Cooperative farming

An agricultural cooperative, also known as a farmers' co-op, is a cooperative where farmers pool their resources in certain areas of activity. A broad typology of agricultural cooperatives distinguishes between agricultural service cooperatives, which provide various services to their individually farming members, and agricultural production cooperatives, where production resources (land, machinery) are pooled and members farm jointly. Examples of agricultural production cooperatives include collective farms in former socialist countries, the kibbutzim in Israel, collectively governed community shared agriculture, Longo Mai co-operatives and Nicaraguan production co-operatives.

The default meaning of agricultural cooperative in English is usually an agricultural service cooperative, which is the numerically dominant form in the world. There are two primary types of agricultural service cooperatives, supply cooperative and marketing cooperative. Supply cooperatives supply their members with inputs for agricultural production, including seeds, fertilizers, fuel, and machinery services. Marketing cooperatives are established by farmers to undertake transportation, packaging, distribution, and marketing of farm products (both crop and livestock). Farmers also widely rely on credit cooperatives as a source of financing for both working capital and investments.

Cooperatives as a form of business organization are distinct from the more common investor-owned firms (IOFs). Both are organized as corporations, but IOFs pursue profit maximization objectives, whereas cooperatives strive to maximize the benefits they generate for their members (which usually involves zero-profit operation). Agricultural cooperatives are therefore created in situations where farmers cannot obtain essential services from IOFs (because the provision of these services is judged to be unprofitable by the IOFs), or when IOFs provide the services at disadvantageous terms to the farmers (i.e., the services are available, but the profit-motivated prices are too high for the farmers). The former situations are characterized in economic theory as market failure or missing services motive. The latter drive the creation of cooperatives as a competitive yardstick or as a means of allowing farmers to build countervailing market power to oppose the IOFs. The concept of competitive yardstick implies that farmers, faced with unsatisfactory performance by IOFs, may form a cooperative firm whose purpose is to force the IOFs, through competition, to improve their service to farmers.

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