through the provision of
credit at favourable conditions.
20
Governments have also decided on occasion to support marketing structures or entities other than
groups, for example auction markets and agricultural dealers, although there may also be
a complementarity when it is convenient for commercial producer groups to sell through these channels.
The past and present institutional and policy framework adopted by the EU and by its individual Member
States for groups could be a reference for the governments of CEECs, also in connection with accession to
the EU.
2.1 TRENDS IN COMMERCIAL PRODUCER GROUP DEVELOPMENT IN THE EU
Based on the above–mentioned institutional context in which they have been operating, commercial producer groups have had to give primary importance to economic and financial aspects, having to compete
with joint stock ventures and on external markets, and some of the trends below reflect this priority.
The trends which have characterised the development of group marketing in recent decades in the EU can
be summarized as follows:
• development of strong national level associations which have effectively have multiple roles as
farmers' lobbies, sources and channels of market information and promoters of national agricultural and food industry;
• increasing vertical integration, with groups incorporating processing and marketing functions;
• as a consequence of the previous point, confirmation and in some cases increase in the impor-
tance of commercial producer groups in the distribution of agricultural produce and products
(Table 1);
• confirmation of the importance of commercial producer groups in the provision of supplies and
services to their members (Table 1);
• increasing importance of commercial producer groups in terms of market power (in France pro-
ducer groups represent 35 percent of the food industry market, and already in the mid–1970s,
two of the four largest food firms and 40 percent of the largest 100 were commercial producer
groups; in Italy commercial producer groups represent almost 25 percent of agri–food marketing), (COGECA, 2000);
• concentration of the commercial producer group structure , with an increasingly small number of
groups dominating the internal market by commodity sector;
• increasing export orientation by groups which is linked with the emphasis on high quality production, which associations have taken onto themselves to promote vis–a–vis buyers;
• increasing examples of mixed forms of organization (In Austria, the RWA, a dominant farm supply group, is in fact a joint stock company, a trading and service company to the Raiffeisen
Warehouse Cooperatives; in Finland there are companies owned by producer groups, such as
Valio LTD in the dairy sector, which has a 69 percent share of the market (1998) and Atria Ltd.
Which has a 31 percent share of the meat market), (COGECA, 2000);
• trans–national commercial cooperation (in recent years DLG, the dominant supply group in
Denmark, has collaborated with SLR, the Swedish association of supply groups with the resulting setting–up of subsidiaries purchasing fertilizers and pesticides from the world market),
(COGECA, December 2000);
• increasing importance of environmental issues, reflecting EU regulations.
21
Table 1. Importance of commercial producer groups in provision of inputs/services and marketing and distribution
Country
Austria
Provision of inputs/services
Year
1998
Type
Marketing and distribution
No.
%
Year
65
1998
Grains Market
Type
Storage Capacity
65
Dairy Products
94
Sugar Beets
Belgium
Denmark
1999
1998
1998
France
Finland
1998
Supply Co-ops
5
40 (1)
50
1979
Storage Capacity
72
Cereal Distribution
74
1999
Wine Sales
52
Insemination
98
Dairy Products
49
Fertilizer Supply
60
Dairy Products
96
Meat
69
1998
Dairy Products
70
1998
Olive Oil
60
Wine Sales
50
1998
Grain Purchase
65
1999
Dairy Products
38
Fruits
41
Wine Sales
55
1998
Dairy Products
82
1998
Olive Oil
75
Wine Sales
70
Milk Market
95
Forestry
60
Dairy Products
55
Supply Co-ops
1
41
1998
100
Animal Feed
65
100
Cereal Distribution
17
Supply Co-ops
54
Supply Co-ops
70
1998
1999
Eggs
45
Sweden
UK
95
360
Portugal
1998
Dairy Products
70
Italy
Spain
72
1
Animal Breeding
Netherlands 1998
Fruit and Veg
Grain distribution
Greece
1999
50
57
Animal Breeding
1998
Dairy Products
4
Feed-stuffs
1998
100
Supply Co-ops
Germany
Ireland
1999
%
Fertilizer Supply
30
1999
Source: G. Foxall, 1982. COGECA, 2000
The domination of market shares by a single commercial producer group is not a new phenomenon. For
example, as early as 1979, in France a union of 620 groups handled 60–70 percent of the market for farm
inputs and a union of over 500 cereal groups handled 60–70 percent of the French market, (Foxall, G.
1982). However, there has been a consistent general trend towards increasing concentration of market
power in EU countries, reflected also by the decline in the number of groups and the merging of existing
groups. Clearly, this is a generalization, and is not true in all cases, but there is an underlying trend.
22
In Belgium the AVEVE group, which dominates the
supply sector, covers approximately 25 percent of
the market (1999). In Finland one supply group
covers 41 percent of the market share. In Italy, one
group, Conserve Italia, in 1998 covered 43 percent
of the juice market, 42 percent of canned fruit and
67 percent of canned vegetables and another group
AVI–COOP represents 15 percent of the poultry and
rabbit sector, (COGECA, 2000).
In Germany, the number of commercial producer
groups has decreased from 20 926 in 1960 to 4 044
in 1999, mainly as a result of mergers, and more recently, there was a decrease from 4 675 in 1996 to 4
044 in 1999, (COGECA, 2000).
In Denmark the consolidation of Danish groups has
resulted in sectors being dominated by only one
group. The farm sector has also become more concentrated, with the sector dominated by the two
groups DLG and Landsforeningen Den lokale Andel
which respectively represented 27 percent and 25
percent of market share in 1998, and with DLG
merging with the local supply group AFA in 1999.
In very recent years, the two largest dairy groups
in Denmark merged (MD Foods and Clover Milk);
in recent years in Finland a company owned by
commercial producer groups, Atria, bought a
Swedish private meat company specializing in
fast food, Lithells Ab, while HK Ruokatalo Plc
bought an Estonian meat factory, Rakvere As, operating in both Estonia and Latvia, (COGECA,
2000).
In Sweden groups have been merging. In the meat
sector, in 1999 Swedish meats was formed to
unite the regional slaughtering groups, covering
75 percent of the market share, while the Swedish
Dairies Association merged in recent years with
the Swedish Livestock Association. Arla, the largest dairy group in Sweden, 64 percent of market
share in 1999, merged with the largest Danish
dairy , MD Foods, (COGECA, 2000).
In Greece the trend is to create larger commercial
producer groups through concentration, the
number of groups was 6 800 in 1996 and 6 330 in
1998, with some small groups closing down for financial reasons, (COGECA, 2000);
The trends listed above may be indicators for short and medium term development of commercial producer groups in CEECs. Some of these trends are evident in CEECs, for example the importance of
part–time farming in the Slovak Republic, the decreasing importance of the agricultural sector in Latvia,
the concentration of groups in the Czech Republic where in 2000 groups covered 55 percent of milk distribution (AACC, Association of Agricultural Cooperatives and Companies of the Czech Republic, 2001) the
verticalization of groups in Slovenia, where 80 percent are multi–purpose, marketing approximately 70
percent of the output sold by agricultural producers in the mid–1990s, (OECD, 2001).
3
POLICY, LEGISLATIVE AND REGULATORY REFORMS
IN CEECS DURING TRANSITION
The governments of CEECs have selected in general to undertake a shift from a centrally planned system to
a mixed economy. Privatization and liberalization have affected the agricultural sector, and the challenge
during the transition period has been to undertake this transformation while facing the need to implement
structural adjustment measures and to retain a regulatory role in a sector which was facing significant
contingent economic difficulties, to different degrees in all CEECs.
During the transition years the pre–existing cooperatives of the socialist period faced financial difficulties, liquidation and bankruptcy due to the previous virtual lack of market exposure and oversizing. Similarly, the commercial producer groups created during the transition period, based on members'
self–management, were not able to take a strong and immediate lead in the development of marketing.
There were multiple reasons for the latter.
The reasons were that firstly, any new economic concern has to go through a set–up period which is also
characterized by the identification of buyers and suppliers; secondly, the members of the groups had limited commercial and managerial experience having operated until that point in time in a virtually State
managed economy; and thirdly, these new entities had to perform in the context of the economic difficulties faced by transition economies undergoing the dismantling of State owned production and marketing
23
structures which had yet to be replaced by a significant and financially solvent private sector. These economic difficulties were also reflected in the unemployment and low real incomes which did not generate
a stimulus on the demand side in the internal markets. As regards external markets, the traditional export
markets linked to the Russian Federation became less important, while new markets had to be found elsewhere, including the EU with the related constraints caused by certification requirements and quality
control.
3.1
GOVERNMENT POLICY INFLUENCING THE DEVELOPMENT
OF COMMERCIAL PRODUCER GROUPS IN CEE COUNTRIES
(INCLUDING REGULATORY MEASURES FOR IMPLEMENTATION)
One of the main instruments of agricultural policy in CEECs during the transition period has been market
stabilization as governments of CEECs have selected to retain the role of price control for agricultural
products and to financially assist farmers in accessing inputs. Agricultural policy as detailed in this Section affects all the forms of organization operating in the agricultural sector.
Several CEEC governments have supported market stabilization on a macroeconomic policy level through
the development of market information systems and through the monitoring of the implication of EU accession scenarios for the agricultural produce and products of CEECs. It has been government policy in
some CEECs to stabilize agricultural markets through direct financial measures, as detailed in this Section.
At this level interventions are normally general, rather than specifically in favour of commercial producer
groups, but by definition the general policy framework affects all the forms of organization operating in
the agricultural sector.
In some countries (e.g. Bulgaria and Romania) the tendency in recent years has been to reduce direct
State intervention in the provision of subsidies to producers, also in line with EU policy, while in other
countries (e.g. Czech Republic, Latvia and Slovak Republic) the importance of this measure has been retained.
In both the Czech Republic and the Slovak Republic
there are State Funds for Market Regulation which
intervene in agricultural markets, effectively subsidizing selected agricultural products by guaranteeing minimum prices for producers through
domestic intervention purchases and by providing
incentives to exports through export subsidies. An
ongoing PHARE project in the Slovak Republic is
also focusing on the SAMO (Slovak Agrarian Marketing Organization), with the intent that SAMO
should in future create opportunities for farmers to
export their products. The mid–term priorities of
the agricultural policy in the Slovak Republic include the setting–up of an institution for market intervention, direct support and control of the food
market.
In Bulgaria, in 1995 the Law for the Protection of the
Agricultural Producers was approved, tbe State
Fund for Agriculture was established and in 1996
the government procured subsidized credits and
advance payments for contracted production,
mostly grains. However, in 1998, the above–men-
24
tioned Law was abolished and market price support and market interventions by the State were
lifted. On the other hand, credit interventions
were also expanded to cover collateral support.
In Latvia, the Law on Agriculture (November
1996) determined in the Regulation of Market Relations (Article 10), that market relations should
be based on agreements specifying the amount of
goods and the minimum price for a period from 1
to 3 years, and that the Cabinet of Ministers would
establish market intervention Regulations annually in order to stabilize agricultural prices. The
Concept of Development of Agriculture (Ministry of
Agriculture, 1998), listed government measures
for grain purchase including the development of
options of proforma draft contracts between grain
producers and crop processing and/or storing enterprises, the development of propositions for registration of grain as commercial pledge in
cooperation with the Bank of Latvia, the increase in
the flexibility of the State crop reserve and the provision of subsidies for grain storage.
In Romania, until mid–1993 the prices of a wide
range of agricultural and food products continued to
be covered by State price controls, but by 1996 this
range had been reduced to a few basic products.
In 1997 all direct price interventions were removed.
Presently, the government intervenes ad hoc.
During the FAO workshop an urgent need was identified for CEEC governments to adopt tax and credit
policies supportive to the working of commercial producer groups, particularly in the set–up phase. One
example is the Law on Agricultural Producer Groups, presently under approval in Romania, which foresees exemption from the payment of Value Added Tax, import taxes and income tax for groups for a certain period. This can be related to the Italian experience, which over many years has been characterized by
significant tax exemptions for groups, conceptually equated with non–profit organizations, as they are by
definition. The implementation of taxation policies favourable to groups, listed in Section 2 as one of the
financial measures in favour of groups used by EU Member States, may be considered consistent with the
social characteristics of groups described in Section 1.
Governments in CEECs have financially assisted farmers in accessing inputs with different instruments,
such as grants, subsidies and vouchers. As for outputs, the degree of government intervention in favour of
producers in CEECs has varied and generally decreased. In some cases there were difficulties over the insufficient supply of inputs.
In the mid–1990s, in Bulgaria the government introduced input subsidies for wheat, maize and sunflower growers and these were increased considerably until 1998, when the government intervention
policy was modified and most of the subsidies were
removed. Exceptions were the introduction of a
new subsidy for the storage of wheat in 1998 and
the introduction in 1996 of subsidies for livestock
producers, in particular to reduce the combined
feedstuff cost of cattle, pork and poultry producers.
While during 1990–1996 the replacement of obsolete agricultural equipment halted, resulting in a 80
percent decrease in farm machinery numbers, government incentives over the following three years
(duty–free imports of farm machinery, low–interest credit, financing schemes in cooperation with
local and large international agricultural machinery manufacturers) have improved the situation
(Ministry of Agriculture, Forestry and Agrarian
Reform, 2000).
In Romania the government intervened firstly
(1991–1996) mainly with grants for fertilizers,
plant protection products and seeds, subsidies for
certified seeds, and exemption from customs duty
for imported tractors, machinery and equipment.
After 1997, the importance of grants and subsidies generally decreased (the exception being the
introduction of a storage subsidy for wheat) and
they were replaced by vouchers which were
granted directly to farmers for the purchase of agricultural inputs.
The experience in some CEECs has seen a shift from government intervention in market stabilization to
supporting the privatization of the existing marketing structures and development of new ones, also with
external assistance. Commercial producer groups may select to operate through transformed marketing
structures or to create their own marketing channels. In some CEECs producer groups have reached a certain presence in marketing, although private businesses have generally taken over the activities of privatized public entities, particularly in the provision of inputs. This is an indication of the importance of
providing specific assistance to commercial producer groups for the development of their marketing
skills, as detailed in the following Section, if they are to operate on a sustainable basis.
To date the efficient development of input–output markets has been constrained by the retention of local
monopolies in the supply of inputs, insufficient support for market infrastructure and the absence of functioning entities which regulate agricultural markets in line with market regulation institutions conforming with the EU. Examples are provided below of developments in the organization and operation of
input–output markets during the transition period, however it should be emphasized that the development of new marketing structures has not been a sufficient condition for their efficient functioning, in
terms of the effective coverage of primary and processed agricultural products.
25
In some countries processing sectors are experiencing a dramatically low capacity utilization, ranging
from 10 percent to 25 percent in the case of the canning, milk and meat processing industries (OECD,
2000), which may be partly attributed to inefficient market structures. There is therefore scope for intervention to improve the working of markets and governments can choose to retain a regulatory and monitoring role in this context, as deemed appropriate.
In Bulgaria, the policy of privatizing the market
structure was launched in 1991, when the large
State input/output marketing monopolies were dismantled. The wholesale and retail markets have
been privatized and there has been a development
of private trading with new varied forms: long term
contracts, formal and informal wholesalers, future
trading, trade on the basis of wharehouse deposits.
In 1997 Government launched a project, which is
ongoing, aiming to develop 10 wholesale markets
for fresh fruits and vegetables, managed by the Ministry of Agriculture and Forestry financed by an international loan and the relevant municipalities.These municipalities have privatized marketing structures succesfully resulting in reconstruction of structures and organized promotions/fairs.
These markets mostly target small scale fruit and
vegetable growers. The result has been a stronger
link between small–scale agricultural producers
and processors. The efficiency of markets has been
improved for instance by the obligation of market
authorities to provide information on wholesale
prices daily to customers.
Problems remain related to the absortion capacities
of these markets. In practice, small producers sell
directly at street markets or to retailers, while large
producers opt for direct contracts with restaurants,
shops, processors, trade partners. On top of this,
wholesalers often delay payments and processors
decide to pay the producers in kind with industrial
products. In 1990, the Government of Romania set
a guideline for the privatization of the 41 existing
wholesale and food distribution agencies, which
were divided in 96 commercial companies to be privatized according to Law 15/1990, with 30 percent
of the shares of these companies to be sold straight
away and the rest over time. In 1997, there were officially about 2 000 wholesale enterprises, dealing
with raw agricultural products and live animals and
12 000 wholesale units working with food products,
beverages and tobacco, mostly small scale (OECD,
2000). The Government supported the formation
of wholesale markets as from 1993, when the Bucharest Wholesale Market was created for fruits,
vegetables and flowers.
An EU financed project has led to the completion
of 6 wholesale markets for fruit and vegetables, cereals and live animals, but because of the lack of
contribution by the Counterpart these markets are
virtually non–operational, (Neagu, M. 2001). It is
planned that once the Bucharest Wholesale Market and the six collection centres around Bucharest for fruit and vegetables and flowers are
operational, they shall be privatized through the
issuing of shares. One of the aims of the Romanian Fund of Guidance and Development once it is
established is the development of cereal exchanges and of agricultural wholesale markets.
For the moment the volume of market transactions has remained low, both in structures for the
exchange of goods (present in Bucharest, two specialized in cereals located in Slobozia and Arad,
one in Brasov specialized in potatoes, and one in
Constanta for cereals and other foodstuffs) and in
wholesale markets. Transactions in wholesale
markets are subject to Value Added Tax, which is
not the case in informal markets. At present, the
bulk of marketing transactions for small producers takes place in local markets, and an indication
of the inefficiency of the marketing structure is
that only 18–20 percent of milk production is delivered to dairies, (Leonte, J. and Alexandri C.,
2001). Agricultural producers face a semi–
–monopsonistic position of processors. A related
phenomenon is the boost in private sector participation in retail food trade, from 1 percent in 1990
to 84 percent in 1997 (excluding local markets),
which keeps transactions generally at local level
(OECD, 2000). The majority of organized local
markets are owned and coordinated by the State,
although some have been privatized.
Governments have supported the privatization of marketing structures providing services to agricultural
producers by passing specific laws to this purpose. In view of the new opportunities, the private sector itself has become a significant provider of market services in certain contexts. Nevertheless, governments
26
have also retained a measure of control over storage activities, in view of the links with their intervention
in market stabilization.
In the Czech Republic there is a dual system by
which the State Fund of Market Regulation relies
on contracts with private purchasing and storage
organizations for the supply of wheat which it purchases for intervention purposes, which is then
stored in its own stores. The above–mentioned
PHARE project in the Slovak Republic, involving
the SAMO, also focuses on the storage of agricultural commodities. Nevertheless, in both countries
State intervention in storage is restricted to the stabilization of staples. In the Slovak Republic, communal storage facilities are provided by
independent private companies which store grain
or other commodities issuing warehouse receipts to
the owner of the stored goods. The holder of the receipt can go to a bank and obtain a credit against the
receipt, which he will then repay upon sale of his
produce.
In Bulgaria, only in the years 1999 and 2000, respectively 37 and 9 licenses were issued to wholesale traders of veterinary products. Veterinary
products are in fact produced and supplied mainly
through private channels. Likewise, during the
same period, the restructuring and privatization of
selective livestock breeding progressed considerably. The former branches of the NSSLB (National
Service for Selective Livestock Breeding) have been
converted into 6 limited companies, focusing on
elite cattle and horse breeding. In forestry the economic functions of the former State Forestry Holdings have been assigned to 63 public limited
companies currently being privatized. In August
2000, 13 had been privatized, and a further 5 scheduled for privatization by the end of the month (Ministry of Agriculture, Forestry and Agrarian Reform,
2000).
In the Czech Republic, there are 68 supply and marketing groups, 33 in the milk sector (55 percent
market share), 13 in the pork and beef meat sector
(25 percent market share), 7 in the fruit and vegetables sector (28 percent market share), 3 in the
potawto sector (4.5 percent market share), 2 in oil
products (3 percent market share) and 10 others.
(A.A.C.C. , 2001). During the 1990s there was a
boost in the number of trade companies, from zero
in 1989 to 2 623 in 2000, business enterprises
which in the same year also covered 1 551 000 ha of
27
agricultural land out of 3 493 000 ha (A.A.C.C.,
2001). In fact, in terms of land area, business enterprises cover more than commercial producer
groups, which by the same source had 1 071 000
ha the same year.
In Romania, more than two–thirds of suppliers of
agricultural services, including mechanization,
transport, wholesale input traders and irrigation
system maintenance companies had been privatized by the end of 1998. One of the aims of the Romanian Fund of Guidance and Development of
Agriculture and Forests is to complete the privatization of agricultural services, including mechanization and veterinary assistance. When prices
were liberalized in 1997, more private agents entered the market, some of which, especially pesticide importers, established their own distribution
networks. Some distributors advise farmers on
the use of the inputs they purchase, procure credit
to farmers prior to the harvest, and are also flexible in accepting payments in kind.
Of the 10 major companies providing fertilizer
production and distribution services prior to the
transition, 2 were shut down by the Government
and the rest privatized by 1997. The six major producers supplying plant protection products are
scheduled for privatization. They face strong competition from imported products, as detailed
above. Animal feeds are produced by 63 companies, at the beginning of 1999 one–third privatized, one–third liquidated and one–third State
owned. Prior to transition, mechanization services were undertaken by 573 agricultural mechanization stations. By law 15/1990 they were
converted into commercial companies and about
100 were privatized. Many of the stations have
been divided into smaller entities, increasing their
number to 1 682 and about 60 percent had been
privatized by the beginning of 1999. By the end of
1999 the privatization of farm machinery and
tractor service activities was completed. 90 percent of the former 41 state transport companies
have been privatized. About 4 000 domestic producers have been permitted by the Ministry of Agriculture and Food to produce and trade certified
seeds. (OECD, 2000).
3.1.1
Policy specific to commercial producer groups
Governments in CEECs have adopted policies which have directly targeted commercial producer groups
including capacity building, fiscal advantages and financial assistance during set–up. During the FAO
workshop the participants from CEECs commented that the agricultural policy–making process was generally deficient with regard to lack of communication between the governments and farmers, resulting in
low farmer participation in the decision-making process. One positive example is Latvia.
Firstly, the selected instruments have focused on building the limited commercial and managerial capacities of the members of commercial producer groups whose experience has been to operate in a virtually
State managed economy. During the FAO workshop the participants from CEECs pointed out that to date
government policy has generally not provided sufficient support with consultancy services in business
management and marketing to newly established entrepreneurs in agriculture, processing and marketing. However, there have been examples of support in a few countries.
Secondly, fiscal advantages to commercial producer groups have been strongly recommended by workshop participants as these have been considered inadequate to date, to the extent of representing a disincentive in some cases for farmers to set–up a group. An example is the Law on Agricultural Producer
Groups, presently under approval in Romania, which foresees exemption from the payment of Value
Added Tax, import taxes and income tax for a certain period.
Thirdly, financial assistance to commercial producer groups has been selected as an instrument, particularly in the set–up phase given that a new economic concern has to go through a set–up period which is
also characterized by the identification of buyers and suppliers. The financial assistance of the European
Union through SAPARD is foreseen for the set–up phase. However, to date workshop participants from
CEECs consider that there have been insufficient financial/economic incentives to commercial producer
groups.
In practice to date the primary actors benefiting from the shift from state run to private economic entities
involved in agricultural marketing in CEECs seem to have been private companies. The extent to which
group marketing develops will depend on a range of factors, including farmers' convenience to market in
a group form compared to other means. Most CEECs have incorporated in their Agricultural and Rural
Development Plans to the year 2006 the support to the development of new marketing structures linked to
and favouring commercial producer groups. In this context, the incentives that the Governments shall
provide through the EU financed SAPARD, which includes the possibility for applicant countries to fund
projects in the areas of setting–up groups and improving the processing and marketing of agricultural and
fishery products, shall contribute to determining the priority given to supporting the group form of marketing as opposed to other types of organization.
For example, the Government of the Slovak Republic, in its Agricultural and Rural Development Plan of
2000–2006, the strategic document linked to the EU financed SAPARD, indicated that Slovak farmers and
processors have every advantage to cooperate both horizontally and vertically because they are facing difficulties. Some of the difficulties relate to the domination of the market by food chains and the low development of marketing channels and organizations, including the absence of a national wholesale market,
forcing producers to access international wholesale channels. SAPARD financing will be allocated for the
development of commercial producer groups which at present have very little weight.
Examples of financial support measures for groups envisaged by various CEECs under SAPARD are provided below. The assistance foreseen for CEECs is very similar to the assistance under Council Regulation
(EC) No 952/97 established by the EU for several of its Member States, as described in Section 2.
The assistance to groups through SAPARD envisaged by EC Regulation No. 2759/1999, is applicable to
those “set–up for the purpose of jointly adapting the production and output of the producers who are
members of such groups to market requirements and, of jointly placing goods on the market, including
centralization of sale, preparation for sale, and supply to bulk buyers, and, of establishing common rules
28
Text box 2 SAPARD allocations for CEECs
The SAPARD funds amount to MEURO 529 per year until 2006. In July 1999, the European Commission
adopted a decision on the allocation of the SAPARD funds per applicant country, based on the criteria of
farming population, agricultural area, GDP per capita in purchasing power, and the specific territorial situation in each country. The interested countries and their respective annual allocations in MEURO are:
Bulgaria
53.026
Czech Republic
22.445
Estonia
12.347
Hungary
38.713
Latvia
22.226
Lithuania
30.345
Poland
171.603
Romania
153.243
Slovakia
18.606
Slovenia
6.447
The specific support for producer groups, as per Article 6 below, is one of the possible interventions, under
the Commission Regulation (EC) No. 2759/1999 of 22 December 1999, which also include investments in
agricultural holdings (Article 2); improving the processing and marketing of agricultural and fishery products (Article 3); agri–environment (Article 4), training (Article 5) and forestry (Article 7).
There is no financial support foreseen specifically for producer groups from SAPARD funds in Latvia, Poland and Slovenia. The annual allocations planned for producer groups in Bulgaria, Czech Republic, Hungary, Romania and Slovakia are detailed below (75 percent EC contribution and 25 percent CEECs'
contribution). With the exception of the Czech Republic and Hungary, they represent a very small percentage of the total SAPARD allocation. The need for additional funding to fill unmet needs should be closely
monitored and assessed by CEECs, to be covered by their national budgets or from other sources.
ALLOCATIONS YEAR YEAR YEAR YEAR YEAR YEAR YEAR
(MEURO)
2000
2001
2002
2003
2004
2005
2006
Total
Bulgaria
SAPARD
53.026 53.026 53.026 53.026 53.026 53.026 53.026 371.182
Groups
0
0.773
0.773
0.773 0.773 0.787
0.787
4.666
Czech Republic
SAPARD
22.445 22.445 22.445 22.445 22.445 22.445 22.445 157.115
Groups*
3.8
3.8
3.8
3.8
3.8
3.8
3.8
26.6
* approximate figure, indicated as about 17% of total SAPARD
Hungary
SAPARD
38.713 38.713 38.713 38.713 38.713 38.713 38.713 270.991
Groups
3.72
3.72
3.72
3.72
3.72
3.72
3.72
26.04
Romania
SAPARD
153.243 153.243 153.243 153.243 153.243 153.243 153.243 1 072.701
Groups
0
0
5.904
5.904 3.936
3.936
3.936
23.616
Slovakia
SAPARD
18.606 18.606 18.606 18.606 18.606 18.606 18.606 130.242
Sources: European Commission; Ministries of Agriculture, Agencies/Institutes in CEECs
on production information, with particular regard to harvesting and availability, and which have been formally recognised by an applicant country”.
The Commission Regulation (EC) No. 2759/1999 of 22 December 1999, Laying down rules for the application of Council Regulation (EC) No. 1268/1999 on Community support for pre–accession measures for
29
agriculture and rural development in the applicant countries of Central and Eastern Europe in the pre–accession period, Article 6 on Producer Groups reads as follows:
1. “Support may be granted to encourage the
setting–up, and to facilitate the administrative operation, of producer groups, during
the first five years following the date of their
recognition.
2. This Article shall apply to producer groups
set up for the purpose of jointly adapting the
production and output of the producers who
are members of such groups to market requirements and, of jointly placing goods on
the market, including centralisation of sale,
preparation for sale, and supply to bulk buyers, and, of establishing common rules on
production information, with particular regard to harvesting and availability, and
which have been formally recognised by an
applicant country.
3. Support granted to producer groups recognised after 1 January 2000 for the first
five years following the date on which they
are recognised, shall be granted towards the
costs of setting up and running the producer
organization, at a flat rate.
4. The aid referred to in paragraph 3 shall be
determined for each producer organization
on the basis of its annual marketed production and shall:
a. Amount for the first, second, third,
fourth and fifth years to 5%, 4%, 3% and 2%
respectively of the value of marketed production up to EUR 1 000 000, and
b. Amount for the first, second, third,
fourth and fifth years, to 2.5%, 2.5%, 2.0%,
1.5% and 1.5% respectively of the values of
marketed production exceeding EUR 1 000
000,
c. Be subject to a ceiling for each producer
organization of:
EUR 100 000 for the first year;
EUR 100 000 for the second year;
EUR 80 000 for the third year;
EUR 60 000 for the fourth year;
EUR 50 000 for the fifth year,
and shall be paid in annual instalments.
There is no restriction in this case on the
type of product eligible for assistance.”
In turn, each CEE country shall adapt the general SAPARD to its own priorities, which may include assisting groups. In examples given below, the similarities between the assistance foreseen by SAPARD for
CEECs in general and the country level interventions are evident. The exclusive coverage of set–up and administrative costs is a common feature.
In Latvia, the Concept of Development of Agriculture
(Ministry of Agriculture, 1998), included in Article
11 on Structural Policy, the promotion of producers' cooperation. One of the key instruments envisaged by this document was the “improvement of the
self–management system of crop producers”, specifically through the promotion of the establishment and of the activities of self–management
formations that would represent the interests of the
crop growers in area municipalities, districts and at
national levels as regards production and marketing. The same document included amongst the issues to be addressed the tax privileges for “various
types of cooperative companies”.
In line with SAPARD, the Latvian Ministry of Agriculture is elaborating a Plan for Agricultural and
Rural Development. The priorities of the plan,
30
which have been developed also on the basis of
questionnaires distributed to local social partners
in 26 districts and consequently discussed by the
SAPARD inter–ministerial working group, include the processing and marketing of agricultural and fishery products. Groups may benefit
from this measure.
The transfer of milk collection and primary treatment centres without remuneration to groups and
the allocation of most of the stocks of 15
large–scale dairy plants, on the basis of the
1992–1994 privatization laws is an indication of
government support to commercial producer
groups. Moreover, in 2001 groups have started receiving financial assistance from the government
through the State subsidy programme, Regulation 8, Support for Agricultural and Non–govern-
mental Organizations (NGOs) and Producer
Groups : Ls. 200 000 (approx. Ls. 0.63 to the US$)
in total, with a maximum of Ls. 10 000 for an existing group and Ls. 3 000 for a new group. In this context, a more precise definition of a group has been
identified by the Ministry of Agriculture. By the
same Regulation, NGOs involved in the agricultural sector received a total subsidy allocation of Ls.
60 000.
In Romania, in the NPARD (National Plan for Agricultural and Rural Development) approved by the
European Commission in December 2000, the Romanian SAPARD agency has defined the details for
“Setting–up Producers' Groups”, Measure 3.2. The
primary aim is to encourage the setting–up of these
groups so as to achieve joint marketing, indicating
fruit and vegetables, potatoes, grapes, milk, meat,
forestry, fisheries and aquaculture as priority sectors. The main requirements for groups are to be located in certain defined areas, demonstrate that
they can be viable over a minimum of five years and
have a legally recognized status.
The Ministry of Agriculture considers that in order
for a group to be eligible it should have a minimum
number of 30 members (10 for the groups operating in the fisheries sector) and a minimum turnover
of EURO 20 000. The groups should also have
achieved minimum production levels by type of
product and have cultivated a minimum number of
ha or kept a minimum number of animal heads.
On the basis of the above, each group shall receive
assistance representing 5%, 4%, 3% and 2% (or half
of these values) of the value of their sales for respectively years 1 to 5, paid in annual instalments and
subject to a ceiling. It is estimated that this measure,
applicable from 2002, will reach approximately 500
groups, with 17 000 members. The same considerations apply as for the above–mentioned countries
for the targeting of the assistance for set–up and administrative purposes.
The Slovak Republic , in its Agricultural and Rural
Development Plan for the period 2000–2006, effectively SAPARD, includes a measure for the setting–up of groups, the objective being to support
the establishment, formation and simplification of
administrative operations for groups in line with
the Commission's Regulation No. 2759/1999, Article 6, which is detailed below, mostly as is done
in the Plan itself:
The measure aims to establish commercial producer groups, with a minimum of 20 organizations, whose members are unincorporated or
incorporated entities engaged in agriculture and
production of 10 selected commodities. Support
is to be given to all types of groups which are not
beneficiaries of other types of national support
from other sources. The Ministry of Agriculture of
the Slovak Republic will be responsible for the acknowledgement of groups, which will be described below in Section 3.2.2.
Support shall be granted only to agricultural
primary producers for the products included in
Annex I of the Treaty. In compliance with the EC
Regulation; groups shall have a minimum of 5
members (minimum 3 for groups in the fish production sector) and minimum annual volumes of
production per commodity per group have been
determined for each category listed above, expressed in value; if the group is dealing with several eligible commodities, the minimum volume
of production should be reached in at least one
commodity; the measure is of a non–investment
nature and includes only support for covering the
setting–up administrative costs of activities in the
first five years of operation on a flat rate basis; eligible investments for setting–up of groups include office equipment, personal computers,
software and staff costs. The EU contribution is
75 percent of the total eligible public expenditure.
The indicators of impact of the measure are the
creation of at least 20 groups during the whole period, a minimum of 60 new jobs created by 2006,
implementation of information and advisory systems in at least 20 groups, development and implementation of quality programmes in at least 20
groups, reduction of marketing costs and increased competitiveness of group members, increased proportion of producers organized into
groups at least by 5 percent per commodity, and
increased proportion of products purchased and
sold through groups at least by 5 percent per commodity.
The funds allocated under SAPARD directly in favour of the set–up of commercial producer groups in the
countries on which this study focuses are either not foreseen or represent a very small percentage of total
SAPARD funds, with the exception of the Czech Republic and Hungary. The effectiveness of the SAPARD
allocations for commercial producer groups relies on carefully monitoring the coherence of the conditions
for the granting of assistance, as established by individual CEECs, with the financial and organizational
31
situation of farmers aiming to form a group. The prime responsibility for this monitoring is conceivably
with the governments of CEECs and with the EU. Alternatively, commercial producer groups may benefit
from other SAPARD measures, in particular those related to the improvement of the processing and marketing of agricultural and fishery products. It is important to ensure that new and existing commercial
producer groups in CEECs are able to operate in a policy and regulatory context which supports their existence as financially profitable economic entities with solid marketing links.
3.2
LEGISLATIVE FRAMEWORK
During the transition period, the legislative framework in CEECs required a two–fold intervention in line
with the general policy decision to move from a centrally planned to a mixed economy. Firstly, it was necessary to implement the restructuring of the existing cooperative sector. This required specific legislation
in each country, as detailed below and mainly involved issues concerning company law related mainly to
privatization, bankrupty and liquidation. Secondly, the creation of a legislative framework for new style
commercial producer groups was required, both for privatized pre–existing cooperatives and for newly
created groups.
3.2.1
Re–structuring of the cooperative sector
The re–structuring of the cooperative sector, referring to the State run cooperatives set–up during the socialist period, has been undertaken by finding adequate forms for converting them in ways which would
meet as far as possible the dual objective of compensating the former land owners and employees and of
creating viable financial ventures. The land issue, with the related restitutions or compensations, is important in this context. Legal and financial aspects have also intertwined in cases of financial difficulty of
the existing structure through bankruptcy arrangements. The issue of democratic control is also relevant,
given that in the conversion of each cooperative a new management structure is created.
In Latvia the privatization process is close to completion, including the privatization of agricultural
land, with approximately 90 percent at present in
private hands (Ministry of Agriculture, 2001). By
the Law on the Privatization of Agricultural Enterprises and Fishermen Collective Cooperatives, land
has been restored to former owners and their heirs
and free land has been allocated to residents wanting to undertake agricultural activities.
On the basis of the laws passed in the period
1992–1994, 75 milk collection centres have been
privatized without remuneration and transferred to
commercial producer groups and 15 large–scale
dairy plants were transformed into joint stock companies with most of the stocks given to milk groups.
All the 14 large–scale meat processing plants have
been privatized, as well as the 14 baking enterprises, 17 grain mills and 3 sugar factories. 125 service enterprises were privatized including
machinery stations, which were transformed into
small scale companies with limited liability,
(Dzelzkalejs, V., 2001). A large number of enterprises has been taken over by groups.
32
In Romania, between 1990 and 1991 the agricultural production cooperatives were broken up.
The Land Law No. 18/1991 re–established citizens' rights to land ownership and set the framework for de–collectivization. Upper limits were
set to the amount of reclaimed land per person
(0.5 ha) and per family (10 ha of arable land or 1
ha of forest land). Article 46 set an upper limit of
land ownership per family (100 ha), later increased (200 ha) by Law No. 54/1998. The freeing of land transactions was initiated by Law No.
18/1991, and continued by Law No. 54/1998 on
Land Transactions which endorsed free land
transactions between individuals, including sales,
removing the State's pre–emption purchase
rights.
Some of the State Farms were transformed into
independent enterprises which have been partly
privatized. The majority of previously State
owned agricultural entities have been privatized,
but many of them are in liquidation, particularly
the ones undertaking pig and poultry breeding. In
2000, the private sector owned 85 percent of the
agricultural area, the associative sector approxi-
mately 15 percent (Leonte, J. and Alexandri, C.,
2001).
In the years 1993–2000 individual farming seems
to have been more attractive to the small farmers
than the associations but the fragmentation of the
plots is considered a significant constraint in this
context. The Romanian Fund of Guidance and Development of Agriculture and Forests aims to support farmers in order to increase the size of farms by
association, leasing, selling, purchase of agricultural land. To this purpose, the Law for Agricultural
Exploitations has been drawn–up and is under approval.
In the Slovak Republic the privatization process is
in progress. No undertaking was privatized during
1999, but at the end of the year eight whole or partial privatizations involving six former State farms
was in progress, due to ownership changes and restitutions taking place. The sale of redundant State
assets was used as a privatization method pursuant
to article 45 of Act. No.92/1991 Coll. as amended
(Ministry of Agriculture, 2000).
In parallel, as regards the liquidation and bankruptcy of State farms, in 1999 two service companies and one farm were placed under liquidation,
bankruptcy was declared or initiated for three
food–processing companies, two service companies and six State farms. The liquidation and bankruptcy of State farms has proved to be particularly
complicated, given the structure of their assets and
the non–liquid facilities in the case of animal husbandry (Ministry of Agriculture, 2000).
The importance of cooperatives has been declining
in terms of number, percentage of the agricultural
land area and average land area per holding. In
1999 the number of cooperatives was 801 compared to 1 019 in 1995; in 1999 cooperatives covered 50.24 percent of the land, compared with 68.6
percent in 1990; with an average of 1 537 ha per
land holding, compared to an average of 2 473 in
1990. The cooperatives appear therefore largely to
have retained their previous large–scale form, as indicated also by comparison with the average size of
the two remaining State farms, 3 071 ha. This is an
instance in which the cooperatives existing prior
to the transition period have retained their importance.
In order to avoid bankruptcy, many cooperatives
have initiated the transfer of their assets to newly
established entities, resulting in the decline in the
size of the number and land area represented by
cooperatives. However, this trend declined in
1999, with 15 cooperatives being transformed
into companies and 6 into new cooperatives, out
of a total 48 active cooperatives ceasing to exist
during the year, suggesting that the incidence of
bankrupties and liquidations has been high. The
economic difficulties are evident also through the
large number of inactive cooperatives end 1999,
371, (Ministry of Agriculture, 2000).
In March 2000, 840 cooperatives out of the 980
obliged to issue shares had met the requirement
by law. The number of cooperatives planning to issue shares for their members is rising. Capitalization of members' deposits is chosen by stable
cooperatives where inactive members are significant. The question of financial stability of the cooperative system is relevant should members
want to withdraw having benefited from the redemption of their shares, (Ministry of Agriculture, 2000).
In Slovenia, over 85 percent of agricultural production units remained in private hands during
the socialist period, therefore the transformation
issue is less of a priority, (OECD, 2001).
Slovenia's reform agenda includes the liberalization of the land market, removal of limitations on
private land ownership, property restitution and
privatization. By 1993, most agricultural cooperatives had completed formal reorganization.
However, due to the uncertain prospects of the cooperatives, many former members decided to renounce their membership, to the extent that at the
end of 1996 the share of private farmers in cooperatives had halved to 30 percent compared with 60
percent before independence, (OECD, 2001).
The short term target in CEECs is to complete the privatization and liquidation process of State Farms initiated during the transition phase. The stage reached by this transformation in each country, of which
some significant examples are given above, has been affected by different factors, including the degree of
prevalence of State Farms prior to transition; the financial situation of the State Farms in their existing
form, influencing the timing of their absorption by other economic entities; the relative divisibility of the
assets of the State farms; the solving of the land ownership issue and the existence of private sector enti33
Text box 3 Economies of scale – financial definition of groups
In Hungary the dominant transformation for agricultural cooperatives has been retaining the cooperatives
in their existing form while transforming them into companies. They have therefore generally neither been
split nor decentralized. This has, as a trend, not complied with the farm restructuring plans of the Ministry
of Agriculture, by which large scale farms, including existing cooperatives were due to decrease from 56
percent in 1997 to 50 percent in 2002, and medium concerns, representing family incomes based on agriculture as opposed to part-time farming, were to rise from 12 percent to 23 percent in the same period
(Laczo, F., 2001). In 1999, the Ministry of Agriculture and Regional Development passed a regulation for
the support of the creation of new cooperatives. By this measure, a supply or marketing cooperative
founded after 1 January 1999 could be eligible for financial assistance: for set-up, up to HUF 250 thousand
(approx. 243 HUF to the EURO) and for working capital up to HUF 15 million. However, the bulk of subsidies for investment granted by the Government benefited large scale enterprises, including existing cooperatives.
The situation as described of the transformation of the cooperatives in Hungary might not appear to be consistent with the financial characteristics of groups, as described in Section 1, by which an adequate capital
ownership by members is expected. This is due to the fact that smaller–scale concerns might be more likely
in line with the traditional financial management of groups, as well as their democratic and social characteristics. However, given the trends of group development in EU Member States, as described in Section
2.1., namely increasing vertical integration, concentration and market power, size in itself should not be a
negative influence, as long as the manageability of the concerns is retained and the traditional financial
management of groups is respected.
ties, whether organized as a business or as a group, with an adequate financial and managerial capacity to
acquire the transformed State Farms. With reference to the latter, the legal framework created by CEECs
to enable the setting–up of commercial producer groups during the transition phase is detailed below.
3.2.2
Setting–up of new style commercial producer groups
In the last decade or more, CEECs have adapted their legislation so as to adjust their definitions of commercial producer groups and their practical operation to the changing institutional and economic context
in which they have come to operate, and in view of their future accession to the EU.
In Slovenia, by the 1991 new law on groups, the new owners of privatized cooperatives were also beneficiaries of part of the property of privatized processing enteprises with which they had a direct connection.
However, due to the uncertain prospects of the cooperatives, many former members decided to renounce
their membership, to the extent that at the end of 1996 the share of private farmers in cooperatives had
halved to 30 percent compared with 60 percent before independence. In the Slovak Republic, the incidence of private companies is significant, with more than 50 percent of the area lost by cooperatives and
State farms being managed by agricultural companies. Linked to financial difficulties, the process of democratization of cooperatives seems to have been low with a very low participation by individual members. A research by the Union of Agricultural Cooperatives indicates that 90 percent of cooperative shares
are bought by the cooperatives themselves as legal entities. In Hungary the dominant transformation for
agricultural cooperatives has been retaining their existing form while transforming them into companies.
The bulk of subsidies for investment granted by the Government benefited large scale enterprises, including existing cooperatives. In Latvia, a large number of enterprises have been taken over by producer
groups. On the basis of the laws passed in the period 1992–1994, 75 milk collection centres have been privatized without remuneration and transferred to producer groups and 15 large–scale dairy plants were
transformed into joint stock companies with most of the stocks given to groups producing milk. Some
more detailed examples follow.
34
In Bulgaria , the Law for Agricultural Land Ownership and
Land Use (February 1991) established the legal framework
for the participation by the private sector in agriculture. The
result was the creation by 1998 of 3 200 new groups, covering over two-fifths of arable land (OECD, 2000). To some
extent this extensive development was a result of the constraints in the land market and the fragmentation and geographic dispersion of land holdings. The consequent
phenomenon has been firstly that more than 40 percent of
new owners, who mostly have jobs outside agriculture,
agree that their land be farmed by the new groups.
In Croatia, there are 337 groups and more than 300 associations, included in the Croatian Cooperative Association
(Franic, R. and Grgic, Z., 2001). Both have been regulated,
the first by the Law on Cooperatives (1995) and the latter by
the Law on Associations (No. 70/97, No. 107/97). By the
Law on Associations, a minimum of 10 members is required
to establish an association. The associations are organized
by sector, but the majority of farmers are not involved. Some
associations are not very active and some exist only formally.
Since 1994, the Agriculture, Food Industry and Forestry
Department of the Croatian Chamber of Commerce has
been divided into associations, councils and affiliations.
Two associations have been formed: the Agriculture and
Related Industries Association and the Livestock, Fishing
and Related Industries Association. There are County
Chambers. The majority of farmers are not members.
In the Czech Republic a multi–tier cooperative structure at
association level has been established. The Association of
Agricultural Cooperatives and Companies of the Czech Republic (AACC), has a national representation, 11 regional
representations, 49 district level offices and local membership.
The Agrarian Chamber of the Czech Republic is an organization including agrarian enterprises and associations. It
was established in 1993 by act of Parliament. Membership
is voluntary and its main mission is to support entrepreneurial activities in the agriculture, forestry and food industries, providing information and advisory and consultancy
services to its members, representing the agrarian sector in
several governmental bodies.
In 2000, groups covered about 34 percent of agricultural
production, with a peak of 55 percent in the milk sector, and
32 percent of the land area. In the same year there were 791
commercial producer groups with 262 000 members and
specifically 68 supply and marketing groups with 2 013
members, 33 groups covering 55 percent of milk distribution, 13 groups 25 percent of pork and beef meat distribution, 7 groups covering 28 percent of fruit and vegetables
distribution, 3 groups covering 4.5 percent of potato distribution, 2 covering 3 percent of oil products distribution, n.a.
for the remaining 10, (AACC, 2001).
In Hungary cooperative law has evolved in line with the dual
objectives of modifying the structure of the cooperatives established prior to the transition period and the creation of
new types of commercial producer groups. Each of these
will be examined in turn:
35
pre–existing cooperatives:
A modification of the cooperative law in 1989 allowed the
cooperatives to allocate 50 percent of its indivisible assets
in favour of the members;
In 1992, Law II focused on existing cooperatives, establishing that there were three possible retructuring options
open to cooperatives:
• re–registering under the new law or becoming limited liability or joint stock;
• permitting members to leave the cooperative,
• allowing groups of members to break away.
new commercial producer groups:
In 1988, the law on cooperatives was modified in such a
way as to allow individual farmers to establish cooperatives based on a membership of small scale farmers;
In 1992, Law I on Cooperatives established the fundamental principle that cooperative members should retain
the independent property of their private land holdings
which should not be integrated by the cooperative. In addition the cooperative was defined as being based on the
following principles:
• having legal status;
• based on freedom of association and democratic
self–government;
• with a primary economic objective, but having other possible aims;
• benefiting from the personal involvement, including financial, of its members;
• it should have a minimum of five members, in the case of
agriculture;
• the minimum financial contribution by members was
one share, and dividends and liabilities were in proportion
to share ownership;
• dividends were distributed on after–tax profit, in line
with cooperative principles;
In December 2000, another law was passed for new cooperatives, No. CXLI, on the basis of the principles listed
above, with no fundamental apparent modification.
In Poland, in 1992 the Rural Cooperatives Foundation
was set–up by the Ministry of Agriculture, Finance and
the Chief Council on Cooperatives, with the objective of
providing assistance for the creation of groups jointly
marketing their produce. The farmers have also benefited
from training organized by the Foundation and provided
by the Agricultural Advisory Services. The number of cooperatives is estimated to be approximately 350 (Metera,
D., 2001).
The Law of 15 September 2000, on groups and associations, Article 15, established that associations may be
formed by groups of farm producers engaged in the production of one product or groups of products, however
such groups shall not be the members of another association of producer groups engaged in the production of the
same product or groups of products to implement the following goals:
• organization and coordination of supply of means of production
• organization and coordination of marketing of products or
groups of products produced under the auspices of the
groups
• storing and preparing for marketing of products or groups
of products and their pre–processing
• representing of associated groups with local government
organizations and State administration
• promotion of effective production methods and tailoring
the production to meet market requirements through giving
counselling and guidance to the groups and to the members
thereof
• promotion of environment–favourable production technologies
• conducting market analyses and training of producers
• providing, with the consent of the same, legal and accounting services to the groups.
In Romania, the newly formed legally recognized
commercial producer groups, endorsed by Law No.
36 dated 1991, frequently originated from the old
agricultural production cooperatives. The operation of these groups seems to have retained some of
the characteristics of the old–style cooperatives as
individual farmers own property rights on parcels
of land operated by the association and are “allowed” to keep small plots for their private use. The
law envisaged two types of associations. Simple associations with no legal status based on verbal
agreement between a small number of families, and
agricultural societies which have legal status and at
least 10 members. The draft law presently under approval envisages for the first time the existence of
supply, marketing and processing cooperatives.
The Romanian Fund of Guidance and Development
of Agriculture and Forests which is due to be established aims to create a legal framework for commercial producer groups (draft to be approved) having
amongst its objectives that of encouraging vertical
integration. Groups providing services are few and
the relevant legal framework for their formation is
under approval.
In Slovenia, in 1991 the Law on Cooper atives set the
legal framework for restructuring cooperatives, including those supplying agricultural inputs, agricultural marketing and agro–food processing. The
law reintroduced the traditional principles of organization and operation of cooperatives, replacing
the socialist ones. The property of cooperatives was
classified in indivisible property and members'
property. In case of dissolution of the cooperative,
the indivisible property, corresponding to the original investment and the accumulated property,
36
would be passed to the cooperative union, then to
be granted to another cooperative, used for the
setting up of a new commercial producer group or
generically used for the support of cooperation.
Cooperatives were also beneficiaries of part of the
property of privatized processing enteprises with
which they had a direct connection.
Various types of associations have developed addressing the interests of producers, some
multi–tier. The Cooperative Union of Slovenia
has 110 members, 105 of which are agriculture
and forestry producer groups. The majority of operating commercial producer groups have decided to join the Union and, as determined by the
1992 Cooperatives Act, membership is voluntary.
The tasks of the Union are to represent, advise (legal, economic and organizational), organize the
circulation of information, promote training and
education, and promote economic cooperation of
its members with foreign partners. The Farmers'
Union of Slovenia, established in 1993, has 3 500
members and is organized in 9 regional units. The
CAFS (Chamber of Agriculture and Forestry of
Slovenia), established in 1999, has 13 regional
units and 60 district level units, and its tasks include representing and co–ordinating the interests of its members, promoting the development
of agriculture, forestry and fishery in Slovenia and
abroad as well as offering professional advice.
ZSPM, the Slovenia Rural Youth.
Association, has 51 branches and 4 000 members,
while the Rural Women Association of Slovenia
has 21 000 members organized at local, regional
and national level.
At the end of the 1990s, the number of registered
primary agricultural cooperatives in Slovenia involved in input supply, marketing and other services such as supply of consumption goods and
retail sales of agricultural products were 162, 80
percent of which were multi–purpose, (OECD,
2001).
The Cooperative Wholesale Society was formed in
1991. The cooperative sector has been experiencing economic difficulties allegedly due to overstaffing, excessively diversified operations and
lack of managerial initiative resulting in high
costs which make them less competitive compared to private companies.
The legal framework for the new style commercial producer groups in CEECs had to consider both transformed cooperatives and newly formed groups. The country examples above indicate that in both cases
the aim of creating a framework has been met. In the case of pre–existing cooperatives, this has been done
allowing both former members and new groups to undertake the acquisition of the formers entities. In the
case of newly formed groups the legal framework has ensured the setting of norms regarding the size of
membership, financial involvement of members and the degree of democratisation. These aspects relate
to the financial, managerial and social characteristics of commercial producer groups illustrated in Section 1. Joint marketing is mentioned as one of the basic characteristics that a group should have. During
the transition period the general trend has been for the group structure to develop vertically and associations have been formed and developed to this purpose, supported by an adequate legal framework, resulting in the promotion of the products of CEECs in national and international markets.
4.
CONCLUSIONS
During the transition period the governments of CEECs have undertaken to different degrees the privatization and restructuring of the cooperatives and agricultural marketing structures formed under the socialist era and have gradually shifted away from direct involvement in market regulation. A legislative
framework for new style producer groups has been created.
The direct investment by governments of CEECs in the restructuring and development of agricultural
wholesale markets has not been a sufficient condition for their efficient functioning, both in terms of the
effective coverage of marketed agricultural primary and processed products. The development of commercial producer groups should place farmers in a better position to afford the taxes frequently involved in
trading in official markets, and to overcome the uncertainties in demand created by the financial difficulties of wholesalers and processors.
CEECs have undertaken a massive privatization of marketing structures providing inputs and services to
agricultural producers, almost complete in the case of specific services. Governments have in some cases
retained a role in the provision of large storage facilities linked to their market intervention requirements.
Whereas private trading companies have become a significant provider of market services in certain contexts, commercial producer groups created during the transition period have not been able take a strong
and immediate lead in the development of marketing. This was due mainly to:
• the set–up period, characterized by the need to identify buyers and suppliers;
• the members' limited commercial and managerial experience; and
• to the difficult economic context faced by transition economies undergoing the dismantling of
State owned production and marketing structures which had yet to be replaced by a significant
and financially solvent private sector.
To help fill this gap, the SAPARD programme, co–financed by the EU and CEECs, includes amongst its
measures financial assistance to producer groups, with the exclusive coverage of set–up and administrative costs. In practice, the funds allocated under SAPARD directly in favour of the set–up of commercial
producer groups in the CEECs on which this study focuses are either not foreseen or represent a very small
percentage of total SAPARD funds, with the exception of the Czech Republic and Hungary. The effectiveness of the SAPARD allocations for commercial producer groups relies on carefully monitoring the coherence of the conditions for the granting of assistance, as established by individual CEECs, with the financial
and organizational situation of farmers aiming to form a group. Commercial producer groups may benefit
from other SAPARD measures, in particular those related to the improvement of the processing and marketing of agricultural and fishery products.
CEECs have elaborated Agricultural and Rural Development Plans, indicatively for the years 2000–2006,
generally including the intent to assist group development in line with SAPARD. It is important to ensure
37
that new and existing commercial producer groups in CEECs are able to operate in a policy and regulatory
context which supports their existence as financially profitable economic entities with solid marketing
links. The farmers' own perceptions of the convenience to undertake joint marketing in such a form are
crucial to the development of this form of organization. The continued development of producer associations in CEECs, normally organized by sector, is vital to the promotion of the products of commercial producer groups in national and international markets.
5.
RECOMMENDATIONS
It is recommended that governments in CEECs closely follow the development of commercial producer
groups in such a way as to ensure that the groups are successful in their marketing activities and achieve financial viability. This objective may be achieved by direct govenment involvement or by government assistance of associations covering specific products which in turn can provide relevant support services to
groups.
