China Agricultural Economic Review Farmer organizations in China and India Zuhui Huang Vijay Vyas Qiao Liang

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Farmer organizations in China and India Zuhui Huang China Academy for Rural Development, School of Management, Zhejiang University, China

Vijay Vyas Institute of Development Studies, Jaipur, India, and Downloaded by Xavier Institute of Management At 21:09 16 December 2015 (PT)

Qiao Liang

Farmer organizations in China and India 601 Received 5 February 2015 Revised 11 July 2015 Accepted 14 July 2015

China Academy for Rural Development, School of Management, Zhejiang University, China Abstract Purpose – Agriculture sectors in China and India are going through rapid changes. There is a shift in demand pattern, significant changes in the supply chain, greater competition due to opening up of the domestic and external markets and fuller integration with rest of the economy. These developments have impacted traditional agriculture and its institutional underpinning. Latter are being transformed and new institutions are coming into existence. The paper aims to discuss these issues. Design/methodology/approach – This paper discusses the changes in economy and the agricultural sector, explores institutional responses in terms of various producer organizations in the two countries, and examines their adequacy for the coming phase of agricultural development in China and India. Findings – The co-existence of various farmer organizations will sustain for a long period in both China and India. Overall, they have benefitted agriculture producers, and more particularly the surplus generating farmers. However, the incompatibility between these and the vast and growing small farm sector is not disappearing. Next set of institutional reforms should address this critical question of “reaching the unreached.” Originality/value – China and India are the world’s two largest countries in terms of population as well as agricultural population. They share a lot of common features. This paper discusses the changes in agricultural sector, explores institutional responses in terms of farmer organizations, and examines their adequacy for the coming phase of agricultural development in China and India, which has never been seen before. Keywords Agricultural institutions, China, India, Agribusiness, Farmer organization Paper type Research paper

1. Introduction China and India are the world’s two largest countries in terms of population, and have large agriculture sectors. They share a lot of common features. Agricultural sector in China accounts for 10 percent of GDP (in 2013), while that in India is 18 percent of GDP. The agricultural supply chain in China is diversified and undergoing transformation in both structure and management. It presently includes not only the traditional production-supply-marketing systems comprising small holders, peddlers, wholesales and retailers, but also new participants such as various farmer organizations, agricultural companies and comprehensive supermarkets (Liang, 2013). Similar changes are taking place in Indian agriculture, though at a slower pace. An additional This research is supported by National Natural Science Foundation of China project (Grant Nos 71333011 and 71273234) and Zhejiang Provincial Natural Science Foundation of China project (Grant No. LQ14G030041).

China Agricultural Economic Review Vol. 7 No. 4, 2015 pp. 601-615 © Emerald Group Publishing Limited 1756-137X DOI 10.1108/CAER-02-2015-0013

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feature of Indian agriculture is that a large number of small and marginal holdings are bypassed by the service providers as the latter find that the transaction costs of dealing with small farmers is high and risks are greater. To overcome these handicaps the farmers are organizing in cooperatives and producers companies and other type of farmer collectives. At the same time, there is a pressure on the service providers to reduce transaction costs with the application of appropriate technology and organizational changes. Supply chain linking producers with the consumers is also undergoing changes with significant market reforms. This paper discusses the changes in agricultural sector, explores institutional responses in terms of farmer organizations and examines their adequacy for the coming phase of agricultural development in China and India. Farmer organizations in this paper refer to the voluntary organizations by the farmers for agricultural production and marketing. 2. Changes in economy and agricultural sector This section presents an overview of changes in economy, agricultural sector and farmer organization system in China and India. 2.1 Evolution of institutions since the foundation of new China The agricultural management system and institutions in China had experienced a meandering and profound transition since the foundation of new China in 1949, more so especially in the 1950s and the late 1970s. Completely different property right structures and organization systems were introduced and established, which in turn, sequentially led to different institutional forms and their performance. After the land reform in China in the 1950s, farmers began to have the usage right over land as well as the residual right over products. However, each farmer had a quite small size of arable land due to the large population of farmers. They were not able to meet the requirements for industrialization. The government, therefore, took a series of measures in order to enlarge the scale of production in agriculture. Mutual groups, primary cooperatives and advanced cooperatives were the three forms of organizations which were adopted during this period. Mutual groups came first. They were established by farmers’ joining voluntarily and on reciprocality basis. Farmers had the ownership rights regarding their production, land, and tools. They supported each other in production and harvesting by sharing production tools as well as labors. Subsequently, the primary cooperative came into being. It was characterized by collective action in production and allocation of benefits based on land size. Finally, advanced cooperatives emerged. Farmers’ land and tools were owned collectively by the cooperative and farmers were paid on the basis of their working time. At the end of 1956, 88 percent of farmers in China had joined advanced cooperatives (Sun, 2006). With the governments directional requirement, the advanced cooperatives began to be restructured into the people’s communes in 1958. By early 1980s, almost all (99 percent) farmers joined the people’s commune. The people’s commune was characterized by collective and centralized ownership by the commune rather than by individual farmers. All members transferred their production land and tools to the commune and received the same wages. Such collectivization guided by egalitarianism weakened farmers’ incentives to work, and consequently hurt the efficiency and development of agriculture. Furthermore, market transactions were not permitted and the planned purchase and marketing by the state was insisted.

