An agricultural cooperative, also known as a farmers' co-op, is a producer cooperative in which farmers pool their resources in certain areas of activities.
A broad typology of agricultural cooperatives distinguishes between agricultural service cooperatives, which provide various services to their individually-farming members, agricultural supply cooperatives, which purchase and distribute farm inputs to members, and agricultural production cooperatives in which production resources (land, machinery) are pooled and members farm jointly.Cobia, David, editor, Cooperatives in Agriculture, Prentice-Hall, Englewood Cliffs, NJ (1989), p. 50.
Agricultural production cooperatives include collective farms in former socialist countries, the kibbutzim in Israel, collectively-governed community shared agriculture, Longo Maï cooperatives in Costa Rica, France, and some other countries, CPAs in Cuba, and Nicaraguan production cooperatives. In Southeast Asian developing countries such as Vietnam, agricultural cooperatives remain to play an important role in economic and social activities in rural areas, although they have relied mainly on government subsidies .
Notable examples of agricultural cooperatives include Dairy Farmers Of America, the largest dairy company in the US, Amul, the largest food product marketing organization in India, and Zen-Noh, a federation of agricultural cooperatives that handles 70% of the sales of chemical fertilizers in Japan.
Agricultural cooperatives are owned and democratically controlled by their members. The governance structure can vary between the different types, but in general members elect representatives to a board of directors and contribute to organizational decision making through a democratic voting process. According to the 2021 Cooperative Governance Research Initiative, "Democratic member control is built into the DNA of all cooperatives but how that DNA expresses itself varies substantially."Berner, C., Jacobs, K., and Grashius, J. (June 2023). 2021 Cooperative Governance Research Initiative: Ag Sector Findings. University of Wisconsin Center for Cooperatives & University of Missouri Graduate Institute of Cooperative Leadership. https://resources.uwcc.wisc.edu/Research/CGRIAgSectorReport_FINAL.pdf
Origins and History
During the eighteenth and nineteenth centuries in certain areas of Greece, back then, under Ottoman rule, a particular form of cooperative organization was developed. Networks of adjacent rural communities were organized as a local production system designed to produce specific agricultural or craft products which were then destined for international markets. Derived from the Byzantine guilds, they were enabling better control of the production and tax collection by the Ottoman administration.
One of the first cooperatives was the Rochdale Society, formed in 1844 in Rochdale, England. The Society's first enterprise was a retail store, but it very soon also established a corn mill. The first agricultural cooperatives were created also in Europe in the second half of the nineteenth century. They spread later to North America and the other continents. They have become one of the tools of agricultural development in emerging countries. Farmers also cooperated to form mutual farm insurance societies.
Also related are rural credit unions. They were created in the same periods, with the initial purpose of offering farm loans. Some became universal banks such as Crédit Agricole or Rabobank.
Purpose
Cooperatives as a form of business organization are distinct from the more common investor-owned firms (IOFs).John M. Staatz, "Farmers' incentives to take collective action via cooperatives: A transaction-cost approach, " in: Cooperative Theory: New Approaches, ed. J.S. Royer, Washington, DC: USDA ACS Service Report 18 (July 1987), pp. 87–107. Both are organized as corporations, but IOFs pursue profit maximization objectives, whereas cooperatives strive to maximize the benefits they generate for their members (which usually involves zero-profit operation). Agricultural cooperatives are therefore created in situations where farmers cannot obtain essential services from IOFs (because the provision of these services is judged to be unprofitable by the IOFs), or when IOFs provide the services at disadvantageous terms to the farmers (i.e., the services are available, but the profit-motivated prices are too high for the farmers). The former situations are characterized in economic theory as market failure or missing services motive. The latter drive the creation of cooperatives as a competitive yardstick or as a means of allowing farmers to build countervailing market power to oppose the IOFs. The concept of competitive yardstick implies that farmers, faced with an unsatisfactory performance by IOFs, may form a cooperative firm whose purpose is to force the IOFs, through competition, to improve their service to farmers.
A practical motivation for the creation of agricultural cooperatives is related to the ability of farmers to pool production and/or resources. In many situations within agriculture, it is simply too expensive for farmers to manufacture products or undertake a service. Cooperatives provide a method for farmers to join in an 'association', through which a group of farmers can acquire a better outcome, typically financial, than by going alone. This approach is aligned to the concept of economies of scale and can also be related as a form of economic synergy, where "two or more agents working together to produce a result not obtainable by any of the agents independently". While economic benefits are a strong driver for forming cooperatives, they are not the only consideration. Similar economic advantages can also be achieved through other organizational forms, such as IOFs. A key advantage of the cooperative model for farmers is that they retain governance over the association, ensuring that ownership and control remain with the members. This structure means that profit distributions—whether through dividends or patronage rebates—are shared exclusively among farmer-members, rather than external shareholders as in IOFs.
