Agricultural cooperatives in vietnam and their contributions to benefit the rural poor a case study in an giang province vietnam

AGRICULTURAL COOPERATIVES IN VIETNAM AND THEIR
CONTRIBUTIONS TO BENEFIT THE RURAL POOR:
A CASE STUDY IN AN GIANG PROVINCE, VIETNAM

by

Pham Trung Tuan

A research study submitted in partial fulfillment of the requirements for the
degree of Master of Science in
Regional and Rural Development Planning

Examination Committee:

Nationality:
Previous Degree:

Dr. Mokbul Morshed Ahmad (Chairperson)
Prof. J. K. Routray
Dr. Soparth Pongquan

Vietnamese
Bachelor of Economics
Cantho University

Scholarship Donor:

IFP - Ford Foundation – AIT Fellowship

Asian Institute of Technology
School of Environment, Resources and Development

Thailand
May 2007

i


Acknowledgements
I would like to express my heartfelt thankfulness and profound gratitude to my advisor Dr.
Mokbul Morshed Ahmad for his excellent guidance, encouragement, suggestions,
comments and preliminary editorial works throughout this research. The research would
have not been completed in this shape without his constructive suggestions, comments and
great attention to various research steps with a careful review of his work.
My sincere appreciations and profound gratitude are also extended to my committee
members, Professor Dr. Jayant K. Routray and Dr. Soparth Pongquan for their valuable
advice, constructive comments, and suggestions to improve this research.
I am very much indebted to IFP-Ford Foundation and Asian Institute of Technology (AIT)
for providing the opportunity to study at AIT.
Special thanks go to Mr. Vitoon Nil-Ubol, SERD Field Laboratory Supervisor for his
assistance in using the Statistical Package for Social Science (SPSS) for data analysis,
which was very helpful in this study. My appreciation also goes to the secretariat staffs of
SERD Officer 2 for their administrative support throughout the period of my study at AIT.
Sincerely thank is also given to my beloved godmother, Dr. Loudes G. Salvador,
Executive Director of Asian Scholarship Foundation for her kind support and
encouragement throughout the period of his study in AIT.
My sincere appreciations are given to Dr. Do Van Xe – Cantho University, Mr. Le Minh
Tung – An Giang People’s Provincial Committee, Prof. Vo-Tong Xuan, Dr. Nguyen Tri
Khiem, Mr. Nguyen Thanh Long from An Giang University for their strongly speaking in
recommendation of him to IFP-Ford Foundation Scholarship. Heartfelt thanks are also
expressed to my colleagues of An Giang University, Vietnam who strongly supported and
encouraged him to study at AIT.

My thanks to Finance and Planning Department of Tan Chau District, Vinh Xuong
Commune People’s Committee, and Committee and staffs of Tan Tien Cooperative for
their kind support and cooperation during the field work for this research. He is indebted
to the district, provincial's government offices of An Giang province and other
government officers for providing him useful data relevant for this research.
My thanks to all of my seniors, classmates and friends at AIT and RRDP/SERD in
specific for their affection, good care and morale support to him during his hard work at
AIT.
Last but not the least, I wish to express my sincere thanks to his beloved parents, my
brother and sisters who have been encouraging and supporting him to complete this
program at AIT successfully as well.
Those sources of inspiration and encouragement from all of them are essential for me for
successful completion at AIT from the start of my master degree program until the
completion. Those are my words of gratitude.

ii


Abstract
The research studied the performance of the agricultural cooperative activities to benefit
the poor in An Giang province of Vietnam. The main objectives of the research were to
describe the administrative system of agricultural cooperatives in An Giang province; to
evaluate the direct benefits and perceptions of the services of the poor farmers on their
agricultural cooperatives; to analyze the constraints and opportunities of the agricultural
cooperative in terms of providing services and operation for poor farmers in An Giang
province; and to give suggestions for the improvement of sharing benefits to poor farmers
members of the agricultural cooperatives.
The research was conducted with the use of a survey questionnaire at the household level
with a total of 70 respondents who were the members of the agricultural cooperative in the
study area. The research was focused on a quantitative analysis with the support of

qualitative statement.
Main findings of the research showed that the performance of the cooperative was quite
good in providing services to its members due to enthusiasm of the management
committee and staffs, interests from local government, and government support policies.
The members perceived quite high degree of benefits and satisfactions from the various
activities and services offered by the cooperative. These degrees of benefits and
satisfactions of the members were examined in different aspects such as social, economic
and institutional aspects in order to explore contributions of the agricultural cooperative to
the rural poor.
Several problems and constraints were identified in relation to the cooperative’s
performance. They were limited management capacities of the management committee,
lack of operational funds and difficulties in accessibility to credit sources. Certain
potentials were identified as the future prospects for further development of the Tan Tien
cooperative.
Certain recommendations were suggested to improve the performance of the cooperative.
These consisted of enhancing efficient management of local committee and the
cooperative staffs, encouragement of the exchange with other cooperatives and local
institutions for developing leadership skills and increasing members’ participation in
various cooperative activities.

iii


Table of Contents
CHAPTER TITLE

PAGE

Title Page
Acknowledgement

Abstract
Table of Contents
List of Tables
List of Figures
List of Maps
Abbreviations

i
ii
iii
iv
vi
vii
vii
viii

1

Introduction
1.1 Background of the Research
1.2 Statement of the Problem
1.3 Rationale of the Study
1.4 Objectives of the Research
1.5 Scope and Limitations of the Research
1.6 Conceptual Framework

2

Literature Review
2.1 Concept and Principle of Cooperative

2.2 Co-operative Movement in the World
2.3 Agricultural Co-operative Movement in Developing Asia
2.4 Agricultural Cooperative in Vietnam
2.5 Characteristics of Cooperative Movement in Vietnam
2.6 Some Definitions of Agricultural Cooperative in Vietnam
2.7 Economic Factors
2.8 Social and Institutional Factors
2.9 Benefits and Satisfaction of Members

7
7
9
10
13
21
33
36
37
37

3

Research Design
3.1 Type of research
3.2 Selection of Study Area
3.3 Sampling Design
3.4 Data Collection Sources and Methods
3.5 Data Analysis and Techniques
3.6 Research Framework

