The Development of Agricultural Production Cooperatives in the Russian Federation
Svetlana Golovina *, Jerker Nilsson †‡ and Axel Wolz §
Paper presented at the 5th international conference on Economics and Management of
Networks, December 1 – 3, 2011, in Limassol, Cyprus
Abstract
After the collapse of the Soviet Union, a large number of collective farms (kolkhozes and
sovkhozes) were transformed into agricultural production co-operatives. After two
decades, most of these production co-operatives are still in operation. Although they face
problems as regards e.g. wage levels, profitability and productivity, they are strong in
many regions of the Russian Federation and within many types of crops. The continued
existence of such agricultural production co-operatives puzzles many Western
economists. This paper attempts to provide an explanation in terms of the history of
Russian co-operatives in the agricultural sector and of the institutional settings, i.e. the
legal and administrative environment of the cooperatives.
Key words
Russia, agriculture, production co-operative, kolkhoz, collective farm
*
Svetlana Golovina is Doctor of Economic Science, Professor of the Chair of Economic Theory, Pro-rector of the
Kurgan State Agricultural Academy, Ketovo district, Kurgan region, Russia 641300. E-mail: [email protected]
†
Jerker Nilsson is professor of agricultural co-operatives and marketing, Department of Economics, Swedish
University of Agricultural Sciences, P.O. Box 7013, SE-750 07 Uppsala, Sweden, as well as Department of Work
Science, Business Economics and Environmental Psychology, Swedish University of Agricultural Sciences, P.O. Box
53, SE-230 53 Alnarp, Sweden. Phone: +46 18 67 17 68. E-mail: [email protected]
‡
Corresponding author
§
Axel Wolz, Research Associate, External Environment for Agriculture and Policy Analysis, Leibniz Institute of
Agricultural Development in Central and Eastern Europe, Theodor-Lieser-Str. 2, D-06120 Halle (Saale), Germany,
Phone: +49-345-29 28 114. E-mail: [email protected]
1
Introduction
In the former Soviet Union, agricultural production was conducted within large collective
farms, some of them organised as ‘co-operatives’ (kolkhozes), while others were under
direct state ownership (sovkhozes) (Domar, 1966). In 1990, on the eve of transition,
agricultural production in Russia was carried out by approximately 12,800 kolkhozes and
13,000 sovkhozes. On average, each of these farms controlled about 7,800 hectares of
agricultural land with 320 permanent workers. They organised animal husbandry in a
similarly large-scale manner. However, there was also an important household production
sector comprising about 14 million rural households which provided a significant
proportion of food (Uzun, 2008).
With the collapse of the socialist regime in countries in Central and Eastern Europe
(CEE) and the break-up of the Soviet Union, agricultural economists argued that
decollectivisation could lead in only one direction, namely a transformation into private,
family farms, which over time have shown their dominance all over the world (see
Schmitt, 1993, for a review). In particular, it was argued that the type of organisation
which would emerge in agricultural production in a competitive environment would be
highly influenced by transaction costs, i.e. the costs of acquiring information, monitoring
and supervision, and enforcing contracts (Ollila, 1999). Since agricultural production is
largely determined by natural conditions and only to a smaller extent by individual
efforts, it is not only costly to monitor workers but also difficult to assess the contribution
of each worker to the overall performance. So it would be difficult to hand over these
tasks to employed workers (Allen and Lueck, 2005). The same reasoning could also be
applied in agency theory. The principal (e.g. the owner of a farm) would not trust any
agent (e.g. worker), as agents cannot be fully controlled and, hence, have the option of
cheating and free-riding.
In most CEE countries and in Russia, the newly installed governments followed policies
which promoted individual farming. However, when looking at the organisation of
agricultural production in these countries today, the outcome is different. In some
countries, such as Estonia, Albania, Romania and Armenia, all collective farms were
dissolved and transformed into family farms. In most CEE countries, however, the
structure became polarised, with transformed and decollectivised large-scale farms on the
one hand, and family farms including small-scale semi-subsistence farms on the other.
Even in East Germany, where family farming was heavily supported after unification,
this organisational form has not come to dominate (Wolz et al., 2009).
In Western countries, especially in North America, there has been a trend for the creation
of huge agricultural enterprises during recent decades. The concept of ‘industrialisation
of agriculture’ has become widespread (Boehlje et al., 1995). This development is due to
the introduction of new production technologies, which are more efficient. A parallel
development has been the introduction of new management tools, such as profit sharing,
outsourcing and contracting, which make it possible to achieve an alignment of the
interests of the various participating actors – the financiers, management, the labourers,
etc. The large-scale agricultural enterprises in Russia and the CEE countries to some
2
extent use the same technologies and management tools, which help them to become
more efficient. Nevertheless, this does not explain the existence and success of the
agricultural production co-operatives in these countries.
