The Co-operative Movement of the Russian Far East

This page is made up Russian Far East Association of Co-operative Movement for accumulation, collection and systemization information of Russian and Foreign Scientists, experts, practicians, representatives of co-operative society and all who will be interested make prove and develop Co-operative movement in Russia, Russian Far East Aria and all countries of our small World.

2.1. Who is who in American agriculture

Chapter Two

The road to success

The case of U.S. farmer cooperatives

Maybe for somebody from a postcommunist country the notion "agrarian country" is associated with a low level of industrial development and a general economic lag. Nevertheless, the United States of America is a real agrarian country. The way the U.S. passed from the pioneer homestead to modern agribusiness, achievements in productivity of agriculture and its efficiency, the role of agrarian sector in the national economy, and the global significance of American agriculture give the right to call the United States a great agrarian country.

The development of U.S. agriculture is also as .dramatic as the: history, of this country. The development of agriculture was a key moment in the formation of the American nation and American statehood. The image of the American farmer became a symbol of fortitude, ability to resist oppressors, the urge towards economic and political independence, and democracy. A great American politician and an agricultural fundamentalist, the third U.S. President Thomas Jefferson, wrote:

"Cultivators of the earth are the most valuable citizens. They are the most vigorous, the most independant, the most virtuous, and they are tied to their country and wedded to it's liberty and interests by the most lasting bands" [Jefferson, р.42б].

Formation of the organizational structure of U.S. agriculture was made under the influence of the different factors: natural, historical, and economic. Due to plenty of land, it was comparatively easy for every family who desired it to get it. With an exception of some densely populated regions, rural families were not accumulated in villages, as was typical for Europe. They preferred to live on their own land with considerable distance one from other. It was a ground for farmers' individualisnv independence and self-reliance. Limited agricultural markets and relatively low.demand for farm products at the local level promoted the development of competition between farmers. It in turn led to increased yield and labor productivity.

The progress in agricultural productivity was especially notable in the second half of the last century. The well-known Homestead Act of 1862 strengthened the system of family farming by free or very cheap distribution of agricultural land in the Western States. The number of farmers had been growing constantly, and the apogee was reached in the beginning of new century. Unfortunately, the demand for agricultural products was not increasing as the number of farmers and agricultural output increased. That resulted in the decrease of prices and the general level of farmers' incomes. However, at the end of the last century the farmer movement was a strong enough political force to negotiate at the federal level a possibility of governmental support of agriculture. Agricultural producers also developed their own economic organizations based on mutual aid. It was understood and supported by government, too.

During World War I, the demand for food increased sharply. Prices become very favorable for farmers, and they intensified agricultural production tremendously. However, this "golden age" for American farmers did not last. Already in 1920s prices started to drop. Many farmers became unable to continue farming. They had to sell land, or sometimes simply lost it in order to reckon with the bank, and then join the growing army of unemployed.

The Great Depression was the hardest trial for U.S. agriculture. But lessons of the Great Depression were very important for the future. The government recognized the necessity of special care for agriculture as a basic branch of the national economy. Activization of legislative process oriented to agricultural producers, federal support programs for agriculture, and attention of political leaders to farm problems made the future for farmers more certain. Of course, the U.S. agrarian sector has sometimes been faced with crises, but they never have reached the dramatic proportions of the 1930s.

During the 1940s and 1950s the technological and marketing factors were predominated in the formation of the organizational structure of U.S. agriculture. Complex machinery, increasing use of fertilizers and chemicals, irrigation, hybrid seeds, adoption of strains of animals - all these innovations needed larger concentrations of production and capital, hence larger size of farms. It became obvious that the nation would need fewer farmers and fewer farms [Rasmussen & Stanson, p.35]. Increasing competition in agriculture speeded up the process of small family farms disappearing. Many farmers had to expand their business or quit agriculture. During 1959-1964 the number of farms with less that 10 acres dropped almost 20%, and during 1959-1974 almost 50% [Census of Agriculture 1992, p. 8]. Restructuring of agriculture brought serious social problems, and that is why some government programs were adopted for farm support and rural development, especially in 1960s and 1970s. However, the tendency of decreasing number of farms and increasing of their size and volume of business continues (Table 10).

