By Yuan Peng,

Researcher of Rural Development Institute of Chinese Academy of Social Sciences
Vice Chair of ICCIC

Abstract: Since the reform was launched in China, the rural cooperative organizations have developed into two types of organizations. The first is the community-based rural cooperative organization mandatorily formed on basis of the People’s Commune system under the guidance of the government, and the second is the new type professional cooperative organization launched by farmers voluntarily with the encouragement of the government. The former produced very little effect as it was created by the government mandatorily and could not completely break away from the traditional operational mode of the People’s Commune system, while the latter is an innovated organization formed by farmers to meet the requirements for the development of the market-oriented economy, has full support of the government, and is therefore full of vitality. To look ahead, the rural cooperative organization will become a trend in improving the basic management system of the rural economy; of which, professional rural cooperatives will play a leading role in this regard. But, the development and innovation of rural cooperative organizations still face two challenges: insufficiency of external drivers of the cooperative undertakings, and insufficiency of entrepreneurial cooperative leaders.

The all-round responsibility system-centered reform of the economic system launched in rural China in late 1970s brough great changes to the production and management system in rural areas, and fundamentally shaked the then prevailing rural economic organization system under the traditional planned economy system --- the People’s Commune system in rural areas. The widespread implementation of the household contract system in rural areas turned farmers as single laborers under the traditional People’s Communne system into independent small-scale producers and operators possessing private properties. The introduction of the market system and the reform of the state’s monopoly on the purchase and marketing of agricultural products gave farmers decision-making rights on the production, management and sales of some agricultural products, and enabled farmers to play a key role in the production and be responsible for profits and losses. The market-oriented reform of rural China directly created economic system, private property system and market-oriented economic system on which cooperative organizations rely for existence

Since the reform, rural cooperative organziations in China have developed in the following two ways: first, traditional cooperative economic organizations under the People’s Commune system was reformed under the guidance of the government, including reform of community-based (regional) rural cooperative organizations and reform of the credit cooperative and supply and marketing cooperative system ; and second, new type professional cooperative organizations were formed by farmers voluntarily with the encouragement of the government.

I. Reform and Development of Rural Community-based Cooperative Organizations
The initial reform of rural community-based cooperative organizations was directly driven by and under the guidance of the government. The more important driving force comes from the innovation of farmers as well as wide implementation of household contract system.

1. Before the mid- and late 1980s: regional cooperative organizations were established to replace the tranditional People’s Commune system
In 1982, 98.7% of production teams in rural China implemented the agricultural production responsibility system, and more than 80% of production teams adopted the household contract system.   The circular No. 1 issued by the CPC Central Committee in 1984 made clear that in order to improve the system combining unified management and decentralized management, regional cooperative organizations on basis of public ownership of land shall be set up in rural areas. This notification indicated the way to reform the raditional People’s Commune system. The circular No. 1 (1987) issued by CPC Central Committee further set forth that basic functions of cooperative organizations at township and village levels should be to serve the production, manage and coordinate, accumulate assets, and exploit resources.

The central government pushed ahead with the building of community-based cooperative organizations featuring the combination of unified management and decentralized management and enabling of double-level management, aiming to, through unified management of the cooperative organization, solve those problems which farmers themselves cannot solve at all or cannot solve well, and also facilitate the fulfillment of quota assigned by the government. As some comrades has pointed out, in rural areas, “double-level economy” has formed within the traditional rural collective economy, instead of only “double-level management” .   That is to say, a household has become an independent economic entity, rather than a level involving in the production and sales within the collective economic organization. As an independent entity having the right on production and sales, households are not confined to doing part of the production and sales activities of collective organizations. Households have more decision-making powers and rights to choose what to do, and many of their activities are beyond the only activities around the land contracted. In addition, collective economy is different from cooperative economy in definition. The fundamental distinction is that under the cooperative economy, private ownership system is acceptable, private properties of farmers are protected, and therefore small-scale production mode is protected, and that the purpose of the collective economy is to eliminate the private ownship system of properties among members, eliminate small-scale production mode, and make properties be owned by the collective.

For the above reasons, regional cooperative organizations featuring the combination of unified management and decentralized management and enabling of double-level management did not completely break away from the traditional operational mode of the People’s Commune system. Designed and mandatorily formed by the government, not formed by farmers voluntarily, this kind of organization served no purpose just like the outdated People’s Commune system.