38
38
38
39
40
42
42

4

Profile of Study Area and Respondents
4.1 Profile of An Giang Province
4.2 Profile of Tan Chau District
4.3 Profile of Vinh Xuong Commune
4.4 Profile of Respondents

44
44
45
48
51

5

The State of the Agricultural Cooperatives in An Giang
Province
5.1 Characteristics of Agricultural Cooperatives in An Giang
Province

56

iv

1
1
2
4
4
5
5

56


5.2 Profile of Tan Tien Cooperative under the study
Perception of Members on Benefits From the Tan Tien
Agricultural Cooperative
6.1 Perception of Members on Benefits Gained The
Performance of the Cooperative
6.2 Members’ Perception on Satisfaction of the Cooperative’s
Performance
6.3 Chapter Summary

59
62

7

Strengths and Weaknesses of the Agricultural Cooperative
7.1 Strengths of the Tan Tien Cooperative

7.2 Weaknesses of the Tan Tien Cooperative

73
73

8

Conclusions and Recommendations
8.1 Conclusions
8.2 Recommendations to Improve the Performance of Tan Tien
Cooperative
References

6

Appendices

62
70
72

75
79
79
80
82
85

v

List of Tables
TABLE

TITLE

2.1
2.2
2.3

Cooperative Movement in the World
Cooperative size in the Northern provinces
State of Agricultural Co-operatives Before Implementation of the
Law
Preliminary Results of the Transformation of Agricultural Cooperatives in 39 Selected Provinces (31 March 1998)
Value of Assets of a Selected Number of Agricultural Cooperatives Undergoing the Transformation Process (31 March
1998)
Sampling Method and procedures
Member sampling
Target Informants
Distribution of Respondents by Gender
Distribution of Respondents by Age
Distribution of Respondents by Educational Level
Distribution of Respondents by Year for Memberships
Amount of Shares
Distribution of Respondents by Sources for buying Shares
Land Holding Size of Households
Distribution of Respondents by Kinds of Cropping
Ranks of Cooperatives in An Giang Province
Business Achievement in the Agricultural Year 2005 - 2006

Perception of Farmers on Degree of Benefits from the Services
Provided by the Cooperative
Members Working for Cooperative’s Services
Number of the Members Working in Service Teams
Type and Degree of Social Benefits Gained from Agricultural
Cooperative
Comparison of Service Fees Charged by the Private Sectors and
the Cooperative (Based on Agricultural Year 2005)
Type and Degree of Economic Benefits Gained from Agricultural
Cooperative
Type and Degree of Institutional Benefits Gained from Tan Tien
Agricultural Cooperative
Degree of Members’ Satisfaction on The Services of Cooperative

2.4
2.5

3.1
3.2
3.3
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
5.1
5.2

6.1
6.2
6.3
6.4
6.5
6.6
6.7
6.8

PAGE
9
16
17
18

19
39
40
40
51
51
52
52
53
53
54
55
56
61
62

64
64
65
66
68
70
72

7.1

Perception of Members on Problems of Tan Tien Cooperative’s
Performance and Management

vi

75


List of Figures
FIGURE

TITLE

1.1
2.1
2.2
2.3
2.4

Conceptual Framework of Research

Agricultural cooperative organization before the policy reform
Vertical Structure of Cooperative Federation
General Structure of Primary Cooperatives in Vietnam
General Organization Chart of the Provincial Cooperative
Alliance in Vietnam
Organization Chart of the Vietnam Cooperative Alliance
Research Design
Current Organizational Structure of Tan Tien Cooperative

2.5
3.1
5.1

PAGE
6
15
21
23
26
27
43
60

List of Map
FIGURE

TITLE

PAGE

4.1

Map of An Giang Province Showing Tan Chau District

vii

49


Abbreviations
ADB
ADI
APO
AusAID
BAAC
BRDB
EC
FAO
FDI
GATT
GO
GSO
HEPR
ICA
IMF
ILO
IRDP
PRSP
UNDP
VBA

VCA
VND

Asian Development Bank
Analyzing Development Issues
Asian Productivity Organization
Australian Agency for International Development
Bank for Agriculture and Agricultural Cooperatives
Bangladesh Rural Development Board
European Commission
Food and Agricultural Organization
Foreign Direct Investment
General Agreement in Tariffs and Trade
Government Organizations
General Statistics Office
Hunger eradication and poverty reduction
International Cooperative Alliance
International Monetary Fund
International Labor Organization
Integrated Rural Development Program
Poverty Reduction Strategy Paper
United Nations development programme
Vietnam Bank for Agriculture
Vietnam Cooperative Alliance
Vietnam Dong

Equivalent: 1 USD = 16,000 VND (December, 2006)

viii

Chapter 1
Introduction
This chapter consists of these components: background of the research, statement of the
problem, rationale of the study objectives of the research, the scope and limitations of the
research, and conceptual framework.
1.1 Background of the Research
Over the past decade (1991-2000), the economy of Vietnam maintained a robust average
annual growth rate of 7.5%. Estimated per capita GDP in the year 2000 was 1.8 times
higher than that in 1990 (IMF, 2001). As a result, the Vietnamese people have experienced
a considerable improvement in their living standards. Remarkable achievements have been
recorded in agricultural production. Vietnam became self-sufficient in food and
transformed into a major food exporter, contributing substantially to socio-economic
stabilization, eradication of hunger and poverty reduction (HEPR). The industry and
services sectors also continue to grow at high rates, thus accelerating the economy’s
structural transformation. The ratio of domestic savings to GDP in the year 2000 was 2.5
times higher than that in 1990. State revenues account for about 20% of GDP (GSO, 2002).
Many socio-economic renovation policies and measures have been adopted recently. The
banking and finance system is being reorganized and renovated. A fair, efficient and
competitive business environment is being created to stimulate greater investment by
individuals and enterprises, both domestic and foreign, and to expand production and
business activities.
However, despite the significant gains of the past decade, Vietnam’s economic growth path
is not yet on a securely sustainable footing. In 1997, the regional economic crisis hurt the
Vietnamese economy, and contributed to a slowing of output growth to only 4.8% in 1999.
Although a revival of economic growth is anticipated, with GDP reversing the previous
declining trend by growing at an estimated 6.7% in the year 2000, it may not be possible to
repeat the high economic growth rates of the mid-1990s. The quality of growth is low; the
efficiency and competitiveness of the economy is not high, and international trade
competitiveness for many sectors and products is weak. The pace of change in production

