An In-Depth Analysis of the Institutional Logic of Farmer Cooperatives
I. The Logical Starting Point of Farmers' Cooperatives
From international experience, agricultural modernization is not necessarily linked to land concentration or large-scale land operation, nor does it require the elimination of small farmers and small-scale agriculture as a precondition. On the contrary, all major developed countries achieved agricultural modernization with a large number of small farmers, and some even with small farmers everywhere. In this process, the major developed countries mainly transformed small-scale family farming through the model of "family land management + farmers' cooperatives + a well-developed agricultural socialized service system," in which farmers' cooperatives serve as the bridge to agricultural industrialization and modernization (Li Shangyong, 1998). At present, all countries and regions that have achieved or largely achieved agricultural modernization have, without exception, promoted farmers' cooperatives and established well-developed agricultural socialized service systems to achieve agricultural industrialization and to connect "small-scale agriculture with the modern large market."
Why do so many countries and regions in the world (including Taiwan, China) adopt the form of farmers' cooperatives to achieve agricultural industrialization and agricultural modernization? This is determined by the economic development process of these countries (regions).
In the initial stage of a country's economic development, that is, the early stage of industrialization, the industrial sector's own accumulation is limited, and it is difficult to achieve rapid development relying on such accumulation. Therefore, the whole society transfers the value surplus of the agricultural sector to the industrial sector, whether by violent or peaceful, overt or covert means. During this period, the agricultural sector relatively shrinks because it has lost its value surplus accumulation. In the second stage of economic development, the value surplus of the industrial sector increases substantially, and it gradually becomes able to develop rapidly relying on its own accumulation, thus no longer needing agricultural surplus, and the two sectors develop in parallel. However, due to long-term "blood loss," the development level and speed of the agricultural sector are greatly lower than those of the industrial sector, and the rural economy lags far behind the urban economy, forming the so-called "urban-rural dual structure." In the third stage of economic development, industry "nurtures" agriculture, and cities "nurture" rural areas. In this stage, industrialization has prepared not only the economic conditions but also the technical conditions for agricultural modernization. This is the historical and temporal starting point of agricultural modernization. At this starting point, people need to think about how to use modern science and technology, advanced means of production, and scientific management methods to transform traditional agriculture.
The nature of traditional agriculture is a self-sufficient natural economy, and small and medium-sized farmers adopting the family management form, due to their small production scale, weak economic strength, low degree of specialization, backward management, lack of market information, and low self-organization capacity, can only sell low-priced primary agricultural products and endure exploitation by middlemen. Facing increasingly fierce competition in the market economy, more and more small and medium-sized farmers are "marginalized" due to low operating efficiency. This is the fundamental reason for the "dual structure" between agriculture and industry, and between rural and urban areas, that commonly forms in the middle stage of a country's economic development.
In theory, there are two paths to transform the family management form of traditional agriculture. The first path is to "deprive small farmers" through violent or mild, compensated or uncompensated means, achieve large-scale land operation, and on this basis transform the production, technology, and management of traditional agriculture, gradually moving toward agricultural industrialization. The essence of this path is that excess capital from non-agricultural industries floods into agriculture on a large scale, triggering an agricultural industrial revolution, thereby eliminating the backward production methods of agriculture. This path was once widely prevalent in modern world history and made considerable progress, but its violent plunder, bloody and filthy character, and the disastrous consequences of large numbers of small farmers going bankrupt and being displaced were cursed and criticized from the very beginning. After entering modern history, bloody and violent "deprivation of small farmers" has been only an exception.
Another form of "depriving small farmers" was manifested in the "collective farms" of the former Soviet Union and "collectivization movements" such as our country's "people's communes." These "collectivizations" were realized through some specious "cooperatives." The biggest difference between these so-called "cooperatives" and internationally classic cooperatives is that small farmers' land and other means of production were deprived, and family management, together with the independence of small farmers, was eliminated by the "collective organization." History and practice have proven that the "collectivization" attempts of the Soviet Union and Eastern European countries and our country all failed, and agricultural production efficiency after "collectivization" was greatly reduced, making it impossible to embark on the path of agricultural industrialization.
The second path is manifested in the model of "family land management + farmers' cooperatives + a well-developed agricultural socialized service system," that is, on the basis of affirming the rationality of family management① and maintaining the independence of small farmers, transforming traditional agriculture and the family management form by helping farmers establish cooperatives and building a well-developed agricultural socialized service system. Its main feature is that small farmers' land property rights and other means of production are private, and land still adopts the family management form, but at this time family management is organized, the entire production has already become industrialized and socialized, and management has also become enterprise-based, with farmers' cooperatives as the intermediate bridge. The practice of agricultural modernization in major developed countries and moderately developed countries has proven that this is an effective path to agricultural industrialization and modernization that modern society and the market economy can accept and widely implement.
In the second path of transforming the family management form of traditional agriculture, farmers' cooperatives have solved two problems: First, they have achieved agricultural industrialization. Farmers' cooperatives organize scattered small farmers producing and operating the same type of agricultural products, either for unified sales or unified processing and sales, in order to seek more benefits. In order to improve and unify the quality of agricultural products, under normal circumstances, farmers' cooperatives conduct unified production quality management, for example, unified use of superior varieties, unified use of fertilizer and pesticides, unified adoption of advanced planting and breeding technologies, and so on. Under conditions where the agricultural socialized service system is relatively well-developed, small farmers maintaining family management can, through cooperatives, receive paid pre-production, in-production, and post-production services from agricultural service departments, such as unified plowing and sowing in the same area, unified field management, unified harvesting, and so on. When this operating model of farmers' cooperatives develops to a certain extent, it naturally forms and realizes the regional layout, specialized production, and serialized processing of agriculture, thereby achieving the goal of agricultural industrialization.