2. In the late 1980s: reform in pilot rural areas launched to introduce the shareholding cooperative system

In 1987,   the central government launched a project aimed to innovate cooperative organizations and management systems in China’s pilot rural areas for reform. Under this project, the reform of cooperative organizations and basic managmeent system was one of the project’s tasks.   While reforming the community-based cooperative organizations, focus was on liquidating the assets of the collective, defining the property rights and promoting the public accumulation, so as to improve the system of cooperative organizations at county, township and village levels. As a result of lagging reform of local government departments as well as insufficiency of applicable laws, the reform results were not satisfactory. However, rich experience was gained, which further justifies that a sound legal environment and mature market-oriented economy are important preconditions for the healthy development of cooperative organizations.

At the same time, in late 1980s, a reform was launched voluntarily by some cooperatives such as Guangzhou Tianhe Cooperative and Shenzhen Henggang Cooperative, to introduce the shareholding cooperative system in rural community-based cooperative organizations. This happened due to the fact that members of the cooperative organization hoped to share the earnings of the organization , so as to ensure the transfer of surplus rural laborer force during the urbanization of rural areas and industrialization process. With part of collective properties of a village’s cooperative organization converted into shares for all the members of the cooperative, members began to partly enjoy the earning right of members on the collective properties. For reason of socialist public ownership system, however, the equity owned by villagers was limited and not full, and villagers could only enjoy the earning right, but had no right to sell or dispose, and could not assign, mortgage or even inherit their shares. Such reform was far from satisfactory to members. In 1994, Guangzhou Tianhe Cooperative launched an overall reform. All the collective properties were converted into equity for all its members who received dividends according to their shares, and shares could be inherited . Thus, the overall shareholding system has become a necessary trend in the reform of community-based cooperative organizations. In addition, the purpose of the reform is not how to provide more services for members, but to ensure the earning right and transfer right of villagers through privatization of assets of the cooperatives.

3. Since 1990: shareholding cooperative system reform expanded to other areas to introduce land shareholding cooperative system

Since the beginning of 1990s, the community-based cooperative organizations in Nanhai, Guangdong have introduced a land-based shareholding cooperative system in an overall manner to protect the legal rights and interests of farmers whose land was requisitioned by the state, and enable those farmers to enjoy the value-added revenue of the requisitioned farmland. Under the system, the use of the land owned collectively was under an overall plan reasonably, and the land was converted into the equity for all the members to achieve the capitalization of land, promote the reasonable transfer and effective utilization of land resources, reduce the obstacle against the transfer of rural labour force into non-agricultural sectors, and ultimately accelerate the development of non-agricultural industries.
In the mid- and late 1990s, the land-based shareholding cooperative system reform was deepened in some villages in Nanhai, implementing a “longlasting fixed equity” system. At the same time, measures were taken to improve the individual rights of members, so that members, while enjoying the earning rights, had the right to dispose such equity, and could inherit, transfer, donate and mortgage such equity within the community.

Since the beginning of the 21st Century, the collectively-owned economic organizations at village level in southern regions and central parts of Jiangsu, where the economy was thriving, have launched the reform to introduce the shareholding cooperative system, by consulting the reform experience of cooperative organizations in Guangdong. While liquidating the operational assets owned collectively except land, the focus was on quantifying the operational assets of the organization for all the villagers. In individual places such Kunshan, the land-based shareholding cooperative system was introduced. In many places, however, cooperative organizations at village level and villages were usually governed by the same management team, which is called Shareholding Cooperative. Thus the reform was far from satisfactory, and functions of the village committee and the cooperative organization as an enterprise were intermingled.

From the point of view of the development trend, tranditional community-based cooperative organizations are fading out. Large-size community-based cooperative organizations with considerable strength will be restrucured into organizations owned by all the villagers; accordingly, the community-based cooperative organizations will be replaced by village-based companies and groups.

II. Development of New Type Professional Cooperative Organizations

Rural professional cooperative organizations are the representative new type organizations formed through the development and innovation of rural cooperative organizations in China. They come after the reform of the economic system in rural areas and the development of socialist market-oriented economy. Restructured from the traditional cooperative organizations, they are not confined to the stereotype of the traditional organizations.

1. Before the beginning of 1990s: rural professional technical associations were established
Since the reform policy was first carried out, with the agricultural products market open gradually, the adjustment of agricultural structure has been accelerated. Some professional households engaging in production of same agricultural products took the lead to unite voluntarily under the principles of voluntary compliance, mutual benefit and democracy, while persisting in the household contract system, to conduct technical exchanges and promotion, and introduce new strains and technologies, and form diversified rural professional technical associations. These associations were the initial form of new type professional cooperative organizations in China. With regard to the innovation of rural organizations, circulars No. 1 issued by CPC Central Committee consecutively in 1983, 1984, 1985, 1986 and 1987 voiced express support for the creation of rural cooperative organizations, and also provided timely guidance. The steady development of rural professional technical associations promoted the development of professional households and professional villages, and laid solid foundation for the development of professional cooperatives engaging in agricultural products.