techniques, technologies and management styles is slow. Especially, 32% of the total
population of a little more than 27 million has remained poor. Vietnam is still one of the
poorest countries in the world with GDP per capita of just about US$400 per year (UNDP
Vietnam, 2005). It is on its road of a long and difficult transition from a centrally planned
economy to market-oriented one. Vietnam is still largely an agricultural economy, with
roughly 80% of its 85 million people living in rural areas and where jobs are scarce and
basic social services missing.
Poverty is mainly concentrated in rural areas, particularly in poor farming households.
Over 90% of poor households live in rural areas (GSO, 2005), mainly work in agriculture
or have unstable jobs, and have few off-farm employment opportunities. They tend to have
a low level of education, limited professional and business skills, poor access to credit,
physical infrastructure and social services, and they have difficulty selling their products.

1


Therefore, poverty reduction has been a central goal of the government and a driving force
behind the economic reform of the past decade. To combat poverty, Vietnam has
implemented a comprehensive strategy on growth and poverty reduction and a program on
hunger eradication and poverty reduction (HEPR). The former is focused on poverty
reduction through socioeconomic development in general while the latter is aimed at
helping the poor to get jobs and improved income. The specific programs include
developing infrastructure in poor communes; helping the poor with capital, housing, health
care and education; developing new economic areas through settlement and emigration;
improving cadre capacity; and assisting the handicapped people e.g. elderly, orphans, war
casualties. Government agencies and instrumentalities as well as social organizations have
been mobilized to help implement HEPR.
The social organizations and labor representatives recognize the role of Agricultural
cooperatives in assisting the poor resolve social issues affecting them in the remote and
rural areas of the country. There are presently about 15,500 cooperatives and cooperative

unions and 150,000 cooperative teams. These cooperatives have been playing noticeable
role in the area of socioeconomic development, especially in 10 job creation. So far, they
have produced 14 million jobs and accounted for about 20% of the country’s GDP. Each
cooperative has an average income of 500,000 VND per month (VCA, 2005).
The cooperatives have also contributed significantly in the implementation of the HEPR,
thereby contributing to the bridging of the gap between the rich and poor. Specifically, the
cooperatives provided the poor with assistance in production, market development, job
creation, training and resource mobilization. Besides, in the current context of Vietnam,
rural areas are usually out of the domain of the International Labour Organization (ILO)’s
social partners, employers’ and workers’ organizations as well as central government. In
these areas, the nearest institutes to the poor are local cooperatives.
1.2 Statement of the Problem
Meanwhile, in the south of Vietnam cooperatives become more complex as they grow and
respond to competition. At the same time, members become more demanding, as freer and
more efficient markets increase their opportunities. These change traditional mechanisms
of solidarity, and require the adoption of new financial strategies that encourage members
to patronize the cooperatives and become involved in democratic decision-making in its
business operation (Pishke, 2004).
Agriculture cooperatives for rural farmers have been paying a very pivotal role for poverty
eradication in Vietnam since its establishment in 1960s. Membership in the agricultural
cooperatives generated various benefits for the rural poor including the social, economic
and institutional aspects. The cooperatives in Vietnam created about 14 million jobs for the
rural people that contributed about 20% of the country’s GDP (AusAID, 2002).
However, this local institution still faces several major challenges and problems namely;
unclear identification of operation scale, uncertainty of cooperatives, lack of technical
knowledge and experience and complexity (APO, 1996)..
The cooperatives’ operation is still small and the connection inside many cooperatives is
not clearly identified. In addition, the management skill is limited due to lack of education
and training. Also, the real poor farmers do not actually obtain the interest from

2


participating in cooperatives. Many cooperatives just accept rich and powerful households
to provide services in the local. Because the poor households have low income and
landless, so they can not afford service charge. It is hard for the poor to join in and enjoy
those services. The agricultural co-operative sector is neglected in national poverty
reduction strategies (ICA, 2003). The general public still under estimates the scope and
size of the agricultural co-operative movement and thus how it affects provincial and
national economies and society in general (ICA, 2003).
On the other hand, the cooperatives seem to have wrong ideas which cause troubles for the
development of cooperatives in particular of collective economy in general. Many people
have thought that cooperatives have the similar roles as stock join companies, profit from
doing business is an essential criteria to assess the success of the cooperatives, so the
attention on profits and loss of cooperatives have been more paid than to benefits of
participant.
Due to Harms (2006), most cooperatives have operated under marginal conditions, with a
inadequate resources and lack of capital. Between 1988-1994, more than 2,950 cooperatives including agriculture ( i.e 17.4 % of the total of former cooperatives) and 33,800
production groups ( i.e 93 % of the total number of production group) were dissolved by
their members. Another, obvious instance was a case of cooperatives and production
groups in the North Mountain Region which were dissolved after land had been allotted to
former members. Without sufficiency of resources and capital, cooperative seem to be very
slow in its development and lack in sustainability.
There is a lack of technical knowledge and experience as regards the promotion and
operation of genuine agricultural service cooperatives or alternative farmers' organizations
within Vietnam, as farmers, soon after the liberalization at 1945, have been pushed
vigorously to organize themselves into large-scale kolkhoz type agricultural collective
farms after a very short period of interfarm cooperation within small mutual assistant
teams. The Vietnamese farmers never really enjoyed the experience of managing
autonomous small farms being integrated into or cooperating with their own voluntary

cooperative service structures of the classical Raiffeisen type society. With the exception
of savings and credit cooperatives organized during the colonial time, service cooperatives
were used (misused) as transitional organizations towards collective economy
organizations (Kirsch, et al, 1997).
Contribution of the cooperatives to poverty alleviation is still unrecognized by some
development institutions such as local authorities, local farmer associations, the World
Bank, or even poor people themselves are not aware of the opportunities offered by
agricultural co-operatives (ILO, ICA, 2003). Sometimes it is said that co-operatives do not
help the poorest. But we must keep in mind that by definition co-operatives practice open
membership, which means that they do not exclude the poor or the poorest and that in fact
the socially weak should be motivated in most cases to form their own co-operatives.
There is a co-operative model for almost every problem faced by the poor and the poorest
and it does not require necessarily huge financial resources. But it is true that most poor
people are not aware of the opportunities offered by co-operatives.

