Download Farmer Associations in a Market Economy: Challenges and

FARMER ASSOCIATIONS IN A MARKET
ECONOMY
CHALLENGES AND OPPORTUNITIES
from
CANADIAN and INTERNATIONAL EXPERIENCE
GARY STOREY, UNIVERSITY OF SASKATCHWAN
CANADA
What are the problems that small farmers face in a market economy that can be
most effectively solved by forming farmer associations?
Objective 1
to outline the characteristics of a market driven agricultural
market economy that presents challenges (problems) and opportunities for small
farmers to work together through farmer associations to solve mutual problems.
Objective 2
to outline the alternative types of Farmer Associations that
have been used in the Canadian experience to solve these problems, and respond
to challenges and opportunities and provide examples.
Problems that farmers face in an agricultural market economy
Finance
• lack of credit for capital investments and operating capital
• Resource Problems
• land availability and ownership
• land management
• water management
• farm inputs not available
Low Incomes from Farming
i.e. farm cost/price squeeze
• lack of bargaining ability, resulting in low prices for farm commodities
• high price of farm inputs
Unstable Farm Incomes
• farm commodity price instability
• yield instability
Lack of Information on Agronomic Practices, Markets etc.
Ability to Influence Government Policies and Programs
Characteristics of an agricultural market economy
• individuals (farmers, merchants as buyers of farm commodities, farm
input suppliers, processors, wholesale/retailers, engage in economic
activity for their own benefit (profit)
• result is a competitive rather than a cooperative environment
• structure of markets for farm inputs and outputs is not always
competitive leading to situation of market failures
* those with the best information have bargaining
advantages
* firms that farmers deal with may collude, and act as a
monopoly
• farmers often compete with each other for land and other
resources
• governments often fail to deliver public goods effectively, e.g.
legal framework for organizations, market regulations, research,
information etc.
Can Farmer Associations be a solution to these problems?
Yes, certainly from the Canadian experience
What is a farmer association?
A farmer association is any organization that farmers form
for a particular purpose that is designed to contribute to
their well being.
•
Farmers may organize to manage resources,(e.g. land or water), enter into
joint business arrangements to process and market commodities, to
bargain collectively for inputs or outputs, to conduct research, to provide
information to governments on agricultural problems.
Farmer Associations are a mechanism through which government and
market failures can be addressed and solved.
Farmer associations are usually formed under government
legislation (e,g cooperative) that provides them with the
legal power to make contracts, borrow money, make
investments, etc.
Farmer associations are usually self governed with the
members providing the leadership through an elected board
of directors that hire employees to manage the association’s
chosen activities.
Members set the goals, the policies and thus the direction
for the association.
Problem:
Land erosion due to soil conditions and
farmer agronomic practices
• Solution example #1:
• Farmers with provincial government assistance form
Saskatchewan Soil Conservation Association in 1987
– Objective to promote soil conservation production systems to
improve land for future generation by promoting minimum
tillage
– Objective to represent farmers interests to government on
issues of the environment and the Kyoto agreement
• Solution example #2：
• Saskatchewan government allows farmers using
government owned land to form community pastures to
manage the land for cattle grazing purposes
Problem: Water use and management problems
• Solution example
• Governments passe legislation that allows farmers to form
associations to jointly manage water for irrigation and other uses
• E.g. Province of Alberta Irrigation Projects Association formed in
1946.
HRI
Price
Wholesaler/retailer
Price
Processor
Price
Merchant Buyers
Price
Farm output
Consumers
Co
Problem:
When the grain economy was first established in
Western Canada in early 1900s farmers faced problems marketing
their grain to non competitive grain buyers
• Solution example
• Farmers form Associations for the purpose to lobby the
Canadian government for solutions to marketing
problems, such as weighing, dockage, transportation
etc.
• Canadian government appoints Commission of experts
including farmers to investigate problems and
recommend solutions.
• Government acts on recommendations, passes
legislation and forms authority to regulate the market.
• E.g. Canada Grain Act and Canadian Grain
Commission
– Sets grain standards, grades grain for export, regulates rail
transportation etc.
Problem: Government regulation of certain market problems does
not solve problem of pricing grain where the grain buyers are acting
non competitively
• Solution example
• Through Farmer Associations farm
leaders take action to form grain
marketing cooperatives. E.g. Grain
Growers Grain Company in 1906,
Saskatchewan and Alberta Cooperative
Elevator Cooperatives in 1911,
Saskatchewan Wheat Pool in 1926
• Farmer cooperatives provide competition to
private grain buyers.
• Profits earned in marketing grain returned to
farmers as patronage dividends or reinvested in
businesses.
• Provincial governments assist farmers to
construct local facilities to store and process
grain by guaranteeing loans from lenders.