During the early 1990s Russia embarked on an agricultural reform process which
involved institutional changes that broke sharply with the Soviet past. The reforms were
intended to make Russia’s agriculture economically competitive. ‘In place of collective
farms, smaller, specialised farms using family and hired labour were expected to emerge
as the backbone of Russian agriculture’ (Wegren and O’Brien, 2002, p. 9). However, as
in most CEE countries, large-scale landholdings still persevered. While a number of these
were later dissolved, many were in general transformed into newly registered agricultural
production co-operatives, limited liability companies or (closed) joint-stock companies.
Many reasons have been suggested in analyses of the Russian situation.
While neo-classical economists refer to the unfavourable macro-economic environment,
institutional economists emphasise the lack of markets and limited political support,
which gave weak incentives for private individuals to start farming on their own.
Amelina (2000), in a comparative study about decollectivisation in the regions of
Leningrad and Saratov, stresses the role of regional governments in fostering or slowing
down the process. In addition, it has been argued that collective farm directors used all
types of strategies to prevent members from getting any ideas about becoming
independent farmers. These directors had a strong interest in maintaining the pre-reform
status quo, which guaranteed them access to income, local power and prestige (AllinaPisano, 2008).
After two decades, the production co-operatives still play a significant role in Russian
agriculture. This study seeks to provide some explanations. First, there might be
historical reasons why the Russian agricultural sector is characterised by collective action
to a large extent. Second, the political and administrative processes after the breakdown
of the Soviet Union may provide some understanding of why this type of farm enterprise
was developed. Thus the study explores the historical and institutional background
behind today’s agricultural production co-operatives within the Russian Federation.
The study is structured as follows. The next section reports about the early agricultural
co-operative movement in Russia, i.e. before the collectivisation process. The relative
success of the present-day production co-operatives can, at least partly, be explained by
historical developments. The next section comprises an account of the legal and
institutional framework, under which agricultural production co-operatives are working
in these days. This is followed by a discussion about the development of agricultural
production co-operatives after the collapse of the Soviet Union, their structure and
operations and main directions of their transformation into other organisational forms.
The last section presents some conclusions.
3
Co-operatives in the Russian agriculture – a historical overview
Co-operative operations in Russia have a history of more than a century (Chayanov, 1991
[1919]; Kotsonis, 1999). Many forms of collective action in the spheres of production,
services and living conditions were initiated because of the necessity to overcome the
difficulties caused by a severe climate, difficulties in agricultural production and extreme
economic, political and social conditions. The development of co-operative societies in
Russian agriculture usually accelerated during periods when production was
individualised, i.e. at the end of the 19th and start of the 20th century (Stolypin reform),
within the NEP (New Economic Policy) years (during the 1920s) and during the last
reforms (from the end of the 1980s).
Experiences from human collaboration have been collected over centuries. Obshina
(village community), artel, skladchina and mutual aid are some pre-co-operative forms
of collective action in Russia. An artel is a small voluntary association of individuals
who come together for a limited or indefinite period for the purpose of performing some
economic activity. The members invest labour, tools and even capital. The creation of the
first formal co-operative societies was a reaction of the emancipation of serfs and the
advent of legally free peasants (1861). The first society was set up in 1866, but was soon
followed by hundreds of others (Kotsonis, 1999). Due to the growth of industry, banking
and trade and expansion of commodity-money relations in villages in particular, rapid
development of the co-operative movement took place during the last decade of the 19th
century (Podgorbunskih and Golovina, 2005).
The number of agricultural co-operatives in Russia in 1917 amounted to 47,787,
including credit co-operatives (16,055), consumer societies (20,000), agricultural
societies and associations (8,132), butter-making (3,000) as well as handicraft and other
types of artels (600) (Table 1). At that time, Russia had the second highest number of cooperatives in the world after Germany.
Table 1. Development of co-operatives at the beginning of the 20th century in the
Russian Empire (number of co-operatives)
Type of co-operative
1901
1914
1917
Growth, 1901-1917 (times)
Credit co-operatives
837
13,839
16,055
19
Consumer societies
600
10,000
20,000
33
Agricultural societies
137
5,300
6,032
44
-
1,300
2,100
-
51
2,700
3,000
59
-
520
600
-
1,625
35,875
47,787
29
Agricultural associations
Butter-making artels
Handicraft and other artels
Total
Source: Thach, 2003, p. 56.
With the advent of markets and trade, peasants as individuals as well as their associations
were in need of access to financial services. As a result, credit co-operatives were set up
in Russian villages. This co-operative form provided financial aid to rural workers in
4
order to reduce their dependence on private (urban) banks. While this type of cooperative had also been set up in urban areas, the vast majority of them operated in rural
areas.
Simultaneously, consumer societies were established to provide necessities at the lowest
price to villagers. These co-operatives were owned by their customers for their mutual
benefit. Consumer co-operation was widely adopted in rural Russia during that historical
period. The sales operations were typical for consumer societies. At the end of the Tsarist
regime, this type of co-operation was the most popular form in Russia.
Agricultural societies were co-operatives designed to convey knowledge to practising
farmers and their associations. Local leaders formed the organisations for the purpose of
exchanging information and promoting agricultural improvements. Specialist societies in
beekeeping, poultry farming, dairying, flax cultivation and other areas were popular.
