An Analysis of the Development of Farmers' Professional Cooperatives with Chinese Characteristics

Over the past decade, as central and local governments have increasingly strengthened their support for farmers' professional cooperatives, the development of rural cooperative undertakings in China has entered a track of rapid growth. The development of farmers' cooperative economic organizations, represented by farmers' professional cooperatives, has shown an accelerating trend, becoming a new highlight in the institutional innovation of China's agricultural management organizations. Especially since the Third Plenary Session of the 18th Central Committee, the central government has continuously elevated the functional positioning of farmers' professional cooperatives and paired this with clearer, stronger signals of fiscal support policies, guiding the development of cooperatives to exhibit an ultra-high-speed “blowout” phenomenon. According to the latest statistics from the State Administration for Industry and Commerce, as of the end of April 2014, the number of farmers' professional cooperatives registered with industry and commerce authorities nationwide exceeded 1.1 million, with registered capital reaching 2.23 trillion, continuing to maintain a high-speed growth trend.

According to preliminary statistics from the Department of Rural Economic Management of the Ministry of Agriculture, the development of farmers' professional cooperatives has achieved full coverage of the agricultural industry, with crop and livestock farming predominating, accounting for more than 70% of the total. Although there are various doubts in society and academia regarding the quantity and quality of the development of farmers' professional cooperatives, and there also exist in reality a large number of “fake, empty, dead”① cooperative phenomena, what is indisputable is that after nearly a decade of great development, the important role of farmers' professional cooperatives in the rural economy has become increasingly evident. The overall service functions of cooperatives have been continuously strengthened, and the comprehensive nature of service content, the professionalization of service levels, and the integration of service methods have become major trends in the organizational development of farmers' professional cooperatives.

I. The Position of Farmers' Professional Cooperatives

(1) An important vehicle for improving the basic rural management system and exploring ways to realize unified management

The characteristic of China's agricultural management entities is the ultra-small scale of production and operation. In the process of advancing agricultural modernization, how can the vast number of farming households, which are mainly engaged in family-based operations, be guided to participate in the modernization process? This is not merely an economic issue, but also a political one. The Third Plenary Session of the 17th Central Committee proposed that “the two-tier management system based on household contract management and combining unified and separate operations is the basic rural management system that adapts to the socialist market economy system and conforms to the characteristics of agricultural production. It is the cornerstone of the Party's rural policy and must be upheld unswervingly.” However, how to realize unified management remained an unresolved issue for a long time. The rural reality is that within the traditional rural collective economy, a “two-tier economy” has already formed, rather than “two-tier management”②.

In villages where cooperatives have developed well, cooperatives have innovated the two-tier management system combining unified and separate operations, replacing the original village collective to realize unified management above the level of household farming, overcoming the institutional defects of household management, improving the allocation of production factors for farming households, and enhancing the market competitiveness of farming households.

Currently, the main methods by which cooperatives carry out unified management fall into the following three types. First, members produce and manage on separate households, while the cooperative provides one-stop socialized services from planting to harvesting. That is, “(farming households) produce at home, and services are provided at the (cooperative).” Member households retain their original contracted management rights unchanged and continue to engage in agricultural production on their original contracted land, but the purchase of inputs such as seeds, fertilizers, and pesticides, field production management services such as plant protection and irrigation, and product harvesting and sales are uniformly provided by the cooperative③. Some stronger cooperatives have also registered their own trademark brands. Through the cooperative's unified management services, the scale purchase of inputs by dispersed farming households or the shared use of agricultural facilities, as well as the scale sales of agricultural products, are realized, reducing the production and operation costs of farming households and achieving economies of scale. In particular, contiguous land cultivated uniformly and plant protection carried out uniformly not only improve land utilization rates but also reduce environmental pollution.

Second, farming households contribute their contracted management rights as shares, and the cooperative manages uniformly. Farming households contribute their contracted land as shares to the cooperative, and the cooperative hires production and operation personnel to carry out unified planning of the land contributed by members, unified selection of planting varieties, unified production management, and ultimately unified product sales. Member households completely withdraw from the production and operation sphere. The cooperative's net income is distributed as dividends according to the land contributed by members. To increase the enthusiasm of farming households to join, cooperatives usually pay in advance in currency or in kind as land rent according to the original income from the farming households' land, and give priority to arranging willing members to work at the cooperative. In recent years, this form has become one strongly promoted by some local governments. For example, in the Jinzhong area of Shanxi, the Yancheng area of Jiangsu, and Haixi Prefecture of Qinghai, as investigated by the research group, local governments have formulated dedicated policy provisions in promoting the development of local farmers' professional cooperatives to encourage farming households to contribute land (grassland) as shares to develop cooperatives.

Third, farming households contribute land as shares, subcontract the operation, and the cooperative provides intermediary services. Farming households contribute their contracted land as shares to the cooperative, and after the cooperative consolidates the land, it uniformly contracts it out to members or leases it to other enterprises or large-scale farming households for contracted operation. The cooperative negotiates land use prices with the contracting party (or leasing party) on behalf of member households and signs contracts. The cooperative represents the interests of shareholding farming households, coordinates relations with land users, and safeguards the land lease income of shareholding farming households. At the same time, it also reduces the cost for large-scale farming households and leading enterprises to negotiate with individual farming households.