Second, they have raised farmers' income levels. Under traditional agriculture and family management conditions, scattered farmers can only sell primary agricultural products. All processing and circulation profits from primary agricultural product processing to wholesale and retail are far removed from farmers and are earned by processing enterprises, middlemen, and retailers. Due to the price relationships peculiar to the market economy, the prices of primary agricultural products are relatively low, while profits from processing to wholesale and retail are relatively substantial. Farmers' cooperatives can "take back" middlemen's profits through unified sales, and can also "take back" part of the processing and circulation profits through unified processing and sales. Through their unique benefit-sharing mechanism, farmers' cooperatives allow all members to share all the cooperative's profits, thereby raising farmers' income levels.
Take Biluochun tea from Taihu Lake in our country as an example. Biluochun is one of China's top ten famous teas, with its place of origin in the East and West mountains of Taihu Lake. Before 2004, tea farmers could only sell fresh tea leaves to out-of-town merchants, at only about 80 yuan per jin of fresh leaves. About 4 jin of fresh leaves can produce 1 jin of finished tea, whose price is 800-1000 yuan/jin. Each jin of finished tea had 480-680 yuan of profit游离 outside the tea farmers. In 2004, local tea farmers established a "Biluochun Tea Cooperative." After standardized production and brand-based operation, the cooperative purchased members' fresh leaves at 250-260 yuan/jin, and the price of finished tea reached as high as 2600 yuan/jin (Han Jun et al., 2006). This is to say that farmers' cooperatives, while improving tea quality, "took back" all the profits from tea planting and processing and most of the circulation profits.
It can be seen that for the process of agricultural modernization, the logical starting point of farmers' cooperatives is to enter the fields of agricultural product processing and circulation through certain means, and "take back" part or most of the profits from agricultural product processing and circulation, in order to raise the income levels of the broad masses of farmers.
Obviously, the historical role of farmers' cooperatives in the third stage of a country's economic development is to raise the income levels of the broad masses of farmers to the social average by elevating traditional family farming to the level of agricultural industrialization, helping the most backward part of the social economy keep up with the pace of the entire social economy, thereby raising the economic development level of the whole society.
II. The Institutional Logic and Institutional Requirements of Farmers' Cooperatives
The second path of transforming the family management form of traditional agriculture has a basic premise, namely, not depriving small farmers and keeping their family management form unchanged. This requires maintaining the independence of small farmers, that is, maintaining the private nature of their land property rights and other means of production, and maintaining their autonomy in family management of land. This means that small farmers produce agricultural products on their own land according to the production and technical requirements of the cooperative, then sell the agricultural products to the cooperative, receive their sales price, and finally share in the profits returned after the cooperative's unified sales or processing and sales.
Under this premise, it is obviously impossible to eliminate small farmers through the "survival of the fittest" mechanism of the market economy; otherwise, it would amount to depriving small farmers in another form. In fact, the original intention of adopting the farmers' cooperative system is to help small farmers increase income, not to eliminate, deprive, or abolish small farmers.
To satisfy the above conditions, farmers' cooperatives can only implement a "universal benefit system," that is, within the cooperative, all members share the cooperative's profits equally (but not evenly). What is embodied here is the "equality and fairness" principle of the cooperative economy, not the "efficiency" principle of the market economy. The efficiency mechanism of the market economy partially fails here. The cooperative economic principle determines the basic function of farmers' cooperatives, namely, "seeking profits for all members and letting all members share."
In order to guarantee the realization of the basic functions of farmers' cooperatives, a series of internal institutional arrangements are needed.
(1) Benefit sharing
The benefits that ordinary members can enjoy in farmers' cooperatives include: (1) The cooperative provides various paid and unpaid pre-production, in-production, and post-production services, such as credit services, means of production procurement, production technical guidance, and agricultural product processing and sales, and so on. Through these services, ordinary members enjoy the high efficiency of agricultural industrialization, reduce production costs (obtain cheap funds and means of production), and obtain the initial returns from agricultural products (that is, ordinary members sell agricultural products to their own cooperative and obtain sales returns). (2) Share in the cooperative's operating profits. Here, most profits are returned to members in proportion to their transactions with the cooperative (referred to as the "secondary rebate" or "patronage refund"), and the remaining profits are distributed according to members' per capita and capital shares.
In the benefit-sharing system, the most significant is the "secondary rebate," which is the main form by which ordinary members join the cooperative and share in processing and circulation profits.
Historically, the success of the cooperative system has been closely related to the institutional design of the "secondary rebate." The modern cooperative system is the inevitable result of the development of the commodity economy. As early as the late 18th and early 19th centuries, with the rise of the British Industrial Revolution, production became increasingly socialized, competition became increasingly intense, and disadvantaged groups emerged in large numbers. In order to survive, the disadvantaged were forced to organize and "huddle together for warmth." Thus, mutual-aid cooperative cooperatives emerged. However, most early cooperatives failed, including the penny capitalist cooperative in Ayrshire, Scotland, in 1769, the commercial cooperative of watchmakers in Vienna, Austria, in 1794, and the Fourier-type cooperatives of French utopian socialism around the 1790s.