The aspects which are of primary importance are the following:
• ensure through close monitoring that the conditions for the granting of financial assistance to
groups under SAPARD as established by individual CEECs are in line with the financial and organizational realities facing farmers wishing to set–up commercial producer groups.
• ensure that groups have access to information on quality standards, phytosanitary and veterinary norms required by the EU;
• ensure that groups have access to information on domestic and foreign markets;
• ensure adequate promotion on foreign markets and facilitate contacts with foreign buyers (the
participation in trade fairs both in their own countries and abroad is an important aspect);
• encourage high quality production is in view of the future competition on EU markets (the
search for niche markets for products in which the country is specialized and specific recognition through classification of high quality products are relevant in this context);
• ensure that groups requiring support in the preparation of business plans and in the operation
and management of their activities are adequately assisted through training; and
• ensure that groups are informed about the working of groups in EU Member States, keeping
close links with COPA/COGECA, and that they are informed about the recent trends in the development of group structures and organizations in the EU, as a reference for their own future consolidation.
In relation to financial measures affecting commercial producer groups, it is recommended that CEEC
governments adopt (i) tax policy which does not constrain the working of groups, particularly in the
set–up phase, when they are establishing their marketing networks. The taxation these organizations
may face on their market transactions is also relevant; (ii) assist groups in accessing credit in existing institutions or by encouraging the development of credit cooperatives.
As regards input–output markets, it is expected that governments, in line with their present policies, will
bring to completion the privatization of the services which can be effectively covered by private sector entities. With reference to the actual working of the markets, governments can retain a monitoring and control role, in particular in relation to information on prices and taxation.
The involvement of commercial producer groups in markets may be supported by the governments of
CEECs through the facilitation of contacts between these groups and other important participants such
as wholesalers and processors. In this context, the setting of anti–trust rules is important to ensure that
38
competition is maintained, and Governments may choose to support groups on a case–by–case basis
should they face monopolistic or monopsonistic situations.
It is recommended that a participatory process is guaranteed which ensures the involvement of representatives of commercial producer groups and of associations in discussions held by the governments on relevant aspects of SAPARD and EU accession and a continuing dialogue between government and group
representatives in adequate forums, where the latter may voice their suggestions and concerns.
In relation to the above, the FAO may select to intervene in the following areas:
• support centres for the training of selected commercial producer group members with leading
positions, at individual CEEC level. This support may be specific through ad–hoc technical assistance for the training of trainers. In the event, it is recommended to cover a range of topics,
including at least financial and marketing aspects. These centres should be in a position to provide management consultancies at affordable costs to groups and should aim to be partly
self–financing. It is recommended that the producer associations operating at sub–sectoral
level run the training centres individually or in cooperation, as have specialised knowledge at
sub–sectoral level (for example milk, poultry, fruit and vegetables), they have a commercial
profile and would guarantee continuity as they have a vested interest in the development of producer groups and of the sub–sector.
• support producer associations in CEECs, preferably operating on a sub–sectoral level, in developing the assistance they provide to their members in accessing market information from domestic and international sources;
•
FAO may select to liaise with COGECA (General Committee of Agricultural Cooperation in the
•
FAO staff may assist governments of CEECs, upon request, in the finalization of the legislative
framework for commercial producer groups;
•
FAO staff may assist governments of CEECs, upon request, in ensuring the complete harmonization with EU agricultural legislation and regulations, specifically as regards product quality
European Union), as this organization has been undertaking projects financed by the European Union in CEECs whose objective has been the capacity building of national producer associations. The technical assistance in this case would include market information experts,
marketing experts and management consultants. A mix of international and regional expertise
is recommended.
standards, phytosanitary and veterinary V norms.
REFERENCES
ALLEGRETTI, G . 1999. Le Cooperative Agricole. Milan, Italy. Franco Colombo eds.
Agrarian Chamber of the Czech Republic. 2001a. Descriptive material. Prague, Czech Republic.
Association of Agricultural Cooperatives and Companies of the Czech Republic – AACC. 2001b. Descriptive material. Prague, Czech Republic.
COGECA . 2000. Agricultural Cooperation in the EU – Issues and Trends. Brussels, Belgium. (courtesy
Kellner, H.).
COTTERILL, R. W. 1994. Competitive Strategy Analysis for Agricultural Marketing Cooperatives. Boulder, Colorado, USA. Westview Press, Inc.
EC web site . 2001. SAPARD and Agricultural Market Prospects for CEECs.
39
EC 1997. Council Regulation (EC) No 952/97. 20 May 1997. Official Journal L 142, 02/06/1997 p. 0030
– 0039. On Producer Groups and Associations thereof.
EC 1999. Commission Regulation (EC) No 2759/1999. 22 December 1999. Official Journal L 331,
23/12/1999 p. 0051 – 0054. Laying down the rules for the application of Council Regulation (EC) No
1268/1999 on Community support for pre–accession measures for agriculture and rural development in
the applicant countries of Central and Eastern Europe in the pre–accession period.
LAZCO, F. 2001. Farmers' Self–Organization in Provision of Service in the Southern Great Plain Region
of Hungary.
FOXALL, G. 1982. Cooperative Marketing in European Agriculture. Aldershot, Hampshire, UK. Gower
Publishing Company Limited.
FRANIC, R. & GRGIC, Z. 2001. Farmers' Self–Organization in Provision of Services in Pannonian Region
of Croatia – A Case Study.
IACOPONI, L. & ROMITI, R. 1994. Economia e Politica Agraria. Bologna, Italy. Edagricole.
DZELZKALEJS, V. 2001. Farmers' Self–Organization in Provision of Services in Latvia.
KLEINS, J. 2001. Rural Development Department, Ministry of Agriculture, Latvia. Descriptive material.
LEONTE, J. & ALEXANDRI, C. 2001. Farmers' Self–Organization in Provision of Services in Dorna, IASI
and ILFOV Regions of Romania.
METERA, D. 2001. Farmers' Self–Organization in Provision of Services in Central and North–East Poland.
MAF Bulgaria. 2000. Objectives and Policies in Agriculture and Forestry in the Year 2001.
Ministry of Agriculture, Slovak Republic. 2000 . Report on Agriculture and Food Sector in the Slovak Republic (Green Paper). Bratislava, Slovak Republic.
MOA Latvia. 1998. Concept of Development of Agriculture.
Ministry of Agriculture. 2000. Agricultural and Rural Development Plan of the Slovak Republic
(2000–2006)(SAPARD)
MAF. 2001. Farmers' Organizations in Bulgaria and their Role in Provision of Input–Output Services in
the Context of Accession to the EU.
NEAGU, M. 2001. Department for Foreign Investments, Exports and International Agreements, Romania. Descriptive material.
Research Institute of Agricultural Economy (VUZE), 2000. OECD Questionnaire on the Development of
Agricultural Policy in the Czech Republic in the Period 1999–2000. Prague, Czech Republic.
OECD. 2000. Review of Agricultural Policies – Bulgaria – Agriculture and Food. France.
OECD. 2000. Review of Agricultural Policies – Romania – Agriculture and Food. France.
OECD. 2001. Review of Agricultural Policies – Slovenia – Agriculture and Food. France.
OECD. 2000. The Baltic States – Economic Evaluation of the Region. Economic Studies, France.
PALOMBELLI, P. 1998. Cooperative Agricole. Rome, Italy. Buffetti Editore.
Slovenian Presentation at FAO Workshop. 2001. Slovenian Agriculture and Non–governmental
Farmers' Organizations
40
ABBREVIATIONS
AACC
Association of Agricultural Cooperatives and Companies of the Czech Republic
CEE
Central and Eastern Europe
CEECs
Central and Eastern European Countries
CNCA
National Bank of Agricultural Credit
COPA
The Committee of Professional Agricultural Organizations of the European Union
COGECA
The General Committee of Agricultural Cooperation in the European Union
EC
European Communities
ECU(EUR),
EURO
European Currency Measures
EU
European Union
FAO
Food and Agriculture Organization
MAF
Ministry of Agriculture and Forestry
MAFF
Ministry of Agriculture Food and Forestry
MEURO
Million EURO
MOA
Ministry of Agriculture
NARDP
National Agriculture and Rural Development Plan
NGOs
Non–governmental Organizations
NPARD
National Plan for Agricultural and Rural Development
OECD
Organization for Economic Cooperation and Development
SAMO
Slovak Agrarian Marketing Organization
SAPARD
Special Accession Programme for Agriculture and Rural Development
SICA
Agricultural Collective Interest Societies
VAT
Value Added Tax
41
FORMATION, OPERATION
AND THE ROLE OF FARMERS' GROUPS
AND ORGANIZATIONS IN PROVISION
OF INPUT–OUTPUT SERVICES
IN CEE COUNTRIES
John Millns3
SUMMARY
In just under a decade most of Central and Eastern Europe has undergone a remarkable, and often difficult, transition from a centrally planned to a market orientated economy. It has been a transformation to
the extent that ten of these countries have now applied for membership of the European Union. Throughout the region, macro economic stability and a strong legal environment continue to be priority number
one, but the development of a healthy agriculture and rural sector remains a huge concern. Rural communities have suffered greatest from change. In particular, high transaction costs, have created a number of
obstacles to rural economic development, including, access to credit, weak contract enforcement, inefficient marketing and supply channels and labour market rigidities. These obstacles distort the pattern of
comparative advantage for the region to the extent that they adversely influence relative costs and prices
(OECD 2000).
Even so, opportunities exist for innovative producers to exploit many new opportunities resulting from
continuing and sustainable economic growth and greater competition. Food processors, wholesalers, exporters and retailers are increasingly investing in the region and it seems that domestic and export market
opportunities are in abundance. But most producers are still commercially inexperienced, often individually too small and remain suspicious of pooling their assets in local, and often unaccountable, cooperatives where their purpose, ownership and investment are often confused and membership agreements to
commit produce to agreed specifications and standards are rare.
But now in the region a predominantly private farming sector exists and from this base a number of new,
and more commercially effective, producer groups are beginning to form and to trade. Primarily they are
being formed to enable producers to achieve secure and profitable outlets for their produce at home and
abroad and to access inputs and other services at reasonable prices. Their future rate of success will be determined by their capacity to arrange for major investments, a continuous flow of raw materials and to
build effective long–term relationships with buyers and suppliers. In particular, groups need to identify
3
Mr Millns has worked primarily on training and advisory programmes aimed at stimulating group and
community development in rural areas. Since 1990 he has been closely involved in supporting
agriculture and rural enterprise re-structuring programmes in Central and Eastern Europe and the
newly independent states of the former Soviet Union. His main areas of work have focused on
enhancing rural incomes and employment, primarily through supporting the development of
a privatised agricultural sector, promoting the development of producer groups and encouraging rural
entrepreneurship.
42
and meet the needs of buyers prepared to pay higher prices for agreed standards of product quality, quantity and delivery reliability beyond the capabilities of individual producers.
Solutions and approaches to group development vary between countries, but in all cases, they should only
be formed when there is clear business opportunity and measurable benefits in doing so. Their further
growth and development will depend on the extent to which new groups are seen by other producers to
provide real financial benefits to their members. They need to be established, owned and controlled by
committed producer members. Benefits obtained needs to be linked to the use of services or facilities of
the group and not to investment and any surpluses that are generated used to provide supplementary and
supportive services at reduced cost.
If producer groups are to capitalise on the positive aspects of change they must be dynamic, flexible, probably somewhat optimistic, and develop structures, norms and procedures over time and in response to
changes in the environment (Carney 1996). Increased EU market access will assist Central and Eastern
European groups to benefit from new market opportunities, but only producers of consistent quality, visually attractive, competitive products will benefit from group development.
Producers need to take positive measures to solve problems and develop initiatives, show they are capable
of good management, financially independent, accountable and with broad based support (IFAP 1992). It
is a challenging and demanding task to conceive, design, build and nurture this type of producer group. It
will require enlightened leadership, competent and convincing management of both enterprise related
and member related aspects. Responsibility for examining potential opportunities and preparing a business proposition will often rest with a small group of high calibre, visionary, motivated and committed
producers.
Operating successfully producer groups have consistently shown they can increase farm revenues and so
accelerate the development of farms of all sizes, but the establishment of groups should not been seen as a
miracle cure for all the problems that beset rural areas and it is important that they are not viewed by producers, advisers, donors or policy makers as a way of supporting inefficient and non–viable farms (Button
1999). Producers should not need to rely on Governments to stimulate their growth but they do need time
to mature, to mobilise their resources, build their strength and managerial capacities, and learn to cope
with the pressures of competitive markets. Governments, donors and advisers can help to facilitate this
process, through well–targeted and participative, advisory, training and information support.
Figure 1. GDP change 1990 – 1999
Source: Business Central Europe
43
Figure 2. GDP comparison to 1999/1990
Source: Business Central Europe
The foundation for market focused producer group development in Central and Eastern Europe has now
been established this paper examines how it might be further strengthened.
AGRICULTURE AND EU ACCESSION
On the face of it for ten transition economies in Central and Eastern Europe their remarkable transformation from a centralised to a market led economy almost seems complete. But it has been a long and difficult
road. All countries experienced substantial initial declines in GDP during the early 1990s. These declines
were subsequently followed by economic recovery (Figure 1). Yet even now only a few countries have
managed to achieve a GDP equivalent to a decade ago (Figure 2).
Figure 3. Share of the rural and agricultural population in the 10 pre–accession countries
44
But where market orientated reforms have been combined with social reform, institutional strengthening, macro–economic stabilisation, price liberalisation and the rule of law as well having a supportive political culture and a level of human resource within the country able to absorb, understand and accept
change, there seems to be immense hope for continuing and sustainable development (Millns 1999).
For most countries a sense of purpose, discipline and direction has been further instilled into political and
commercial life through the signing of a pre–accession treaty with the European Union. Their main political and strategic objective is now largely based on integration with the Union. Accession strategies have
been prepared with precise indications of priority adjustment activities, together with a timetable for their
implementation.
Enlargement of the European Union operates by assessing progress within each candidate country in
bringing their economic, political and legal systems into line with EU norms. Progress is measured
against objective criteria. These criteria are encompassed within 31 'chapters'. Accession countries reform and the Commission keeps the score. In theory when all these chapters are closed applicants are
ready to join. In reality closing the chapter on agriculture is likely to be the most difficult.
As a general guide the EU have formulated the following agricultural and rural development priorities for
accession countries as part of the Acquis Communitaire:
• To establish a coherent structural and rural development policy.
• To adopt implementing regulations for enforcing veterinary and phytosanitary requirements,
particularly with regard to inspection and control arrangements for protecting EU external borders.
• To upgrade and restructure certain food processing establishments (milk and meat sectors)
and certain testing and diagnostic facilities.
• To reinforce administrative structures and so enable the necessary resources for the implementation of the Common Agricultural Policy.
• To consider in detail the environmental aspects of agriculture.
But agriculture remains a stubborn, structural and social issue. The rural sector has already suffered most
from change and unemployment is often greatest in rural areas. For many producers preparation for entry
into the EU has only further aggravated deeply rooted problems. Agriculture will require systematic transformation, with potential consequences, not only for transitional economies, but eventually for the whole
of the European Union.
Admitting the ten new applicant countries will increase the land area within the EU by a further 850 000
km2 and the population by 101 million. More than 30 percent of these people live in rural areas and about
15 percent are economically active in agriculture (Figure 3) compared to the EU average of 5 percent. Although a hefty percentage of the population still work in the fields they contribute only a small proportion
of the GDP (Figure 4). The average per capita GDP of farmers in accession countries is barely half that of
the EUs poorest members – Greece and Portugal4. But although agriculture often accounts for a small
proportion of GDP, it contributes to a substantial part of the livelihoods of the population.
It is not that the farmland is bad but many owners are relatively poor smallholders, with land areas of less
than half the EU average. Few can afford to invest in farm machinery or other inputs. Much of the land is
still worked by hand or by using relatively simple technologies. Traditional markets have disappeared and
real concerns have appeared for rural communities. In particular these include; access to finance and mar-
4
Average GDP per capita varies between accession countries from between 906 USD and 3573 USD at
PPP.
45
kets, supplies of inputs and provision of technical assistance, as well as the wider rural community and social infrastructure issues.
Figure 4. Share of agriculture of labour force and of GDP
% GDP
a
ni
a
Es
to
ni
ve
p.
h
ec
Cz
Sl
o
Re
ry
ga
a
H
un
ki
va
d
Sl
o
an
Po
l
ia
tv
La
th
ua
ni
ia
Li
m
an
Ro
lg
Bu
a
% Labour
Force
ar
ia
%
40
35
30
25
20
15
10
5
0
Formally at least all accession countries have removed the monopolistic positions of former state controlled suppliers of inputs to farmers and the agencies responsible for domestic and export marketing5.
Since the early 1990s domestic and international competition has largely been encouraged and agricultural subsidies withdrawn as post communist Governments have ended guaranteed markets for produce
and made agriculture subject to western style market economics.
Almost paradoxically farm subsidies within the EU quadrupled between 1980–2000 to about 45 billion
Euro per year, around 50 percent of the EU budget6. And at first sight it seems that farmers in pre–accession countries have faced much tougher and harsher market conditions compared to EU farmers. But after an initial decline in GDPs in all transitional economies during the early 1990s. Economic progress has
been impressive in recent years. In the past ten years the numbers of buyers have more than tripled, exports have recovered and foreign direct investment stock values (FDI) have surged7 (Figure 5). It might be
argued that transitional economies have a comparative advantage8 in agricultural production, largely
stemming from an abundance of land and considerable supplies of relatively cheap and well educated labour (OECD 2001).
Some EU farmers have even begun renting land in accession countries in the belief they can make good
money from farming in a lower cost country with a rapidly growing economy and export potential. But
while larger farm sizes probably makes greater economic sense it is likely that most small farmers will only
reluctantly give up their land and part time farming seems inevitable. The European Union is unlikely to
5
6
7
8
Although ex state suppliers still often dominate many markets and many private suppliers and buyers
still commonly hold largely monopolistic positions at local level.
The EU bolsters prices by means of suitable customs policies, licencing and export and production
quotas, intervention purchases, export refunds, compensatory payments, credit preferences,
production subsidies and preferential tax policies.
Three quarters of all foreign direct in investments have come from European countries (Lemoine
1998).
A major challenge of transition and development is to further reduce transaction costs such that trade
can occur on the basis of comparative advantage (OECD 2001).
46
be sentimental and apart from expecting production to be made more efficient all candidate countries can
increasingly expect to meet much stricter health, veterinary and marketing standards. Increasingly too
buyers will demand better quality produce for fresh and processed markets with defined specifications
and supported by regular and reliable deliveries.
Between 1993 and 1998, international trade in food and agricultural products trade increased by 28 percent in real terms. About 80 percent of this trade was in food products rather than raw agricultural commodities. The share of semi–processed and processed products has increased in OECD countries during
this time from 49 percent to 67 percent9 (OECD 2000). The task is clearly not only to upgrade farming but
also to turn the regions abundant produce into something more valuable. For most transition economies,
the European Union is the dominant trading partner, but is more important as a source of imports than an
export destination (i.e. there is a net deficit of agricultural trade with the European Union). In fact transition economies contribute more to world imports (6.5 percent in 1998) than they do to exports (4.2 percent), although their net deficit has declined since 1993 (OECD 2000).
Figure 5. Foreign Direct Investment Stock 1993–1999
90
All 10
countries
80
Value ($bn)
70
Poland
60
Latvia
50
Romania
40
30
20
10
0
93
94
95
96
Year
97
98
99
In order to align infrastructure standards in applicant countries to EU norms, Agenda 2000 proposes
structural aid for the applicant countries amounting to some one billion Euro per year for the period
2000–2006 .The Special Accession Programme for Agriculture and Rural Development (SAPARD) has
been established to help deal with problems of structural adjustment needed in agriculture and rural areas. It is intended that candidate countries may benefit through SAPARD between the year 2000 and the
time they join the Union. Each country presents its priorities for support to the Union for approval, but by
mid 2001 no SAPARD funds have so far been disbursed.
Perhaps more surprisingly no country has prepared (or had accepted) a clear and coherent proposal for
supporting the development of farmer cooperatives based on western models. Surprising perhaps because voluntary owned and controlled producer groups, formed to provide maximum benefits to producer
members, are well known as working and competing effectively within a market economy. Logically these
groups should provide answers to many of the rural problems faced by the transitional economies of Central and Eastern Europe, but few exist in a pure form and their evolution seemingly cannot be divorced
from wider economic, historical, political and social considerations (Millns 1999).
9
In 1998, OECD countries accounted for about 70% of both global exports and global imports of
agricultural products.
47
Although the main potential beneficiaries are producers they remain suspicious of pooling assets in local
cooperatives after their experience with communist collectives and many would even prefer to continue
selling on traditional open air markets or even try to eke out a living from subsistence farming (Economist
Magazine 1999).
AGRICULTURE AND AGRICULTURAL COOPERATION
IN ACCESSION COUNTRIES
Central and Eastern Europe is generally a moist, sub–humid agro–ecological zone. Most of the agricultural area is located in plains separated from each other by mountains. The mixed crop–livestock system is
dominant. Crop production is largely dedicated to wheat, maize, oil crops and barley combined with
smaller proportions of fruits and vegetables. Livestock production is dominated by dairy cattle and pigs
(FAO 2001).
Over the past decade accession countries have had to pass through a complex process of transforming
their political and economic system, while at the same time facing much wider global trends and factors
influencing the development of agriculture and international trade. At first all countries faced broadly the
same underlying challenges and (initially at least) espoused the same objectives, but each embarked on a
reform policies with substantial differences in the specific type of implementation processes adopted, the
speed of change and their level of political commitment. As a result agriculture and agricultural systems
now differ substantially from country to country (FAO 2001).
A major obstacle to the establishment of new producer groups has been the simple fact that initially there
were insufficient private farmers and individual entrepreneurs to constitute a membership after decades
of collectivisation. But since the early 1990s all countries have followed, at varying speeds, a land
privatisation programme and many new family farms have emerged10. As a consequence the system is
now characterised by two dominant subsystems, small to medium scale private family farms and, medium
to large, corporate or cooperative farms. Overall small farms now predominate and land fragmentation is
extreme and is considered by the Food and Agriculture Organization of the United Nations to be one of the
major obstacles to the development of a healthy agricultural sector (FAO 2001). The current structure
of agriculture and the predominant organizational forms in Central and Eastern Europe are shown in figure 6.
The privatisation of land and collective property has taken various forms; including the restitution of
property to former owners (e.g. Czech Republic); privatisation by means of negotiable coupons, distributed to members, employees and former owners and sold to interested parties (Hungary and the Baltic
States); and dissolution and liquidation (in the case of unions and federations in Poland).
Before transition, cooperatives played an important role in the political system of a centrally planned
economy. Communist style cooperatives were largely instruments in the hands of the Government and the
ruling party and fulfilled a number of functions. Indeed, they served to transform privately owned means
of production into a special form of collective property and were a transitional stage towards transformation into state property. They implemented centrally made plans and adjusted them, where necessary, to
local conditions; educated members in the communist way of life, offered them vocational training and
fulfilled social functions by providing social services to members, their families and other persons living in
the area they covered (ILO 2001).
Although each country followed a different path in the restructuring of their former state enterprises, during the early years of transition, most Governments were generally hostile to most forms of cooperation
10
Except Poland and Slovenia where this type of farm structure was dominant even before the transition
period.
48
Figure 6. A map of the 10 accession countries according to agricultural area and farm type ownership/organizational form
Source: Tanic S, Sipilainen T, Backman S. & Sumelius J (2001).
and overall favoured the transformation of collectives into companies. Cooperatives that did remain were
often subject to serious restrictions, such as heavy taxes, bureaucratic management and administrative
procedures and a shortage of leaders with experience of managing an autonomous, market–oriented cooperative. Efforts to restructure and “de–politicise” cooperative unions, federations and apex organizations has also proved to be difficult. (ILO 2001).
Newly independent 'business cooperatives' now normally have employees as well as farmers and sometimes the state, pensioners or investors as owners. Their heterogeneous interests create huge conflicts of
interest. Non–farming members or management frequently dominate decision making and membership
size has declined sharply since the beginning of transformation, with most of the viable farmers having
left. Management and supervisory board members often remain unchanged and their professional skills
are inadequate (Schilthuis and Van Bekkum 2000). Transformed cooperatives are commonly burdened
with excessive labour, inherited debt and historical social security obligations. Their unpopularity and
low profitability are some of the reasons why most of the transformed cooperatives continue to struggle.
A number of new agricultural production cooperatives have also emerged from the privatisation of collective farms, in all countries except Slovenia. But although they manage between 500 – 6000 hectares of
partly owned and partly rented land from individual landowners, the overall level of profitability of these
production cooperatives is generally low. Despite relatively high investments, assets are often insecure
and many larger farming members have left their group. The presence of production cooperatives is still
relatively strong in some countries but it is declining and they continue to transform.
49
Governments, advisers and farmers are increasingly aware of the issues involved in linking producers to
markets and are more often promoting the concept of producer groups (not cooperatives) as a universal
answer to difficult problems. The emergence of genuinely new forms of cooperation based on bottom up
initiatives of farmers is quite promising and many new groups have been registered in recent years, but
still only a tiny proportion operate with any real commercial affect. Usually these groups are engaged in
very basic activities for supplies of inputs or marketing but they differ from the 'transformed' old cooperatives with regard to their internal membership arrangements and market strategy. Though often still
small and weak at least they seem to have a proper basis for future development (Schilthuis and Van
Bekkum 2000).
Many producers begin their group activities as an input supply organization. These kinds of groups are
relatively easy to establish and administrative and organizational costs are comparatively small. Benefits
are also clearly measurable. In recent years the relative price of inputs has increased compared to outputs.
The result has been a consequent decline in their use and smaller crop yields11. Village level input supply
groups have mainly been formed (and often with the encouragement of input suppliers) in order to reduce
the costs of inputs. Producer groups are offered discounts on larger purchases that average 2–3 percent
for fertilisers, chemicals and feed, 5 percent seeds, 8 percent petrol and up to 30 percent for young stock
(Landell Mills 2000). Alternative options also include interest free seasonal credit for up to 6 months.
Machinery groups have developed in many regions, but often out of necessity rather than planned intent.
Small private family farmers most frequently cultivate land with obsolete second hand machinery obtained from former cooperatives or at auctions, but it needs excessive or frequent repairs. The costs are
more convenient when shared. Larger farmers have more often bought new machinery to lower operating
costs. Purchasing or sharing new equipment on a cooperative basis is rare and almost all farmers prefer to
buy, lease or contract individually.
Newly formed processing cooperatives are very minor or absent. International competition and high entry costs and capital intensity are likely to be huge obstacles for the development of these groups in the
short term12. However producer marketing groups are growing in numbers, particularly in the dairy, horticulture and livestock sectors largely reflecting inefficiencies in supply chain organization, particularly
for perishable products. Even so these groups still account for less than 2 percent of all marketed produce.13
DEVELOPING COMMERCIAL PRODUCER GROUPS
IN ACCESSION COUNTRIES
COMMERCIAL PRODUCER GROUPS
In the European Union, cooperatives have over a number of years gained recognition as an economic and
social force (ILO 2001). More than 50 percent of inputs supplied to farmers and production marketed
from farms are sold through organizations that farmers jointly own (COPA/COGECA 2000)14. Details of
individual commodities are shown in figure 7. They have developed from modest beginnings and over
more than 50 years many have developed into large–scale, professionally managed businesses, in full
11
12
13
14
Although there are huge differences between one accession country and another. There are areas where
hardly any fertilisers are used at all, while there is an excess of fertilisers in others.
Dairy processing is the only sector with a considerable farmer owned cooperative presence, especially
in Poland, Estonia and Slovenia.
This is an author estimate. Exact figures are difficult to obtain due to the lack of systematic
datacollection.
The European association of national cooperative organizations and their farmer members.
50
competition with other commercial firms15. The special nature of agricultural cooperatives is even recognised within the Treaty of Rome16.
But former communist cooperatives differed substantially from cooperatives in western industrialised
countries and throughout Central and Eastern Europe there remains immense confusion over the interpretation of the words (and concepts) of producer groups, organizations, cooperatives, collectives or associations. Producer groups (or organizations in standard EU and World Bank terminology) have a
distinct structures and forms and should not be confused with Ministry intervention, state marketing
boards, investor led businesses, trade or political representational bodies. In most accession countries
they often are.
International organizations are (perhaps belatedly) recognising these changes. In March 1999 the Governing Body of the International Labour Organization (ILO) included cooperative promotion on its
agenda and with a view to adopting a revised standard by the year 2002. This standard will provide an appropriate framework for the promotion of cooperatives in the twenty–first century, universal in its application, emphasising the position of cooperatives as privately owned, member–controlled organizations
and recognising their need to function within a competitive environment and to sustain their identity, but
having a distinctive role both as economic enterprises and within civil society (ILO 2000).
In 1995 the International Cooperative Alliance adopted a new statement of cooperative identity and including a revised set of principles that firmly positioned cooperatives as jointly owned, democratically
controlled enterprises based on the values of self–help, self–responsibility, democracy, equality, equity
and solidarity (ICA/ILO 1998).
Figure 7. Market shares of agricultural cooperatives (Source: COPA/COGECA 1999)
Lofty ideals indeed, but for most producers, joining a group is a simple commercial choice. It has to be an
effective mechanism for reducing their own costs, increasing their total income or for minimising risk.
15
16
During the past 40 years the number of primary cooperatives has been drastically reduced by mergers,
while the number of members has increased. The economic efficiency and competitiveness of
cooperative enterprises have thus been greatly enhanced. Meanwhile the distance between individual
members and their cooperatives has often grown.
The founding treaty of the European Community (now the European Union).
51
The benefits to a producer member are most clearly measured by the increased financial rewards obtained, either from a reduction in costs from larger purchases, the more efficient use of resources or the increased prices received from being able to access higher value markets (Button 1999).
Even in years with good climatic conditions farmers cannot be entirely certain that they will manage to sell
their produce or receive timely payment. Crop production is subject to natural disasters, particularly
droughts and floods and where an effective insurance system is lacking this represents a clear production
risk to farmers. Similarly farmers voice concerns regarding access to affordable credits, chemicals, seeds,
fertilisers, machinery and other inputs, particularly, where local monopolies have sometimes been created for supplies of inputs and resulting from ineffective privatisation of non–land assets of former state
and cooperative farms.
A true producer group is open to the same market and economic forces facing all types of business and can
expect to compete with other producer groups and companies. They, like all other businesses, require
proper planning and market analysis, good buyer and supplier relationships, proper financing and
well–trained, motivated and visionary management. However, in other important ways, producer groups
are unique and different.
A producer group is an enterprise voluntarily owned and controlled by private, individual producers. Most
importantly, the main objective of a producer group is to provide the maximum benefit to its members, in
proportion to, their use of the group and not on the basis of investment. Without a strong base of
like–minded producer members working to ensure its success and willing to commit produce of defined
qualities or to use its services, it is likely to fail. Control needs to be in the hands of committed producer
members.
According to their business objectives, commercial producer groups can be broadly grouped into three
types:
• Input supply groups. These are established to reduce overall costs either through sharing resources, such as machinery or jointly purchasing inputs. These groups may be highly diversified in terms of crops and commodities.
• Service groups. These are mainly established to enable producers to access credit, finance or insurance.
• Marketing groups. These are mainly established to increase prices received either through improving the consistency quality of their product, providing a continuity of supply to buyers, establishing better methods for growing, grading, storing and delivering produce, developing
new product lines or promoting their product. Marketing groups often specialise in a single
commodity, opt for value–added products and target expanding markets.
Many new groups in Central and Eastern Europe have started their operations from the joint purchasing
of inputs. The marketing of produce is often seen as a secondary activity to the overall objective of securing
lower prices for chemicals, seeds, fertilisers and spare parts. Joint marketing is often only considered after
producers have developed confidence in trading between themselves. This may be useful cooperative
business experience, but the management of a marketing group is extremely different in both form and
approach when compared to managing a group supplying inputs or sharing machinery.
Marketing groups are by far the more difficult to establish and maintain, primarily because they aim to obtain better prices and therefore need to deal with buyers rather than sellers. Even so in western Europe the
most commercially successful groups seem to conform to a number of criteria (DFID/Landell Mills 2000)
and in particular,
• They are formed with a clear business objective and undertake commercial and not producer
representation activity. A clear market opportunity is established and trusting, ongoing and
long–term relationships with buyers or suppliers are developed.
52
Farmers organizations are effective channels for reaching and servicing farmers and bringing farmers
concerns to the government (IFAP 1992), but commercial producer groups must be focused overwhelmingly on the economic benefit, that may be obtained, by selling or buying through such a group or sharing
services. The economic benefit must be predictable and with a significant degree of accuracy from the outset.
They are owned and controlled by producer members and managed for the benefit of those members. Any
financial surpluses, from activities are returned to members (either annually or on cessation of membership) in proportion to the trade by the member through the group and not according to their shareholding.
The capital commitment in a producer group is in effect the amount of product delivered of a defined standard, or the amount of inputs purchased through the group, but not the financial shareholding. Control
and benefits need to reflect this.
• Produce is sold, or inputs purchased, on behalf of producer members and the full sales price is
returned to, or paid by, members, but less the agreed charges for the services provided. This approach provides full transparency of all transactions through the group. In many cases the
group may never actually buy the product from the members.
• The voting system is based upon one person–one vote or according to the usage of the groups
services or facilities by individual members. This may be measured according to the amount of
produce sold or purchased through the group by individual members17. Even so, it is preferable
that the maximum share of any total vote by a single member is less than 10 percent, and the total sales/purchases through the group of individual members less than 50 percent. Otherwise
an inequitable, irrelevant and inefficient group system is likely to develop (Button 1999).
The distribution of votes must be laid down in the statute, but regardless of the legal status the main principle to be followed by any group is that control is not governed by investment Whatever method is used it
must be workable and clear to all members.
• A condition of membership is a signed and legally enforceable members agreement. This agreement is signed for a defined period and sets out the obligations and commitment of both the
group to the members and members to the group.
A membership agreement is important because it specifies which types, qualities and quantities of produce will be marketed or bought through the group. In particular the agreement clarifies what produce
will be accepted on delivery and what will not. It is the responsibility of the producer members to ensure
that it is enforced. Failure by a member to sign this agreement (and renewable every year) excludes the
producer from membership and so enables committed members to maintain control of the group.
• Producer members are contracted (within the membership agreement) to supply to the group
100 percent of a particular crop to a defined specification.
Groups that aim to sell a wide range of members produce, as well as to supply other services, such as machinery, chemicals or credit have considerable difficulty in ensuring a consistent quality of marketed produce or a clear brand image. It is not the role of a commercial producer marketing group to sell all the
production of members or to supply all inputs and services regardless of quality, type or specification.
• The group is properly financed, managed and controlled.
Proper planning and effective communications with producer members is a vital part of producer group
activity. Group members can expect to receive regular and timely information on market requirements as
well as on prices, charges and payments.
17
The formula can be based on the committed volumes shown in the membership agreement but it is
preferable that the figures used are based on actual throughput, calculated on a historical basis.
53
Membership capital should always amount to at least one third of total capital requirements and the total
costs of services provided by the group covered by levies on sales. This levy needs to be set at a realistic level
in order to cover all costs. Producer members also need to be made aware of the possible need to provide
funds for capital investments (if required) but always in proportion to their use of the facility.
• The group has an approved legal entity.
Informal groups are invariably short term. Long–term development requires proper legal registration and
business structuring. The group can then develop its own byelaws and membership agreements and so
provide greater confidence for both the buyer and the producer. An approved legal entity also ensures that
any arrangements made with third parties are properly structured and documented.
In the transition economies of Central and Eastern Europe these eight fundamental criteria are rarely (if
ever) totally met. Key issues affecting the development of groups include the issues of; management, markets, finances, organizational structures, legislation and psychology as well as proper access to information and advice.
MANAGEMENT
Entrepreneurship, innovation and good management are the first prerequisites of commercial success.
Although there may be many other adverse factors hindering cooperative development, the most significant problem preventing them from responding successfully to new and deregulated markets is their failure to develop a professional group based on entrepreneurship and good management (FAO 2001).
Leadership is of fundamental importance to producer groups. Without a strong elected leadership an organization is unlikely to function ineffectively (IFAD 1992). Entrepreneurship helps a cooperative enterprise to integrate into its environment by taking opportunities and calculated risks to create, innovate and
rehabilitate. Management skills enable the rational combination of scarce resources to produce competitive goods and services for free markets (Carney 1996).
In order to compete effectively groups need to be managed professionally, but for many managers and
producers, the development of entrepreneurial skills has proved to be difficult after decades of working for
the implementation of state plans. Many of the most active and innovative producers often feel they have
insufficient time (or motivation) to devote to the development of group activity. Newly formed groups are
rarely able to cover the costs of a professional manager and are faced with a lack of management skills and
decision making capacity, particularly during the initial years of development. Most groups become dependant on voluntary contributions from a small number of producers, occasionally paid travel or other
general expenses.
Membership of groups is often limited to those persons existing members know well rather than those
able to bring additional trade or commercial business expertise. Under a limited liability structure (the
preferable commercial structure), it is possible for ownership and control to be invested in both producers
and non–producers, sometimes including representatives from commercial suppliers, advisory agencies,
employees, local Government and financial institutions. This introduces a potential conflict of interest
and unclear commercial objectives between the expected financial returns on the invested capital of
non–farmers and the financial returns expected for committing produce or buying inputs.
Although consideration needs to be given to the secondment of non–executive advisers to advise producers, on areas such as legislation and finance, there is a need to single out only one category of membership.
Too often groups have members (including supervisory board members) who are not producers. Potential conflicts of interest lead to member disinterest in delivering their produce to, or investing in, their
group. It also leads to inefficient business operations and the low involvement of producers in decision
making. If not properly addressed, by designing appropriate internal structures, the performance of these
groups suffers (Schilthuis and Van Bekkum 2000).
54
Business strategy is an important factor in determining whether conflicts of interest occur. If activities are
complex and differentiated across different markets they become far removed from the farmers realm of
experience. Capital needs are higher and properly organized incentive structures become important. This
strategy requires a closer consideration of individualised rather than collective member relationships, differentiated rather than uniform pricing, individualised capital rather than collective reserves and voting
proportional to transactions rather than solely on a democratic basis. Moving away from collectivised organizational forms also helps restore trust and ensures that member contribution and gains are more in
balance (Schilthuis and Van Bekkum 2000).
Whatever structure is adopted all producer group members (and in particular the elected directors)
should ensure that they are fully aware of the business plan in its entirety. Indeed initial registration of prospective producer groups should not even be considered, and unnecessary costs incurred, until the group
has established specific objectives and demonstrable benefits to members as well as clear market, buyer
and supplier opportunities.
Each group needs to readjust and adapt its structure and operations in line with its long– term objectives,
often in response to external circumstances, problems and opportunities (IFAP 1992). Groups leaders
have to identify these problems and opportunities, assess their importance, and see whether they can be
solved within existing resources and external conditions.
Text box 1 Case study Gádoros (Hungary)
In April 1999 seventy four producers, concerned with the low prices received for selling pigs and the ineffectiveness of the (largely insolvent but unliquidated) former state marketing cooperative, established and
registered, under the law of associations, the Gádoros farmers purchasing and selling group. Following a
number of meetings each individual member was obliged to buy a minimum of 1 share of 70 USD (maximum 5 shares). These shares were initially purchased by pig breeders and retired producers. In addition the
group purchased a building primarily for animal feed storage with members loans totalling 15 500 USD.
The group negotiated a five year contract with a slaughterhouse to deliver 5 000 pigs per year and with a local salami factory for 200 specified brood sows. Prices on average were 5 percent higher than producers
could obtain individually. The group was also able to obtain fodder at 10 percent less than standard prices.
A major problem for the group in the first year of operation was insufficient cash, while awaiting payments
from buyers. To solve this the group intends to increase the amount of shares that may be purchased and to
pay dividends and higher share interest during the second year. In addition the group has negotiated a 200
000 USD ten–year loan on which interest will be repaid by the Government. The group will only be liable for
5 percent bank charges. It is intended that this additional finance will enable them to improve their cash
flow and also provide a better service, particularly through providing loans to members to purchase fodder
and breeding sows. It is intended that members selling pigs outside the group will not be able to access
loans.
The group has clearly made an impressive start. Contractual agreements with buyers were established
early, producers are sufficiently motivated, financial benefits are clear and administration is simple and
open. However the group anticipates having insufficient pigs to meet demand by the end of 2001 and
changes to the financial structure, increased dividends, share and loan interest payments and the high proportion of non member trade will require careful management if the group is to remain in the hands of committed and motivated members. Due to its initial success the group has already stimulated considerable
interest thoughout the region and including criticism from some producers, local Government and advisers
due to its activities related to commercial (rather than union or representational) activities. The group will
need to react, innovate and continue to convince based on results and identifiable benefits provided to its
members.
Adapted from: Laczó Ferenc (2001)
Groups need clear business plans and the various aspects of the plan need to be closely monitored, updated and amended as required. Meetings have to be conducted professionally, decisions recorded and a
monthly report prepared of financial progress in relation to objectives. Successful groups require work
tasks to be divided and delegated. Centralised structures can implicitly undermine skills and creativity of
55
leaders and members. This process of constant re–adjustment and re–adaption involves change and innovation (IFAP 1992).
ORGANIZATIONAL STRUCTURES AND OPERATIONAL PROCEDURES
In most accession countries groups may normally register as associations, cooperatives or companies
with limited liability. The primary issues involved in the choice of structure include the issue of membership control, commitment and benefits as well as the taxation implications for group members. Often producers do not know the best form of registration for their group and a number of informal groups have
waited for new producer group acts before considering registration.
Limited liability companies remain in a minority and informal groups continue to dominate. Many are
registered as associations. An association is a sensible form for a group not intending to trade, but in reality it is not acceptable for commercial activity. Associations under most legislation are not allowed to conduct any type of trade activity and are on the whole commercially ineffective, but they are often preferred
by producers as they are sometimes tax exempt and do not need to maintain financial accounts
(DFID/Landell Mills 2000). Logically many existing statutes need to be changed from association to limited liability status in order to trade effectively, but although limited liability structures are much more
commercially effective the difference between investment capital and produce commitment, as the main
financial commitment to the group, is often not made clear.
There is a general feeling amongst producers that group registration of any kind will lead to taxation problems and difficulties in financial management, auditing and administration. In many accession countries
individual producers are often exempt from tax but producer groups are not. Tax exemptions for mutual
status18 presently do not exist. Establishing a limited liability company or a cooperative requires proper
administrative and financial reporting procedures to be employed. This takes time and organization and
adds to costs. In any case a great deal of time and effort is often spent on discussing the details of legal
structure, member organization and financial contributions only to register the group and subsequently
allow it to stagnate. In most cases this is due largely to unclear objectives, poor management, a lack of
commercial focus and poor advice.
The result is that many groups prefer to maintain loose agreements between themselves and not to officially register their group or set up a bank account. It is possible to manage a group in this way and in some
cases producers are even strongly opposed to formal registration and are reluctant to be totally transparent in their operations. However in reality this is a short–term option and few serious buyers are willing (or
able) to enter into proper commercial negotiations or contracts with such loose groupings.
Groups therefore most often act as an information provider or adviser rather than a commercial trader
able to negotiate on behalf of all members jointly. Individuals tend to keep ownership of the product and
retain the risk. Any contractual arrangements are normally based on informal agreements with little insurance for the producer, buyer or supplier. Produce supplies to buyers are distributed between members.
They are then paid directly rather than through the group. There is strong need to enable individuals to negotiate on behalf of the group an agreed amount of crop, supported by membership agreements and to
sign contracts with buyers on this basis.
At the present time few groups have any standards for quality control, operational procedures or agreed
specifications for products marketed or supplied through the group. The use of a system of payments that
reward premium quality production is rare and as a result too many groups focus on low cost and average
quality produce. Consequently buyer negotiations focus on commodity spot prices rather than added
value supplies. Indeed only a few producers have any experience of negotiating with competitive buyers or
understand alternative methods for pricing or developing contractual agreements.
18
Mutual status is defined as a status whereby groups are not liable for corporation tax if they are able to
show that the majority of trade is carried out through trading with their own members.
56
Groups with relatively homogeneous membership and with close links to the market (helping to both set
quality standards and generate money for the organization itself) are generally better able to get involved
in technology than more political counterparts (Carney 1996), but many groups still tend to allow a high
percentage of non–member trade. There may be circumstances under which it is necessary to trade with
non–members19, but if the benefits of membership, producer commitment and quality assurance are to be
maintained, it is important that the amount of trade with non–members is very small. It should only be
used as an interim measure supporting the overall marketing operation. In the long term insufficient supplies will require recruiting additional members or encouraging existing members to change their production policy (Button 1999).
But few members of groups in transition economies will commit 100 percent of their production to the
group or sign membership agreements. Although buyer contracts do exist, membership agreements, in
the main, do not. Groups tend to rely on byelaws as the main management contract for the group. The
most common commitment of produce, (but rarely to a clearly defined standard) is between 60–70 percent. (DFID/Landell Mills 2000). The lack of a strong produce commitment creates a potential risk of
competition between the group and its members and so undermines the negotiating position of the group.
An important condition of membership would require members to sign an agreement to trade with the
producer group and failure to sign such an agreement would prevent a producer obtaining or retaining
membership. This would ensure all members were committed to using the facilities of the group and control would be fully in the hands of committed members. Members marketing agreements set out the responsibilities of both parties to each other and in particular they (Button 1999),
• Ensure that members are committed to using their group facilities or services for a minimum
period.
• Set out the quantity or percentage of members produce that will be committed to the group for
marketing.
• Ensure that investment and charges paid by members relate to both commitment and actual usage.
• Set out how the operational activities of the group are to be administered.
• Bind the group to the marketing of committed produce.
• Ensure the stability of the group and give confidences to members, customers and bankers.
• Ensure continuity of supplies to customers.
• Ensure the protection of members in their relationship with the group and between each other.
The members marketing agreement requires considerable thought and discussion if its objectives are to
be fulfilled. A model agreement suitable for all situations is not possible. However they do need to clarify
specific issues and outlined in Text box 2.
Few producers in Central and Eastern Europe know EU production directives, in many areas, such as;
non–castration of male pigs, use of growth promoters, cool chain movement of produce, battery cages,
stalls and tethers, effluent disposals or acceptable additives (DFID/Landell Mills 2000). Temporary storage facilities predominate on individual farms. Common stores or facilities are unusual and producers
tend to share the facilities and equipment of each other. Grading and transfer of produce between farms
and the proximity of many added value facilities, such as egg packing, grain or potato stores, to production sites raises the possibility of cross farm contamination.
19
For example to provide a continuous supply of product to customers when members production is
inadequate.
57
Site inspections and proper audits of member farms and production needs to be considered and carried
out by the group. Quality control tests and veterinary inspections should also be made on produce from all
member farms. Consideration should also be given to the possible use of independent advisers and laboratories for product testing and the development of quality programmes, particularly in relation to EU standards and programmes such as HACCP20 (DFID/Landell Mills 2000).
Systems also need to be developed for member payments that are based on quality and quantity differences, rather than on average prices. Preferably the group should to collect payments from buyers and
take off the agreed levy before the final payment to members. But financial benefits need to be are clearly
related to produce committed by individual growers21 22. Higher payments need to be made for production based on agreed quality standards. For example individual pig grading would enable higher than average prices to be paid for higher lean meat contents (E and U grade pigs over 50 percent lean meat
content) and lower than average prices paid for R and O specifications. Introducing this system would require a dead weight grading system to be established in partnership with abattoirs and open access to carcass data (Oakes 1999).
A focus on continuous quality improvements and the development of operational and quality control procedures, crop specifications and standards will allow a group to develop a regional identity or brand that is
underwritten by audited standards and inspections. Members not following group rules, standards or
agreements will need to be disciplined, fined or excluded from the group. This will give buyers and other
producer members greater confidence in the group activities.
Markets and marketing
Individual producers, of whatever size, are unlikely to be able to supply world, or even domestic markets,
that require a consistent supply and quality of product. In most cases producers are looking for ways to differentiate themselves from their competitors and successful groups will need to focus on added value activity and effective targeting of specific market niches. These groups need to have some unique selling
point or particularly exclusive production based around a local or regional variety and brand.
Even so most new groups in Central and Eastern Europe remain very small in terms of the total amount of
produce for sale or inputs purchased. Total annual sales of produce through a group are rarely more than
10 000 livestock or 2 000 tonnes of produce (DFID/Landell Mills 2000). Much larger levels are really required to improve the prices obtained or reduce costs significantly. Some groups are trying to limit the
numbers of crop or livestock varieties being sold in order to supply a greater amount of produce to individual buyers but the possibilities for increasing their size through merger also needs to be considered and so
enable negotiations with larger trading partners.
Precise inventories of production quantities available, yields and varieties of all group members also need
to be carried out. This will help in the planning of production, sales and marketing and in more strategic
harvesting. Members should be required to commit agreed levels of production for sale of produce
through the group (preferably 100 percent) and at agreed specifications. Production can then be further
unified and technologies and standards improved. Varieties will need to be further standardised and specifications23 for produce to be sold through the group clarified and targeted at specific buyers.
Buyers, their buying reasons and approaches vary considerably. Some buyers still have no procedures,
specifications, standards or contractual requirements for produce they purchase. Others have very de20
21
22
23
Hazard Analysis Critical Control Points.
All funds that are disbursed or kept in reserve. Reserves need to be allocated to individual members.
Consideration may also be given to paying a higher premium for produce delivered from more remote
members farms, if transport is included in the producer costs.
Additional investment issues are normally covered in the group statute, but these can also be included in
the members marketing agreement subject to this being made clear in the statute.
58
Text box 2. Developing Members Marketing Agreements
What needs to be considered and included (Button 1999)
1. Parties – This states who the agreement is between i.e. the name of the producer group and the producer.
If the producer is a partnership or a company, care must be taken to state the registered name.
2. Products – This specifies the products to be marketed (e.g. grain, milk, fruit etc.) including type, size and
quality.
3. Interpretation – This mentions all the definitions used and in order to make the meaning of the agreement clearer.
4. Basis of the agreement – This links the membership agreement with the detailed membership regulations
(below).
5. Membership of the producer group – This states that the producer must become a member of the group.
The agreement terminates when the producer is no longer a member of the group.
6. Duration – This states the length of notice required to terminate the agreement and where it is not terminated for other reasons.
7. Default – This gives either party the right to terminate for failure to comply with the membership agreement.
8. Insolvency – This gives either party the right to terminate the agreement if the other is insolvent.
9. Force majeure – This provides protection for both the member and the group against exceptional weather
conditions, industrial action or any other cause outside their control.
10. Disputes – These are provisions for appointing a mediator or an arbitrator, to resolve disputes that cannot be settled by agreement.
11. Membership Regulations
A) Commitment
This specifies the extent to which the producer is committed to market the product through the organization e.g. a percentage of members production, a number of tonnes, litres quantities of livestock etc. It
also confirms the members obligation to supply quantities as notified to the group, if the group makes it
clear in advance that they will be binding.
B) Shortfall
These are the penalties if members do not deliver the products committed e.g. payment of full charge
and cost of losses or damages incurred by the group due to the failure of members to supply.
C) Specification of product
This is the specification of the product to be accepted and marketed by the group (type, size, quality etc.).
12. Information – This is the information required by the group to enable it to carry out its marketing function e.g. projected deliveries, volumes and time periods.
13. Production – This requires the producer to comply with the production criteria imposed by the group.
14. Inspection – This enables access to members premises by any authorised representative of the group.
15. Delivery – This sets out who is responsible for delivery either to the buyer, collection point or central facility and at whose cost.
16. Quality control – This details the quality control procedures in place and the results of non–compliance
e.g. products will be returned to member at their expense, or that the member is responsible for the full
member charges as if the product had been sold by them.
17. The right of the group to impose conditions – This gives the group the right to impose conditions on the
disposal of rejected product.
18. Marketing – This gives the group control over marketing and emphasises the requirement to treat all
members fairly.
19. Ownership – This confirms that the ownership of the products supplied by the member does not pass to
the group but passes to the buyer under contracts of sale negotiated by the group (Recommended). Alternatively, if the group is to buy the product and re–sell it this should be clearly stated.
20. Risk – This clearly states where the risk lies if the product is damaged or lost when in the hands of the
group or its haulier. If the risk is to pass to the group, then it should insure against loss or damage and civil
responsibility in respect of any claim.
21. Sub–Agents – If the group sells as agent it is necessary to give it the authority to delegate to other sub
agents as required.
59
22. Proceeds of sale – This gives the group the authority to collect the proceeds of sale on behalf of the members.
23. Payment to members - This outlines how members will be paid for their produce, such as; the sale price
less agreed charges or a number of days following receipt of payment by the buyer.
24. Bad Debts - For payment purposes only. This outlines when an outstanding liability from a customer
should be considered a bad debt.
25. Charges - This is the method for setting members charges (for group services, provision of facilities etc.
It should include depreciation costs but not funding required for capital expenditure. It also gives dates for
provisional charges and final charges at the end of the year. A provision should be made to include bad debts
as a cost and included within members charges and therefore borne by all members.
24. Other Business Activities of the cooperative - Confirms the groups obligation to promote the interests of
the members and not to engage in competitive activity.
25. Amendments - This states how the regulation may be amended.
tailed requirements for product traceability, audits and delivery specifications. But very few buyers are
able to cope with the wide range of product specifications, for sale through many producer groups, and
lower grade production remains a large percentage of available trade (DFID/Landell Mills 2000)24. The
result is a particular demand (and often shortages) of good quality and fresh produce of defined specifications and approved varieties, supported by regular and reliable deliveries.
Assurance of quality produce and supplies would significantly strengthen the negotiating position of producers, and yet few groups, in Central and Eastern Europe, have a well established identity based around
reliable and consistent quality specifications and using complete and proper testing or monitoring of production25. Products are often difficult to trace to individual producers and in reality no integrated system
of upstream or down stream supply exists.
EU standards and compliance is becoming more important for buyers in accession countries, and in particular to ensure their own acceptance as an EU licensed supplier.
This necessitates requesting minimum facilities, production areas, quantities and specifications as a requirement of supply. Phytosanitary issues are also increasingly becoming a driver of competitiveness and
quality aspects are gaining more and more importance e.g. freshness, taste, colour, tractability, food
safety, environmentally friendly production or region of origin. Taste quality standards have also been
timidly introduced into some marketing requirements, such as juice, or sugar content, acidity or dry matter content (EU 2001). Food safety standards are contributing to improving market transparency, particularly in relation to residue levels and contaminants. The FAO/WHS regulations – codex alimentarius,
group all standards under the same legal framework and this allows better clarity, transparency and
co–ordination between different systems and control procedures.
Where the buyer is confronted with an ever–wider choice and supply amplified by the increasing
globalisation of agri–trade, standardisation has gained importance. Standardisation enables products to
be described and gives an indication of their market value without requiring physical presentation. Classification and withdrawal from the market of unsatisfactory products makes the market more transparent,
transaction costs are reduced and with a standardised product (category, sizing, presentation) the price
becomes more meaningful (EU 2001).
24
25
For example tighter pig weight bands could be introduced and the crop or livestock varieties limited to a
smaller number. This will enable genetic and technological improvements to be made (Oakes 1999).
In Polish pig groups the range of dead weights delivered to buyers is often more than 30kgs. Lean meat
contents vary considerably with a high proportion of R and O specifications being delivered to abattoirs
(Oakes 1999).
60
Text box 3. Case study Pakos³aw (Poland)
The Pakos³aw group was formed in July 1997 and registered as a limited liability company for the marketing of vegetables. Founding members of the group included 15 individual producers (with an average farm
size of 15 hectares of primarily vegetables), a local foundation, the former state owned agricultural cooperative (now privatised), a local machinery ring cooperative, the local mayor and a schoolteacher. Initial
member capital contributions were 250 USD per member.
