The basic functions of agricultural service cooperatives include input supply, storage, processing, bulking up or aggregating, and selling produce provided by their members. Other functions may involve provision of credit, training and member education, and political action.
Agricultural cooperatives in many developing countries have colonial origins. They were commonly formed by governments to pursue objectives related to agricultural policy. Emphasis was often placed on export crops that were a source of tax revenue, or on achievement of self-sufficiency in certain food products, such as basic grains, sugar and dairy products. Control of marketing and processing by a single buyer was part of this tradition. Cooperatives also became centres of political power as independence approached, and afterwards with the end of colonial rule, popular targets of foreign assistance for nation-building. Top-down government or donor funding financed many of their activities in the first three decades following independence.
The culture of dependency that accompanied this reliance on external capital is fortunately in decline. Government and donor funding is shrinking because these agencies now face budget constraints and new priorities, and because some former supporters have become discouraged with cooperative performance. At the same time, economic reforms have removed restrictions on markets and challenged the monopoly that some cooperatives enjoyed. This has led to increased competition from other businesses and a consequent loss of income that has left many agricultural cooperatives with insufficient funds to finance their operations and invest in growth.
As with any business, agricultural cooperatives require capital to be successful. (A very broad definition of capital is used here, referring to the funds used by the cooperative in its business.) Funds are needed to pay wages and other operating costs, to purchase equipment and for expansion. As a generalization, capital is required to provide better services to members and to grow and develop in modern market economies. The search for capital leads cooperatives to explore various sources in order to maintain and strengthen their position in the market. Greater member financing is usually essential.
The subject of this booklet - cooperative capital - would be of only passing interest to members of traditional cooperatives who are content with the status quo. However, once members are no longer content with the current situation or prospects for their cooperative and want to transform it into a genuine member-run business, their cooperative is no longer traditional, and may need to adopt new approaches to mobilizing member investment funds.
To summarize, farmer cooperatives in developing countries increasingly find themselves with lower levels of financial support and are obliged to compete in the open market. Cooperatives that do not adapt and that fail to mobilize more member capital will be increasingly unable to compete with other more efficient types of business. A traditional interpretation of the principles of cooperative capital does not create strong financial incentives for members to invest in their cooperative. However, a more flexible and pragmatic application of these principles can create new opportunities for growth and prosperity, offering new ways of achieving the cooperative promise and potential.
Part 1 of this booklet discusses the current state of agricultural cooperatives in developing and transition economies, their environment, and their business practices.
Part 2 covers various forms of cooperative capital and ways that proactive cooperatives have found to mobilize such funds.
Part 3 outlines how cooperatives have mobilized funds from external commercial sources.
Part 4 deals with several financial management issues that face cooperatives.