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China paid a huge price for this orientation and institutional structure. Farmers became poor and weak. Its failure at this stage triggered the development of a new type of cooperative. The most important changes since the late 1970s is the shift from the collective ownership system to the Household Responsibility System (HRS). The operation rights regarding agricultural land are distributed to farmer households, whereas the ownership rights stay with the State. Nowadays farmers can have 30 years of operation rights regarding agricultural land. The contract period can be further extended after 30 years, or land may be redistributed within the local village, depending on the governments’ planning. This reform in the rural area laid foundation for a number of various institutional innovations. An important change was the flourishing of township and village enterprises (TVEs) (Wang, 2005). These enterprises were initially established by local government and are collectively owned by local residents (Bolton, 1995). TVEs are generally engaged in consumer goods industries, such as transportation, construction, food processing, paper making and spinning, etc. TVEs are either owned collectively by local residents or owned privately by individual(s). In privately owned TVEs, authority and income rights reside with the owners, while in publicly or collectively owned TVEs, control rights and residual income rights are held by local governments. Profits are used to finance local infrastructure projects, local education, etc., and a share of the profits is obtained by local governmental officials (Wang, 2010). However, the incentives to enhance production and to develop new markets are limited in publicly owned TVEs. This led to the privatization of TVEs at the end of the 1990s. Many TVEs were sold to local entrepreneurs including those who may also be local officials. This change in ownership rights contributs to the development of privately owned TVEs. Nowadays, TVEs are owned and managed by local entrepreneurs. Due to the HRS, farmers began to have the usage rights over the land and the ownership rights over the output from the land. However, it also meant that farmers need to sell the products themselves. There are still worries about small farmers’ ability to enter into the large markets and to obtain reasonable benefits. Farmers are faced with multiple challenges from specialized agencies with superior access to information and global links. Examples are a small marginal profit, industrialization, specialization, informatization and globalization of other participants in the agricultural supply chain. Small farmers are incapable of negotiating effectively with other supply chain participants due to the scarcity of market information and small scale of production scales. They hardly benefit from the value added to the products. Eventually, various organizations have emerged to help farmers to cope with these problems. 2.2 Changes in the economy and agricultural sector in India During the past decade, from 2001-2002 to 2011-2012, India registered a growth of GDP of around 7 percent per year. In last three years the growth had slackened to an average of 4-5 percent, but again the economy is recovering and it is expected that it will reach the same growth trajectory. As should be expected, the high growth has resulted in structural change in the economy; share of agriculture is going down and share of industry and service, particularly that of services is increasing. However, share of workforce depending on agriculture is growing down very slowly, with the result that dependence of a large section of population on agriculture income has not abated. Along with economic growth a slew of reforms have been instituted to make the economy more market friendly and open to domestic as well as external competition.

