by M Ruete · 2014 — This policy brief focuses on the business model of the cooperative as one that promotes inclusive agricultural investment. It examines the role of investors

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PAGE – 1 ============ Investment in Agriculture June 2014Introduction Investment in farmland has been in the spotlight for a number of years, and is increasingly being seen as a series of filand grabsfl. However, other types of agricultural investment are more common, such as joint ventures, cooperatives, management contracts, contract farming and outgrower schemes. 1 Although not without their own drawbacks, these business models same time being socially and politically acceptableŠ especially by allowing farmers to maintain control over their land, water and other natural resources. This policy brief focuses on the business model of the cooperative as one that promotes inclusive agricultural investment. It examines the role of investors and governments in supporting the development of cooperatives. Although cooperatives are not without their own challenges, they nevertheless provide a valuable potential avenue for investors and farmers to enter into collaborative partnerships and ensure an equitable distribution of returns. Agricultural cooperatives play a crucial role in the development of the rural sector and in promoting food security: In Brazil fi37 percent of agricultural GDP [gross domestic product] is produced through cooperatives; in Egypt, 4 million farmers earn their income through cooperative membership; in Ethiopia the equivalent are collected every day from 12 million farmers in dairy cooperatives. In Europe, agricultural cooperatives processing and marketing of agricultural commodities Inclusive Investment in Agriculture: Cooperatives and the role of foreign investment by Marina RueteWhat Is a Cooperative? of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly owned and democratically controlled cooperatives pool production and resources of farmers for its members. Unlike corporations, they are focused a payment for their capital contributions, it is not linked Different types of agricultural cooperatives operate the cooperative on jointly owned agricultural this arrangement members carry out their activities independently, and the cooperative provides them with a range of services, including machinery, processing, transport, packaging, distribution, marketing and Dutch farmers who combine their purchasing power for Policy Brief #2

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2Cooperatives that facilitate access to markets have been the most popular in terms of linking developing Uruguay, successfully competes in the international Another important category of service cooperatives is a credit cooperative, which allows members to jointly credit unions, farmers pool funds to be loaned to members, and at the same time loans can be raised at better interest rates than those offered by commercial large international banks, such as Crédit Agricole cooperative banks were born out of the needs of local rural populations and have now expanded to provide Advantages of Cooperatives to achieve working individually. According to the exists demonstrating that cooperation leads to a more democratized economy and society at a local, national and transnational level alongside a wide range of other rural cooperatives and farmers™ organizations are key mutual support and solidarity for their members Better access to a wide range of resources and youth, elderly and people with disabilities Cooperatives can also improve relations between farmers and government, as the government can better understand the particular needs of groups in certain geographical areas or businesses, and therefore channel their policies to address those needs. In Israel, fithe partnership between the Government and the cooperative movement has been the cornerstone of their economic and social development,fl while in Panama, ficooperatives are implementing plans and employment programs that are consistent with the strategies of the by spending additional income earned by members Examples of successful cooperatives Denmark: Cooperatives play an important role in Denmark™s agriculture sector. Danish farmers successfully responded to international trade dilemmas using cooperatives that innovatively transitioned grain production to livestock production, and now supply butter and bacon for overseas markets.El Salvador: Cooperatives strongly participate in the coffee market and are agents of local development in contributing to the basic needs of the community. India: After India became independent, milk procurement and marketing in urban areas was a their milk procurer and formed a cooperative, which level federation that ensures a direct link from the producers to the consumers with producers controlling procurement instead of middlemen. This model organized milk marketing in India and has improved not only the business of producers but also the quality of milk arriving to consumers.Kenya: of liberalization measures and was able to continue plans, education and outreach, as well as good farming and a savings and credit cooperative was established

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3Malawi: Centre. Each organization has one vote in the board organizational. The program has been innovative in its approach to poverty reduction in Malawi. United States: cooperative opened a processing plant to add value to their production. A Missouri corn growers™ cooperative was able to enter the ethanol business. An Iowa farmers™ cooperative improved their methods of pork Zambia: raising their incomes through the premium generated cooperative adopting organic farming technologies with production volumes sharply increasing for most Weaknesses of Cooperatives The history of cooperatives is not without its drawbacks, which may include poor organization of producers and a lack of technical knowledge of members. The management of cooperatives is demanding, particularly because of their democratic nature and sometimes due to the inadequate management skills of its membership much greater participation by members, whose roles are a blend of member, owner, manager and employee that have been able to improve their management have Good management skills include an understanding cooperative, serving the needs of the members, as organizing, directing, coordinating and controlling are positive actions every cooperative management should Capital formation and business performance are key issues facing cooperatives. Cooperatives need to take on services and businesses that also make commercial sense and, to support these activities, depend on the However, where cooperatives are small their collective bargaining power is reduced against other actors in the agricultural value chain. It is true that small cooperatives may never achieve the volume that is to conclude that the larger the cooperative the better, this is not necessarily true. Member™s ability to organize plays a central role on the effectiveness of large The Role of Foreign Investment in Agriculture Cooperatives and investment are related in two ways. invest in the activities or businesses of cooperatives. maturity and size, it can also become an investor. It is the governments can promote investment in cooperatives as a tool for agricultural development.The central characteristic of successful cooperatives is organization. This includes organizing the interests of farmers or entrepreneurs, ensuring a strong level management strategy. This is crucial to attracting upgrade the skills of their members, offering investors a more sophisticated and reliable market. Cooperatives bring together dispersed producers and entrepreneurs in the agriculture sector to create economies of scale for their members. They form reliable partners or suppliers for foreign investors analyzing the opportunities and risks of investing in a country™s agricultural sector, the presence of cooperatives in the sector™s value chain lowers the agricultural production, the existence of seed suppliers in a cooperative, or of processing cooperatives, lowers the investor™s perception of risk of seed shortages or of potential buyers for the investor™s agricultural goods 3

