In January the Ministry of Agriculture launched a month-long drive to inform farmers and local officials about the new Law on Farmer Professional Cooperatives (农民专业合作社法). Given China’s long and varied experience of things called “cooperative” it might take longer than a month to get the message through, Chang Tianle (常天乐) concluded after visiting Anhui, Sichuan and Yunnan.
For thousands of farmer co-operatives across the country the new law, which was passed in October 2006 and will take effect on July 1 2007, offers the chance to at last gain a clear legal identity as independent, voluntary and democratically administered organisations.
The co-ops will be registered under the Administration for Industry and Commerce (工商行政管理部门). Previously, such organisations operated with a variety of different titles and registration arrangements. This diversity made it hard for all concerned to identify, regulate, collaborate with and participate in the organisations, according to Liu Denggao (刘登高), Secretary General of Gung Ho (中国工合国际委员会, the International Committee for the Promotion of Industrial Cooperatives), an NGO devoted to supporting cooperative working.
“This is the first time China has given clear definition to farmers' cooperatives, which for two decades have occupied an ambiguous position, especially in the period of the rural communes 30 years ago, and the following 28 years of development and practice since the policy of opening-up,” says Liu, who was also a leading member in the legal drafting committee.
In the early 1980s, when rural China led the cities in opening and reform and agricultural production was returned to households, many genuine farmers’ cooperatives emerged, realising economies of scale, according to Liu. However, such experiments did not receive timely legal protection and were disrupted as local governments and businesses intervened.
In the late 1980s, many cooperatives were established by the government agricultural extension system. In the early 1990s, in order to guarantee their own supply chains, many “dragon head” corporations (龙头企业) joined the movement to organise and lead farmer cooperatives. “That’s why we see most cooperatives operating in the shadow of government or business power. This is also a very common practice,” says Liu.
The Law, he believes, will provide a sound basis for supporting and guiding the development of those cooperatives that are built around farmer’s needs.
This is music to the ears of Wang Shichun (王仕春), Director of a Rabbit Breeding Association in Nanbu County (南部县), Sichuan Province. The Association was established in 2005 when the township government decided to make rabbit breeding a key industry and hoped such an association would foster its development. With support from government and non-government agencies, the Association now has over 100 members. A big rabbit farmer himself, Wang is able to work with local government technicians and offer members technical support in areas such as breeding, feeds and cage construction to members.
But when members also wanted the Association to set up a sales network for them, Wang found himself in an awkward position: registered as a non-profit organisation, the Association was not supposed to get involved in business ventures. “More than a dozen buyers came to me and wanted to buy rabbits from the Association, but all I could do was tell them where individual rabbit farmers are. This was not fair to all members, and it also left individual farmers in a weak position to bargain with buyers,” he says.
With the Law in place, organisations like Wang’s—initiated by the government and having now grown an extensive membership—will have a bigger role to play.
But some adventurous groups have already gone much further.
“Enterprise + Co-op”
In Ketan Town (柯坦镇) of Anhui Province, 121 goose breeders registered a cooperative with the local Industrial and Commerce authorities last September, with registered capital of CNY 200,000. Before that, farmers had been working together for years and a processing factory had been established in the town to buy their produce.
The Ketan cooperative has a charter similar to that prescribed in the new Law, and members have equal voting rights. However, most shares are divided among six parties: 20% belong to a company under the County Supply and Marketing Cooperative (in fact a “collective” company); 32% belongs to the legal representative of the cooperative; another four shareholders have 8% each, while the remaining 16% are divided between the other 100+ farmers. The bigger shareholders also own the processing company that buys most of the geese and eggs.
This “enterprise + cooperative” model is popular with government officials who believe the complete value chain will guarantee the stability of local industry. However, Liu warns that it blurs the line between company and farmer and may leave small farmers vulnerable.
The new law specifies that at least 80% of a cooperative’s members should be farmers, and that in cooperatives with more than 20 members 95% of them must be farmers. But there is no mention of what happens if this rule is not observed and implementation and enforcement could in practice be quite varied and loose.
“This may give big companies the opportunity to control the cooperative, and the interest of small farmers is not sufficiently protected,” Liu says.
He is also concerned at the possibility that some well-connected businessmen and local officials may use cooperatives as shells to win favourable policies and financial support from local government, even blocking needy farmers’ access to government resources.
His view is shared by Ji Bing (冀冰), Sustainable Livelihood Programme Officer for Partners in Community Development (PCD). The Hong Kong-based NGO has worked in Sichuan to promote farmer cooperatives, mostly through training farmers and officials.
Ji points out that balancing different forces is critical in developing an effective cooperative. Most of the existing cooperatives in Sichuan Province are led by village heads or Party Secretaries and lack a participatory mechanism. “This may weaken the functionality and effectiveness of the cooperative, making small farmers lose faith in it,” Ji says.
Education therefore plays an important role in the process. PCD carried out a training programme for farmers and officials in Sichuan’s Yanbian County (盐边县) in 2005. Five government officials who graduated from the programme are now able to pass on similar training to colleagues and farmers.
As well as taking trainees to visit successful cooperatives, PCD relied on international concepts and models in classroom training. Now, Ji says, the new law provides a more local framework, corresponding to China’s situation, and PCD will base future trainings upon it.
Wild pigs and the real thing
In recent years, Gung Ho’s Liu Denggao argues, genuine farmers’ cooperatives have appeared back on the scene as farmers have become more exposed to the market.