Through cooperatives to achieve unified management and develop large-scale land operations, there are two biggest differences from companies directly leasing farmers' land for large-scale operations. First, it better safeguards the dominant position of farming households as business entities and is conducive to maintaining social stability. The cooperative system maintains the position of farming households as owners of contracted land management rights. Under the company operation model, however, farming households that transfer their land only receive land rent income and cannot share, or can only very limitedly share in, the value-added benefits of land output during the contract period. Moreover, under the first two models in which cooperatives uniformly provide socialized services, it enables middle-aged and elderly laborers and sick or disabled farmers who are excluded from the labor market and find it difficult to leave the land and transfer elsewhere to achieve self-employment, which is conducive to improving the income levels of poor groups. Second, it is conducive to sustainable agricultural development and avoids the short-term behavior of companies. The profit-seeking nature of capital determines the short-term behavior of companies operating land, whereas farming households are the masters of land use rights. Especially after the Third Plenary Session of the 17th Central Committee proposed to “grant farmers more complete and guaranteed contracted land management rights, and the existing land contract relationship should remain stable and unchanged for a long time,” farmers' contracted land management rights have in effect been real rights. Therefore, farming households will pay more attention to the long-term usability of land and to sustainable development, thereby benefiting ecological and environmental protection.

In recent years, around land cooperation, a fourth form has emerged, namely joint-stock operation. The cooperative attracts agricultural enterprises to join, with farmers contributing land as shares and companies contributing cash as shares, and both parties bearing responsibilities and sharing returns according to their shares. The company usually handles the consolidation, planning, and development and operation of the cooperative's land, and pays farmers a “guaranteed dividend” (actually land rent) with reference to the level of land income of farming households before joining, and at the end of the year distributes dividends according to shares based on the cooperative's operating conditions. This type of cooperative is most typical in Hubei Province. Since 2010, Hubei Province has vigorously guided farmers to use land contract rights as shares to develop land shareholding cooperatives. By the beginning of 2011, the actual rural land transfer in the province exceeded 5 million mu, and “land shareholding cooperatives” became the transfer model that the province focused on promoting. In November 2011, Hubei Province also specifically issued the “Interim Measures for the Registration and Management of Farmers' Professional Cooperatives with Rural Land Contracted Management Rights Contributed as Capital,” resolving the issue of industry and commerce registration for such cooperatives. Regarding risk bearing, the land contributed by farming households bears limited liability up to the remaining contract period, which is an institutional breakthrough relative to the legal provision that farmers' contracted land cannot be disposed of as creditor's rights. To limit company power and protect farmers' interests, Hubei Province emphasizes farmers' controlling stake of no less than 51%, and stipulates that a farmer must serve as the chairman of the cooperative. Regarding this form, there are differing voices in both political and academic circles. Given that companies control key factor resources such as markets, talent, and capital, even if farmers hold a controlling stake in the cooperative, their voice is very limited. However, the emergence of this type of cooperative plays a positive role in improving land productivity in areas where large-scale labor transfer has occurred and land is extensively managed or even abandoned④. But there is also the potential risk that once the company goes bankrupt, farmers' income cannot be protected. Moreover, in some places, there are signs of people using this model to pressure farmers and force them off the land. Therefore, adhering to the voluntary principle for farming households joining cooperatives is the most basic and most fundamental effective means of protecting farmers' rights and interests.

(2) An important way to improve the agricultural industrialization operation model

Agricultural industrialization is the operational direction of modern agriculture. In the early 1990s, the government began vigorously promoting agricultural industrialization operations and consistently emphasized guiding companies and farming households to form interest alliances, putting forward the slogan “supporting leading enterprises is supporting farmers.” However, due to the buyer's monopoly structure in China's agricultural product market, the market positions of leading enterprises and farming households are unequal and vastly different. The result is inevitably enterprise control and farmer dependence; without mutual interdependence, an interest community naturally cannot be formed.