The main driving force behind the establishment of the group was an interest from a Dutch company in importing Polish onions from farmers close to the German border. Following initial discussions with the
buyer producers realised that primarily the onions were to be eventually sold to the pickled market and they
would be peeled in Holland. By offering to peel the onions in Poland producers convinced the buyer that
their costs would be reduced, while at the same time the group would be able to add some value to the product and gain better overall prices and margins.
Initial deliveries to the Dutch buyer were within specification and well received. Payments to the group
were made quickly and much larger orders placed for future deliveries. The group soon needed to increase
their membership to provide enough produce. In 1998, 200 further producers applied to become members
of the group and 80 were accepted as shareholders. By the end of 1998 the group was employing 50 persons
organizing supplies from producers, grading, peeling and packing onions. News of the Pakos³aw success
spread quickly throughout Poland and was heralded as the 'new form of producer cooperation'. The company name became so well known within the region it was able to use the Pakos³aw name to brand other
vegetable products (primarily tomatoes, carrots, mushrooms and herbs). As demand grew the group was
reluctant to introduce new shareholders into the company and other producers began to supply the group
without an owner interest.
Clearly the company has been remarkably successful in a short time. This has been largely due to identifying
and consistently supplying a reliable buyer with the specification and quality of simple added value product
they want to buy. The company has also been able to maintain supply standards through enforcing relatively simple specifications and (initially at least) limiting the numbers of shareholders in accordance with
the forecast demand for product. Maintaining these standards has enabled the company to build a reputation based on quality and to brand their image throughout the region.
But the company now needs to resolve a number of issues in order to maintain its position or develop further. Introducing new vegetable products for sale to different buyers but without any clearly defined specifications or long–term contractual commitments will force the company to define its own standards. Large
supplies of product from non–members, without any kind of clear contractual commitments to agreed
specifications or standards of supply, will increase the costs of sorting and grading product for sale through
the group. It is important for the group to maintain and build on its reputation for quality and reliability but
even more difficult is the increasing conflicts of interest between different owner interests and the amount
of non–member trade.
In reality the group is at present a capital led business where the majority of shareholders just happen to be
producer suppliers. As it has grown the company has become increasingly aware of this issue and by the end
of 2000 the broad plan was to break the company into two separate entities (dependant upon Polish law).
A separate company being formed with solely producer members supplying products to the company and
payments made according to produce supplied. Meanwhile the existing company would act as the marketing agent for the new producer group and remain controlled by the current owners and with dividends paid
according to shareholding. The success of such a revised structure remains to be seen.
Produce standardisation has already played a crucial role for than 40 years as the main classification
mechanism for produce export. As international trade has grown, work to harmonise the implementation
of marketing standards and to allow free movement of produce, has been completed by the UN and the EU
and has been consolidated by the OECD. In both the EU and USA the implementation of standards has
been the main method of classifying products into pre–defined categories and is used along the whole
marketing chain (EU 2001).
Buyers consistently try to source new products and locate new buyers, but tend to focus on two or three
regular suppliers and give preference to producers whose tested products are in full conformity with accepted standards. Indeed beyond the institutional marketing standards most operators have additionally
61
developed their own quality and safety standards attached to specific brand requirements and consumer
preferences but in particular to protect their own legal rights of due diligence. Producer groups will need
to be more active in working with them to develop integrated,26 traceable and scheduled systems of supply
to link the producer group with the processor and retailer. This will enable a continuity of production for
both farmers and processors to be established. Specifying the production parameters and the consequences for both sides in case of default should also enable longer–term contracts and extended credit under contract to be negotiated and reduce the range of price differences through the year.Consumers are
increasingly showing an interest in a wider range of packed, graded and cleaned produce and many retailers and other buyers are prepared to delegate responsibility for some of these activities, if they feel the supplier can be trusted. More consideration needs to be given by producers to areas where buyers are willing
to delegate responsibility to groups, such as for produce collection or grading. There are a number of possible areas for discussion, including better and more co–ordinated scheduling to reduce waiting times and
losses for both the producer and the buyer.
The pricing mechanisms buyers use when purchasing produce also vary considerably and are often very
flexible. Alternative pricing systems may be established and further developed during discussions with
buyers, particularly in relation to progressive pricing systems offering a base price, plus a premium price
for agreed quality standards, rather than on average prices. This will enable quality improvements to be
made.
Most buyers prefer to source produce locally but do not restrict themselves to purchasing produce from
their immediate area or even from their own country. Buyers are on the whole not adverse to the development of producer groups and in reality treat them as any other kind of supplier. In fact many buyers and
suppliers are more than willing to assist producers to improve standards of production and supply by offering and advising on feeding and growing programmes, procedures and measurement techniques.
Some companies (such as feed or fertiliser suppliers) also provide specialist technical advice, including
extended credit in order to stimulate producer group formation.
But too often producers still mistrust their buyer and have been unable to develop confident and secure
buyer relationships. Very few producers know which buyers presently conform to EU standards 27and
very few producers or their groups know buyers or suppliers from outside their immediate region or approach buyers (or suppliers) on a consistent and systematic basis. In order to diversify sales options away
from a sole reliance on traditional or regional buyers, innovative sales opportunities, such as the commodity exchanges or internet trading will also need to be further explored (DFID/Landell Mills 2000).
In some cases, and in particular where the group does not have the necessary sales and marketing expertise or resources, it may be preferable for producers to delegate all marketing activities of the group to an
independent marketing agent and agree a contract of supply with that agent. These arrangements are
common in Western Europe and the mechanism allows farmers to focus on preparing a quality crop to
agreed specifications. In many cases this is also what most groups in Central and Eastern Europe tend to
do. An individual farmer or entrepreneur identifies a buyer opportunity and then organizes the production
of other farmers in the region. However the arrangements are rarely long term, properly structured, equitable or organized and there is little confidence or trust developed between the intermediary and the producer.
Finance
Producer groups need to be relatively sophisticated and well funded to become involved in agricultural
technology development and transfer. This is because of the complexity of understanding members technological needs and of building productive partnerships with other technology suppliers (Carney 1996).
26
27
Such as the development of a cool chain system for the distribution of eggs, fruits or vegetables.
Less than 20 abattoirs in Poland currently comply with EU standards (Landell Mills 2000).
62
The off–farm costs of post harvest facilities, marketing and promotional activities will increasingly become factors that will determine whether or not producers maintain viable production businesses and
they will be faced with additional costs over and above those of basic production. At present most groups
lease, modify, or update, rather than purchase equipment or facilities, but increasingly they will need to
consider purchasing new and more appropriate technologies.
There is a particular need to encourage longer–term investments and in areas such as, cereal storage and
drying facilities, processing, sorting and storage of fruits and vegetables, livestock collection and transport. Added value post harvest activity will enable producers to have a closer involvement in marketing activities but raising such finance will be difficult for most producers to realise.
The legal structure adopted for a producer group stipulates (in general), how members may fund their organization and they will need to comply with the particular requirements of their status in law. However,
in the main, producer investments into a group can be through initial capital (shares, capital contributions), loans or retained surplus (reserves)28 . However, whatever method is used individual member investments should be related to their use of the services or facilities of the group. Banks and other external
investors generally provide funding where security is available, but in new producer groups with no track
record, they are normally reluctant to do so29. In any case practical experience indicates that producers are
more likely to support their organization when it is primarily funded with their own money.
Initial funding needs to be sufficient to cover the costs of establishing the group and to finance capital expenditure. The subsequent costs of running the group i.e. administration, marketing, finance, depreciation, other operational and management costs, form the basis of members charges. These charges are set
out annually in advance and are charged to members against the sales value of the product sold on their behalf, through the group, or as a cost per tonne or other unit of measurement. Charges are normally based
on sales projections and include a contingency factor and provision for potential bad debts. In any case
charges can be adjusted at the end of the financial year to reflect the actual costs of providing the service
and a refund can be made (Button 1999)30.
These charges are a useful mechanism for ensuring that members receive charges and benefits in accordance with their use of their group and its facilities and most producers are comfortable with the transparency and simplicity of this approach. However producers are more reluctant to invest considerable funds
(loans) for activities that will spread the costs of major post harvest investments, and so add value to the
product or reduce losses; such as through storage, grading, cleaning, packaging or product branding.
After paying the initial share capital, producers in Central and Eastern Europe are tending to make small
injections of capital, at intervals, to their group rather than to commit any significant loan. Few reserve
funds have been established. This is largely reflecting the lack of liquidity of many producer members, but
also their (lack of) confidence in their group. Wide variations in members interests still does not create the
necessary homogeneity and profits are too often divided amongst shares and as so this provides the wrong
incentives.
Investment in a producer group should allow the member access to the services of the group but should
not signify a degree of control or provide an opportunity to benefit from capital growth, dividends or indeed interest (Button 1999)31. Increasingly it will become important to ensure that a membership agree28
29
30
31
Loans are normally returned to members on cessation of their membership at their initial value.
Particularly where there are no binding agreements on members to supply production to the group and
there are no forward contracts with buyers.
Charges have to be set realistically and cover all costs. It is far better to be able to return extra cash to
members at the end of the year rather than to request higher payments.
In fact it may be preferable that no (or minimal) interest payments are made on any form of members
investment, since any such costs would only have to be borne by members in members charges. Since
both investment and charges relate to usage, members would effectively be paying increased members
charges in order to pay themselves interest.
63
Text box 4 Case study Miêdzylesie (Poland)
In March 1998, twenty two producers with an average farm size of 20 hectares, of relatively poor agricultural land in the highlands of south west Poland, agreed to form a group focused on the marketing of buckwheat. The producers believed they had a particular market advantage as the crop grows well on poor soils,
is a relatively simple product to grow and requires very few inputs. None of the producers derived their living solely from agriculture and yet in recent years they had seen an increasing demand for buckwheat. Producers within the village almost exclusively sold to an individual trader (paying in cash and without
contracts) and who subsequently sold to cereal processing companies for the expanding health food and
breakfast cereal markets.
Producers in the village had been able to buy additional buckwheat seed under a Government flood recovery
scheme aimed at supporting villages affected by severe flooding during the winter of 1997/98. In total the
producers expected to be able to market 100 tonnes of buckwheat by the end of July 1998. The plan for the
group was to deliver the buckwheat to an individual member facility (leased to the group) immediately after
harvest. At this point the product would be dried, weighed and packed into 50 kilo bags. To ensure traceability bags would be marked with the name of the individual producer as well as the group. Buyers had
agreed to provide unmarked bags at no cost. In the longer term the producers discussed the possibility of
jointly purchasing cleaning and drying equipment, a warehouse and a processing facility and on the basis of
preferential credits they believed would be payable under future SAPARD and other schemes.
The group was registered as an association with each member paying a joining fee of 25 USD. This money
was not maintained in a bank account as the group were concerned at the tax implications of trading as a
commercial, rather than representational association. By the end of 1998 the group had carried out no commercial activity and the group was largely ineffective. Members continued to sell their crops individually for
cash and all 100 tonnes were sold. The group had failed to convince members of the additional benefits of
joining a group that was largely unaware of market needs and so were unable to effectively negotiate premiums for added value specifications, standards or quantities and so guarantee better prices for their members.
In reality the group was most probably formed in the hope of obtaining additional grants or preferential
credits, rather than as a truly viable and sustainable business proposition. The group members were not
prepared to commit significant finance, time or product on the basis of membership agreements and so enable the group to compete effectively. Although the plan in principle was a good one, the lack of detailed operational procedures for delivery, testing, transport and management undermined the extent to which the
group could organize its activities. The main intermediary buyer was already, in effect, providing a service
to producers and beyond which the group was unable to become more efficient or better organized.
ment clearly outlines that any investments into the group or benefits received through the group are
related to the use its services and facilities by individual producers. In this way existing members may be
more willing to increase their funding if new investments need to be made.
Members may also be asked to pay a non–refundable joining fee that can be varied, following the approval
of members, on an annual basis. This would mean that the initial share capital contribution, for new members, would increase as the group developed and so reflect the benefits of joining an existing group and
compensate existing members for their additional efforts and initial risk.
It is also essential that the group clearly states these financial issues within its statute and ensures that:
• Share and loans always remain at their initial value.32
32
Or in the event of liquidation less than par if there are insufficient funds to enable such a distribution to
be made.
64
• Surpluses are allocated to members in accordance with the charges paid by them during the
year.33
• Payments to members, or surpluses retained by the group into a reserve34, are allocated to
members in accordance with charges paid by them or their usage of services/facilities35.
National policies, legislation and taxation
Healthy cooperative business development and direct political interference seldom go together
(Schilthuis and Van Bekkum 2000). Many a good initiative at village level can be cancelled through
changes in national agricultural policy. The negotiating position of producer groups is maximised when
they keeps a sensible, but not too confrontational, distance from Government (IFAP 1992). Indeed
a strong agricultural system is in the interests of both parties and it is important to ensure that national
policy messages, on producer group development, are consistent and clear. These messages need to be
disseminated through a professional and well–trained extension network, using simple and straightforward guides and avoiding ponderous legal terms and numerous cross–references (ILO 2001).
Legislation is not static but evolves to reflect the changes in the social, political and economic conditions
of the respective country. Cooperatives in most of Western Europe are aiming to be economically successful in a highly competitive environment while remaining close to their members. The main changes made
to cooperative legislation in Western Europe in recent years has substantially originated from the desire of
the lawmakers to grant cooperatives sufficient flexibility to adapt to a highly competitive environment
without abandoning cooperative principles and democratic control (ILO 2001).
Cooperative legislation is necessary to establish their distinct identity when compared to other private
companies but also to enable them to enter into commercial contractual agreements with third parties.
Contemporary cooperative legislation in Western Europe is getting closer to general company law (ILO
2001). Most cooperative laws and amendments adopted during the 1990s enabled new forms of capital
mobilisation (e.g. France 1992 and Germany 1994). These laws now allow cooperatives to raise equity on
the capital markets but determine voting right ceilings to prevent non–member investors from gaining
managerial control. Several new laws allow cooperatives to convert into other forms of company (e.g.
Sweden 1987 and Germany 1994).
At present there is no European cooperative statute that would facilitate border area cooperation, bilateral
cooperative partnerships or multinational cooperative groups (ILO 2001). Legislation in individual
member states can be found in different forms. A general cooperative law (such as in Hungary, Spain and
Germany) regulating all types of cooperatives is the most common form of legislation. Some countries,
(such as Romania), have separate laws for special types of cooperatives. Other countries have developed
specific chapters of the civil code, commercial code (such as Belgium and partly the Czech Republic) and
rural code (e.g. France) or made a special provision under company law (United Kingdom). Denmark has
not passed any special legislation on cooperatives. At the other extreme, Italy and Spain have included
specific provisions on cooperatives into their national constitution.
In a market oriented democracy, cooperative legislation has to be part of a wider legal framework that covers a range of privately owned organizations. They need to be able to develop their activities in a largely autonomous manner and should not require over detailed legal directives on their functioning and powers of
the supervisory authority. For Governments of former centrally planned economies elaborating a totally
33
34
35
Where the organization has acted as an agent (ie sold produce on behalf of members but not taken
ownership), then repayments of all or part of the surplus can be made before any requirement to allocate
funds to specific reserves.
Excluding reserves required under statute and under national legislation.
Provision should be made for reserves to be repaid to members on cessation of membership or group
liquidation and will be subject to adjustment for balance sheet valuations.
65
new legal, administrative and institutional framework for cooperatives has proved to be an immense challenge.
Transition economies now largely prevent public administration from interfering in the internal affairs of
a cooperative. Some countries have taken radical measures to extricate the State from the cooperative
movement (such as Poland) and to dissolve all politicised unions and federations of cooperatives and to
start again. Others have developed “planned transition” alternatives. Reforms of Government structures
at national, regional and local levels have often lagged behind the revised legislation, but virtually all cooperative laws adopted during the last decade in Central and Eastern Europe has restricted the hitherto
all–embracing role of Government in cooperative affairs to purely statutory functions, such as registration, dissolution and liquidation. Adoption of these new and more liberal cooperative laws has led to
a sharp decline in the number of Government officials responsible for cooperatives (ILO 2001).
However many laws have been formulated under great time pressure and are still not always fully adapted
to local conditions. Further legislative energy, particularly during this period of preparation for EU accession must be devoted to the introduction of cooperative legislation that further allows a diversity of organizational structures (Schilthuis and Van Bekkum 2000). Further specific amendments to legislation may
also be needed. In particular, to define the status of a farm within a group and the accepted accounting
procedures for trade between such entities. In many countries it is essential to come to a clear definition on
property rights and draft and implement related legislation that will enable a non–regulated land market
and facilitate land leasing and the development of a rural credit system based on the use of land as collateral (Schilthuis and Van Bekkum 2000).
Perhaps even more important, new cooperative laws will need to be accompanied by a wider acceptance
amongst producers that new cooperative forms are really emerging and also to give confidence to those
with whom they need to have commercial or financial dealings. In this respect, a participatory approach to
cooperative law making is preferable. This approach includes the use of consultation campaigns, local
and national workshops and the establishment of law reform committees. Several countries (such as Belgium, France and Hungary) have already institutionalised a participatory approach by establishing a national council on cooperation (or similar organization) as an advisory agency to the Government.
A participatory approach may be time consuming but ensures a wider acceptance of new national policies
and legislation.
The provision of grant aid is often seen as a way of stimulating the development of new or strengthening
existing groups. The Special Accession Programme for Agriculture and Rural Development (SAPARD) is
to be used by accession countries as the main grant aiding mechanism for enabling enterprises to update
their capacity and technologies and in order to conform to EU standards. Individual producers are unlikely to be eligible for such grant schemes, but commercial producer groups potentially could, if they are
properly structured.
It is most important however that primary help is given to those who are prepared to help themselves
(IFAP 1992) and that groups are not formed purely to access grant assistance. Sometimes the criteria required for specific grant schemes are used as the sole criteria on which producer marketing groups are
formed. But grant aid schemes vary in their requirements and it is better for producer groups to follow best
custom and practice for ensuring long–term member benefits rather than short–term arrangements that
comply with grant aid requirements.
Capital and research investment grant support, or targeted and preferential credits for the development of
joint facilities, should be based on very clear produce (verifiable by signed membership agreements) or financial commitment by producers to their group. Innovative schemes may also include partly covering
the costs of employing a professional manager, legal or financial adviser, particularly during the early
years of group development.
Cooperative business structures should have the right to operate on equal terms to other forms of business
enterprise. This implies that they should have access to all the advantages and privileges that the state
might offer but it does not imply that they should benefit from specific privileges. Probably the only ex-
66
emption to this principle is taxation on financial surpluses (ILO 2001). Cooperatives primarily should derive their surplus from trading with their own members and so they are, in effect, an extension of the
individual farm business. It is therefore not justified in taxing a surplus that is also taxed on individual
member farms. This principle of 'mutuality' is well recognised in Western Europe and most taxation is
only payable on profits arising from transactions with non–members. Several cooperative laws set percentage ceilings for non–member business and above which no tax exemption is granted.
In many countries of central and Eastern Europe individual farms are not taxed but registered group activity is. Producer groups need to seek professional guidance as to whether member charges are also subject
to tax and in order to take maximum advantage of any tax concessions or benefits that are currently available. For example groups not taking ownership of members produce but charging a marketing fee for
their services are able to minimise taxation within the group and also refund a proportion of those charges
if a surplus is made during the accounting period. Even so producer group taxation issues need to be further considered in order to stimulate innovative and added value group activity (Button 1999).
Advice, information, research and training
Too often group development is over stimulated by advisers and policy makers rather than led by producers. Many external funding agencies, as well as their implementing partners, are busy imposing innovations, models and counter models practically as part of their normal procedures (IFAD 1992). Donor
programmes commonly look to improve their effectiveness and efficiency through sponsoring the formation of groups to meet their immediate project objectives. Groups are often seen as a panacea for solving
all rural development issues and for widening project activity, support and penetration.36 In many cases
the producer still operates very much from the position of junior partner and the agenda remains firmly
with the researcher, extensionist or donor (Carney 1996).
An innovation that is successful in one country (or even within one group) cannot easily constitute a
pre–defined model that is readily applicable in another (IFAP 1992). Indeed inappropriate external intervention often has the opposite effect. Over allocation of external experts, specialist missions, volunteers
and administrators tend to inhibit the reflection process, by crowding–in external models and innovations
(IFAP 1992). It is still quite rare for NGO sponsored groups to have the capacity, technical skills or inclination to engage with technology or input suppliers or buyers over a prolonged period.
Producer participation, in their own development, is now a widely accepted and uncontroversial principle
(IFAP 1992). An increasing number of analyses of projects have shown that their involvement in action
planning and in adapting technologies and structures to their own environment is a critical component of
project success (FAO 1998). In Central and Eastern Europe most advisory support to producers has focused on registering a group and preparing a statute. Most advisers are inexperienced in marketing,
group management or in providing advice on added value activity. Advice on group development is often
inconsistent, contradictory or confused. Advisers have a more important role to play in encouraging
group development by providing a facilitatory, training and information role.
If a producer group is to be assisted, the aim must be to facilitate reflection by the group itself. Producer
group members must carry out a situation analysis on their own terms, trace their own path and generate
their own innovations (IFAP 1992). The process of innovation starts when the producers themselves begin to assess the importance of a problem and whether it can be solved. Advisers can play a useful role in facilitating (but not dictating) planning meetings for group directors and can encourage cross fertilisation
36
They are a vehicle for empowerment and policy dialogue with rural people (Cirad-Tera/World Bank
2001), they promote sustainable rural development and ensure food security (ICA 1998), they rise to
the challenge of wide ranging environmental problems (ILO 2000) and have concern for the
community (ICA 1967), they are in a very favourable position to provide insights into ways in which
government and external agencies could best provide for women farmers (IFAP 1992).
67
of ideas between groups. Advisers may help producers to reflect on long standing problems and consider
their group strengths, weaknesses, opportunities and threats, key short and longer term objectives, activities, membership agreements and operational procedures.
It is useful for advisers to occasionally attend director meetings as a non–voting observer and to record
minutes and the decisions taken. Specific advice is also often required when introducing administrative
systems that monitor and control the sales of produce pooled between members. Local Government can
also assist by providing facilities37 for producer group meetings or for storing produce at no cost or at
a minimal rent.
Producers often have difficulties in accessing markets simply because they lack information on where, or
to whom, they should market their produce. Producers regularly discuss market and supply opportunities
between themselves, but lack regular and well informed sources of information on prices, buyers, supplies
and contracts. Although numerous public and private information services have been established in recent years, information is frequently inadequate and several market information systems are now finding
that they lack the resources to continue such a comprehensive service once donor funds have dried up
(FAO 1998). More direct support by advisers in providing trade and institution contacts, encouraging or
facilitating the creation of trade agencies and/or buyer and producer forums and in providing information
on sources of equipment and new technologies would be useful.
Exchange of information between producer groups, including availability of information on what is happening in neighbouring countries is essential for stimulating change and innovation (IFAP 1992). But few
producer associations in Central and Eastern Europe are able to provide regular, impartial and reliable information on particular crops, buyers, market, prices, or provide gross margin comparisons. There is a
need to develop associations that will maintain, and disseminate, basic reference material on major buyers of agricultural produce and statistical data of market trends and prepare regular information bulletins.
Possibilities also exist for linking these associations to internet based trading systems38. In the longer
term, associations should also be able to develop independent services for product grading, inspections,
export testing or promotion as jointly funded industry and Government partnerships (FAPA/SwedFarm
1998).39
Producer groups should be well placed to play an active role in exposing members to new technologies and
disseminating experience from trials and research (Carney 1996). There are opportunities for producers
to be more actively involved in important research programmes and in particular those aimed at improving the overall quality of products (Text box 6.). Closer links with appropriate research institutions and
universities and improved feedback from buyers and suppliers on modern production technologies, such
as the availability of new animal and plant breeds would be very useful. The establishment of buyer/producer clubs or trade chambers would help in strengthening relations between producers and buyers. Not
only can they provide market and research information but they can help in organizing meetings and seminars, in providing macro–scale policy advice and in arbitrating in the case of conflict.
A considerable amount of training is required for producers and advisers on the commercial aspects of
producer group development. This training should be short, regular, practical and participative 40and include exchange and study visits, regional and international meetings, between groups and between
groups and buyers. Examples of successfully functioning producer marketing groups need to be identified, disseminated and popularised. Further promotion of the group concept without working models is
37
38
39
40
Such as former state owned, creameries, grain or vegetable storage facilities.
Such as for cereals pricing.
Such as the carcass grading service provided through the Meat and Livestock Commission in the
United Kingdom.
In the longer term it would be useful to encourage agricultural educational institutions to include
commercial producer marketing group development on their curriculum and prepare appropriate
support materials.
68
Text box 5 Case study Dascãlu (Romania)
Dascãlu was established in 1994 by 21 producers with 65 milking cows. The aim of establishing the group
was to purchase a small building and three milk cooling tanks (500 litres each capacity) and so enable the
cooling of milk delivered from members living within 5 kms of the tanks. A milk tester was also purchased
and all the equipment was fully financed through a bilateral aid programme. Producer contribution was 5
USD each for registering the group. By the end of May 1995, the cooling tanks were operating at full capacity with milk delivered from 102 producers.
Milk received at the collection point was tested for quality. Payments were made to producers on the basis of
quality standards and below standard milk qualities were rejected. The group retained 8 percent of the received milk price in order to contribute to operating costs and no additional dividends were paid at the end
of the year. The group delivered milk to a single dairy processing factory paying 10 percent higher than the
state guaranteed minimum prices for summer milk and 25 percent for winter milk. The group also began to
encourage individual member farms to use concentrated feeds for animal nutrition and to supply the feed
through the group at half price against primary evidence of milk production and quality.
All staff working for the group were employed by the bilateral aid programme and supported by specific
technical assistance. By the end of 1996 this support ended and it was followed by a remarkable decline in
the numbers of members staying in the group and the amount of milk marketed.
Withdrawal of donor support did correspond with an overall fall in demand for milk and as a result additional delays in payment to the group, from their only buyer, gradually persuaded producers to market individually. The additional costs of marketing through the group, including, storage, administration,
transport and taxation produced no clear financial benefit. However the decline of the group also reflected
the low level of financial and produce commitment of producers to its activities. No membership agreements were in place and in reality the group had largely been developed and managed by the donor organization rather than from producer and market led initiatives.
However the project did stimulate an initial interest in group activity and the quantities and qualities of milk
produced from individual producers in the region has increased. However the group will need to totally review and develop a viable and innovative strategy to survive. The remaining group members are already
considering alternative market possibilities in and around the main market of Bucharest as well as in merging with a number of other groups in similar circumstances.
Adapted from Jacqueline Leonte (2001)
not an effective use of resources. As far as possible, buyers should also be encouraged to contribute to the
training, exchange ideas and provide advice. A list of the most important areas for training and practical
support materials is shown in Text box 7.
Text box 6. Possible involvement of producers groups in research programmes (South West Poland)
• Developing breeding programmes for pigs aimed at removing the halothane gene.
• Establishing genetics and breeding programmes aimed at increasing lean meat content.
• Encouraging enriched cages and deep litter poultry production.
• Encouraging free–range egg and outdoor pig production.
• Promoting organic production.
• Improving vegetable protein feeds.
• Encouraging higher yielding biscuit and feed wheat varieties.
Source: DFID/Landell Mills Management Consultants 2000. Producer Marketing Group Development Project, Wroclaw, Poland and in association with the Foundation for Rural Cooperatives
69
Text box 7. Key training, information and advisory needs of producer group directors and members
• Leadership
• Presentation skills
• Meetings skills
• Marketing and market information
• Sales and negotiation skills
• Product pricing
• Quality assurance, sampling and testing techniques and procedures.
• Producer group legislation
• Group registration procedures
• Taxation and accounting regulations and procedures
• Buyer and member contracts and contract types
• Membership agreements
• Financing producer marketing groups, financial planning and documentation
• Economics, design, construction and management of post harvest facilities, particularly, stores, handling, drying, cleaning and grading technologies and pack–houses.
• EU standards and directives for production and post harvest technologies
• Credit applications and the SAPARD programme
Adapted from the training course programmes of the Agricultural Cooperative Training Council/Plunkett Foundation (UK), The National
Cooperative Council (Holland) and FSW (Poland).
FURTHER DEVELOPING COMMERCIAL PRODUCER GROUPS
IN CENTRAL AND EASTERN EUROPE
Wider political, environmental, economic, social and technological (PEST) considerations will influence
the speed of development of producer groups. But, as these factors become increasingly more favourable,
other specific criteria will determine their development and ability to compete (DFID/Landell Mills 2000).
In particular:
Is there a clear producer commitment to the group?
This commitment may be outlined in a legally binding members agreement identifying how much produce the members will market through (or supplies they will buy from) their group of a defined specification and standard.
Is there a clear market or business opportunity?
Has the group already identified buyers or suppliers and prepared a reasonable and clear plan of activities?
Is there a leading farmer or small visionary working group capable of driving the group forward and able to
communicate effectively with producers, buyers and suppliers?
Is there a clear (financial) benefit to producers from forming a group?
Advisers are best advised to work with groups that clearly meet these criteria. The FAO guide to extension
advisers (1998) further recommends that advisers aim to:
• Understand the culture of the village community.
• Identify and support potential leaders,
• Organize information and participatory meetings of potential producer members.
70
• Assist in developing relevant organizational structures.
• Prepare and implement educational and action learning programmes.
• Monitor and evaluate progress and provide on going support.
Usually the first steps to forming a producer group are local meetings and informal discussions between
key producers. After these initial meetings a more structured and informed approach needs to be taken
and an implementable programme of action prepared. A small working group is normally sufficient for
evaluating various options and preparing a business proposition for examination by other producers. At
this stage the working group will not have any legal responsibilities or will commit members to expenditures or other contractual obligations. The working group will need a written terms of reference. In considering developing a new marketing group this would authorise them to (Button 1999):
(a) Define the purpose and objectives of the group.
(b) Identify the current production and marketing capabilities of the proposed membership.
(c) Identify the current resources available, such as, finance, storage, packing and grading facilities.
(d) Determine the potential market for members current production and the specific requirements of a group e.g. quality, cleaned, graded, pre–packed, branded etc.
(e) Examine the opportunities for new market access e.g. export, catering, processing, retail,
wholesale etc.
(f) Identify current buyers and competition.
If this preliminary work demonstrates a potential opportunity the working group will need to:
(a) Determine the operational structure and methodology necessary to market the produce of
members to identified markets.
(b) Prepare an outline marketing plan for a new group.
(c) Produce financial projections for establishing a new group, particularly the operating costs
for the first year and capital expenditure (fixed assets) requirements.
(d) Determine the possible finance options to meet these requirements, such as; members capital funding (shares, contributions), members joining fees and charges to cover operational
expenditure.
(e) Examine and recommend the most appropriate legal structure under which the group
should be registered.
(f) Produce a draft statute.
(g) Produce a draft membership agreement outlining the obligations of the member to the group
and the group to its members.
The above information will then be incorporated into a draft business plan and presented to the entire
membership for discussion and support 41. Following this presentation additional work will probably
need to be undertaken to clarify certain issues or to make amendments. Only members that have given an
initial undertaking to support the development of a group should be invited to subsequent meetings to examine revised proposals. When the plan being accepted, the group can be legally registered, a board of directors/management elected, membership agreements signed and the business plan implemented.
41
Subject to agreed revisions.
71
CONCLUSIONS
Over the past decade accession countries have had to pass through a complex process of transforming
their system towards a predominately market orientated economy. Following initially sharp reductions in
economic performance during the early 1990s most countries have since experienced economic growth.
Joining the European Union will probably further stimulate trade, competition and inward investments
into the region. At the same time the agriculture and food sectors can expect to encounter much stricter
health, veterinary, production and marketing directives and with increased competition buyers will demand better quality produce for fresh and processed markets with defined specifications and supported
by regular and reliable deliveries.
The task will be not only to upgrade farming but also to turn the regions abundant produce into something
more valuable. Voluntary owned and controlled producer groups, formed to provide maximum benefits to
producer members, are well known as working and competing effectively within a market economy and
similar groups should provide answers to many of the input supply and marketing problems faced by producers in the transitional economies of Central and Eastern Europe.
Producers need to take positive measures to develop their own initiatives, but the development of producer groups in accession countries is still at an early stage. Many producers, buyers, suppliers, advisers
and governments still remain suspicious of investing considerable time or capital into their development.
In particular as the majority of new groups formed in recent years are unlikely to survive for very long.
Groups are too often registered without a clear commercial direction, market opportunity or strong membership commitment. Ownership and investment capital are too often confused and management is ineffective and reflected in inappropriate agreements, standards, specifications and operational procedures.
But the best groups will survive, innovate and adapt. Short, regular, practical and participative training on
specific topics and supported by exchange and study visits, regional and international meetings will provide useful support, but most will learn from experience – good or bad.
There are now sufficient groups established throughout the region to draw conclusions on the key issues
that are important for ensuring group sustainability. This paper has outlined in detail these key issues, but
in summary it is most important that groups:
• Are formed with a clear business objective, where the economic benefit is predictable and with a
significant degree of accuracy from the outset.
• Clearly identify market opportunities and develop, confident, trusting, ongoing, secure and
long–term relationships with buyers or suppliers.
• Are fully owned and controlled by committed producer members and managed for the benefit
of those members. Non–producer members should be excluded from the group.
• Distribute financial surpluses and other benefits in proportion to the trade through the group
and not according to shareholding.
• Conduct transactions through the group that are simple to administer and highly transparent.
• Are managed professionally, with clear, well–communicated and closely monitored plans and
budgets and delegated responsibilities.
• Constantly readjust, innovate and adapt their structure and operations (in line with their long–
term objectives) and in response to external circumstances, problems and identified opportunities.
• Impose as a condition of membership a legally enforceable members agreement.
72
• Have clear operational and quality control procedures, crop specifications and standards, prod-
ucts traceable to individual producers and a focus on continuous quality improvements supported by farm inspections.
• Develop payment systems that are based on differences in quality and quantity rather than on
average deliveries.
• Further unify production and standardise varieties.
• Gradually introduce new technologies and minimum facilities, production areas, quantities
and specifications as a requirement of membership.
• Have an approved legal entity with limited liability status in order to trade effectively.
Many laws still need to be updated or amended to further enable groups more flexibility to adapt to
a highly competitive environment and to enable them to enter into commercial contractual agreements
with third parties on the same basis as other kinds of private business. This should not require over detailed legal directives on their functioning or on the powers of the supervisory authority, but should clearly
define the status of a farm within a group and the accepted accounting procedures for trade between such
entities. In some accession countries this still also requires a clear definition on property rights and
a non–regulated land market.
Introducing mutual tax advantages for groups trading with their own members would help to stimulate
growth. Schemes for encouraging group investments into new technologies and capital equipment would
also be helpful to groups updating and introducing new added value facilities. But it is most important
that any help is given to those who are prepared to help themselves and grant aid is best administered
where it is not higher than one third of any total capital costs.
Field advisers have an important role to play in encouraging the cross fertilisation of ideas between
groups, (and between groups and buyers/suppliers), facilitating producer meetings and assisting in the
development of plans but not over influencing or directing group development. The further development
of associations able to maintain, and disseminate, basic reference material on major buyers of agricultural
produce, EU production and marketing directives and information on sources of equipment and new
technologies needs to be encouraged Groups would particularly benefit from being more closely involved
in key research programmes aimed at improving overall production and marketing standards.
73
REFERENCES
BUTTON D. 1999. Producer marketing organizations – A guide to their formation and development in the
Czech Republic, Prague
CARNEY, D. 1996. Formal farmers organizations in the agricultural technology system: Current roles and
future challenges . Overseas Development Institute, London.
CIA. 2001. World Facts, Country listing, http://www.odci.gov/cia/publications
COPA/COGECA. 2000. Agricultural cooperation in the European Union, Issues and trends, Brussels.
CIRAD–TERA. 2001. The Role of Rural Producers Organizations (RPOs), World Bank Rural Development Strategy – Reaching the rural poor, Washington D. C..
Commission of the European Communities. 2001. Report from the Commission to the Council on the
state of implementation of regulation no 2200/96 on the common organization of the market in fruit and
vegetables, Brussels.
DFID, Landell Mills Management Consultants. 2000. Producer marketing group development project –
Wroclaw, Poland . Final report. DFID Reference number: CNTR 98 5396.
FAO. 1998. Improving agricultural extension – a reference manual, FAO, Rome.
FAO. 2001. Global farming systems study: Challenges and priorities to 2030, Volume 4: Regional analysis
Europe and Central Asia, Rome.
FAPA/SwedFarm. 1998. Final report on quality management in the dairy sector (Poland).
ICA. 1967. Report of the ICA Commission on Cooperative Principles, ICA, London.
ICA. & ILO, 1998. The role of cooperative apex organizations in a changing environment, Interregional
Workshop, Johannesburg, 13–17 July 1998, ILO, Geneva.
IFAP. 1992. Towards self supporting farmers organizations, IFAP, Paris.
ILO. 2001. Conference 89th Session (2001) Promotion of cooperatives – Job creation in small and me-
dium–sized enterprises.
LEMOINE, F. 1998. Integrating Central and Eastern Europe into the European trade and production network, Working paper 107.
MILLNS, J. 1999. Producer marketing groups in transitional economies – Comparing Poland, Moldova
and Uzbekistan.
OAKES, E. 1999. Increasing financial returns from pig production enterprises via effective group marketing, Dolnoslaskie Region of Poland.
OECD. 2000. Agricultural trade liberalization; the perspective of emerging and transitional economies,
OECD, Paris.
OECD. 2001. The Uruguay Round Agreement on Agriculture – The Policy Concerns of Emerging and
Transition Economies, OECD, Paris.
SCHILTHUIS, G. & VAN BEKKUM, 2000. Agricultural Cooperatives in Central Europe – Trends and issues
in preparation for EU accession.
TANIC S., SIPILAINEN T., BACKMAN S.. & SUMELIUS J., 2001. Description of Current Farming Systems in
Central and Eastern Europe, Sustainable agriculture in Central and Eastern European countries, 5th
Framework programme of the Commission of the European Union.
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ACKNOWLEDGEMENTS
The author wishes to acknowledge the support provided in writing this paper from the Food and Agriculture Organization of the United Nations, the Department for International Development (UK), the
Plunkett Foundation (UK), Landell Mills Management Consultants (UK), Swedish Farm and
Agroindustrial Services (SwedFarm), COPA/COGECA, the Ministry of Agriculture and Forestry (Bulgaria), the Croatian Extension Institute, the Association for Organic Production (Croatia), the Faculty of
Agriculture (Croatia), the Ministry of Agriculture (Czech Republic) the Czech Agrarian Chamber, the Association of Agricultural Cooperatives and Companies (Czech Republic), the Center for Environmental
Studies (Hungary), the Ministry of Agriculture and Regional Development (Hungary), the Latvian
Farmers Federation, the Foundation for Rural Cooperatives (Poland), the Agency for Re–structuring and
Modernisation in Agriculture (Poland), the Federation of Agricultural Producers (Poland), The Institute
of Agricultural Economics (Romania), the Ministry of Agriculture, Food and Forestry (Romania), the Romanian Farmers Association, the Ministry of Agriculture (Slovakia), the Farmers and Agribusiness Association (Slovakia), the Farmer Cooperative and Trade Companies Association (Slovakia), the Chamber of
Agriculture and Forestry (Slovenia), the Cooperative Union of Slovenia, the Farmers Union of Slovenia
and the Slovenian Union of Rural Youth.
75
FARMERS' SELF ORGANIZATION
IN PROVISION OF SERVICES
IN PANNONIAN REGION OF CROATIA
Ramona Franiæ and Zoran Grgiæ42
EXECUTIVE SUMMARY
In relation to a previous period of a dual type of ownership and, with regard to this, the existence of two basic agricultural production organizations, after attaining independence, all legal restrictions for rural entrepreneurship have been removed. All ventures in agriculture today can be realized through different
forms of business cooperation, due to political and economic changes and a new economic system.
The number of specialized, commercial farms with mutual business interests and goals is still low, as is
the awareness of the advantages that result from cooperative business. Today there are many registered
agricultural associations in Croatia (more than 300), but the majority of producers are not included in this
field, and a great number of these associations exist only formally.
Three examples of farmers' associations in the Pannonian region have been presented in the paper: the
Fruit growers' Association, the Dairy Association and the Association of pig producers. Each have members (mostly already successful, commercial producers) that are independent in their business, but are associated with the purpose of making their business easier and more efficient. They realize the importance
of business cooperation in spheres of input purchase, applying new production technologies and achieve
better business results, better market approach (due to bigger supply of a better quality, they are more interesting to purchasers and dealers) and market promotion of their products (promotion of traditional
products and development of trademarks).
Recent agricultural policy also stresses the need to (indirectly) support farmers' self–organization and association. Basic activities that could complement services offered by the Government are developing
training programs for extension agents and farmers on the preparation of farm business plans for management and credit application purposes; organizing courses and workshops for farmers, helping them to
understand the justifiability of association and to adopt managerial skills and market economy principles
and improving business associations in agriculture, through the cooperative and contract cooperation of
agricultural producers mutually and with complementary activities.
INTRODUCTION
Croatia ha a total of 3.15 million hectares of agricultural land. About two million hectares of the total are
cultivated and the rest consist of pastures, moors, reed fields and fishponds. The vineyards area is 59 thousand hectares, and orchards about 67 thousand hectares, mostly owned by family farms. About 80 percent
of the total livestock are also privately owned. During the 1990s the agricultural production was significantly decreased due to the war and market economy transition. The plant production has been increasing
continually since 1995, but the cattle production is still 30 percent lower than in 1990.
42
Institute of Agricultural Economics, Faculty of Agriculture, University of Zagreb.
76
The former “socialistic” economic system didn't give preference to the private agricultural sector (although the majority of agricultural resources in Croatia were privately owned even then), so after fifty
years of neglect, numerous problems remained in this sector: fragmented agricultural land, a high number of small family farms (average size is less than 3 ha), the problem of state–owned land that needs to be
privatized, an unsettled land register system, diversified agricultural production, low productivity in agriculture, lack of market infrastructure and a number of other problems.
The cooperative movement, as a form of business cooperation, hasn't been very successful within the Croatian social and economic circumstances. A certain dependability in their business has been achieved by
farmers through cooperation with ex–social companies, which have purchased their products. The
breakdown of the former system and state companies from within, caused the gap in the market chain between the producers and processors of agricultural products. Rigid terms of international competition additionally distresses the position of Croatian farmers. Therefore the need for their association arose, to
improve their position in the whole economy and make the approach to domestic and international markets easier (of both inputs and outputs).
Although there are no formal obstacles for their association, there are numerous aggravating circumstances in the process of their association and cooperative work. The number of specialized, commercial
farms with mutual business interests and goals is still low, as well as the awareness of the advantages that
result from cooperative business. Today there are many registered agricultural associations in Croatia
(more than 300), but the majority of producers are not included in their work, and the great number of
these associations exists only formally.
However, this recognition of the necessity of business cooperation between farmers is becoming more
and more clear. Producers understand that cooperation enables them to use their production resources
more efficiently, to increase their productivity, not to mention an easier market approach and influence on
the agricultural policy decision making process. Although this influence is still weak, the policy makers
also change their approach toward the commercial farms, setting them apart from the non commercial
producers who can not achieve satisfactory production results in agriculture.
Selected examples of farmers' organization in the most successful Croatian agricultural region should
show that farmers' associations – either on the basis of profit realization or just making their business easier – would be useful for those who expect satisfactory production and income results from agriculture.
BACKGROUND AND INSTITUTIONAL SETTING
Soonafter the Second World War, the cooperative movement in Croatia was renewed. Considerable results were achieved in establishing new cooperatives, mostly those for purchase and sale (at the end of
1946 there was 2647 of them), helping peasants in poverty and a lack of goods. However, about 95 percent
of the cooperatives' business referred to the distribution of industrial goods, and only about 5 percent of
agricultural products. Membership of these cooperatives consisted mostly of the peasants (about 87 percent), serving more than 2/3 of the family farms, so these cooperatives wereof vital interest for the whole
society.
A considerably lower number of the cooperatives were for production and processing. At the end of 1946
there were 419 of them, most of which were involved in fishing (122). However, only a small number of
those specialized co.operatives had successful businesses. There were a lot of reasons for such a situation:
lack of working capital, machinery, buildings, professional personnel. The considerable financial means
necessary for their businesses were unable to be provided at the time.
There were 324 Savings and loan cooperatives when the Second World War stopped. However, in early
1947 their number fell to72, which was due to a lot of reasons. First of all, peasants already lost their trust
in this kind of cooperative during the former system, because of the measures that the Government used to
77
apply to “protect” peasants' debts. Secondly, the majority of these cooperatives were dealing with commodity agreements, and by establishing purchase and sale cooperatives, where peasants could provide
commodities on credit, the need for savings and loan cooperatives dissapeared.
The new type of cooperatives were so–called farmers' working cooperatives. These cooperatives had been
establishedsince the end of 1945, by ideologically inspired participants of the liberation war. At the end of
1946 there were52 such cooperatives with 1.213 households and nearly 5.000 ha of agricultural land.
Their development was under the care and responsibility of the Croatian Ministry of agriculture and forestry. The Ministry gave the instructions and permission for their establishment, as well as solved problems of land and equipment, purchased livestock, gave professional support in the working organization
and management.
The period from the late 1940s up to the early 1960s was characterized by the process of cooperative reconstruction and establishing new forms of cooperatives. At the beginning of the period, purchase–sale
and production–processing cooperatives gave the basic support for the agricultural development. Purchase–sale cooperatives were still of the in the majority(2.674), playing an important role in supplying rural areas with industrial goods and in the purchase of agricultural products. However, their further
reorganization was necessary to improve their business, so the process of mergering was undertaken during 1947, leaving 1.119 of them with increased capacities. Especially good results were achieved by these
cooperatives in the purchase of agricultural goods. These results have been achievedfirstly thanks to making contracts with peasants on the delivery offree surpluses of cereals, seeding material and industrial
crops, thenfruit, vegetables and livestock products as well as other commodities for export. Cooperatives
at the same time ensured inputs for the farmers (seed, mechanization, professional help and possibilities
for production specialization).
General agricultural cooperatives were the new tye of cooperatives which arose during 1947, when purchase–sale cooperatives had extended their business in different economic branches at the local level
(crafts, mills, bakeries, wine–cellars) and started agricultural production on their own farms (on land obtained by agricultural reform and later by purchase). Later they developed agricultural production on
family farms, purchased agricultural machineries and opened catering workshops, savings–loan departments etc. However, such successful development of the general agricultural cooperatives didn't last, because they were joined to the farmers' working cooperatives. The number of their business branches and
plants were decreased, as well as the volume of their market operations. The main reason for the fall in industrial commodity trade was taking away the right to sell the goods at commercial prices, and the fall in
the agricultural goods trade was caused by the exclusion of the cooperatives from this activity in favour of
state pruchase companies. Cooperatives lost their shops and storehouses. Only by abolishing administrative measures in the economy and the transition to a free market, possibilities for faster development
wereensured for all cooperative business activities, and this started to happen at the beginning of the
1950s.
Farmers' working cooperatives have been the second most important regarding the total number of cooperatives in Croatia during that period. They were agricultural cooperatives, but of the production type,
based on common land cultivation. The members of those cooperatives were obliged to relinquish the part
of their land to the cooperative, and in some cases also part of their production capital – agricultural machineries, economic buildings, cattle etc. However, the number of these cooperatives diminished over
time, mainly because of the lack of capital , weaknesses in working organization and income distribution.
Additional reasons for such a process arosefrom the situation characterized byCroatian agriculture: fragmented farms (during the 1950s the average cooperative land size was about 155 ha). Also, farms included in the cooperatives were fragmented, economically weak, with surplus of labour. Moreover,
administrative management of the whole economy and with cooperatives (planning system, compulsory
purchase, industrial commodity distribution etc.), unsolved property rights and relationships also contributed to the breakdown of the farmers' working cooperatives.
At the end of 1952 the number of the production–processing cooperatives was almost seven times less
compared to 1946. The main reason was that a great number of these cooperatives wereintegrated into the
78
general agricultural cooperatives. General agricultural cooperatives were the predominant form of farmers' cooperation, not only by their number, but also by business results. However, their number was also
declining. the basic reason was dissolving the inefficient cooperatives, and mergering towards the creation of stronger economic entities. Cooperatives had considerably enlarged their business activities, especially in their own agricultural production and agricultural commodity distribution. Agricultural
production in cooperation with individual (private) farmers was developing in different forms, from ensuring various kind of services and contracting, to guaranteeing yields and participation as the most developed kind of cooperation. The most popular form of business cooperation was contracting, in which
cases the cooperative gave loans to private farmers in inputs (seed, fertilizers), machinery services and financial means for specific production, while farmers had to deliver defined quantities of their goods to the
cooperative. However, despite rather good business results generally achieved by agricultural cooperatives, general social and political factors caused serious obstacles for their operation. The cooperatives
lost their market facilities, crafts and catering shops and eventually – cooperative farms, which started the
process of the decay of the cooperative movement.
During the 1960s and 1970s this process continued. The number of general agricultural cooperatives
showed a rapid fall for a number of reasons: first, their inability to adjust to new economic conditions (they
needed to transform into companies based on the principle of so–called workers' self–management); second, Government policy orientation towards supporting state farms – agrocombinates, and neglecting
cooperatives as a form of agricultural production and business. One of the most importantreasons for the
disastrous situation in the cooperative movement after 1960 was also the abolition of the General union of
agricultural cooperatives of Croatia, as well as the general and business cooperative associations that gave
great help to cooperatives in developing their organization and business activities. Specialized cooperatives showed some advantages because they involved producers of one kind of production who also processed their goods and in that way they ensured easier access to the market. Members in such cooperatives
were more tightly connected due to their economic interests. Anyway, the number of these cooperatives
also declined, so that in 1974 only 70 of them remained.
At the end of the 1970s begun the new age of economic development, characterized by the system of
so–called associated work and income relations. New laws formally made cooperatives and other economic entities equal, as well as farmers and workers. In practice, however, the situation was different. In
1978, Croatia enacted the new Law on farmers' association which additionally complicated the basic
terms and principles of farmers' associations and working organizations. According to this law, peasants
could associate in the following forms of organization:
1. Agricultural cooperative:
• a) without elementary organizations,
• with elementary cooperative organizations,
• combined and
• specialized.
2. Within the organization of associated work:
• elementary organization of cooperative workers.
3. Within the combined organization of associated work:
• working organization of cooperative workers without elementary organizations,
• working organization of cooperative workers with elementary organizations.
In addition to these institutional forms of association, so–called functional or contraction forms of production cooperation of farmers existed:
• cooperation with agricultural cooperative,
79
• cooperation with elementary or other organization of associated work and
• other forms of association.
The bottom line was that private ownership had to be transformed into social ownership and the process
was named – socialistic cooperation. So the second half of 1980s was characterized by stronger changes
in the structure and the number of cooperative organizations. During the period 1986–1989, the number
of agricultural cooperative organizations considerably increased. So in 1986 there were 205 agricultural
cooperatives, and in 1989 their number increased to 245. Onthe part of the agrocombinates, organizations of cooperative workers of that period transformed into agricultural cooperations. This was the period when the original principles of cooperative movements were re–established.
In relation to a previous period of a dual type of ownership and, with regard to this, the existence of two basic agricultural production organizations, after attaining independence, all legal restrictions for rural entrepreneurship were removed. All ventures in agriculture today can be realized through different forms of
business cooperation, due to political and economic changes and a new economic system.
LEGAL AND REGULATORY FRAMEWORK AND AGRICULTURAL POLICY CONTEXT
The Republic of Croatia has now its own set of legal regulations, which (due to Constitutional provisions)
regulates the organization and business of economic entities in agriculture. These are the Company act,
the Law on handicraft trades, the Law on cooperatives and the Law on associations. These regulations arrange business organization so that today in agriculture different firms operate, trades and crafts and cooperatives. It is usual in Croatian practice to differ between public–state companies and private
companies in agriculture. Also, a farmer (family farm) can operate as a company, in crafts, contract
farmer (cooperating member), member of a cooperative, as a farmer in a VAT system and as a person under income–tax obligation.
Activities that farms can deal with are not precisely determined, so the owner (householder) is not obliged
to register the business. That is why a family farm is not really a business organization in a formal and legal
sense. At the same time, farms registered as companies and a small part of family farms within the VAT
system (only about 3 percent of total number) are obliged to keep records (book–keeping). The rest of the
farms don't have this obligation and they are income taxpayers (due to the Law on income tax).
At the end of 1999 in a branch of agriculture, fishery and veterinary there were 14 active laws, more than
120 statutes, and a great number of ordinances (8), decrees (18), proclamations (13) and regulations
(13). As by activities, agricultural legislation elaborate questions of: (1) agricultural land, (2) crop production, (3) livestock production and (4) veterinary services.
Special laws deal with questions of state support measures for agriculture and fishery, prices of agricultural products, regulation of domestic and international trade etc. Some of these laws for the field of agriculture and related activities are still in the process of adoption as new ones, and some will have
amendments. Special attention has to be put on the Law on agriculture, the Law on agricultural land, the
Law on food and the Law on genetically modified organizms.
In Croatian legislation the umbrella law is still missing– the Law on agriculture – which would regulate
the entire sphere of agriculture, including existing legislation, as well as a functional link with numerous
fields that are not yet legally arranged. The purpose of this law is to arrange relationships in agriculture, to
define subjects, that is the consisting parts of the agricultural structure, to determine authorities, rights
and obligations (actual and possible) of producers and institutions in agriculture. Also, the intention is to
improve the fulfillment of basic elements of agricultural policy.
Specific fields of the future Law on agriculture are the following:
• defining of target groups to which the Law is applied,
• institutions responsible for implementation of the Law,
80
• forms of business organization and cooperation in agriculture,
• price and income support in agriculture,
• agricultural financing,
• institutional background and support in agriculture,
• regional and structural policy in agriculture.
The success of the entire agricultural policy and its basic elements – price and support policy, land policy
and especially the structural policy – and dynamics of the development of legal and administrative infrastructure, will also determine the dynamics of realization of the basic agricultural policy goals, which are:
• ensure food security for the people, as much as possible with domestic competitive agricultural
and food products;
• improve production and marketing efficiency in agriculture to achieve competitiveness in domestic and international markets;
• achieve a satisfactory quality of life and contribute to agricultural income stability;
• ensure adequate and stable food supply for consumers, particularly regarding the price and
quality of food;
• keep the natural resources by promoting sustainable, and ecological agriculture;
• achieve the progress and protection of rural areas and keep traditional rural values.
The new agricultural policy approach points out the need for transformation of the rural area by improving the working and living conditions. Agriculture is only one (but very important) of the possible business activities in rural areas, and the the source of living for one, at present majority, part of the rural
population. Therefore it is necessary to distinguish the future agricultural policy measures toward the agricultural sector restructuring:
• support to vital/commercial farms;
• modernization of production capacities and agro–technical and agroecononomical procedures
and activities;
• making stronger the role of agricultural producers in the markets of agricultural products;
• change the structure of agricultural production and technology to achieve better competitiveness of agricultural production;
• support for different kinds of measures for improving rural areas (as municipal and social infrastructure – health insurance, educational, better employment possibilities in non–agricultural
activities etc.);
Special agricultural policy goals elaborate these principal questions, emphasizing the need for restructuring the family farms by supporting commercial farms and protecting those who work under unfavorable
economic conditions. Attention is also given to measures of indirect support for agricultural cooperation
and contracting between farmers themselves and with other complementary activities, as well as with
processors, traders and producers of agricultural inputs.