In Luoji Township of Yunnan’s Shangri-la County (香格里拉县洛吉乡), wild boars sometimes impregnate domesticated sows, who then produce cross-bred offspring with colourful, striped fur. If allowed to grow, the offspring remain untamed, like their fathers, breaking through fences and eating chickens. For this reason, local farmers used to think it bad luck if their sows gave birth to wild piglets, and would drown the newborns in the river.
In 2001, Zhang Zhengjun (张正军) returned to the village after years of failed attempts to make his fortune outside. His acute business sense told him that the cross-breeds would be a good opportunity. “I tried cross-breed meat when I was young, and it was delicious. So I believed it could sell in the market,” he says.
Not a pig farmer himself, Zhang paid a neighbour to raise four cross-breeds, including two for breeding stock. The meat did sell well and the following year more than a dozen families joined the efforts.
“At that time, we felt we needed an Association to keep the business running,” Zhang recalls.
So he organised the farmers raising “wild pigs” and established an association called “Lvyuan Tianza” (绿源天杂，literally “green source, natural cross-breed”), which is also the brand name for their product. The association is registered under the local Animal Husbandry Bureau. It now provides feed, breeding stock and marketing support for pig farmers.
Zhang chairs the association and also acts as sales representative. The owner of a restaurant in the Shangri-la county seat soon approached him and reached an exclusive agreement with the association. Under the contract, the restaurant is the sole eatery in the county serving “wild pig” meat and buys meat from the association at a fixed price. In return, the restaurant guarantees to purchase at least 200 pigs a year, about one third of the annual production of association members at that time.
“Winning the contract from the restaurant, I felt more confident about the future,” Zhang said. “Also, the restaurant has high and low seasons. The association can work with it and adjust our production to cope with its demand curve.”
Both parties agree this is a win-win situation as the restaurant also prefers to deal with the association rather than with individuals. “We sign a contract with one body, that is, the association. Then we leave everything to it, from quality control to timely delivery, which saves us a lot of time,” says Shi Dingguo (史定国), the restaurant owner. “It makes more sense to buy from the association than from individuals, even though I pay a higher price.”
Zhang Zhengjun has also found that with an established association it is much easier to attract support from government and non-government agencies. The US development organization, Heifer Project International cooperated with the association to provide micro-finance to poor farmers to start their breeding efforts, and this expanded the breeding scale of the association. Last year, the association persuaded the provincial government to provide a CNY 1 million grant to support its research and development. A breeding and artificial insemination station is now under construction and expected to come into use in the second half of this year. The association will also send a farmer to receive technical training to work with the centre, which is co-funded by Heifer.
The station will be managed by the association to provide services to all members, ensuring the breed and quality of the pigs.
With production scaled up and technical obstacle overcome, the association has switched its focus to marketing and branding—areas where no local members have expertise. Zhang is one of the few members to have lived outside the village. He has tried his hand at many things: from taxi driving to managing a small hydropower station, and was once involved in pyramid sales for a while. This makes him well-connected with government and the local business community but he knew almost nothing about running an organization or marketing a product.
In 2006, with Heifer Project support, the association organised a meeting that brought together farmers, local government, restaurant owners and marketing specialists as well as animal husbandry specialists. Participants stated their interest in the business and listed their costs at different stage of the chain. By the end of the meeting, all parties agreed on meat price for restaurant purchase and market retail.
Within the association, members agreed on cost and profit sharing. Members make a profit of CNY 4.76 for each kilo they sell through the association. To cover its costs the association keeps CNY 4.4 per kilo sold, investing CNY 1 of this in a mutual fund that serves as an insurance pool for all members.
Members are happy with the result even though CNY 4.4 per kilo goes to the association. “I can rely on the association for all technical support and sales. The fee is reasonable and affordable,” says Cao Guixiang (曹桂祥). “I know I can sell pig directly to the market for a higher price, but I’ll lose my long-term interest by not being a member of the association any more.”
Now, Zhang leaves basic operation of the association to fellow farmers and spends most of his time traveling and marketing. He has reached deals with restaurants in other townships and counties, partnering with one restaurant in each place as the unique supplier of “wild-pig” meat.
He projects that the association will grow from current 126 households to 500 over the next two years and produce 3,000 to 5,000 cross-breeds a year.
“We are applying for organic food certification. Once authorised, we plan to build a factory to make ham and dry meat for sale in tourist shops and even supermarkets in Shanghai.”
However, he concedes that he’s under great pressure as more than 100 families now rely on his marketing efforts.
Experts point out this is when government and non-government organisations should play a role.
“On one hand, it is critical to educate farmers about the value of cooperatives and how they should participate. On the other hand, we need to identify capable leaders and provide guidance to help them better run the cooperatives,” says Liu Denggao of Gung Ho.
In addtion, he points out, government, particularly local, officials need to understand their role. The law stipulates that national support will be given in areas of taxation, finance, sci-tech and human resources for boosting the development of farmer professional cooperatives. The key point, Liu emphasises, is that government should support and guide cooperatives, not coerce or interfere with them, as happened in the past.
“In the end, we want to see farmers take initiatives to find solutions that are best for them,” he adds.
Acknowledgment: our thanks to Heifer Project International for facilitating Chang Tianle’s visit to their project sites in Anhui, Sichuan and Yunnan.