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With a sustained high growth for a decade or more, a sizable middle class, has emerged whose income and purchasing power is progressively rising. This has resulted in significant changes in the demand for agricultural products leading to changes in product mix and input use in agriculture. Agriculture is getting more and more integrated with other sectors of the economy. Information on, and extension of, the technology in production and marketing of agricultural products is rapidly increasing. The sector is facing expanding but competitive markets. Many of these developments are not only going to continue, but are likely to be further strengthened. A few words on these changes may be appropriate. Significant changes are taking place in the product mix in agriculture in response to emerging demand pattern, latter as a consequence of increasing income and urbanization. Share of sub-sectors with high income elasticity of demand, i.e., livestock, fishery and forestry, now account for more than half of agricultural GDP, and is growing. In the crop sector, non-cereal crops, e.g. cotton, oilseeds, sugarcane, etc., are claiming progressively larger share in terms of area as well as in value. Among the cereals, share of so-called “superior cereals”, i.e., wheat and rice, is increasing at the cost of millets and coarse cereals (Vyas, 2002). Equally important changes are taking place in the input structure. Indian agriculture, which was earlier characterized by family owned resources of labor, animal draft power, organic manure and seeds selected from own harvest, is now largely dependent on purchased inputs of seeds, feed, chemical fertilizers, pesticides, diesel oil, electricity, etc. Value of these inputs increased at the annual rate of 4.4 percent during the five-year period 2007-2008 to 2011-2012, as against annual increase in the value of output of crops and livestock at 3.8 percent per year during the same period (Planning Commission, Government of India, 2013). Indian agriculture, both from output angle and input angle, is getting progressively more dependent on the markets. A few other major developments are impacting on agricultural sector. As a part of the reform process, two important acts; Essential Commodities Act and Agricultural Produce Market Committees Act, were amended from time to time, former by the central government and latter, in several states, by the state governments[1]. With amendments in the Essential Commodities Act, restrictions imposed on the movements of “essential” commodities by the government are relaxed. With amendments in Agricultural Marketing Committee Act in several states, restriction on the farmers to sell their produce only in the premises of notified committees is abandoned. Also, significant reforms have taken place in external trade policies in order to comply with WTO agreements. In general, Indian agriculture is opening up for internal as well as external competition. The other major development is the spread of technology, in production as well as in the marketing of agricultural produce, which is greatly facilitated with rapid strides in information technology, particularly in telephony; latter has registered phenomenal growth in the last few years. It has helped extension of the production technology to all sections of producers and in all regions. It has also made information on the supply, demand and prices of agricultural products from different sources easily accessible. Along with the changes referred to above, continuous change is taking place in structure of operational holdings in Indian agriculture. The number of the small farmers (in Indian context those cultivating less than 2 ha) is progressively increasing and area cultivated by them is expanding. The small farmers now account for more than 80 percent of holdings and cultivate more than 40 percent of land. Correspondingly, proportion of the large farmers (those owning more than 10 ha.)

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and the area cultivated by them is sharply declining[2]. The large segment of agricultural producers constituted of small producers has to devise ways to cope with the changing demand structure, to compete in the input and output markets, and for availing the extension services and credit. 2.3 Institutional changes in agriculture in China and India In response to significant changes in the economic environment in these two countries, new institutions are emerging in the agricultural sector and old institutions are adapting to the changed circumstances. Rising demand for high-value food, greater sophistication and quality consciousness of the consumers, greater competition both internal and external and development of information technology resulting in easy access to relevant information, have put pressures on the production as well as marketing systems. As a result significant changes are taking place in the institutional environment faced by the producers, supply chains and service providers in China as well as in India. 3. Institutional responses to the changes Due to the changes and challenges faced by small holders in both China and India, various institutional innovations are taking place in the organization of production as well as in marketing of output. 3.1 Responses in China 3.1.1 The governmental response in China. With the awareness of the handicaps faced by farmers in production and marketing, the governments of provincial as well as city levels established professional technological associations in the 1980s. An association aims to standardize and promote the development of a specific product, and provide farmers with technical instruction, market information, intermediary services between farmers and buyers and so on. In addition, it is an effective communication bridge between the government and farmers. Nevertheless, associations are governmental operated and cannot take part directly in economic activities in the markets. Many associations in China therefore transformed to farmer specialized cooperatives (FSCs) in order to enter into the markets and to negotiate on behalf of farmers. 3.1.2 Farmers’ response with support from the governments. 3.1.2.1 FSCs. FSCs emerged in the 1980s and were developing slowly. They began to grow rapidly in the 2000s (Xu, 2005). With the promulgation of the National Farmer Specialized Cooperative Law (Law afterwards) in 2007, the development of FSCs was even faster. At the end of 2013, there are almost one million FSCs, with a total membership of 73 million farmers. Approximately 28.5 percent of farmers have joined FSCs[3]. Four stages of the development of FSCs in China are distinguished (see Table I). FSCs are characterized by small membership size and face geographical limitation. Most of these cooperatives have a smaller than 200 membership size and are established within a township area (Liang and Hendrikse, 2015). The limitations in both membership size and geographical area are due to the limitation in management capacity of member-managers. Members from local areas have similar cultural and economic backgrounds. Unlike the professional management team in farmer cooperatives in the Western world, a few core members are in charge of the management and marketing in cooperatives in China. A core member is usually one of initiators of a cooperative. Exceptions are also possible. Besides, a core member is generally good at management,