STRUCTURAL CHANGES IN AGRICULTURE, MARKETING AND PROCESSING SECTORS
The shock of transition to a market economy had the same effect on the agricultural and food–processing
sector as in whole economy: fall in production and employment, debt, lagging behind technically, deterio-
81
ration of trade balance and insolvency. The delay in necessary policy reform in particular areas and stronger economic integration can partly be justified by the recent war in Croatia. War devastation in
agriculture especially affected the traditionally most productive area – the Danube basin of Croatia, although damages in livestock fund, agricultural mechanization and land under mines hurt a considerably
larger area. Unfortunately, after the war stopped, no change appeared in economic policy implementation
toward rural areas and agricultural producers due to their strategic importance.
The inadequate system of financial and institutional support to agriculture, although formally in favor of
farmers, in practice directly and indirectly withdraws Government money into inefficient and inflexible
systems. High external costs of production, rigid tax system, chronic lack of cheap capital necessary for
agriculture, irrational distribution and market system and insufficient budgetary support – these are
some of the main factors that caused a decrease in production, a low level of self–sufficiency (below 60
percent) and high prices of basic agricultural and food products. The market of agricultural land as the basic agricultural resource is limited by the present confusion in land registration, as well as a slow and very
complicated procedure of harmonization in the double land registry system (consist of cadastral books
and register of land owners). This is probably the most important reason for the impermissibly high share
of unutilized agricultural land. Disloyal competition and a weak legislation background also limit agricultural land market operation. This is particularly obvious when family farms want to take part in the distribution of agricultural and food products.
As already mentioned, only a small number of family farms in Croatia operate within the VAT system
(about 3 percent). The consequence of this is the fact that almost all our family farms purchase agricultural inputs at the VAT rate of 22 percent, without a right of return of the prepaid tax. This, together with
other factors, considerably increases production costs of the entire production–processing chain (agricultural and food products) and diminishes competitiveness in domestic and foreign markets. Therefore
it is necessary to include, as much as possible, family farms into the system of VAT. Family farm business
cooperation (cooperatives) would make this process easier, but, above all, it is necessary to set a legal
framework for the monitoring and bookkeeping of their business.
TRENDS IN AGRICULTURE (COMMERCIALIZATION) IMPACTING FARMERS' ORGANIZATION
Since the data on agricultural structure and characteristics are really out of date (last Census was in 1991),
some researches have been made to point out the actual processes and changes in agriculture and on family farms during the last decade.
Comparing the 1991 situation with the present situation in agriculture, it is necessary to take into consideration the inherited institutional and economic system of the former state, the war and occupation and
devastation as a consequence, inherited underdevelopment and natural limitations on some agricultural
areas. Despite this, recent researches show considerable changes on the part of so–called “vital” family
farms. Today these farms manage the greater part of production resources, they have educated, mostly
young, farmers and market–oriented (commercial) production.
Certain numbers of householders have adjusted their business to the new economic conditions and have
changed organization and management on the farm. In this adjustment process there often exists the illusion that with only slight changes, and still with traditional production systems and permanent support of
the state institutions (mainly by controlled buying–off and subsidies) it will be possible to respond to the
new market conditions. Such opinion has to be removed because it blocks further development and adjustments to the new market orientation in agriculture.
Despite the fact that existing economic conditions do not ensure and encourage agricultural development, the special surveys show that the process of farm enlargement is noticeable on the part of the farms.
These farms have in average four family members. Agricultural production prevails in the structure of employment, and mostly family members work on the farm. Householders are mostly men, and in less than
10 percent of the cases women have this role. However, in some cases (more than 12 percent) household-
82
ers are also employed out of agriculture. Average householders' age is 56, and the educational structure
shows a rather weak educational level (more than two–thirds have only finished elementary school, about
20 percent are with a high school qualification, less than 4 percent have degrees, and almost 8 percent
failed to finish school).
These “commercial” farms use in average 10 ha of agricultural land, from which they own more than 70
percent. About 27 percent of the arable land they lease. Most of the farms cultivate 6.36 ha of plough land
in average, while the average orchard size is 0.46 ha and a great number of orchards are leased.
Production and management systems are considerably different, regarding geographical position, natural conditions and socio–economic circumstances of the particular region. However, these vital, market
oriented farms are all characterized by younger labor and better technical and technological levels.
CURRENT STATUS AND DEVELOPMENTS OF FARMERS' ORGANIZATIONS
AND ASSOCIATIONS
Institutional presentation, primary of economic interests of agricultural producers in Croatia, in spite of
numerous associations, is still insufficiently functional and not developed enough on the basis of partnership with formal administrative services, especially within the Ministry of agriculture and forestry.
Since 1994 the Agriculture, Food Industry and Forestry Department within the Croatian Chamber of
Commerce has been organized in associations, councils and affiliations. Two associations have been
founded. Agriculture and Related Industries Association and Livestock, Fishing and Related Industries
Association, with 23 affiliations. However, not only the Agriculture, Food and Forestry Department in the
Chamber Headquarters deals with agricultural problems, but also the departments for agriculture and
food industry within the County Chambers. The Chamber represents business interests of agricultural
companies, cooperatives and other legal entities. However, the greater part of agricultural producers,
mostly those from family farms, are not members of the Chamber. The Association of Tourism on Family
Farms operates within the Department of Tourism and Catering. Its role is to promote tourist activities on
family farms and provide professional help.
However, in the field of agriculture, hunting and forestry, in 1998 3167 business entities were registered,
which is 1.75 percent of the total number of business entities in Croatia. This number continuously rose
during the last several years (in the period 1995–1998 it increased by 8.3 percent).
By the Law on enterprises and the Law on cooperatives, 2 378 business entities (75.1 percent) were registered, and by the Company Act 775 (24.5 percent). The rest consists of 14 institutions, bodies, funds and
organizations (0.4 percent).
From the total number of business subjects registered by the first two acts, the greatest number (1443 or
60.7 percent) are registered as a limited liability company, followed by private companies (477 or 20.1
percent), social firms, public companies and cooperative firms.
Out of a total number of business subjects registered by the Company act, the majority of them (685 or
88.4 percent) are registered as limited liability companies, then follow joint stock companies (85 or 11
percent), limited partnerships and public companies.
According to the Monetary transfer service records, in 1998 there were 460 agricultural cooperatives registered, and 334 of them were included into the Croatian Cooperative Association. More concretely, according to the fresh data of the Cooperative Association (from 2001) in Croatia there are 1211 entities
registered as cooperatives; 568 of them are housing cooperatives, 164 of them are savings and loan cooperatives and 479 are agricultural cooperatives with 80 000 members. According to the Law on cooperatives, cooperative is a legal entity, the form of joint work of voluntary associated people on some business of
common interest. Agricultural cooperatives improves the business of their members – family farms and
increases their profit.
83
According to the Ministry of Agriculture and Forestry records, there were 337 cooperatives, and the majority of them are registered in the Pannonian region (51.6 percent with 19 members and 16 employees in
average). In the Northern part of the Mediterranean region there were 42.7 percent of the cooperatives
(average 29 cooperative members and 8 employees) and in the Mountain region only 5.6 percent of the cooperatives (with 25 cooperative members and 4 employees in average). At the same time, according to the
records of the Croatian Cooperative Association (survey of 145 cooperatives), one cooperative has on average 50 members and 23 employees.
The Croatian Cooperative Association, unfortunately, has no great impact on family farm development,
although the business cooperation through cooperatives is one of the most popular forms of business cooperation of agricultural producers in the world. It is also very important for the technological and marketing progress of smaller family farms. There are still many prejudices and distrust among farmers, but
the interest in cooperative integration exists at more vital, commercial family farms.
Summarizing more than 135–years experience in the Croatian agricultural cooperative movement, it
should be stressed that it showed as a useful institution in rural and agricultural development. However,
the lesson is that “great expectations” at the time of dogmatic socialistic Utopianism and collectivization
process were not realized. On the contrary, they failed and turned hope into disappointment at the expense of farmers. And today, although the new Law on cooperatives from 1995 ensures grounds for cooperative management and business improvement, due to the original principles of the cooperative
movement, bad experiences from the past caused farmers to distrust and to find this kind of cooperation
unacceptable. Besides, it is obvious that current state measures don't give enough support to the process
of business cooperation within farmers' cooperatives.
Figure 1. Relationships between associations and community
TERRITORIAL,POLITICAL INSTITUTIONS
(GOVERNMENT, MINISTRY, COUNTY,
MUNICIPAL)
TECHNOLOGY, EDUCATION, SKILLS
EDUCATIONAL AND PROFESSIONAL
INSTITUTIONS (SCHOOLS, FACULTIES)
84
EXCHANGE OF EXPERIENCES,
INFORMATION, INPUTS AND OUTPUTS
ECONOMIC INSTITUTIONS
ASSOCIATION OF
BREEDERS AND
PRODUCERS
EXCANGE OF INPUTS AND OUTPUTS,
CAPITAL PROVIDING
OTHER PROFESSIONAL ASSOCIATIONS
(RAISERS, PRODUCERS, PURCHASERS,
PROCESSORS, CONSUMERS)
LAWS, STATUTES, REGULATIONS
Figure 2. Review of associations of breeders and producers in agriculture
ASSOCIATION OF BREEDERS AND
PRODUCERS IN AGRICULTURE
LIVESTOCK
PRODUCTION
CROP-PRODUCTION
HORSE
SHEEP
FRUIT-GROWING
CATTLE
CATTLE
GROWING
GRAPE-GROWING
PIGS
BEES
CATTLE
PRODUCTION
CALVES
-HAIFERS
SYMENTAL
GROWING
HOLSTEIN
GROWING
MEAT
BROWN
CATTLE
GROWING
MILK
MANURE
Formally, in Croatia there are more than 300 associations of agricultural producers. The biggest number
is of specialist associations created on the basis of the cooperation of the “more powerful” producers in
the same area of production. No matter their great number, the majority of farmers are still not included in
these kinds of associations, and the other problem is that part of these associations are not active enough
or exist only formally. According to the Law on Associations (NN 70/97, NN 107/97), at least 10 founders
can establish the association. In distinction from cooperatives that operate as firms, the associations are
established without the purpose of gaining the profit. Possible profit that could be realized can be used only
for improving the business activities of the association.
There are also a great number of more or less related societies and professional associations of scientists
and experts (Croatian Society of Agronomists, Croatian Society of Agricultural Economists, Croatian Society of Entomologists etc.).
Association through unions in agriculture does not exist in Croatia, which is a great loss for farmers (unions exist only for employees in companies in the agricultural and food processing sector). In the promotion of the social and economic interests of peasants several associations, societies and organized bodies,
developed by the initiative and by support of particular political parties, operate. However, in representing
farmers' interests they operate without co–ordination. The Board for Agriculture, Village and Peasants,
which operates within the Croatian Parliament, deals mostly with agricultural legislation.
THE CASE STUDY REGION IN THE CONTEXT
OF FARMERS' SELF ORGANIZATION
Experts believe that basic advantages of Croatian agriculture can be laid down in several factors, which
are:
• Three different geographic and climatic zones: the lowland zone in the north of the country, influenced by the continental climate; the coastal zone in the south, influenced by the Mediterra-
85
nean climate; and the mountainous zone that occupies the central part of Croatia. Various types
of climate, relief and soil are favorable for the production of a wide range of agricultural products, from farm and industrial crops to vineyards, from continental to Mediterranean fruits and
vegetables.
• Low level of pollution enables the development of ecological production.
• Besides agriculture, Croatia has a manifold and well–developed manufacturing and food pro-
cessing industry. The capacities of the industry are sufficient to satisfy the needs of the domestic
market as well as the markets of neighboring countries.
• Another important sector of the Croatian economy is tourism, enabling consumption and,
more importantly, promotion of Croatian agricultural products.
From the aspect of agriculture, the Croatian territory is divided into three main regions: the Pannonian,
Mountain and Mediterranean region. Each of them has its own characteristics and particular advantages,
but the majority of farms and agricultural production is, naturally, placed in the Pannonian region.
KEY CHARACTERISTICS OF AGRO–ECOLOGICAL AND ECONOMIC CONDITIONS
OF THE PANNONIAN REGION
Selected 3 cases of farmers' self–organization are placed in the Pannonian region of the Republic of
Croatia, which is the most important area of agricultural production in the whole country, especially of intensive agricultural production. Within the Eastern–Pannonian, Central–Pannonian and West–Pannonian subregions, and by administrative and territorial division, counties are divided in which selected
associations work. Since boundaries of agricultural sub–regions regularly follow the county boundaries,
in regional analysis we present data for three counties in which members of the associations operate.
The climate in the region is moderate continental, and the basic characteristics are moderate cold winters,
warm summers and rather favorable annual precipitation allotment. Soils in the region are rather favorable for intensive agricultural production. The greatest part of production capacities and development
possibilities for conventional agricultural production in Croatia are placed just in this area.
The agricultural land structure in the region is shown in following table:
Table 1. Agricultural and arable land in the case study region, 1999
Arable land
Agricultural land
Plough land and
gardens
Total
Orchards
Vineyards
Meadows
Sisaèko-moslavaèka
228 200
185 914
125 200
4 688
1 469
54 557
Brodsko-posavska
116 843
104 259
86 677
2 706
1 043
13 833
Vukovarsko-srijemska
150 570
146 441
141 897
1 772
1 242
1 530
All 3 counties
495 613
436 614
353 774
9 166
3 754
69 920
Pannonian region
1 612 219
1 486 307
1 156 695
37 222
29 374
263 016
CROATIA
3 151 244
1 992 751
1 471 261
54 417
59 104
407 969
% Pannonian region
51.16
74.59
78.62
68.40
49.70
64.47
% all 3 counties
15.73
21.91
24.5
16.84
6.35
17.14
Source: Statistical yearbook
86
Figure 3. Selected regions with farmers' associations
ECONOMIC, INSTITUTIONAL, SOCIAL CONTEXT OF FARMS
Favorable pedological and climatatic circumstances are not, unfortunately, supported by adequate farm
structure. Due to unfavorable social and economic movements in the past, today in Croatia (and also in
the in Pannonian region) small family farms in the category of up to 5 ha. Prevail. Unstable market conditions have formed a production structure in which mixed producers predominate, and there are a small
number of those who have specialized, commercial agricultural production.
The structure of the farm by their size in the Pannonian region and three selected counties is shown in the
table 5.
An additional difficulty in agricultural structure change and improvement in Croatia is the lack of an adequate statistical database on farmers' business activities and results. Therefore the data on family farm
businesses are collected only by surveys. On the basis of such gathered data we don't have an objective picture of an average family farm in Croatia, but we have a representative picture of more commercial farms
that are interesting for future agricultural development.
It has already been already mentioned that mixed types of producers prevail in Croatia. In our analyzed region there are a small number of entirely specialized fruit–growing farms. Farms that have combined production prevail– mostly crop production with cattle raising or crop production in combination with pig
raising. The reason for such behavior is that the purchase of fodder for raising livestock is difficult and expensive. Farmers achieve business efficiency only if they produce their own fodder.
BASIC PRODUCTION AND ECONOMIC CHARACTERISTICS
IN AGRICULTURAL PRODUCTION IN THE PANNONIAN REGION
After deserting former plantations in so–called social ownership, since the beginning of the 1990s fruit
growing has been based on rather small family orchards. Permanent lack of fruit products in Croatia and
rather good possibilities for direct sale, together with credit support for the renewal of the small orchards,
87
have been reasons for a considerable increase in the number of orchards in the County and entire region.
Orchards have been considered as private business projects and fruit–growing associations on state level
are not well connected and influential, so there is still no clear concept of growing which would use production possibilities. In practice there are considerable deviations in production technologies, regarding
the varieties, growing density and growing system, which makes more difficult the producers' association
due to a more efficient use of modern technical solutions in cutting and gathering. Also, applied growing
systems limit the height and quality of yields, and weak organization and working technology cause
higher production costs. Together with limited and obsolete varieties, this causes low competitiveness
compared to imported fruits.
Table 2. The size structure of the farms in the case study region
Pannonian region
Number
of farms
Households – total
Agricultural
Share
%
987 349
Sisaèko–moslavaèka
county
Number
of farms
Share
%
68 639
Brodsko–posavska county
Number
of farms
Share
%
54 019
Vukovarsko–srijemska
county
Number
of farms
Share
%
73 964
384 122
100.00
33 914
100.00
23 885
100
27 262
100
Without land
581
0.15
52
0.15
52
0.2
92
0.3
up to 0.1 ha
1 811
0.47
185
0.55
115
0.5
381
1.4
0.11–0.50
67 927
17.68
5 900
17.40
4 608
19.3
5 863
21.5
0.51–1.00
55 535
14.46
4 747
14.00
3 366
14.1
4 336
15.9
1.01–2.00
80 637
20.99
6 711
19.79
4 926
20.6
5 320
19.5
2.01–3.00
57 433
14.95
5 094
15.2
3 772
15.8
3 117
11.4
3.01–4.00
32 685
8.51
2 843
8.38
1 964
8.2
1 702
6.2
4.01–5.00
29 448
7.67
2 808
8.28
1 848
7.7
1 755
6.4
5.01–6.00
20 159
5.25
1 988
5.86
1 127
4.7
1 263
4.6
6.01–8.00
19 964
5.20
1 960
5.78
1 162
4.9
1 484
5.4
8.01–10.00
11 180
2.91
1 013
2.99
586
2.5
1 305
4.8
10.01–15.00
5 720
1.49
514
1.52
279
1.2
516
1.9
15.01–20.00
726
0.19
74
0.22
35
0.1
80
0.3
more than 20.00 ha
316
0.08
25
0.07
15
0.1
48
0.2
Source: Documentation of the State Bureau of Statistics of the Republic of Croatia
Since the greater part of the fruits produced by family farms is distributed to markets by direct sale and
other unregistered channels, producers in general achieve satisfactory revenue and income.
Seasonal fruit price deviations are considerable, in a great part caused by the unstable yields of the
small–sized orchards, climatic conditions and uncontrolled imports. Due to technological omissions and
a weak fruit market, calculations for the surveyed farms show “losses” of the gross margins from between
8.5 to 18.8 percent from the total revenue per area unit. Estimations show that a similar situation exists in
the entire state market.
Different production volume and different levels of capacity utilization in practice often determine the
economic position of “small size” and “larger size” fruit growers. Thus farms with rather small orchard
areas using technological procedures and results deviate from modern technology standards. However,
they successfully distribute a large part of their products at favorable selling prices and without tax burdens. Without greater risk, producers store a smaller part of their products in available storehouses
88
(dumps) for up to 3 months after gathering, when in general they achieve a higher selling price of up to
20–30 percent. In this way they can achieve additional income from fruit growing.
Table 3. Business characteristics of the farms in the case study region (according to the Farm survey from 1999)
Total reven.
Total expen.
Direct costs Gross margin Other costs
Depreciation
Net income
Without land
235 681
204 720
151 331
90 150
24 628
28 761
30 961
Up to 4.00 ha
60 156
43 797
26 177
53 145
4 094
13 442
16 359
4.01 – 8.00
55 844
46 026
29 940
46 660
2 971
13 061
9 818
8.01 – 10.00
91 631
75 814
48 250
65 955
3 813
23 688
15 817
10.01 – 15.00
100 673
86 012
56 016
64 889
5 808
23 761
14 661
15.01 and more
197 899
172 891
121 791
109 567
7 647
43 108
25 008
86 403
71 879
47 546
60 945
4 444
19 740
14 525
Croatia
Average
Eastern Pannon. region (P1 + P2)
Without land
42 060
36 843
23 430
25 830
576
12 837
5 218
up to 4.00 ha
57 241
50 384
33 700
43 800
5 608
10 729
6 857
4.01 – 8.00
44 907
36 824
24 779
41 628
2 162
9 862
8 083
8.01 – 10.00
82 990
67 613
44 491
58 917
3 679
19 406
15 376
10.01 – 15.00
103 456
92 894
65 076
53 713
5 650
22 093
10 562
15.01 and more
209 957
179 389
126 732
101 666
8 724
43 696
30 567
94 771
80 932
56 001
58 152
4 576
20 256
13 840
Average
Western Pannon. region (P3 + P4)
Without land
246 061
228 636
163 121
89 620
31 724
33 790
17 426
up to 4.00 ha
69 876
47 415
30 412
59 548
4 593
12 372
22 461
4.01 – 8.00
59 025
48 140
31 627
46 990
3 162
13 283
10 885
8.01 – 10.00
83 934
73 735
45 864
57 981
4 499
23 372
10 198
10.01 – 15.00
95 671
82 231
51 989
65 221
5 716
24 378
13 439
15.01 and more
199 388
188 505
142 200
103 890
6 562
39 553
10 883
81 607
68 111
45 828
57 915
4 439
17 770
13 496
Average
Source: Farm survey 1999
“Large–size” producers are obliged to pay VAT and in a greater part are subjected to legal regulation of
bookkeeping of their business. They in average achieve higher and more stable yields, but a greater part of
their output can not be distributed to an unregulated market immediately after the gathering when the
selling price is lower. Since they own greater fruit quantities, they need to store them in adequate
cold–storage plants, which makes storage till sale more expensive. As these capacities are rather small,
costs of own storage are too high, and present associations are not developed enough to get big producers
connected due to common possession and usage of the storage and processing facilities.
That is why depending on business skills and variable relations on the markets, fruit–growers achieve different production results, and not depending on similar yields and direct production costs.
Basic features of dairy production in Croatia are dislocation of production to more than 65 thousand producers, which almost two thirds have less than 3 heads and achieve average production of less than 3 000
liters per head. The Government supports dairy production development (subsidies, loans), because it
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considers that there is still a lack of 20–30 percent to satisfy domestic consumption. Rather high Government expenses for production support (about 350 mill. HRK annually), distributed in average per user,
only slightly improves the economic position of an average producer, without possibilities for a considerable increase in capacity. That is why the basic problem of the development of cattle and dairy production
is shown to be an impossibility concerning increasing capacities, without the use of the rather unfavorable
credit terms of commercial banks.
Regarding income, dairy production is very interesting for producers, because the producer–selling price
has been stable for the last 5–6 years and includes about 25 percent of Government subsidy and 10–15
percent of dairy subsidy. Unlike other agricultural productions, this production is characterized by a regular monthly payment for delivered milk by purchasers (dairies) and continuous support to producers by
different forms of crediting. Under the traditional terms of holding cattle, these terms have caused great
differences in production capacities and results. Farms with a lower number of heads have in general a
lower average production, often of a lower quality, so every decrease of the subsidy or the basic price further adds to their already unfavorable economic position. Dairies bear the charges of collecting milk,
which are sometimes higher than the regular subsidy (0.25–0.40 HRK per l), due to the great dislocation
of the producers. Because of this, only a chronic lack of milk on the domestic market forces them to collect
small quantities of milk, mostly in rural areas, and transport it, sometimes for 200 km, from producer to
primary processing.
At the same time, larger farms (under Croatian terms those with more than 20 dairy cows) achieve production results at the level of modern technology. However, there are a small number of farms that could
in a rather short period achieve competitiveness under the expected changes of economic circumstances
during Croatian access to international markets.
In Vukovarsko–srijemska county (where our Association of pig producers is from) there are about 2500
dairy cows breeders, where about 66 percent of the farms own up to 3 heads of breeding stock, 32 percent
have 4–10 heads and 2 percent have more than 10 heads. Only 0.23 percent have more than 20 dairy cows
of breeding stock. Average milk production in the County is about 3 thousand liters per dairy head, and
with about 11.5 thousand heads about 30 million liters is produced annually, from which almost 60 percent goes into purchase and processing.
For the last ten years, pig production has been considerably decreased in Croatia. The total number of pigs
is now about 35 percent lower than in 1990. Former “social” companies are now deserted and neglected in
terms of production and economics, and production of family farms that own more than 80 percent of livestock fund have been neglected over a long period of time.
During the last 30 years, pig production in Croatia has been based on purchase contracting, so less than
10 percent of pigs in slaughterhouses were coming from own family farm production. Family farms have
in their own capacities fattened pigs for ex–state companies (farms, meat industry). Today there is no
driving force and the meat industry's role is as a purchaser.. A great number of uncoordinated producers
with, in general, small–size production capacities, does not ensure stable production of quality pigs for
breeding and fattening. As the market is not adequately organized, deviations in input and output prices
are considerable. Also, imported pig carcasses are particularly interesting to processors, because they are
30–35 percent cheaper and of a better quality and level of usefulness.
Basic technological problems in pig–production is the considerable low total of productivity, determined
by the low average number of farrowing (only about 1.25 times annually) and by the production of only
500 kg per one sow annually. Due to inadequate quality of fodder and feeding, costs are rather high, but
feed conversion in fattening is low. This especially refers to a great number of breeders who keep pigs in a
traditional way, insufficiently using the genetic potential of modern breeds.
Economic advantages for pig breeding are in the simple breeding procedures, the production tradition in
the area, as well as in high productivity (fertility), fast growth, satisfactory feed use and the profitable use
of the meat. Unfortunately, in Croatia today only one small part of breeders really use these advantages
and achieve very good production and economic results.
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The new system of state support anticipates support for registered pigs and intervention in the buying–off
process with the purpose of stabilizing relations and prices in the market. For the revival and faster development of pig production in Croatia, it is planned to stimulate the business cooperation between breeding
progeny producers and producers of fattened animals, with a considerable participation of state support
through the extension and selection work.
In the area of Sisaèko–moslavaèka county there are about 551 thousand family farms, owning about
177 000 ha of agricultural, and 114 ha of arable land (average family farm size is 3.4 ha of agricultural, and
2.2 ha of arable land). About 55 percent of the farms have less than 3 ha of agricultural area, and unlike the
state average, even 25 percent of the farms have more than 5 ha. In the County there are about 30 thousand
pig breeders. About 72 percent of them have less than 5 breeding heads, and only 2 percent of the breeders
have more than 20 breeding heads. Within farms involved in pig production the category predominates
with a property of up to 5 ha (38.1 percent of the total number of farms and 64.2 percent of the total number of pig breeders in the County). These farms hold about 59 percent of the total number of the breeding
animals, and 65.7 percent of pigs for fattening. Only about 1400 of the farms (4.7 percent of the pig breeders), which have adequate farm size (more than 10 ha) for commercial pig production) have a fund of 7
percent of breeding pigs and 5.8 percent of pigs for fattening.
FORMATION OF FARMERS' ORGANIZATIONS – EXAMPLES
FRUIT–GROWERS ASSOCIATION
The Association was established in 1996, and its members are fruit growers and experts–agronomists
from the fruit–growing field. The basic function of the Association is members' business cooperation with
the purpose of the promotion of modern technologies in fruit–growing and mutual help during regular
members' work.
There are about 40 members in the Association, and 25 of them possess orchards for intensive growing,
while others have smaller family orchards. Active members with intensive plantations own about 60 ha of
orchards (apples prevail in the number of trees, while most of the area is under plums, and less under pears
and sour cherry trees). By signing a membership form, the producer becomes a member. All members
who regularly pay their membership subscription and respect the Statute (articles of association), participate in the Assembly work. According to the Statute, a three–member managing board leads the main activities of the Association, in accord with formerly adopted plans and conclusions of the Assembly. At
a regular meeting of the Association Assembly at the beginning of the calendar year, the president of the
Association gives the report on the previous year's work and the plan of the activities for the current year,
while the secretary gives the financial report.
Due to regulations in the Statute, the Association can cooperate and join with similar associations for improving its work and activities. Also, with the permission of the Assembly, it is possible to establish an active cooperation with scientific and professional institutions in the field of agriculture.
After establishing a company in the Association members' ownership, the manager should be paid according to the Law on Association (NN 70/97, NN 107/97) and the Rule on criteria for determining the
associations, whose work is in the interest of the Republic of Croatia, and financial support to the associations from the Government budget (NN 86/98). These regulations stipulate that the manager will receive
the full amount from the Government budget during the first year, 50 percent in the second year, and after
that the manager who leads the commercial business of the company, will receive the salary only from the
Association's profits.
Some external factors that can contribute to the work of the Association have to be stressed. These are
some specific advantages offered at a county level (loans, cooperation with purchasers and fruit processors etc.), as well as advantages determined by legislation set by the competent ministry (free services of
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the Extension Service – consultations, courses, organized inputs and mechanization purchase etc.). During its future work, the Association intends to increase the level of commercial production of its members.
Commercial business primary refers to representation of members in the sale of products and purchasing
inputs for fruit–growing, but, depending on future production volume and business within the Association, it is also possible to establish capacities for storage and finishing operations of fruits – cold storage
plants, mini dryers and mini distilleries. In the future, the Association would promote several basic products with protected technology, origin and name (plum brandy – sljivovica, pear brandy, dry plums and
other dry fruits etc.).
This association is fully autonomous in its activities, and regarding the members' characteristics, there
are no special conflicts of interest.
The initiative for the organization of the association arose during 1996, the immediate causes were economic problems in which ten bigger fruit growers (in Croatian terms those with more than 0.5 ha under
orchards) were found in the area of two counties. Until the beginning of the 1990s and the recent war, in
the area of present Brodsko–posavska county, two business entities were active: a big cold storage plant
that used to purchase great quantities of different fruits (mostly sour cherries and raspberries) and the
state farm that purchased greater quantities of apples, pears, plums and grapes. These state firms have –
on the basis of cooperative relationships – supported establishing fruit plantations, organized purchasing
of inputs and buying of fruits. By doing this, they have mostly used family farms as the source of cheap labor and raw material for fruit processing in which the income has been taken out from the fruit–growing.
The war caused stagnation in the cooperation of producers and purchasers, and, considering that there
are no market institutions developed, producers faced problems selling their fruits or resigning a greater
part of their income in favor of purchasers. Also, since abolition of ex–agrocombinats, producers have
been losing professional support.
The second reason for the initiative to establish the Association of producers was in the problem of new
fruit–growing “entrepreneurs” and new orchards built in the last 5–6 years. Through its favorable loans,
the Ministry of Agriculture supported agricultural development after the recent war, and also established
new plantations. Modern technology has been often neglected in the process of credit approval, or it was
not consistently applied in growing trees. That is why today these plantations do not make a return on investment as planned. Besides, the policy of giving support where less than the average amount is given to
a greater number of users caused the increase in the number of “small–size” producers that couldn't
achieve sufficient income from their production for a satisfactory technical outfit. That is why these farms'
business is based on high labor spending and less on the use of modern agricultural mechanization. Due
to lack of employees in the Extension service and their great sphere of activities, many producers don't
adopt and apply modern trends in fruit growing. That is why there are no greater positive movements in
product quality and yields, as well as in the income from fruit growing.
Through the Association, producers try to link new professional comprehension which with practice becomes faster and easier. By association and cooperation when they sell their products, they also try to
make a greater influence on weak and unorganized local and regional markets.
Territorially, the active members of the Association cover three municipalities in the County. This is traditionally a fruit– and grape–growing area. During the last 15 years, prevailing semi–intensive plantations
of plums have been replaced by intensive apple plantations, as well as by pears and sour–cherry trees. To
a lesser extent, plantations of raspberries and strawberries have been established. Producers are from
mixed family farms (fruit–growing in combination with cattle raising or crop–production with fruit
growing) or from non–agricultural households. In the latter, one or more active family members are permanently employed out of agriculture, and fruit growing as agribusiness project. However, these types of
households mostly build totally commercial orchards in areas and with the production technology necessary for an economically efficient business that ensures income for the family members and enables enlargement of the fruit–growing.
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Cooperation with the Extension Service at the level of the Association results in more efficient use of usual
consultants' services (professional trips, lectures, courses). After several years of constant cooperation
and mutual activities, members of the Association achieve constant and stable yields, as well as relative
stable selling prices easier access to the market, selling a greater volume of their production compared to
before the association. This directly reflects on a households' income.
Consultants from the Extension Service and experts from scientific and professional institutions believe
that their activities through the Association simplifies communication with a greater number of users
than before, although practical use of their professional support still depends on individual comprehension of the producers themselves.
Most of the members also estimate their work within the Association as very successful. However, for all
the members there are no obligatory measures relating to mutual cooperation and consistent fulfillment
of necessary agro–technical and pomo–technical activities in orchards, so there are some deviations in the
yield's quantities and quality, as well as in cost price of fruits. Activities of the Association so far can be estimated as successful from the aspect of connection of producers due to better implementation of professional support and information about the possibilities of using different forms of state support. However,
only commercial activities have to be justified in practice. A basic problem of its future work is business
success. The membership based on membership subscriptions as almost the only form of financial obligation is not a problem, but the business of the Association through the firm, managing the part of the members revenues, even now shows its limitations for the further enlargement of its activities. Since the
market is characterized by constant seasonal and annual input and output price variations, and there is no
developed market institutions, deviations are great even in margins that are often not transparent. Due to
the need for ad hoc decision making, the firm manager needs to have a high authority for conducting business, which causes the members to be suspicious. Namely, in this kind of cooperation, there are often misuses due to subjectivity in estimations of the quality and actual product price. Also, most of the producers
traditionally wish to decide independently about their goods up to the final contract with the purchaser
(dealer). The level of distrust is extremely high regarding the possibilities of manipulating the entire production of the members, taking into account that in Croatian terms these quantities and values are high.
That's why for every serious form of cooperation with business entities that involves financial activities,
the Managing board informally contacts the greater part of its active members, which unnecessarily slows
down and complicates their work. Resolving this problem is considered as a key for the Association's development towards a profitable business.
Regarding Croatian production conditions in fruit–growing, demand and the possibilities for fruit distribution and further fruit–growing development, farmers' interest groups could offer the following specific
types of services with a purpose of better market access and improving business profitability:
• consultant activities aimed at organized implementation of modern production technologies
and fruit distribution, especially sustainable management and “eco–production”, as well as
different forms of storage and finishing fruits for the market;
• rationalized purchase of quality production material, agricultural mechanization and plants for
storage, finishing and fruit processing;
• representing producers at buying and selling the products and determining the level of state
support at the Ministry and agricultural offices at the county level;
• representing producers in activities of registration the production, products and business;
• using legal opportunities of supporting the production efficiency and profitability in the sphere
of fruit production and distribution (financial support, common use of mechanization in mechanization rings, appearance on city markets etc.).
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Table 4. Average economic results of the fruit growing (per ha)
Apple
Pears
Plums
Sour cherry
Strawberry
Raspberry
26 700
24 700
25 700
25 800
28 900
13 600
+
7 600
4 200
3 500
1 800
3 500
750
–
3 300
3 100
5 800
3 700
4 100
2 500
Average revenue kn
72 700
79 700
67 800
79 500
158 400
77 200
Variable costs kn
42 500
41 400
31 400
28 400
78 900
43 400
Fixed costs kn
21 700
23 400
19 800
26 600
79 000
23 600
Gross margin
30 200
38 300
36 400
51 100
79 500
33 800
Net margin
8 500
14 900
16 600
24 500
500
10 200
Average “lost GM”
9 918
8 940
7 896
4 425
29 726
6 538
Average yield in kg
Yields deviation kg
% “lost” revenue
13.64
11.22
11.65
5.57
18.77
8.47
Source: Farm Survey
The Fruit–growing Association includes 4 from 26 municipalities of Brodsko–posavska county in the
Central Pannonian sub–region. Total area under orchards owned by members makes up about 3–4 percent of the orchard area in the County. In the County there are 23855 households, from which 16.1 percent
are agricultural, 16.1 percent are mixed and 67.6 percent non–agricultural. About 34 percent of the farms
own up to 1 ha of area, 53 percent of them have property 1 – 5 ha, 12 percent have 5–10 ha and only 1 percent has more than 10 ha. Total orchards areas are about 1 550 ha. About 23 percent of the farms that grow
fruit have less than 1 ha of orchards and exclusively grow fruit. About one half of these farms have permanent revenues from agriculture. About 50 percent of the farms own 1–5 ha and have orchards up to 2 ha.
Only 3 percent of the farms with an area larger than 10 ha have orchards that take up 50–90 percent of
their area.
Average production and economic results of the surveyed farms in the Association, per ha of plantation
are shown in table 4.
DAIRY ASSOCIATION
The Dairy Association was established in 1997, and consists of cattle breeders from the area of the municipality of Babina Greda in Vukovarsko–srijemska county.
In the Association there are about 20 members from which the majority own from 18–39 dairy cows,
which is considerably above the state average. The basic function of the Association is business cooperation and connections relating to protection of common interests (purchase of inputs and output distribution) and to improving dairy production.
Regular members are able to decide directly on the most important activities of the Association, because
the number of the members is rather small. The Association is led by a president and secretary, who represent it in all external activities (against institutions, companies, etc.) Regular monthly meetings are sometimes held more often if the members' activities require so (such as demonstration activities in fodder
production, zoohygiene and hygiene of milk, calf feeding etc.).
Members themselves initiated the foundation of the Association, because in the first half of the 1990s
greater distortions on the milk and beef markets occured. Professional support was not well organized at
the time and was insufficient for an individual approach to dislocated breeders.
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The basic aims at the time of the establishment of the Association were stronger connections between its
future members – cattle breeders – to ensure a better economic position. At this level of business management there are no bigger problems regarding financial transparence, since the Association disposes only
with the budget of members' fees. All business activities that include financial expenses are arranged by
operations, in which cases every member invests financial means for inputs, breeding animals etc. Also,
there are no considerable conflicts of interest in the Association work, because farmers have similar business goals and they manage their business at a similar level of development. Producers (farmers) are totally independent in their production and business decision making. However, the membership ensures
the exchange experiences and makes it easier to obtain additional help in labor and mechanization.
Depending on further business development (eventually commercialization of dairy production in
a mini–dairy plant or bullock fattening with slaughter facilities), the Association members have planned
the establishment of a cooperative. The legal foundation enables common ownership over property during the finishing and processing stage, keeping total independence in direct production. It is hard to assume that such a planned option is realistic, considering individual business interests and farmers'
distrust in a cooperation system. Besides, the rather stable economic position of the dairy producers in the
circumstances of state support, does not respond to this kind of business cooperation.
The Association actively cooperates with professional institutions (as Livestock Selection Center, Extension Service, Veterinary Stations, Stations for milk purchase at dairies etc.). It is important to stress that
such professional support of these institutions is directly distributed to the majority of producers who accept new technologies better than other farmers.
One of the first activities of the Association was “the pressure” on local administration to ensure longer
terms for leasing the state land for pasturing. Free pasture areas in this region are also one of the limiting
factors of “free growing” development with more than 200 pasturing (grazing) days. The members of the
Association have cut the costs of milk collecting, because of large milk quantities produced in a rather
small area. This made them commercially interesting to big dairy plants covering a wider area. According
to the new Regulations on milk, many factors determining milk quality will determine its purchase price.
The Association members are in a rather good position because they cooperate with the services at dairy
plants, which is clear on necessary measures and production activities. Also, through the professional Association it is possible to obtain common agricultural mechanization within the mechanization ring for
modern production and fodder storage. These activities have a great importance because they are also
limitations to milking capacity per dairy head and an increase in the fattening.
In relation to business, farmers are pretty satisfied with their membership in the Association, due to the
low financial burden and considerable material benefits. During the Association work, the majority of the
members increased the average milking capacity with certain cost rationalizations.
The members of the Association have 8–39 heads of breeding stock and realize 3.600–4.800 liters per
head of simental breed. A minority of the members has the Holstein breed, which have average milk production of about 6.700 liters (4.800–7.900 l). About 80 percent of the total members' production are
bought. According to their production capacities, production results and the share of commercial production in the total, these farms are considerably above the Croatian average. Average production and economic results per head of both breeds on different levels of production are shown in the table 5.
In its future plan, the Association states the necessity to enlarge the activities for joint purchase of specialized inputs (milk replacement, vitamin and mineral additives etc.) for direct production activities and also
in distribution of their products. As for the latter, there is no need to change the system of milk distribution, but the intention is to motivate the local market in fattened bullocks, female calves (up to 2 months)
and young heifers.
For improving its business efficiency, as well as market approach, suggestions for the Association would
be the following:
95
• increase the efficiency of extension and selection work within the Association membership and
ensure continuous quality services;
• work on acceptance of the extension experts' advice toward changes in feeding and
zoo–hygiene, in achieving an increase in milk quality and quantity per production head;
• improve purchase and use of agricultural mechanization, especially in preparing own fodder
which makes up the greater part of expenses in cattle raising;
• improve veterinary services and increase their efficiency;
• support exchange of quality fodder, female calves for breeding and calves for fattening within
the local market;
• improve the impact of the dairy producers regarding distribution of breeding and fattened live-
stock, as well as the processing industry; this could be achieved by stronger cooperation of professional associations and by their business commercialization.
Table 5. Production and economic results in dairy production
Simental breed
FARM
Holstein breed
1
2
3
4
11.5
16.5
19.5
28.0
Pastures/grass, ha
8.0
11.0
13.5
20.0
Maize for silage, ha
3.5
5.5
6.0
8.0
Cereals, ha
2.0
3.5
4.0
0.0
12.0
20.0
14.0
20.0
2.0
9.0
8.0
2.0
land for roughage, ha
total number of cows
total young stock
total milk produced lit.
45 000
88 000
70 447
157 068
milk -sales lit.
44 000
83 950
67 647
156 468
3 700
4 198
4 832
7 823
milk per cow per year
Price per lit of milk
2.34
2.28
2.32
2.30
Revenues
131 096
232 656
218 041
449 276
milk sales (to dairy plant)
103 896
191 406
156 941
359 876
22 700
35 550
57 500
85 200
4 500
5 700
3 600
4 200
total feed costs
41 184
69 180
60 900
106 900
total variable costs
72 588
118 860
109 840
166 800
gross margin dairy total
58 508
113 796
108 201
282 476
total fixed costs
109 699
153 782
133 900
156 200
total costs
182 287
272 642
243 740
323 000
net margin dairy total
-51 191
-39 986
-25 699
126 276
gross margin per cow
4 501
5 405
7 472
13 914
GM per cow based on milk only
2 609
3 627
3 364
9 654
Revenues from livestock sales
Other revenues dairy (milk sales to other)
GM margin per liter of milk
1.32
1.36
Source: Farm survey
96
1.60
1.81
ASSOCIATION OF PIG PRODUCERS
The Association was established in 1997 and comprises breeders from three municipalities in the County
(Sisaèko–moslavaèka). Today there are about thirty members that have been raising pigs for almost 15
years. These members used to provide services for pig fattening and gilt raising for an ex–social conglomerate and a nearby big meat industry.
There are tree types of producers: breeders of breeding sows, raising pigs for fattening and gilts, producers that fatten hogs and a combined type with sows and do their own fattening. The second category –
those who only fatten hogs – are traditionally maintained as the result of former cooperative relations with
the meat industry in this area.
All three categories of the breeders are equally represented in the Association. The initiative for the establishment of the Association came from the breeders–members. The reason was the great limitations in the
chain of pig raising and distribution after the privatization process and war in this area. The basic Association functions at this stage of development are common purchase of inputs (feed mixture), quality breeding material (gilts) and mutual exchange (or sale) of breeding heads and pigs for fattening. Some of the
goals anticipated in the Association work are improving the production on the basis of more efficient use
of the state support system of payments and the possible expansion of the business activities. This could
be achieved by the foundation of the abattoir and skills for meat finishing and processing in cooperative
ownership. This would enable the use of traditional pig–meat products from this area, to design marketing products and to protect specific types and trademarks of the products.
The Association cooperates with companies and scientific and professional institutions, reducing the
time and the number of agents involved indifferent activities in pig production and distribution. The Association is particularly active in cooperation with reproduction centers in Croatia, because the lack of quality centers at the local level, together with a permanent lack of domestic selection activities are great
limitation factors in the implementation of new breeds and technologies.
All members of the Association are independent in their business activities, but they arrange their mutual
relations by contract. The reasons for such behavior can be found in the complex relationships between
breeders of pigs (sows, gilts) and those who only fatten the pigs, and permanent price distortions on the
input and output markets. Under Croatian market conditions, bigger orders and a reduced chain of agents
enables members to provide breeding heads, fodder and other more favorable inputs. This enables them
to determine the selling price of their products (pigs for fattening or gilts) for other members of the Association with discount (lower then regular market price). Production that is not arranged by contract, farmers can sell on a free market at market prices. In such circumstances some conflict of interests can arise,
because the activities that are not arranged by contract can cause misunderstandings and problems in the
production chain of those two types of producers.
Within their own farms, farmers are totally independent. They are not obliged to use common production
technology and other activities in common. Only potential common plant for finishing and processing
would determine the technological solution and strongly define the raising procedures. Production and
economic characteristics of these types of producers are shown in the table 6.
Due to permanent price fluctuations in domestic markets, deviations in revenue and gross margin have
been rather large in pig production for the last several years (20–30 percent), mostly at the expense of producers.
Basic observations in the production and income of the Association members, based on surveys are the
following:
• production volume per breeder is increased to a certain extent, and standardized;
• the number of breeding heads is considerably increased;
• modernization of the abandoned capacities has been carried out;
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• the farrowing coefficient increased from 1.9 to about 2.1 on average, and about 20 pigs per sow
are raised annually;
• the costs of feed mixtures purchase are decreased (reduced or annulled margins even to 25 percent);
selling prices are uniform at the level of the Association members, and bigger product quantities ensure
better selling terms with purchasers – dealers, smaller butcher shops, processing industry.
Table 6. Production and economic characteristics of family farms in pig production
Farm
Total arable land, ha
Breeding herd capacity
Total production (heads)
Fattening pigs
Sow and pig breeding
Combinationsow + fatten.
15.0
24.0
18.0
0.0
40.0
30.0
360
827
564
Revenues
367 500
400 050
411 660
Sales-hogs
367 500
234 050
101 160
Sales-young sows
0
145 000
294 700
Sales-old sows
0
21 000
15 800
Total feed costs
165 480
178 400
198 040
Total variable costs
187 440
191 780
221 000
Gross margin pigs total
180 060
208 270
190 660
Total fixed costs
176 800
194 200
187 500
Total costs
364 240
385 980
408 500
3 260
14 070
3 160
Net margin pigs total
Source: Farm survey
The work of the Association has been positively estimated by its members, but also by other businesses in
the processing industry and support services. The cooperation with these areas speeds up the work and increases their efficiency in professional practice. Also, the work is improved regarding existing negative aspects of small individual capacities typical of pig production on family farms in Croatia.
The members' work successfully covers shortages due to inadequately developed market institutions in
Croatia, as well as “exploiting” the relationship of agricultural cooperatives, fodder industry, processing
industry etc. Another positive characteristic of the Association work is attracting small producers (mixed
farms) to use quality material for fattening, and to increase the volume and income from their own production. By doing this, traditional pig–raising in this area is gradually becoming commercially viable.
CONCLUSIONS AND RECOMMENDATIONS
Alyzing the questions of association, cooperation and farmers' self–organization in Croatia in the recent
period, the basic motivation for these processes is obvious. Namely, the associations of farmers' interests
rise as an answer to the breakdown of ex–social agricultural conglomerates, trying to fill the gap in the
marketing chain in the sphere of input purchase and the buying of the agricultural products. The exception in Croatian terms is in dairy production, because, due to a shortage of milk in the domestic market,
dairy plants collect milk and take over the costs of the buying.
98
In the Croatian agricultural structure small–sized farms and uncoordinated farmers prevail, and due to
uncertain market conditions and unstable prices, there is only a small number of specialized, commercial
farms. However, in the sphere of more efficient production, vital commercial farms are separated from the
total number of farms. They realize the importance of business cooperation in the spheres of:
• input purchase;
• applying new production technologies and achieving better business results;
• better market approach (due to a bigger supply of better quality, they are of more interest to purchasers and dealers);
• market promotion of their products (promotion of traditional products and developing of
trademark).
The associations of farmers' business interests have no direct political influence. (Peasants give up
onfarmers' organizations established under the influence of political parties because they achieve only
short–term political, and not long–term economic benefits). However, indirectly, farmers organized in
associations can have an influence on political opinions and attitudes, influencing the creation of agricultural policy measures. They also have better access to fresh business information, which helps them in
planning future business.
One of the problems in such organizations arises when the association starts to gain profit from their business. Namely, the members today are not aware of the necessity of sacrificing part of their profit for the future long–term business benefits (there is no awareness that it is reasonable to pay the professional
manager to lead the association activities and business).
Regarding business cooperation and association in agriculture, we can recommend the following:
• by state measures to indirectly encourage development of agricultural cooperation;
• create the means for farmers to establish groups for sharing of machinery and marketing out-
puts. Farms are small and suffer from lack of economies scale. Even with a well functioning
land market, this problem would take some time to be solved. Voluntary farmer groups allow resources to be pooled on a commercial basis, and some of the economies of scale of large farms to
be gained;
• develop training programs for extension agents and farmers on the preparation of farm business plans for management and credit application purposes;
• organize courses and workshops for farmers, making them understand the justifiability of association and to adopt managerial skills and market economy principles;
• improve business associations in agriculture, through the cooperative and contract cooperation of agricultural producers mutually and with complementary activities;
• improve business with regard to a better adjustment to product, capital and financial markets
(finalizing the agricultural raw materials, specialization, including the VAT system, crediting
and investing, management skills);
• intensify contract cooperation of agricultural producers with processors, traders and producers of agricultural inputs.
99
REFERENCES
BAŠIÆ, F. et al. 1999a. Programme of agricultural development in Sisaèko–moslavaèka county, Faculty of
Agriculture, University of Zagreb, Zagreb.
BAŠIÆ, F. et al. 1999b. Programme of agricultural development in Brodsko–posavska county, Faculty of
Agriculture, University of Zagreb, Zagreb.
BUDIN, T. 1992: Agrarna struktura kao èinitelj razvitka hrvatske poljoprivrede, Sociologija sela, 30 (1/2),
str. 45–52
CCU, 1988. A Strategy of Croatian Cooperative Movement Development, Hrvatski zadružni savez,
Zagreb.
GRGIÆ, Z., PAR, V. 1993: Tehnièke i gospodarske racionalnosti proizvodnje voæa i grožð a, Savjetovanje
Hrvatska–biološki vrednijom hranom u Europu, Zagreb
KOLEGA, A., BOŽIÆ , M., KOVAÈIÆ, D. 1994. The livestock market in Croatia, Fourth EAAP round table on
livestock productio in Central and Eastern Europe, April 20–24, Zagreb, Stoèarstvo, vol. 48, br. 5–6, str.
161–166
KRALJIÈKOVIÆ, J., Ž IMBREK, T., FRANIÆ, R. 1995. Family Farms in Croatia in the Light of Historical
Changes: A Case Study, 16th Congress of the European Society of Rural Sociology, Prague, Czech Republic, 31st July–4th August 1995, p.21–25
MAF. 1990. Programme of Development and Measures of Economic Policy of Agricultural and Food System in Croatia, Ministarstvo poljoprivrede i šumarstva RH, Zagreb.
MATAGA, Ž. 1991. Poljoprivredno zadrugarstvo Hrvatske, Zagreb
MATAGA, Ž., MATIJAŠEVIÆ, A., KOSIJER, M. 1997. Zadružni priruènik, biblioteka Poljoprivredni
savjetnik, Zagreb
PAR V., JURAÈAK J., BUDIN, T. 1998: Praženje društveno–gospodarskih obilježja obiteljskih
poljoprivrednih gospodarstava, Znanstveni glasnik broj 5–6, Mostar, str. 95–100
PAR, V., JURAÈAK J. 1999. Profitability of Family Farms, IFMA, Proceedings of the 12th international
Farm Management Congress, 18–24 July, Durban, South Africa, p. 91–104
TIPURIÆ, D., GRGIÆ, Z. editors 2001. Pannonia – development possibilities, Ministarstvo za javne radove,
obnovu i graditeljstvo, Zagreb,
Ž IMBREK, T., Ž UTINIÆ Ð. 1995: Arrangement, Renewal and Development of Rural Areas of the Republic
of Croatia, 16th Congress of European Society for Rural Sociology, Prague, Czech Republic, 31st July–4th
August 1995, Eastern European Countryside, No 2–96, p. 59–70.
100
FARMERS' SELF–ORGANIZATIONS
IN PROVISION OF SERVICES
IN THE SOUTHERN GREAT PLANE REGION
OF HUNGARY
Ferenc Laczó43
BACKGROUND AND INSTITUTIONAL SETTING
In Hungary the agricultural self–organizations have a very old tradition. Before the Second Word War the
organizations representing farmers' interests, supplying, marketing and credit cooperatives were
wide–spread in the rural areas helping farmers in their production and partly in their consumption activity. This development was interrupted after the Second Word War. In the second half of the 1940s' the
farmers' self–organizations were totally liquidated and collectivisation of agriculture started, which was
completed by 1961.
During the economic reforms from the middle of the 1960s a Hungarian agricultural producers' cooperative model was developed. The reforms changed the relations between the cooperatives and state administration. The economic reform increased the autonomy of cooperatives' decision–making in the
establishment of cooperative unions, creating their structures from the bottom upwards. In addition, the
cooperatives were not given planning orders. Parallel to this process, the cooperatives were forced by the
state and Party organizations and, in some cases, by the cooperative management to merge into larger
units. Under the reform, the cooperative management (the “experts”) gradually took over the control of
the cooperatives. In spite of fact that the formal democratic fora still functioned,44 this social group became the strongest one, while “simple” members were gradually pushed into the position of
hired–labour.
In spite of the economic reforms dating back to the middle of the 1960s, the Hungarian cooperatives could
not accommodate themselves to market–economy conditions. We can summarise the main causes of this
situation with the following points:
• In spite of the reforms, the cooperative system in Hungary had also been characteristically “socialist”, since producers' cooperatives dominated the sector.
• The producers' cooperatives were horizontally organized. The secondary cooperatives, as well
as supply, marketing and real credit cooperatives, were totally missing.
• Their “integrating organizations” were state owned enterprises, which had been sold to domestic and foreign investors and not to the cooperatives or private producers.
43
44
Center for Environmental Studies, Budapest, Hungary
The formal democratic fora of cooperatives were under, more or less, informal control of party
organizations. Practically no president of a cooperative could be elected and stay in his position without
the consent of the regional party organization.
101
• Following the “large is beautiful” slogan, ineffective, inflexible, bureaucratic cooperatives were
created.
• The economic reform of the 1960s was management based, and the members' control was
weakened.
• The federations of the several cooperative branches were under cooperative management control, mainly that of the presidents.
• The privatisation of the cooperative assets was not controlled. This was in favour of the management.
•
The new political regime was hostile towards every kind of cooperative.
INSTITUTIONAL AND POLICY CONTEXT
The period between 1988–90 was important for the Hungarian farm sector's transition towards market–economy conditions, which concerned the individual farm sector and the farmers' self–organizations
as well.
1988 the modification of the Cooperative Law was a milestone of the Hungarian cooperative legislation.
Due to this modification after a 40–year pause, the Cooperative Law again provided the opportunity for
private (individual) producers to establish so–called “small producers' cooperatives”, which were in fact
supply and marketing cooperatives. Another modification of the Cooperative Law in 1989 authorised the
cooperatives to privatise (that is, “to assign”) 50 percent of their indivisible assets in favour of the members.
important step was the acceptance of the so–called Law on Associations in 1989 (Law No. II of 1989).
From this time forward, the right of association in Hungary was declared a fundamental human right.
This law provided the possibility to create associations by citizens, and for individual farmers to recreate
so–called “farmers' circles” to reinforce their interests. The character of the associations, including the
farmers' circles, was determined by the fact that they were not allowed to establish primarily economic
and entrepreneurial purposes.
The change in the political system put the issue of cooperatives into a different perspective. The new regime (and, let's add, public opinion as well) considered cooperatives relics of “state socialism”. In this
light, the new Government did its best to break the backbone of the cooperative system (e.g. the producers` cooperatives), but did not take steps towards making marketing, supply and credit cooperatives widespread in the market economy.
Under the former Cooperative Law, the producer–type cooperatives were obliged to employ their members. The main economic objective of these cooperatives was determined by this fact. The contribution of
agricultural producer cooperatives to employment was essential, especially in the rural areas.
