Analysis of Future Development Trends of Farmers' Professional Cooperatives
It has been more than eight years since the "Law of the People's Republic of China on Farmers' Professional Cooperatives" was promulgated. According to statistics from the Professional Cooperation Division of the Economic Management General Station of the Ministry of Agriculture, the number of farmers' cooperatives registered with industry and commerce departments nationwide has now reached more than 1 million. Today, farmers' cooperatives have become an important organizational vehicle for carrying out large-scale operations in China's rural areas and an important subject in building a new type of agricultural operation system. As the positive factors of farmers' cooperatives in the market economy are continuously recognized by the broad masses, a market-oriented and more advanced form of union——the farmers' cooperative union, has begun to emerge in grassroots practice. According to statistics from the Ministry of Agriculture, more than 6,000 farmers' cooperative unions have been established at the grassroots level in China.
Moving toward union not only reflects the broad farmers' demand for cooperation at a higher level, but is also an inevitable trend in the development of farmers' professional cooperatives. The Third Plenary Session of the 18th Central Committee of the Communist Party of China clearly proposed accelerating the building of a new type of agricultural operation system, and encouraging rural areas to develop cooperative economy and supporting the development of farmers' professional cooperative unions is also an inherent part of this. The No. 1 Central Documents of 2013 and 2014 also clearly proposed respectively "guiding farmers' cooperatives to carry out cooperation and union based on products and industries" and "guiding the development of farmers' professional cooperative unions." It can be seen that encouraging and guiding farmers' cooperatives to develop union and cooperation and to form farmers' cooperative unions has already established a guide to action at the national level.
Reasons for the Emergence of Farmers' Cooperative Unions
From cooperatives to unions represents the emergence of a new type of contractual relationship. The emergence of this contractual relationship inevitably enables certain potential profits within the organizational system to be realized.
Potential profit is a kind of profit that change agents cannot obtain under the existing institutional arrangement structure (which can be understood as a profit opportunity when institutions are in disequilibrium), and it is the fundamental driving force that induces actors and decision-making subjects to spontaneously compare costs and benefits and implement institutional innovation.
The contractual arrangements of farmers' cooperative unions enable potential profits that individual cooperatives cannot realize to be realized.
First, the contractual linkage mechanism among cooperatives enables the union to achieve economies of scale. Through certain contractual relationships, cooperatives achieve union and cooperation, which can make cooperatives "big," gather "strength," and become "solid," rapidly enhance the scale of production and operation, establish a foundation for negotiation with agricultural enterprises, and thereby obtain more profits in means of production, services, and products, realizing economies of scale that individual cooperatives cannot achieve.
Second, the contractual linkage mechanism within the union can internalize external economies. Within the union, cooperatives have reached a mutually beneficial contractual linkage mechanism. This contract includes both purely economic interest relationships among market subjects (called "explicit contracts") and mutual assistance mechanisms among rural communities, clans, and fellow villagers (called "implicit contracts"), thereby enabling the external economies generated when cooperatives provide products and services to other cooperatives to be rewarded within the union, realizing the internalization of external economies.
Third, the contractual linkage mechanism within the union can disperse the risks of individual cooperatives. The union unifies various types of cooperatives under the same institutional framework. While achieving complementary advantages, it can also reduce the uncertainty and disadvantaged position of individual cooperatives when facing the means of production market, technology market, agricultural product sales market, and financial market, achieving the purpose of dispersing risks.
Fourth, the contractual linkage mechanism within the union can save the external transaction costs of cooperatives. For example, the union organizes cooperatives along the upstream and downstream of products through vertical integration to form a community of interests, which can effectively reduce transaction costs between cooperatives.
Characteristics of Different Contractual Linkage Methods within the Union
According to surveys, there are currently four main types of farmers' cooperative unions in China: production-oriented unions, sales-oriented unions, industry chain-oriented unions, and comprehensive unions.
(1) Production-oriented unions. Production-oriented unions generally have the following characteristics: (1) they mainly produce a certain famous, special, and high-quality agricultural product of a certain region; (2) they actively absorb professional cooperatives of the same product to join, so as to reach a certain production scale as quickly as possible and obtain economies of scale; (3) they focus on improving the level of standardization, mechanization, and modernization of production, and attempt to carry out preliminary processing, direct supply and direct sales, and other businesses, extending upstream and downstream along the industry chain; (4) they require the leadership of professional cooperatives with outstanding operational strength and a good reputation, as well as the support of relevant government departments.
(2) Sales-oriented unions. Sales-oriented unions generally have the following characteristics: (1) they mainly engage in the production, rough processing, and sales of vegetables, fruits, and other agricultural products, and are close to terminal consumer markets; (2) they vigorously give play to the driving role of core member cooperatives and carry out business coordination of different depth and breadth with other cooperatives; (3) they actively stabilize sales channels through methods such as "farmer-cooperative direct linkage," and strive to sell the products of member cooperatives through fewer links and at better prices; (4) they focus on cultivating joint brands and subdivide and carry out differentiated marketing of the agricultural products of member cooperatives.
(3) Industry chain-oriented unions. Industry chain-oriented unions have the following characteristics: (1) production technology, management methods, sales channels, and so on rely on agricultural enterprises, and the professional cooperative initiated by the enterprise is the organizational core; (2) the enterprise is generally an agricultural means of production manufacturer or an agricultural product processing and sales enterprise, and needs to extend upstream and downstream along the industry chain to stabilize the sales of agricultural means of production or the purchase of raw materials; (3) the overall collaboration of the industry chain is close.
(4) Comprehensive unions. The characteristics of this type of union are: (1) rooted in traditional rural communities, with members distributed in a highly regional manner, mostly with counties and townships (towns) as boundaries; (2) members are mainly various types of cooperatives in the local area, and farmers, agricultural enterprises, and others are widely absorbed to join; (3) service content and forms are flexible and diverse, and the scope of business continues to expand according to their own needs, community needs, and market conditions; (4) members mainly obtain various services from the union and rarely engage in transactions with the union.
Insights and Reflections
By analyzing the contractual linkage mechanisms of existing farmers' cooperative unions in China, it can be found that the emergence of unions has profound institutional roots. From the establishment and development types of unions, the following insights can be drawn:
First, farmers' cooperative unions in China can achieve economies of scale and economies of scope at a higher level. This organizational form is an important component of China's modern agricultural operation system, and relevant departments should accelerate the introduction of support policies for farmers' cooperative unions.
Second, the differentiation of types of farmers' cooperative unions has its own internal economic laws. In response to the various types of unions that have already emerged, a policy of inclusiveness and classified guidance should be adopted. On the basis of respecting the initiative and creativity of the grassroots, farmers' cooperatives should be encouraged to widely carry out union and cooperation. Government departments should create favorable conditions and give unions a legal market subject status. Encourage unions to form close interest linkage mechanisms such as those of production-oriented unions; provide platforms for agricultural product display and sales and space for brand creation for sales-oriented unions; guide industry chain-oriented unions to innovate internal organizational linkage methods and encourage them to develop comprehensively in the direction of vertical integration and horizontal integration; orderly guide comprehensive unions to widely carry out various types of support services for agriculture.
Third, persist in placing equal emphasis on development and regulation, and combine supervision with support. It is necessary to effectively strengthen supervision and regulation, and prevent "signboard cooperatives" and "empty-shell cooperatives" that use the name of a union but do not engage in agricultural production and operation activities or fraudulently obtain state funding support from appearing in the field of unions.