3


1.3 Rationale of the Study
As mention of above, agricultural cooperatives have increasingly played a role in poverty
reduction in the rural areas of Vietnam as well as in An Giang province, especially in
regards to improving the livelihoods of the poor.
However, the contribution of the cooperatives to poverty alleviation is still unrecognized
(ILO, ICA, 2003). The presence of agricultural cooperatives remains important since some
90 percent poor Vietnamese heavily relied on cultivation. The study provided an image of
the agricultural development of Vietnam under the economic reforms. The role of
cooperatives was shown through their offered marketing and agricultural input services.
Also, the ultimate aim of this study is to make clear about characteristics, the role and its
significant contribution to poverty reduction of agricultural co-operatives.
The findings of this study would help to improve the agricultural cooperatives in the future

operation by identification of the constraints and potentials as well as needs for the
performance of the agricultural cooperatives. At the same time, the results on the strength
and constraints of the leadership of the cooperative would help to point out the areas of
improvement for the management aspects of the cooperatives.
The results would serve for the Ministry of Agriculture and Rural Development in Vietnam
to provide specific technical and financial support and make a plan for agricultural
cooperative. Meanwhile, the An Giang Co-operative Alliance, Vietnam Co-operative
Alliance, International Co-operative Alliance, and the Co-operative Branch of ILO would
also benefit from such research. They are most important institutions because they are
working closely to the farmers in the sectors of agricultural cooperatives. The research will
also give the real situation of the cooperatives’ condition.
1.4 Objectives of the Research
The overall objective of the research is to examine the contribution of agricultural
cooperative to the rural poor in An Giang Province. Therein, the specific objectives of the
study are:


To describe the administrative system of agricultural cooperatives in An Giang
province;



To evaluate the direct benefits and perceptions of the services of the poor farmers
on their agricultural cooperatives;



To identify the constraints and opportunities of the agricultural cooperative in terms
of providing services and operation for poor farmers in An Giang province; and



To give suggestion some guidelines to strengthen the operation of the cooperative
for the benefits of the poor farmers.

4


1.5 Scope and Limitations of the Research
The emphasis of this study would be placed mainly on characteristics and contributions of
the agricultural co-operatives to rural poor in An Giang province, Mekong Delta, Vietnam.
The scope of the research highlighted the role and potential of new agricultural cooperatives in poverty reduction by creating awareness as well as drawing attention on the
significant contributions of agricultural co-operatives in poverty reduction. Actually, in
Vietnam a district is consisted of approximately 7-10 agricultural cooperatives. In this
study, a cooperative was closely observed and studied to get knowledge about the roles of
agricultural cooperatives to reduce poverty of people in the rural areas.
Firstly, the study was focus on the administrative system of the Tan Tien agricultural
cooperative by describing the types of cooperatives, sizes, financial sources, management
and so on. On the other hand, the conditions of cooperatives would also be examined based
on the present situation, membership and operations.
Secondly, the perceptions and benefits from rural people on the studied agricultural
cooperative were evaluated in order to get know how useful the cooperatives are for
farmers in the rural areas. Within the scope of this research, the benefits created by the
cooperative included the social, economic and institutional aspect. The satisfaction of the
cooperative members was based on the services offered by the cooperative comprising of
fertilizer, irrigation and land preparation services.
Lastly, potentials were assessed from the cooperative in order to see the strength of the
services. Also, problems were critically analyzed in order to improve the situation of
agricultural cooperatives in the future.
1.6 Conceptual Framework

The conceptual framework of the research is presented in the Figure 1.1.
The research examined the exiting situation of agricultural cooperative’s performance in
the study area including benefits and satisfaction of the members through the services that
cooperative offered to its members (fertilizer supply, irrigation, land preparation service).
Key aspects influencing cooperative members’ perception on benefits included social,
economic, and institutional aspects. The social aspects consisted of membership,
knowledge and skills, and employment opportunities. The economic aspects comprised of
increased income, yield, and better price for purchase of inputs, while the institutional
aspects covered provision of training, and equality in democratic management.
Satisfaction of the members were examined through satisfaction of each service including
satisfaction on fertilizer service, satisfaction on irrigation service, satisfaction on land
tilling service.
Problems, constraints and potential of the cooperative’s performance could be then
identified in the cooperative’s performance. Finally, based on findings and conclusions,
certain recommendations could be suggested to strengthen the cooperative’s performance
in the coming years.

5


Fertilizer Supply

Irrigation

Land Preparation

Types of Services

Tan Tien
Cooperative

Social Aspects:
- Membership
- Knowledge and
skills
Economic
Aspects:
- Increased
income
- Increased yield
- Better price for
purchase of
inputs
- Employment
opportunities

Institutional
Aspects:
- Provision of
training
- Equality in
democracy

Satisfaction
of the
Members

Benefits

Satisfaction on

Fertilizer Service

Satisfaction on
Irrigation Service

Satisfaction on
Land Preparation
Service
Constraints of
Agricultural
Cooperative

Potentials of
Agricultural
Cooperative

Recommendations to
Improve Performance

Figure 1.1: Conceptual Framework of the Research

6


Chapter 2
Literature Review
This chapter describes the concept and principles of cooperatives, co-operative movement
in the world, agricultural co-operative movement in the developing Asia, as well as in
Vietnam. The chapter also mentioned about the characteristics of cooperative movement in
Vietnam, some definition of agricultural cooperative in Vietnam. At the same time, the