The first successful cooperative in human history appeared in 1844. It was a cooperative organized by 28 textile workers in the small town of Rochdale, England. A series of outstanding institutional designs of this cooperative, including freedom of membership, democratic management, moderate return on capital, and secondary rebates, were later called the "Rochdale Principles," and these principles ultimately became the globally recognized cooperative principles (Zhao Kai, 2004). Among them, the "secondary rebate" is the benefit core of the modern cooperative system and the core principle determining whether a cooperative can succeed, be accepted by members, and achieve sustainable development.
(2) Limited accumulation
In order to realize a "secondary rebate" with practical significance (manifested as a large proportion), it is institutionally necessary to limit the cooperative's profit accumulation, that is, to limit the level of profit capitalization. Although profit accumulation can form "long-term interests," for farmers in economic distress, that is indeed too "distant." Farmers' cooperatives are designed to solve real problems, and their realistic goal is to solve farmers' current income-increasing problems. As a form of enterprise, farmers' cooperatives are designed for "current interests."
Of course, farmers' cooperatives also need a certain amount of profit accumulation for cooperative development, but their proportion of profit accumulation is strictly limited. Generally speaking, most of the after-tax profits of farmers' cooperatives are distributed to all members in the same year.
For example, Article 37 of our country's "Law on Farmers' Specialized Cooperatives" stipulates that the current year's surplus of a farmers' cooperative, after making up losses and withdrawing reserve funds, forms distributable surplus; more than 60% of the distributable surplus is used as the "secondary rebate"; the remaining part is distributed according to members' capital contributions and reserve fund shares (Standing Committee of the National People's Congress, 2006). If calculated according to the 10% statutory reserve fund ratio for ordinary enterprises in our country, the distributable surplus of farmers' cooperatives can account for 90% of the current year's surplus, of which the "secondary rebate" proportion is above 54%.
On the surface, our country's law does not stipulate the reserve fund withdrawal ratio for farmers' cooperatives, so if managers withdraw a large proportion of reserve funds, it is not considered illegal or non-compliant. However, the "one person, one vote" decision-making system of farmers' cooperatives can restrain this "accumulation impulse," avoiding deviation from the purpose of the cooperative system and harm to the interests of all members.
(3) Limiting dividends on share capital
The "universal benefit system" principle of farmers' cooperatives determines that they cannot distribute profits entirely according to capital share proportions like ordinary industrial and commercial enterprises. Therefore, farmers' cooperatives all adhere to the principle of "limited return on capital," that is, cooperative share capital can only obtain interest and not dividends, or can only receive dividends according to the average share method, and moreover, neither interest nor dividends can exceed the market interest rate level.
In the "Statement on the Cooperative Identity" adopted by the 1995 "International Cooperative Alliance General Assembly," the principle of "limited return on capital" is expressed as follows: "Members usually receive limited compensation, if any, on capital subscribed as a condition of membership" (International Cooperative Alliance, 1995).
The purpose of limiting dividends on share capital is to limit and avoid capital becoming dominant in the cooperative and to avoid capital enjoying excessive benefits at the expense of ordinary members' interests. Because if dividends on share capital are too large, the proportion of the "secondary rebate" based on transaction proportions will be reduced.
(4) Limiting major shareholders
In the "Statement on the Cooperative Identity," limiting major shareholders is expressed as: members contribute equitably to the capital of their cooperative.②
The purpose of limiting major shareholders is to prevent major shareholders from turning the cooperative into a tool for their own profit and thereby harming the interests of ordinary members. In places where small farmers' economic capacity is weaker, it is all the more necessary to restrict (but not completely prevent) major shareholders from joining the cooperative, and in particular to prohibit and strive to avoid major shareholders controlling the cooperative. For example, Article 17 of the Taiwan Cooperative Law stipulates that a member's subscription of share capital shall not exceed 20% of the total share capital at most (Taiwan Cooperative Law, 2002). In addition, in order to prevent the transfer of member share capital from forming major shareholders, farmers' cooperatives generally stipulate that "cooperative share capital cannot be transferred or can only be transferred to members of the cooperative."
Of course, the "one person, one vote" decision-making mechanism of farmers' cooperatives also plays a role in limiting the entry of major shareholders. For example, our country's "Law on Farmers' Specialized Cooperatives" stipulates that each major shareholder qualified to enter a farmers' cooperative, in addition to having one basic voting right, may also enjoy "additional voting rights," but at the same time stipulates that "the total number of additional voting rights of the cooperative shall not exceed 20% of the total number of basic voting rights of the cooperative's members," and "the charter may limit the scope of exercise of additional voting rights." This means that under any circumstances, the voting rights of major shareholders remain in an "absolute minority" and cannot influence the cooperative's election and voting results. Under the condition of strictly running the cooperative according to law and charter, major shareholders not only cannot control the cooperative for their own profit, but on the contrary may even suffer damage to their interests. This is because in the composition of cooperative members' returns (enjoying services, selling agricultural products, secondary rebates according to transaction proportions, distribution according to capital proportions, and per capita distribution), ordinary members tend to allocate a smaller proportion of profits "according to capital proportions."
For farmers' cooperatives in the initial stage of establishment, the author advocates "roughly equal share capital" or "roughly equal share capital among members of the same type." First, this is easy to operate; second, it can avoid unnecessary capital friction; third, it can effectively avoid the formation of major shareholder forces.
