How Agriculture Cooperatives Increase Productivity
When it comes to agricultural cooperatives (co-ops), the whole is greater than the sum of its parts. Farmers can usually accomplish more as a team than they would on their own, which is why cooperatives have become such a common business model for food producers.
Types of Agricultural Co-Ops
There are two major business models for agricultural cooperatives:
1. Supply Cooperatives
In this type of co-op, members pool their resources to purchase, store and distribute inputs at wholesale prices to use for agricultural production. These types of co-ops help farmers negotiate better prices for production inputs.
2. Marketing Cooperatives
Being in a marketing co-op opens new sales and distribution pathways for members. It allows farmers to access larger markets and have more choices when it comes to manufacturing and distributing their products. For example, Ocean Spray, Sunkist and Sun-Maid are major agricultural marketing cooperatives.
Why Do Farmers Join Cooperatives?
Compared to large agricultural companies, independent farmers often lack the social connections and resources to compete on a larger scale. Small farmers may also struggle to earn a profit. Since 2000, Americans’ wages have only risen 3 percent among workers in the lowest 10 percent of earners even as the cost of living rises.
The situation is even more dire in Africa and the Middle East. Over 60 percent of people in Sub-Saharan Africa are small farmers and over a quarter of the Middle Eastern population relies entirely on agriculture. The price of seeds, irrigation, fertilizer and crops can fluctuate year to year, leaving some impoverished farmers struggling to make ends meet.
One solution is to team up with other food producers to start a collective business. In a business cooperative, small farmers work together to plant, grow, harvest, process and market their products. It’s a member-controlled operation where every farmer can vote and make their voice heard.
Economic cooperation in the group is mandatory because the co-op earns whatever value the farmers put in. Farmers have the power to influence the business and decide which direction it will take. Because an individual farmer’s choices can lead to losses or gains for the whole group, everyone is incentivized to hold each other accountable.
An agricultural co-op — unlike a traditional business — cannot accept investments from the public, but it can borrow money. The capital comes either from retained profitability or the members themselves.
How Cooperatives Increase Productivity
Farmers in a cooperative can often buy products — like seeds or agricultural equipment — at low costs and share them among members. For example, instead of each farmer buying their own tractor, the co-op can purchase or rent one tractor for everyone to use. Or, the entire group can get a deal on pecan saplings by buying them in bulk and distributing them among members.
These cost savings increase production in many ways. Farmers can spend more money on fertilizer, irrigation, animal feed and so on, bringing higher yields at the end of the season. They can also spend some of their money on marketing their products.
By pooling their resources, producers can access larger markets they might not be able to reach as individuals. They can negotiate as a group to get better prices for their products. This improved bargaining power and control over the production process lets farmers further increase their profits, setting up a feedback loop of higher earnings and greater production.
These higher yields are crucially important because experts predict the human population will reach almost 10 billion people by 2050. With two billion more mouths to feed — and with some crops, like maize, projected to decline 24 percent by 2030 — farmers have their work cut out for them.
Giving Farmers a Voice
Individual farmers can struggle to make a living, but co-ops give them back their power. Business cooperatives let producers unite as a community and pool their money to make larger purchases, share resources and help each other with business decisions. It’s no wonder that working as a team greatly increases productivity.