economic, social and institutional factors, the benefits and satisfaction of members, poverty
and deprivation, and the current poverty situation in Vietnam were also discussed.
2.1 Concept and Principles of Cooperative
2.1.1 Concept of Co-operative
Cooperative is a self-supported economically autonomous organization of the members
who have the same need and interests. They voluntarily contribute money and labor for the
foundation of Cooperatives in accordance with legal regulations in order to improve the
power of a group and of an individual so as to help each other to carry out production and
business activities effectively, provide services to improve life standards making a
contribution to the socio-economic development of the country (the Vietnamese
Cooperative Law, 2003).
A cooperative is a private business organized and joined by members to fulfill their mutual
economic needs as patrons of the business, with the key control, ownership, and income
distribution decisions based on patronage proportions; namely, member voting, equity
capital investment by patrons, and distribution of net income to patrons are proportional to
use of the cooperative (Barton, 1989). It is a business voluntarily owned and controlled by
its member patrons and operated for them and by them on a not-for-profit or cost basis. It
is also owned by the people who use it. Cooperatives are organized and incorporated to
engage in economic activities with certain ideas of democracy, social consciousness and
human relations included. A cooperative provides services and benefits for its members in
proportion to the use they make of their organization, rather than earning profits for the
shareholders as investors (University of Wisconsin Center for Cooperatives, 2000).
Cooperatives are based on the values of self-help, self-responsibility, democracy, equality,
equity and solidarity. In the tradition of their founders, cooperative members believe in the
ethical values of honesty, openness, social responsibility and caring for others (ICA, 2003).
2.1.2 The Principles of Cooperatives
The principles of cooperatives are guided which put the values of cooperatives into
practice.
First Principle: Voluntary and Open Membership: Cooperatives are voluntary
organizations, open to all persons able to use their services and willing to accept the

responsibilities of membership, without gender, social, racial, political or religious
discrimination (ICA, 2005).

7


Second Principle: Democratic Member Control: Cooperatives are democratic
organizations controlled by their members, who actively participate in setting their policies
and making decisions. Men and women, serving as elected representatives, are accountable
to the membership. In primary cooperatives, members have equal voting rights [one
member one vote], and cooperatives at other levels are also organized in a democratic
manner (ICA, 2005).
Third Principle: Member Economic Participation: Members contribute equitably to, and
democratically control, the capital of their cooperative. At least part of that capital is
usually the common property of the cooperative. Members usually receive limited
compensation, if any, on capital subscribed as a condition of membership. Members
allocate surpluses for any or all of the following purposes: developing their cooperative,
possibly by setting up reserves, part of which at least would be indivisible; benefiting
members in proportion to their transactions with the cooperative; and supporting other
activities approved by the membership (ICA, 2005).
Fourth Principle: Autonomy and Independence: Cooperatives are autonomous, self-help
organizations controlled by their members. If they enter into agreements with other
organizations, including governments, or raise capital from external sources, they do so on
terms that ensure democratic control by their members and maintain their cooperative
autonomy (ICA, 2005).
Fifth Principle: Education, Training and Information: Cooperative provides education and
training for their members, elected representatives, managers, and employees, so that they
can contribute effectively to the development of their cooperatives. They inform the
general public – particularly young people and opinion leaders – about the nature and
benefits of cooperation (ICA, 2005).

Sixth Principle: Cooperation among Cooperatives: Cooperatives serve their members
most effectively and strengthen the Cooperative Movement by working together through
local, national, regional and international structures (ICA, 2005).
Seventh Principle: Concern for the Community: Cooperatives work for the sustainable
development of their communities through policies approved by their members.
(ICA, 2005)
2.1.3 Salient Functions






Marketing
Enable the members to extend control of their products as long as the cooperative
retains physical or legal title through processing, distribution, and marketing (ICA,
2003).
Purchasing
The members are able to reduce production costs through quantity purchasing,
manufacturing, and distribution of products. Cooperatives are also able to provide
a dependable supply of quality products for its members (ICA, 2003).
Servicing
Cooperatives are able to provide specific services, or more general services to their
members (ICA, 2003).

8


2.1.4 Types of Cooperatives
Producer-owned cooperatives are owned by farmers, producers or small businesses to

process and market their goods, and to provide themselves with credit, equipment and
production supplies (ICA, 2003).
Consumer-owned cooperatives enable consumers to secure a wide array of goods and
services, such as health care, utilities, insurance, housing, heating fuel and hardware
supplies (ICA, 2003).
Worker-owned cooperatives include employee-owned food stores, processing companies
and restaurants, taxi cab companies, sewing companies, timber processors and light/heavy
industry (ICA, 2003).
2.2 Co-operative Movement in the World
The cooperative movement is growing throughout the world. The International
Cooperative Alliance (ICA) was formed in 1895 - today it has more than 200 participating
organizations with over 800 million members in nearly 100 countries! In 1994, the ICA
and International Labor Organization (ILO) launched a global co-operative campaign
against poverty, Co-operating Out Of Poverty, urging the worldwide cooperative
movement to work together to fight poverty by helping the poor to form cooperatives.
Table 2.1:

Cooperative Movement in the World

1752

The first successful cooperative organized when Benjamin Franklin formed the
Philadelphia Contributionship of the Insurance of Houses from Loss by Fire.
1844
The Rochdale Equitable Pioneers Society opened a cooperative story on Toad
Lane in Rochdale, England. Toad Lane is considered the birthplace of modern
cooperatives because the principles and practices of the Pioneers assured the
success of the cooperative model.
1865
Michigan passed the first law recognizing the cooperative method of buying

and selling.
1895
The International Cooperative Alliance (ICA) was established.
1916
The first national cooperative association formed--the National Cooperative
Business Association in every member countries.
1922
Congress passes the Capper-Volstead Act allowing farmers to market products
together without violating antitrust laws.
1929
Farm Credit Administration forms.
1934
National Credit Union Administration forms.
1936
Rural Electrification Administration forms.
1978
Congress passed the National Consumer Cooperative Bank Act, establishing
the National Cooperative Bank.
Source:(ICA, 2005).
The Co-operative Movement brings together over 800 million people around the world.
The United Nations estimated in 1994 that the livelihood of nearly 3 billion people, or half
of the world's population, was made secure by co-operative enterprise. These enterprises

9


continue to play significant economic and social roles in their communities. Below are
some facts about the Movement that demonstrate their relevance and contribution to
economic and social development (ICA, 2005).
Large segments of the population are members of co-operatives and as follow:















In Argentina, there are over 17,941 co-operative societies with 9.1 million members
(ICA, 2005).
In Belgium, there were 29,933 co-operative societies in 2001(ICA, 2005).
In Canada, 1 in 3 individuals is a member of a co-operative (33%). The Desjardins
co-operative movement in Québec has over 5 million members (ICA, 2005).
In Colombia over 3.3 million people are members of co-operatives or 8.01% of the
population. (Sector Cooperative Colombiano, 2005)
Costa Rica counts over 10% of its population as members of co-operatives.
Finland, S-Group has a membership of 1,468,572 individuals which represents 62%
of Finnish households. (Corporation Annual Report 2004)
In Japan, 1 out of every 3 families is a member of a co-operatives.
Kenya 1 in 5 is a member of a co-operative or 5.9 million and and 20 million
Kenyans directly or indirectly derive their livelihood from the Co-operative
Movement .
In India, over 239 million people are members of a co-operative (ICA, 2005).
In Malaysia, 5.4 million people are members of co-operatives (ICA, 2005).

In Singapore, 32% of the population (1.4 million people) is members of a cooperative (ICA, 2005).
In the United States, 4 in 10 individuals is a member of a co-operative (25%) (ICA,
2005).

2.3 Agricultural Co-operative Movement in the Developing Asia
2.3.1 General Context
The cooperative movements in the Asia and the pacific region with the exception of Japan
were basically dependent on the agricultural economy. The movements gradually emerged
from their initial role as rural credit source to their present role as diversified communal
servicing institution. The beginning of the cooperative movement which grew from
different circumstances is now at different stages of development. Some have developed
faster than others while the rest lags behind for political, social, economic, or other
reasons.
The agricultural cooperatives’ orientation was primarily directed towards increasing
agricultural productivity and financial assistance was initially intended for production.
However, this scope was gradually widened to credit for marketing, processing and other
post-harvest activities. Governments initiated the formation of agricultural cooperatives as
conduits for channeling financial assistance to farmer-members. Cooperative banks, banks
for cooperatives, and government-owned financing institutions were created to provide
rural finances to cooperatives.
10


2.3.2 Agricultural Co-operative Movement in Bangladesh
All cooperatives in Bangladesh are subject to audit and inspection of the Registrar of
Cooperatives (RCS) under the Department of Cooperatives and responsible to it for quasijudicial matters. However, for purposes of registration and supervision, cooperatives may
either be affiliated with RCS or with the Bangladesh Rural Development Board (BRDB).
Cooperatives under RCS have evolved since the beginning of the century, and vary in their
organizational structure. On the other hand, BRDB cooperatives have developed from the
Integrated Rural Development Program (IRDP) which, in turn, was the outcome of the

experimental Comilla model of rural development. They are two-tiered, having primary
societies at the village level and secondary societies at the upazilia/thana level.
The functions of primary agricultural cooperatives (PACs) are mainly to generate credit
and supply it to farmers. In addition, PACs procure and supply inputs such as HYV seeds,
fertilizers, pesticides, and minor irrigation equipment. The upazilla/Thana level
cooperatives basically acts as conduits in the flow of the above resources from the central
to the village level, They also impart training to managers and other key members of PACs
with the aim of disseminating knowledge among the general members through their
weekly meetings.
The performance of PACs under both RCS and BRDB has been poor. The main reasons
for this are the breakdown of credit operations due to strict and unrealistic requirements for
obtaining credit, large-scale default, lack of accountability of managers and managing
committee to the general members, failure of members to comprehend the true spirit of
cooperation, and lack of efficiency in the running of the business to enhance the financial
viability of the cooperatives. Since their inception, BRDB cooperatives have continued to
receive much support from the government through funds from donor agencies. This
impeded the growth of self-reliance among these cooperatives.
From a few examples of successful cooperatives, the following success factors are
identified: 1) committed and dynamic leadership; 2) accountability of the management to
the general members; 3) participation of the general members in decision-making and their
easy access to accounts for their scrutiny; 4) diversification of activities; and 5)
combination of business-oriented and welfare approach in the activities of the PACs.
In light of the recent policy shift in favor of privatization and market deregulation, the
scope of the PACs in acting as conduits for subsidized credit and inputs has become
limited. They are likely to be more effective if the thrust is on organizing networks for
marketing agricultural produce and developing rural infrastructure. Also, the integration of
agricultural and non-agricultural activities in the programs is a more realistic and desirable
approach which is likely to facilitate the development of primary cooperatives as effective
vehicles of self-reliant growth. (APO, 1996)
2.3.3 Agricultural Co-operative Movement in Thailand

Since agriculture is the mainstay of the economy of Thailand (62 percent of the population
is engaged in farming), emphasis has been put on strengthening agricultural cooperatives
as a means to increase income and improve the standard of living of their farmer-members
and hence result in the improvement of the socio-economic condition in the rural areas.

11


Agricultural cooperatives are organized among farmers engaged in the production of
various products such as rice, maize, tapioca, dairy, pigs, fruits, cut-lowers, and others.
They have the following objectives: 1) provide agricultural credit; 2) supply farm inputs
and consumer products; 3) market agricultural produce of the members; 4) encourage
savings and deposits; 5) provide services relating to land and water development; 6) give
guidance on agricultural technology; and 7) educate and train members on cooperative
principles and practices.
Agricultural cooperatives are vertically organized into a three-tier system: primary
cooperatives at the district level; provincial federations at the provincial level; and a
national federation. They undertake business activities and services to satisfy the needs of
farmer- members in their farming activities. The main business activities are credit, input
supply and marketing. Credit business is the major business of the agricultural
cooperatives which receive the money from the Bank for Agriculture and Agricultural
Cooperatives (BAAC) to on-lend to members. Many agricultural cooperatives are trying to
be self-reliant in financial matters by building up their own capital. One of the programs
being implemented in this regard is the Savings Campaign Program which encourages
members to save one baht daily.
The marketing business is also important to the cooperatives, especially the marketing of
the paddy or rice. With the cooperation of many concerned agencies, the Production
Credit and Marketing Linkage Program for Rice was launched in 1981. Under this
Program, the agricultural cooperatives at all levels worked together in a unified marketing
system. The main objectives were to: 1) integrate the marketing activities of the primary