Agricultural associations were co-operatives for different joint operations in agricultural
production, such as collective tillage and harvesting, in order to cut labour peaks.
Membership of such a co-operative permitted villagers to carry out difficult agricultural
operations together. In general, they not only provided labour but also agricultural and
household equipment.
Already during the latter half of the nineteenth century, butter-making artels were set up.
During a few decades this form of cooperation extended from the European part of
Russia to Siberia. As a result, in 1906 Russia was the second largest exporter of butter in
the world (after Denmark), while in 1914 Russia’s exports of butter made up about 25%
of the world market. Besides ensuring a reliable source of farm income, these cooperatives as well as handicraft and other artels provided additional sources of
employment and income to the rural population. In addition, handicraft artels promoted
the development of homecraft in rural areas.
The October Revolution in 1917 resulted in fundamentally different organisational forms
in agriculture. At that time Russia was still a rural country, with about 90% of the
population associated with agriculture. After the nationalisation of all agricultural land,
peasants received more than 160 million hectares (about 5 hectares per family).
Nevertheless, farmers had insufficient assets and livestock for successful production. In
1921 the New Economic Policy (NEP) was proclaimed. It introduced market relations in
all spheres of economic life and had a critical impact on co-operative development. The
main purpose of the NEP was the restoration of the agricultural sector by means of cooperatives. The new legislation (‘About small cottage industry and agricultural cooperation’, 17 May 1921, and ‘About agricultural co-operation’, 16 August 1921)
brought significant changes to the development of co-operation. The success of the cooperative movement in the 1920s was a result of the introduction of basic co-operative
principles, such as voluntary and open membership, democratic decision-making and
control, active participation by members, a spirit of mutual aid and collaboration.
5
The co-operative organisations were established in order to implement the new economic
policy. Therefore the political leadership took measures to spread co-operation to all parts
of the economy. Co-operative enterprises were promoted by financial support from the
government and every possible privilege. Permits for free trade, tax concessions and
cheap credit were instrumental for the development of co-operatives. Good trading
warehouses, low railway and water tariffs, low rent rates and prioritised acquisition of
consumer and industrial goods were granted to the co-operative organisations. Due to this
support, different forms of co-operatives such as agricultural associations, communes and
artels appeared in the villages and their numbers rapidly increased (Table 2).
Table 2. Development of agricultural co-operatives and their related associations in
the Soviet Union, 1922-1925 (thousands)
Types of co-operative
1922
1923
Agricultural co-operatives
22.0
31.2
of which agricultural associations
5.0
5.3
of which communes
1.9
1.8
of which artels
8.4
6.8
others
6.7
17.3
Regional agricultural unions
1.8
2.4
Associations in agricultural production, processing and marketing
4.7
4.3
Multi-purpose agricultural associations
7.0
10.4
Total
35.5
48.3
Source: Results of Soviet Authority Decades in Figures: 1917-1927, pp. 419-423.
1924
37.9
4.6
1.5
7.4
24.4
3.0
4.3
17.0
62.2
1925
54.8
4.6
1.8
8.8
39.6
9.1
8.6
21.9
94.4
In the Soviet era the terminology in agricultural co-operation changed to a certain extent.
Thus an agricultural association was the simplest form of production co-operation, with
consolidated land and labour, but private property rights to the means of production. The
principle of income distribution was connected to labour inputs and family size.
An agricultural commune was a form of production co-operation with the joint use of
capital, labour and land. These were created on the confiscated land of landlords and
monasteries and used egalitarianism as a principle of income distribution – the
distribution of income was equal per head. The former agricultural workers became
members. The first commune with eleven families was created in the Kostroma region on
280 hectares of land.
An agricultural artel represented a specific form of collective establishment with
distribution of income according to labour input. The members of artels had their own
houses and personal household plots of limited size. Gradually, the artels became the
basic and later the unique form of co-operation in agriculture. The term ‘agricultural
artel’ lost its meaning and in relevant legislation the term ‘collective farm’ was used
instead.
In addition, different forms of loose co-operation among farmers were statistically
recorded under the category ‘others’. These forms of co-operation had no specific name.
Their number increased rapidly up to the mid-1920s.
6
Finally, three other forms of associations comprised agricultural production cooperatives at secondary or higher levels. They were formed according to the location,
specialisation or organisational form of their member organisations. In specific terms,
regional agricultural unions were umbrella organisations for all production co-operatives
in a specific region. Associations of agricultural production, processing and marketing
operated in joint processing and marketing of agricultural products. Multi-purpose
agricultural associations evolved on a voluntary basis and included different cooperatives irrespective of location, specialisation and size. All these higher forms were
established not only to promote agricultural production, but also to lobby for the interests
of production co-operatives and their members. By the end of 1926, about 7.8 million
peasant farmers had become members of co-operatives.