(5) The "one person, one vote" democratic management system
The democratic management system of farmers' cooperatives is the basic guarantee for realizing the basic functions of the cooperative and safeguarding members' rights and interests. It includes democratic elections, democratic decision-making, and democratic supervision, with the core being the "one person, one vote" electoral and decision-making mechanism.
This is very different from the "one share, one vote" electoral and decision-making mechanism of ordinary industrial and commercial enterprises (joint-stock enterprises). "One share, one vote" emphasizes the rights of capital and embodies the efficiency principle, with the purpose of safeguarding the maximization of capital returns; while "one person, one vote" emphasizes the rights of members and embodies the fairness principle, with the purpose of safeguarding the maximization of members' returns.
The reason for this is that farmers' cooperatives are cooperative unions of disadvantaged groups. This cooperative relationship determines that cooperative members have equal rights and status, and each member has the right to equally enjoy the various services provided by the cooperative and to equally (but not evenly) share in the cooperative's operating profits.
By the same reasoning, the supervision mechanism of farmers' cooperatives also requires that specific supervisory systems facilitate and benefit ordinary members in supervising the cooperative's operation and management. For example, Article 33 of our country's "Law on Farmers' Specialized Cooperatives" stipulates that 15 days before the annual regular members' meeting, the management body of the farmers' specialized cooperative shall prepare the annual business report, surplus distribution plan, loss handling plan, and financial accounting report, and make them available at the office location for members' inspection. In practice, some farmers' cooperatives further stipulate that members have the right to know about the cooperative's operation and management and financial revenue and expenditure, and if they have questions, they may inspect the cooperative's accounting books at any time.
III. Major Differences Between Farmers' Cooperatives and Ordinary Industrial and Commercial Enterprises
In order to guarantee the realization of the basic functions of farmers' cooperatives, externally it is necessary for farmers' cooperatives to be able to compete with ordinary industrial and commercial enterprises in the same industry in the modern large market and obtain profits. However, without government support, farmers' cooperatives themselves cannot achieve this. This is because farmers' cooperatives are very different from ordinary industrial and commercial enterprises.
First, the two differ greatly in function and nature.
The market economy is inherently prepared for ordinary industrial and commercial enterprises, and ordinary industrial and commercial enterprises are inherently prepared for capital. Ordinary industrial and commercial enterprises adopt the joint-stock form, are organized according to the "efficiency" principle of the market economy, are essentially the personified expression of capital, pursue the maximization of capital profit, and internally determine rights and interests according to the size of share capital.
Farmers' cooperatives are designed to solve the "three rural issues." Their institutional value and historical mission are to advance agricultural industrialization in the third stage of a country's economic development, "take back" most of the profits from agricultural product processing and circulation, and raise farmers' income levels to the social average. Farmers' cooperatives are organized according to the "equality and fairness" principle of the cooperative economy and are essentially cooperative economic unions in which disadvantaged groups "huddle together for warmth." Farmers' cooperatives themselves do not have a requirement for profit maximization, but they seek the maximization of members' interests. To this end, externally they pursue profit maximization for all members, and internally they distribute profits according to the "equality and fairness" principle. Therefore, all countries in the world define the nature of farmers' cooperatives as "non-profit organizations not aiming at profit," and use this as the basic basis for their enjoyment of government policy preferences.
Second, the two differ greatly in internal institutional arrangements.
Under market economy conditions, efficiency and fairness often contradict each other in a given economic form or economic entity and cannot be achieved simultaneously. The realistic solution is generally to uphold the "efficiency" of the market economy while supplementing it with other means to implement "fairness." The solution for agricultural industrialization and modernization is the same. When a country's economic development enters the "third stage," objectively two types of enterprise forms are needed to meet the different development requirements of the social economy. One type is ordinary industrial and commercial enterprises, which are organized according to the joint-stock system and meet the "efficiency" requirements of the market economy; the other type is farmers' cooperatives, which are organized according to the cooperative system and meet the "fairness" requirements of the social economy, in order to make up for the deficiencies of the market economy.
Due to the above-mentioned "division of labor," the farmers' cooperative system is inherently deficient in "efficiency":
(1) The "secondary rebate" and "limited accumulation" inevitably lead to insufficient self-accumulation of the cooperative, and "limiting dividends on share capital" is obviously not conducive to the cooperative's absorption of member investment, while "limiting major shareholders" is also not conducive to the cooperative's attraction of investment.
(2) The cooperative's management system lacks incentive mechanisms, because managers do not have residual claim rights. This inevitably reduces their enthusiasm for improving management and increasing efficiency, and at the same time may induce managers to shirk responsibility or turn to seeking hidden gains.
(3) In order to increase the opportunistic cost of managers, farmers' cooperatives implement supervision systems convenient for members, such as making operating and financial reports available for members' inspection and allowing members to audit accounts, which inevitably increases supervision costs.
(4) In order to safeguard members' rights and interests, cooperatives have established relatively democratic decision-making procedures, which inevitably reduce decision-making efficiency and increase decision-making costs. For example, our country's "Law on Farmers' Specialized Cooperatives" stipulates that decisions on major matters in production and operation activities shall be voted on by a members' meeting, and the number of attendees shall reach more than 2/3 of the total number of members, and more than half of the total voting rights of members shall be required.
Obviously, the lack of "efficiency" in the farmers' cooperative system is the premise for farmers' cooperatives to fulfill their "fairness" mission and is also the price they must pay for effective operation, and all of this is determined by the historical mission of farmers' cooperatives.