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Period

Events

Early 1980s-1990s Emergence of farmer specialized association 1990s Transformation from farmer specialized association to FSCs End of 1990s-2007 Take off and consolidation of FSCs 2008 Promulgation of national FSCs law and rapid development of FSCs

Characteristics Government led; service oriented; civil bureau registration Civil bureau registration or industrial and commercial bureau registration Market oriented; governmental promotion Greater emphasis on higher investment; more market and profit oriented; emphasis on value adding; registered only with industrial and commercial bureau

Source: Liang (2013)

marketing and/or has an important network with downstream buyers. Other members focus on farming and are seldom involved in management or decision making. They participate in cooperatives mainly to pool risks and obtain services provided by cooperatives such as input supply and marketing services (Sun, 2006). Not only authority, but also income rights in FSCs lie with core members. Profits are allocated to members largely based on capital, rather than patronage. 3.1.2.2 Land shareholder cooperatives. The development of shareholder cooperatives was formally proposed first time by the government in 2013, and continued to be promoted since then. Two types of shareholder cooperatives can be distinguished, i.e. land shareholder cooperatives and community shareholder cooperatives. A land shareholder cooperative is based on farmers’ investment in terms of operation rights in lands. Collected land of the members is planned as a unit operated by the land shareholder cooperative itself, or entrusted to a third-party company. A community share cooperative is generally established by allocating specific decision rights and income rights over the collective assets to individual villagers. In this case alse operation rights may be transferred to a third-party investor. It usually covers a village scope. Since community share cooperatives aim at the efficient utilization of collective assets, rather than agricultural production, we focus on land shareholder cooperatives in this paper. Land shareholder cooperatives emerged due to the problems of land fragmentation and inefficiency in factor use due to small size, low value added production, high transaction cost and farmers’ small voice vis-a-vis government officials (Huang, 2001; Ji and Qian, 2010; Zhang, 2010; Ma, 2012). Land shareholder cooperatives operate on their own or by entrusting the pooled lands of the members to a third-party company. Empirical observations reveal that land shareholder cooperatives in grain sector generally go for the production on their own while those engaged in high-value products tend to entrust lands to third-party companies due to the latter’s advantages in access to capital and markets. Land shareholder cooperatives negotiate with third-party companies as an entity representing all the members, which reduces transaction cost for individual farmers. Members receive fixed rental from third-party companies, yet value-add from agricultural production is reaped by companies. 3.1.2.3 Cooperative union. A cooperative union is based on a horizontal cooperation between specialized cooperatives. Members of a cooperative union therefore are cooperatives, rather than individual farmers. FSCs are in a weak position when they compete with investor-owned-firms (Zhang, 2012). To counter this they join together to