The family farm still remains the primary production unit in American agriculture. The share of family farms in the general number of farms equals about 86% (Figure 14). Generally, a farm is an establishment that sold or would normally have sold $1000 or more of agricultural products during the year [Agricultural Statistics 1993, p.345]. Special criteria to identify a family farm could be formulated as follows:

- management and work mostly must be done by the operator and his family;

- a close integration must exist between household and business;

- managerial control must be exercised by the operator;

Table 10. Number of U.S. farms, and their average size and value of sales, 1900-1993

Number of U.S. farms, and their average size and value of sales, 1900-1993

Data from: Census of Agriculture 1992. Volume 1 "Geographical Area Series". Part 51 "United States: Summary and State Data". Washington, D.C. U.S. Department of Commerce, Economic and Statistic Administration, Bureau of the Census, p.8.

Agricultural Statistics 1993. National Agricultural Statistics Service, USDA. Washington, D.C.: U.S. Government Printing Office, p.347.

- family farms must obtain the majority of their income from farming [Knutson, Penn & Boehm, p.27l].

Other types of farm organization refers to the farm's form of business organization. Besides the family farm or individual business, farms are also organized as partnerships and corporations. Although their share in the general number of farms is not significant, their role in general volume of business is quite important. Corporate farms have the highest average farm sales. In 1990, the average gross farm sales per corporate farms was $465 thousand, per partnership farms - $151 thousand, and per individual or family farms - just $46 thousand [Agricultural Fact Book, p. 19]. Average acreage was also highest for corporate farms.

During the last decade American agriculture became more efficient. Net farm income increased both absolutely and relatively compared to farm production expenses (Figure 15). An important role in making agriculture so effective belongs to the existing system of farmer cooperation. This system is a key element of organizational structure of U.S. agriculture because it provides access to markets for the majority, mainly family farms, and also supplies at reasonable prices. Cooperatives help farmers not only to survive, but to be competitive and to capture profits beyond the farm gate. Due to the existence of their own commercial organizations, American farmers may possess essential market power. The cooperative structure of American agriculture is a broader phenomenon than only an economic organization. In addition to their primary economic functions, cooperatives respond to the service needs of their members and generally provide the development of the members' communities.

Dynamics of farm incomes, 1983-1992.

Figure 15. Dynamics of farm incomes, 1983-1992.

Statistical Abstract of the United States 1994: The National Data Book. 114th Edition. Washington, D.C U.S. Department of Commerce, Economic and Statistic Administration, Bureau of the Census, p.671.

From a historical perspective, it is helpful to focus on three interrelated environmental factors that led to the development of agricultural cooperatives in the United States. The first is economic conditions, both favorable and unfavorable, leading to group action. For instance, economic depression, abuse by monopolistic elements, inability of market to provide needed services, wars, changes in competitive environment and technological progress. The important role of farmers' public organizations is a second factor. Such organizations influenced the farmers' motivation to join cooperatives, provided social support for farmers, influenced official agricultural policy, and even became actively involved, on a voluntary basis, in the creation of cooperatives. The third factor leading to an environment conducive to, the creation of farmer cooperatives is the legal environment, state and federal statutes as well as juridical-interpretation.

The formation of the cooperative structure in American agriculture was a result of a prolonged process. As for the earliest attempts to cooperation, it should be noted that the Pilgrim Fathers, who came to the New world on the Mayflower in 1620, could be considered the first American cooperators. They signed the Mayflower Compact, which was a mutual agreement on a cooperative basis, and after their arrival applied informal cooperative activities to clear land, to erect buildings, to construct roads, to cultivate land, and to protect themselves. In 1752, Benjamin Franklin, one of signers of the Declaration of Independence, started the first cooperative business enterprise in the United States. It was an insurance company to mitigate losses from fire. As early as the 1780s, farmers organized societies to import purebred cattle in Pennsylvania. Later they joined in community drives of livestock to the Eastern coastal cities [Abrahamsen 1987, p.l].