Towards the end of the 1920s, the curtailment of the NEP policy and complete
collectivisation radically changed the traditional methods of management and the
organisational forms of agricultural production. Collective farms became the basic model
in organising agricultural production. Other forms of organisation and co-operation in
agriculture were gradually liquidated. Hence, communes, artels and agricultural
associations were transformed into collective farms. The supply and marketing functions
were transferred to state companies. Instead of various forms of agricultural co-operatives
as recommended by the Russian co-operative pioneer Chayanov, only collective farms
(kolkhozes) were introduced, and this by legal force.
Legally, the collectivisation of agricultural production was based on two decisions,
namely ‘About rates of collectivisation and measures of the help of the state to collectivefarm building’, adopted in 1930, and ‘About rates of the further collectivisation and
problems of strengthening of collective farms’, adopted in 1931. In 1932 collectivisation
comprised 59.3% of agricultural production, in 1937, 92.6%, and in 1940, 96.6%. On
average, a collective farm comprised 68 farmers, 485 hectares of arable land, 72 head of
cattle, 28 pigs and 139 sheep and goats.
During the following decades the collectivisation process continued, leading to an
amalgamation of collective farms. In addition, many of them were transformed into state
farms. At that time, Soviet politics and economic science regarded co-operative forms of
agricultural production as a temporary, transitional and relatively minor phenomenon.
With respect to daily management there was almost no difference any more. Agricultural
production co-operatives did not apply any of the characteristics or general principles of
co-operatives. In conclusion, during the Soviet period neither form of enterprise exhibited
any progressive development. None of them applied democratic principles but were
managed “top-down”.
A new stage in co-operative development started during the second half of the 1980s. The
government had recognised the necessity of smaller production systems that could adapt
to changes in consumer demand more quickly and more flexibly, satisfy household needs
in small-scale production and offer a wide range of services more quickly and more
effectively. This policy change resulted in the law ‘About co-operation in the USSR’ in
1988.
7
While the law referred to all sectors of the economy, it had a particular effect on
agricultural production. In general, a certain number of workers (families) on collective
and state farms could form a co-operative and rent land and equipment for a certain
specified amount of output. Any surplus could then be disposed of autonomously (Islam,
2011). By mid-1990, about 2000 new agricultural production co-operatives had been
registered (Table 3). On average, a co-operative comprised 78 hectares of agricultural
land, including 50 hectares of arable land. As an average over the year, they had 10
members. Almost all co-operative societies had a tractor and a lorry, while one in five
had a combine harvester. On average, the co-operative farms had 19 head of cattle, more
than 30 pigs and about 40 sheep.
Table 3. Number and size of newly established agricultural production co-operatives
in Russia, 1 July 1990
Economic region
Number of
production
cooperatives
Northern
107
Northwest
81
Central
279
Volgo-Vjatsky
71
Central-Chernozem
76
Volga region
22
North Caucasian
533
Ural
216
West-Siberian
282
East-Siberian
130
Far Eastern
229
Russian Federation
2026
Source: Goskomstat USSR, 1991.
Average size of co-operatives in terms of:
agricultural arable
number
basic
livestock,
land, ha
land,
of
production
head
ha
members
assets,
cattle pigs
thousands
of roubles
58
118
50
40
72
104
37
169
142
103
24
78
20
67
37
34
60
87
18
123
89
39
8
50
10
13
9
7
9
9
11
11
12
9
10
10
106.1
297.6
62.2
40.7
73.0
55.3
43.2
87.0
84.9
64.8
95.1
77.8
12
87
18
5
42
11
5
21
30
35
16
19
60
19
30
21
6
25
16
41
20
23
63
31
In general, these newly formed agricultural production co-operatives were closely linked
to the state and collective farms. Most of their assets were rented from them. In 1990 they
hired about 38% of the tractors, 42% of the combine harvesters, and 64% of the animal
houses. A large number of cattle were also leased. About 43% of the total number of
cattle (including 50% of dairy cows), over 70% of sheep and 26% of pigs were rented. In
addition, these newly formed co-operatives received inputs and raw materials from the
collective and state farms. In return, they sold large amounts of their agricultural products
to the former enterprises: 53% of grain, 43% of potatoes, 64% of vegetables, 59% of
meat and 66% of milk (Agibrov et al., 2005).
The newly formed agricultural co-operatives adapted to the local conditions by
specialising in a variety of agricultural activities, but generally in more labour-intensive
activities. In plant growing they focused on potatoes, vegetables, seeds of grains and
perennial grasses, sprouts, flowers and mushrooms. In animal husbandry they focused on
8
dairy, cattle fattening, pigs, sheep and poultry. Moreover, the co-operatives developed
beekeeping, fur farming and fish farming. The co-operatives’ largest shares in overall
production were in breeding and fattening of cattle (39.6%), potatoes and vegetables
(16.6%), and honey and fish production (14.6%) (Agibrov et al., 2005).
Legal and institutional framework for agricultural production cooperatives
With independence and the abolishment of the socialist regime in late 1991, the
organisation of agricultural production in Russia had to be put on an adapted legal basis.
Particularly during the early 1990s, the government was promoting the set-up of private
farms. In addition, the socialist state and collective farms had to be re-organised or, in
other words, transformed into market economy-compatible organisations. The resolution
of the Russian Federation from 29 December 1991, ‘About an order of reorganisation of
collective and state farms’ made the future transformation compulsory. However, it took
a few years until new types of agricultural production co-operatives were legally
accepted.