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share technological and market information, build brands and promote their products. The development of FSCs to unions results in to a large extent the transformation of cooperatives with the aim of quantity increase to the objective of quality enhancement (Liu et al., 2014). Two types of unions can be distinguished and are recognized, i.e. unions based on product and those based on geographical area. The former type of cooperative union consists of farmer cooperatives in the same sector. Some downstream companies join the cooperative union as well to enhance vertical integration and save transaction cost. The union uniting of cooperatives based on products enables pooling of resources and makes the investment in machinery possible as well. A cooperative union may create a brand which is shared by all the members. The latter, i.e., geographically based unions, are established mainly in order to promote the communication and cooperation between local cooperatives. Advantages of cooperative unions based on geographical areas are to promote vertical cooperation between cooperatives engaged in different stages of supply chain, and enable establish credit cooperation in the availability and use of credit among farmers as their investment requirements differ investing in different alternative seasons due to the nature of their products difference in products’ investment seasons (Zhou, 2013). Lower input costs and better more market information can be accessed through via both types of cooperative unions (Zhang, 2012). 3.1.2.4 Family farms. Family farms in China are defined as economic enterprises engaged in agricultural production, processing and marketing, operated mainly by family members, and characterized by market-orientation and profit-orientation (Gao et al., 2013)[4]. One of the features of family farms emphasized by the Ministry of Agriculture (in 2014) is that labor needed in the production is mainly provided by the family members rather than hired workers. Another important characteristic of a family farm is that the family’s income mainly derived from farming. Up to the end of 2012, there were 877,000 family farms in China, with an average production size of 200.2 mu[5]. The size of more than a half (55.2 percent) of family farms is smaller than 50 mu, which is quite small compared to the farms in the Western countries. Family farms with sizes of 50-100 mu and 100-500 mu account for 21 and 19.5 percent, respectively. A small proportion of family farms, 3.7 percent, have a larger than 500 mu production size. The emergence of family farms is pertained to both inner demand and external environment. First, the small size and fragmentation of rural land cause high costs in field management and limit economies of scale efficiency of farmers’in production. The average cultivated land per capita is 1.4 mu and that of 14 out of 31 provinces in China is smaller than 1 mu. Wan and Cheng (2001) report that food output in China would increase by 7,140 million tons, if the land fragmentation is eliminated. Family farm enlarge the production scale by land circulation and integration. Second, the rapid development of urbanization and industrialization in China leads to the immigrant of many farmers from rural areas to urban areas and transferring from agricultural producers to non-agricultural labors, which causes the demand for rural land circulation, agricultural entrepreneurs and technical progress (Gao et al., 2013). Third, the government put forward family farms and regarded it as one of the main entities in agricultural production and marketing sale for the first time in 2008. Then in the 2013 No. 1 Document, the development of family farms was formally proposed. Subsidies from various levels of the government are provided to family farms for the registration, land circulation, machinery and other fixed asset investment, etc. The amount of subsidies varies in alternative sectors and cities. In addition, loans with cheaper privileged interest rate are available for family farms.

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3.1.3 Variance in different types of farmer organizations. Various farmer organizations emerged due to different objectives. Specialized technological associations were developed to help farmers to overcome their weakness in production technology and access to markets. Nevertheless, the government ownership limited the direct participation of associations in economic activities, which led to the development of FSCs. Market failures due to the unbalanced power between small farmers and buyers as well as that between small farmers and input sellers were the significant factors relevant to the fast growth of FSCs in the early 2000s. The governments support in terms of both information and direct subsidies was essential to the development of cooperatives. Shortage in financial capital and the important role of land in grain production contribute to the establishment of land shareholder cooperatives. Cooperative unions are developed from FSCs to overcome the problems regarding small size and poor competitiveness of their cooperatives. The heterogeneity in farmers’ entrepreneurship is also one of the key factors to develop family farms. Different types of farmer organizations differ in their internal governance. Family farms are owned by family members. Decision making on family farms is likely to be more efficient. Ownership rights and income rights of FSCs lie with all the members, while land shareholder cooperatives distribute income on the basis of land size of the members. The governance of cooperatives unions is quite similar to that of FSCs. The difference is that constituents of a cooperatives union are legal persons such as specialized cooperatives and downstream companies. The difference in the governance of different farmer organizations influences their suitability to different sectors. Family farms and land shareholder cooperatives are more common in grain sector, while the highest proportion of FSCs are engaged in high-value products such as vegetables and fruits. Presently in China economies of scale and mechanization in production are the most important objectives of grain producers. Family farms gather agricultural lands via rental to enlarge their holdings, and land shareholders organize lands of all the members to form a large production unit. FSCs as well as cooperative unions are established not only to benefit from scale economies in purchasing input and sale of output but also target at better market access and high value added. Development stages of various farmer organizations vary. Family farms and various cooperatives in the Western world have a history of hundreds of years, while FSCs in China started to emerge in the 1980s and gained the speed in the 2000s. The other farmer organizations, family farms, land shareholder cooperatives and cooperative unions were formed even more recently. Chinese government plays an important role in the development of farmer organizations. Development of FSCs has been emphasized every year in national level document since 2006. In the No.1 Document in 2013, the government formally put forwarded for the first time the development of family farms and land shareholder cooperatives, while the development of cooperative union was proposed subsequently in the No. 1 Document in 2014. It is not to say that the governmental documents determine the development of farmer organizations, but that they strength the development trends. 3.2 Producers’ as well as their stakeholders’ responses to changes in agricultural sector in India The responses of farmers and their stakeholders in supply chain to changes in the economy and agricultural sector in India are indicated below.