Farmer enterprises with more visible features of cooperatives appeared in the last century. In 1810, associated groups of dairy farmers organized cooperatives to manufacture cheese in Goshen, Connecticut, and South Trenton, New York. Following these, many different commodity cooperatives were organized, but the major part of them was short-lived. In 1820, a group of Ohio farmers united to slaughter their hogs and transport them by boat to the Montreal markets. In the 1840s, Mormon settlers in the West introduced cooperative irrigation ventures that were highly successful. In 1857, the first cooperative elevator was organized in Madison (Wisconsin). In 1863, farmers at Riverhead, New York, started a supply cooperative to buy fertilizers [Roy, p.53-54; Abrahamsen 1976, p.89].

During the period of 1870-1920 farmers created numerous local and regional cooperatives. Farmer cooperatives began operating in nearly all states. Some large general farmer organizations, such as the National Grange, the Farmers' Alliance, and the Farmers Educational and Cooperative Union of America, which later evolved in the National Farmers Union, played an important role in the formation of the nationwide cooperative movement in the U.S.A. The first two national cooperative trade associations were organized in 1916. They were the Cooperative League of the U.S.A. and the National Milk Producers Federation, both headquartered in Washington, D.C. Also, today's largest farm organization, the American Farm Bureau Federation, began in 1919. These national associations supported the development of economic organization and exerted influence in the political arena [ingalsbe & Groves, p.m].

The next stage in the formation of the cooperative structure was influenced by the agricultural crisis of the 1920s and the Great Depression (by 1933). It was the period of the very important governmental decision to support cooperative marketing of agricultural producers. As early as the beginning of 1920s, farmers accepted the idea of the creation of state or regional cooperatives, which would be large enough to be a decisive factor in determining prices. The author of this idea was a brilliant California lawyer, Aaron Shapiro. Up to that time, only local associations had received primary attention in the building of farmer cooperatives [Abrahamsen 1976, p.94]. The U.S. government recognized the importance of the development of cooperative marketing and adopted some statutes in order to support it. The Capper-Volstead Act, or Magna Carta of farmer cooperation, was the most important one. This statute alters the way antitrust laws apply to farmer marketing cooperatives. This means that agricultural cooperatives were legally given special marketing tools of coordinating their activities. Of course, it was an impetus for further development of the cooperative structure in agriculture.

Between 1933 and 1945 there was a considerable growth in the volume of cooperative businesses and the associations' membership. It was the period of the appearance of large-scale cooperatives and numerous bargaining associations. More cooperatives began to combine marketing and purchasing operations. Due to the improved financial situation many cooperatives paid more attention to processing farm products and manufacturing production supplies. They also recognized the importance of research in growing businesses, education of farmer-members, and training of directors, managers and employees. This period was also important for formation of the farm credit system. The contribution of cooperative banks for the improving financial foundation of cooperatives began to be more essential [Abrahamsen 1987, pp.l7-18].

After 1945, the modern stage in the development of the cooperative structure of U.S. agriculture started. Cooperatives were tremendously influenced by technological and business changes. New opportunities were opened for participation in international agricultural markets. But more complicated business operations and growing competition required new adjustments in cooperatives. They had to be larger and economically stronger to challenge the changes in the economic environment. This caused the activization of horizontal and vertical integration processes. Consolidations and mergers occurred more often among small dairy, grain, fruit and vegetables, and farm supply cooperatives. The organization of many cooperatives became increasingly complex, including multiple subsidiaries, marketing agencies-in-common, joint ventures with cooperative and non-cooperative business enterprises, and a few international arrangements [Ingalsbe & Gloves, p.119; Vistrup et al., pp.361-363].

National Milk Producers Federation, both headquartered in Washington, D.C. Also, today's largest farm organization, the American Farm Bureau Federation, began in 1919. These national associations supported the development of economic organization and exerted influence in the political arena [ingalsbe & Groves, p.m].

