How can cooperatives develop processing and move from small-scale operations to industrial integration
Editor's note: Farmers' cooperatives developing agricultural product processing is a trend in recent years, and it is of great significance for extending the industrial chain and value chain, promoting farmers' sharing of the value-added returns from processing and circulation, and advancing the integrated development of primary, secondary, and tertiary industries in rural areas. At present, among the 1.53 million farmers' cooperatives nationwide, more than half have moved from purely agricultural cultivation and harvesting links to integrated production, processing, and sales operations. However, due to limited funds, insufficient technology, and other reasons, cooperatives generally develop agricultural product processing at a relatively low level, and the value-added effect is limited.
“The ex-warehouse price is 2.5 yuan per jin.” On June 30, the last batch of crisp pears sent to the United Kingdom by the Yaohua Fruit Industry Professional Cooperative in Qi County, Shanxi Province, had just been transported from the controlled-atmosphere storage to the processing and packaging workshop. Looking at the workers sorting, preliminarily processing, and packaging, cooperative president Yan Weiyao said.
Last autumn, the field price of crisp pears once fell to 0.3 yuan per jin. After several months of storage and preliminary processing, the increase in income for members of the Yaohua Fruit Industry Professional Cooperative was self-evident.
The Yaohua Fruit Industry Professional Cooperative is a national demonstration unit for processing by farmers' cooperatives and a national demonstration cooperative of farmers' cooperatives. Over the past 10 years, the cooperative has blazed a path of integrating planting, preliminary processing, and sales. At present, annual domestic sales volume is 30 million jin, and international export trade is 20 million jin.
Cooperatives entering the processing field can extend the industrial chain and value chain and promote farmers' sharing of the value-added returns from processing and circulation. How far they can go and how to go further has become a topic facing cooperatives.
The “blue ocean” of cooperative development——gaining greater market space in the supply chain of the entire product
The Heyu Millet Professional Cooperative in Yushe County, Shanxi Province, and the Sanliwan Planting Professional Cooperative in Wuxiang County, which in the same year as the Yaohua Fruit Industry Professional Cooperative were among the first batch of national demonstration units for processing by farmers' cooperatives, independently chose the direction of extending from planting to processing and sales.
“Without processing, profits are too low, agricultural product prices fluctuate sharply, and life is very difficult.” said Wang Jianfu, president of the Heyu Millet Professional Cooperative.
Wang Jianfu's feeling reflects the survival reality of farmers' professional cooperatives. After years of development, after cooperatives played a principal role in realizing agricultural scale, modernization, and farmers' connection to the market, the status of primary agricultural product producers has already left many cooperatives struggling to make ends meet, and cooperatives have once again stood at a new historical starting point.
In China, the agricultural product processing industry is relatively backward. The ratio of the output value of the domestic agricultural product processing industry to agricultural output value is only 2.2:1 on average, while in developed countries it is mostly 4:1.
“Lying horizontally it is distance; standing vertically it is space.” said Li Yuefeng, director of the Agricultural Product Processing Bureau of the Shanxi Provincial Department of Agriculture. “The practice in developed countries is to encourage cooperatives to undertake processing, and by extending into the processing link to improve cooperatives' market competitiveness and profitability. This is also the direction for cooperative development.”
From 2014 to 2015, 22 cooperatives in Shanxi Province became national demonstration units for processing by farmers' cooperatives. This new model of agricultural industrialization operation, formed through cooperatives independently establishing processing and with farmers as the main body, shows obvious institutional advantages compared with the traditional “company + farmers” model. It breaks the situation in which companies monopolize the agricultural product processing industry and ushers in a new force for agricultural product processing.
Cooperatives undertaking processing have formed an independent short chain for the supply of the entire product from “producer (processor)—consumer,” freeing farmers from the situation in which they can only compete with upstream and downstream suppliers at nodes in the agricultural product supply chain. The benefit of doing so is that it both overcomes the inherent internal defects of primary agricultural products and shortens the distance to end consumers, thereby giving them greater room to maneuver in market competition.
This means that cooperatives undertaking processing have found a “blue ocean” for themselves.
Old shortcomings have become new difficulties in undertaking processing——inherently weak strength and insufficient acquired momentum
The Sanliwan Planting Professional Cooperative in Wuxiang County specializes in the production and processing of organic stone-milled flour, organic yellow millet, organic black millet, handmade dried noodles, coarse grain flour, and other products. The number of participating farmer households has reached 2,380, the planting base is 10,000 mu, and the processing base is 20,010 sq m.
“Everyone is at the simple preliminary processing stage.” said Cao Jianming, section chief of the Agricultural Product Processing Section of the Jinzhong Municipal Agriculture Bureau. The basic situations of the Sanliwan Professional Cooperative and the Yaohua Fruit Industry Cooperative confirm this point.