• Through Farmer Associations, farmers lobby Canadian
government to enact legislation to form Canadian
Wheat Board (CWB) to market grain on behalf of
farmers through a pooling arrangement.
• CWB formed in 1935 and has operated continuously to
market Prairie wheat, oats and barley. (today on wheat
and barley for the export and human domestic market.
• Farmers receive initial payment when grain marketed,
and final payment at year end when all grain is sold
and all costs deducted
• CWB carries out production and market research to
assist market development activities.
Problem:
Farm inputs such as fertilizers, pesticides, feedstuffs
for livestock, farm machinery etc. are either not being provided by the
private market or not priced fairly with sellers making excess profits.
Examples of integrating forward up the market chain
• Solution example #1
• Farmer cooperative grain companies enter into the
input business to supply inputs(fertilizers etc) to local
farm cooperative members at fair market prices.
• Cooperative able to purchase inputs at discount prices
by buying on a large scale basis.
• Solution example #2
• Farmer cooperatives enter into the manufacture of
farm inputs such as farm machinery and other inputs.
• E.g.. Canadian Cooperative Implements Limited
formed in 1940 to buy and distribute farm machinery
to farmers and in 1940 to manufacture farm
implements. Owned by farmers
Problem: Banks and other lenders fail to lend to farmers for
investment and for operating loans, or lend at rates and conditions
that are unfair or unsatisfactory
• Solution: Canadian farmers, fishermen and
others form credit unions (caisses populaires in
Quebec) to provide financial services to
members. Credit unions are cooperative
financial institutions owned and controlled by
their members. The ownership and governance
is based on cooperative principles. Customers
must become members.
• There are 10 million members of credit unions
in Canada, 33 % of Canada’s population, 70%
in Quebec and 60% in Saskatchewan. Credit
Unions have 40%of assets of deposit taking
institutions.
• Where private banks close credit unions enter
the market to ensure that all Canadians have
access to financial services.
• They have been innovators; first to offer
consumer loans, first to introduce ATMs.
Problem:
Governments fail to provide public goods such as
research, information, market development. Or governments provide
opportunities for farmers to participate in joint cost sharing
programs to provide public goods.
• Solution:
Under legislation farmers
develop associations that provide for
voluntary and compulsory check-offs on
farm sales of commodities. Money used
to conduct research to assist in farm
productivity (e.g.. plant breeding,
fertilizer trials etc,) market development,
information to farmers.
• Check-offs range from 0.5 to 1.0 % of value of
sales or as a levy on quantity marketed. Levies
collected by buyers of commodities.
• Associations are commodity based such as
Saskatchewan Canola Development
Commission, Saskatchewan Pulse Growers
Association and others, Canola Council of
Canada and others23.
• Associations are governed by farmers electing a
board of directors that hires management to
carry out Association programs.
Premium
Price
VALUE
SUPPLY
CHAIN
Consumers
HRI
Wholesaler
Retailer
Identify
Premium
Premium
Price
Processor
Premium
Price
Farm
Output
Problem and Opportunity:
Problem that there may be no
processor of a particular farm commodity, or farmers see opportunity
to move up the value chain and engage in processing
• Solution: Farmers use model of new
generation cooperative (NCG) to engage in
processing of farm commodities.
• In some cases the Cooperative would tend to
follow the value chain approach to identify and
develop food products for a specific group of
consumers or market that is willing to pay a
premium price for the product.
• NCG has closed membership, delivery rights to
the farm commodity tied to level of farmer
equity investment, and often high level of
investment required by farm member.NCG
• Examples found in the United States such as
NGC？’s formed in the 1970s to process sugar
beets when private companies were closing
processing plants.
• Bison ranchers in 1992 form North American
Bison Cooperative to process bison.
Market
Expenses
Government
-legislation
-regulation
Revenue
Price
价格
Net
Income
Farm
Output 农场产出
Productivit
y
Price
Inputs
Manag’t
Labour
Farm and
Household
Research
Information
Land
Capital
Farmer
Associations
Conclusions: From Canadian experience with farmer
associations
• Historically and currently farmer associations
have played a very important role in the
Canadian agriculture and food industry in
improving farm income and farmer well being
through economic, social and political actions.
• Most farmer associations that have engaged in
business activities have tended to follow a
cooperative legal and governance structure.
• Principles of cooperation(trust, honesty, willing
to work together) amongst members have been
important to the success of farmer associations.
• External agents from government and from the
cooperative sector have been instrumental in
the formation of new cooperatives, but only
after farmers have made the decision to form
an association.
• Leadership from farmers has been a necessary
condition for farmer association success.
• Governments must be prepared to provide enabling legislation
under which farmer associations of many types can be formed,
including cooperative legislation, marketing board legislation, and
provide policies and programs that assist farmer associations to
carry out their activities in a successful manner.