The next stage in the formation of the cooperative structure was influenced by the agricultural crisis of the 1920s and the Great Depression (by 1933). It was the period of the very important governmental decision to support cooperative marketing of agricultural producers. As early as the beginning of 1920s, farmers accepted the idea of the creation of state or regional cooperatives, which would be large enough to be a decisive factor in determining prices. The author of this idea was a brilliant California lawyer, Aaron Shapiro. Up to that time, only local associations had received primary attention in the building of farmer cooperatives [Abrahamsen 1976, p.94]. The U.S. government recognized the importance of the development of cooperative marketing and adopted some statutes in order to support it. The Capper-Volstead Act, or Magna Carta of farmer cooperation, was the most important one. This statute alters the way antitrust laws apply to farmer marketing cooperatives. This means that agricultural cooperatives were legally given special marketing tools of coordinating their activities. Of course, it was an impetus for further development of the cooperative structure in agriculture.

Between 1933 and 1945 there was a considerable growth in the volume of cooperative businesses and the associations' membership. It was the period of the appearance of large-scale cooperatives and numerous bargaining associations. More cooperatives began to combine marketing and purchasing operations. Due to the improved financial situation many cooperatives paid more attention to processing farm products and manufacturing production supplies. They also recognized the importance of research in growing businesses, education of farmer-members, and training of directors, managers and employees. This period was also important for formation of the farm credit system. The contribution of cooperative banks for the improving financial foundation of cooperatives began to be more essential [Abrahamsen 1987, pp.l7-18].

After 1945, the modern stage in the development of the cooperative structure of U.S. agriculture started. Cooperatives were tremendously influenced by technological and business changes. New opportunities were opened for participation in international agricultural markets. But more complicated business operations and growing competition required new adjustments in cooperatives. They had to be larger and economically stronger to challenge the changes in the economic environment. This caused the activization of horizontal and vertical integration processes. Consolidations and mergers occurred more often among small dairy, grain, fruit and vegetables, and farm supply cooperatives. The organization of many cooperatives became increasingly complex, including multiple subsidiaries, marketing agencies-in-common, joint ventures with cooperative and non-cooperative business enterprises, and a few international arrangements [Ingalsbe & Gloves, p.119; Vistrup et al., pp.361-363].

Now cooperatives keep their importance for farmers. In 1993 cooperatives' share of farm marketing reached 30%. That is 3% higher than in 1992, and the highest rate since 1984. As for farm production supplies, cooperative share was 28% in 1993. For both marketing and supplies cooperative businesses there is an essential growth after a certain decline in 1987-1988. Cooperative share of total U.S. milk purchased at the first-handler level reached 85% in 1993. There was a little increase of cooperative milk marketing in recent years. Cooperatives' share of farm marketing was also important in sales of grains, fruits and vegetables, cotton, and livestock (Figure 16). Cooperative purchases of major farm production supplies, except for seed, had been increasing during the last five years (Figure 17). The highest rate, more than 40%, belongs to purchases of petrolium and fertilizer [Kraenzle, p.4-5].

U.S. agricultural cooperatives play a considerable role in helping shape the cooperative movement abroad. Its leaders have been exporting cooperative ideals and concepts for years, and these have been imported and used around the world. Agricultural Cooperative Development International (ACDI) has been assisting in these efforts since its foundation at the beginning of the 1960s. As a part of its mission, many of its projects build and strengthen farmer-owned cooperatives [Bader, p.12]. Hopefully, the experience of U.S. farmers will be very useful for restructuring agriculture in postcommunist countries such as Ukraine. Of course, it's impossible and unwise to copy any overseas experience. But proven basic principles tested in the developed market economies are worth considering. These principles need to be applied to the unique strengths, weaknesses, opportunities and threats of Ukraine.

The success of farmers in the U.S.A., as all as in many other economies, both in production and connected spheres (supplies, marketing, credit, extension service, education, etc.) is an example of what can be accomplished. In many cases an important ingredient is the opportunity for farmers to realize individual economic interests through joint actions. This opportunity is the option to create user owned and controlled corporations known as cooperatives. They give farmers an option to gain more profit due large-scale operations, to overcome market abuses, to use professional management and to achieve a degree of market power in order to more equally compete in the market place. Also it should be noted that a very few production units are organized as cooperatives in market economies (however, this does not exclude farmers' mutual assistance at the production level).