For the market economy, farmers' cooperatives lack "efficiency" and lose to ordinary industrial and commercial enterprises in the same industry at the starting point of competition, and therefore cannot "compete on an equal footing" with them. Therefore, farmers' cooperatives need the support of external economic forces in order to survive and participate in competition under market economy conditions. These external economic forces mainly come from two aspects: one is government support, and the other is social donations. What is of survival significance to farmers' cooperatives is government support, including legislative support, fiscal and tax policy preferences, credit and financial support, and organized government promotion, and so on.
IV. The Problem of Cooperative Fund Shortages and Solutions
(1) Government solution - government responsibility and obligation
As said earlier, a series of institutional arrangements of farmers' cooperatives, including secondary rebates, limited accumulation, limiting dividends on share capital, and limiting major shareholders, and so on, inevitably cause the problem of cooperative fund shortages.
In the development of farmers' cooperatives, some people believe that the problem of fund shortages can be solved by attracting major shareholders to join the cooperative. However, doing so faces a dilemma: if the "one person, one vote" decision-making mechanism is adhered to, it is very difficult to attract major shareholders to join; even if an "additional vote system" is implemented, this situation cannot be changed (in our country, major shareholders can obtain at most 20% additional votes of the total basic voting rights). Conversely, if the "one person, one vote" decision-making system is in fact abandoned and major shareholders are allowed by default to control the cooperative (which can attract major shareholders to join or establish cooperatives), then the basic principles of farmers' cooperatives will be destroyed, their basic functions (seeking profits for all members and letting all members share) will be difficult to realize, and farmers' cooperatives will exist in name only.
In fact, the basic functions of farmers' cooperatives determine that they will exclude and discriminate against major shareholders. Therefore, hoping to solve the problem of fund shortages by attracting major shareholders to join is unrealistic and unwise. Moreover, doing so confuses the difference between farmers' cooperatives and ordinary industrial and commercial enterprises and ignores the different functions of the two types of enterprises. In practice, it is very harmful.
According to the institutional logic of farmers' cooperatives, the problem of cooperative fund shortages should be solved by the government, including: (1) The government provides fiscal support, but this is necessarily very limited. (2) The government provides credit support, including encouraging commercial banks and rural credit cooperatives to issue agricultural support credit, providing special credit funds, interest subsidies and interest-free loans, and so on, but this is likewise limited. (3) The government provides financial support at the institutional level, mainly by opening restrictions on cooperative financial activities, such as allowing the establishment of "farmers' credit cooperatives" (so that they replace and regulate non-standard credit cooperative organizations such as the currently pilot "poor village mutual fund cooperatives"), and allowing farmers' cooperatives to engage in cooperative financial activities. This is the fundamental and long-term solution to the problem of fund shortages in farmers' cooperatives. It can both use rural funds to solve the fund shortage problem of farmers' cooperatives and fundamentally solve the long-standing problem of net outflow of rural funds "hurting agriculture."
(2) Establishing preferred shares
This approach is to establish preferred shares in addition to the cooperative's common shares. Common shares represent the status of members, according to which members enjoy rights, assume obligations, and share benefits in the cooperative. Preferred shares attract member investment with preferential dividends and represent members' investment beyond common shares. Investing in preferred shares can enjoy fixed returns higher than common shares, and priority in distribution and priority in compensation from the cooperative's residual assets, but has no voting rights and no right to participate in the cooperative's operation, management, and decision-making. Generally speaking, each member has only one common share, but may subscribe to several preferred shares.
Because the issuance scope of preferred shares is limited to members of the cooperative, its financing scale is limited, so it can only serve as an auxiliary means for the cooperative to solve the problem of fund shortages.
(3) Creating "new generation cooperatives"
The fund shortage problem of "classic cooperatives" is generally solved through farmers' credit cooperatives and the cooperative financial activities of farmers' cooperatives. However, if agricultural product processing adopts an enterprise operation model of high-value-added deep processing, then these usual financing methods are clearly insufficient, so other forms are needed to solve the fund problem. The "new generation cooperatives" that first appeared in the United States and later rose in Canada and other countries emerged in response to this need.
North Dakota in the northern United States is agriculture-based and has the lowest per capita income among the 50 U.S. states. In 1989, some people proposed that the state was not suitable for human habitation, that the population should be moved out, and that the land should be restored to its original buffalo habitat. In the early 1990s, some economic experts, local government agencies, rural financial institutions, and local farmers together organized a group of new-type farmers' cooperatives taking high-value-added deep processing of agricultural products as the entry point, known as "new generation cooperatives." In just a few years, these "new generation cooperatives" successfully raised the per capita income of local rural residents to the national average (Wang Zhenjiang, 2003).
These "new generation cooperatives" adhere to the basic principles of classic cooperatives, such as share capital coming from members, the one person, one vote democratic management system, returning profits to members, and serving members, and so on, but in the cooperative's share capital management system they draw on some practices of the joint-stock system.
(1) The cooperative requires members to subscribe to relatively high capital contributions. This is because high-value-added deep processing of agricultural products requires more funds, while the number of cooperative members is often limited. Under normal circumstances, cooperative share capital accounts for 40%-50% of the total capital of the cooperative's processing enterprise, and the amount per share is calculated according to a quota between the quantity of agricultural product processing and total investment. In the United States, the initial capital contribution is about 5,000-15,000 U.S. dollars. In order to avoid the major shareholder problem, they also limit members' capital contribution proportions.