Agricultural cooperatives play a critical role in rural socio-economic development, food security, and poverty alleviation, particularly in regions where agriculture is the main source of employment and income.Source 1 These cooperatives provide smallholder farmers with access to resources, education, tools, and markets that might otherwise be inaccessible.Source 2 By organizing into producer cooperatives, farmers can also increase their resilience to economic and environmental shocks. These organizations help build the capacity of smallholders to adapt to challenges in ways that reduce vulnerability and enhance long-term sustainability.Source 3 Some studies suggest that membership in a producer organization is more strongly correlated with improved farm output or income than other interventions, such as technical training, certification, or credit alone.Source 4
Types In agriculture, there are broadly three types of cooperatives: a manufacturing/marketing cooperative, a purchasing/supply cooperative, and a service cooperative.
Manufacturing/Marketing Cooperative Agricultural marketing cooperatives are cooperative businesses owned by farmers, that market, process, package, and distribute members' agricultural products. By pooling production, marketing cooperatives enable farmers to increase bargaining power and participate in markets that would be difficult for individual farmers to enter. Marketing cooperatives may also provide value added processing and other services to increase benefits to the members.
Purchasing/Supply Cooperative Agricultural supply cooperatives aggregate purchases, storage, and distribution of farm inputs for their members. By taking advantage of volume discounts and utilizing other economies of scale, supply cooperatives bring down the cost of the inputs that the members purchase from the cooperative compared with direct purchases from commercial suppliers. Supply cooperatives provide inputs required for agricultural production, including seeds, fertilizers, chemicals, fuel, and farm machinery. Some supply cooperatives operate machinery pools that provide mechanical field services (e.g., plowing, harvesting) to their members. By taking advantage of volume discounts and utilizing other economies of scale, supply cooperatives bring down the cost of the inputs that the members purchase from the cooperative compared with direct purchases from commercial suppliers.
Machinery Pool: A family farm may be too small to justify the purchase of expensive farm machinery, which may be only used irregularly, say, only during harvest; instead, local farmers may get together to form a machinery pool that purchases the necessary equipment for all the members to use jointly. Machinery pools are regarded as a type of specialized purchasing/supply cooperative.
Service Cooperatives Agricultural service cooperatives provide members with services that support agricultural production. These services might include product transportation, storage, credit, electricity, technical assistance, and veterinary care. Similar to supply cooperatives, service cooperatives pool members’ resources to improve access to affordable, reliable, and high-quality services that individual producers may not be able to afford on their own.
Credit Union: Agricultural credit unions are service cooperatives that provide members with access to savings, loans, and other financial services. Farmers, especially in developing countries, can be charged relatively high interest rates by commercial banks, or credit may not even be available for farmers to access. To provide a source of credit, farmers can group together funds that can be loaned out to members. Alternatively, the credit union can raise loans at better rates from commercial banks due to the cooperative having a larger associative size than an individual farmer. In some instances, manufacturing/marketing cooperatives may have credit unions as part of their broader business. Such an approach allows farmers to have a more direct access to critical farm inputs, such as seeds and implements.
Governance Agricultural cooperatives are governed by their farmer members through a democratically elected board of directors. The board establishes the cooperative's strategic direction and oversees the hired management. Hired management is responsible for the day to day operations. Depending on the structure of the organization, agricultural cooperatives may be centralized, with individuals being direct members; federated, with local cooperatives serving as members of a regional or national cooperative; or mixed, combining both individual producers and cooperatives as members.
Agricultural Supply Cooperatives by Country
Examples
Australia Co-operative Bulk Handling Limited Westralian Farmers Co-operative Limited
Canada Farmers' Storehouse Company United Farmers of Alberta Farmers of North America
France Agrial (Normandy) Terrena (Pays de la Loire) Vivescia
Israel Granot central cooperative
Japan Japan Agricultural Cooperatives
Korea (South) National Agricultural Cooperative Federation
Turkey The Agricultural Credit Cooperatives of Turkey
Ukraine
Ukrainian cooperative movement
United States