The agricultural producers' cooperatives, and to some extent the consumer cooperatives, had integrated
the production of a huge number of individual agricultural small producers directly and (through the
so–called “special groups”) indirectly. During the transition period, the agricultural producer cooperatives gave up integrating small scale producers. The consumer cooperatives did the same.
early 1992, the Parliament passed the Law I of 1992 on Cooperatives (“The Cooperative Law”) as well as
Law II “On the Entry into Force of Law II Cooperatives in Hungary before June 31, 1992” (“Law of Cooperative Transition”). Under these laws, the cooperatives were collective enterprises based on the private
property of their members. The Cooperative Law provided a legal definition for cooperatives:
“A cooperative is a collective established in accordance with the principles of the freedom of association
and self–help that pursues entrepreneurial and other activities serving the interests of members, through
102
the personal participation and financial contribution of members, and within the framework of democratic self–government. The cooperative is a legal entity.” (Article 3)
A cooperative could be established by at least five people, and at least 15 people were required for the foundation of a cooperative to function in an educational institution (school cooperative), or for the setting up
of a credit cooperative. The members of a cooperative were natural persons, and the bylaws also permitted
the membership of legal entities.
A person joining the cooperative was required to buy at least one share, and could subscribe more if the bylaw allowed it. Each member's liability was restricted to his shares. Dividends were to be paid on each cooperative share, from the after–tax profit of the cooperative. The members could make contributions in
other forms as well as subscription to shares, and they could apply for shares up to the value of their contributions.
Under this Cooperative Law, the producers' type cooperatives were not obliged to continue to employ
their members.
Under the Law of Cooperative Transition, each existing cooperative:
• had a choice between re–registering under the new cooperative law or transforming itself into a
company with limited liability or joint stock company;
• the members were allowed to secede from the cooperative;
• groups of cooperative members could also choose to secede from a larger cooperative.
The three decades of collective farming in Hungary turned the agricultural population into hired labourers. The entrepreneur–like mentality was almost totally lost over the years. After the political change,
most of the cooperative members insisted on having a work place and did not want to secede from the cooperative to become individual farmers. This was one of the main obstacles to the faster transition of Hungarian agriculture.
The Cooperative Law of 1992 was the result of a compromise, and it was mainly in favour of the agricultural producers' cooperative management. It did not provide a legal basis for a “new type” of cooperative,
i.e. supply and marketing cooperatives.
After a long preparatory period, the Hungarian Parliament on 19 December 2000 accepted Law No. CXLI
on “The New Cooperatives”. Under this law:
“The cooperative is established with an amount of share–capital determined by the bylaw, operating on
the principle of open membership and of variable capital, as well as serving to promote the individual economic activity of its members – including the consumption of its natural person members – and furthermore occasionally serving to satisfy the cultural, educational, and social needs of the members,
employees, and their relations; it is an economic organization with legal entity.” [Article 3. (1)]
This law, like the previous one, puts emphasis on the obligations of the cooperative members towards the
cooperative. The other problem with this law is that it defines only some aspects of the cooperative as
a particular economic organization. Many “open questions” remain and this makes it possible to create
pseudo–cooperatives as well. For instance, the law did not state whether the cooperatives can also maintain business activities with non–members, and if they can, to what extent.
The strategic points of the recent National Agricultural and Rural Development Program of the Government are as follows:
1.
to prepare Hungary for EU accession. The Government wishes to prevent agriculture from
being at a severe disadvantage upon joining the EU. Qualitative and quantitative development and the stabilisation of the market are essential in order to ensure a successful preparation for integration.
103
2.
to recognise the increasing importance of family farms. An emphasised objective of the Government is to support family farms. In this regard, the Hungarian national policy is very
much in tune with the European Commission's concept of the European model of agriculture.
3.
to ensure better credit provision for the agricultural sector and to consider the advantages of
a specialised agricultural bank network instead of the present system of trade credits from
commercial banks.
4.
to promote and support investments in the agricultural sector. The Government supports
the establishment of businesses specialising in machinery utilisation, food storage and processing. The process of technical improvement may initiate a market for the renewal of the
domestic production of agricultural machinery.
5.
to strengthen the role of agriculture both in international trade and in the domestic market.
Improved information and management systems would reduce uncertainty in the evaluation
of market circumstances.
The Government recognises that agricultural activities alone are insufficient to ensure the development of
Hungarian villages and their ability to maintain the population of the countryside. It is clear that greater
emphasis should be put on rural development, involving the dynamic development of the agriculture and
food industry, new job creation, improvement of essential–services, the expansion of countryside tourism
and infrastructure development.
CHANGES IN THE AGRICULTURAL SYSTEM
The basic question of the agricultural system in the transition to the market economy is the transformation of farm structure and the creation of farmers' self–organizations that are widespread in the market
economy. At the beginning of the 1990s there were hopes for “organic” transformation (inner decentralisation) of the farm structure from the large–scale cooperative farms into small and medium scale family
ones, and the parallel recreation of “new type” interest enforcement organizations and cooperatives.
scenarios for the transformation of the farm structure were outlined at the beginning of the 1990s:
1.
splitting up the existing agricultural producers' cooperatives. (This was the aim of the first
freely elected Government.)
2.
holding together the agricultural producers' cooperatives by transforming them into companies. (This was the favourite scenario of the cooperative management.)
3.
carrying out an inner decentralisation of the agricultural producers' cooperatives. This decentralisation would have been the “organic” transformation of the farm structure. (This
scenario was proposed by experts working for EU Phare Aid Program at the beginning of the
1990s.)
Because the Government did not enforce its policy against the cooperative management, and neither the
Government nor the cooperative management were partners for the third scenario, the second scenario
has dominated the transformation.
After all, there is a national consensus on farm types (though not on the farm structure) based on a combination of European and Hungarian conditions, which are as follows:
• medium–sized family farms producing enough income for a family;
• agriculture pursued as part–time farming to generate supplementary income;
• corporate farms, that is, companies and cooperative holdings.
104
The result of transformation of the farm sector is summarised in the next table. The 1997 data are actual
figures, while data for the other years are expected figures.
The actual data for 1997 shows that the large scale (company and cooperative) farms continue to dominate the structure. The proportion of the desirable medium–sized farms makes up only 12 percent in
1997. The other problem is that this proportion has not increased, and has even slightly decreased over the
last years.
As the table shows, a strategic goal that the Hungarian Government wishes to promote is the maintenance
and spread of privately owned, mainly medium–sized units that comply with European norms. Between
the political aim and the reality, a very huge difference can be observed. The rearrangement of ownership
relations – while respecting property already acquired – should pave the way for a new, modern farming
structure. This new structure could help develop a viable system of agriculture and generate decent incomes for agricultural producers. The current farm structure does not suit these requirements.
Table 1. Farm Structure Improvement Plan of the Ministry of Agriculture and Regional Development, %
Size categories*
1997
1999
2002
2006
Large scale
56
54
50
40
Medium scale
12
16
23
35
Small scale
32
30
27
25
Altogether
100
100
100
100
* Large scale 300 hectares and more, medium scale 30–300 hectares, small scale: 30 hectares or less (Data for 1997 are actual, while those for the other years are expected.)
Source: Az agrárgazdaság, a vidékfejlesztés és a területfejlesztés stratégiai kérdései (Strategic Questions of Agriculture, Rural Development and Regional Development), Ministry of Agriculture and Regional Development, Budapest, March 1999.
The lack of a strong small– and medium–size farm sector causes another loss in income for agriculture.
The experience of Western European countries shows that the commercialised small– and medium–sized
farms can create and receive an economic advantage from self–organizations.
DEVELOPMENT OF THE MARKET AND SUPPORT SYSTEM
It is an important issue, considering the necessity of agricultural self–organizations, that the Hungarian
agricultural policy is traditionally export–oriented and that Hungary's agricultural support is low. This is
demonstrated by the fact that in 1998 the PSE for Hungary was 12 percent compared to the USA figure of
22 percent (based on OECD data). Meanwhile, the same figure for the OECD–countries was 37 percent,
while the EU figure was 45 percent.45
Hungary has introduced two categories of agricultural market policy based on product:
• Direct market regulations have been introduced for wheat, maize, slaughter pigs, slaughter
cattle and cows' milk. The market regulations include a system of guaranteed prices within
maximum guaranteed quantities. A particular feature of the system is that it directly supports
the farm gate price.
• Another group of products (sugar beet, chicken, sunflower seed, sugar and isoglucose) is supported by indirect market regulations. External trade measures (i.e. import regulations, export
subsidies) are the main instruments for stabilising these markets.
45
Agrarian Policies in OECD Countries 1999. (Manuscript.)
105
The Ministry of Agriculture and Regional Development in 1999 issued a ministerial order for supporting
of the new cooperatives. A supplying or marketing cooperative founded after January 1st 1999 may receive
foundation support up to 250 thousand HUF and support for circulating capital up to 15 million HUF. After the ministerial order a foundation campaign started, partly with the aim of getting a state subsidy. As a
consequence of this a great number of pseudo–cooperatives were established,46 while real supplying and
marketing cooperatives could not apply for a subsidy as they were founded before January 1st 1999.
The total budgetary expenditure on agriculture in 1999 was about HUF 149 billion (US$0.57 billion), of
which HUF 1 billion (US$3.3 million) went to support the new cooperatives, and HUF 0.8 billion (US$2.7
million) went to the young farmers. In 2000, the Government supported the new cooperatives (with an
amount of 1.9 billion HUF or US$6.3 million), but from 2000 the Government cancelled support to the
young farmers.
Hungary has applied a general system of investment subsidies with the objective of improving the efficiency of agricultural production and promoting structural adjustments. These measures have included
direct subsidies for the use of certified seed, interest subsidies on credits for buying inputs for agricultural
production, and support to investments that improve production capital. For the last year about 90 percent of the investment subsidies were used by large scale corporate and cooperative farms, and only about
10 percent by small– and medium–sized individual farmers. The main reason of this unfavourable proportion was that the individual farmers have neither experience nor technical assistance in making proposals for these kinds of subsidies.
Rural development policies are receiving increased attention, and a number of measures are already in
place. However, funding of these measures has been restricted so far because of limited resources. The situation after 2001 is expected to change as the Special Accession Programme for Agriculture and Rural
Development (SAPARD) is launched to support sustainable agricultural and rural development in the CEE
applicant countries during the pre–accession period.
CURRENT STATUS OF THE FARMERS' SELF–ORGANIZATIONS
After the political change, several farmers' self–organizations have been established with a legal basis by
the individual farmers in Hungary. In 2000, 942 local farmers' associations (circles, societies and village
clubs) with the aim of representing farmer–interests were functioning with some 50 thousand small– and
medium–sized farmer–members.47 About 500 selling–, servicing–, and supplying–cooperatives, machinery rings, and organic–products organizations, among others, were functioning in 2000. Of this
amount, about 300 belonged to the “Hangya” (“Ant”) National Union of the Hungarian Marketing and
Servicing Cooperatives, while 40 belonged to the MAGOSZ Hungarian Association of Farmers Circles and
Cooperatives.
The number of individual (family) commercialised farms belonging to supplying, servicing and marketing cooperatives is estimated at 30 thousand. Obviously the overlapping of the two types of farmers'
self–organizations is almost complete. In 2000, the turnover of these “new type” cooperatives has
reached 30 billion HUF (US$100 million).
46
47
Typical case of this is that the “existing” producer cooperatives create selling, servicing and supplying
“new type” cooperatives with the same members and with the participation of “existing” cooperative.
From this time activity the selling, servicing and supplying cooperative consists on exclusively or to a
great extends transactions of the existing cooperative making by this way “turnover” being necessity to
the governmental support. So this ministerial order strengthened the existing producer type
cooperatives, however not this was the aim.
Assistance to Farmer, Cooperative and Young Farmer Associations in the Central and Eastern
European Countries, Hungary, October 2000. p. 13.
106
Among the 500 selling–, servicing–, supplying–cooperatives, machinery rings, organic–products organizations and others, there can be found: (1) well functioning democratic economic organizations, (2)
badly or hardly functioning cooperatives in every respect, and (3) pseudo–cooperatives (established with
the aim of obtaining state support). By my estimation48, roughly one–fifth of the “new type” cooperatives,
or about 100 entities, belongs to the first category, one–fifth to the second category, and three–fifths to the
third category.49
The “education” and “training” mean here rather an intention, then real activity of the national or regional unions of the farmers' self–organizations. In practise the research, education, training and extension service for the new type cooperatives are absolutely missing in Hungary.
Table 2. The structure of the farmers' self–organizations, 2000
National Federation of
the Young Farmers' Organizations (Village
Clubs) – AGRYA
Name of national
organization
Hungarian Association
of Farmers Circles and
Cooperatives –
MAGOSZ
National Union of the
Hungarian Marketing
and Servicing Cooperatives – HANGYA
Membership
830 local farmers' circles, and with 43 000
small– and medium–
sized farmer– members
and 40 supplying and
marketing cooperatives
About 300 farmers' ser112 village clubs with 6
vicing and marketing co000 members
operatives
Regional organizations
In all of the 19 counties
one county's organization
No regional organization No regional organization In some counties
Hungarian Peasant Association
No data
Hungarian Youth
Council
Committee on Agriculture Inter–Ministerial
Committee on Agriculture
Source of income
Local circles pay
Very modest fee
monthly from HUF 100 HUF 20 000 basic fee
plus a certain percentage Governmental aid
up to HUF 1000
Subsidiary economic ac- of the income
Private donations
tivity
There is no compulsory
membership fee
Paid work for the
so–called Product
Councils
Service Providing to the
Members
Information
oncontracting,marketing, loan opportunities
Training programs,organizing cooperatives
Institutional development
Organizational and
training service
Education Market information
Training courses
Providing information
on the EU integration
Organizing cultural
events, study tours
Consulting provided by
the regional and local organizations:
Publications
“Farmers' Life” magazine deals with market
information, cooperation, EU integration
Newsletter service via
email is planned
Newsletters are published regularly
No publication
Forum for Co–ordinaPresentation in Councils tion in Agriculture
Inter–Ministerial Comand Committees
mittee on Agriculture
No membership
Source: Assistance to Farmer, Cooperative and Young Farmer Associations in the Central and Eastern European Countries,
Phare, Budapest, October 2000. pp. 10–21.
48
49
This estimation is based on a survey. During this survey ten percent of the new type cooperatives were
interviewed.
This estimation is based on live and phone-call interviews with cooperative leaders.
107
CHARACTERISTICS OF THE CASE STUDY REGION
The Southern Great Plain Region is the largest by territory in Hungary, and is located in the south–east
part of the country.
The flora of the territory is varied. The vegetation cover contains a few indigenous elements. Throughout
the centuries, the region has become an agriculturally cultivated area that is varied with ploughed fields,
gardens, fields of rich plantation, and grazing lands. The forest districts are smaller than the national average and mostly are “artificially” planted in boring rows of conifers rather than the woodlands that would
have existed in a more natural state, with their diversity of flora and fauna.
AGRO–ECOLOGICAL AND ECONOMIC CONDITIONS
Southern Great Plain Region is the richest among the regions concerning natural resources. Here is the
largest deposit of fossil fuel and in the south–eastern part of the region one of the best soils. However, in
the north–western part of the region, sandy soils can be found. The climate is continental: the duration of
sunshine (about 2100 hours per year) is the highest, but the precipitation is the lowest in the country. The
temperature in summer is high, and in winter, low. National cold and hot records in temperature were
measured here. In spite of the favourable conditions of the region, its economic performance is worse than
the national average. (Please consult the following table.)
The indicator of GDP of the Southern Great Plain Region is under the national average, but exceeds the regions in similar situations (being relatively far from the western part of Hungary, and thus far from the
main field of interest to the foreign investors.) The unemployment rate is favourable, one of the lowest.
The rural area threatened with depopulation is very high, and even exceeds the high national average.
Table 3. Some economic and social indicators by region in Hungary (1999)
Regions
GDP per capita in US$
GDP per capita in
Unemployment rate, %
%-age of national average
Rural area threatened
with depopulation, %
Central Hungary
6 211
148
5.2
7.3
Central Transdanubia
4 221
98
6.0
19.1
Western Transdanubia
4 644
110
4.4
35.6
Southern Transdanubia
3 245
77
8.2
33.6
Northern Hungary
2 857
68
11.5
21.9
Northern Great Plain
2 844
68
11.0
13.2
Southern Great Plain
3 206
76
5.7
27.9
Average
4 430
100
7.0
23.6
Source: Statistical yearbook of Hungary, Central Statistical Office, 2000, and The SAPARD Plan of Hungary, Ministry of
Agriculture and Regional Development, Budapest, 2000.
The international road, partly a motorway already, crossing the area between the river Danube and the
river Tisza runs on an old track and connects Western–Europe and Asia Minor. In the northern and southern part of the county there are important roads to connect Transdanubia and “Tiszantúl” (Transtisza).
This region is famous for its road traffic jamsespecially at the one–way Tisza bridge with alternate traffic
directions at Tiszaug.50 The railway lines between Budapest and the main cities of the region are built, but
50
The reconstruction of this bridge is in process.
108
Figure 1.
have not been modernised. The route of the international express trains crossing Hungary in the
north–western and south–eastern direction leads to Belgrade through the region. Generally the distance
from the western border of the country and the insufficient traffic lanes provides the main obstacle to the
faster economical growth of the region..
This region provides one fourth of the agricultural GDP, so this is the most important agricultural area
among the regions. The production pattern at one side is a conventional one (the grain branches and pig
breeding dominate the production pattern) and on the other side the proportion of vegetable production is
two times higher than the national average thanks to special micro–regions for the production of special
vegetables such as the “makói hagyma” (makói onion) and the “kalocsai paprika” (kalocsai red pepper
for spice). The improvement in agricultural production can partly be expected from the structural changes
of the traditional grain and pig production towards the more marketable production pattern and partly
from increasing the role of the marketing organizations owned by the individual farmers.
ROLE OF THE AGRICULTURE IN THE REGION
long term improvement in the agricultural production can be expected from the utilisation of irrigation,
mainly of the River Danube that runs ten meters higher than the River Tisza, and partly of the Tisza and
Körös Rivers. The Danube flows 123 km within the region, which is the amont of water that flows to the
Black Sea in a year, and a greater amount than the total amount in Lake Balaton. The River Danube and
the other rivers (Tisza, Körös Rivers) are both friend and enemy to the inhabitants. The regulation of
riverways has continuously been mitigating the dangers of the mostly icy floods in spring and summer.
A serious problem is that the surface waters (Danube, Tisza and Körös Rivers) are seriously polluted.
Sixty percent of the underground waters are also seriously polluted by nitrate.
This region is characterised by the so called scattered farmhouses (tanyák). The special way of life in the
scattered farmhouses on the outskirts and even further away from the villages has always been an integral
part of agricultural production and can be regarded as the specific farming system of the region. (One consequence of this was not a total collectivisation of agriculture in the beginning of the 1960s.) The attention
of those driving through the country by car or looking out of the windows on the train is caught by the
white, shining walls of the secluded houses even today. Along with the rapid urbanisation, many houses,
and sometimes new settlements, were built in the countryside, far away from towns and villages. This
structure of settlements was favourable for the agricultural production but elementary, secondary or
higher education was not within easy reach of these remote places.
The Southern Great Plain Region is the largest by total territory and agricultural territory. This is the region where the proportion of the individual farmers' land use is the highest among the regions. The national average is 40 percent, while in the Southern Great Plain Region it is 52 percent. By the Agricultural
Census in 2000, 958 thousand individual farmers existed in Hungary, while in Southern Great Plain Region 209 thousand did. This means that every fifth individual farmer operates in this region.
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Table 4. Agricultural population and the land use by regions in Hungary, 2000.
Total population
thousand
inhabitants.
Regions
Agricultural
population
thousand
inhabitants
Total territory
thousand hectare
Agricultural
territory
thousand hectare
Of which used by
individual farmers
Central Hungary
2 844.2
162.1
691.9
503.1
188.9
Central Transdanubia
1 107.2
190.7
1 113.3
719.2
232.9
Western Transdanubia
984.2
227.1
1 161.3
841.4
262.1
Southern Transdanubia
974.8
264.1
1 440.0
998.5
322.5
Northern Hungary
1 269.1
301.7
1 337.1
833.4
279.4
Northern Great Plain
1 522.0
465.9
1 777.7
1 230.4
635.3
Southern Great Plain
1 341.8
424.0
1 782.1
1 322.3
693.3
10 143.2
2 035.5
9 303.0
6 448.0
2 614.0
Total
Source: Agriculture in Hungary, 2000, regional data, Central Statistical Office, Budapest 2000, pp. 10–17.
The individual farm structure is unfavourable here too, but a bit better, than the national average. (See the
next table.)
Table 5. Agricultural land use of individual farms by size category, 2000 (percentage)
Size category
National average
Southern Great Plain Region
–1.0
6.75
4.73
1.1 –5.0
15.71
17.50
5.1 – 10.0
11.61
13.85
10.1 – 50.0
35.06
36.02
50.1 – 100.0
12.43
10.91
100.1 – 300.0
13.78
13.09
300.1 –
4.65
3.91
Together
100.00
100.00
Source: Agriculture in Hungary, 2000, regional data, Central Statistical Office, Budapest 2000, p. 81.
ECONOMIC, INSTITUTIONAL AND SOCIAL CONTEXT
In the Southern Great Plain Region about forty thousand commercialised small– and medium–sized individual farms can be found. They use about one third of the agricultural land of the region. This means that
in this region the “density” of the commercialised individual farms is sufficient enough for the creation of
farmers' self–organizations. This is the reason why our case studies were selected from this region.
Several obstacles blocked the further strengthening of the individual private farm sector in this region. Either the private farmers did not access their share–assets and “old” type cooperatives used these assets, or
the “old” type cooperatives were liquidated while the former management received all the assets. Now
most of the individual farms could not be commercialised because of lack of assets, capital, credit, etc. The
110
situation in the case–study settlements indicates this problem: Every five to ten individual farms are able
to produce for the market.
The commercialised small– and medium–sized individual farmers in the Southern Great Plain Region are
mostly open towards the new farmers' organizations. The regional– or county–level organizations (like
the regional development council, the county agricultural chambers, the county offices of the Ministry of
Agricultural and Regional Development and its local representatives, the village agronomists) play a very
important and positive role in restructuring the farm structure and establishing farmers' self–organizations.
Region–wide experience reveals that the local–self–governments do not relate well towards the farmers'
self–organizations. The local governments generally perceive that the farmers' self–organizations are
co–opting Government roles and functions. Their other problem with the farmers' organizations is that
they operate on a non–profit basis and do not pay local tax.
The existing, “old” types of cooperative look at the self–organizations of the individual farmers as their
competitors. This opposition is partly based i on ideology. The existing, old type of cooperatives (and the
companies transformed from cooperatives) are going to provide those functions that the “new” type of cooperatives do. The “old” types of cooperative are to provide supplying and marketing services for the individual farmers for profit.
FORMATION OF FARMERS' ORGANIZATIONS – EXAMPLES
About a hundred farmers' servicing, purchasing, marketing self–organizations are registered in the
Southern Great Plain Region. Although a great number of pseudo, new–type cooperatives are in operation; when we were looking for organizations that answer to the selection criteria, only about a dozen
could be found.
Selection criteria were as follows. They had to be:
• created and operated by individual farmers,
• operating in real terms,
• democratic organizations,
• consistent with the economic goals of its members,
• non–profit organizations.
In every settlement twin self–organizations were established by the individual farmers, the first being an
interest–representing association and the other a “new” type cooperative. Among the selected farmers'
self–organizations there were so–called “agency” types, “enterprise” types, and mixed type cooperatives.
The main characteristics of these organizations can be summarised in the following paragraphs.
The economic activity of the “agency” type cooperative is determined directly by the members` needs, so
this type of cooperative represents the vertical expansion of the members' “basic” activity (subsidiary
character). This type of cooperative itself has no economic goal of its own; it is a co–ordinator of otherwise
independent farmers' units. “The cooperative does not pursue a separate economic career apart from its
member farms. Instead, the member farms each pursue their own economic careers and own and operate
their co–op activity jointly in order to pursue their separate economic careers more effectively.”51
As the organization grows larger, the “enterprise” character is strengthened. The members become less
familiar with each other and the cooperative may lose its subsidiary character. The autonomy of such co51
Philips, R.: Economic Nature of the Co-op Association, Journal of Farm Economics, Febr. 1953. p. 131.
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operatives has increased, achieving its own economic goal and independent business policy. The cooperative development usually leads to a two?fold direction control. The membership exercises the owner
control, whereas the management ensures the control of a technical character. In this latter case, this
might mean that the management places or may place the cooperative enterprise's interest above the single member's interest. There is a real danger in the case of “enterprise” type cooperatives in which the
management manages to “seize the power” and to transform the cooperative into a company.
GRASSROOTS, AGENCY–TYPE SELF–ORGANIZATIONS IN GÁDOROS
Gádoros is a typical medium–sized agricultural settlement in the middle of the Southern Hungarian Great
Plain Region. The geographical situation of the village of Gádoros is unfavourable. It is situated far from
large cities. The official unemployment rate is nine percent, but the real rate is about 20 percent. A very
large problem is that the “old” type producers' cooperative still exists. In spite of being in a deep crisis, this
type has not liquidated.52 At the beginning of the 1990s, 1600 members worked for the cooperative, now
140 people do and use practically all the assets of the former 1600 active members. The population of the
village has declined steadily because of the drop in living conditions. Ten years ago the population was
about 6 000, now it is 4 200.
The soil is very good, one of the best in the region and in the country. The production pattern is a conventional grain and pig dominated structure. Mainly in the middle of the last decade, over a time 1 200 of the
cooperative members lost their jobs and became compulsory small–producers.
Relatively recently (that is, only in 1998) and on the basis of the Law on Associations, a group of individual
small– and medium–sized farmers created an interest in a defending organization, the Association of the
Gádoros' Agricultural Producers. The association was registered and joined the Hungarian Association of
Farmers Circles and Cooperatives.
The person who was elected as chairperson was an agricultural skilled worker and had a medium education level (he was a mechanical technician). He worked for more than two decades for a producers' cooperative in an another village as a plant production branch–leader, so had experience in management
affairs, and is a medium–sized farmer. Beside his experience he had good contact with the other individual farmers. There was no doubt that he was the best for this position. This man, elected later as chair, was
doubtful concerning the usefulness of such an organization as the active members of the producers' cooperative also wanted to join the association and even would have been in a majority. He took part in the organization of the association only after clarification that this association would be a real individual
farmers' one.
The association provided for meetings and discussions of their problems. It was also vitally important that
the farmers as an organization and through their leaders could express their problems at both the county
and national levels and could obtain direct information.
Before the establishment of the cooperative, the individual dealers bought up the pigs. The pig–breeders
were totally defenceless against these dealers. Two years ago there was an overproduction in pigs. In this
situation the individual dealers paid as low a price as they could, a lower price than would have been reasonable in a market situation. The Ministry of Agriculture and Regional Development introduced a minimum price for pigs, which was obligatory for the slaughterhouses. The intermediate traders not only
could ignore the minimal price but the situation also yielded an extra–profit for them. (They bought the
pigs at very low price with reference to the overproduction and they received from the slaughterhouses the
obligatory minimal price.) This situation caused a devastating loss in the income of pig–breeders. As
a consequence, many farmers stopped pig breeding, even though it had been a main source of income.
52
It uses the assets of retired members, former members and their inheritors, of those members, who are
not employed by the cooperative without any paying.
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Seeking some solution for the basic problems of the individual farmers, the leaders of the association took
part in several meetings in the county seat where they heard of the “new” type of cooperatives and they initiated a movement to establish a supplying and marketing cooperative mainly for the pig–breeders. In
April 1999, 74 small– and medium–sized individual farmers established the Gádoros' Farmers' Purchasing and Selling Cooperative. The chair of the association was elected president of the cooperative.
The same people were elected into the board of directors. As regards the leaders, there is a perfect “personnel union” between the two farmers' self–organizations of the village.
The association and the cooperative function on the basis of open membership. The board of directors decide on the applications for membership. Now the association has 210 members, and the cooperative has
114. Roughly one third of the cooperative membership consists of retired small producers, one third of
part–time, young, small–sized farmers, and one third of medium–sized full–time farmers. This last group
of members is the most active and seemingly they play the leading role. This means only that they are
mainly interested in the successful activity of the cooperative. Some of the producers sell through the cooperative 500–600 pigs, some of them only 1 or 2. What is more, some people joined the cooperative who
had stopped pig breeding. They are potential pig–breeders.
An individual farmer who joined and will join the cooperative was or will be obliged to buy at least one
share, which costs 20 thousand HUF (US$70), while the bylaw allows to subscribe for more, up to a maximum of five shares. The cooperative joined the National Union of the Hungarian Marketing and Servicing
Cooperatives and became a member of pig marketing association within the Union. However, they have
not been satisfied with the activity of this nation wide cooperative union.53 For instance in October of 2000
the president of the cooperative sent a letter to the national union and summarised in 21 points what they
expect from the union. After three months he had not received any answer.
These two self–organizations are really very democratic, grassroots organizations. The president and the
board members have personal contact with all members and know their problems.54 “Both sides” of the
cooperative, i.e. the members and the board of directors, perfectly understand the “economic character”
and the “economic nature” of such an organization. That is, the cooperative must take into account the interests of individual farmers. The general assembly of the cooperative is held every quarter of a year. The
board of directors meets every month. Every month, on the first Thursday of the month, information
meetings are held for the members. Half of the members regularly take part at these meetings. In winter
this percentage is higher, in summer lower.55
The cooperative has 2.3 million HUF (US$8.2 thousand) shares of capital and an old mill building for
storage. The cooperative bought this building for 4.3 million HUF (US$15.4 thousand). The whole
amount was given by the members. The share capital and this old building are the only assets of the cooperative, or more precisely, of the members.
It is an interesting situation, now the board of directors and the president not only understand the “economic character” of such an organization, but depend on the members because the cooperative has no assets of its own. If the cooperative wants to buy something, to invest or to ask for credit, it can do so only
53
54
55
The National Union of the Hungarian Marketing and Servicing Cooperatives is also a new organization
and has not enough capacity yet.
Making this case study I spent two days in the village, mainly in the small office of the cooperative.
During this two days about half of the members came in the office to clarify the same questions
concerning the pig market.
During the two days I spent in the village I listened to the dialogues the president and the members
coming in the office of the cooperative I felt a déjá vu feeling that I lived through like this once upon a
time. And I realised that was not a déjá vu feeling I lived through this in Southern France twenty years
ago. I experienced again the real mentality of the farmers who are anxious for the price and 1 HUF
(USCENT0.35) surplus in the price per kilogram of pork has significant for them. (1 HUF per kilogram
is one third percent of the price as it is about 300 HUF per kilogram.)
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through the membership as only they have assets granting mortgage. If the cooperative had its own assets, the situation would be different. In this case the character of the cooperative may change. This is the
big dilemma for the future: should the assets of the cooperative be financed directly by the members or
should the assets be allowed to accumulate by the cooperative itself? (Currently this situation is out of the
question as the cooperative is unable to accumulate.)
The board of directors intends to increase significantly the upper limit of the shares that may be subscribed by the members. If it takes place the cooperative has to pay dividends after the share capital. The
board of directors predicts that 50 percent of the dividend will be paid by share capital and 50 percent by
the turnover. The problem is that this forecast contains a source of conflict of interest between the share
capital owners and the pig–breeders if the proportion of the two types of contributions to the cooperative
significantly differs by members.
The cooperative has not received any direct State support. It's main problem is the lack of circulating capital. The cooperative buys pigs for the slaughterhouses by commission. After receiving the money from the
slaughter–houses, the cooperative pays to the members some percentage. This is a problem as the individual dealers pay after delivery.
In the last year the cooperative received fifty million HUF of farmers' credit for ten years. The whole interest rate is paid by the Government, but the cooperative has to pay five percent the bank expenses. This five
percent is very low for the banks. After the approval of the credit by the Ministry of Agriculture and Regional Development, it was a problem to find a bank willin to service the loan.
From this credit the cooperative can give to the members an advance for the production activity, for fodder, for buying brood sow. Ten million HUF is used for operating capital. So now the cooperative became
competitive with the individual dealers in this respect as well, as it can pay just after the delivery of the pigs
if the members want.
The cooperative is dealing with pig marketing and supply of several fodder components and brood sows of
the pig–breeders. Another interesting and new activity is providing members with a so–called production
loan from the farmers' credit they received.
The cooperative entered into contract with 350 pig–breeders. Included in this figure are the cooperative
members, the association members and non–members. This means that the activity of the cooperative is
not limited to its members, and not even to the members of the association. The cooperative is open towards non–members, as well. Two thirds of pigs are delivered by the members. In the future the proportion may change in favour of the non–members. The leaders of the cooperative have not faced the problem
of the possibility that the proportion of non–members in the pigs' marketing will be higher than the proportion of the members. (It may occur that in Year 2001 many pig–breeders, mainly from the neighbouring villages, would be interested in the activity of the cooperative.)
The cooperative members and the association members have an advantage over the non–member contractors. The cooperative deducts 2 percent from the price, in the case of non–members, but for members of the
association it deducts 3 percent and from a non–cooperative and non association members 4 percent. The
cooperative enforces the same percentages in the case of the fodder and also the production loan.
If the cooperative had not bargained with the contractor slaughterhouse, the price would have been by 15
HUF, or 5 percent lower than the realised price. The operation of the cooperative is favourable for the
non–contractor pig–breeders also, as the individual dealers are forced to take into consideration the price
paid by the cooperative.
The cooperative has a medium–term, five–year frame–contract with a slaughterhouse for five thousand
pigs per year. This food–processing factory is very far away, two hundred kilometres from the village.
They pay a higher price than the nearest one would pay. The cooperative also has a contract with the Pick
Salami Factory of Szeged. The factory buys a few hundred old brood sows every year. (These kinds of pigs
are needed for this salami.)
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The cooperative continuously bargains with the two slaughterhouses and regularly informs the members of
the prices. The pig–breeders receive higher prices thanks to the cooperative's bargaining power and have received a safety net as regards the market and the qualification.56 This is the case for fodder as well. For instance, the price of one quintal of soy–meal in the fodder shop is 10 thousand HUF. The cooperative buys at
the lowest wholesale price, which is 9 thousand HUF. The members received the same for 9.2 thousand V.
If someone breaches the contract intentionally (which occurs if the individual dealers offer a higher price
than the cooperative, and some members sell the pigs to the dealers) he cannot get a production loan from
the cooperative.
As in the village, the other main production is grain, and the inhabitants of the settlement force the cooperative to deal with grain marketing as well. In the view of the cooperative president and the board of directors, the marketing of this product significantly differs from the marketing of the pigs. Therefore,
following the single–product cooperative idea, they are going to establish another marketing cooperative
for grain products. Currently they are “thinking” about this possibility and have not decided it yet.
The turnover of the cooperative in 2000 was 63 million HUF (US$225 000). The cooperative by the resolution of the general assembly generally applies the 2 percent margin i.e. for the pig marketing, for the fodder components (soy–flower and several premixes) marketing and newly in the case of production loan.
The income of the cooperative was about 1.2 million HUF (USD 4.3 thousand). This amount just covered
the expenses of the cooperative. Practically it was in reserve: the expenses were adjusted to the income.
The cooperative has only one paid employee, she is a secretary and accountant at the same time and cost
the cooperative 400 thousand HUF per year. Last year the cooperative paid 450 thousand HUF for a person
who helped the members when the pigs were delivered to the slaughterhouse. The president doses not get
a salary, but last year the general assembly approved a 250 thousand HUF (US$900) honorarium for him
for Year 2000. The office's expenditures and travel costs were about 100 thousand HUF.
This cooperative is a non–profit organization in real terms. Its income just covers the expenses of the salaries of two people, the honorarium of the president and the other expenses (maintenance of the office and
travel costs).
As a new, effective self–organization, it has conflicts with the local government, mainly with the local
mayor. He represents the interest of other groups in the village and feels that any independent
self–organization limits the power of the local government. The relationship between the two cooperatives also is not in harmony. The leaders of the “old” type cooperative holds a position in several commissions, among these the credit commission of the local saving cooperatives. When the “new” type of
cooperative made an application for credit, the credit commission under the chairmanship of the president of the “old” type cooperative refused it. They approved the credit application after the members gave
a mortgage. Another example: it would be in both of their interests to cooperate in the pig marketing with
the “old” type cooperative, but they are not cooperating with “its concurrence as a cooperative”.
TWIN GRASSROOTS' SELF–ORGANIZATIONS IN PUSZTEMÉRGES
Pusztamérges is a little village between of the Danube and Tisza River with about 1 200 inhabitants. In
spite of the fact that this settlement is situated far from large cities there is no unemployment as the local
government can afford to employ 25–30 people for public service. (They would be the unemployed people.) In this respect the village is very lucky as a goose and duck slaughterhouse operates in the village and
pays substantial local tax to the local government. The treatment of the water used by the slaughterhouse
has not been resolved and this causes serious environmental damage to the village. The other very lucky
56
For a long time problem of the pig-breeders is that they do not trust in the qualification of the
slaughterhouses. The cooperative made the slaughterhouses accept that an independent qualifying
organization made the qualification of the pigs.
115
circumstance is that a secondary school operates in the village employing about forty persons from the settlement.
The quality of the soil is one of the worst in the region and in the country; it is called wind–blown sandy
soil. The production pattern has adjusted to these natural conditions: grape, fruits and vegetable production are predominant. The climate is extreme but favourable for premier fruit and vegetable production as
the spring begins 10–15 days earlier than in other parts of the country or in most Western and Northern
European countries.
The “old” type, producers' cooperative was liquidated some years ago. The president and the members of
management managed to get all the valuable assets of the producers' cooperative. The former president
himself got the whole farmstead, which is worth about 25 million HUF. Most of the former “simple” members got only land and now produce mainly for their own consumption. Only less than one tenth of the restored farms, about a dozen real commercialised individual farms, came into being in the village. Among
these were farms created by the members of the management of the liquidated producers' cooperative.
In 1993 on the basis of the Law on Associations, 26 persons created an interest–defending organization
with the name of the Pusztamérges' Farmers' Circle. Beside the individual and potential individual farmers, the local teachers and the veterinarians also joined the association. Some of them were part–time
farmers and some of them only “sympathisers”.57 The local veterinarian was elected chair. He was
a part–time farmer with three hectares of land of market orchards and was known nation–wide as a leader
of the veterinarians' trade union. The association joined the Hungarian Association of Farmers Circles.58
The aim of establishing this association was: “Creation of the framework of interest representing and information access for the family farms based on the private property and the co–ordination of their production and marketing activity and keeping the connection with the Hungarian Association of Farmers
Circles.”59
The farmers' circle in 1994 bought a building in the centre of the village exclusively from members–contributions. This was a nationwide event after the political changes, that the farmers' voluntary
gave money for a common purpose. The farmers' circle co–ordinated the production and the marketing
activity of the members and some of the non–members too. The circle managed to make good contacts
with the buying–up organizations. This proved to be very important for the upcoming establishment of
a purchasing, marketing and survivable cooperative.
The main profile of the farms was grape, fruit and vegetable production, but some of them dealt with some
animal husbandry too. The farmers' circle co–ordinated all activity of the joined farms among these also
the animal production. The economic activity of the circle covered several agricultural products and purchasing of chemicals (pesticides and fertilisers), so the circle covered co–ordination and marketing of not
only a single–product or a single–group of products, but several.
The creation of this cooperative was an important precondition for the operation of the farmers' circle.
The farmers got practice in real cooperation with each other and experienced that such organizations
were useful and profitable for them.
In 1998 the farmers' circle separated the economic activity and established the Pusztamérges' Purchasing, Marketing and Servicing Cooperative with 13 members.60
57
58
59
60
In fact the members of the local intellectuals were supporters of the circle's organizer local veterinary.
Previously this was the name of the Hungarian Association of Farmers Circles and Cooperatives.
The bylaw of the Pusztamérges' Farmers' Circle, article 1.
Originally 14 people founded the cooperative, but one of them did not pay the obligatory share for the
deadline so he lost his membership.
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A farmer who joined the cooperative was obliged to buy at least one share, whose cost was relatively high,
100 thousand HUF (US$360) and the bylaw allowed them to subscribe more, a maximum five shares.
(Everybody subscribed one share.) Here like in the case of Gádoros 'Farmers' Purchasing and Selling Cooperatives the chair of the circle was also elected as the president of the cooperative.
The cooperative itself did not join either the Hungarian Association of Farmers Circles and Cooperatives
or the National Union of the Hungarian Marketing and Servicing Cooperatives. As president of the cooperative the union deals much more with “policy” and not helping with the economic activity of the member cooperatives. In this circumstance the membership fee is too high.
The membership of a cooperative consists of 5–6 farmers with 15–30 hectares of land (among these the
former president of the liquidated producers' cooperative) with substantial production for the market, of
3–4 with 1–15 hectares of land with some production for the market. The number of so called patronising
members without any production for the market is 3–4.61 Economically the first group dominates the cooperative. The president belongs to the lowest third of the second category. As the farmers belonging to
the second category are in a minority, so the president needs the support of the members of the third category. The position of the president is not very strong and has to make allowances to the first group.
The cooperative has the forums (i.e. general assembly, board of directors and board of supervision) required by cooperative law. As the cooperative has only 13 members practically all members have some
function. The former agronomist of the liquidated producers' cooperative is a member of the board of directors. The leaders of the liquidated cooperative do not participate in the leadership in this “new” type cooperative.
The president and the members of board of directors have daily contact with the members and with the
some non–member producers. It is very important that from 1999 the cooperative hired an executive director.
After hiring an executive director, the turnover increased rapidly. In the first (1998) year the turnover was
2.5 million HUF, in the second (1999) year 15 million HUF, and in the last (2000) year about 30 million
HUF. Half of it comes from the 5–6 largest farmers. The local consumer cooperative also buys up some agricultural products of 6 million HUF. The cooperative disposes of apple, fine grape, vegetable (e.g. asparagus, pepper, tomato), wine and pigs. About sixty percent of the turnover comes from the members and
about 40 percent from the non–members. The cooperative does not distinguish the non–member from
the member.
The cooperative deducts 10 percent from the price of fruit and vegetable products but not from the pig
price and there are some other exemptions. The total income of the cooperative in 2000 was about 2 million HUF. The income of the cooperative just covered the expenses so it has no surplus, the cooperative
operates on a non–profit basis.
The executive director gets a low fixed salary and a sliding wage of 2.5–3 percent of the turnover. In the last
year he received 60 thousand HUF (about USA$200) per month after taxation of which one third was the
fixed salary and two thirds the sliding wage. This cost for the cooperative with tax and social insurance totalled 1.2 million HUF. The cooperative hires an accountant for 33 thousand HUF in fixed–fees per month.
This is 400 thousand HUF in a year. The cooperative has to pay 400 thousand HUF in office rents (for the
farmers' circle). The president does not receive any salary or honorarium, and what is more does not receive reimbursement for his travel or hotel costs, which he pays for himself.
The cooperative has not entered into contract with the members or non–members but has entered into
contract with buying firms. The main contractor partners are supermarkets such as Cora, Metro, Auchan,
Garter exporting company, wholesale firms such as Interfruct and the Szegedi Salami Factory.
61
There are some members who are at the categories' limit. This is why there are some uncertainties in the
categorisation.
117
There is a shortage of products of good quality so the cooperative can sell all products produced. This is
why the cooperative has not entered into contract with the members and why the members have not been
forced to do this. The members are informed before the planting which products are expected to be profitable.
The basic problem of the cooperative is the lack of operating capital. They need 5–6 million HUF of such
capital to be paid after receiving the products. It is an advantage of the cooperative form that it can operate
at very low capital, as they can receive the products of members in consignment. The lack of capital results
in a very important characteristic of the cooperatives. They are forced to find reliable, solvent business
partners and to collect all debts. Otherwise the cooperative would become bankrupt. This circumstance
has a good effect on the whole economy.
Now the crucial point is the farmstead of the former cooperative owned by the former president. The
“new” type of cooperative needs this building for storage. Investment in the building is necessary for this
use. The former president would like to do this with the help of the cooperatives, but after that he is going
to operate as a storage. If he manages to utilise fully the capacity of the farmstead, he himself would have
much more capacity then the cooperative itself. In this case a new time of reckoning would start for the cooperative or his secession can be expected. The case of the wine bottling may serve as a model, but following this kind of pattern, sooner or later the cooperative may fall to pieces.
The cooperative made an investment in wine bottling. Four members producing wine–grape gave 2 million, the cooperative received an investment subsidy and long–term credit. The four members granted
mortgages. Those four members individually have market access but the cooperative has not. They rent
the wine bottling from the cooperative for an undefined time and run it. The word “rent” is not correct as
the members do not pay renting fees for the cooperative. They repay the credit through the cooperative
and cover the running expenses. The four members run the risks of the operation. After all the cooperative
does not take a risk and does not receive income from this activity. The four members do not pay at all for
the cooperative after the wine–sale, i.e. this activity does not contribute to covering the expenses of the cooperative.
The lack of circulating capital and some problems with market access (in the case of fruit and vegetable
products) constrained the cooperative to join an integration. Taking the initiative the Mórakert Purchasing and Servicing Cooperative integrated 9 other cooperatives, among these the Pusztamérges' Purchasing, Marketing and Servicing Cooperative. The ten cooperatives entered into contract that the nine
cooperatives from that time sell the fruit and vegetable products through the tenth, the Mórakert Purchasing and Servicing Cooperative. From then the Mórakert Cooperative operates at the same time as
a primary and as a secondary cooperative.
The nine cooperatives have the same rights as the natural persons' members of the integrator Mórakert
Purchasing and Servicing Cooperative. The integrator deducts 20 percent from the price and the
Pusztamérges' Purchasing, Marketing and Servicing Cooperative deducts 10 percent. The question is
whether the 30 percent may be less than the 10 percent. This mathematical impossibility happened last
year, and the leaders of the Pusztamérges' Purchasing, Marketing and Servicing Cooperative hope that
this will occur in forthcoming years too. The explanation is very simple: the Mórakert Cooperative can obtain a higher price as it has marketed very well.62
After entering this integration the cooperative activity returned to the time of the farmers' circle. The main
activity of the farmers' circle at that time was the organization of training, providing extension service and
information on the economic regulations and the market. The executive director more or less became of an
agent of the integrator, Mórakert Purchasing and Servicing Cooperative.
62
The next case study will be on the Mórakert Purchasing and Servicing Cooperative as that was selected
too.
118
The leaders of this cooperative, like in Gádoros, have conflicts with the local government, mainly with the
local mayor. The mayor is against the independent farmers' self–organization because he believers that
the farmers' self–organization does what would be done by him and by the local government. This village
is at a disadvantage because the tax revenue is the most important for the local government. The farmers'
cooperative not only “takes over” tasks from the local government but also pays no tax.
AN ENTERPRISE TYPE COOPERATIVE IN A DISADVANTAGED REGION
Mórahalom is a so–called agricultural town and is a micro–regional centre in the Hungarian Great Plain.
This kind of town is widespread where the settlements are surrounded with a great number of scattered
farmhouses. Most of the population of such kind of towns consists of farmers who have a house or a flat in
the town, but from spring to autumn they are living in scattered farmhouses.
In this micro–region sixty–eight (!) percent of the population lives from agriculture. This is the highest
rate among the micro–regions in Hungary. The quality of the soil is one of the worst in the country – it is a
wind–blown, sandy one. This micro–region is a geographical unit at the same time. Its name is “sandy
ridge”. The production pattern is adjusted to this natural condition: grape, fruits and vegetable production dominate. The climate and the soil are extreme but favourable for premier fruit and vegetable production.
Consequent to the specific farming system at the beginning of the 1960s in Mórahalom, a “lower type”
and “special” cooperative was organized. In this type of cooperative the farmers could keep 3–5 hectare
land in spite of the producers' cooperatives where the land was cultivated collectively and only
a half–hectare of land was allocated to the members. The special cooperatives had some land in collective
use, but the members might keep all animals in their so–called member–farms. The main function of this
kind of cooperative was to provide services to the member–farms, buying up and partly processing their
products.
These cooperatives had some of the characteristics of producers' cooperative but at the beginning mainly
belonged to the servicing–purchasing–selling category. During the 1970s some of them were transformed into producers' cooperatives and some of them were not, and the servicing–purchasing–selling
function of the cooperative was strengthened. The special cooperative in Mórahalom belonged to this last
category.
After the political changes, the special cooperative lost its traditional partners as they were privatised or
went bankrupt. This special cooperative was liquidated in 1992, and after that about 1 500 individual private farms were restored. As the former cooperative members depended on the special cooperative this
was a new situation, a learning period for them.
In 1993 the local government realised this problem and decided to manage the individual farmers. Firstly
an agricultural commission was created inside the municipal corporation, and following this a department was established in the local governmental office promoting the individual farmers' activity. This department was a forerunner of the so–called village agronomist system introduced in 1994. This local
governmental department provided an extension service, and advised the newly independent farmers.
A part of the farmers very quickly adjusted to the new situation and as a result of this the production
started to increase. The help that the local governmental department could provide was not enough; the
farmers needed other and further assistance.
Leaders of the department of the local government initiated in 1994 the establishment of an association
for the commercialised farms with the name of Association of the Agricultural Entrepreneurs of
Mórahalom. Thirty–five individual farmers joined the association. Now the membership consists of
nearly 200 farmers.
The head of the department operating within the local government was elected for the chair and the deputy–head of the department for the secretary. The association has organized training, study tours, excur-
119
sions and provided the members with industrial materials (fertilisers, pesticides etc.) at wholesale prices.
The individual farmers could experience the usefulness of such an organization and could realise that they
had the same problems to solve.
After the liquidation of the special cooperative, the private farmers sold their products individually. They
had problems with the marketing of the products, and the establishment of a purchasing and selling cooperative was initiated. In April 1995, 52 local producers established the Mórakert Purchasing and Servicing Cooperative. Now (in January of 2001) the membership consists of 205 members, of which 80
percent has 3–5 hectare about 10 percent less, 10 percent more, but does not exceed 10 hectares of land. 63
The field of basic activity has covered:
• purchasing the inputs for the farmers,
• extension service and co–ordination of the production,
• increasing the value added of the products,
• selling of the members' products.
After five years of the political changes, the establishment of a “new” type of cooperative was a brave and
necessary step. In that time the restructuring process of the farm–structure was stopped and the producers' type cooperatives were reinforced or were preserved for posterity by transforming them into companies. The foundation of this cooperative was among the first in the country.
Later this cooperative became a founder–member of the “Hangya” (“Ant”) National Union of the Hungarian Marketing and Servicing Cooperatives. The president of this cooperative was the first chair of the
union.64
In 1998 during the local–governmental election the chair of the association until then the head of the local
governmental department was elected for mayor of Mórahalom, but he remained the chair of the association. So in this settlement there is no conflict between the farmers' organizations and the local government.
The deputy–head of department of the local governmental office, who was also secretary of the association, was elected for the cooperative president, had no salary or other income from the cooperative. He
held the title in the local governmental office until last year and as last year witnessed the department's liquidation, he became a non–agricultural entrepreneur. His activity and commitment have been very important or decisive for the life of the cooperative.
The institutional development of farmers' organizations in this agricultural town was very impressive.
The result of two years of preparatory work and in four steps a “new” type of cooperative was established.
There is no doubt that the foundation of the cooperative was in favour of the private farmers, but was initiated by the officials of the local government and not by the farmers themselves.
This self–organization was created “top–down“ rather than “bottom–up”. This circumstance affected
the operation of the cooperative. The democracy has not been as strong as in the case of a “bottom up” organized farmers' organization. The real decisions have been made by the board of directors and not by the
general assembly. Operation of this last forum has been more formal than in small grassroots farmers'
self–organizations. Foreign experience shows that it is very important that the members feel that the cooperative is part of their own entrepreneurship. If it is not, the cooperative may drift away from the members.
63
64
In this agricultural town there are farmers having large holdings, but they produce grain and deal with
animal husbandry.
He resigned as did not agreed in admission to the union all cooperatives among these pseudo-ones too.
120
The first one and a half years was spent finding out how to operate such an economic organization. The
board of directors decided that a strong storing, processing and marketing capacity must be built up.
Their strategic plan was ambitious:
• to organize training,
• to develop an information system,
• to develop a quality–control system,
• to adjust to the EU requirements,
• to co–ordinate of the cooperatives operating in the micro–region.
The board of directors came to the conclusion that the cooperative as an organization of the owners and
the cooperative's enterprise as the economic organization must be separated. A consequence of this decision was that the management of the cooperative has been doubled. The president has remained the representative of the cooperative's owners (membership) and an executive director has been hired for the
operative management. The executive director is not a cooperative member and has been employed by the
board of directors. Hiring an executive director from 1997 proved a good decision and strengthened the
“enterprise” character of the cooperative.
After starting, the responsibility of the executive director has been shared between the president and the
executive director. After that the president is responsible for operation of the forums, representing the interest of the members towards the cooperative enterprise and representing the cooperative in the National
Union of the Hungarian Marketing and Servicing Cooperatives. The executive director is responsible for
the operative management of the economic activity of the cooperative. Included in this is the marketing
work. The cooperative also employs about 40 paid workers, who are hired by the executive director.
The main spheres of authority for the general assembly are:
1.
Selection of the board of directors, the president of the cooperatives.
2.
Selection of the controlling committee and its chairman.
3.
Approval of budgets, production plants, and market plants.
4.
Approval of the report on the cooperative enterprise's performance.
5.
Decision on the use of surplus.
The main fields of the responsibilities of the board of directors are:
1.
Definition of cooperative objectives, policies and goals.
2.
Matters where member decision are due.
3.
Approval of major plans and commitments.
4.
Long range financial commitments, including sources and types of financing.
5.
Selection of the executive director.
6.
Definition of the duties of the executive director.
7.
Approval of the benefit programs.
8.
Evaluation of the activity of the cooperative enterprise.
The main fields of the cooperative president's responsibilities are:
1.
General representation of the cooperative.
2.
Operation of the fora of the cooperative.
3.
Representation of the interest of the owners' members .
121
4.
Representation of the cooperative in the National Union.
Main fields of the responsibilities of the executive director are:
1.
Definition of operating objectives, policies and goals.
2.
Short run commitments of resources.
3.
Preparation of budgets, production plants, and market plants for approval of the board of the
directors.
4.
Selection of the employees.
5.
Determination and administration of the employee salary and benefits program.
6.
Employee working conditions.
7.
Measurement of employee performance.
Common responsibilities of the board of directors and of the executive director are:
1.
Selection of the business partners.
2.
Relations with authorities, contractual partners.
3.
Employee benefits plans.
4.
Appraisal of the cooperative's performance.
5.
Distribution of the earnings.
6.
Changing the basic organizational structure.
In this cooperative, from the beginning, the “enterprise” character dominated rather than the “agency”
one. This cooperative carried out a vertical integration of production. The cooperative leaders told the
members what to produce and in which quality. The cooperative has integrated not only the production of
its members but also of the non–members.. The members take priority in the buying up process, but in the
accounts the cooperative does not distinguish between the members and the non–members.
From the year 2000, the cooperative also entered into contract with the members and non–members. The
contracts concern the quantity, the quality and in some cases the deadlines. The contracts are involved in
the so–called mutual undertaking of obligations. The cooperative undertakes and buys all products of
members (and non–members) that are in accordance with the required quality, and the members undertake the selling of all products through the cooperative, though there is an exemption to products for personal consumption (that may not exceed 20 percent of production). The price is not included in the
contract.
The cooperative entered into a frame–contract with the enterprises buying up the products. These enterprises continuously (by one week in advance) announces the prices. After the announcement the cooperative informs the members of the prices. The basic problem with the buying partners is that they pay with a
delay of 40–60 days. The members and the non–members would like to get the money at once or not later
than 2 weeks. The cooperative would bridge over this period. The cooperative needs 20–30 million HUF
circulating capital for this purpose, but it has none.65
The faster payment would be in the interest not only of the members, but also of the cooperative as there
are some private dealers who pay a lower price to the farmers, but immediately. If the members are short of
money in spite of the contract they will sell the products to the private dealers.