The proportion of processing-type cooperatives in Shanxi Province is very small. Most engage in simple preliminary processing, and only about 2% engage in higher-level processing. Due to a late start, among cooperatives engaged in agricultural product purchasing, storage, preservation, packaging, preliminary processing, and transportation and marketing, the volume of secondary or higher processing is very small, fine processing is basically zero, and added value is not high.
“Lack of products, lack of funds, short industrial chain, non-standard operation, and little support.” When faced with the reporter's question about where the difficulties lie for cooperatives undertaking processing, Li Yuefeng immediately listed five aspects.
Small scale, weak strength, lack of funds, and financing difficulties are the old shortcomings of cooperatives. In the face of establishing processing industries, small-scale preliminary processing has become a helpless choice. Moreover, cooperatives' profitability is not high, and every year they still have to distribute dividends to farmers, so capital accumulation is slow. In addition, in the eyes of banks, cooperatives are not legally recognized financing entities, which makes it difficult for cooperatives undertaking processing to develop from a high starting point from the very beginning.
At the same time, the lack of processing talent also leads to insufficient innovation capacity in cooperatives' agricultural product processing. Moving toward deep processing and fine processing is basically visible but out of reach. Compared with companies undertaking processing, cooperatives fall far behind from the very start. This means that at present only large cooperatives and those with strong profitability have the conditions to undertake processing.
“To introduce advanced technology, first there is a lack of information, and second a lack of funds.” said Wang Jianfu, president of the Heyu Millet Professional Cooperative. What also troubles these board chairmen is that cooperatives undertaking processing in Shanxi do not have very strong support policies. Policy is a signal light for the direction of enterprises, and the lack of signals has also made them hesitant about undertaking processing.
Therefore, the government's use of fiscal policy and financial policy to provide cooperatives with services such as technology, talent supply, and financing, enhance cooperatives' comprehensive development capacity, enable more cooperatives to participate in undertaking processing, and thereby increase farmers' income by raising the degree of processing of primary agricultural products, has become an inevitable choice for upgrading modern agriculture.
A new path for self-strengthening——establishing cooperative unions to promote internal resource sharing
Beyond this, is there another possibility for self-strengthening?
In September 2015, Qi County's first farmers' professional cooperative union——the Shanxi Zeou Fruit Industry Professional Cooperative Union——was established.
This union was initiated by the Yaohua Fruit Industry Professional Cooperative. Also participating in the union were professional cooperatives engaged in fruit production, processing, and sales, such as the Jingjing Fruit Industry Professional Cooperative, the Gangyu Fruit Industry Professional Cooperative, and the Sanxin Fruit Industry Professional Cooperative, involving 11 villages in Guxian Town of the county, 173 member households, and 1,828 mu of orchards.
The establishment of the union turned farmers' professional cooperatives that had been fighting alone into a fruit industry industrialization joint fleet. At present, the union has set up crisp pear sales windows in more than 30 large and medium-sized cities across the country. Relying on the advantage of self-operated exports, its products are sold far to more than 10 countries and regions in Southeast Asia. This year, the union's strategic goal of expanding into the European market has already been achieved.
Cooperatives uniting to undertake processing is the inevitable path for returning most of the profits in the agricultural product industrial chain to farmers, and it is also a choice for safeguarding farmers' interests under the major trend of agricultural transformation. After union, the problems of little funds and small scale can be alleviated. Not only can internal resources be integrated and shared in undertaking processing, but the industrial chain can even be extended to the sales link and expanded into the field of leisure and sightseeing agriculture, achieving industrial integration and giving farmers more possibilities to share in the dividends of the industry.
In fact, in recent years, many cooperatives have already seen this point, and some have already carried out effective cooperation at the cooperative level. However, cooperative unions and farmers' professional cooperatives have the same awkward market status. The provision that farmers are free to join and withdraw from cooperatives makes it difficult for banks to recognize them as market entities with full capacity for civil conduct.
“Therefore, amending the cooperative law so that cooperatives become new-type operating entities of equal status, and issuing highly valuable support policies targeting cooperative unions to accelerate the development of cooperatives undertaking processing, have become urgent problems to be solved.” said Li Yuefeng.
Image caption: The Lianwanjia Shallow-Water Lotus Root Professional Cooperative in Xiangshui County, Jiangsu Province, relying on more than 4,000 mu of shallow-water lotus root, develops lotus root slicing and lotus root juice processing, with products sold to Japan, South Korea, and Southeast Asian countries. This year, the cooperative cooperated with a tourism company in Shanghai to develop a tourism project at the shallow-water lotus root base to increase output benefits.