What is the essential difference between a farmers' cooperative and an ordinary industrial or commercial enterprise?
There is an essential difference between a farmers' cooperative and an ordinary industrial or commercial enterprise. The main way to distinguish and identify the two is to look at how their economic interest structure is set up, and there are mainly two criteria: first, whether it has maintained household farming by farmers; second, whether it makes profits externally while being a "non-profit economic organization" internally. The former is the foundation of a farmers' cooperative, while the latter reflects the basic nature and function of a cooperative, namely that all of the cooperative's profits should ultimately be shared by all members. According to law, profit sharing is realized mainly through a large-proportion "secondary rebate" based on the transaction volume between members and the cooperative, as well as by providing members with free services such as technology, training and management. The "Qinglong Pig Breeding Cooperative" in Santai County, Sichuan Province is a typical example of a genuine farmers' cooperative; their institutional design is ingenious, simple and easy to implement, and leaves a deep impression.
I. There are not many farmers' cooperatives that truly deserve the name
According to a report in China Business Journal, by the end of February 2014, the number of registered "specialized farmers' cooperatives" in China had exceeded 1 million. However, both those in the industry and in theoretical circles are well aware that among such a huge number of "cooperatives," there are not many farmers' cooperatives that truly deserve the name.
In fact, the way to distinguish and identify a farmers' cooperative from an ordinary agricultural company is very simple: it is to look at how their economic interest structure is set up, and there are mainly two criteria: first, whether it has maintained household farming by farmers. Only by maintaining household farming can farmers have their own agricultural products to sell to the cooperative, and only then can they share in the profits after the cooperative's unified sales or processing and sales according to that sales amount (or sales proportion) (China's "Law on Specialized Farmers' Cooperatives" stipulates that the proportion of this "secondary rebate" "shall not be lower than 60% of the distributable surplus"). Without household farming, farmers also lose the qualification to participate in the cooperative's production and business activities, and the principles stipulated by law for farmers' cooperatives, such as "taking farmers as the main body," "taking service to members as the purpose," "democratic management" and "democratic decision-making," also lose their foundation.
The second criterion is whether it makes profits externally while being a "non-profit economic organization" internally. Unlike an ordinary industrial or commercial enterprise, "a farmers' cooperative itself has no requirement to maximize profits, but it seeks to maximize the interests of its members. For this reason, it pursues profit maximization externally for all members, and distributes profits internally according to the principle of 'equality and fairness.' Therefore, countries around the world all define the nature of farmers' cooperatives as 'non-profit organizations not aimed at profit,' and take this as the basic basis for their enjoyment of government policy preferences." Therefore, all the profits of a genuine farmers' cooperative must ultimately be shared by all members (this is realized mainly through a large-proportion "secondary rebate" based on the transaction volume between members and the cooperative, as well as by providing members with free services such as technology, training and management); on the contrary, if the cooperative brings exclusive profits to founders such as "capable people, large households and major shareholders," leading enterprises or various companies, then it is not a genuine farmers' cooperative.
In fact, these nominally "cooperatives" are all common "agricultural companies" and belong to ordinary industrial and commercial enterprises, while the so-called "cooperatives" with land contributed as shares are in fact "land-renting agricultural companies." These agricultural companies are all needed by the market economy. They have positive significance for organizing farmers, achieving the clustering of the agricultural industry, and carrying out agricultural industrialization. Even from the perspective of the farmers' cooperative system, their economic functions cannot be denied.
The actual mismatch lies in the fact that they should not be registered as "specialized farmers' cooperatives," but should be registered as ordinary industrial and commercial enterprises. Of course, as ordinary industrial and commercial legal persons rather than cooperative legal persons, they cannot occupy and enjoy the preferential policies of the state aimed at farmers' cooperatives.
There are four main reasons for this actual mismatch. (1) China's "Regulations on the Registration and Administration of Specialized Farmers' Cooperatives" do not stipulate the substantive requirements of farmers' cooperatives, such as the absence of the above-mentioned provisions on the "secondary rebate" and its proportion. In fact, the "Law on Specialized Farmers' Cooperatives" has already stipulated these substantive requirements, and as a supporting "registration and administration regulation," it is understandable that it does not "repeat" them. However, in specific registration affairs, the administrative departments for industry and commerce in various places in fact did not strictly distinguish genuine farmers' cooperatives from ordinary industrial and commercial enterprises in accordance with the "Law on Specialized Farmers' Cooperatives," which left loopholes for "fake cooperatives" that "intercept the state's preferential policies for farmers' cooperatives." (2) The procedures and processes of grassroots industry and commerce departments for registering farmers' cooperatives often refer to company registration and are simplified on that basis, lacking targeted procedures and systems, especially lacking an "annual inspection" system for determining genuine and fake farmers' cooperatives according to the above two substantive criteria. (3) Window staff of industry and commerce departments lack basic knowledge of farmers' cooperatives and do not understand the essential difference between a "cooperative legal person" and an "industrial and commercial legal person." Their understanding of farmers' cooperatives mainly comes from their understanding of companies, and therefore they do not have the ability to identify genuine and fake cooperatives. (4) In addition, the inadequate research and understanding of the farmers' cooperative system in mainstream economic theory is a more profound reason.
II. A typical example of a genuine farmers' cooperative
Faced with the reality that there are not many farmers' cooperatives that truly deserve the name, although the author is somewhat discouraged, I still hope to be able to discover such "rare" things as genuine cooperatives in the real world, so as to present them to the academic community. For this reason, the author (two researchers of farmers' cooperatives) conducted investigations in many places in Sichuan in early 2014, and satisfactorily and unexpectedly, during this period we discovered two typical examples of farmers' cooperatives that truly operate according to law and standards. The "Qinglong Pig Breeding Cooperative" in Santai County is one of the most typical.
The "Qinglong Pig Breeding Cooperative" is located in Qinglong Village, Liuying Town, Santai County, Sichuan Province. The cooperative was established in April 2008, with 23 initial member households, growing to 213 households in 2009, and in the past two years the number of members has stabilized at 328 households.
The cooperative satisfies the above two basic conditions of a genuine farmers' cooperative, namely that it has maintained household farming by farmers, and that the cooperative's profits are ultimately shared by all members. Calculated according to accounting principles, about 70% of the cooperative's distributable profits are "secondary rebates" based on the transaction volume between members and the cooperative; however, their "secondary rebate" is done very ingeniously, and is simple and easy to implement.
This is mainly manifested in two aspects. First, the cooperative directly leaves to members the price difference between the piglets and feed it purchases (the price at which members buy from the cooperative is about 10% lower than the market price); for large breeding households (200 to 300 pigs), the feed price difference alone generates about 40,000 to 60,000 yuan in "rebate" income in a single year. Second, the cooperative directly leaves to members the price difference in pig sales (the cooperative sells pigs under the "Qinghe" brand at about 5% higher than the ordinary market price). The "rebate" income formed by the sales price difference directly raises members' income level during periods when the pig market is good, and during seasons when the pig market is poor it plays a role in reducing losses and stabilizing production. A notable feature of the pig industry is that seasonal and annual market fluctuations are relatively large; only by being able to "withstand" losses when the market is sluggish can one possibly achieve relatively good profits during periods when the market is good.