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4 investment projects found projects where investors had successfully contracted with outgrowers who were part of cooperatives. Cooperatives were generally encouraged by investors because they facilitated the contract process and logistical arrangements so that, instead of dealing with large numbers of farmers, investors could deal with one cooperative, which made the process easier to manage. According to the study, fithose who were part of cooperatives were particularly vocal about the advantageous access to credit schemes, as well as the ability to get better deals on agrochemicals and fertilizers and sell their produce cooperatives, foreign investors have collaborated in upgrading members™ skills as well as taking advantage of their local integration to channel their efforts to help International Cocoas Initiative project in the Ivory Coast works with cooperatives to minimize the risks of child Cooperatives can also create linkages to other cooperative of farmers producing sugarcane formed a partnership with a processing company that gives farmers shares in the company and representation on its board. These inclusive investment models combine the strengths of the investorŠbringing capital, technology and expertise in management and marketingŠwith those of local farmers who provide cooperatives. The investor can become a member of hand, an investor can also make a capital investment in a cooperative. Many cooperatives, after reaching economies of scale, have accepted the investment The Role of GovernmentThe key factor of success for cooperatives is in the drive and motivation of its members, i.e., their supporting role, in terms of providing information and creating a sound legal environment. But its involvement must be limited and targeted to the needs of cooperativesŠmembers should retain ownership and management.Experience shows that cooperatives created from the bottom up, through initiatives in rural areas, have been more successful than those created through buying bodies bought all cereals from cooperatives. However, following liberalization policies in the late cooperatives were unable to survive in the open market one of the reasons for the failure of cooperatives was the strong interference of the government with little dissolution and liquidation of cooperatives and enforcement of cooperative laws. They should avoid resource development, research and management consultancy, accountancy and auditing, information technology, laws and taxation, and relations with the before and after forming a cooperative can be crucial for farmers and entrepreneurs to make informed decisions. The government should provide the cooperative with an enabling environment to pursue its objectives. cooperatives because of government subsidies to the sector. However, subsidies are not a condition for history in cooperatives without government subsidies In addition, farmers in cooperatives still need to credit, information and networks in order to succeed in business. Cooperative cannot always cover these and concessions governments can encourage particular investment, for example, in innovation. The Legal Framework for Cooperatives be achieved through different types of legislation. Guidelines aimed at creating a supportive environment

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5principles of the International Cooperative Alliance is strongly based on international principles of have developed a large number of cooperatives general, a comprehensive law provides greater legal set of rules that include regulations for cooperatives, Ley 5/2011 de Economía Social a combination of laws like Argentina™s Cooperatives from commercial laws, protects new labour rights and prevents the use of cooperatives to evade social, EU member countries and make reference to national the process for becoming incorporated and registered liquidation and dissolution. At the same time, legislation organize and work in an autonomous manner and to accommodate different sizes of cooperatives. Italy and Cameroon, for example, have strong laws to regulate participation and consultation of cooperatives is essential. The federal cooperative law of Canada was enacted after an extensive nationwide consultation by 1 An outgrower scheme is a contractual partnership between growers or landholders Notes Conclusion Agricultural cooperatives greatly contribute to poverty reduction by offering an inclusive and democratic avenue for economic growth. Cooperatives are key economic players for improving food security. The contribute to improving incomes, creating employment opportunities and integrating small producers. The central characteristic of cooperativesŠorganizationŠis crucial in attracting foreign investment. Clustering smallholder farmers and agriculture entrepreneurs and upgrading their capacities offer investors a more sophisticated and reliable market to invest in.Appropriate policy and legal frameworks are needed for successful agricultural cooperatives. The government can act as a promoter and facilitator, generate policies and programs to support cooperatives, develop adequate infrastructure and social services, and eliminate any barriers to cooperative development. However, onerous legal regimes and requirements

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6References The Contribution of agricultural cooperatives on poverty reduction: A Case Study of Marvdasht, Moshi University Agricultural cooperatives and farmers organizations: Role in rural development and en/ Investing in smallholder agriculture for food security agriculture.pdf Public and private sector roles

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