agricultural cooperatives so as to reduce marketing costs and strengthen the bargaining
power of the agricultural cooperative movement; and 2) improve the loan repayment
performance of cooperatives by closely linking paddy collection with loan repayment.
Agricultural cooperatives have played a significant role in agricultural development both
in social and economic aspects, but there arc many constraints in promoting agricultural
cooperatives. In a competitive economic situation, the national policies should support and
create a suitable environment for the development of agricultural cooperatives. (APO,
1996).
2.3.4 Agricultural Co-operative Movement in the Philippines
Cooperatives had a unique beginning under the mantle of (lie U.S.A. While the first
Cooperative Law was enacted in February 1915, the bill was introduced in the legislature
in 1907. The first law authorized rural cooperative credit associations to generate funds
from members exclusively for agricultural activities. In 1927, the new law empowered the
government to organize marketing cooperatives and even in war-time, cooperatives
distributed relief goods. After the war, the Agricultural Credit and Cooperative Financing
Administration were enacted in 1952. The Act empowered the government to organize
Farmers Cooperative Marketing Associations (FACOMAs) through which farmermembers obtained credit for production. FACOMAs marketed the produce of the farmermembers (APO, 1996).

12


2.3.5 Agricultural Co-operative Movement in Malaysia
Malaysia, which is a late bloomer in cooperatives, formally introduced its cooperative
movement in 1922 as a means of checking the widespread indebtedness among farmers,
workers, and civil servants. As mandated by laws, there are two types of agricultural
cooperatives. The first type; agro-based cooperatives, are registered under the Cooperative
Law as amended in 1983 for Peninsular Malaysia, with the Farmers Organization
Authority (FOA). The non-food agro-based cooperatives are registered with the
Department of Cooperative Development. Agro-based cooperatives, either single- purpose
or multipurpose, have a three-tier structure and their model is adopted from farmers’

associations in the Rep. of China. (APO, 1999)
2.3.6 Agricultural Co-operative Movement in Japan
Modern cooperatives started after 1900 when the Cooperative Law was enacted,
authorizing four types of cooperatives: credit, marketing, purchasing and processing. A
Few years later, the Central Cooperative Union was established which launched a
campaign to form cooperatives nationwide. In 1947, an Agricultural Cooperative Law was
enacted with a view to sustaining the owner farmers' livelihood under the Land Reform In
1948, agricultural cooperatives were organized in village, town, city, prefecture and
national levels. In succession, the Government enacted in 1951 the Law for Rehabilitation
and Consolidation of Agricultural, Forest owners and Fisheries Cooperatives (APO, 1999).
2.3.7 Agricultural Co-operative Movement in People’s Republic of China (PRC)
Since its founding, agricultural cooperatives have undergone a number of changes. The
agrarian reform which abolished the feudal land system and introduced the system of land
ownership by farmers, laid the foundation for the establishment of agricultural
cooperatives in New China. The government guided and supported the farmers to join
agricultural cooperatives through various policies and measures. Early agricultural
cooperatives included agricultural producers' cooperatives, supplying and marketing
cooperatives and credit cooperatives.
In 1958, a large-scale movement of people’s communes in rural PRC was developing
which was considered a serious mistake. As a result of this transformation, the enthusiasm
of farmers in production was adversely affected this caused the reduction of yield and
living standards of farmers. The agricultural cooperatives in PRC; within the framework of
the responsibility system, was adopted dual management system, and combining the
unified collective management and the individual farmers' management. The household
responsibility system is enshrined in the Constitution and Agricultural Law of PRC (APO,
1999).
2.4 Agricultural Co-Operative Movement in Vietnam
2.4.1 The Performance of Agricultural Cooperatives in Vietnam Before 1981
In 1986, the Government of Viet Nam initiated a reform process to move from a centrally
planned economy to a market-oriented one, with elements of state regulation. This ongoing

process requires institutional reform in agriculture, as individual farm households are now
considered the sector's basic economic units. Thus, the crucial importance of farm

13


household participation in agricultural and rural development has been recognized. This
has led to a much stronger emphasis on mutual self-help and reliance on farm household
resources, and reduced expectation that Government will intervene to assist them.
Under the centrally planned economic system, emphasis was laid on creating very large cooperative units, as these were believed the motor of progress, development, and greater
socialization. Thus, many co-operatives in the Northern and former Fourth Zone Provinces
- which were initially established as village co-operatives - had to merge with other smaller
co-operatives to create inter-village or communal co-operatives. In the South this process
started after national liberation in 1975, with the initial creation of village and inter-village
co-operatives.
Farm households were members of all these kinds of co-operatives. As the means of
production, including land, was collectivized, membership was obligatory if one wanted to
profit from services provided by the co-operatives. Children born in member farm
households were automatically registered as members when they reached 16 years. When
they married, the new family was considered as a new member farm household. The cooperatives also provided a number of services for the farm households, including social
welfare activities, schools, kindergartens and health care centers.
2.4.2 Land Reform and the First Stage of Cooperativization
Over the last three decades tremendous efforts such as land reform, cooperativization and
mobilization of the rural population had been made by the Government in order to bring
about the desired changes to Vietnam’s rural life and economy.
In 1954 when the North of Vietnam was liberalized, about 90 percent of its total population
lived in rural areas and were engaged in agricultural production. However, 80 percent of
the agricultural land was in the hand of landlords or land owners. The most important
programme launched by the Government that fulfilled the desire of majority of the rural
poor was agrarian reform. This democratic reform was radically put into effect and the

tillers actually got land in 1956 – two years after the complete liberation of the North
(VCA, 2006).
The Government held the view that peasants should be organized into new forms of
agricultural production such as co-operatives since which was regarded as a suitable
institution for the building of socialism in the country. The Government policy for the rural
and agricultural department was to take the individual farmer step by step to form low
level co-operatives where income was dependent on the land contributed on the basic of
peasants’ willingness and voluntaries. The agricultural co-operative movement was
launched in 1959 and largely completed by 1960 (VCA, 2006).
2.4.3 The Second Stage of Cooperativization and the Work-Based Contract System
In 1965 agricultural co-operatives underwent a qualitative change: lower level co-operative
were raised to a higher level with the collectivization of all means of production, and
income distribution was independent of the land contributed; it was done in accordance
with contributions in the form of labor. Social justice was created by the existence of
cooperatives, along with a sense of solidarity of all people (VCA, 2006).