After cooperatives developed, the “company + farming households” model was gradually replaced by the “company + cooperative + farming households” model. Although the latter contains four different industrialization operation models, regardless of which form, all are improvements and refinements of the original model. (1) The refinement of the “company + farming households” model under cooperatives initiated by companies. It transforms the original short-term contract between the company and farming households into a long-term one. Through the cooperative as an organizational vehicle, the company and farming households strengthen their contractual relationship, achieving effective supervision of farming households by the company and self-supervision among farming households. (2) Farming households and companies both contribute shares to jointly establish a cooperative. The company solves the problem of guaranteeing the quantity, quality, specifications, and delivery time of raw materials or sources of goods, while farming households have a stable channel for selling agricultural products and basic guarantees for production and operation income. (3) Farmers establish their own cooperatives to connect with companies. The most prominent effect is the enhancement of bargaining power with companies. Through the collective action of cooperatives, farming households gain a voice and the right to choose for themselves in competition with companies. The company is merely a major customer of the cooperative, and the relationship between the two parties is essentially a buyer-seller relationship of free market transactions. (4) Farmers establish their own cooperatives, and the cooperatives build processing enterprises, realizing an agricultural integrated operation model with farmers as the main body of owners. It not only allows farmers to obtain income from primary agricultural product production but also extends the industrial chain to share in the value-added income from agricultural product processing. For example, the Beijing Aojinda Cooperative was initially a raw material supply base for Baihua Bee Products Company, and Baihua Bee Company purchased the cooperative's raw honey at 200 yuan/ton above market price. In 2008, with government support, the cooperative built a bee product processing production line to process on behalf of Baihua Bee Company, adding 500 yuan in net income per ton of raw honey on the original basis; in 2009, the bee products under the “Huatong” trademark registered by the cooperative went on the market, and the net income per ton of raw honey increased by 3,000 yuan; in 2011, sales of the cooperative's self-operated brand accounted for 30% of the cooperative's output; in 2013, the cooperative's “Huatong” trademark was rated as a famous trademark of Beijing Municipality.

This agricultural industrialization operation model with farmers as the main body of owners not only ensures that ordinary farming households can share in the profits from agricultural product processing and circulation links but also helps improve the market competition structure and represents an impact on the buyer oligopoly market structure of the agricultural product processing industry. From the perspective of enhancing and safeguarding farmers' interests, it provides a successful example for building a relatively ideal path of agricultural industrialization operation with Chinese characteristics.

(3) An important force in the construction of the agricultural socialized service system

The Third Plenary Session of the 17th Central Committee proposed establishing a new type of agricultural socialized service system. It called for building a new type of agricultural socialized service system that relies on public service institutions, takes cooperative economic organizations as the foundation, leading enterprises as the backbone, and other social forces as supplements, combining public welfare services and commercial services, and coordinating specialized services and comprehensive services.

From the perspective of institutional arrangements, carrying out agricultural socialized services with farmers' professional cooperative organizations as the vehicle has advantages that agricultural public service departments and private sectors do not have. It can effectively compensate for the shortcomings of agricultural public service departments and private sectors, forming a complete agricultural socialized service system in which the government, enterprises, and farmers' organizations mutually supplement one another. On the one hand, the membership composition of farmers' professional cooperative organizations has the characteristics of relatively strong homogeneity, concentrated production areas, and engagement in the same industry. The strong homogeneity of demand for technical services facilitates accurately targeting target groups in carrying out agricultural socialized services, carrying out agricultural socialized services at low cost, and achieving economies of scale. On the other hand, the goal of farmers' professional cooperative organizations is to serve members and be member-oriented. Members combine the roles of owner, promoter, and user in one, and the technical services provided by cooperatives reflect the demands of members as demanders, rather than the unilateral will of service suppliers or providers. Compared with public socialized service departments, it improves the effectiveness of services. Moreover, members are the owners of the cooperative and also the promoters and users of agricultural technology and services. This trinity is a special attribute that no other agricultural socialized service organization possesses. The economic interests of promoters and users are completely aligned, which is conducive to enhancing the effectiveness of technology promotion.

From the practice of recent years, through participating in the construction of the agricultural socialized service system, the role played by cooperatives in advancing agricultural modernization has gradually strengthened. First, it promotes the pace of modernization of agricultural inputs. The most prominent is the introduction and promotion of new varieties, new materials, new machinery, and new methods, popularized among members. At present, more and more farmers' professional cooperatives have directly established long-term technical cooperation ties with agricultural colleges and universities and research institutions, becoming important experimental grounds and frontier positions for the transformation of agricultural scientific and technological achievements and agricultural science and technology demonstration. For example, in Suning, Hebei, 15 cooperatives have become experimental bases for China Agricultural University, Shandong University, and other colleges and universities.

Second, it promotes the modernization of agricultural production management. It is closely linked with the modernization and large-scale production of inputs. The introduction of new varieties and new equipment requires matching production management techniques, thereby promoting the modernization and intensification of agricultural production management. Especially in the use of advanced large-scale agricultural machinery, cooperatives have played a positive role. In the research group's investigations in Yancheng, Jiangsu, Jinzhong, Shanxi, and Xining, Qinghai, it was found that whether in developed areas or less-developed traditional agricultural and pastoral areas, through cooperative land transfer, the effect of accelerating the promotion and use of medium and large agricultural machinery is obvious. In a survey of an agricultural machinery cooperative in Yancheng, Jiangsu, its operating range already spanned from Guangdong to Heilongjiang, greatly increasing the machinery utilization rate while also reducing machinery operating costs.

Third, it promotes the large-scale operation and brand building of agricultural products. As the intensity of cooperatives' unified production and operation increases, it brings about the standardization of agricultural product production, laying a solid foundation for building a traceability system for safe agricultural product production, and pushing agricultural product production and operation toward specialization and branding.