This necessary legal basis was laid down in three laws. The business of production cooperatives is regulated by Part 1 of the Civil Code of the Russian Federation, which is a
federal law effective from 30 November 1994. The legislative base for all types of
agricultural co-operatives functioning in Russia is the federal law ‘About agricultural cooperation’, effective from 15 November 1995. When it comes to agricultural production
co-operatives the federal law ‘About production co-operatives’, effective from 10 April
1996, provides the legal framework. Each successive law (as listed) concretises
legislative aspects gradually: first, for all cooperatives (Part 1 of the Civil Code of the
Russian Federation), second, for all types of agricultural co-operatives (‘About
agricultural co-operation’) and, finally, for agricultural production co-operatives (‘About
production co-operatives’).
These three laws regulate the organisational structures and the activities of production
cooperatives. In line with the law ‘About agricultural co-operation’, two principal types
of agricultural production co-operatives can be distinguished, namely agricultural and
fishing artels (labelled collective farms) and co-operative farms (labelled koophoz). In a
koophoz, members are not allowed to contribute their land and manage it jointly.
However, this type of co-operative did not actually function at all. Hence, the law ‘About
production co-operatives’ does not mention this division any more. In practice, only
agricultural production co-operatives (or artels) are operating in the Russian Federation.
In order to be registered, a co-operative’s name must contain the words ‘production cooperative’ or ‘artel’. The expression ‘production co-operative’ covers a broad range of
activities. These activities may comprise any type of production and processing of
agricultural products, trade, consumer services, or rendering of other services. As a rule,
the name co-operative comprises the more general ‘agricultural production co-operative
(SPK)’. Production co-operatives may sometimes add the word ‘kolkhoz’ to their name.
9
As stated in Russian law, production co-operatives are voluntary associations of citizens
who join for the sake of conducting joint production or other economic activities based
on their personal labour as well as their investments in shares in the co-operative. A
production co-operative is formed according to the founding members’ decision. The
minimum number of founding members is five. There is no maximum limit. The Civil
Code of the Russian Federation admits members of varying legal status, but the bylaws
must state the requirements in each specific co-operative. When a former collective farm
was transformed into a production co-operative, it was the workers themselves who made
this decision without interference from government or anybody else. In these cases the
decision was made according to a simple majority vote. The minority who were against
the proposal either had to comply and become members as well, become employees of
the newly formed co-operative, or look for other employment.
According to the federal law ‘About production co-operatives’, there are three types of
members. First, there are the people who work in the co-operative. The co-operative
society is an organisation where people collaborate voluntarily. The second type of
membership consists of persons who are not working in the co-operative. These members
may be involved in financing or the provision of various resources, including premises
and vehicles. They have the right to participate in the general assembly and even have an
obligation to do so. They may be elected as directors, to an auditing committee, or to the
supervisory board. The third kind of members is legal entities. These operate in the cooperative through representatives. Their participation is the same as for members who do
not work in the co-operative. The second and third group of members are not required,
but their number should not exceed one-quarter of the total number. The bylaws may
contain requirements concerning the members’ personal labour inputs.
The legal status of the second and third categories of members differs from that of
working members. First, they are obliged to invest in two types of shares, namely in basic
and additional shares, thereby compensating for their lack of labour inputs. The size of an
additional share is stated in the bylaws or another documents, for example the minutes of
a general assembly. Second, these members receive only a profit dividend, which
depends on the amount of shares they have. The working members have stronger rights.
In addition to their wages, they have the right to receive part of the annual surplus (if
any), which is not only related to the amount of shares they own, but also depends upon
the quantity and quality of their labour. Hence, co-operative societies use specific labour
input ratios to define the members’ contribution of labour.
The control system for co-operatives is similar to that provided by Civil Code of the
Russian Federation for all commercial organisations. There must be a general assembly
as the supreme body and a board as the executive office, a chief executive officer (the
chairman of a co-operative society), and a body of control (an auditing committee). A cooperative may also have a supervisory board if the number of members is more than 50.
There is, however, a difference between co-operative societies and other commercial
organisations. In production co-operatives the general assembly or the supervisory board
10
consists of members who are workers, and all have one vote irrespective of the shares
they own and the office they hold.
The assets of a co-operative comprise the share capital paid in by the members, the
profits from co-operative activities, credits and other sources. A co-operative society’s
equity capital consists of members’ shares, but there may also be unallocated capital
(‘indivisible funds’). The existence of the unallocated capital makes co-operatives
different from other business organisations. The indivisible funds are often appreciated as
they give the co-operatives a more stable financial status. These funds may be used for
investing in industrial, scientific and technical assets to improve agricultural production,
but also for improving living and working conditions of the working members, e.g.
building new houses. Part of the indivisible funds may be transferred to the reserve fund
intended for covering losses.