14


Since 1970 the small cooperatives had been changed into the big ones on the scale of the
whole village. The stylized picture of the organization of collective agricultural production
can be described as follows: land belonged to the state and was under co-operative
utilization, while 5 percent of the land was left for individual household use. Each cooperative operated about 200 hectares of land cultivated by 500 farmers. All farming
activities were carried out by 10 – 15 production teams which were primary work units as
shown by Figure 2.1.

District planning department
Cooperative member conference
Cooperative management board
Chairman

Vice Chairman
Non-farm
enterprise
section

Crop
section

Livestock
section

Accounting
section

Planning
section

Sociocultural
section

Production Teams

Service teams
Crop

Livestock

Input distribution;

Others

Output distribution

Source: VCA, 2006
Figure 2.1: Agricultural Cooperative Organization Before the Policy Reform
The co-operative was managed by a board consisting of a chairman and 2 or 3 vice
chairman, treasurer and other officers. Decisions were made by the planning departments
at national, provincial and district levels which set area, input and output targets for each
crop in each co-operative. All input distributions were centralized. The quantity of inputs
being allocated to each province was determined by the planned output targets set by the
provincial planning department. The provincial government then allocated the supplies to
the district which allocated them to the co-operatives and finally to the production teams.
The share in farm products was based on the time spent working in the production teams.
Quantity and quality of labor spent to fulfill a certain task were measured by labor norms
and work classes, respectively. The labor norm was defined as the time spent to fulfill a
unit of work. Work class was defined by grading different base on skillful, physical input
needed. Based on the work classification, each work class was given a number of work
points. If the worker fulfilled a labor norm he/she would e given a number of work points
in accordance with this work class. At the end of a working day and after each task, the
production team calculated and recorded the number of work points for each worker.
Payment at the end of the crop season was based on the number of work points

15


accumulated. Farmers’ income received from co-operative members was egalitarian, while
that of cash income was based on the number of works points accumulated. This was
called the Work-Based Contract System.
With this organization, co-operative in the North developed from pure production unit to
social and economic quasi-political entities. During the war time, they were turned into

strategic units and took upon themselves many non-economic functions. When the cooperative coincided with the area of a village, the distinction between economic and
politico-administrative management virtually disappeared even though legally they
remained two separate entities.
The utilization of co-operative recourses to fulfill various non-economic functions and to
pay the wide range of the local cadres and officials including village teachers and health
workers posed a heavy burden on the co-operative economy. Moreover, an egalitarian
income distribution system limited the farm level incentive to expand output.
The co-operative campaign had been conducted since the late 1950s and during the 1960s.
While the former North was nominally under a collectivized agricultural production
system since the late 1950s, it became effective only by the mid 1970s. “During 1959 and
1960 almost 86 percent of the peasant households with 68 percent of total cultivated
acreage were collectivized. But in 1960, only 11 per cent of the co-operatives were of high
level” (Florde, 1984). Collectivization was strictly implemented since 1974. In the late
1970s over 50 per cent of the Northern co-operatives were of the high level type.
Table 2.2:
Regions

Cooperative Size in the Northern Provinces

1975
Number of
Cultivated land
farmers/coops per coop. (ha)

The entire
199
North
Red River
415
Delta

Midlands
215
Mountain
58
Region
Source: Statistical Yearbook of Vietnam, 1980.

1980
Number of
farmers/coops

113

368

Cultivated
land per coop.
(ha)
201

165

818

340

112
71

551

98

197
112

2.4.4 The Stage of Transformation of Agricultural Co-operatives under the Law of
Cooperative
With the implementation of the Co-operative Law all co-operatives had to be transformed
accordingly. In addition, newly established co-operatives could be registered under the
Law. But during the first years the major question had been how to transform traditional
agricultural co-operatives, i.e. from “old-style to new-style co-operatives”. This included
the basic challenge of how to change the existing co-operatives (“state-managed style“)
into share-holding co-operatives with individual shares. After briefly reviewing the
development of the transformation process at the national level, it will be discussed in
more detail at the co-operative level, which implies the transformation procedure, the
16


nature of main activities of the transformed co-operatives and the main problems
encountered, so far.
At the beginning of 1997, once the Co-operative Law had become effective, the number of
agricultural co-operatives stood at 13,120. Most of them could be found in the Northern
and Central provinces as it is shown in Table 2.2.
Table 2.3:

State of Agricultural Co-operatives Before Implementation of the Law
Under Operation

No.

Not Under
Operation

Region
Good

Medium

Poor

546

1,568

1,044

2,249

2

Northern Mountainous
Region
Middle Land

345

452

201

113

3

Red River Delta

402

1,544

579

36

4

Northern Central

445

1,083

658

198

5

Southern Central

249

547

-

42

6

High Land

28

131

-

107

7

South East

70

232

-

116

8

Mekong River Delta

41

54

-

40

2,126

5,611

2,482

2,901

1

Total
Source: MARD, 1998.

Out of the total number of registered agricultural co-operatives 2,901 (or about 22 percent)
were not operating at all anymore. The other 10,219 agricultural co-operatives were
classified as operational, but again 2,482 of them (or about 19 percent) as poor meaning

that there might be just one service offered but run very badly. Just 2,126 co-operatives (or
about 16 percent) have been classified as better-off, indicating that they were offering more
than three different services to their members in a quite efficient manner. This group has
been regarded as the core group, which might work efficiently as transformed cooperatives. Nevertheless, it was doubted whether all of them could do so. Another 5,611
agricultural co-operatives (or about 43 percent) were classified as operating unstably. In
general, these co-operatives offered up to three services. It was expected that some of them
had a certain chance to continue as a transformed co-operative if economically viable
business activities could be identified. All in all, it was estimated at that time that about 50
percent could operate well under the new Law.
Once the Co-operative Law became effective various decrees had to be issued during the
first months in order to implement it effectively at the local level. The most important
decrees are the following ones:

17