A heated discussion with Prof. Thomas Reardon

The EDC Initiative

A discussion between Dr. Nicola Francesconi (CIAT), Prof. Michael Cook (GICL-MU), Prof. Thomas Reardon (Michigan State University) and Dr. Julio Berdegue (RIMISP), on agricultural cooperatives and farmer organisations in developing countries.

Francesconi: Dear Prof. Reardon, yesterday evening I watched online the presentation you gave at CIAT in Cali. I was very impressed by the amount of work you carried out on value chains in Asia and Latin America (9000 surveys!), and learnt a lot from the trends you spotted and presented, such as the rise in urban consumption, especially of processed food, accompanied by the rise of SMEs involved in food trading, storing, manufacturing and retailing. I was however somewhat surprised that you did not mention farmer organizations (FOs) and agricultural cooperatives, which according to many authors are also on the rise throughout the developing world. I would be really interested to know why you did not mentioned them.

Reardon: In my Asian and Latin American work I have found coops to be disproportionately discussed in policy and NGOs’ fora compared with what we find in surveys. In our surveys of rice and potatoes in Bangladesh, India, Vietnam, and China, there was nearly zero involvement of farmers in coops at least with regard to collective marketing aspect. The same goes for mango in Philippines and Indonesia, shrimp in Indonesia, fish in Bangladesh and China. Processors and retailers do not buy these products from coops except in rare instances. In our rice work the exception was in India where government still buys from state-registered coops in some states (but this is a throwback to privatization reforms that is unique in Asia). It is my impression that in Asia researchers who want to show cooperative activity go find the very rare instances where farmers market their products through coops and then those stories are repeated in the literature and conferences. We found the same in Brazil, Mexico, and Nicaragua with vegetables and fruit. It is more common for farmers to be involved in coops to get facilitated credit from the government. Nearly every farmer in developing countries is a member of a coop, just to get any government and NGO subsidies. But only a few of the many coops I found bulked and collectively marketed farmers’ products. Many coops also appear to play “shell games”: a major grower lists his relatives and pays his friends to become “members” so he could get a government subsidy to build a warehouse. I even studied for a while a main coop in Mexico that was much trumpeted in the area; after spending some months digging into it I found that out of the hundreds of listed members there were six farmers that were the only active core of this group and again they just set up the shell to get government funds. I have endless stories like this. As for credit, our surveys show that apart from feed dealers giving credit, and a few government schemes, coop credit plays extremely little role in how farmers get their funds to make their investments. This comes from nonfarm income and cash cropping in the great majority, and a little from lending from friends and the occasional money lender. I am not saying that effective coops would not be a good idea, and the “new generation” ones that Prof. Cook and Berdegue write about seem very effective in some cases. Perhaps one reason that coops (not the traditional ones but the new ones) have been so discussed is that NGOs that form or work with the few there are make a lot of their existence. It seems to me that often these are not “real” in the sense that they live by the NGOs handout and would not form spontaneously nor continue without the NGOs. I have seen that a number of times but cannot prove this point with data. The only thing I can prove with data is that coops play nearly zero role in the crops and countries I have studied except as shell games for government subsidies and the occasional joint purchase of inputs (these are linked). What this suggests is that the profession has a kind of bi modality. On the one hand, the enthusiasts of various new phenomena do case studies of those things and show they are interesting at least as portrayed by the case studies. On the other hand, broad survey work not going after specific things turn up little of these things like marketing coops and contract farming, except in a few domains like the emerging pork modernizing sectors and so on. This does not suggest that therefore coops are not important nor emerging; it just means that the two “modes” need to be crossed to weight the distribution of the emergence of new things. I myself have been accused, and I am proud of it, to have studied outliers that show new directions but were not yet generalized. How else can one see the future? But I could be wrong…

Cook: Tom, just a quick question. Do you think the marketing activities, particularly, origination, first level grading, cleaning, and transporting of the 1.3 million new agricultural cooperatives formed in China since the implementation of the 2006-2007 Chinese Cooperative Law have been accounted for in your data?

Reardon: Mike, I am only looking at/relying on the data that we had on rice and potatoes in a few provinces. If there are many new coops they did not show up on those particular surveys.

Berdegué: Dairy, coffee, cocoa, high value fruits (e.g. berries), are examples of products in which smallholders (at least in Latin America) do engage in collective action of some sort or another. Secondly, everywhere that coops and similar organizations are strong, it is in large part because there are non-market institutions that favor them. These are the result of efforts to more or less balance power relations, similar to what we see with trade unions.

Reardon: It is significant that the examples I hear from Julio and Mike are in high value and perishable products. It also seems from the examples that they are for exports. It is important to keep in mind that only about 5-10% of overall food is exported from developing countries, depending on the region…so we are talking about say 10% of the commodities produced in developing countries? And maybe a half or a quarter of that 10% goes through coops? Hence we are discussing about a 3% market share…

Francesconi: In Ethiopia we estimated that the volume of agricultural commodities commercialized through coops is about 10%, but Ethiopia has a rather vibrant coop-movement…however, the market share of coops increases substantially when you look at inputs and credit provision.