Each co-operative decides for itself how its equity capital should be composed. A cooperative does not have a fixed capital stock, as the legislation does not require the
founders to provide a specific minimal amount of equity at the time of establishment.
This is especially important for people whose limited wealth does not allow them to
invest in joint stock companies, for example. The minimum size of a co-operative’s
equity capital is defined by its share capital, which consists of the money that the
members have paid in.
The financial surplus that a co-operative earns, if any, is distributed (after discharge of
taxes and other obligatory payments) between working members according to their
labour participation and amount of shares, and between members who are not working in
the co-operative only according to their investment in the cooperative. Additional
surpluses may also be used for housing, educational and cultural activities, social security
and other purposes specified by the bylaws.
The decision about enrolling a new member must be made by the general assembly on
the bases provided by federal legislation and the co-operative’s bylaws. The new member
has to buy a share in the co-operative. The size of share (both basic and additional, if
required) paid by the members may differ according to the time of joining, i.e. when the
co-operative is just being established or at a later stage. This has to be stated in the
respective bylaws. The shares may be paid for in different ways, such as in cash,
securities and other assets (for example, buildings, premises, equipment and vehicles),
rights of use of buildings or results from intellectual activities. At the time a co-operative
is registered or when a working member joins it, at least 10% of the share capital must be
paid in. The remaining amount must be paid within a year of state registration. The other
two categories of members have to pay their entire share capital immediately when they
become members. Land and other natural resources may also constitute a share. The fact
that the membership fee can be paid with assets other than money is a consequence of
how the assets of the former collective farms were distributed among the working
members at the time of transformation.
11
According to the civil legislation, the property rights to the assets belong to the cooperative as a whole. The member owns his or her share, but the decision-making power
about how the co-operative assets will be used lies in the hands of the co-operative’s
leadership. The co-operative can cultivate land, which is either brought by its members in
share funds, transferred to it in rent or redeemed by the co-operative society. In the first
and third cases the land becomes the property of the co-operative.
Among the obligations that members have to the co-operative is their personal liability,
i.e. they have to cover the co-operative’s debts if there are no other assets. This rule is
intended to give members an incentive to care about the co-operative’s future and to
create more stability with respect to the co-operative’s financial status. According to the
Civil Code of the Russian Federation and the federal law ‘About production cooperatives’, the amount of the members’ liability is decided by the respective bylaws. It is
possible to link this amount to shares in a certain proportion, for example half a share or
one-third. The legal demands are quite flexible.
When a member wants to exit, this does not require any approval from the general
assembly. The withdrawal must be accepted only by the board or by some other body,
according to the respective bylaws (where a co-operative has no board). If the exiting
member wants to remain as a hired worker, it is possible to employ him or her. According
to law, a member can be expelled if he or she has violated the bylaws or in other ways
caused damage to the co-operative. The bylaws may state other reasons for expulsion, in
particular if a working member without valid excuse does not involve himself or herself
in the labour, when a part-time working member does not accept the obligation to work,
or when a legal member does not buy additional shares.
When the members exit from the co-operative, as a rule they get their invested share
capital redeemed from the co-operative in monetary terms, though at face value. This
occurs under the condition that the co-operative has sufficient liquidity. Alternatively, the
exiting member may get the redemption in land or other assets. In general, there will be a
negotiation between the member and the co-operative about the conditions. However, up
to now, not many have considered revoking their membership.
The transformation and development of agricultural production cooperatives
As the socialist types of farms had to be re-organised, members had the option to start
their own private farms. In addition, they could choose to convert their farms into
transformed agricultural production co-operatives or another type of agricultural
enterprise, i.e. joint-stock or limited liability companies. The early resolution of the
Russian Federation from 29 December 1991, ‘About an order of reorganisation of
collective and state farms’, provided the rationale. In general, a re-organisation into
agricultural production co-operatives was recommended. In this way, it was possible to
split up the production means into smaller units within a reasonably short period.
12
However, it took some years before the necessary laws with respect to agricultural cooperatives became effective.
In line with the three laws discussed above (especially the law ‘About production cooperatives’), new co-operative societies could be registered. In general, two types of
agricultural production co-operatives can be distinguished. One type was set up from
scratch, while the other was the transformed entities of the former collective and state
farms. Depending on origins, they had different sources and volumes of equity. In the
former case the total equity was made up of the paid-up share capital of the members. In
the latter case the equity was transferred from the former collective or state farm. The cooperatives created after transformation from existing firms had initial advantages
compared with co-operatives starting afresh. They had production means available at the
outset, as a rule did not change the production orientation, and had fewer problems with
staff, supplies of resources and marketing of products.
In line with the two types of agricultural production co-operatives, the necessary steps for
their formation were as follows. When members of collective farms or workers on state
farms wanted to establish a new (usually small-scale) co-operative from scratch, they
generally received support from these organisations. After approval by the general
assembly, the land could be transferred to those members as either jointly used and
owned, or jointly used and individually owned property. The ownership of the land was
transferred free of charge. The average area of land for each member in the former
enterprise was calculated through a division of the total land area by the number of
workers, including other employees and pensioners of the respective enterprise.