2. In 1990s: professional cooperatives and professional associations thrived at the same time
At the beginning of 1990s, the rural market system for the circulation of agricultural products in China began to take shape. To help large numbers of very small-scale rural households better enjoy the benefits of the market, the agricultural industrialized operation mode first emerged in Weifang, Shandong. Among diversified emerging agricultural industrialized organizations were professional cooperatives engaging in the agricultural products. According to a survey conducted by the Ministry of Agriculture in 1998, cooperative organizations accounted for roughly 30% of total of agricultural industrialized organzations, while professional cooperatives accounted for 60% of cooperative organizations   . Thus, rural professional cooperative organizations have become an important mode of accelerating the agricultural industrialized operation in late 1990s.
At the same time, existing rural professional associations, since the beginning of 1990s, have continued to grow in quantity, size of members and scope of technical services provided, thus playing an increasing role in the popularity of agricutural technologies. In addition, the scope of services for members continued to expand. Many associations, while satisfying the needs of members for technical services, extended the scope of service to the pro- and post-production fields, and gradually grew into compact consortium featuring the sharing of benefits and risks, and ultimately evolved into the professional cooperatives responsible for centralized purchase of agricultural materials and sales of agricultural products.

In general, however, the development of rural cooperative organizations during the period still remained fairly lagging for two reasons: the first is the fact that China’s agricultural industrialization process just began, the scale of professional production by farmers remained small, and the sales mode of agricultural products still remained primitive and traditional, thus the cooperation demands of farmers were far from strong; the second is that the knowledge on cooperative was not widely disseminated, and a sound legal environment is not in place. In addition, the perceptions of rural cooperative organizations varied from the decision-makers to local government officials, which led to a lasting delay in releasing laws, regulations and policies on encouraging the development of rural cooperative organizations, thus failing to provide guarantee for the development of rural cooperative organizations and system innovation.  

3. Since the beginning of the 21st Century, diversified rural cooperative organizations have shown a momentum of rapid innovation and development
Since the turning point of the 21st Century, with the improvement of regulatory environment, especially with the release of the Law of Farmers’ Professional Cooperatives, China’s rural cooperative undertakings have ushered in the best period of innovation and development since the reform and opening up policies were adopted, diversified rural professional cooperative organizations are showing a momentum of rapid growth. This has become a highlight in the innovation of agricultural management organizations and system.

First, grwoth rate is faster, scope of business expands and business features are clear.   Statistics of the Administration of Rural Cooperative Economy show that as of the year of 2007, diversified farmers’ professional cooperative organizations in China exceeded 150,000, and 23,63 million household joined cooperatives, accounting for 13.8% of total rural households nationwide, 55.12 million non-member households joined the cooperative activities, accounting for 21.9% of total; the two categories of households account for a combined 35.7%  

Second, the field and scope of business of cooperatives continue to expand, and service capability continues to improve. While most of cooperatives still engage in planting (49%) and breeding (20.4%), professional cooperatives in the field of on-farm processing of agricultural products, folk-custom travel and making of traditional arts and crafts continue to grow, accounting for over 20% of total. In terms of scope of service, 44.3% of cooperatives provide production, processing and sales services of agricultural products, ranking number one, followed by technical information service, 20.2%, transport and sales services, 8.8%, and processing service 7.9%. In addition, some farmers’ professional cooperatives allow funds mutual-aid service among members, and also provide   such new services as agricultural insurance.

Third, farmer elites have become key force in starting cooperatives. Among 150,000 cooperative organizations across China, 69.2% are started by able farmers and large-size households, 12.7% are started by grassroot departments in charge of agricultural technologies, and the rest are started by leading enterprises, grassroot supply and marketing cooperatives, NGO and personnel engaged in science & technology activities. In addition, professional cooperatives engaging in same agricultural products in individual places begin to join hands to build a joint cooperative.

Fourth, farmers’ professional cooperative organizations achieve increasingly remarkable results in accelerating the agricultural modernization, and the standardized, brand-oriented and professional production of agriculture, and increasing the revenues of farmers. Statistics of the Ministry of Agriculture show that currently the registered trademarks owned by farmers’ professional cooperative organizations total over 26,000, 3267 certificates of pollution-free agricultural products, green foods and organic foods (production base) have been issued for cooperative organizations, accounting for roughly 1/4 of national total. Member farmers registered an average income growth of over 20%.  