65
They could make application for credit, but are afraid of borrowing. This cooperative cannot get state
support for circulating capital as it was established before of January 1, 1999.
122
The cooperative has a good marketing policy. For instance it applies very modern marketing techniques,
such as buying “own” gondolas in the supermarkets for their products, having their own part in the
wholesale markets and in some top–quality shops. The cooperative has a well–known and attractive logo.
The mission statement of the cooperative speaks about the importance of using environmentally friendly
production techniques. Their environmental awareness is one–sided. They do not understand at all that
not only the plant and “product” protection is important but also the human and animal health. They have
not realised that the pesticides' residues may be very harmful to humans, and to the animal's endocrine
system.
The cooperative operates on a non–profit basis. Now the cooperative realises fairly good prices. At the beginning the cooperative deducted from the price 10–12 percent, now 20 percent. About 18 percentage
points of deduction covers the expenses and about 2 percentage points, or about 40 million HUF, remains
as a surplus before taxation. The cooperative does not pay dividend for share–capital.66 The after taxation
surplus is used regularly for accumulation. On this the general assemblies decide at the suggestion of the
board of directors.
The cooperative has made investments into storage–building and cold–storage plant, bought lorries, automatic fruit sorting machine, digital weighing–machines connected to the computer system and so on.
In 2000 the value of the investment reached 200 million HUF, of which 10 percent was of member–loan,
30 percent of cooperative accumulation and 60 percent investment state subsidy. The cooperative pays an
interest–rate for the member–loan.
Thanks to the successful marketing strategy purchasing of the fruit and vegetable products increased rapidly. (See the table.)
Table 6. Formation of turnover in the Mórakert cooperative, 1996–2000
Years
Turnover, million HUF
1996
38
1997
110
1998
260
1999
560
2000
1 050
The dynamic of the turnover is very attractive. The most important thing is that this shows the dynamics of
the increase of the members' and partly the non–members' income in the micro–region. Since 2000 this
cooperative has been operating at the micro–regional level. In the year 2000, about 80 percent of this turnover came from 205 member–farms. The average income per member–farm was about 3.1 million HUF
after the deduction of the 20 percent. Two years before this the income was only about 800 thousand HUF
per member–farm.
The board of directors of the Mórakert Purchasing and Servicing Cooperative had a target to co–ordinate
the cooperatives operating in the micro–regions. As was mentioned above, in the year 2000 they managed
to get an integration of cooperatives operating in the micro–region, in which the Mórakert Purchasing
and Servicing Cooperative plays a leading role. The Mórakert Purchasing and Servicing Cooperative entered into contract with 9 other cooperatives practically with the same conditions as with its member–farmers. Practically the Mórakert Cooperative sold its know–how, more exactly it put itself on the
66
The interest-rate paying after the member-loan is not a part of the surplus it is a part of the expenditure.
123
market, and the other nine cooperatives bought it. The integration was created voluntarily and operated
on the basis of mutual advantage. In my view this way of integration may threaten the cooperative character not only of the nine integrated cooperatives but also of the integrator.
LESSONS LEARNT
The development of farmers' self–organizations in Hungary was very impressive over the last few years. In
2000, 942 local farmers' associations (circles, societies and village clubs) were functioning with the aim of
representing farmer–interests and about 500 selling–, servicing–, and supplying–cooperatives, machine
rings, and organic–products organizations. Among the “new” type of cooperatives, there are also
pseudo–cooperatives (established with the aim of obtaining State support).
The association and the cooperative membership consist of sympathisers, retired small producers,
part–time young small sized farmers and medium sized full–time farmers. This last group of members is
the most active and seemingly they play the leading role. The old and the new cooperative laws put emphasis on the obligations of the members towards the cooperative. There is no obligation of the cooperatives
towards the members. As there are no democratic traditions, these kind of cooperatives may not operate
for the benefit of the farmers.
In 2000, the Government supported the newly founded cooperatives. Because neither the cooperative law
nor the ministerial order on the support failed to define the cooperative as a particular economic organization, a substantial part of the support was received by pseudo–cooperatives.
Main obstacles to the development of the farmers' self–organizations are the few individual commercialised private farms among the individual farms. In the case studies only every five to ten restored individual
farms are able to produce for the market.
The regional or county level organizations, like the regional development council, the county agricultural
chambers, the county offices of the Ministry of Agricultural and Regional Development and its local representatives, the village agronomists play a very important and positive role in the restructuring of the farm
structure and establishment of farmers' self–organizations.
New, effective self–organizations have conflicts with the local governments. The local governments feel
that any independent self–organization limits their own power. The other basis of their opposition is that
the farmers' self–organization are non–profit ones and do not pay local tax.
The “old” type cooperatives look at the self–organizations of the individual farmers as taking over their responsibilities. The existing old type cooperatives and the companies (transformed from cooperatives) are
going to provide those functions the “new” type cooperatives do. The “old” type of cooperatives are going
to provide these services not on a non–profit, but on a business basis.
The economic activity of the “agency” type cooperative is determined directly by the members' needs, so
this cooperative fits the vertical expansion of the members' “basic” activity (subsidiary character). This
type of cooperative itself has no economic goal of its own; it is a co–ordinator of otherwise independent
farmers' units.
In the “enterprise” type cooperative the members are becoming less familiar with each other and the cooperative is losing its subsidiary character. The autonomy of such cooperatives has increasingly achieved
their own economic goals and independent business policies. This cooperative applies a twofold direction
control.
The basic problem of cooperatives is the lack of capital, and in this mainly the lack of operating capital. The
cooperatives are forced to operate without any or with very low capital. A consequence of the lack of capital forced the cooperatives to take the products of members in a consignment, find reliable, solvent business partners and to collect all debts, otherwise the cooperative would become bankrupt.
124
CONCLUSIONS AND RECOMMENDATIONS
1.
The grassroots farmers' self organizations under direct membership control “instinctively”
know the real character of such organizations, but they are hesitant as regards the future.
2.
The activity of cooperatives is not limited to its membership and is being extended towards
the non–members.
3.
The surviving cooperatives have not received any direct state support and this circumstance
enforced their independence.
4.
The economic performance of the cooperatives increased rapidly during the last years having a positive impact on the income of the farmers.
5.
The price of the products received by the members directly depends on the price received by
the cooperative.
6.
The cooperatives operate on a non–profit basis: in every cooperative a deduction of a predetermined percentage from the price for covering their expenses.
7.
Although not true for “agency” type cooperatives, for “enterprise” type cooperatives this deduction makes accumulation possible.
8.
It is necessary to elaborate the basic requirements under which economic organizations can
be regarded as cooperatives.
9.
It is necessary to popularise the best and good practices of the farmers' self–organizations,
mainly the “new” type cooperatives.
10. It is necessary to organize conferences, workshops, training for the policy makers, state, regional and local officials.
11. It is necessary to establish a cooperative service network of public interest, research, and
training; an extension service must be included in its activity.
125
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KENNEDY, 1983. Economic Theory of Cooperative Enterprises, The Plunkett Foundation, Oxford.
LACZÓ, F. 1980. Szövetkezeti integráció a dán élelmiszertermelésben (Cooperative Integration within the
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LACZÓ, F. 1993b. Hungarian Experience in Creating New Types of Cooperatives, FAO Workshop, September, Sofia
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LACZÓ, F. 1996b. A magyar szövetkezetek átalakulása (Metamorphoses of Hungarian Cooperatives), in
History of Hungarian Agriculture, Mezõgazda Kiadó, Budapest.
LACZÓ, F. 1999. Válaszút elõtt a magyar szövetkezeti modell I.–II. (At the Cross–roads of the Hungarian
Cooperative Model I.–II.), Magyar mezõgazdaság (Hungarian agriculture), January 20. 1999. – January
27.
LACZÓ, F. 2001. Basic Problem of Applicant Countries: the Unsustainable Farm Structure, A New Transatlantic Agenda Multi–Dialogue Workshop, Lisbon, 24–26 January 2001.
LACZÓ, F., & LAVERGNE, C. 1993. Tansformation of Hungarian Co–opartives, The “Multipurpose Cooperatives” Case, PHARE Programme, Budapest.
LACZÓ, F. & SZIJJARTO, A. 1997. A magángazdálkodás regionális elterjedsége Magyarországon (Individual Farming by Regions in Hungary), Ministry of Agriculture, Budapest.
Ministry of Agriculture and Regional Development, 2000a. Beszámoló az agrárgazdaság 1999. évi
helyzetérõl, (Report on Situation of the Agriculture in 1999.) Budapest.
Ministry of Agriculture and Regional Development, 2000b. The SAPARD Plan of Hungary, Budapest.
PHILIPS, R. 1953. Economic Nature of the Co–op Association, Journal of Farm Economics, Febr.1953.
pp. 74–87.
RASMUNSSEN, A. E. 1975. Financial Management in Cooperative Enterprises, Cooperative College of
Canada, Saskatoon, Saskatchewan.
ROY, E. P. 1969. Cooperatives: Today and Tomorrow, The Interstate Printers & Publishers Inc. Danvill,
Illinois, p. 202.
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SZEREMLEY, B. & MÁRTON, J.2000. Agrártársulási lehetõségek (Possibilities for agricultural associations), Ministry of Agriculture and Regional Development, Budapest.
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FARMERS' SELF ORGANIZATION
IN PROVISION OF SERVICES IN POLAND
Dorota Metera
INTRODUCTION
Farmer cooperation has a long–standing tradition in the world and there is no need to preach the benefits
of such cooperation. Neighbours helping each other during the peaks of field work, at harvest time and at
potato digging, mutual lending of implements – it is a time–honoured tradition that was reinforced by formal associations. Thus formed organizations performed different functions according to needs: from
common use of woodlands and pastures through collective purchase of machines and other capital investments to joint marketing and managing of serious common enterprises such as processing plants and financial institutions such as banks.
A contemporary form of cooperation is a producer group formed by farmers to solve their current problems, primarily that of marketing. Although the producer group may take on different legal forms i.e. a cooperative or an association it is always a union of people rather than of capital. A producer group does not
seek to gain profit for itself but it rather aims at marketing the products and increasing the returns of all
group members. This aim is served by advising, education, purchase of machines and inputs and promotion conducted for all group members or by all group members. The success of the group rests with all
group members and depends on their personal commitment, mutual confidence, joint responsibility, including financial responsibility and solidarity.
The first organization to set as its objective mutual aid among Polish farmers was the Hrubieszów Agricultural Society for Aiding One Another in Distress set up in 1816 by the catholic priest the Rev. Stanis³aw
Staszic. The members of that organization discharged their obligations in the spirit of solidarity and
jointly managed woodlands, grasslands, distilleries and mills.
In 1795, after the three partitions of Poland, the situation in different regions was shaped by the policies
adopted by the partitioning powers. As the self–organizing traditions were very strong among the producers in Germany numerous loan societies, agricultural trading cooperatives and cooperatives for land
reparceling and colonisation sprung up in the German–annexed territories. Set up in 1885, the Bank of
the Association of Profit–Making Companies provided the financial head office for the cooperative banks
and played a major role in the development of the rural cooperative movement in Wielkopolska (Greater
Poland). On the other hand, the Russian authorities put obstacles in the way of farmers' organizations
and it is only after 1905 that the first cooperative societies began to emerge primarily as consumer cooperatives in towns.
With the re–emergence of Poland as an independent nation her new Government looked on the development of the cooperative movement as an important element of the nation's reconstruction and development. In 1920 the Parliament (Sejm) passed the Law on Cooperatives which was developed along the
lines adopted by the international cooperative movement. At those times, because of dwindling supplies
of different commodities and their rising prices the highest membership was drawn by consumer cooperatives, building societies, loan societies, and in the countryside by agricultural trading cooperatives, electrification societies, producer societies as well as by the tourist cooperative “Gromada” which has
survived until today. Many of those cooperatives, apart from their economic function, had also a political
128
character as they had connections with the peasants' movement in the countryside and with the workers'
movement in towns. The outbreak of the 2nd World War put a stop to those activities. It is only in the General Government that the Germans retained the existing cooperative structures but they put them under
the German supervision.
In the post–war period after 1949 the cooperative movement was subjugated to state authorities. A forced
collectivization was started among villagers but it failed to bring the expected results. The collective farms
were actually state–run institutions with a semblance of cooperative structures controlled by the Government. Their true members, the farmers, had no say in their management. In the later years the collective
farms were not viewed as a model of economy. All the more so as after the successive political “thaws” the
economic performance of large and specialized farms, including horticultural operations, was incomparably superior to that of collective farms.
BACKGROUND AND INSTITUTIONAL SETTING
The process of changes in the agricultural sector in Poland began in 1989 by setting–up free market prices
for both the agricultural products and the foodstuffs, involving the initiation of trend towards market
liberalisation. Newly introduced legislation eliminated step by step the centralised structures that regulated the national economy in the past, and they introduced elements of the market economy. The most
important were new macroeconomic regulations: the relinquishment of the central distribution of goods,
the proclamation of economic freedom, the introduction of a new monetary policy, the liberalisation of international trade, and finally, the privatisation of the State–owned enterprises. Agriculture, much more
than other sector, was severely hit by the economic transformation. Removal of food subsidies and price
support led to a significant drop in demand for agricultural products. The reduced domestic demand combined with reduced export and increased import led to a reduction in farm incomes. It is estimated that real
farm incomes fell by 60 percent since 1989. However, despite these far reaching changes in agricultural
policy, the protectionism has still continued to function in the agricultural sector and this has been applied
by the State in order to control the national economy.
The activity of the Government in the permanent transformation of rural areas and agriculture consists in
the development of the Medium–Term Development Strategy for Agriculture and Rural Areas, that was
prepared by the Ministry of Agriculture as a Governmental Programme which was consequently approved by the Cabinet, and then, in 1998, was submitted to the Polish Parliament for adoption. A more detailed programme in this regard is the Coherent Development Policy for Rural Areas and Agriculture, that
was approved by the Cabinet in 1999. This programme is linked with the Partnership for Accession and
with the National Programme of Preparation for Membership to the European Union.
The Coherent Development Policy for Rural Areas and Agriculture is underpinned by the assumption,
that the structural changes in the agricultural sector require further transformation of the rural areas. This
goal is to be achieved mainly by actions aimed at the improvement in living and labour conditions of rural
communities. This policy is concerned with the interactions between the effects of agricultural modernisation, such as displacement of the agricultural workforce, and a non–sectoral approach to rural development which seeks to increase the employment in non–farming activities, such as all types of
non–agricultural production and service activities, including also tourism in rural areas.
The agricultural sector is one of the most important sectors of the national economy in Poland. In the past,
Poland was traditionally considered an agricultural country. At present, the share of agriculture and forestry in generating Gross Domestic Product is very low: in 1998 those employed in agriculture, forestry
and fishery sector, which is 25.12 percent of the occupational population of the whole economy, generated only 4.21 percent of GDP.
A notable feature of the agricultural sector in Poland was its very high employment level. Now, due to low
profitability of agricultural production and because of poor education of the rural population, the unem-
129
ployment level appears to be high. In 1998, the unemployment level in rural sector was approximately 22
percent, in comparison to 10.4 percent unemployment rate in the national economy, as a whole.
The developments in the Polish agricultural sector over the last ten years were far from the expectations of
the western agriculture experts. The process of transformation from centrally planned to market economy
did not result in the same direction of change as in Western Europe. Employment in agriculture did not
fall and the size of holdings did not increase. As a reaction to the shock of the change of the economic system the strategy of survival has been chosen. Only a relatively small group takes an active approach to the
challenges and opportunities of the market economy.
The Polish farming sector has high labour resources and very limited capital. The availability of the latter
is very poor, due to both high interest rates and the low value of fixed farm assets, and an unstable income
situation due to the vulnerability of production conditions and markets.
Only less then half of the farms in Poland are market oriented, i.e. producing mainly for the market and
farming is the main or the only source of their income. The remaining group of farms is already far advanced in the process of becoming independent of agriculture as their main source of income. For them off
farm work is the main source of income, but still a high percentage rely on pensions as their main source of
income.
For market oriented producers the export of high quality products for new markets will be a chance for further development. In 1997 the countries of the former USSR were still the biggest importers of Polish food
products. After the economic crisis in Russia a drop in the export of agricultural products was noted in the
years 1998–2000. Now most of the products are exported to EU countries, mainly Germany. Export possibilities are not fully exploited, the promotion of Polish products is insufficient, the quality of products
should be improved and bureaucratic barriers such as the certification and quality documentation should
be changed.
The development of organic farming has been so far very slow in Poland and is still in a very introductory
stage. In 2000 only about 1410 farms (0.06 percent of total) were certified as organic, with 22 370 hectares of land area (0.1 percent of TAA). The average organic farm is about 15 hectares (twice the national
farm size average). Legal framework is under preparation in parliament, which will result in the increase
of organic farming areas. As from 1999 direct subsidies for the farms converting to organic production
and for those already certified were introduced and this might enhance further development. However,
the market for organic produce is not well developed and approximately half of the organic produce is being sold as conventional produce without any premium. Recently Sejm accepted the law on organic farming (Journal of Law Nr 38 of 2 May, 2001) which will come into force on 2nd of November this year.
Further development of organic production might only be successful if the respective markets for certified
organic produce are developed as the effect of increasing ecological awareness by consumers in the case of
national market and acceptance of Polish certification system by EU – in the case of export.
CURRENT DEVELOPMENT OF AGRICULTURAL ORGANIZATIONS
The change of the political system and the shift towards a market–oriented economy in 1989 caused the
centrally controlled collective farms failure to survive on the agricultural products and foodstuffs market.
The Government, the farmers and concerned people from the agricultural sector started activities aimed
at aiding the farmers in their adjustment to a new market–oriented environment. In that context, the organizing of producers acquires an entirely new significance. It is particularly so as attention has been paid to
solutions adopted by the member nations of the European Union.
In 1992 the Rural Cooperatives Foundation was launched. Its founders were the Minister of Finance, the
Minister of Agriculture and Food and the Chief Council on Cooperatives. The task of the foundation is to
give assistance to the formation of cooperatives of producers who jointly prepare for marketing and directly sell their produce. Training courses for farmers launched by the Foundation, the Agricultural Advisory Services and by diverse organizations aroused much interest. Farmers began to organize themselves
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into cooperatives, associations and partnerships. The number of registered producer groups is now estimated at 350.
Although the idea of organizing marketing groups is mostly well accepted by interested farmers at the beginning, when the decisions concerning the realisation are being made, the farmers reveal great scepticism and do not take any concrete actions. Despite comprehensive help, which farmers could get from the
institutions and advisors including organizational and financial help, there is little chance of forming marketing groups.
The main barriers are:
Loss of independence and the traditional image of a farmer
Farmers perceive themselves as independent producers and land owners. Bad experience from history after II World War is still in the memory of all. Starting an activity in a marketing group places on farmers
a duty of active action in the market and assumes acceptance of some functions traditionally performed by
traders. Therefore success depends on whether there are any leaders in the group of farmers who are ready
to start the market activity and convince other members of the group to do it together.
Lack of financial means for group organization and investments
Insufficient financial resources can be a significant factor, which limits performing group activity, especially if it requires large investment expenditures. The financial resources collected in the past are in most
of the cases insufficient to start the investments, take the credit or even to establish a limited company,
which needs the capital of the shareholders to start the registration process.
Resistance to changes
“Resistance to changes” is an extensive domain of management theory and practise. Every change destroys an already existing order of things and opens unknown (inexperienced) perspectives, provokes
fears of failure. Overcoming the resistance depends, on realising potential advantages of changes and the
speed of changes regulated by the leader or advisor (well known rule: force them to walk before they run).
Fear of taking risk
Every farmer constantly takes a productive risk e.g. connected with a possibility of yield reduction in case
of bad weather and a commercial one resulting from difficulties in the sale of products at a profitable price.
Undertaking the cooperation and implementation of new forms of activity carry an even higher risk of failure. It should be stressed that group activity limits, at the same time, the risk that is taken individually by
each farmer.
Knowledge factor
More active forms of farmers' participation in running the “company” which is the marketing group demand other skills and wider knowledge than these needed for farm keeping. It is necessary to invite to the
group partners who have knowledge of company management or marketing.
THE LAW ON PRODUCER GROUPS
On 15 September, 2000 a law was passed by the Sejm on agricultural producer groups and their associations. The law creates new conditions for farm producers to organize themselves into groups tailored to
meet specific market and social requirements. That legal act will contribute to a better organization of the
market for sales of agricultural produce. This will be achieved through the concentration of production
and through the adjustment to market requirements with respect to the range, quality and quantity of produce. The Government supports the development of the groups and group associations through subsidies
from the budget.
The term “producer group” refers to the functions performed by organized farm producers who jointly
undertake to standardize their products and to promote them. However, the term does not impose a defined legal form. The farmers may decide which legal form to adopt e.g. a cooperative, trading company,
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partnership or association. All those legal forms, except associations, are allowed to conduct trade activities. In the case of associations all the objectives of the group, including negotiating the price, may be pursued jointly. Signing of the contract and its implementation rests with individual farmers but should be
agreed upon by the group. Being a big supplier the group may choose buyers from among several companies and negotiate higher prices. Once the producer group has begun to take an interest in the needs of the
consumers it carries out market surveys, recognises the needs of the wholesale market, tailors itself to the
demands of a supermarket or a restaurant and becomes converted into a marketing team. Then it takes
over fully the tasks of the go–betweens and through direct contact with the buyer adjusts better to his
needs and develops permanent links.
According to the provisions of the law the farmers may organize themselves into groups to adjust the farm
production to market conditions, to improve efficiency, to plan the production with particular regard to
quantity and quality, to concentrate supply, to organize sales of farm produce and to protect the environment.
Although marketing groups are a form of farmers collective activity that type of cooperation does not involve the merging of farms (bad historical experience) or depriving farmers of their independence.
A farmer joins the group by taking a voluntary decision and by assuming certain rights and commitments.
The responsibility of the group is to conduct joint sales of produce and to achieve at least: in the first year
51 percent, in the second year 60 percent and in the third year 75 percent of documented income from the
sales of commodities produced on the farms of the group members. The groups are put on the group register kept by the governor of the province to whom annual financial reports are submitted.
Producer groups may join up to form group associations for organizing supplies of means of production,
storing and pre–processing of their produce, promotion of the produce and giving guidance to producers,
promotion of environment–beneficial technologies, conducting market analyses, training of producers
and providing legal and accounting services.
The law provides for financial assistance paid on application made by the group to the Agency for Restructuring and Modernising of Agriculture. The subsidy is granted to establish the group and to support its administrative operation during the first 5 years. The amount of subsidy is in the first year 5 percent, in the
second year 4 percent, in the third year 3 percent, in the fourth year 2 percent and in the fifth year 1 percent
of documented annual income from sales of commodities produced on the farms of group members. The
group may also apply for a preferential investment credit with an interest set at 0.25 of the rediscount bill
rate in accordance with the rules for granting of investment credits in agri–food processing. The group is
also entitled to have the interest paid on loans to finance costs of capital inputs refunded in accordance
with general rules.
In March the Ministry of Agriculture and Rural Development published the regulation on the schedule of
products and groups of products, for which the groups of agricultural producers may be established, the
minimum annual volume of goods produced and the minimum number of members of the agriculture
producers group (Journal of Law Nr 26 of 29 March, 2001.
It should be emphasised that setting up of producer groups is beneficial not only to producers but also to
consumers.
Benefits to producers include:
• reducing the number of go–betweens in the sale of farm produce,
• tailoring the production to market demands,
• joint promotion of produce,
• long–term cooperation with buyers which allows the stabilisation of farm production,
• joint investments to improve storing, warehousing and preparing the produce for marketing,
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•
improved competitiveness and developing partnership contacts with other entities,
•
as a result – improved performance of farm operation.
Benefits for consumers:
• supply of quality products, well packaged and appropriately labelled,
• cheaper products,
• stabilized supply.
LEGAL FORMS OF PRODUCER GROUPS
Farmers wishing to form a producer group have a choice of several legal entities under which they may associate to carry on joint operations. The form to be chosen depends primarily on the objectives of the
group, on who is to be a group member and on the financial resources of the members. Table 1 shows the
conditions under which producers may organize to form different legal entities.
Table 1. Comparison of different legal forms of producer associations
Cooperative
Limited liability company
Partnership
Association
Legal act
Law on cooperatives of
16.09.1982
Decree by the President
of the Republic of Poland
of 27.06.1934
“Commercial Code” *
Law of 8.10.1982
“On the social and professional farmer organizations”
Law of 7.04.1989
“Associations Act”
Type of organization
commercial but also
social
commercial
social and professional,
but also commercial
social
Area of activity
no limitations
no limitations
Republic of Poland's terno limitations
ritory
Members
natural and legal
(corporate) persons
natural and legal (corponatural persons
rate) persons
Number of founding
members
at least 10 natural persons or 3 legal persons,
5 natural persons in
Agricultural Production
Cooperatives
one and more
at least 10 natural persons of whom at least 8 at least 15 natural peroperate a farm as its pro- sons
prietor, owner, or user
Form of financial
commitment
Share
share
membership fees
membership fees
Appropriate court
of registry
local commercial court
local commercial court
local commercial court
district court, civic department
natural persons, legal
persons as supporting
members
Source: Boguta W., Ejsmont J.: Top Agrar Polska no. 9/99, pp. 22–24
* Changed by Law of 15 September 2000 “Commercial Code”, Journal of Law No 94 of 8 November 2000.
THE CASE STUDY REGIONS IN THE CONTEXT OF FARMERS' SELF–ORGANIZATION
The comparison of farming conditions is shown in Table 2. Data from the Central Statistical Office statistical yearbook 1999 were used for comparison. They refer to the administrative division of the country before the administrative reform introduced in January 1999. The so–called “old voivodships” (provinces)
being smaller in area than the new ones allow a better comparison of local conditions in the regions under
study: the Grójec region of the Warsaw province and the Brodnica area of Toruñ province.
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Table 2. Comparison of farming conditions in the provinces of Warsaw and Toruñ
Land use
Warszawskie
Voivodship
Toruñskie Voivodship
Total in Poland
Province area (ha)
378 782
534 833
31 268 502
Arable land
70.1%
83.4%
76.2%
Orchards
6.3%
0.9%
1.4%
Grassland
23.6%
11.3%
22.4%
Forest
23.2%
17.%
28.2%
Idle and fallow
5.2%
1.4%
2.6%
264
258
245
0.896
1.081
1.00
3.9
25.5
27.0
2 102
1 655
1 225
19.3
65
46.6
Length of growing period (days)
Rating of agricultural productive space
quality coefficient
Employed in agriculture and hunting
(% of total employment)
Commercial agricultural production
on private farms (thousand z³)
Per ha
Farm animals
Generally, conditions for agricultural production are good in both provinces as seen from the similar rating of agricultural productive space and length of the growing season. The coefficient of agricultural productive space for the Warsaw province (0.896) is lower than that for the Toruñ province (1 081) mainly
because of poor, sandy soils in that region. It is further confirmed by a much larger share of forests – 23.2
percent and grasslands – 17 percent in the Warsaw area when compared to the Toruñ province where forests account for 17 percent and grasslands for 11.3 percent.
The proximity of Warsaw, the quality of soils and the history of the region result however in considerable
differences. The Toruñ province, because of its good soils, has for centuries been famous for its agricultural production, of cereals in particular, whereas horticultural production has flourished in the region of
Warsaw. Fresh vegetables, fruits and flowers have for a long time been delivered directly to shops and to
wholesale markets at which shopkeepers from towns as far afield as 100 km continue to buy their supplies.
The differences stem from a much larger proportion of arable land in the Toruñ province (83.4 percent)
which is in excess of the national average of 76.3. Obviously, another reason is the proportion of arable
land in the Warsaw province (70.1 percent) and also a much larger proportion of orchards in the Warsaw
province – the national average being 6.3 percent and the figure for the Toruñ province – as little as 0.9
percent.
For the same reason there are substantial differences in the value of commercial output of private farms
(thousand “old z³oty”). It is considerably higher in the Warsaw province (2102 thousand z³/ha) as compared with 1655 thousand z³ in the Toruñ province and with the national average of 1225 thousand z³.
Since the livestock density on the farms of the Warsaw province is one third of that in the Toruñ province
and half of the national average horticultural rather than agricultural production is likely to be the source
of the high commercial value on those farms.
Of note is also a quite different employment structure in the two regions: whereas in the Toruñ province
employment in agriculture accounted for 25.5 percent of the total employment (national average 27 percent) in the Warsaw province the respective figure was 3.9 percent. The small distance from Warsaw entices people to leave agriculture and to seek employment in other, more profitable sectors of the economy.
Consequently, the Warsaw province has the largest proportion of fallow and idle land – 5.2 percent –
much above the national average of 2.6 percent and the 1.4 percent of the Toruñ province.
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Apart from that, the regions of Grójec and Brodnica have their own specific features – Grójec is renowned
for apple farming and Brodnica is popular with tourists and environmentalists.
REGION OF GRÓJEC
Grójec – a town of approx. 14 000 inhabitants situated approx. 50 km south of Warsaw (1.5 million inhabitants) at the intersection of communication routes from north to south and from east to west. The region
of the towns of Grójec, Tarczyn, Warka and Góra Kalwaria is Poland's largest fruit farming area with a tradition that goes back for several centuries. Tradition and good professional background of fruit growers
are combined here with the organizational abilities of producers. The outcome is the excellent quality of
the produce for which the region is famous.
The area under orchards in the region is approx. 40 000 ha, the average apple production is 600 000 –
– 700 000 tons which accounts for 30 percent of the total domestic output. More than 7 000 farm holdings
are engaged in apple farming, the average farm size being approx. 7 ha including 4 ha of orchard.
Approx. 27 percent of the farm area is occupied by young apple orchards of up to 3 years of age and planted
at Approx. 2 500 trees per ha. The production is dominated by varieties for fresh consumption – mainly the
new ones: Jonagold, Sampion, Alwa, Elstar, Gloser, Ligol. Good fruit quality depends not only on modern
production methods but also on proper storage. The majority of farms have upgraded KA (controlled atmosphere) cold–storage facilities and facilities of the ULO (Ultra Low Oxygene) type.
Poland is one of the top apple producers in Europe ranking 4th after Italy, France and Germany. Poland is
Europe's largest producer of apple concentrate and the Polish concentrate has the best parameters. The
growth rate of apple production is very high averaging 9.2 percent.
REGION OF BRODNICA
The town of Brodnica is situated in the eastern part of the Kujawy–Pomerania province approx. 100 km
north–east of Toruñ, approx. 200 km away from Warsaw and 200 km away from Gdañsk. The region of
Brodnica although of mainly farming character is famous for its scenic beauty as the Brodnica Lake District. Numerous lakes, including the largest Bachotek, with the Treasure Island and Ma³e Partêczyny of
the characteristic willow green and blue colour, are connected with one another by streams and canals
thus creating good conditions for canoeing. The Brodnica Lake District is part of the so–called Green
Lungs of Poland. The Brodnica Landscape Park of approx.13 000 ha, and covered by forests in 40 percent,
was created in 1985 to protect the natural values and the landscape of the lake district. Of interest are numerous “wild” lakes, peat bogs, marshes and rushes. The tourists are also attracted by natural monuments, ruins of medieval castles and traditional village architecture. Tourist facilities and farm lodgings
provide good recreational conditions. The “Green School” Ekoczar at Czarny Bryñsk and the Ecological
Education Centre “Wilga” at Górzno operate in the region conducting an environment–oriented education of youth based on a network of nature trails.
Ushered into the area by the first training courses given by the local Agricultural Advisory Services at
Przysiek near Toruñ in the 80's, ecological agriculture has been developing in the region for more than 15
years. In the year 2000 in the Kujawy–Pomerania province there were 40 ecological farms with a total area
of 532 ha. Some of them are considered a tourist attraction of the region being a favourite destination spot
for school and college trips and for individual tourists (ca. 1 000 people annually).
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FORMATION OF FARMERS' ORGANIZATIONS – EXAMPLES
SUN SAD AT NOWE GROBICE N. WARSAW
SUN SAD is a limited liability company that deals in the purchase and sales of fruits. Its shareholders are
nine fruit growers. All have college degrees in horticulture and a high level of practical knowledge as they
have been running their fruit farms, handed down from generation to generation, for many years now.
They are bound together by long–lasting bonds of friendship, and sometimes even by family ties.
For many years the members of that organization had been meeting at training courses, reunions, conferences and business trips organized for fruit growers. By observing producer organizations operating in
western Europe they came to the conclusion that, in order to have a good position on the market, they
ought to create a strong producer group. Before that each of the growers sold their produce on their own
e.g. at a wholesale market and many a time they would spend all night waiting for customers. Effectively,
they were competing with one another trying to sell the same product.
In 1997 ten members including two persons who did not run their own farms set up the Partnership of
Fruit and Vegetable Producers SUN SAD with Zbigniew Przybyszewski as the president. The average size
of each grower's farm is 20 ha. They made their own logo to be used by all group members to promote and
label their products. The advertising slogan “10 vitamins from sunny Polish orchards” was also created
(the mixed English–Polish name SUN SAD (“sad” – Polish word for orchard) suggests the image of a
sunny orchard) with Krzysztof Kobusiñski as the president. Fruits produced in orchards of each of the
group members were prepared for marketing and packaged separately on each farm. The member farms
have their own storage facilities (ULO type, KA type and ordinary cold stores).
An advisor from the Netherlands was contacted. He comes to Poland twice a year and, accompanied by
the whole group, he tours the farms discussing the state of orchards and production problems. Since the
group acts on the no–secrets principle all members are free to use the advice. Also during the business
trips to the Netherlands, Germany and Chile (a tour of the Republic of South Africa is planned) all production problems are jointly discussed.
After one year of operation within the framework of a partnership the members made a decision to form
the limited liability company SUN SAD and owing to that they were able to start investments. The members of the partnership became shareholders of the company by contributing equal shares. A preferential
credit was used to build a modern Polish–manufactured storing and warehousing facility. The joint warehousing space is 1 500 m2, including two cold stores with a capacity of 500 t. The warehouse also contains
office space and workers quarters. The available area is large enough to build another facility of that type
in the future.
A modern grading line GREFA MSE 2000 was purchased which makes it possible to sort the fruits according to color, tan, size, weight and length. Packing machines were also bought which pack the fruits into
gauze and plastic bags and into plastic wrapped trays. Owing to state–of–the–art equipment the storing
and warehousing facility has a processing output of approx. 25 000 tons. Good preparation of the commodity for marketing is ensured through uniform quality, proper packaging and a continuous supply of
large quantities of the produce and an assortment of fruits and vegetables that are packed into individual
packaging units can be increased. Production potential of the SUN SAD shareholders is ca. 5 000 Mt of
fruit annually.
Demands set by the buyers on quality continue to increase. The assortment of varieties is tailored to meet
those demands and is kept upgraded. Among more than 40 varieties of apple trees there are still some old
ones such as Antonówka, Malinowa Oberlandzka and Boiken but the new ones such as Jonagold, Gloster,
and Sampion take more and more of the share. The offer also includes pear varieties: Lukasówka,
Konferencja and Patchen.
In the past the orchards were managed using the integrated method supervised by the Institute of
Pomology and Floriculture in Skierniewice. At present however the producers use their own experience to
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cut down on pesticide use due to the high costs involved. The fruits are analysed for pesticide residues and
the results give no cause for concern about their health quality.
According to buyers' requirements the fruits are packed and sorted, ranging from premium quality apples
placed in logo–printed cartons of corrugated fibber boards, to gauze bags, plastic containers, printed
sheet bags, to cartons in which apples are packed in bulk.
The products are sold to networks of hyper markets and supermarkets, shops, go–between suppliers, periodically also through the group's own outlet at the wholesale market at Bronisze n/b Warsaw. They are
also exported to eastern and western Europe.
The producers are satisfied with the prices obtained on their products. The storage facilities make it possible to store the apples until June and the bulk of sales is from March when the price is at it's highest. The
contracts and the prices are negotiated by all group members and by the sales manager.
The products are promoted through neat printed packages, numerous articles in specialist journals and
TV shows, participation in exhibits and fairs, including twice at Fruit Logistica in Berlin. In January 2001
the company was awarded a cup in a contest organized by the Ministry of Agriculture and Rural Development, Polish Radio and the journal “Gospodyni”, for the best team effort and creation of new workplaces.
Following the announcement of the contest results more visits by journalists are forthcoming to interview
the producers. In January 2001 the International Fruit Growers Conference was held in Grójec which
scheduled the presentation of the company “SUN SAD”.
The company SUN SAD currently employs three people: sales manager, accountant and stores and supplies manager. At the moment no increase in employment is planned due to high costs (especially those incurred by social security payments). The storing and warehousing facility is continuously operated by the
producers themselves, three people working at one time throughout the week. Such a system allows efficient management and supervision of workers and, at the same time, gives the producers enough time to
work their own farms.
Decisions are taken collectively by majority vote at weekly meetings. Decisions taken at the meeting by the
majority of the shareholders present must be accepted by those absent from the meeting. Even though the
discussions are often stormy there is a prevailing mood of understanding and confidence.
For the time being they are free to sell their produce on their own but there is a rule that the orders placed
with the company take priority.
The members of the group are extremely active persons and they have participated and performed different functions in organizations such as the Fruit Growers Union of Mazovia and the Wholesale Market at
Bronisze n. Warsaw. Currently they cooperate with the Foundation for the Development of Rural Cooperatives. Plans are underway for cooperation within the framework of the “Producer marketing group development project” run jointly by the foundation and the British Know How Fund. It is planned to set up
the Producer Groups Information Centre, the task of which will be, among other things, to train specialists in assisting farmers in the setting up of producer groups across the country.
According to the opinion of the group members the establishment of the group has not entailed any major
changes to the farms. They underline the fact that they have always been the best producers in the Grójec
and Warka area and have kept upgrading their knowledge and production methods. Family traditions,
know–how and financial resources made it possible for them to boost the performance by acting as
a group. Fruit preparation for marketing is now done at the logistic base so the family members have been
relieved of the burden of sorting. The group's position on the market is much better than that of its several
members, timely supplies and very good quality of the products is ensured. The modern logistic base will
provide an excellent foundation for further enlargement and expansion in the future. It will make it possible to prepare the produce according to EU regulations: harvest – cooling – preparation for marketing –
packing – cooling – transport. In addition, the fruit growers estimate that in the long run only large producers, of 100 ha of orchard, will stand a chance to secure a good position on the market so the smaller
producers must operate in groups to cope with the competition.
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ORGANIC FARMERS' GROUP “BRODNICA”
Group of organic farmers started to form in the late eighties. The movement was encouraged by courses in
organic farming offered at Przysiek near Toruñ and taught by specialists from Germany and Switzerland.
One of the organizers was Mieczys³aw Babalski who, alongside running his farm, worked as an extension
specialist. During the courses the farmers took a decision to set up an association with defined organic
farming standards, a system of quality control, and a logo as a quality guarantee to the consumers. The Organic Farmers' Association EKOLAND was set up in 1989 and Mieczys³aw Babalski served three consecutive terms as President of the Board. As EKOLAND expanded and regional chapters were formed
Mieczys³aw Babalski was elected president of the Kujawy–Pomerania chapter. At present, 58 farms with
a total area of approx. 800 ha are registered with the Kujawy–Pomerania chapter of the EKOLAND Association. Of these, 31 hold organic farming certificates and the remaining ones are converting to organic
farming.
Friendship ties as well as institutional and commercial bonds developed as part of the activities in
EKOLAND. The farmers know one another well, they have participated in many courses, trips, and many
of them jointly sell their produce. While searching for different forms of cooperation to boost the sales of
their produce they have developed multi–layered contacts with other farmers, processing companies,
buyers and institutions.
Since 1995, whenthey joined the Kujawy–Pomerania chapter of the EKOLAND association, they have
held regular annual association meetings. They also meet occasionally to discuss various topics e.g. the
cropping scheme that would take account of demand by buyers, processing companies, and by individual
customers, to plan training courses and promotional events such as the Day of the Earth, Ecological Harvest Feast and numerous exhibits and local fairs. The cooperation within the marketing group is limited
mainly to training and promotional activities and there is no joint selling and joint management of returns.
All farmers are members of the EKOLAND association and they pay their membership fees to the
Kujawy–Pomerania chapter of the EKOLAND association. The accounts are kept at the chapter's office
the seat of which is at the Regional Center for Advisory Services, Agricultural and Rural Areas Development at Przysiek. The collected fees are used to cover administrative costs incurred by training and promotional activities.
The members of the Kujawy–Pomerania chapter of the EKOLAND Association have come a long way to
arrive at the legal form under which they now operate. Initially, it was a loose group of farmers interested
in organic farming. Then, in cooperation with scientists, they formed the EKOLAND association. Finally,
after the EKOLAND association had been divided into regional chapters they became the most active
chapter. As part of the project “Marketing of ecological products in north–eastern Poland” run by the
IUCN – Poland Foundation and by Avalon Foundation (the Netherland) they formed closed marketing
contacts within an even smaller circle. The most actively market–oriented farmers formed an informal
group “Brodnica” which associates with mainly vegetable and small grains producers. The group is made
up of 20 farmers, eight of whom have farms certified by EKOLAND and twelve have farms converting to
organic farming. The combined area of the farms is 380 ha. One of the objectives of the project was supposed to be the registration of a marketing group in accordance with a planned law. However, with the
passing of the law and no regulations having been issued by the Minister of Agriculture the farmers remain unconvinced about the need to register the group or benefits involved in doing so. What they are primarily concerned about is the obligation to pay income taxes which they think would be in excess of the
farm tax they are paying now. The farmers also have reservations about the required quota of sales of a single product. They think it is too high for an average organic farm even though its mean area, 15 ha, is twice
the average organic farm area in Poland. Moreover, organic farms are mixed farms due to the required
minimum 4–year crop rotation. In that field of agriculture it is difficult to form single product–oriented
farms. Individual farmers invest their money into self–schemed investments although those investments
are designed to serve all group members and also the farmers from outside the Brodnica area should the
need arise.
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In 1991 Mieczys³aw Babalski received practical training in Switzerland where he learned to produce
whole–grain pasta. He bought a whole–grain pasta producing line and he gradually built, equipped and
expanded the “BIO” pasta production plant.
In 1993 a group of three farmers set up a cooperative called “¯ywnoœæ Ekologiczna BIO” with the planned
objective to start a fruit and vegetable processing plant. After successive transformations first into the
non–commercial partnership “BIO” and then into the limited liability partnership Good Food Bio, the
masterminds of the processing plant now operate within the framework of the limited liability partnership
called ¯ywnoœæ Ekologiczna EKO FOOD. The purchase of the equipment was financed by the owners
themselves and by the funds from the Regional Development project run by EKOLAND and by the Heinrich Böll Foundation (Germany). Currently the company rents approx. 1 000 m2 of production space.
In order to broaden the assortment of sold produce and to manage the bread cereal grains produced on
their farms the group started cooperation with a bakery in Toruñ. Twice a week the bakery makes bread
from the flour supplied by the pasta plant BIO.
To extend the supply of vegetables and to improve their quality, especially in springtime, it is necessary to
improve storage conditions. The Brodnica group is trying to get subsidies for an investment – converting
farm buildings on three farms into vegetable storing facilities. Efforts are underway to get the investment
financed by IUCN–Poland Foundation, Avalon Foundation and by Switzerland's SVWO Foundation.
The full assortment of organic products offered to the consumers is made up of vegetables and agricultural products produced directly by the farmers and of the products manufactured in the processing plant.
Table 3. Assortment of products of the marketing group “Brodnica”
Producer/producers
Product
Approximate annual output
Brodnica marketing group
vegetablescereals fruits (apples, plums,
sour cherries) meat from private slaughter
milk
300 MT
100 MT
15 MT
15MT
500 000 l
Pasta plant BIO at Pokrzydowo
whole-grain pasta (10 kinds) flour (wheat,
rye, spelt wheat) cereal flakes, bran
60 MT
40 MT
15 MT
Fruit and vegetable processing plant
“¯ywnoœæ Ekologiczna EKO-FOOD”
at P³onne
Fruit and vegetable juices (apple, carrot-apple, apple-celery, beetroot) sour cabbage, canned cucumbers, vegetable salads
Bakery – Ryszard Piasecki at Toruñ
whole–grain bread and rolls
Processing of 1000 MT raw materials
18 MT
All farms are run in compliance with the “Standards for organic farming of EKOLAND association” and
are controlled by inspection bodies authorized by the Ministry of Agriculture and Rural Development to
carry out inspections of organic farms. Since 1998 the fruit and vegetable processing plant BIO has been
also controlled by the Dutch inspection body SKAL. Nearly all products produced by the farmers which are
sold to shopkeepers and offered at local fairs are packaged and labelled with the logo EKOLAND printed
on the initiative of the Brodnica group and distributed among all interested organic farmers. All products
manufactured by the processing plants are put in their original packaging and labelled with original tags.
The products are sold on the farms, offered to private consumers at fairs, marketed via mail order companies, supplied to institutions under the slogan “Make your own winter food stores”, offered to organic
food stores and to wholesale stores, mainly in Warsaw, but also throughout the country, supplied to conferences organized by Regional Center for Extension and Agriculture and Rural Areas Development
(RCDRR i OW), to restaurants and to supermarkets. Urged by the need to broaden the assortment and by
139
the scarcity of financial resources the farmers set up a system of mutual aid in marketing their products.
The farmers very often settle their accounts in kind rather than in cash or, in other words, they barter.
The prices obtained fail to satisfy the producers. Unfortunately, there are difficulties in maintaining a continuous supply, especially of vegetables, due to inadequate storing facilities and of spelt wheat because the
area under the crop is too small as farmers show little interest in growing it.
The group does not employ permanent staff to manage promotion and marketing. Two ladies are contracted to take care of promotion and accounting: a highly qualified book–keeper and an advisor with high
qualifications in organic farming and excellent organizational skills. Many tasks are carried out by the
farmers themselves: organization of printing and distribution of labels, management of fairs, organization of promotional events.
Built from scratch and without starting capital the fruit and vegetable processing plant and the pasta processing plant created new jobs: in the EKO FOOD plant 12 – 14 persons have permanent jobs, the number
going up to 40 in the processing season. Currently three persons are employed in the pasta plant.
The group of organic farmers active in the Kujawy–Pomerania branch of EKOLAND meet at the annual reunion. They also get together to deal with current affairs e.g. to organize promotional events or to discuss
cropping plans to meet the needs of the processing plants. At the annual meeting the decisions are taken
by majority vote. Commercial affairs are negotiated with buyers jointly or individually but the decisions
concerning the price, the amount and the quality are made between the farmer and the buyer.
Even with a substantial contribution of one's own work, promotion and training take a lot of financing.
The group receives very good treatment in the RCDRR i OW, has free use of a room, telephone and the assistance of one of the staff. Many events are organized here at which organic products are bought, sponsored product tasting events are organized and the products are sold by farmers themselves at fairs.
Making use of the stipulation in the bylaws concerning the environment protection activities the
Kujawy–Pomerania chapter of ECOLAND tries to look for financial support of environment education
and training at different institutions. Many events, leaflets and training materials are financed from the
Provincial Fund for Environment Protection, 4H Foundation, IUCN–Poland Foundation and from projects carried out by the RCDRR i OW. Thanks to a good long–lasting cooperation with the Ethnographic
Museum in Toruñ, Kujawy–Pomerania Chamber of Agriculture, Marshal's Office, Commission for Agriculture and Environment Protection of the County of Brodnica and Brodnica Landscape Park many
events are organized at which products are bought for sponsored product–tasting events or the products
are sold at fairs by the farmers themselves. Thanks to good contacts with the provincial Government for
three years the farmers have been exhibiting their products at the at the Toruñ region stand of the Grüne
Woche fair in Berlin. Thanks to the assistance from the Heinrich Böll Foundation the products were exhibited at the BIOFACH Trade Fair. In 2000, thanks to funds from IUCN – Poland and from Avalon (the
Netherlands) two farmers took part in the Bio Marche fair in Zofingen, Switzerland that accompanied the
IFOAM conference. The farmers welcome TV reporters, film makers and tour parties of farmers, teachers,
extension specialists, university and high school students. In 2000 the member farms were visited by
approx. 1 800 persons.
With traditional farmers having trouble selling their products it must be said that organic farmers have no
such problems. However, the organic farmers are intensively involved in the marketing and promotion of
their own products. They did not wait for offers to come but managed to organize processing for most of
their crops. Before that the majority of farms had a typical production profile which slowly changed to
field crop and vegetable farming. Even though the farmers did not have capital to set up a processing plant
by taking a step–by–step approach they organized two plants and started cooperation with a bakery. They
certainly will not stop at that as they are constantly trying to manage the remaining farm products, especially milk and meat. Shortage of capital is however a barrier to further development. Further investments
are necessary to upgrade storage facilities to improve the quality of vegetables and to extend their supply.
The purchase of washing, packaging and sorting machines would allow the farmers to produce vegetables
with improved quality commanding higher prices. Investments should also be made into new machines
140
for the fruit and vegetable processing plant. With more products marketed to retail outlets and to supermarkets the production of vegetables could be increased. With what the group has accomplished by now
one can be confident that the plans will be realized though maybe it may take some time.
CONCLUSIONS AND RECOMMENDATIONS
In a contemporary market economy the farmers have little influence on the way the market develops, on
the prices of capital investments or prices of commodities. As they observe the tendency they become increasingly more convinced that they can face competition on the market only as large and strong groups.
When acting as a group it is easier for them to invest i.e. to build storage facilities, to lower production
costs, to buy and to use the equipment, to prepare their products for marketing, to deliver them to the market and to sell them. Many farmers can see that it is their only chance to survive on the market. When confronted with large partners that supermarkets and processing plants are currently becoming it is only
a group of farmers that is able to conduct a trade policy of its own. Most frequently only a group can ensure
a consignment of commodity large enough to be exported or is even able to manage exports on its own.
Paradoxically, it takes difficult times to elicit the urge for collective action and yet even in a comfortable
market situation it is easier to act jointly.
The choice of the method of collective action depends on many factors and first of all on the mental and financial capabilities of group members. A high level of vocational knowledge and the willingness to
broaden it are usually related to activity and inventiveness and, consequently, it entails a success as shown
by the two instances described above. The financial resources of group members determine the legal form
and the scope of activity. The members of the SUN–SAD group having larger assets registered as a limited
liability partnership, having decided on a large joint investment, jointly market their products and reach a
high turnover. The farmers of the EKOLAND association did not have such a starting capital and yet they
have developed processing by working “from scratch”, gained the confidence of institutions and organizations that are helping them in promotional actions. The SUN–SAD fruit farmers are conveniently close
to the nation's largest fruit market but they must face a fierce competition from other regions' producers
and from importers. It is only thanks to an efficient management of supplies and a good quality and packaging of the fruits that they manage to survive on the market. The farmers from the Toruñ area do not have
an easy access to the market as they are 200 km away from the nearest large cities. Yet they managed to
turn to their advantage the landscape and natural assets of the region and the organic method of production by associating them with the logo of their products, EKOLAND, in the minds of the consumers.
As can be seen from the two examples, under any geographical or market conditions one can find an advantage to be used as the strong point of a joint enterprise. Both examples are safely applicable to other situations, both in Poland and in other countries. However, rather than being copied they should be a source
of inspiration for new solutions. What is the most important for the success of a group is:
• confidence on the part of the group members about the need for joint work to attain common
goals,
• feasibility and profitability of the enterprise,
• financial resources and their continuous development,
• appropriate level of knowledge of group members and employed staff,
• loyalty, solidarity and enthusiasm.
In the European Union the legal basis for the operation of the groups and their support is the responsibility of individual member states. Support from the budget of a given state or from the budget of the European Community is directed only to recognized groups that fulfil legal requirements. The groups eligible
for recognition must be formed on the initiative of the farmers themselves and must be democratically
141
managed by them. The support from the state or community budget is the consequence of the commitment of the states to the organization of the agricultural commodity market.
According to the opinion of Polish farmers the Polish Government was too slow to respond to the need to
organize producer groups and in the beginning of the 90's concentrated work and resources on the formation of wholesale markets. Actually, alongside with those markets producer groups should have been
formed which would have been capable of supplying large wholesale–size consignments of good quality
products. According to the specialists the existing groups are still too small as they number less than
twenty members they have too little experience and too little capital. Tirolian cooperatives are model
groups for fruit farmers. They number even as many as two hundred members and they have modern storage facilities and sorting and packaging lines. Organic farmers would like to model themselves on associations of German organic farmers. However, the latter have farms which are sometimes ten times the size
of the average Polish organic farm. Those cooperatives and associations have had years of operation behind them It has allowed them to gather necessary capital and experience something that Polish producers lack first of all. Laudable pre–war traditions and the peculiar spirit of those times have been being
revived but only for eleven years in a new political situation. More time is needed for the few instances of
joint action to become re–ingrained in the minds of the farmers as a symbol of success.
REFERENCES
BOGUTA W. 1997, Marketing grupowy, Fundacja Spó³dzielczoœci Wiejskiej, Warszawa.
BOGUTA W. 2000, Grupy producentów maj¹ wreszcie swoj¹ ustawê, Top Agrar Polska Nr 10/2000.
Fundacja Spó³dzielczoœci Wiejskiej 2000, Producenckie grupy marketingowe, Wroc³aw.
KOWALSKA J. 2000, Nowoczesne centrum handlowe grupy SUN–SAD, Owoce, Warzywa, Kwiaty Nr
21/2000.
LANGE E. 2000, Grupy producenckie sadowników, Sad Nowoczesny Nr 7/2000.
MA£YSZ J. 2000, Grupy producenckie, Agrobazar Nr 3/2000.
METERA D. & BEDNAREK A. 1999, Marketing produktów ekologicznych w pó³nocno–wschodniej Polsce,
Fundacja IUCN Poland, Warszawa.
METERA D. 2000–2001 – own information's – intervievs with the members of producers groups:
SUN–SAD and Brodnica.
STRU¯YK M. 2000, Nowa organizacja producencka SUN–SAD, Sad Nowoczesny Nr 12/2000.
TOMIÑSKI W. 1998 Grupa producentów rolnych, ODR P³ock.
142
FARMERS' SELF ORGANIZATION IN PROVISION
OF SERVICES IN DORNA, IASI AND ILFOV REGIONS
OF ROMANIA
Jacqueline Leonte and Cecilia Alexandri
BACKGROUND AND INSTITUTIONAL SETTING
There are no specific legislative provisions on agricultural cooperatives, which might encourage the establishment of cooperatives after the European Union model. Current legislative framework has lead to
several types of cooperation in agriculture. It comprises land reform laws with a major impact on this area
and a specific law on agricultural associations.
Once the restitution and distribution of property started, the structure of land ownership changed radically and different types of farming emerged. By imposing maximum for restitution and distributing the
remaining collective land to farm workers, Romania attempted to combine the strong demand for full
property rights from those who formally owned the land (historical justice) with equity considerations.
Efficiency considerations played a less important role. As a result, land reform in Romania resulted in
a fairly equitable distribution of land and welfare. At the current stage of reform, the negative impact of excessive land ownership fragmentation can be gradually diminished by active land transactions, including
land sales and in particular land leasing. The Land Circulation Law stimulated land transactions, but both
the number of transactions and the land prices have been low.
At the current stage of the reform, there are different types of farming the land. Any landowner or tenant
can farm as an individual, without any juridicial implications. This represents what Romania calls individual farmers. They farm a small number of hectares, mainly for subsistence. If they choose to have
a commercial activity they can create a commercial company (limited liability company or a joint stock
company) under Law no. 31/1990 (amended and extended in1991, 1992 and 1997) and there are farms of
200 or even 4–500 hectares (1–5 farmers).