(2) The cooperative's capital is relatively stable. On the one hand, this is because the operation of the processing enterprise needs stable capital support; on the other hand, stable capital is also conducive to the cooperative obtaining preferential bank loans. "New generation cooperatives" adopt a closed membership system, ensuring the stability of cooperative capital by restricting members from withdrawing. Under normal circumstances, members cannot withdraw at will, and the cooperative does not easily admit new members. The closed membership system is obviously very different from the open membership system of classic cooperatives (voluntary membership and freedom of withdrawal).
(3) Members enjoy delivery rights equivalent to their capital contribution amount. This means that the services members receive in the cooperative are equivalent to their capital contribution amount. However, this delivery right is both a right and an obligation. According to the rules, the quantity of agricultural products each member sells to the cooperative in the current year (current period) must be the same as the quantity specified by the delivery rights they own. More will not be accepted, and less will require compensation according to the size of the loss brought to the cooperative. On the one hand, this institutional arrangement guarantees the supply of raw materials (primary agricultural products) for the processing enterprise and reduces the adverse impact of raw material fluctuations on enterprise operations. On the other hand, it can effectively restrain members' opportunistic behavior. Because the cooperative pre-sets the current purchase price of agricultural products, fluctuations in market prices may induce opportunistic behavior by members (selling more to the cooperative when the market price is lower than the purchase price, and less when the opposite is true).
(4) Members' delivery rights can be transferred. There are two situations and two functions here. One is the temporary transfer of delivery rights. When a member's delivery rights quantity is greater or less than their own current-year agricultural product quantity, they need to transfer or purchase delivery rights. The temporary transfer of delivery rights solves the problem of members needing to "adjust surplus and shortage" due to fluctuations in agricultural product output, and objectively guarantees the stability of raw material supply for the processing enterprise.
The other is the permanent transfer of delivery rights, that is, transferring delivery rights by transferring share capital, which often requires recognition by the cooperative's management body (board of directors). This institutional arrangement actually provides the exit mechanism for "new generation cooperatives." The entry and exit renewal of cooperative members is in fact unavoidable, and for a cooperative to maintain vitality it also needs member renewal. Moreover, the open membership system of "voluntary membership and freedom of withdrawal" is also one of the basic principles of cooperatives. Therefore, "new generation cooperatives" need their own exit mechanism to make up for the deficiencies of the closed membership system. Of course, allowing share capital transfer also provides convenience and possibility for members to adjust their investment and operation scale in the cooperative.
Theoretically, if expected performance is good or there are undistributed profits, the transaction price of cooperative share capital (together with delivery rights) will be higher than its par value or original price, and the transferor of the share capital will obtain a premium return. At the same time, the transfer of share capital also means the transfer of operation and investment risks. These are clearly different from the provisions of classic cooperatives that share capital cannot be transferred or can only be transferred to members of the cooperative.
(5) "Secondary rebate" and "share capital dividend" are combined into one. The "secondary rebate" of "new generation cooperatives" is also carried out according to the proportion of members' transactions with the cooperative, but because members' delivery rights are equivalent to their share capital, the "secondary rebate" and "share capital dividend" of "new generation cooperatives" are combined into one. This situation can obviously effectively avoid the friction between rebates according to transactions and dividends on share capital.
V. Problems Existing in the Development of Farmers' Cooperatives in Our Country
Internationally, advancing agricultural industrialization and modernization through farmers' cooperatives has already achieved large-scale successful experience in developed countries and moderately developed countries. After the author deeply analyzed the nature and functions of farmers' cooperatives, it can even be said that so far, in ancient and modern times and in China and abroad, no system has been able to universally guide ordinary farmers toward prosperity, widely realize agricultural industrialization, and thereby guide the entire countryside toward agricultural modernization like farmers' cooperatives.
In our country, attempts to establish farmers' specialized cooperatives began in the mid-1990s. However, because mainstream society lacks a deep understanding of the nature and functions of farmers' cooperatives, even after the promulgation of the "Law on Farmers' Specialized Cooperatives" in 2006, the development of farmers' cooperatives in our country still struggles forward with many problems.
In September 2009, the author was invited to attend the mid-term report meeting of a key research project of the People's Bank of China Chengdu Branch (that is, the Sichuan Provincial Branch) and served as an expert commentator on the project. Their research project involved issues such as farmers' cooperatives, land circulation, and related financial support. The research scope of these projects involved over a thousand "cooperatives" in Sichuan Province, but from the research situation, those truly operating according to the "Law on Farmers' Specialized Cooperatives" were extremely rare. These circumstances are basically consistent with what the author learned from research in recent years. The author laments that most "cooperatives" in reality are unsatisfactory, far from the basic principles of cooperatives, and some are even diametrically opposed to the original intention of establishing the farmers' cooperative system.
To summarize, at present the main problems existing in the development of farmers' cooperatives in our country are as follows:
(1) Ordinary farmers find it difficult to establish cooperatives
International experience shows that the popularization and promotion of farmers' cooperatives in various countries have been realized through organized promotion by government agencies. The usual practice of governments is that local governments, through their relevant agencies (such as various agriculture-related agencies of grassroots governments), on the one hand carry out cooperative education and training to train specialized personnel and farmer backbone members for farmers' cooperatives; on the other hand, they send staff to directly help and guide farmers in establishing and managing cooperatives③.