Additional plots of land were available for purchase. If newly established co-operatives
needed a larger acreage, they could obtain that as rented land with the right to purchase it
later.
With respect to the transformation of former collective and state farms into agricultural
production co-operatives based on voluntary membership, a specific pattern had to be
followed. When the owners of the land and the property shares (i.e. members and
workers of former collective and state farms) wanted to establish a co-operative, they
informed the enterprise’s privatisation commission that they wanted to use their shares as
an entrance fee to the transformed co-operative. The privatisation commission took care
of the case and allocated a corresponding part of land and assets. However, there was no
clear pattern. Former collective and state farms could be transformed into one successor
enterprise or into various smaller entities. Similarly, they could be transformed into a
different legal entity, such as joint-stock or limited liability companies. Some were closed
down and split up into family farms (which are not regarded as agricultural enterprises in
Russian legal terminology).
Statistically, agricultural production co-operatives are grouped together with joint-stock
and limited liability companies under ‘agricultural enterprises’. Besides this group of
farms, there are private farmers and household producers. Since the early 1990s the
number of agricultural production co-operatives has increased, but it has also fluctuated
13
over time (Table 4). Unfortunately, the statistical records do not differentiate between
newly set-up and transformed agricultural production co-operatives.
Table 4. Number of different types of agricultural enterprises in the Russian
Federation (1995-2009)*
Type of agricultural enterprise
Production co-operative
Open joint-stock company
Closed joint-stock company
Limited liability company
Other enterprises
Total
* data from 1 January in each year
Source: Rosstat, 2010.
1995
10,838
1,963
2,716
3,953
7,423
26,893
2000
11,620
1,987
2,870
5,133
5,990
27,600
2006
11,348
1,769
2,679
5,332
4,145
25,273
2007
8,892
1,582
2,133
7,598
3,764
23,969
2008
8,134
1,494
1,861
8,686
2,805
22,980
2009
7,262
1,461
1,776
9,420
2,563
22,482
Within the group of agricultural enterprises, the proportion of agricultural production cooperatives has fluctuated during the last decade, not only in total numbers but also as
concerns market share (Table 5). While the market share increased rapidly during the
early years of the decade, it gradually declined thereafter. One reason may be the decline
in the total number of agricultural production co-operatives, while limited liability
companies expanded. Particularly during the last years, investments by agro-holdings in
agricultural production are predominantly pursued through limited liability companies.
Table 5. Market share by type of agricultural enterprise in the Russian Federation
(1995-2009), % *
Type of agricultural enterprise
Production co-operative
Open joint-stock company
Closed joint-stock company
Limited liability company
Other enterprises
Total number
* data from 1 January in each year
Source: Rosstat, 2010.
1995
32
4
22
28
14
100
2000
33
4
18
31
14
100
2006
35
6
11
39
9
100
2007
36
7
10
39
8
100
2008
33
7
11
41
8
100
2009
33
6
11
42
8
100
However, on analysing agricultural production co-operatives in more detail, their
economic position is not very impressive. The number of workers employed and the
value of fixed assets have fallen, mainly because of lack of capital and land (Table 6).
This decline is even more pronounced in comparison with other types of agricultural
enterprises. Actually, agricultural production co-operatives have improved their position
as concerns overall production value and the value of fixed assets. At the start of the
period 1995-2009, many cooperatives were loss-making. In 2002 only 41.3% of the
cooperatives made a profit. Low profitability and inefficient utilisation of assets and
labour were the major problems. These problems continued to exist during the following
years (Minakov, 2007).
The contribution of agricultural production co-operatives to overall national production is
relatively modest. On average, household producers provided about 55% of total
14
production during the last decade. Another 4% is provided by private farmers, while the
rest is produced by the group of agricultural enterprises (Wegren et al., 2008; Uzun,
2008). A similar pattern can be observed in the Kurgan Region. Here, for instance, the
375 agricultural enterprises account for 32.2% of the volume, while 1973 family farms
account for 7.3%, and the 190,000 household growers produce no less than 60.3% of the
gross agricultural output (Golovina and Nilsson, 2009).
Table 6. Development of agricultural production co-operatives in Russia, 1995-2009
Characteristic
Number of production co-operatives
Aggregate number of members, thousands
Share of production co-operatives in Russian
agriculture, %
measured as number of enterprises
measured as number of members
measured as value of fixed assets
measured as value of agricultural commodity output
Source: Rosstat, 2010.
1995
10,838
2354
1997
11,590
2182
2002
12,336
1691
2009
7,261
813
40.3
35.2
31.4
26.7
42.9
38.2
33.7
30.2
51.0
44.0
44.6
31.4
32.3
26.1
27.2
33.1
Looking at their regional distribution, agricultural production co-operatives can be found
in all eight federal districts (‘okrug’), but they are not spread evenly all over the country.