For the non–commercial activities in agriculture, there is Law no. 36/1991 on agricultural societies and
other types of associations in agriculture. It allows for two type of association: (1) simple associations and
(2) agricultural societies. Simple associations have no juridicial status and are based on a gentleman's
agreement between two or several families. Verbal or written agreements are allowed. Their main aim is
the agricultural farming (vegetal production), animal breeding, supply, storage, processing and marketing of their own output etc. The agricultural society represents a private company aimed at agricultural
farming, animal breeding and agricultural investments. It is a juridicial body with a minimum of 10 associates. The establishment of the agricultural societies have been week due to several conditions:
• the large percentage of the elder rural population;
• migration of the young rural population to the urban area;
• more than 40 percent of the landowners are urban people.
For the 1993–2000 period, the associative forms of Romanian agriculture have declined, while individual
farming seems to be more attractive for the Romanian farmers. However, land fragmentation is generally
considered a major obstacle to technological progress in Romanian agriculture, as the huge proportion of
143
the subsistence farms will never have the financial means to invest in new machinery and other equipment. For the cooperation process it seems that the Law no. 36/1991 was a good transitory legislative
framework, but production cooperation is not the main aim of a modern agriculture. A legislative act on
cooperation on the up–stream and down–stream would be extremely appropriate. To become an economically viable sector in the medium and long–term, the Romanian farm sector needs further restructuring.
Agricultural producers/farmers have to become better managers of the production factors. Also, only by
using the association's advantages will they represent a voice on the market and on the discussions with
the state representatives.
A natural question is if there is a need for a special law on agricultural cooperatives or associations, especially since there are state members within European Union that have developed a cooperative sector in
the absence of such a legislative framework (e.g. Holland, Denmark). In Romania several legislative projects have been designed since the beginning of the transition period. Some included stipulations only for
the agricultural cooperatives, while some included stipulations for the whole cooperative system (handicraft cooperatives, consumption cooperatives, credit cooperatives etc). Since such a law represents
a strong political capital, different legislative projects still represents a subject for debate after 10 years of
transition. A cooperative law, including not only the agricultural sector, is a very generous aim, but an
out–to–date approach since Romanian legislative framework already comprises special legislative acts
on handicraft cooperatives (Decree/Law no. 66/1990) and on Consumption and credit cooperatives (Decree/Law no. 67/1990, Law no. 109/1996). Such an approach would have been useful in 1990. Presently,
agricultural cooperatives or associations have to be addressed by a special law.
There is confusion from the theoretical viewpoint on Law no. 36/1991 on agricultural societies and other
forms of agricultural association. This law makes stipulations to the agricultural associations from the
point of view of production, which is not the object of the agricultural cooperatives, nor from EU's member states, and neither from the new generation of agricultural cooperatives of CEECs. This confusion comes from one of last year's legislative projects, where it was stipulated that the associations created
according to Law no. 36/1991 should be transformed into agricultural cooperatives. In the authors viewpoint the Law on agricultural cooperatives and Law no. 36/1991 are complementary, with no intersection.
Cooperative ownership is not foreseen in a distinctive way in the Romanian Constitution. According to
the art. 135, it is included within the private ownership. It is true that there are EU's state members in the
same situation, but France and Italy are the exceptions.
In May 2000, the Romanian Government presented at Brussels the Romanian National Development
Strategy in the medium term (2000–2004). The sub–commission responsible for designing the agricultural and rural development component of this strategy has debated the aspects concerning the agricultural cooperative movement. Two of the strategy objectives have been stipulated as such: (1) “Design of
the legislative framework concerning cooperative movement in rural areas” and (2) “emergence of the agricultural cooperative system”. These objectives were included within the chapter on support for agricultural producers and processors during whole period of 2000–2006. The same objectives can be found
within the action plan for the adoption of the acquis in the pre–accession period.
Apart from these harmonised strategies, there is the NPARD, approved by the European Commission in
December 2000. In this respect, the Romanian SAPARD Agency has designed the technical aspects for the
measure “Setting up producers groups” (MEASURE 3.2). The measured objective is to set up producers
groups with a view to joint marketing, according to certain production rules, in order to increase the income of the producers who are members of producers groups, by stimulating them to:
• jointly adapt the production and the out put of these groups members to the market requirements;
• jointly marketing their goods, including sales centralisation, preparation for sale and wholesalers supplying;
144
• establish joint rules concerning information on production, especially on officially
acknowleged harvesting and market distribution;
• developing the producers groups in the following priority sectors: fruit/vegetable, potatoes,
grapes, milk and meat, forestry, fisheries, aqua–culture.
Figure 1. Complementarity of the legislation on agricultural cooperation
Agricultural cooperatives in market
economy terms
Ex– CAPs and associations according
Law no. 36/1991
Agricultural cooperatives in market
economy terms
↓
↓
↓
UP–STREAM
AG. PRODUCTION
DOWN–STREAM
Supply with:
• fertilisers
• plant protection
• medicines and sanitary veterinary
products
• seeds and planting material
• labour force (farm relief)
services:
• mechanisation
• land improvement
• artificial insemination
• environment protection
• book–keeping/financial
• consultancy & extension
Crop production:
• Cereals
• Leguminous plants
• Technical plants
• vegetables·
grapes
• green forages
• tobacco, aromatic and medicinal
plants
Animal production:
• meat
• milk
• eggs
• wool
• skins and furs
• honey
Collecting, processing & marketing of the products:
• milling and bakery
• meat and meat products
• milk and dairy
• canned vegetables
• juices and canned fruits
• edible oil
• sugar and products
• alcohol
• starch
• food additives
• soft drinks
Source: Leonte, 2000
There is a special interest in especially encouraging the young farmers (under 40 years old), during the
first five years following the date of producers groups' acknowledgement.
Due to the pressure of accession negotiations, a set of legislative drafts has been designed by the Ministry
of Agriculture, Food and Forestry, including law on agricultural holdings, law on agricultural credit and
law on Agricultural Cooperatives. The draft of the law on Agricultural Cooperatives has been recently published in the Profitul Agricol journal (i.e. Agricultural Profit), for the purpose of public debate.
The main characteristics and stipulations of the draft are:
• For the first time the agricultural cooperatives are called as such;
• For the first time the agricultural cooperatives' activity include only agricultural input supply,
processing and marketing of the agricultural output;
• Members can be both natural persons and juridicial bodies;
• The management include the General Assembly of Members, the Administration Council (3–9
members) and a president mandated for 3 years;
• There are clear stipulations on membership quality;
• There is a distinction between the withdrawal and the non–withdrawal part of the patrimony;
• The attributes of a voluntary apex body are foreseen, in case it is created by the agricultural cooperatives free will;
145
Text box 1 General conditions for establishmant an operation of producer groups
• the activity of the group will be located in the rural area (NUTS 5), defined according to the national legislation.
• the group should demonstrate that it promotes economical–financial viability during a period of at least
5 years.
• they shall have a status including rights according to the national legislation.
• the production group should have legal status, which will allow it to claim its rights and obligations according to the national legislation.
• the production group's responsible must submit to one of the conditions of professional training:
– a diploma (university degree, specialisation, high school) which should demonstrate the professional
training within the field of activity of the group;
– professional experience (minimum three years) proved by a competence statement achieved by traditional – practising of a skill at the least or a statement on own responsibility that the project's responsible
will make a professional training course until the first payment.
Ministry of Agriculture, Food and Forestry (abr. MAFF) considered as eligible for financial support only the
recognised group which has a minimum number of 30 members (10 for fisheries) and the minimum turnover of EURO 20 000. For the recognition of the group it is requested:
• a minimum marketed production by sort / year: 600 t Vegetables; 1 200 t Potatoes; 750 t Fruits; 420 t
Grapes; 6 500 hl Milk; 200 t beef meat; 80 t mutton; 250 t pig meat; 100 t poultry meat; 100 t Fish; 20 000
m3 wood (forestry groups)
• a minimum cultivated area or number of heads: 60 ha for vegetables; 100 ha for potatoes; 60 ha of orchards; 60 ha of vineyards; 180 milk cows; 1 000 cattle; 3 500 muttons; 2 000 pigs for fattening (hogs);
80 000 broilersThe aid shall be established for each producer's organization based on his or her
yearly–marketed production and will be 5 percent, 5%, 4% 3% and 2% (or 2.5%, 2.5%, 2%, 1.5% and 1.5
percent) respectively of the marketed production value, paid in annual instalments and subject to a ceiling.It is envisaged that the measure shall be applied from 2002 after the clarification of the details and
consultation with the EC. It is estimated that through measure 3.2., the number of producers groups
supported will be 500, with app. 17 000 members out of which 20 percent will be young members (3 400
members under 40), including: vegetables, potatoes and fruits 70 each, 75 for grapes, 40 forestry, 55
meat and 20 fishery groups.
• There is stipulated a real support for their emergence, including (1) exemption from the payment of VAT, import taxes and income tax for a certain period, (2) all types of state support
granted for agricultural development and SMEs and (3) all the agricultural holdings with a size
less than 1/6 of the minimum size as defined in the law on agricultural holdings will be supported only in an indirect way, through the agricultural cooperatives.
Of course this draft is subject to change and its last version will be published in the Romanian Official
Monitor. But this version has encouraged the authors of this study to say that from all the projects that
have been designed in the last ten years, this seems to respect in a higher percentage the principles and the
concepts of agricultural cooperation.
In this respect, several categories of lobbyists could have been identified, and we assume that their harmonised viewpoints will foster the Ministry of Agriculture, Food and Forestry to keep the philosophy and
principles of agricultural cooperatives to the end:
• the representatives of the real agricultural cooperatives emerged under Law no. 36/1991 and
whom are facing dramatic problems under such a restrictive legislative framework (three of
them are presented later on the study);
•
USAID supported the emergence of the Academic Foundation “Terra Nostra” from the Iasi Re-
gion, an international seminar from January 2001 on marketing associations and the design of
a legislative proposal;
146
• processors aiming at a continuous, standardised and bigger supply of raw material.
Actually, the first sign of the fact that agricultural cooperatives have a future in Romania is the signal given
by the processors (e.g. milk and sugar beet processors) asking the academic people for references on how
to organize the production side to the benefit of both sides.
BRIEF DESCRIPTION OF STRUCTURAL CHANGES IN AGRICULTURE AND THEIR IMPACT ON
AVAILABILITY OF INPUT–OUTPUT SERVICES
In 1989, there were three types of farm structures: agricultural production cooperatives, state farms, and
private farms. 3 776 CAPs were cultivating 58 per cent of agricultural land. This percentage included small
plots, which the CAP members were entitled to cultivate for household use. On average, the area privately
cultivated (but legally not privately owned) was estimated at 10 per cent of agricultural land used by the
collective farms. In 1989, an average cooperative farm had 602 members and used 2 557 hectares of agricultural land. Collective farming prevailed in every category of agricultural land, except for pastures
where state–owned large farms were more important. 411 FIASs (i.e. state farms) were cultivating 28 per
cent of agricultural land. About half of it belonged to agricultural research networks, other state–owned
non–agricultural enterprises and local councils. The average state farm operated on 5 000 hectares and
employed 636 employees. About 14 per cent of agricultural land was privately owned. Private farming
consisted of small farmers, mainly in the mountain areas, and households producing on small plots attached to cooperative farms. There were more private producers in the livestock sector than in the crop
sector, as private farmers' property consisted mainly of natural pastures and hayfields.
After 10 years of transition the new agricultural structure still includes 15 percent of the state sector, with
a total of 2.22 million ha, including:
• 1.686 mil ha in the private domain of the state (e.g. FIAS), out of which 593.7 000 ha are owned
by the shareholders and locators
• 0.534 mil ha the public state domain, out of which 378 000 ha are owned by the local administration (local councils and mayor–houses)67 and 156 000 ha by agricultural research units.
Land ownership structure includes a state sector of 15 percent, which will decrease by up to 5–6 percent
with the application of Law no. 1/2000. The public domain component from the state owned sector is not
subject to privatisation, but the private domain of the state is (presently only the management of this agricultural land is privatised). This process also continued after the political changes since December 2000,
due to the fact that the state has proven it's “quality” as a bad manager.
Due to the de–collectivisation process, at the end of 1991, 80 percent of the total agricultural land was privately owned. Together with the privatisation process, in the year 2000, the private sector owned 85 percent from the total agricultural area and 83 percent of the arable land.
Out of a total agricultural area of 14 781 000 ha, the private sector includes:
AS
1 429 000 ha
SA
869 000 ha
10 083 000 ha
Non–associative forms68
67
68
In this category are included 250 000 ha of communal pastures, while the difference is owned by ex-ILF
(fruit and vegetables state processors), greenhouses, AVICOLA & SUINPROD (pig and poultry meat
farms), UNISEM and SEMROM (certified seeds), SEMTEST (Animal selection and reproduction
services) etc
For this category there are no statistical data on leases as natural persons
147
Commercial societies69
180 000 ha
Figure 2. Land structure by ownership (percent)
100%
50%
0%
1962
state sector
1989
associative sector
2000
non-associative sector
Figure 3. Land ownership and/or farming pattern in the year 2000
private domain of
the state
11%
public domain
of the state
4%
SA
6%
AS
10%
CC
1%
non-associative
sector
68%
In 2000, the non–associative sector have farmed an area 15.2 percent bigger than in 1993, while AS and
SA have decreased the land farmed in associative forms from 33 4 percent in 1993 to 18 2 percent from the
total private owned area in 2000.
69
In this category are included the leases which are juridicial bodies, farming more than the 180 000 ha
owned
148
Table 1. Evolution of the private sector indicators
Agricultural Societies
Simple Associations
thou ha
thou AS
ha/AS
thou ha
thou SA
Dec 1993
1 910
4 265
448
1 763
Dec 1994
1 771
3 970
446
Dec 1995
1 733
3 973
Dec 1996
1 752
Dec 1997
Non-Associative Forms
ha/SA
thou ha
mil NAF
ha/NAF
13 772
128
7 333
3 419
2.10
1 537
13 741
112
7 905
3 578
2.20
436
1 596
15 915
100
8 052
3 597
2.40
3 759
466
1 440
15 107
95
8 348
3 625
2.30
1 714
3 913
438
1 000
9 489
105
8 897
3 973
2.24
Dec 1998
1 558
3 578
435
950
7 175
132
9 182
3 946
2.33
Dec 1999
1 415
3 573
396
868
6 264
138
9 377
4 119
2.28
Dec 2000
1 592
3 724
427
648
6 836
95
10 054
4 259
2.36
Source: Ministry of Agriculture, Food and Forests – News Bulletin no. 3/1995, 1/1996, 2/1998, 12/1998, 1/2000 and
2/2001
UP–STREAM AND DOWN–STREAM SECTORS AND INPUT–OUTPUT AVAILABILITY
More than two–thirds of agricultural service providers, including mechanisation, transport, wholesale input traders and irrigation system maintenance companies had been privatised by the end of 1998. However, progress in privatisation varies across sectors. The privatisation of supply and service enterprises
was performed in accordance with general privatisation laws. There were no preferences for agricultural
producers, except for the privatisation of mechanisation services. Up to the end of 1996 progress in
privatisation was slow and the input distribution system was not very different from that existing before
the transition. State–owned companies dominated the input distribution sector and had the main distribution networks, storage capacities and access to subsidise credits. The Ministry of Agriculture and Food
fixed maximum prices for inputs. Farmers were granted fixed quantities of inputs and obliged to sell a part
of the harvest at a fixed price to so called “integrators”. This policy of consumer protection has lead to
a de–capitalisation process of the production sector. While overall purchases of inputs have strongly declined, the share of imported products in total supplies has been increasing, exerting competitive pressure
on domestic producers.
For the last twelve years, the up–stream sector has been restructured, privatised in its main components
and have sometimes declined. The tractors and agricultural machinery fleet increased by 30 percent (the
state sector declined 8 times between 1989–2000, while the private sector increased 6 5 times between
1991–2000). Fertiliser production decreased by 40 percent between 1992 and 1997 and in 1998 registered only 50 percent of the 1997 level. Fertiliser consumption decreased 4 times from 1 200–1 300 000
tonnes in 1991 to 340 000 tonnes active substance in 2000.
Plant protection production has decreased by 50 percent between 1992 and 1998. Pesticides consumption decreased by 42 percent in 1993–2000 period from 16 141 to 9 426 tonnes active substance (insecticides and fungicides decreased by 50 percent and the herbicides by 22 percent).
For the certified seed consumption, the price has subsidised 37 percent. Even so, in 2000, compared with
1990, the consumption level was reduced at 74 percent for sunflower, 61–62 percent for wheat and peas,
22 percent for Soya, 11–12 percent for barley, two–row barley and oats and of only 7 percent for oil flax.
On the down–stream sector, there are only two success stories: the producers from the milling and bakery
products sector and those producing sugar and confectionery.
149
Table 3. Up–stream sector status
Up-stream sub-sectors
Main actors
Privatisation status
Agricultural machinery
Tractorul Brasov, the major tractor producer
1993 - privatisation process started
1998 – only a guest house and repair
workshop had been auctioned
1999 - company was
divided into 10 commercial companies
Mechanisation services
573 former SMAs transformed and subdivided into 1.682 Agromecs, Servagromecs
and Agroservices
100 Agromecs were privatised according to
the MEBO scheme60 percent of the rest
privatised by 1995 Mass Privatisation
Programme in 1999, the sector was 80 percent privatised
Transport services
41 state transport companies (ITSAIAs)
restructured in 1 813 smaller companies
90 percent privatised (1 625 out of 1 813)
45 in juridical liquidation
2 in administrative liquidation
Fertiliser production and distribution services
10 major companies
2 were shut down by the Government
8 privatised by 1997
Plant protection products
six major producers
state remains the major shareholder
Animal feeds
63 commercial companies, including the
46 companies of Nutricomb “integrator”
had been privatised,
3 liquidated (or about to be shut down)
1 remain state-owned
3
1
1
3
Animal medicaments and sanitary-veterinary materials & plant protection and inspection
Private sector
Animal selection and reproduction services A few
selected pig and poultry state farms
Land reclamation and irrigation services
National Society for Land reclamation
One state monopoly company
Unisem (for vegetables and flowers)
100 percent state owned
Semrom (for cereals, technical plants,
Production and marketing of certified seeds forage)
Other services
divided into five regional units (Only one
sub-unit privatised)
4 000 domestic producers authorised to
produce and trade
An active private market for seeds
429 enterprises
42 percent privatised by end 1999 (179
enterprises), while 54 enterprises in liquidation
Source: after Gavrilescu, Giurca and colab, 2000
Given the two tables on the private sector from the down–stream, we can conclude that:
• in the meat industry, 91 percent of the companies produce 39 percent of the meat production of
the slaughterhouses and 68 percent of the meat products;
• in the edible oil industry, 98 percent of the companies accounts for 67 percent of the total production;
• in the dairy industry, 98 percent of the companies produce 56 percent of the cheese production;
• 96 percent of milling and bakery companies accounts for 78 percent of flour production, 81 percent of bread production and 89 percent of biscuit production;
• 90 percent of sugar and confectionery companies accounts for 80 percent of production;
• 79 percent of wine producers market 22 percent of total production;
150
• 89 percent of beer producers produce 61 percent of the sector output.
Table 3. Down–stream sector status at end 1999
Sub-sector
Total enterprises
Private enterprises
1 993
1 805
90.6
42
25
59.5
Canned Vegetables & Fruits
111
57
51.4
Edible oil
548
538
98.2
Dairy industry
580
566
97.6
4 591
4 402
95.9
170
149
87.6
1 014
944
93.1
Beer
135
120
88.9
Alcoholic beverages
552
502
90.9
Wine industry
704
553
78.6
1 126
1 088
96.6
10
4
40.0
Meat processing
Fisheries
Milling & baking
Sugar
Confectionery
Soft drinks
Tobacco
Percent private
Source: Gavrilescu, Giurca and colab, 2000
Table 4. The share of private processors in total market supplies of selected food products between 1992 and 1998, percent
Products
1992
1993
1994
1995
1996
1997
1998
5.1
5.8
27.0
40.1
37.2
47.8
38.7
Meat products
38.0
14.9
45.1
53.1
53.3
67.2
67.8
Edible oil
—
6.3
7.0
14.7
15.2
62.7
66.9
14.2
13.5
36.2
36.2
62.3
56.5
21.9
43.1
60.4
62.2
83.1
77.7
9.4
32.6
55.5
60.6
74.8
80.8
Fresh meat
Cheese
Wheat and rye flour
Bread
0.1
—
7.4
Biscuits
—
14.8
30.2
59.1
44.2
79.8
88.7
Sugar and confectionery
—
28.3
43.1
52.0
50.8
55.5
79.5
Wine
0.2
53.5
70.9
64.8
61.7
63.9
Beer
4.1
12.0
12.1
24.1
38.1
66.7
N/A
61.5
Source: National Commission for Statistics, 1998
According to the surveys performed by the World Bank in January 1998 on 430 agricultural holdings and
March 2001 on 809 agricultural holdings, concerning the use of vouchers, it seems that the inputs availability and use have increased and diversified (Luca, 2001).
151
Table 5. Input supply through the voucher scheme
Percent of the agricultural
holdings from total
Inputs bought in 2000
Percent of the agricultural
holdings from total
Fertilisers
47.2
Fertilisers
65.1
Mechanisation services
27.0
Mechanisation services
28.7
Seeds
9.1
Seeds
25.9
Pesticides
2.3
Pesticides
12.6
18.7
Animal feed
10.2
Inputs bought in 1997
Fuel
Source: Luca, 2001
From the total number of voucher beneficiaries, 76 percent have used them directly, while the rest have
given the vouchers to the tenant or the management of the associations where they are members. It has
been reported that in 1997 some producers have used for the first time fertilisers after the Land Law application in 1991. There is the belief that fertilisers are the main input bought against vouchers due to the fertilisers market characteristics: on the spot or in advance payment, high prices and delayed deliveries.
There has been reported some differences between the main suppliers of inputs, as a consequence of the
privatisation process. After privatisation the main storage companies (Comcereal and Cerealcom) are not
interested in the distribution of fertilisers. Semrom/Unisem has supplied 1.7 percent of the farmers, while
Comcereal and Cerealcom have supplied 1.1 percent of the farmers. Specialised distributors have replaced them. Associative forms are distributing fertilisers, while Agromecs and private mechanisation
suppliers account for 8.5 percent of the beneficiaries.
Table 6. Fertilizer supply channels
Percent of agricultural
holdings which bought from
Fertilizer suppliers in 2000
Percent of agricultural
holdings which bought from
Comcereal & Cerealcom
17.5
Authorised distributor
26.2
Intermediary
17.0
Intermediary
23.8
Fertiliser producer
14.9
Fertiliser producer
8.5
Village shop
7.7
Village shop
12.9
Semrom & Unisem
7.2
Agricultural society
8.5
Other
35.7
Other
20.1
Fertilizer suppliers in 1997
Source: Luca, 2001
The seed market is divided between Semrom, Unisem and big international companies. Seed use has been
stimulated by the voucher scheme and the 37 percent reduced price. The first support scheme has a negative impact on the development of the distribution channels due to the compulsory direct relation between
farmers and seed suppliers. Semrom & Unisem have lost shares from the seed market. According to the
World Bank surveys, in 1997, the main suppliers of seeds were Semrom & Unisem (65.8 percent) and
Comcereal & Cerealcom with 15.7 percent. In 2000, the seeds were mainly distributed against vouchers
by (1) Semrom & Unisem, (2) authorised distributors and (3) agricultural societies, each accounting for
16 percent o the market
The pesticides market seems to have become one of the most active markets. There is evenstrong competition, internal production stands for important shares. If in 1997, only 2.3 percent of the farmers have used
the vouchers to buy pesticides, in 2000 their percentage has risen to 12.6 percent.
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Table 7. The share of each input in total used vouchers
Inputs bought against vouchers
in 1997
Fertilisers
Share in total used vouchers
38.0 %
Inputs bought against vouchers
in 2000
Share in total used vouchers
Fertilisers
34.0%
11.1%
Seeds
7.1 %
Seeds
Pesticides
1.1 %
Pesticides
Mechanisation services
22.0 %
Mechanisation services
Fuel
16.1 %
Animal feed
Other
15.7 %
Other
5.7 %
15.6%
6.0 %
27.6%
Source: Luca, 2001
BRIEF CHARACTERISATION OF TRENDS RELATING TO THE COMMERCIALISATION
OF FARMING AND FARM OPERATION GOALS POTENTIALLY IMPACTING ON FARMER
REQUIREMENTS FOR ESTABLISHMENT OF FARMERS' ORGANIZATIONS
The liberalisation of food prices in 1997 with the abolition of the state–fixed margins created more favourable conditions for competition at the wholesale level. In total, in 1997 there were about 2 000 wholesale
enterprises officially registered as dealing with raw agricultural products and live animals and about
12 000 wholesale units dealing with food products, beverages and tobacco. Almost all of them are
small–scale, supplying a limited number of processors or retailers. Organized wholesale markets started
to appear in 1993 when the Bucharest Wholesale Market was created for fruits, vegetables and flowers. In
1995 a similar market was created in Arad with the support of Phare and currently the Ministry of Agriculture, Food and Forests is investigating the possibility of establishing two new wholesale markets in Cluj
and Iasi. Moreover, there are 13 commodity exchanges, located in the main agricultural regions. However, the only option available for the vast majority of small–scale producers is to go through local markets
where farmers have to bring and sell the produce themselves. In particular, it concerns fruits and vegetables, but also pork and dairy products. Transactions are conducted on an ad hoc basis between individuals. If available, farmers rent stalls for a day in areas designated by local municipalities. Usually, these
markets lack shelter and other facilities such as storage or transport, yet relatively high fees and rents are
charged for occupancy. In general, the link between agricultural producers and processors remains one of
the weakest elements in the whole food chain and producers quite often face a semi–monopsonic position
of food processing enterprises.
Since all the case studies presented in this paper have a component of milk collecting and marketing, the
trends will be presented in this specialised market, in order to have a clear picture of the environment in
which the agricultural producers are acting.
The deliveries to dairies represent only 18–20 percent of the total milk production. The processing sector
comprises 580 dairies, out of which only 14 are state owned. The processing capacity is 3 000 mil litres per
year, only 30 percent of which is used.
Direct sales in the local market also accounts for app 20 percent, while consumption has a high share (app
40 percent). Small food shops, especially for butter, dominate the retail sector for milk and dairy produce.
Since the direct sales in the local market are time consuming, farmers needs to associate themselves in order to collect and sell the milk in appropriate hygienic conditions and at a certain standard.
In order to let the farmer have enough time for production purposes, all the up–stream and down–stream
activities and services have to be delegated. Farmers have to organize themselves and to make their job
easier. Agricultural cooperatives can be a solution, but only if there are: (1) a real economic need for them
and (2) farmers' willingness to solve a common interest in a joint business, with a joint risk.
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Table 8. Retail sector chart (%)
Milk
Yoghurt
Butter
Cheeses
Small food shops
36
58
71
45
Direct sales
22
7
7
30
Dairy shops
18
24
16
13
5
6
5
5
18
3
0
6
1
2
1
1
Supermarkets
Doorstep delivery
Others
Source: Land O'Lakes Romania, 1999
CURRENT STATUS AND DEVELOPMENTS OF FARMERS' ORGANIZATIONS
AND ASSOCIATIONS IN THE COUNTRY AT LOCAL, REGIONAL AND NATIONAL LEVELS
Since there is a clear need for agricultural cooperatives, even in the absence of a proper legislative framework, Romanian farmers have started to associate themselves not only in the production sector according
to the stipulations of Law no. 36/1991, but in the area of services as well. Law no. 36/1991 does not forbid
the supply or marketing associations. The problem is that for establishing such an association, which is an
alternative offered by this law, farmers need capital. The capital market is restrictive for small farmers and
consequently, agricultural cooperatives emerged only if some investment capital was available.
According to the available data, agricultural cooperatives were established under Law no. 36/1991 as agricultural societies or under the Law on non–profit associations since 1924 (only recently up–dated).
Within this restrictive legislative framework, several agricultural cooperatives emerged under the finance
and technical assistance of Dutch, German, Belgian, English or American partners (individuals or governments). In 1996, the World Bank had identified app. 30 associations/foundations active in the agricultural sector. More detailed information on their activity is not available, since the Ministry of Agriculture,
Food and Forestry do not have a specialised department in charge of monitoring the agricultural cooperation movement.
Due to the authors research activities for the last 5 years, presently app. 40 associations/foundations can
be listed (see annex 1). These associations/foundations aim at representing the farmers and processors'
interest70. It is assumed that the list will expand due to the application of Governmental Ordinance no.
55/2000 on inter–professional associations, modified in 2001.
Some projects did attract Government attention due to the financial implication and potential impact on
the agricultural sector. A first project is an investment of USD 31 million of German Government and
EBRD, for the establishment of Wholesale market Bucharest and the modernisation of 5 local markets in
Bucharest. This project also included support for 6 collecting points in the emerging fruits and vegetables
sector: Mihãieºti, Brezoaiele, Moviliþa, Giurgiu, Cuza Vodã and Vidra. It was a double aim: (1) to collect
the members' output and (2) to improve the supply for the wholesale component. Even though investment was high and the market was planned as a modern distribution system, it seems that the project
failed. It was a premature investment given the local opportunities and needs. Furthermore it was a system
built from the top–down.
A second project has been undertaken in the area of irrigation. Since the Land Improvement National Society was responsible for the maintenance, repair and administration of the irrigation systems, the costs
have been supported mainly by the state (85 percent), the land owners motivation for a good administration and proper use of the irrigation systems was weak. The Institute for Land Improvement Studies and
70
Some have a commercial purpose, while others has only an advocacy role.
154
Design and Land Improvement National Society, together with the World Bank, have started a pilot project since 1997, for the transfer of water use management to the beneficiary.
For the beginning irrigated areas of app 1 000 hectares have been selected in five counties: Cãlãraºi,
Brãila, Dolj, Galaþi and Constanþa. The direct administration by the landowners of the irrigation systems
has as an immediate effect the increase of the farmers responsibility in the process of the irrigation systems' use. The legislative framework which made this transfer possible is quite recent: Government Emergency Ordinance no. 147 from October 1999 on irrigation water users' associations (IWUA) and Minister
Order no. 139 from November 1999 on the attributions of the responsible office and establishment of the
National Register of the IWUA.
Since there are attempts to privatise the Land Improvement National Society, the irrigation sector can become a model of farmers self–organization. Given the difficulties of this sector and the costs of creating an
IWUA, the evolution of associative initiative might not be rapid.
THE CASE STUDIES ON FARMERS' ORGANIZATION
Since, in the absence of a proper legislative framework, the initiative of Romanian farmers has quite different approaches, the study comprises three case studies which differ from the perspective of legislative
arrangements. The aim was to study cooperative motivation in different geographic conditions and land
ownership patterns, in order to have a representative set of aspects on farmers' organizations. Two of
them are located in northeastern Romania, while the third case study is located around Bucharest (Ilfov
county), i.e. in counties/areas with different farmers' mentalities and market access.
CASE STUDY NO. 1 – MOUNTAIN FARMERS' FEDERATION “DORNA” (MFFD),
SUCEAVA COUNTY
Mountain Farmers' Federation “Dorna” (MFFD) comprises peasant households from the Dorna
zone.The “Dornelor” basin is located in the north–eastern part of the country in the mountain zone of
Suceava County. This basin consists of 10 localities (9 communes with 61 villages and a town – Vatra
Dornei), with a total area of 221 667 ha, accounting for 40 percent of the mountain zone area of Suceava
County.
The Dorna basin is located in the depression bearing the same name, which is found in the south–western
part of Suceava County. The average annual temperature, characteristic for the mountain climate, ranges
from 0°to 60° C. Altitude has a significant influence upon the rainfall situation. The average annual rainfall reaches about 670 mm in this basin. The region is rich in underground and surface waters, as a result
of its geological structure, climate and landscape.
The utilisation of land resources is presented below. Throughout the communist period, the land from the
Dornelor basin remained private property. This determined the preservation of the entrepreneurial spirit
in agricultural households, a fact that is more obvious compared to other rural zones in Romania.
The situation was different as regards forestland, which had been private property before 1945 and was
totally nationalised afterwards by the communist regime. The problem of forestland restitution to former
owners has not been solved in Romania, although the legal setting for it was created through Law
no.1/2000. At present, the new Government, since November 2000, has in view the modification of some
of these legal provisions.
Agricultural land represents 24 percent of the total area of the Dornelor Basin, with pastures and hayfields
prevailing. It is highly fragmented, the average farm size being 3.6 ha, ranging from 0.5 ha to 25 ha. Agricultural land is not suitable for growing crops, due to weather conditions and steep slopes.
155
Table 9. Land resources in the Dornelor Basin
ha
Total area
221 667
Agricultural area, out of which
54 209
arable
2 368
pastures
29 625
hayfields
22 210
Forestland
149 647
Non agricultural land
17 811
Arable land is represented by several hundreds of square meters of “vegetable garden” around each
household. This area, that totals about 2000 ha in the zone, is cultivated with potatoes and several other
vegetables for self–consumption. There are no crops destined for the market. Even the vegetables for
self–consumption cannot meet the total consumption demand in the zone; vegetables have to be supplied
from the plain zones of the county or neighbouring counties. It is worth mentioning that most of the arable
land is found in the low river plains, where water sources are available.
The area under pastures and hayfields represent 96 percent of the agricultural area of basin. The area under hayfields has remained relatively the same in the last half of the century, while the area under pastures
has significantly increased due to deforestation. Hayfields are generally found in the lower parts of the
zone under forests and are mainly located in the proximity of households. Hayfields are exclusively private
property. Pastures have the highest share in the agricultural land. The most important part of area under
pastures is under private property. At the same time, each commune has a pasture area, which is common
property (communal pasture). Pastures are mainly found in alpine zones, being covered with a natural
flora; the degree of pollution here is very low, due to the non–utilisation of chemical fertilisers and herbicides.
The forestland covers 68 percent of the Basin area; the coniferous forests prevail (79.4 percent of total
forestland). Forestland continuously decreased in the second half of the century. Forest has always been
the main asset of the zone and they have been the property of the local people since far in the past. The
ownership right on forests is attested by documents from the time of Stephen the Great (Moldavian ruler
in the 15th century).
For the first time in history, during the Austrian–Hungarian occupation in Bucovina71 (1775–1918), the
Imperial Court from Vienna tried to dispossess the people from Bucovina of their rights. In this context
the ownership of the forests was the object of a legal dispute between the people of Bucovina and the Imperial Court, that lasted 30 years and which, an incredible fact for those times, was won by the people of
Bucovina.
In the communist period, forestland was totally nationalised, being a state monopoly. The legislation issued after 1990 on the restitution of forestland to former owners consists of two main laws:
• Law no.18/1991 (Land Law) stipulating ownership right restitution on forestland up to 1 ha
per family.
• Law no.1/2000 (Lupu Law, bearing the name of the draft law promoter) provides for the restitution of ownership right on forestland up to 20 ha per former owner, on the old locations. This
law, as has already been mentioned, is being amended at present.
71
Bucovina – province that includes zones from the present territory of Suceava county (Romania) and
from Ukraine.
156
For the peasants in the region wood represents a source for getting cereals for their own needs, using “cereals–wood” barter trade with the plain regions.
D. Livestock herds and production
Animal husbandry is a traditional activity for the inhabitants of this region, rich in grasslands and alpine
pastures. This activity is important for the food security of the people in the zone (where cereal, vegetable
and fruit production are almost non–existent). At the same time, animal husbandry is an important
source of incomes for many households.
The average livestock number per household is 2.3 cattle and 1.6 sheep. Per total basin, there are about 27
000 cattle and 20 000 sheep. The above – mentioned figures confirm the hypothesis that the Dornelor
zone is specialised in raising cattle, as compared to the other mountainous zones, which are specialised in
raising sheep.
Milk production in the zone totals about 320 000 hl, while meat production is 5 500 tons per year. Although it has an increasing production potential for milk, in particular, the Dorna zone shows a deficit as
regards milk collection, storage, processing and marketing units. This is a field in which the Mountain
Farmers' Federation DORNA also got involved, as is presented below. Milk processing takes place in the
dairy factories DORNA (from Vatra Dornei) and RARAUL (from Suceava). These factories produce UHT
milk for consumption, powder milk several types of pressed cheese, Emmentelcheese, yoghurts, etc.
The population in this zone totals 53 279 inhabitants (1991), out of which 65 percent are in the rural area
and 35 percent in the town Vatra Dornei. The average population density in the Dornelor Basin is 24
inhab/km2, while that in the mountain zone is 37.6 inhab./km2. The human settlements are generally
scattered along the valleys or dispersed on the sides of valleys and depressions.
In the rural area of the Dornelor Basin about 12 800 peasant households are found. Most of these households are pluri–active households, mixed households in which women take care of animals or work in the
vegetable gardens around the houses, while men work in the mining industry or forestry, and only in their
free time in farming. Zone electrification started in 1964 and it continues even nowadays.
PRESENTATION OF MOUNTAIN FARMERS' FEDERATION “DORNA”
The Mountain Farmers' Federation “Dorna” (MFFD), Vatra Dornei was established on 23rd of April 1993
and officially registered on 9th of September 1993, as an association of farmers from the mountain zone,
namely the Dornelor Basin, having a professional, educational character; it is an apolitical, non–government organization, a legal entity, that observes the Romanian laws. The legal framework is very old (a law
from 1924 which is still in force).
MFFD has in view:
• to improve the economic situation of private households from the mountain zone;
• to introduce technological change in mountain farming;
• to improve the diversification of the economic activities;
• to develop rural tourism;
• to increase the professional training and educational level of its members.
The main objectives of its statute are the representation of its members' by lobbying, the assistance offered
for household development, input supplying and produce sale, organization of markets and animal fairs,
alternative income sources, i.e. rural tourism, woollen and handicraft items, as well as the establishment
of a crediting fund.
The area of activity spreads all over the Dornelor Basin. Nowadays MFFD has 2 700 subscribing members.
Each branch has a managing board consisting of 3 persons: president, vice–president and executive secretary. The staff officially elected by MFFD is the following:
157
• at central level it has a Managing Board consisting of 17 persons: president, vice–president, executive secretary of Federation, branch presidents and other 4 members;
• the managing body is the Executive Committee consisting of 5 persons: president,
vice–president, executive secretary and other 2 members.
The Federation also have an auditor (accounting expert from the General Directorate of Public Finance)
whose job is to officially examine the economic activity of MFFD. The managing positions from the Managing Board, Executive Committee and branches at commune level are not paid.
The supreme managing body of Federation is the General Assembly that gathers once a year or whenever
necessary at the demand of the Managing Board or of president. The Managing Board meets quarterly or
whenever necessary at the demand of president, vice–president or of 2 members.
The Executive Committee meets every month, solves all current problems which are the responsibility of
the Managing Board between meetings and reports on their achievements at the first Board meeting,
while this latter validates or invalidates the way of solving problems that have occurred.
The paid staff of the Federation consist of 32 persons, comprising 12 with a work contract (permanent
employees): executive director, accounting department (chief accountant, an accountant, a treasurer, an
expert in the science of commodities), the farmer's desk, handicraft department, transport department
and a part of the trade department of the chain store.
10 other people work on a civil convention basis, representing the remaining part of the trade department
and services department.
Since 1st of August1994, MFFD has been assisted by the Romanian – German project Building–up a
Farmers' Association which is implemented by AFC Bonn (a consulting company in the agricultural and
food sectors), helped by the Ministry of Economic Cooperation (BMZ) Bonn and subcontractor for the
Agency for Technical Cooperation (GTZ) from Eschborn. With the contribution of donated capital, the
Federation activities increased and diversified (working capital, technical equipment, crediting capital).
The federation activities take place in 5 departments, which are under the subordination of the Executive
Manager:
1)
Trade department
2)
Credit department
3)
Handicraft and rural tourism department
4)
Farmer's desk
5)
Accounting department
Trade department – co–ordinates a 12– store chain, operating in the rural area from the Dornelor Basin.
These stores function in the yards of some peasant households; besides supplying agricultural inputs and
other materials, it provides 24 jobs on a permanent basis. The commodities traded in these stores are agricultural machinery (motor mowers, motor pumps, tools, seeds, cement and other construction materials,
etc.). Certain agricultural machinery is sold on a credit basis (sale by instalments). Besides their commercial aspect, these village stores play an important role in the social life of rural communities, as they represent a place where people meet and discuss. They provide a contact of the executive management of the
Federation with the village and people's real life problems.
According to Article 8 of its statute, MFFA provides credits only to its members. The credit is in 3 categories:
• credits for investments (of B type). These are implemented and monitored by the Farmer's desk
and their destination is to create jobs and increase farm incomes. These credits are used for buying land, pure–bred livestock, building up animal shelters, buying draft animals and hay, build-
158
ing up and furbishing houses for rural tourism. For larger credits, the Farmer's desk has to
make a feasibility study of the respective case and closely supervise the implementation of
credit. These credits represent 30 percent of total credits given by MFFD.
• commercial credits. The destination of these credits is buying agricultural machinery and materials from the village stores. In reality these credits serve to sell merchandise by instalments.
• social credits. These are credits of lower value (about 5 million lei – 170$) that are used for cer-
tain occasional needs of the peasant families: weddings, legal actions, fires, school or hospital
expenses, etc.
Handicraft and rural tourism department
Handicraft activities are meant to create paid jobs inside the peasant household. The handicraft products
are made mainly by women and consist of woollen knitwear, embroidery, painted eggs, sculptures, different wooden objects, icons painted on glass, sheepskin coats, carpets, etc. Specialised designers supervise
all processes. The wool products are natural as they are made only with natural plant dyes. These objects
(which are very beautiful indeed) are mainly sold abroad. Quite recently, at the end of the year 2000, the
MFFD organized an exhibition with handicraft objects in Germany.
Rural tourism is another activity organized and funded by MFFD. The program for the establishment and
development of rural boarding houses comprises the following stages:
a)
identification of households,
b)
identification of necessary investments in order to provide the necessary utilities and comfort (running water, bathroom, central heating, telephone, TV, etc.),
c)
financial and technical support,
d)
staff education,
e)
advertising the respective households at tourism fairs, through advertising booklets, WEB
site, etc.
Once a set of households has been transformed into tourism boarding houses and has begun operating,
MFFD would take over another group of households (the process is going on). The localities in which rural
tourism proved to be very successful are Poiana Stampei and Brosteni. The rural boarding houses from
the Dornelor zone are very attractive both for Romanian tourists and for those from Western Europe in
particular (France, Germany). The reasons for this success are quite obvious:
• beautiful and pure landscape,
• the zone is “clean” (unpolluted),
• the food offered to tourists comes from the peasant household, hence it is fresh and clean,
• due to the zone's relative isolation, very picturesque folk customs and traditions have been preserved unaltered,
• The Dornelor zone lies in the proximity of first–class historical and religious monuments: Monasteries Voronet, Gura Humorului and Moldovita. These were built in the 15th century (under
the reign of Stephen the Great) and are part of UNESCO heritage.
Farmer's desk
The Federation gives technical assistance through the Farmer's desk for the introduction of new technologies, namely: feeding calves with milk substitutes, using infrared lamps in raising baby piglets and chicks,
as well as assistance for planning a new investment in households. For other activities it collaborates with
159
the Government institutions in the zone through specific programs (official control of milk production,
quality of pastures and hayfields, potatoes crops management techniques, etc.)
Since 1995 the Federation has organized 2 fairs every year (cattle and ovine). The general information on
its activity, working programs, technical information and advice are found in its own periodical, that is issued every 2–3 months and is distributed to its members free of charge.
The local governmental organizations with which MFFD has a good collaboration are the Agriculture Directorate at county level and the Agricultural Consultancy Office at county level; their representatives are
included in the organization branches at commune level.
MFFD also get involved in the following activities:
a)
farmers' qualification and specialisation: each year, a group of 4 farmers is sent to Germany
(Bavaria) for a 6 month period. These are sent in advance to courses for learning German
(300 hours);
b)
price negotiation (for milk in particular) with processors, mainly Dorna and Rarau factories;
c)
transport and sale of products;
d)
promotion and publicity;
MFFD – success and limits
The positive effects on people's incomes and living standard is the main achievement of the MFFD and explains the success and viability of this association. Generally in Romania, due to the experience of former
agricultural production cooperatives, farmers are quite reluctant to join an association or cooperative. For
this reason, the producers' associations are very volatile and their number is quite small. However, there is
something special about the Dornelor Basin: in this zone farmers have never contributed their land to cooperatives.
This very important aspect has created favourable conditions for the MFFD's successf ,eg:
• farmers have the sense as well as the responsibility for property;
• farmers have a stronger entrepreneurial spirit. I mention that in other zones of the country this
is almost lacking, due to “state paternalism” that ruled for more than 50 years;
• due to difficulties and toughness specific to life in mountain zones, the people living here have
a more pronounced spirit of solidarity;
• finally, these farmers have not known the traumatising experience of joining the farm cooperatives and hence they do not have “in principle” negative reactions as regards associations;
• However, the discussions with the management staff of the MFFD revealed that it is quite difficult to harmonise the (very different) individual interests with the general interest.
Funding
MFFD is becoming self–financing from its own production activities. The turnover was about 6 billion lei
(about 250 000 USD) in the year 2000. The German Government supported the material endowment
(transport means and agricultural machinery fleet). The executive director of the MFFD evaluated as insufficient the support received from the Romanian authorities.
160
CASE STUDY NO. 2 – ISPA (INSTITUTIONAL STRENGTHENING PRIVATE AGRICULTURE),
IAªI COUNTY
This association experienced a gradual development. The nucleus consisted of the communes of
Miroslovesti and Romanesti, located near the town of Iasi, in the north–eastern part of Romania. At present, the association comprises households from 7 communes, located in the central and western part of
the county of Iasi. The geographical area includes, besides the two above–mentioned communes, the localities Erbiceni, Motca, Cristesti, Halaucesti and Stolniceni–Prajescu.
The localities from the western part of Iasi County lie in a hilly zone (Suceava Plateau) and in the low plain
zone of the river Moldova. The relief units are extremely various, with altitudes exceeding 400 m. Most
slopes are strongly affected by erosion and in certain cases by landslides. The land areas from the low plain
of the Moldova River are very seldom flooded, being favourable to irrigated crops. The localities from the
central part of the county are situated in the Moldova plain. These land areas are generally fertile, with certain exceptions–land areas with salt–affected soils or swamps. The climate is of temperate continental
type, with harsh winters and very hot summers. The average annual temperature is 8 – 9 ° C, while the average annual rainfall of about 500 mm.
Agriculture. The analyses of the productive potential in the zone reveal favourable conditions for meat,
milk, sugar beet, cereal and potato production. Soil fertility is medium. The agricultural land is affected to
a high extent (up to 58 percent) by degenerative factors; acid and saline soils can also be found. The size of
land properties is extremely modest (less than 2 hectares), being under the country average. Land is operated on an individual basis or in associations (family associations or legal entities). Agricultural land is
mainly used for arable crops, among which the most frequent are wheat, barley, maize, sugar beet, potatoes, and fodder crops. Most of the communes have important areas under meadow and pasture. Some
communes (such as Cristesti and Motca) also have land under forest. The yields of arable land are modest,
being under the yielding potential of the zone. Animal husbandry is an important activity; mainly cattle
and sheep are raised. Pigs and poultry production is for self–consumption of household members. Average yields and total productions are of medium level. It is worth mentioning the increase in the number of
horses after the year 1990. Agricultural produce collecting and processing is quite deficient; certain centres for taking over sugar beet and milk are present. Milk was processed before ISPA emerged, by a commercial company from Iasi (Lactis SA); the perception of its activity by people was negative, due to the
delay of payments (for months on end) and an incorrect pricing policy.
Other activities. Forestry is another field of activity, as there are important forestland resources in the
zone. At the same time, in certain localities, the non–agricultural activities experienced a significant development; this is the case of those localities with a very good road and railway infrastructure. Among the
non–agricultural activities, the following are worth mentioning: milling and baking, services, trade,
handicraft (woollen knitwear, cloths), wood processing, building materials processing, etc.
Road infrastructure includes county and communal asphalt roads or roads paved with stone. Only
Miroslovesti is located on the European road E20. Most of the localities have a railway station. All of them
are electrified, but they do not have a public water supply system. Fountains from the ground water layer
supply water.
The localities in which the Institutional Strengthening Private Agriculture (ISPA) operates are medium
and small–sized, the largest commune being Miroslovesti with about 6 800 inhabitants.
The structure of population by age groups reveals the existence of the phenomenom of an ageing population, with two exceptions (Halaucesti and Erbiceni – where the young groups are the most numerous).
Most of the active population work in agriculture, with the exceptions of two communes: Halaucesti and
Motca – where there is a diversification of the occupational status, due to the emergence of building material processing units, milling and baking units, and handicraft activities. In most of the localities, the unemployment rate is quite high. Three of the analysed localities are in the proximity of towns (Iasi and
Pascani) and the commuting is very frequent here.
161
Table 10. Demographic indicators of zone in which ISPA operates
Population– number
Number of households
Percent pop.
employed in agriculture
Commuting frequency
1. Miroslovesti
6 847
2 081
54.4
No
2. Romanesti
1 917
679
69.6
No
3. Erbiceni
5 011
1 508
58.0
Moderate (Iasi)
4. Motca
4 750
1 252
38.6
No
5. Stolniceni
5 600
1 607
53.0
Very high (Pascani)
6. Halaucesti
5 936
1 569
30.0
No
7. Cristesti
3 949
1 377
45.0
Very high (Pascani)
Localities
The whole area presented by us was farmed by the agricultural production cooperatives (CAPs) during the
communist period. After the dissolution of CAPs and agricultural land restitution to former owners or to
their heirs, a lot of peasant holdings appeared in this zone, of very small size and of subsistence type.72
The incomes in cash are mainly represented by the money received under the form of social protection
(pensions, child benefits, unemployment wages) and by income from the sale of agricultural products.
The zone is poor – and this aspect is more obvious in the case of isolated households, which do not lie in the
proximity of towns or where access roads are in a precarious condition.
A better situation is found with the inhabitants living near the forest zones, as they have more opportunities to gain money. Another aspect that may have a negative effect on zone potential development strategies is the fact that in most localities the population is old. An old population is less dynamic, it does not
favour change and initiatives, and most often it is afraid of change.
ISPA PRESENTATION
ISPA (“Institutional Strengthening of Private Agriculture”) started at the initiative and with the financial
support of the Dutch Government. This program had the following aims:
• to create a more supportive institutional environment for the smallholders, to beable to increase their sales, and therefore their incomes;
• to increase the degree of organization of farmers.
Initially, ISPA appeared as an NGO, but gradually it developed into a producers' association (farmers' association), which executed economic and non–economic activities to support the farmers. As in Romania, at present, there is no legal framework for the operation of farmers' associations aiming at product
marketing and input supplying and because ISPA functioned as a foundation (NGO), it did not have the
right to make a profit. In this situation, a compromise was agreed on: ISPA established a limited liability
company as sole shareholder, i.e. ISPA–ECO.
The ISPA association has 2 500 members. It is managed by the general meeting This appoints a president.
Romanian specialists and a representative of the Dutch Government provide the executive management.
The executive management includes local farmer representatives.
72
It has to be mentioned that in the year 1999, the value of consumption from households own sources
represented 56% of the total expenses in the peasant families.
162
The economic activities in which the ISPA got involved are the following:
1. Milk collecting
It is the most important activity of the association. At present, after a period of two years, milk is delivered
daily to six collecting centres, daily, by more than 1 500 small dairy households, from over 15 villages.
These centres provide quality milk, being equipped with: cooling tanks, centrifuge for individual testing of
fat contents, devices for density and acidity testing, boilers, running water, etc.
All this equipment was necessary in order to force processors to pay a correct price for milk, according to
fat content. On this basis, sometimes farmers received double the price than they received before.
2. Potato production and marketing
Potato producers were supported by supplying them with quality seeds and by the organization of demonstrative plots in order to see the effects of different modalities of pest and disease control. Concurrently,
potato production marketing was organized. On the basis of market studies, it was agreed that the produce should be sold in supermarkets, under the form of packaged potatoes. Investments were made in
storage capacities, as well as in sorting and packaging installations.
3. Input supply
Input supply is organized through six stores that function around the milk collecting centres. In these
stores, the following items are sold: animal feeds (sugar beet tops, combined feeds), salt, seeds, agricultural tools, and fertilisers. Products are directly taken over from the manufacturing plants or from imports
(vegetables and flower seeds – from Denmark). The motto of these stores is “Quality at reasonable
prices”.
4. Credit granting for buying breeding livestock
The beneficiaries of these credits are farms managed by young families that have expanded and are market
oriented. Animals are procured from the stations producing breeding animals. Loans for buying livestock
are obtained with Dutch support (a Bank from the Netherlands).
Besides these concrete economic activities, the ISPA has objectives aiming at people's mentality, organizational, relational and legal objectives. Thus:
a) At farmers' level:
Identifying farmers' needs and aspirations, both of women and men, with the participation of representatives of relevant institutions (such as the Ministry of Agriculture, University, Research institutes,
Agri–business).
Starting concrete activities at village level, which were relevant for most of the target groups. In the formulation of these activities male and female farmers, as well as representatives of the involved key institutions took an active part. The ISPA started with the following activities:
• execution of on–farm trials for developing an improved feeding strategy for animals which resulted in higher milk production and fat content,
• establishment of milk collection centres (with cooling facilities) where the fat content of the
milk is individually checked and farmers are paid on time according to the fat content of their
milk.
Furthermore, the farmers who want to take their responsibility were identified. Last but not least a “farmers' forum” was created to discuss and analyse their problems and identify their opportunities. For example the higher milk production, due to improved feeding, resulted in the “common desire” for creating
centres for milk collection which should have a fair and stimulating payment system: on time, correct and
according to individual fat content.
163
Organizing farmers around milk collection centres: almost all households in the rural areas have at least
one cow and both men and women are involved in taking care of the animals. Cash obtained from selling
milk is the most important income source and therefore the source for purchasing important items and financing farm activities. Mobilising family members around this issue has been therefore relatively easy,
especially after the first successful example. Payment days are also perfect occasions for information exchange and further strengthening of farmers' awareness of the importance of producers' organizations.
Due to association, farmers have a stronger negotiation power with the processing units for a fair price
and timely payment, demanding assistance and support etc.73 Recognition of “having more influence together” and of the ISPA as an “umbrella organization” for the various village groups represented a base
for the gradual increase of the degree of farmers' associations.
Building up of “local informal groups” which gradually turned into official committees whose representatives have a seat in the Board of ISPA. Through training and workshops their capacity is and will be further
developed in the fields of management, financial policies and the basic principles of business planning.
b) At “support system” level:
Establishment of adequate legal structure: the legislation as well as the legal advisers are not familiar with
similar types of organizations. Appropriate legal structures should be established, with the role of defending farmers' common interests as well as the economic activities benefiting farmers.
Extension of the scale of activities which is optimum for serving a maximum number of farmer households
given the available resources, and which should provide financial sustainability.
b) Sustainability
The sustainability in the future at village level and at organizational level depends on the following factors:
• The way the ISPA consolidates its reliability and “quality–oriented” image in front of its farmer
members', mainly as regards timely and correct payment, as well as in front of its “business
partners”;
• To the extent in which the local leaders' interest in “setting up together” the ISPA as a producers' organization, is not led by personal “hidden interest”;
• The existence of a well balanced relationship between the farmers' representatives and those
who are responsible for the daily operation of the ISPA's economic activities;
• Maintaining good relations with the institutional network;
• Providing adequate financial monitoring and analysis of the different economic entities;
• Fair payment and incentive reward structure for farmers, field and core staff.
The increasing demand from farmers of other communes of Iasi county and neighbouring counties clearly
demonstrate their confidence and the appropriateness of the model developed and implemented by the
ISPA. The ISPA is now almost financially able to replicate in other villages of the region this process of
starting up farmers' organization around new milk collection centres (and other related economic activities).