For example, Canadian grassroots governments send staff to participate in the entire process of creating farmers' cooperatives. Before the cooperative is established, they help farmers organize meetings and guide and help the cooperative reach consensus and decide on the types of business activities. After the cooperative is established, they guide and help confirm members, formulate plans, seek resources, and conduct industry analysis. Through direct government support, farmers' participation can be significantly increased, and at the same time it is also conducive to improving the cooperative's internal operating mechanism in accordance with the law (Han Jun et al., 2006). In France, the Ministry of Agriculture, the Ministry of Labor and Social Affairs, and relevant associations all actively create conditions and provide conveniences for establishing farmers' cooperatives, including economic subsidies, technical guidance, and personnel training (Huang Bujun, 2003). In the United States, the initiation and establishment of "new generation cooperatives" mostly undergo full demonstration by relevant experts and have strong scientific nature, so the cooperatives established are more likely to succeed and have greater development potential (Wang Zhenjiang, 2003).
In our country, due to the lack of organized promotion by grassroots governments, farmers' cooperatives are currently in a situation of spontaneous survival. Although ordinary farmers (that is, pure planting or breeding households) are numerous and have a strong willingness to cooperate (Li Shangyong, 2008), they often lack funds, knowledge, and operational and management capabilities. In addition, their activity and organizational abilities are very limited, so it is very difficult for them to initiate and organize farmers' cooperatives themselves. Most of them can still only sell primary agricultural products and can hardly share in the processing and circulation profits of agricultural products.
On the other hand, our grassroots cadres (including urban district, county, and township cadres) generally lack basic knowledge of farmers' cooperatives and are almost incapable of correctly guiding local farmers to establish relatively standardized farmers' specialized cooperatives in accordance with the law (Li Shangyong, 2008).
(2) Large households and major shareholders control cooperatives, harming the interests of ordinary members
Because in rural areas, especially in relatively poor remote mountainous areas, disadvantaged small farmers find it very difficult to establish farmers' cooperatives, cooperatives at the initial stage of establishment often need wealthy capable people, large planting and breeding households, or village and group cadres to take the lead in initiating them. These "capable people" formulate operating rules for the cooperative, choose production and operation projects, provide start-up funds, organize agricultural product marketing, and manage the cooperative. Objectively speaking, without the active organization and participation of these capable people, large households, and major shareholders, it is hard to imagine that farmers' cooperatives could be established and effectively operated in poor mountainous rural areas.
The problems that arise in cooperatives established in this way can be divided into two situations.
One situation is that cooperative managers make selfless contributions, but it is difficult to sustain. This is mainly because the operation and management of some farmers' cooperatives rely mainly on the support of capable people and large households, who act from public spirit, do not count remuneration, and contribute without compensation. If the cooperative can emerge from the initial trough in a short period, win profits, and be able to pay the remuneration of these capable people and large household managers, then the cooperative will enter a track of healthy development; conversely, if the cooperative cannot emerge from the trough and has no profits for a long time to pay the remuneration of these capable people and large household managers, then the selfless dedication enthusiasm of these managers will be difficult to sustain. The resulting institutional pattern of "free riding" within the cooperative will ultimately lead to the disintegration of such cooperatives. In reality, the latter is more common.
The other situation is that large households and major shareholders control the cooperative, harming the interests of ordinary farmer members. At present, quite a few cooperatives are initiated and established by rural wealthy capable people, large business households, or various brokers. The capital contributions of these people often account for an absolute majority of the cooperative's shares, and some even have a single dominant share, becoming major shareholders of the cooperative. Correspondingly, these major shareholders naturally become the main members of the cooperative's organizational management body, and the one with the most shares often becomes the cooperative's legal representative and chairman.
If the cooperative's democratic management and decision-making system can operate normally, this "capable person-major shareholder body" might still be able to normally perform management and operational functions and bring ordinary members the actual benefits stipulated by the "Law on Farmers' Specialized Cooperatives." However, the problem is precisely that cooperatives initiated and established by "capable person-major shareholders" often lack a democratic foundation (ordinary farmers need to rely on "capable person-major shareholders" to profit, their status is low, and they have no foundation for striving for democratic rights), and the democratic management and decision-making systems of these cooperatives are difficult to operate normally and play a role. In most cases, the cooperative's statutory management body becomes a decoration, and major matters such as the cooperative's management affairs, business activities, and benefit distribution are basically all decided by the "capable person-major shareholders." In the vast majority of cases, the cooperative's supervisory body (supervisor or board of supervisors) does not function. Ordinary farmer members of the cooperative have few opportunities to truly participate in democratic management and democratic decision-making, and moreover, the more a decision concerns major interests, the less opportunity ordinary members often have to participate substantively.
In terms of profit distribution, it is rare for "secondary rebates" to truly be carried out according to the statutory proportion. The most common situation is that the cooperative's large marketing households purchase members' agricultural products at an agreed price or market price, and the subsequent marketing profits have nothing to do with members. Some cooperatives purchase at a price slightly higher than the market price, and the price difference is counted as a "secondary rebate." There are also cooperatives that have partial or symbolic "secondary rebates," but far below the statutory standard of "60% of distributable surplus."
In essence, these "cooperatives" are only enterprises of "capable person-major shareholders" (most of them should be registered as ordinary industrial and commercial enterprises), not farmers' cooperatives in the original sense. They cannot shoulder the historical task of farmers' cooperatives to "raise the income levels of the broad masses of farmers to the social average."