Statistical data about the regional distribution of agricultural production co-operatives are
not published annually. The most recent data available published by the Statistical Office
(‘goscomstat’) of the Russian Federation refer to 2004. The regional distribution of their
numbers and their respective proportion of the total number of agricultural enterprises are
shown in Table 7. The largest proportion of agricultural production co-operatives is
found in the Federal District of Volga (55.8%) and Central Federal District (51.6%). In
the North-western Federal District the proportion amounts to 43.2%, while in the Ural
Federal District it is just 35.3%.
Table 7. Number of agricultural production co-operatives in different Federal
Okrugs of Russia (2004)
Federal Okrug
Central
North-western
Southern
Volga
Ural
Siberia
Far-Eastern
Russian Federation
Source: Ministry of Agriculture, 2005.
Number
% of total
3525
775
1725
3837
600
1437
601
12,500
28.2
6.2
13.8
30.7
4.8
11.5
4.8
100
% of the number of
agricultural enterprises
51.6
43.2
37.6
55.8
35.3
38.1
41.3
46.1
When looking at the regional level below the federal districts, agricultural production cooperatives may constitute the most dominant type of agricultural enterprise. Thus, in the
Nenets Autonomous Okrug they account for about 88.5% of all agricultural enterprises,
15
in the Brijansk region 80.3%, in the Kirov region 70.8%, in the Tver region 64.0%, and in
the Chuvash Republic 68.0%.
With respect to their proportion of total agricultural production, agricultural production
co-operatives seem to have specialised in certain crops and livestock activities. In 2004,
they were especially important in the production of basic commodities (Table 8). Their
proportion of gross production of grain was 38.7%, sugar beet 42.1%, sunflowers 42.2%,
potatoes 27.6%, vegetables 20.0%, livestock and poultry 21.9% and milk 40.8%.
Table 8. Contribution of agricultural production co-operatives to Russian
agricultural production, % (2004)
Federal District
Grain
Sugar
beet
Central
47.3
45.1
North-western
46.2
Southern
28.9
22.9
Volga
50.3
57.6
Ural
25.6
Siberia
30.3
46.7
Far-Eastern
49.3
Russian Federation
38.7
42.1
Source: : Ministry of Agriculture, 2005.
Sunflowers
47.4
33.5
56.8
20.5
51.7
42.2
Potatoes
29.6
16.1
27.4
39.1
15.9
16.5
21.4
27.6
Vegetables
18.8
8.6
27.5
16.6
28.6
13.7
22.9
20.0
Livestock.
poultry
21.9
14.7
14.9
33.0
10.4
20.2
17.2
21.9
Milk
44.1
31.4
27.0
54.2
24.2
30.0
30.3
40.8
At federal district level, agricultural production co-operatives play an important role in
the Volga area. In addition, they play an important role in the Federal District of Central
Russia. At the regional level, agricultural production co-operatives are the dominant crop
producers in some specific areas. For example, they contribute 84.7% of the total grain
production in the Republic of Kalmykia, 79.5% in the Kirov region and 68.8% in the
Novgorod region. With respect to sugar beet, agricultural production co-operatives in the
Samara region contribute 89.0% of total production, in the Ulyanovsk region 85.6% and
in the Tambov region 75.4%. Concerning sunflower production, they contribute 91.7% in
the Tula region.
The relative contribution of agricultural production co-operatives to animal husbandry is
low in comparison with crop production. However, in each federal district there are
regions where they produce a large proportion of total meat and milk production. For
example, their contribution to cattle and poultry production is 80.0% in the Nenets
Autonomous Okrug, 66.3% in the Kirov region and 60.3 % in the Tambov region.
Concerning milk production they contribute 96.7% of the total in the Republic of
Kalmykia, 73.5% in the Kirov region and 73.2% in the Tambov region.
16
999999999999999999999999999999Conclusions
Russia’s experience with agricultural co-operatives is a unique case. Even at the end of
the Tsarist regime there was a strong co-operative movement. However, during that time
and particularly during the Soviet period, agricultural co-operatives were not so much
self-help organisations as instruments of government policy.
After the collapse of the Soviet Union, a large number of the collective farms (kolkhozes)
and state farms (sovkhozes) were transformed into agricultural production co-operatives.
In addition, new agricultural production co-operatives were set up from scratch. After
two decades, most of these production co-operatives are still in operation and play a
significant role in agricultural production. Even though they face problems as concerns
e.g. wage levels, profitability and productivity, these firms are strong in many regions of
the Russian Federation and within many types of crops. Given the prevailing conditions,
the development of production co-operatives was a positive experience in Russian
agriculture.
The production co-operatives in Russian agriculture must be considered to have relatively
poor prospects. They are subject to structural obstacles, which means that it might be
difficult for them to become efficient. The financial strength of existing co-operatives is
low, so their investment ability is poor. The co-operatives are characterised by low
efficiency and profitability. The members have limited financial resources. Most cooperatives use outdated techniques and technologies and they have difficulties in getting
necessary quantities of inputs such as fertilisers, seeds, fuel and forage.
In conclusion, agricultural production co-operatives play an important role in agricultural
production in Russia. However, their development path is unique and closely linked to
the economic, social and political situation in Russia during the last 150 years. Hence,
they can be no role model for other countries.
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