Berdegué:  Not sure if it is just 3% Tom. There are products and markets where small farmers face entry barriers or transaction costs that can only be overcome through collective action. But note I say collective action and not “coops” or even “producer organizations”, and collective action cannot be easily capture through surveys. The difficult part is to move from collective action to a formal marketing organization, coop or otherwise. This requires one of three things, I believe: (a) it is a market condition (eg, dairy processor will only receive your milk if you have cold storage); (b) there is a public incentive (or requirement); (c) the benefits outweigh the significant costs and risks of participating in a formal organization.

Francesconi: Julio, we saw what you describe very clearly in Ghana. Here, instead of coops we found many small “farmer-based organizations”, which are essentially informal and loose coops, based on spontaneous collective action mostly for mutual support purposes: I help you weed your field, you help me weed mine and so on and so forth. Still, very little collective commercialization going on…

Reardon: I was only talking about coops as real organizations. Of course there is a lot of intermediation of a bigger farmer buying from smaller ones or charging them fee or labor to put their product along with his in his truck. That is not “collective action” but just intermediation of the “normal” variety. It is just a transaction occurring between a farmer-cum-trader or a farmer-cum-transporter and other farmers who essentially buy that service with money or some other exchange. Where several farmers rent a truck together, yes you could call that “collective action”. Frankly that simple temporary or long standing joint venture between a few farmers, to call it “collective action” is to put a fancy name on a ubiquitous practice of asset sharing. If you want to call asset sharing and inter-farming intermediation by the name of “collective action” then you could say that every middle class family in the US is involved in collective action…and probably most small businesses are in the US or any country. I find that term to make it sound like some kind of an organizational spirit type of thing when it is just the regular asset sharing. It is ubiquitous. Moving it from just that normal economic action to real organization into coops is a different order of things. I would still say this latter is just 3% of the food economy of developing countries. Inter-farmer intermediation and asset sharing, I would say that 100% of villages in all developing countries have that. nothing less…I think frankly calling these practices farmer organizations and collective action is putting very old wine into new wineskins. Corvee labor is as old as the hills in europe and all continents; large farmer “intermediation” used to be called by bad names in earlier ideological movements and now is called collectivism because we are in a new age… and simple asset sharing is grabbed for as straws when the fact is there are very few real cooperatives that market, outside the very limiting (I think correctly) conditions that Julio notes. This feels to me a little like the era of “social capital” when what used to be called “you scratch my back I scratch yours” or “guanxi” got clothed with nice robes of “social capital”. I don’t see how calling these well known and old exchange relationships and joint actions “collective action” or even “farmers organizations” advances knowledge one inch. On the contrary I think also that making a “broad tent” of the concepts actually does not serve the “cause” of cooperatives. To be frank to donors and governments about how limiting and hard making coops work is, is a real service to policymakers. To even give the impression that these (real ones) are widespread “in a way” outside the very limiting and specific conditions Julio notes, is to make it feel like cooperativism is a widespread thing. Instead it is a tiny thing. I think it should be a huge thing. But that requires starting by making the right conditions. I suppose having a gillion NGOs form and feed them in many countries created a lot of artificial and temporary conditions and so do government programs that funnel funds to farmers only through them. Promoting market conditions and helping with assets and training to develop “real coops” makes more sense to me.

Francesconi: I think you have a point there, they call themselves farmer organizations mostly to attract NGOs, whereas they are nothing more than communities. The challenge is really to move from communities to cooperative enterprises.

Reardon: I totally agree with you.

Berdegué: The issue is if people coordinate their actions in a systematic, non-trivial way to achieve objectives in a more efficient manner.  I am not talking of intermediation, which of course it is not a form of collective action. ‎ I am talking of farmers who have access to the market but lack sufficient produce to reach it efficiently, and hence organize several other farmers around them to bulk and sell together (or buy together). You (Reardon) and I saw a form of this in a Technoserve project, I believe in Honduras, with onions if I remember correctly. I have seen this sometimes induced by the buyer, and other times by the seller. The point I am trying to make, Tom, is that when we talk about how to get farmers together to solve problems of scale, transaction costs, and power, we immediately think about ‎formal organizations, preferably coops. We have not paid attention to the fact that people (as you say, “every small business in the US”) have other ways to work together. You may think it not important, but it is: policies and programs do not usually recognize such lose forms of organization in order for farmers to receive credit, inputs, extension, and so on. The public sector pushes for a formal organization, which is why you find that your surveys (and many others) report: lifeless organizations that are simple shells to channel government support.

Cook: Tom, you might be missing an important point. There is a dynamic to the evolution of what Williamson called ‘organizational arrangements”. Speaking from the US point of view, until the early 1980s the term agricultural cooperatives was a very comprehensive and well understood term. Then Wyoming introduced the concept/form of Limited Liability Company and, except for new generation cooperatives, LLC’s became the rage and currently one of the most popular organizational forms for new producers’ joint action. If you want to stay with the pure definition of traditional cooperatives there might be an inkling of merit to your argument, but the ‘hybrid’ organizations that are proliferating worldwide also deserve to be acknowledged. he conflict in academic  departments such as mine is the traditionalists want to stick with the ‘black-box’ of a firm definition rather than spend quality time describing in depth changes in residual claim and residual control rights which might affect managerial and principal decision making and subsequently allocation of resources. This changing role of the definition of ‘ownership’ is receiving much attention from the legal profession. Consequently finding commonalities between and among organizational forms has merit and trying different names (if accompanied by well -defined claim and control right allocations) might foster a move toward improved understanding by practitioners such as ourselves.

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