(3) Agriculture-related enterprises use cooperatives under false pretenses to obtain preferential policies
In recent years, the form of "company + farmers" has been mistakenly regarded by some people as a form of cooperative economy. In fact, "company + farmers" is essentially an enterprise behavior, not a form of cooperative economy. Those companies (enterprises) engaged in agricultural product processing and trade establish agricultural product raw material bases through the form of "company + farmers" to avoid the adverse impact of abnormal fluctuations in agricultural product supply, demand, and prices on their operations. Their usual practice is to establish stable supply and marketing relationships with farmers through orders (signing agricultural product purchase and sale contracts with farmers in advance).
"Company + farmers" is objectively conducive to farmers selling agricultural products, but because the company's profit distribution has no relationship with farmers, there is a lack of a common interest foundation between the company and farmers, making it difficult to establish long-term stable purchase and sale relationships. In reality, both sides may breach contracts because market prices greatly exceed expectations, and companies breach contracts more than farmers.
After the implementation of our country's "Law on Farmers' Specialized Cooperatives," some agriculture-related enterprises took a fancy to the government's preferential policies for cooperatives and therefore changed "company + farmers" into the form of "company (cooperative) + farmers." Among them, the situation of establishing cooperatives by absorbing farmers' land as shares is relatively typical. They generally adopt the following model:
(1) This type of cooperative is generally initiated by some agriculture-related enterprises or large planting and breeding households, who register as farmers' specialized cooperatives after accepting farmers' land as shares. The cooperative's capital investment and land operation are completely decided by the enterprise or large planting and breeding household itself.
(2) Farmers contribute the management rights of their contracted land as shares to the cooperative, but do not engage in planting, breeding, or other business activities on their own land, do not participate in the cooperative's operation and management affairs, and do not bear any of the cooperative's operating expenses. Farmers may work in the cooperative's land operation (such as planting and breeding) and receive labor remuneration.
(3) The annual income composition of farmers' land shares = land rent + year-end cooperative dividends + labor remuneration. For example, in Ya'an City, Sichuan Province, farmers' annual income is: land rent of 450-660 jin of yellow rice per mu, year-end dividends of 200 yuan per household, and labor remuneration of 30 yuan per day. However, farmers can only have the opportunity to work in these cooperatives during busy farming periods or when the cooperative lacks labor, so annual labor remuneration is not much.
From the essential attributes of farmers' cooperatives, the biggest problem with this type of so-called "cooperative" is that it completely "filters out" farmers: (1) Farmers in this type of cooperative lose the second aspect of farmer independence, that is, they completely lose the autonomy of family management of their own land. (2) Farmers do not have agricultural products they produce themselves, and therefore cannot conduct transactions with the cooperative. The "secondary rebate" principle is destroyed, and the main channel through which farmers participate in the cooperative to share in agricultural product processing and circulation profits is destroyed. (3) Because farmers lose the qualification to participate in the cooperative's production and operation activities, the principles stipulated by law for farmers' specialized cooperatives, such as "taking farmers as the main body," "taking serving members as the purpose," "democratic management," and "democratic decision-making," also lose their foundation.
In fact, according to their operating model, such "cooperatives" are essentially the "land leasing operation" commonly seen in the agricultural economy (their operating model is beyond reproach), except that they inappropriately adopt the form of "farmers' specialized cooperatives." According to relevant laws and regulations of our country, the industry and commerce department should register them as ordinary industrial and commercial legal persons, not cooperative legal persons.
Agriculture-related enterprises adopt the cooperative form mainly to extract the government's preferential policies for cooperatives. However, in doing so, they both undermine the fair implementation of cooperative preferential policies and infringe on the lawful rights and interests of genuine farmers' cooperatives, because these policy resources (such as fiscal support) are always limited.
In addition, this type of so-called "cooperative" is in fact "eliminating" small farmers, which runs counter to the purpose of farmers' cooperatives to protect and transform small farmers. Our country is a country with a large population and a prominent employment problem, and it certainly cannot achieve agricultural modernization by "eliminating" small farmers.
VI. Basic Approach to Solving the Problems
Obviously, the development of farmers' cooperatives in our country has two extremes: one is that ordinary farmers find it difficult to establish cooperatives, and the other is that a large number of "cooperatives" are deformed and seriously deviate from the requirements of the farmers' cooperative system. There are two reasons for the above problems: one is the absence of government and ineffective promotion, and the other is inadequate government supervision. Behind these two reasons are deeper issues of understanding and concepts, and behind these issues of understanding and concepts is the reality that our country's rural economic system seriously lags behind rural economic development.
In the early period of reform and opening up, in order to solve the problem of food, the current rural economic system of our country was formed through a bottom-up process. As a negation of the people's commune system, it was undoubtedly successful, but because it did not break away from the then-planned economy background and had no prior theoretical deliberation, the so-called current "two-tier management system" has great historical limitations.
With the gradual establishment of our country's market economy system and the deepening of the new rural construction, the broad masses of farmers will inevitably choose to organize farmers' cooperatives to share in agricultural product processing and circulation profits, and thereby promote the evolution of our country's rural economic system. Against this background, adopting the model of "family land management + farmers' cooperatives + a well-developed agricultural socialized service system" to advance agricultural industrialization and modernization can become a realistic choice.
Therefore, on the whole, the government should carry out rural economic system reform according to the requirements of the above agricultural modernization model, including reform of the rural collective economic system, transformation of township institutional functions, transformation of grassroots agricultural department functions, and so on, and all these reforms should aim at building a "well-developed agricultural socialized service system" and promoting the healthy development of farmers' cooperatives.