This case study derives from efforts that began in the early 1990s to deal with the paradoxes and puzzles of co-operative capital, broadly defined. These efforts were initiated by officials at FAO and included numerous co-operative and research organisations. FAO interest was motivated by perceptions of increasingly serious liquidity and capital shortages in agricultural co-operatives in developing countries and was based in part on large changes in the co-operative environment. One was re-examination of the co-operative identity worldwide. This re-thinking was led by cooperative movements in wealthy countries and responded, in part, to their efforts to gain access to larger amounts and a greater variety of funding.
Another motivation for research and assistance was that many markets for agricultural products were being de-regulated, which meant that co-operatives would face more competition from other private suppliers, some of them international in scope. Finally, “aid fatigue” was taking its toll on traditional sources of financial and technical support for co-operatives in developing countries, requiring a more commercial approach to ensure survival.
Initial research focused on analysing changes in the capital or net worth account in co-operative balance sheets, which represents the difference between a co-operative’s assets and its liabilities. This is the most mysterious part of co-operative financial statements and the one that most profoundly reflects the uniqueness of cooperatives as business entities.
These early efforts led to a clearer view of the nature and role of co-operative capital, and provided a basis for further studies of the commercial performance of cooperatives associated with the agricultural sector. Theoretical motivations lay in trying to discover: a) the principal differences between the sources, terms and conditions under which co-operatives and limited liability companies obtain finance from their owners, b) why it seems difficult to mobilise capital for agricultural cooperatives, and c) how the composition, types and levels of financing, assisted by better government policies in developing countries, could improve co-operative governance, business performance and sustainability.
The study looks at co-operative capital broadly and its importance in cooperative development in an increasingly competitive environment. It is set in Kenya, a country with a large co-operative presence and considerable co-operative history. Comparative studies of service co-operatives in the agricultural sector are presented within a broad framework of organisational culture, market conditions, government regulations and relations, financial considerations, and recent insights 6 into corporate governance. Centred on organisational culture, this analysis provides new insights into complex, continuous interactions among stakeholder interest groups and their effects on co-operative capital formation and overall performance.
These results offer important contributions to improved public policy and to making co-operatives more, effective everywhere. Credit is due to John Rouse, the anchorman on these issues at FAO for more than a decade and especially to the authors: Pekka Jämsén, Seppo Ikäheimo and Pasi Malinen. Jämsén and Malinen are based at the Turku School of Economics and Business Administration and Ikäheimo in Helsinki School of Economics and Business Administration, all in Finland.
May 1999
J.D. Von Pischke
Reston, Virginia
USA