Overall, however, farmers’ professional cooperative organizations are still at initial stage of development. Farmers’s professional cooperative organizations are currently characterized by weak overall strength, poor capability of bearing risks, low proportion of member farmers and non-member farmers joining cooperative activities, low proportions of agricultural products sold and agricultural materials purchased through cooperatives, non-standardized internal operation, failure to adhere to basic principles of cooperative, which mirrors an intermingle of principles of cooperative system and company system. All this finds expression in failure to form a democratic decision-making system in the governance of farmers’ professional cooperative organizations, and to build a revenue distribution system according to the principle of returning the surplus. Many cooperative organizations have been controlled by the founders, and the participation of ordinary member farmers was low, no incentive and restraint system featuring the sharing of benefits and risks among members and the organization is established.

III. Prospects: Rural Cooperative Organizations Enjoy High Prospects, and Professional Cooperatives Will Play A Leading Role

1. An innovation trend in improving basic agricutural management system
What shall large numbers of farmers do to improve their capabilities to fit in with the market system in the context of economic globalization and in case of failure of government macro control? The cooperative system provides an effective option for farmers. This system provides an effective mode of safeguarding interests for large numbers of farmers as grassroot class. Cooperatives can help members reduce the transaction cost at the market, obtain the benefits of scale economy, shirk the risks of market and reduce the uncertainty of market through providing market information search service, centralized purchase of agricultural input materials, sales of agricultural products, and joint utilization of agricultural facilities and machines, and providing such services as fund mutual aids and agricultural insurance, and thus accelerates the improvement of market environment for encouraging competition, and plays a key role as the market stick-yard.

For this reason, the cooperative system is an important organizational mode and key path of breaking the limitation of household-based operational mode for effective utilization of productive factors, improving the competitiveness of households, and promoting the development of modern agriculture. It is of great significance to the innovation of China’s basic agricultural management system in the future. The rapid development of rural professional cooperative organizations in China over the years shows that it has become a trend of innovating rural basic management system during the new period for large numbers of farmers to get united for conducting joint operation on basis of household contract system.

2. Professional cooperative organizations will play a leading role
On the one hand, with the continuous deepening of the market-oriented economy, farmers will gradually fall into two groups: professional farmers engaging in commerical agricultural products and semi-professional farmers, which have different demands for cooperation. Compared with semi-professional farmers, professional farmers whose production purpose is to sell the agricultural products have stronger desires for benefits of cooperative organizations. That is why they possibly take the lead to get united voluntarily to engage in production and sales, and sovle common problems and overcome difficulties they come across during the production and sales. On the other hand, with the development of modern agriculture and modern logistics, farmers have to act in light of needs of end-users of agricultural products, and need to introduce modern agricultural management mode, pay much attention to agricutural products quality authentication as well as standardized and brand-oriented production; thus professional households and large size households will play a key role in agricultural production and management. In addition, for purpose of meeting the challenges posed by industrial and commerical capital as well as transnationals, and in order to reduce the management cost, improve the management efficiency and sharpen the competitive edges, farmers shall strive for large size economy. For this reason, professional cooperative organizations highlighting business relations rather than geographical relations will become the key organizational mode representing the future agricultural cooperative organizations.

3. The development and innovation of rural cooperative organizations will face two challenges
The first challenge is the insufficiency of democratic awareness and external drivers of the cooperative undertakings, as well as insufficiency of publicity efforts of cooperative knowledge. In the early years of the market-oriented economy when material deisres dominate, it will directly hinder the innovation process and the establishment of cooperatives. The second challenge is that there are few entrepreneurial leaders with a strong cooperative awareness within the cooperatives; there are risks of turning cooperatives into companies by a few of leaders who, under the pressure of competition from the industrial and commerical capital, might abuse their power and never seek common interests for members.  

In order to respond to the challenge, accelerate the reform and innovation of rural cooperative organizations in a healthy way, the continuous support and tightened supervision of the government are indispensable. Currently, on the one hand, the government shall strengthen publicity efforts of cooperative knowledge and the Law of Farmers’ Professional Cooperatives, spread the spirit of cooperative among farmers and foster the cooperative awareness among the public. On the other hand, the government shall use for reference the experience gained by other countries, allocate special funds for launching cooperative capacity-building programs, cultivate cooperative culture, sharpen the competitiveness of cooperatives, and create favorable conditions for the reform, innovation and development of rural cooperative organizations.