73
Note: the former state diary, which has since been privatised, had never paid farmers on time and with
correct prices: delay in payments of 4 months were no exception, farmers prefer to consume or process
milk themselves or to give it to their pigs. Everybody was paid according to “the average” fat content of
the village. Therefore in many cases the whole system of milk collection was perceived as “corrupt
handling”; in time it had resulted in a system where everybody accused “the other” of cheating and
being cheated.
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Table 11. Financial, technical and institutional sustainability of ISPA
Sustainability
Village level
ISPA as organization
Financial
Five out of six milk collection centres have an operating profit over
the year.
The milk collection sector as a whole is making profit with the present
quantity of milk and the increased margins of the ISPA. This profit can
cover the losses made and the expenditures made for member services.A crucial element is to have realistic cash flow projections to provide the working capital in order to pay the farmers on time.
Technical
The technical level of the activities
is well adapted to the present
knowledge and environment.
Production and marketing techniques introduced by the ISPA are appropriate in the Romanian context.Level of staff is adequate and the relations with other stakeholders of the agricultural system for
generating relevant technical information are functional.
Institutional
Members chose their representatives for the Management Board of
the ISPA. The informal groups
have become now formal and their
cohesiveness is still increasing.
The ISPA has now obtained a quite stable position in the agricultural
network. Relations with clients have become more balanced as both
consider it in their interest to maintain this relationship well. The general and financial management capabilities of the ISPA staff are still
further developed but are already sufficient.Capacity of mobilising resources has been developed. Adaptation of the legal structure is desirable and in process.
Some of the elements, which contributed to ISPA's success, are the following:
• an intervention strategy which started with creating an atmosphere of dialogue between farmers and “experts”;
• identification of concrete activities which are relevant for most of the households in the com-
munity and which yields fast, measurable results (e.g. feeding plans, milk collection with payment according to fat content);
• the collection centres served as a perfect base for the organization of farmers and for information distribution;
• building up of an “image” of quality and reliability towards farmers, business partners and
other key actors such as the Ministry of Agriculture;
• development of the framework and capacity for financial monitoring and analysis: this contrib-
uted not only to right management decisions but also to cost awareness and a business–minded
approach of those involved at the various levels.
The following actions were of main importance for the start of ISPA:
• building up of an independent but good relationship for willingness to cooperate with the regional representatives of the MAFF: their support was crucial for easy access to villages as well
as for the cooperation of the local administration and agricultural engineers;
• identifying relevant concrete domains which can provide an obvious and measurable success
and which are within the capabilities of the farmers: the simple feeding plans demonstrated an
increase in the quantity of milk as well as on the fat content; introducing the principle of payment of the milk according to the fat content resulted immediately in more money for the farmer
after having “invested in improved feeding” of cows.
165
CASE STUDY NO. 3 – FOUNDATION FOR RURAL ASSOCIATIONS (FRA), ILFOV COUNTY
This case study is focused on six agricultural cooperatives created in six communes from Ilfov County. All
of them, together with agricultural cooperatives from other counties have created the Foundation for Rural Associations (FRA) as an apex body. The case study doesn't aim at presenting the whole experience of
the FRA. It is limited to only six agricultural cooperatives around Bucharest, located in: Dascãlu,
Dobroieºti, Domneºti, Nuci, Periº and Vidra. The case studies weresurveyed in 1996 (Leonte and
Diacenco, 1997) and 2000 (Leonte, 2000).
Ilfov county lies in the southeastern part of Romania, on the Romanian Plain, which is the major agricultural area of Romania (annually produces app 40 percent of the agricultural production). All the Ilfov
county area (165 328 ha) is represented by plains, including a total of 39 communes. The case studies
count for 18 percent of the county's total agricultural area, 18 percent of the arable land, 12 percent of the
county's vineyards, 9 percent of the orchards and 24 percent of pastures and hayfields. This potential for
forage production explains the developing animal breeding sector from the area under study. The arable
area is app 95 percent of the agricultural land from the studied communities.
Table 12. The agricultural land pattern
Area admin. Agr. land
Arable
Vineyards
ha
%
ha
Orchards
%
ha
Pastures
%
ha
%
Dascãlu
3 611
2 862
2 767
97
66
2
1
0
28
1
Dobroieºti
1 235
958
869
91
10
1
78
8
1
0
Domneºti
3 725
3 383
3 218
95
50
1
89
3
26
1
Nuci
5 196
4 592
4 442
97
19
0
0
0
131
3
Periº
7 797
4 495
4 195
93
92
2
16
0
192
4
Vidra
6 912
3 487
3 400
98
23
1
4
0
60
2
Total 6
28 476
19 777
18 891
260
188
438
165 328
110 515
104 417
2 114
2 088
1 787
Total Ilfov
Source: Ilfov General Department of Ministry of Agriculture and Food, 2000
The six case studies also count for 27 percent of top quality soils of the county (61 000 ha of chernoziom).
The average annual rainfall reaches about 543 mm and the average annual temperature is 11°C, being favourable for cereals, vegetables and forages, where hayfields and pastures are a production option.
Table 13. Main Crops (percent of arable area)
Wheat
Maize
Sun-flower
Vegetables
Forages
Dascãlu
24
44
10
3
19
Dobroieºti
23
23
0
6
48
Domneºti
14
36
9
2
39
Nuci
18
48
10
8
16
Periº
13
47
9
2
29
Vidra
22
53
3
19
3
Source: Ilfov General Department of Ministry of Agriculture and Food, 2000
166
For the demographic criteria, it is worth mentioning that the 6 communities represents 12.4 percent of the
county's population, i.e. 34 000 persons. All the communities have potential for the processing sector
(apart Nuci, where no food company is registered).
Table 14. Agricultural activities within the communities
Individual households
Agricultural societies
no
size
no
size
Dascãlu
1 062
0.9
3
171.3
Dobroieºti
1 153
0.9
3
Domneºti
1 986
1.8
Nuci
1 109
Periº
Vidra
Simple associations
no
Agromecs Food industry
size
no
no
7
57
1
3
8.0
0
0
1
8
3
143.3
0
0
0
1
2.5
0
0
9
190
1
0
2 200
1.4
1
300.0
0
0
1
4
2 983
1.3
1
1 494.0
0
0
1
3
Source: Ilfov General Department of Ministry of Agriculture and Food, 2000
Meat production is an important agricultural output of the area (pig and poultry). Dairycows represents
50 percent or even more of the livestock structure, due to the potential of the area: the 6 communities concentrate a quarter of Ilfov's pastures and hayfields and there is an easy access to Bucharest's market (more
than 2 mil inhabitants).
Table 15. Animal breeding (Percent)
Cattle
Swine
Sheep
Goat
Poultry
Dascãlu
47
32
6
3
12
Dobroieºti
74
23
0
0
3
Domneºti
62
20
7
4
7
Nuci
44
27
24
0
5
Periº
41
36
6
1
16
Vidra
51
41
5
0
3
Source: Ilfov General Department of Ministry of Agriculture and Food, 2000
Agricultural cooperation in the area of milk collecting and marketing has all the necessary conditions.
Furthermore, from the ecological criteria, air pollution does not exist and the soil has no degradation. The
area with forests is not polluted, with the exceptionof Periº, where there is a large pig complex. Unfortunately, there is no monitoring system for water as an environmental factor.
PRESENTATION OF FOUNDATION FOR RURAL ASSOCIATIONS (FRA) –
– ESTABLISHMENT, OBJECTIVES
Aiming at introducing the principle that the farmer should be responsible only for the production process,
while others supply him with inputs and market his output, in the autumn of 1992 was started a project between the Romanian and Dutch Governments called: “Project for the Agricultural Development of Ilfov
County”, implemented by Rural Investment Agricultural/Extension Services (RIAS from Amersfoort)
and CEBECO International Projects (CIP from Deventer). The objectives of this program were to create
new organizational structures and to encourage an extension system for agricultural activities (fresh and
167
semi–perishable vegetables, animal feed, milk marketing and/or processing, extension, agricultural business, institutional strengthening).
The first phase of the project was supported financially and technically assisted for the 1993–1994 period.
On the second phase (1995–1996), financing was still available in the hope that a legislative framework
will be adopted. Since in 1996 Romania still was not the beneficiary of a special law on agricultural cooperatives, the Dutch partner stopped the financing. From the initiatives of the 1992–1994 period, some
have survived, even constrained by the transition period and lack of a special law. There are also initiatives
which are already dead.
The first agricultural cooperative to emerge was the Agricultural Society Vegetable Production Vidra, in
November 1993. In 1994, the main activities of the project have been concentrated on the technical assistance granted to the established agricultural cooperatives under the project: Agricultural Society Vegetable Production Vidra and Agricultural Society Animal Breeding Dobroeºti. New entries were reported:
Commercial Company Lenucom Nuci.
Most of the cooperatives have been established under the provisions of Law no. 36/1991. Lenucom Nuci
was an exception, being established as commercial company under Law no. 31/1990 on commercial companies. There was a second exemption, under the Law no. 21/1924, republished. The main motive was to
have a comparative analysis of the advantages and disadvantages given by the agricultural cooperation
system in the absence of a special law. The ancient Law on association and foundations from 1924 has
proven too rigid for a modern philosophy. The agricultural cooperative shifted into the statute of an agricultural society under Law no. 36/1991. The main conclusion of the survey is that no matter the legislative
umbrella adopted, the agricultural cooperatives surveyed have had democratic principles and by–laws
similar to those used in the European Union.
On 4th of June 1995, 11 members, aiming at milk collection and marketing established an agricultural society “Zoostar Vîrteju”. There were 60 milk cows in Vîrteju and 200 heifers. The activity was delayed until
an available building had been identified. The project aimed at creating an agricultural cooperative in
Snagov community as well. In 1989 there was only one milk cow in Snagov, while in 1995, due to the project 170 milk cows were reported. The member's production was 500 litres/day, jointly collected in a collecting point with no cooling facilities. In Gruiu community, the major part of the producers produce
vegetables. Their most urgent problem was not vegetables marketing, but input supply (certified seeds).
Until May 1995, the number of milk cows from this community increased to 380 and milk producers' forecast was an increase of milk cows up to 500, under the project financing. Between Snagov and Gruiu is a
distance of only 5 km, so there was the opportunity to create only one milk marketing cooperative for both
communities. It was possible to mix the activities of vegetables' storage and refrigeration from Gruiu with
those from “Lenucom” Nuci.
At the end of the “Project for the Agricultural Development of Ilfov County”, the conclusion of the Dutch
partner was that the institutional building process of Romanian agricultural cooperatives needs special
attention and enough time. The advantages are clear for the agricultural producers, but producers can
benefit only if they are motivated and only in the framework of well functioning companies, with a management aware of its attributes and with the power to make the proper decision. Due to the fact that the
CAP system induced the mentality of an agricultural worker, the most difficult job within the project was
to convince the farmers that the agricultural cooperatives have to be their own creations, they have to take
their own decisions and they are fully responsible for the cooperatives activity, and even the financing
source was Dutch.
Until the end of 1996, the first level of cooperatives was established within the following communities of
Ilfov: Vidra, Dobroeºti, Dascãlu, Nuci, Vârteju, Periº and Domneºti. The programme has supported financially for 2 years the building acquisition or rent, the equipment, employees' wages and different materials. Members were not contributing to the financing activity. They paid only the equivalent of USD 5 in
order to register the agricultural cooperative as an agricultural society.
168
Within this programme, on 28th of February 1996, the seven agricultural cooperatives from Ilfov established the Foundation for Rural Association (FRA), as a non–governmental and non–profit association,
according to Law no. 21/1924 in order to facilitate a secondary level of cooperation. At the end of summer
2000, the cooperatives with father–fondator statute, established during the 1994–1996 period, represent
the basis of the hierarchical pyramid, with FRA as a secondary level. There are other agricultural societies,
which have joined: Unirea and Meteº from Alba County, Lovrin and Fãget from Timiº, Jina and Agnita
from Sibiu. Even the financial situation had ups and downs, the short term success is the effect of a pyramid built from the bottom up.
Secondary level
of cooperation
Figure 4. Pyramid of Project for the Agricultural Development of Ilfov County
Foundation for
Rural Association
Primary level
of cooperation
Ilfov
Dascãlu
Nuci
Domneºti
Dobroeºti
Vidra
Vârteju
Periº
Alba
Timiº
Sibiu
Unirea
Fãget
Jina
Meteº
Lovrin
Agnita
Milk producers
Source: Leonte, 2000
From the six communities under study, only three case studies include still active agricultural cooperatives.
AGRICULTURAL SOCIETY “VEGETABLE PRODUCTION VIDRA”
It was registered in November 1993 by 28 father–fondators. The activity consisted in input supply (fertilisers and seeds) and output marketing (fresh and semi–perishable vegetables). In 1994, the members
promised themselves to sell jointly app. 370 000 kg of vegetables (cabbage, tomatoes, potatoes and cucumbers), but they collected only 16 500 kg. The members were interested in principal in input supply and
technical assistance. They were not so motivated in marketing the output. They preferred to sell individually in Bucharest markets, due to increased selling prices. Furthermore, they were avoiding VAT, the
capitalisation of 7.5 percent from the output value, left to the cooperative or the wholesale tax of app. 15
percent. All these expenditures were estimated at 40 percent. If the Bucharest market were at a greater distance (more than the 20 km), the 65 members of the Agricultural Society “Vegetable Production VIDRA”
(registered at 1995 level) would have sold jointly, at reduced transport costs and less time consuming. In
1995 the business plan foresaw app. 400 000 marketed vegetables. The plan was not confirmed.
In May 1995 the technical assistance was reduced, as long as the marketed volume was not increasing. After 4 months this decision proved to be the correct one, because the producers sold the output directly on
169
the market, they were able to buy inputs at market prices. The cooperative activity diminished until finally
dismantling.
The Vidra experience revealed the following conclusions:
• from the Romanian agricultural viewpoint, as long as a clear and proper legislative framework
is not in place, agricultural cooperation can fail even where money and motivation are available;
• from the project viewpoint, it would have been better to focus the support on more motivated
farmers in remote areas (less favoured areas or with weak market access).
AGRICULTURAL SOCIETY “ANIMAL BREEDING DOBROEªTI”
This specialised in input supply for animal breeding (animal feed). It was started in spring 1994 by 22 milk
producers. In 1994, the agricultural secondary production was quite good in the Ilfov area, and was used
as raw material for animal feed. The low buying prices determined a low total turnover for the society. The
producers from Dobroeºti were aware, but extremely confident about the future of their association. The
existent status requested qualitative and structural changes: they focused on forage components and on
increased quality of the feeding recipe ingredients. Farmers were convinced of the importance of using
concentrated animal feed – premixes (proteins–vitamins–minerals). 5 farmers were selected for an experiment, which started in 1994. They received 50 percent subsidised premixes, against milk production
evidence. A good element was that it stimulated the primary bookkeeping records at cooperative level on
behalf of the members. Dobroeºti farmers were overwhelmed by the cooperative principles and, consequently, in March 1995, the cooperative bought a feed mill and mixer and in April a weight measurement
installation.
The main activity of the Agricultural Society “Animal breeding DOBROEªTI” should have been milk collecting and marketing. Since Dobroeºti is only a few km away Bucharest, farmers preferred to sell the milk
themselves. Bigger attention should have been paid to the premix production, which was in fact the main
activity. The distribution system was based on computerised feed recipes. Furthermore, the intention was
to start to distribute premixes to other milk marketing cooperatives from the project, like Animal Breeding
Dascãlu and Lenucom Nuci. Since the activity did not reach breakeven point by the end of 1995, the financial support was stopped in 1996, and the activity decreased slowly.
COMMERCIAL COMPANY “LENUCOM NUCI”
This cooperative was created in September 1994 as a juridicial body under the provisions of law no.
31/1990 by 30 members. Comparing with the other cooperatives from the Romanian–Dutch project, this
one was considered as being the most flexible, being able to work with non–members as well. It was the
first cooperative with diversified activity. Even Lenucom Nuci which started the activity of vegetables
marketing in spring 1995, shortly diversified its activity with milk marketing due to an existing number of
800 milk cows.
Lenucom Nuci rented an old building at a token price representing the equivalent of USD 5–6. After the
rent contract was signed, building renovation started in order to make it suitable for vegetable storage, refrigerating and milk collection and marketing. There were also some opportunities for input supply (fertilisers, seeds, forages etc). The renovation process lasted longer than the members expected. Due to the
Government Decision no. 500/1995 on assets revaluation, the rent increased 20 times. Despite this financial threat, the members decided to continue.
The project aim was to develop a multiple activity cooperative, which would have been easier to split into
several simple cooperatives after a certain period of development. If the cooperative proved flexible
enough to the demands of the market, the separation process was not a must.
The initial endowment included storage facilities, a milk cooling system with 2 tanks of 2 000 litres each.
A different storage facility enabled fruits and vegetables storage for up to 20 days. A third storage compo-
170
nent was for seeds, fertilisers, pesticides etc. After the milk tanks were bought, milk–collecting activity
started, parallel to the collecting, refrigerating and storage of vegetables. None of these activities could
bring the profit expected by the members, neither during the 1995–1996 period nor after.
AGRICULTURAL SOCIETY “ANIMAL BREEDING DASCÃLU”
Animal Breeding Dascãlu is an agricultural society with juridicial status, established in 1994. 21 members
with 65 milk cows created it. They did not build a joint shelter for the animals, but preferred to invest in a
cooling tank for the milk.
The aim was to collect milk from the members situated within the cooperative territory, i.e. 5 km around
the milk collecting point. A proper building was bought and transformed into a collecting point. At the beginning of 1995, three milk–cooling tanks were bought with a capacity of 500 litres each. A milk tester was
compulsory for the quality of daily milk deliveries.
At the beginning of 1995, its sole contractual partner was a limited liability company – Parametru, a private milk factory well known for its brand – Brenac. It was chosen as a partner due to its attractive price offered per litre of milk (475 ROL/litre for May 1 – October 31 and 525 ROL/litre for winter milk (November
1 – April 30), which was extremely favourable compared to the state minimum guaranteed price of 425
ROL/litre according to Law no. 83/1993. Slowly, Parametru paid with bigger and bigger delays. Consequently, the members decided to change their business partner. The member's decision and management
ability was essential for the survival of the cooperative. Confronted with a similar situation, the managers
of the other cooperatives have not taken the correct economic decision and economic crises started.
In March 1995, 16 members started to deliver milk to the cooperative. Initial collection was 80 – 90 litres
per day and later on 200. New members made the total 102 members. Quality milk demand has risen. In
May, more than 60 milk producers delivered a daily quantity of 1 000 litres. The maximum collected quantity was reached at the end of the summer – app 1 800 litres per day.
Each day, according to a jointly agreed schedule, the members send the milk to the collection point. At
milk reception, the receptionist of the cooperative tests the milk quality (e.g. fat content, acidity, temperature etc). The milk, which does not correspond to the minimum, required standard is rejected. Since the
milk payment is done according to the milk quality, the members are extremely motivated to replace the
existing milk cows with more efficient heifers. They have become aware of the importance of good quality
feed and consequently started in common to buy premixes in order to negotiate a better price. A good price
and a proper accountancy system have built the members' trust in the cooperative spirit. Their motto is:
“'members have to know the price of their output!” The cooperative started to involve itself in the input
supply business, buying for the members feed at a lower price. Unlike the other cooperatives from the Romanian–Dutch project, the Animal Breeding Dascãlu is also involved in milk transport.
In order to convince the agricultural producers of the advantages of using concentrated feed in animal nutrition, 5 farmers were selected to undertake a similar experiment to those from Dobroeºti, i.e. feed supply
at half price against primary evidence of milk production and quality.
The cooperative keeps 7.5 – 8 percent from the total income for current expenditures, the rest being given
to the members, according to their implication. There are no dividends given. The employers have been
paid from the project finances and after the financial support ended, from what the cooperative retained.
The personnel include permanent employees, who do not have status membership.
After the project ended, the cooperative did not benefit from external finances. In these conditions , the cooperative membership decreased continuously, and the livestock followed the same trend as the rest of
theagriculture. Even though the members have been supported by the cooperative endowmentafter the financial support ended, the output marketed through the cooperative decreased each year by 100 000
litres. The main project's effect is that the milk producers know and apply good agricultural practices, producing an average production of 2 800 l/year, which is above the average production reported at national
level.
171
Table 16. Economic Indicators of Agricultural Society Animal Breeding Dascãlu
1995
1996
1997
1998
1999
76
82
69
40
21
• fee payers
21
41
41
40
21
Number of milk cows
126
145
111
74
36
406 971
312 407
206 648
101 815
Membership
Marketed output
354 682*
+/– against last year
15%
–33%
–34%
–51%
* milk production for the first 10 months
This cooperative is a success story from the membership and management motivation viewpoint. Collecting activity is done under proper conditions. Given the cooperative's activity, the difficulties have
arisen as a consequence of the constraints existing on the milk sector. The members have to design a plan
together with the management and establish which shall be the future development of the cooperative, because they have several options: increase the milk quality standards, develop the up–stream activity (animal feed supply) or develop some processing facilities in order to protect the members' interests against
the existing down–stream discrepancies.
AGRICULTURAL SOCIETY “ANIMAL BREEDING DOMNEªTI”
In September 6, 1995, 32 milk producers from the Domneºti community started to cooperate in order to
sell the milk at a better price becoming members of the newly created “Animal Breeding Domneºti”. At
that time, there were 3 milk–collecting points with no cooling tanks. The collected quantity was app. 700
litres. According to Law no. 83/1993 (repealed in early 1997), the state was granting a minimum price for
milk of 425 ROL/l, which had as an impact an increasing number of cows. There was also some available
building in the community, which represented a business opportunity.
After the building was chosen and the offices for the employed personnel arranged, the activity started.
Due to the financial support and the technical assistance given by the project, until the end of 1995, membership increased to 86 members and the livestock increased from 70 to 130 milk cows.
Table 17. Economic Indicators of Agricultural Society Animal Breeding Domneºti
1996
1997
1998
1999
86
42
62
62
• fee payers
32
32
32
0
Number of milk cows
130
85
105
105
Marketed output
357 669
Membership
+/– against last year
149 337
–58%
290 975
95%
0
–100%
The evolution of jointly marketed output is decreasing as a result of pressure existing on the milk and dairy
market. This market has its own characteristics, the most important one being the perishable characteristic of the product. Hygienic conditions and quality standards can be granted only on a pre–contract relationship, with short distribution channels for a short and rapid marketing of the product. The fact that the
cooperative was depending entirely on a sole business partner, pushed the members to start to sell individually, directly in the peasant markets in Bucharest, in order to be able to buy forages for the milk cows. Cooperation motivation was strong i during the 1997–1998 period, but delayed payments pushed the
members to directly market the milk. The management did not take the correct decision, i.e. to change the
partner, hoping that his financial behaviour will change and consequently, when the decision became inevitable, no other buyer was found.
172
In 1999, the cooperative had no milk to market. The milk producers couldn't sell rapidly and at a satisfactory price and presently they are not able to invest in the down–stream sector, in a processing facility,
which might be a survival issue. Due to a decreasing membership's motivation and capitalisation process,
the cooperative has no credit access.
AGRICULTURAL SOCIETY “ANIMAL BREEDING PERIª”
In Periº (including 4 other small villages) there were 519 milk cows in 1995, representing more than 2 000
litres of milk per day in the summer period. There was only one milk–collecting point with no cooling facilities. Water was the cooling component for the first and most urgent cooling step, but totally insufficient
for milk which has to be marketed with certain standards.
It was considered that there is a certain potential for the cooperative to emerge in this area and a milk producers meeting was organized to discuss the cooperative issues. On 30th of August 1995 the “Animal
Breeding Periº” was registered with the acceptance of 30 farmers. It found a suitable building and rented it
for 5 months. In September 1995 it was transformed into a milk collecting point with an office. The following year, the 30 farmers with a total of 68 milk cows and heifers invested in new livestock and decided to
start the collecting activities in 1997 in order to market it to a processor. During only 3 months of activity,
the marketed milk accounted for 35 000 litres.
Table 18. Economic Indicators of Agricultural Society Animal Breeding Periº
Membership
1996
1997
1998
1999
30
56
40
40
30
30
0
68
112
85
85
0
35 000*
160 000
0
• fee payers
Number of milk cows
+/- against last year
* production on first 3 months
In 1998 the inefficient animals were slaughtered and new heifers bought and consequently, with less livestock (85 instead of 112), the milk production increased by 20 000 litres (with a maximum reported production in 1997 of 35 000 l/trimester x 4 trimesters = 140 000 l).
1999 year had the same significance for Animal Breeding Domneºti: the negative impact of the decision to
not change the business partner. Presently the members prefer direct deliveries to Bucharest's market.
The cooperation attempt was positive in the sense that they were the beneficiaries of financial support and
good quality technical assistance, Holland being well known for its cooperative experience. The gain is
rather individual and not shared communally. The members gained a certain package of knowledge, but it
cannot be fruitful in the absence of a proper framework.
EFFICIENCY OF AGRICULTURAL COOPERATION ON MILK MARKETING SECTOR
The members of Animal Breeding Dascãlu and of all the other cooperatives under the project umbrella
had this quality by their own choice. They were aware of cooperative principles and of its advantages, as
well as of the fact that they was the beneficiaries of a grant, which should have been constituted from their
own financial contributions. Given these certain advantages, i.e. motivation and financial resources, the
project, as a whole is not a success story.
The fact that a major part of the membership decided to sell directly on the market, despite the inneficient
use of time and transport costs involved represents a clear signal of an existing economic inefficiency. The
farmers did not made any calculations, but their good sense taught them slowly that Bucharest's market is
a better alternative.
173
The causes for such an evolution might be of a legislative or economic nature or both. That the absence of a
proper legislative framework is one of the causes is indisputable. European Union practices reveal the fact
that the absence of such a law cannot impede cooperative movement if farmers do really wish to have
a joint activity and risk. So, we can assume that the economic situation is the real and the main cause.
Table 19. Production cost for cow milk
1995
1996
1997
summer
winter
summer
winter
summer
1998
winter
summer
1999
winter
summer
winter
A
Direct Expenditures
(I+II)
38 251
52 532
58 439
76 681 140 275 163 477 167 599 216 221 308 164 369 583
I.
Inputs
34 915
47 917
53 342
69 945 128 041 149 115 152 982 197 225 281 287 337 115
0
0
0
28 749
39 433
43 922
618
808
944
1 179
2 266
2 515
2 707
3 326
4 977
5 685
1 568
2 098
2 396
3 062
5 751
6 528
6 871
8 634
12 634
14 758
1
biologic material
2
animal feed
3
medicines
4
energy and fuel
5
depreciation
523
684
799
998
1 917
2 128
2 290
2 814
4 211
4 810
6
other Expenditures
with materials and
water
463
684
708
998
1 699
2 128
2 030
2 814
3 733
4 810
7
supply and technological transport
2 994
4 211
4 574
6 146
10 979
13 104
13 117
17 331
24 118
29 624
Labour
3 336
4 615
5 097
6 737
12 234
14 362
14 617
18 995
26 877
32 469
8
Wages and premia
2 471
3 419
3 775
4 990
9 062
10 638
10 828
14 071
19 909
24 051
9
Social Insurance
Contribution (30%)
741
1 026
1 133
1 497
2 719
3 192
3 248
4 221
5 973
7 215
10
Unemployment tax
(5%)
124
171
189
250
453
532
541
704
995
1 203
B
Indirect
Expenditures
6 153
8 587
9 400
12 534
22 564
26 722
26 959
35 343
49 569
60 411
11
General and common Expenditures
887
1 245
1 355
1 817
3 253
3 873
3 887
5 123
7 146
8 757
12
Credit interests
4 791
6 721
7 319
9 810
17 568
20 914
20 990
27 662
38 594
47 282
13
Local taxes
475
622
726
907
1 743
1 934
2 082
2 558
3 829
4 373
C
Total Production
Expenditures (A+B)
44 404
61 119
67 839
D
Value of Secondary
Production
2 024
2 648
3 093
II.
0
0
0
0
0
0
0
57 561 105 429 122 714 125 966 162 306 231 612 277 427
89 215 162 839 190 198 194 558 251 564 357 733 429 995
3 865
7 424
8 240
8 870
10 898
16 310
18 629
E
Source: Agricultural Society Animal Breeding Dascãlu
From an economic viewpoint, there are two aspects that need to be underlined:
• the Romanian tax system in the transition period,
• the economic efficiency of the members on the framework of the Romanian raw milk market.
174
An agricultural society has to pay:
• income tax,
• merchandise turnover tax,
• VAT,
• social insurance contribution,
• unemployment tax for the permanent employees etc.
Table 20. Raw milk prices at processors and on the local markets in 1990–1999
1990
1992
1993
Out of which
premium
Local
market prices
ROL/l
ROL/l
ROL/l
ROL/l
12
6
50
20
5
25
57
20
35
194
69
36
483
183
38
660
253
38
420
38
6
Jan
1991
Processors'
buying prices
Percent
8
March
11
April
16
December
25
annual average
15
Feb
25
May
25
Aug
40
Sept
40
Nov
55
annual average
37
May
100
30
Oct
150
50
annual average
125
1994
Price differences
300
100
Feb
425
125
May
370
170
Nov
425
125
annual average
407
May
650
220
Aug
650
220
Nov
750
250
annual average
683
1 103
1997
1 044
2 234
1 190
53
1998
1 643
3 257
1 614
50
1999
1 947
4 055
2 108
52
1995
1996
Source: for 1990–1996 period, Gavrilescu, Giurcã and colab., 2000; for 1997–1999 period, statistical and operative data of
Ministry of Agriculture and Food, 2000
175
If we add local taxes up to 1–2 percent from the production cost level, it is easy to understand why milk
farmers look more and more interested in an individual marketing option.
Taking as an example the Agricultural Society Animal Breeding Dascãlu, the production cost has been
calculated for a fat content of 3.5 percent, with proper sanitary veterinary components at an average milk
production of 3 000 litres/cow.
Even when there are no expenditures with the biological material and the forage cost is reduced, the production cost is still high compared with the internal market price. It is worth mentioning that in the studied period, the internal market price was lower than the EU prices, being app 0.13 and 0.18 Euro/litre.
Furthermore, the price paid in the peasants' market was higher than the one paid by the processors, even if
Law no. 83/1993 was in force. Peasant market prices were 35–38 percent higher in the 1992–1996 period, and after the price liberalisation from 1997, doubled compared with the processors buying prices.
According to the production cost calculated by Agricultural Society Animal Breeding Dascãlu, considered
as being representative for the whole Ilfov project and of the prices registered on the two components of
the milk market, the financial impact on the cooperative members budget can be calculated in two decision making situations: (1) joint deliveries to the processors through the cooperative and (2) individual direct sales on the market.
Table 21. Financial results of the milk marketing cooperative members in Animal Breeding Dascãlu
1995
1996
1997
1998
1999
summer
winter
summer
winter
summer
winter
summer
winter
summer
winter
Production cost
(ROL/hl)
42 380
58 471
64 746
85 350
155 415
181 959
185 688
240 665
341 423
411 366
Processor buying
price (ROL/hl)
37 000
42 500
65 000
75 000
104 400
104 400
164 300
164 300
194 700
194 700
Profit (ROL/hl)
–5 380
–15 971
254
–10 350
–51 015
–77 559
–21 388
–76 365
–146
723
–216
666
–14
–30
0
–13
–36
–47
–13
–35
–48
–59
Local Market
price (ROL/hl)
66 000
66 000
110 300
110 300
223 400
223 400
325 700
325 700
405 500
405 500
Profit (ROL/hl)
23 620
7 529
45 554
24 950
67 985
41 441
140 012
85 035
64 077
–5 866
62
14
78
33
48
25
84
39
21
–2
Profit rate for the
activity under cooperative (%)
Profit rate for the
individual marketing activity (%)
Source: own calculations
As has been demonstrated, the activity as a cooperative member in the Ilfov project was not profitable.
Only in summer 1996 is there a small profit, which added to the real advantages of the Romanian–Dutch
project, which stimulated the members to develop a joint activity. Until 1998, the profit rate fluctuated explaining why all the members of the studied agricultural societies were motivated to accept a compromise:
to deliver part of the milk production to the cooperative while the rest was delivered directly.
In Bucharest's market, the profit rate has been favourable in the studied examples, but the transport costs
are not included and time loss from marketing activity represented an opportunity cost for the production
activity. This margin allowed the members to keep the cooperative active, even at a low rate. In 1999, the
loss rate as cooperative members was too high (up to 60 percent) and Bucharest's market was no longer
176
an attractive market, due to a profit rate of only 21 percent. Furthermore, in winter 1999 (i.e. 1999 –
2000), the direct sales became unprofitable.
These calculations can be the argument for the members attitude, who in answer to the survey question
“Do you consider your activity as a cooperative member a profitable one?” replied “it doesn't work”. Interviewed about the negative trend of collected quantities of milk, the members clearly indicated that it was
the price. Lack of a special law was always mentioned as a second thought.
Figure 5. Profit trend from raw milk marketing activity
Animal Breeding Domneºti and Animal Breeding Periº made contracts with Parametru Limited Liability
Company. Delayed payments forced the members to stop their deliveries. Installations are in conservation, and members are having doubts as to whether they should dismantle the cooperative or wait for
a better milk market situation in order to reactivate it. If the members had had the financial power to establish their own processing plant, they would have been able to increase their margin and consequently their
profit. They made a business plan including a minimum daily quantity of milk of 10 000 litres in order to
have a viable processing activity. From 1995, under the technical assistance project, members were advised to have the following deliveries' structure: 4 000 litres from Nuci and 2 000 litres/day each from
Dascãlu, Periº and Domneºti. Only at this investment level would the economic situation have been improved.
Due to economic reasons, such an investment makes the deliveries compulsory. Members are not really
happy to have delivery obligations introduced in the by–laws. They are reluctant to deal with any obligations and constraints, and consequently, the only real survival option for the cooperatives is to find a reliable business partner, i.e. to become more flexible and dynamic.
CONCLUSIONS AND RECOMMENDATIONS
The members interviewed in the field research mentioned the following constraints for the cooperation
activity:
• Unattractive selling price;
• Lack of a specific law;
• Dysfunction of the business environment;
• Lack of subsidies for the 1997–2000 period.
177
There are some more identified constraints. The first constraint is the motivation level of the members and
the management. Secondly, the quality of the managerial activity. Thirdly, farmers' knowledge concerning the phenomenon of agricultural cooperation. The conclusions of the Ilfov project Dutch co–director
were “we have tried to develop the agricultural cooperatives too soon”. The “Ilfov” project has demonstrated that Romanian farmers were not able to take advantage of a grant in the 1993–1996 period. If we
compare the results with the other case studies (e.g. ISPA Iasi), it seems that this conclusion cannot be
generalised regarding all Romanian farmers. There are different areas, different mentalities, different
market access and different type of cooperative (in Ilfov milk marketing cooperatives there were the number 1 investment < while in ISPA, the activity is not specialised and, consequently, the risk is reduced).
The experience offered by the presented case studies is also different from the viewpoint of chosen legislative framework and juridicial organization opportunities. In the absence of a special law on agricultural
cooperatives, the cooperatives capitalisation process and its long–term development are jeopardised.
Only the by–laws of each attempted cooperative is the one which make the difference between an agricultural cooperative and an agricultural society with primary production activities. The main problem in
such a case is the members' lack of experience.
The absence of adequate legislation for the operation of independent farmers' associations that should
have as an objective production marketing and input supply has become a critical problem. Some associations are operating according to a law from the year 1924 (MFFD case study). We know that there are certain legal initiatives in this respect, but they have not been debated and validated by legislative organizms.
These associations (the so–called marketing associations) may have a positive role upon farmers, in the
first place, as they increase their negotiation power in the face of processors, amplify the peasant household's connection to the market, and provides the desired input supplies at correct prices. The farmer thus
changes from a “price receiver” to a “price negotiator”. At the same time, these associations also may have
a beneficial effect upon processors, as it provides the mobilisation and concentration of small–sized peasant households' supplies into larger batches that become significant for the large food processing firms.
Some agricultural societies are regulated by Law no. 36/1991 (case study no. 3). However, this law mainly
refers to the establishment of farmers' associations for the common operation of land. The fact that the agricultural societies under Law no. 36/1991 have a common production sector reveals two aspects: the low
availability of the capital in a transition period and the lack of required knowledge for the establishment of
a cooperative. We can appreciate, after 10 years, that this law does not represent a success, as according to
several surveys conducted over several years, the number of associations operating according to this law
has declined. These associations are quite attractive to a certain extent for a rural aged population that
lacks the material facilities to farm their land individually. At the same time, they are attractive for the urban population that have land properties in the rural area and, having other jobs, prefer to have their land
farmed in an association. Finally, we could say that the relative lack of success of present agricultural societies is also due to the numerous similarities with the former agricultural production cooperatives.
There could be a third option, since according to these law provisions, there can be established the simple
associations with no juridicial personality, but these associations are extremely volatile (they exist in
spring, but would disappear by autumn). Hence, they are not very serious partners for input suppliers that
often sell their commodities in exchange for payment at harvest time.
Under these circumstances, it is obvious that we should plead for the establishment of the legal framework for the operation of these (marketing) associations, which should join together independent farmers and has the objective of agricultural produce sale and input supply. This new point of view regarding
association in agriculture is supported by the example presented in this paper and by the experience of
farmers from European Union countries. It is understandable why it took 10 years before the Ministry of
Agriculture, Food and Forests to dare to propose a project on agricultural cooperatives and not on associations, groups or whatever, since the concept of agricultural cooperatives was compromised in the
1948–1989 period.
178
SWOT Analysis on current framework for agricultural cooperatives
Strengthens
Weaknesses
• Cheaper inputs for farmers
• Lack of legislative framework
• Marketed output
• The existent experience include pilot-projects with no
relevant market share
• Increased incomes
• Adjust the agricultural supply to food consumers
• Professional education and training
• Information source for members
• Access to bank credits through the cooperatives
Opportunities
Threats
• Structural adjustment (SAPARD Programme)
• Farmers motivation
• Accelerated capitalisation process
• Monopoly market on the cooperative area
• Resistance to change
Source: Leonte, 2000
Another aspect would be that, in the three cases presented here, the associations/cooperatives have benefited from the material and logistic support of certain European Union member's states governments. In
ISPA Iasi and Ilfov cases, including the harmonisation of different stakeholders' initiatives, this came from
the Dutch Government. In all cases, the financial involvement of the Romanian authorities has been
quasi–non–existent.
There are some threats concerning the support and financing of agricultural cooperatives by the members. Since the whole process has not been promoted or explained, the producers motivation might suffer,
especially if they do not know exactly the advantages offered by an agricultural cooperative, how it starts
or how it works. The discrepancies between the production sector on one side and the up–stream and
down–stream on the other side could prove unfriendly to any economic agent and also to agricultural cooperatives. Some constraints come from the “resistance to change” existing in several areas. The main resistance comes from those whom try to keep their status quo and from that part of the agricultural
population with a worker mentality, not able to assume the risks and responsibilities necessary to a private
entrepreneurial agriculture. This resistance can delay or freeze the transition process and emergence of
agricultural cooperation.
A first question that has to be addressed by the strategy aims is if the cooperatives creation support will
take into consideration the agricultural holding's size, or the last one has to be adjusted in order to have
good organization of future cooperatives. The recommended strategy for the emergence of agricultural
cooperatives has to start with the identification of the share of the rural population share it focuses on.
In a recent ACE–Phare study (Gavrilescu and colab, 1999), it has been stressed that persons manage only
6.2 percent of the agricultural holdings in less than 30 years. Statistically and sociologically, persons of 60
and more usually manage the holdings and the family members are retired persons and peasants. Given
these aspects, which are extremely relevant to the life style and existent mentalities/behaviour in Romanian rural areas, there are some restrictions pending on a sector strategy.
Since cooperatives are extremely dynamic businesses, which need initiative and at least an average educational level, the strategy demands both short–term and medium–term instruments of policy.
In the short term, the strategy should include the adoption of legislation, including financial support to cooperatives, concept promotion of the experience achieved, especially to the potential members of the cooperatives (i.e. the population actually involved in agriculture). Extension activities will have a major
179
impact at the beginning, but also for the cooperatives development. In order to choose the type of the cooperative, the consultant has to take into account the needs of the potential members, their motivation
and economic capacity to build a cooperative. Nevertheless, the members' ability to work together in the
long term is also important.
In the medium–term, structural adjustment is necessary, including early retirement policies. The agricultural holding investment policy is based entirely on the age of the holding's manager.
When designing its strategy, the state should keep in mind that it has to support, but not to interfere.
Against this background, an additional recommendation would be: a friendly attitude of the authorities is
desirable and, if possible, a stronger financial implication should be intended, since the cost of a milk marketing cooperative, for example, has been reported as being the equivalent of EURO 10 000. Processors
have given signals expressing their interest in supporting farmers to supply them with bigger quantities
and increased quality. If a joint effort from the down–stream will be supported by the state, the cooperative development will be faster.
REFERENCES
BAKKER, S. & BALAHUR, E. 2001. Building up of farmer's organization ISPA in the Iasi county, Romania
GAVRILESCU, D., GIURCA and al. 2000. Agrofood Economics, Editura Expert, Bucharest
LAND O'LAKES ROMANIA.1999. Milk market survey, paper presented at Simpolact seminar, Braºov
LEONTE, J. 1996a. “Ilfov” project – a chance for the agricultural producers, Economie si Administratie
Locala no. 3–4/1996
LEONTE, J. 1996b. New agricultural cooperatives around Bucharest, feature report, Agricultura
Romaniei no. 15/1996
LEONTE, J. 1996c. Perspectives of cooperative sector in Romania, Policy Advisory Unit to Ministry of Agriculture and Food, Phare programme “Establishment of a Policy Advisory Unit to Ministry of Agriculture
and Food”, Bucharest
LEONTE, J. 2000. Agricultural Cooperation on market economy terms, PhD thesis, Academy of Economic
Studies Bucharest
LEONTE, J. & DIACENCO, E. 1997. Cooperative transformation in agricultural cooperatives in Romania
and cooperative capital formation, “Transformation Strategies with particular reference to Capital Formation in Agricultural Cooperatives in Central and Eastern Europe”, Report of the workshop, 8–10 September 1995, University of Agricultural Sciences, Godolo, Hungary, FAO Rome
LUCA, L. 2001. Voucher scheme analysis for 1997–2000 period, World Bank discussion papers, “Analysis of Romanian agricultural policies” seminar, Bucharest
OECD. 2000. Review of Agricultural Policies, Romania, Emerging Economies transition, Agriculture and
Food, Paris
Ministry of Agriculture, Food and Forestry. 1995–2001. News Bulletins, no. 3/1995, 1/1996, 2/1998,
12/1998, 1/2000 and 2/2001, Bucharest
Ministry of Agriculture, Food and Forestry. 2000. National Plan for Agriculture and Rural Development
NPARD, Bucharest
Ministry of Agriculture, Food and Forestry. 2001a. Law on Agricultural Cooperatives, draft, Profitul
Agricol no. 9/2001
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Mountain Farmers' Federation “Dorna”. 2001b. Presentation provided by the executive manager of the
association
Ilfov General Department of Ministry of Agriculture and Food. 2000. Determinants of favourable areas in
Ilfov County, Ilfov monography for NPARD support, Bucharest
National Commission for Statistics. 1998. Private sector evolution within Romanian economy
(1990–1997), 1998 Edition, Bucharest
Romanian Government. 2000. Romania's medium term national strategy of economic development, documents, edited by the prof. Mugur Constantin Isarescu, prime minister of Romania and prof. Tudorel
Postolache, member of the Romanian Academy, The Romanian Centre for Compared and Consensual
Economics, Bucharest
ANNEX 1
THE LIST OF ASSOCIATIONS/FOUNDATIONS
1.
Association OBªTEA SÃTEASCÃ Sânicolau de Beiuº, Bihor;
2.
Association of Agricultural and Fishery Producers from Danube Delta, Tulcea;
3.
Association of Cattle Breeders BRAUN–SCHWYZ Maramureº;
4.
Association of Machinery and Tractor Producers “Agricultural Machinery Ring”,
Gheorghieni, Harghita;
5.
Association of Millers and Bakers from Romania ANAMOB;
6.
Association of Mushrooms and Forest Fruits Exporters;
7.
Association “Mountains' Chosen”;
8.
Association of Bee Breeders;
9.
Association of Private Animal Breeders from Romania ARCA;
10. Association of Private Capital Societies from Meat Industry in Romania ASIC;
11. Association of Private Producers of Milk and Dairy Products;
12. Association of Seeds and Planting Material Producers;
13. Chamber of Farmers from Argeº;
14. Farmers Association Sturdza Bacãu;
15. Federation of Agricultural Patronates from Romania;
16. Federation of Mountain Farmers Dorna;
17. Federation of Potato Producers from Romania;
18. Federation of Private Agricultural Producers fromRomânia;
19. Foundation “Farmers' Fair ”, Curtea de Argeº;
20. Foundation of Rural Associations;
21. Foundation of Mountain Agricultural Producers PIATRA CRAIULUI, Braºov;
22. Foundation “PLAI CARPATIN”, Oneºti, Bacãu;
23. Foundation ROMANIA–NEXT GENERATION;
181
24. French–Romanian Association for the Agricultural Development “AFRODA”;
25. General Association of Cattle Breeders from Romania;
26. General Association of Poultry and Small Animals Breeders AVIROM – AGPA;
27. General Association of Sheep Breeders from Romania;
28. General Association of Goat Breeders from Romania;
29. Institutional Strengthening Private Agriculture ISPA Iasi;
30. National Association for Ecological and Cultural Rural Tourism ANTREC;
31. National Association of LandOwners and Shareholders from Agriculture PROPACT ;
32. National Forum of Agricultural Producers;
33. National Society for Horticulture;
34. National Society of Fruit Producers;
35. Organization of Patronates Romanian Greenhouses;
36. Private Agricultural Producer Foundation “Friends of Romanian Peasant”;
37. Romanian–Swiss Foundation MORÃRENI, Mureº;
38. Society of Agronomists from Romania;
39. Society of Ecological Wine Producers VITECO;
40. Union of Enologists from Romania;
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LIST OF PARTICIPANTS
Bulgaria
Ms Hristina Lubenova Borcheva
Chief Expert
Information and PR Directorate
Ministry of Agriculture and Forestry
55 Boulevard Hristo Botev
Sofia
Bulgaria
Mr Dubravko Kupcinovic
Advisor
BIOPA, Association for organic–biological production
Reisnerova 64.
HR–31000 Osijek
Tel/fax: 385 31 204 949
E–mail: [email protected]
Ms Ana Veselinova Valkova
Senior Expert
SAPARD Division
Development of the Rural Regions Directorate
Ministry of Agriculture and Forestry
55 Boulevard Hristo Botev
Sofia
Bulgaria
Tel: 359–2–980–8270
Fax: 359–2–980–8270
E–mail: [email protected]
Mr Zoran Grgic
Department of Farm Management
Faculty of Agriculture
Svetosimunska 25
10000 Zagreb
Croatia
Tel.: +385 1 2393777
Fax: +385 1 2393745
E–mail: [email protected]
Ms Rosita Lazarova Gantcheva
Junior Expert
International Relations Directorate
Ministry of Agriculture and Forestry
55 Boulevard Hristo Botev
Sofia
Bulgaria
Czech Republic
Mr Jan Pellar
Director
Department of Marketing and Trade
Ministry of Agriculture
Tesnov 17
117 05 Prague 1
Czech Republic
Croatia
Ms Ramona Franic
Hecimoviceva 7
10000 Zagreb
Croatia
Tel.: +385 1 3840824
Fax: +385 1 2393745
E–mail: [email protected]
Ms Andrea Gregova
Head of Section
International Organizations and Programmes
Ministry of Agriculture
Tesnov 17
117 05 Prague 1
Czech Republic
Mr Miroslav Matovinovic
Advisor
Croatian Extension Intitute
Trakošæanska 24.
HR–42000 Varazdin
Tel/fax. ++ 385 42 211 175
E–mail: [email protected]
Ms Jitka Potmesilova
Officer
Department of Agricultural Commodities
Ministry of Agriculture
Tesnov 17
117 05 Prague 1
Czech Republic
183
Mr Jaroslav Oplt, CSc
Officer
Department of Agricultural Commodities
Ministry of Agriculture
Tesnov 17
117 05 Prague 1
Czech Republic
Mr Josef Vlk
Head of Department of International Relations
Czech Agrarian Chamber
Stepanska 63
112 10 Praha 1
tel./fax:+420 2 24215939
E–mail: [email protected]
Mr Miroslav Louma
Assistant to the President
AACC–Association of Agriculture Cooperatives
and Companies
Hybernska 38
110 00 Prague 1
Czech Republic
Tel.:+420.2.24225287
Fax:+420.2.24225521
E–mail: [email protected]
Mr Václav Kmonícek
Specialist of the AACC
AACC–Association of Agriculture Cooperatives
and Companies
Hybernska 38
110 00 Prague 1
Czech Republic
Tel.:+420.2.24225287
Fax:+420.2.24225521
E–mail: [email protected]
Hungary
Dr. Ferenc Laczo
Project Director
Center for Environmental Studies
1094 Budapest
Angyal u. 15/B
Hungary
Tel: 36–1–216–0377
Fax: 36–1–216–0911
E–mail: laczo@ktk–ces.hu
Mr Istvan Feher
Pater K. u. 1
2103 Godollo
Hungary
Tel: 28 410 802
Fax: 1 326 3772
E–mail: [email protected]
Mr Miklos Takacs
Chief Counsellor
Department for Cooperatives
Ministry of Agriculture and Regional Development
Kossuth ter 11.
1860 Budapest
Hungary
Tel: 36–1–301–4835
Fax: 36–1–301–4653
Mr Istvan Barta
Young Officer
Department for Cooperatives
Ministry of Agriculture and Regional Development
Kossuth ter 11.
1860 Budapest
Hungary
Tel: 36–1–301–4456
Fax: 36–1–301–4653
Ms Anita Gyurica
Young Officer
Department for Cooperatives
Ministry of Agriculture and Regional Development
Kossuth ter 11.
1860 Budapest
Hungary
Tel: 36–1–301–4435
Fax: 36–1–301–4653
E–mail: [email protected]
Latvia
Ms Silvija Dreijere
Latvian Farmers Federation
Republikas laukums 2
1004 Riga
Latvia
Tel./fax +371 7027321
E–mail: [email protected]
184
Mr Valdis Dzelzkalejs
Republic squarre 2– 2309
Riga
LATVIA LV – 2123
Tel.: +371 9274027
Fax: +371 7027274
E–mail: [email protected]
Poland
Poland
Ms Dorota Metera
Boya–Zelenskiego 6 m 34
00–621 Warszawa
Poland
Tel.: +48 22 825 22 31
Fax: +48 22 825 22 31
E–mail: [email protected]
Mr Dariusz Zdybel
Agency for Restructuring and Modernisation
of Agriculture
Warsaw
Fax: + 48 22 633 3876
E–mail: [email protected]
Mr Ryszard Piatek
Federation of Agricultural Producers
Lublin
Tel.: + 48 81 532 98 36
Fax: + 48 81 534 96 70
Ms Beata Karpeta
Federation of Agricultural Producers
Fax: + 48 22 623 2357
Romania
Ms Marie–Jacqueline Cosette Leonte
Senior Researcher
Romanian Academy
National Institute for Economic Research
Institute of Agricultural Economics
13, Calea 13 Septembrie, sectorul 5 76117
Bucharest
Romania
Fax: +40 1 4100776
Tel.: +40 1 4106701
E–mail: [email protected] or [email protected]
Ms Cecilia Alexandri
Senior Researcher
Romanian Academy
National Institute of Economic Research
Institute of Agricultural Economics
13, Calea 13 Septembrie, sector 5, 76117
Bucharest
Romania
Tel. / Fax: +40 1 410 07 76
E–mail: [email protected]
Ms Monica Neagu,
Ministry of Agriculture, Food and Forestry
Department for Foreign Investments, Exports
and International Agreements
Carol I Avenue 24 – Sector 3.
70033 Bucharest
Romania
Tel.: +401–3110624
Fax: +401–3121249
E–mail: [email protected]
Mr Dima Gheorghe Stelica
Constanta branch of the Romanian Farmer
Association
Str. Revolutiei nr. 17–19, Cod 8700
Constanta
Romania
Tel: +40 40 416 90596
+ 40 92 362 426 (Mobile)
Fax: +40 4 1618138
E–mail: [email protected]
Slovakia
Mr Jan Husarik
Director
European Integration Department
Ministry of Agriculture
Dobrovicova 12
812 66 Bratislava
Slovak Republic
Tel: 421–7–59266–280
Fax: 421–7–59266–583
E–mail: [email protected]
185
Mr Jozef Vaskeba
Chairman
Farmers and Agrobusiness Association
Dobrovicova 12
812 66 Bratislava
Slovak Republic
Tel: 421–7–59266–197
Fax: 421–7–59266–197
Mrs Bojana Balon
Slovenian Union of Rural Youth
Celovška 43
1000 Ljubljana
tel.: 00 386 1 4331270
fax.: 00 386 1 433 1270
GSM: 00 386 31 387933
E–mail: [email protected]
Mr Jozef Urminsky
Member of the Republic Council
Farmer Cooperatives and Trade Companies
Association
Priemyselna 6
824 94 Bratislava
Slovak Republic
Tel: 421–7–5341–7754, 53411–330
Fax: 421–7–5341–4544
E–mail: [email protected]
Italy
Ms Barbara Migone
Viale San Gimignano 15/a
20146 Milan
Italy
Tel: +39–02–4155559
E–mail: [email protected]
Slovenia
Mr Boris Grabrijan
Chamber of Agriculture and Forestry of Slovenia
Miklošièeva 4
1000 Ljubljana
tel.: 00 386 1 24163306
fax.: 00 386 1 2416350
E–mail: boris.grabrijan@kgz–slo.si
Ms Andreja Krt
Cooperative Union of Slovenia
Miklošièeva 4
1000 Ljubljana
tel. 00 386 1 2302944
Community of Komen
Komen 86
6223 Komen
tel.: 00 386 5 7310450
fax.: 00 386 5 73104
E–mail: [email protected]
Mr Kristijan Hrastar
Farmers Union
Miklošièeva 4
1000 Ljubljana
tel.: 00 386 1 2527669
fax: 00 386 1 2527671
E–mail: [email protected]
United Kingdom
John Millns
Mayden Dell, Chesterfield Road (North),
Pleasley, Mansfield, Notts. NG19 7PA.
United Kingdom.
Tel: +44 1623 811542.
E–mail: [email protected]
EEC
Mr Herbert Kellner
Deputy Secretary General
COPA/COGECA
Maison Européene de l'Agriculture
Rue de la Science 23–25
B–1040 Bruxelles
Belgium
Tel: +322 287 27 11
Fax: +322 287 27 00
E–mail: herbert.kellner@copa–cogeca.be
FAO
Mr Stjepan Tanic
Farming Systems Development Officer
FAO Subregional Office for Central
and Eastern Europe
34 Benczur utca
1068 Budapest
Hungary
Tel: 36–1–461–2011
Fax: 36–1–351–7029
E–mail: [email protected]
186
Ms Dorina Minoiu
Policy Officer
FAO Regional Office for Europe
Viale delle Terme di Caracalla
00100 Rome
Italy
Tel: 39–06–570–55129
Fax: 39–06–570–55634
E–mail: [email protected]
Mr Janos Juhasz
Cooperatives and Rural Organizations Officer
FAO Rural Institutions and Participation Service
Viale delle Terme di Caracalla
00100 Rome
Italy
Tel: 39–06–57054646
Fax: 39–06–570–53250
E–mail: [email protected]
187