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3.2.1 Impacts of changes on producers, supply chain and supportive institutions. Changes in the organizations of the producers and in the institutions of market are taking place at varying pace in different parts of the country and for different crops. Equally important changes are taking place in the supply chain between agricultural producer and the ultimate consumer. Agencies providing services to agriculture, such as research, extension, credit and marketing are also undergoing significant changes. We will briefly examine likely impact of economy-wide changes on producers, on supply chains and, on supportive services. 3.2.1.1 Impact on producer. Some of the directions in which the agricultural producers are impacted by these changes can be noted. With the changes in the input structure role of large firms supplying inputs, such as seeds, fertilizers, pesticides, etc., has become important. Increasing cash outlay on inputs has resulted in greater reliance on credit institutions by the producers. Similarly, with progressive up gradation in technology, extension services have become critical, and so also the reliance on service providers. In sum, producers’ dependence on markets and on other segments of economy is growing. 3.2.1.2 Impact on supply chains. Changes underlined above have impacted the market intermediaries as well. Various types of arrangements are being made to ensure timely supply of products of desired quality. With increasing sophistication in demand, specialization has appeared at various stages of the supply chains. On the one hand there is a tendency to shrink the supply chain with large retailers dealing directly with the producers, and farmers offering the commodities directly to the consumers, on the other hand with the sophistication and refinement of demand, supply chain is scattered with specialized agencies being added to provide specific services. Competition in different markets has prompted marketing enterprises at different levels to put greater reliance on technology and organizational reforms to ensure efficiency and cost reduction. The opening of economy and burgeoning urban demand for standardized and quality products has led to the entry of large enterprises in the marketing sector, thus disrupting the classical model of the supply chain of agricultural produce identified as: producer – small trader – aggregator –wholesaler – retailer – consumer. While indigenous retail traders have been successful in prohibiting the entry of the multinational companies in retail trade, there is no such restriction on the entry of the large Indian companies. Foray of the organized sector in retail trade of the agricultural produce has led to improvement of logistics of transport, storage and distribution (Gulati et al., 2008). It has also lead to demand for credit and other services on a much larger scale. 3.2.1.3 Impact on service providers. These changes in production pattern and marketing have resulted in increased demand on service providers, especially on financial, research and extension enterprises. On the other hand with the insistence on inclusive growth these services have also to be provided to the small farm sector leading to an increase in the transaction cost. To comply with these developments, organizations and scope of the service providers in research, extension, training, credit and marketing have to be adjusted. Role of the state enterprises in providing some of these services to agriculturists though important is weakening. Entry of private sector on its own or in collaboration with public sector is becoming more frequent. However, public as well as private sector have to face the changing realities. In response, new organizational models are emerging by imbibing suitable technology and adapting to evolving market structures.

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3.2.2 Institutional response to emerging scenario. In this section we briefly review some of these responses in terms of emerging institutions, of the producers, in the supply chains and by the service providers. 3.2.2.1 Changes in producers’ organization. Indian agriculture is fast assuming a small farm character with nearly half of the land being cultivated in holdings of less than 2 ha. Population growth on the one hand, and lack of non-farm employment opportunities on the other, have resulted in sub division and down sizing of the agricultural holdings. The number of small farmers and area cultivated by them is growing. Even the so-called big and large farmers (with holdings of 10-25 ha,), whose number is small and shrinking, find it difficult to face the emerging markets, which are getting more and more dominated by large firms. Producers find themselves in an unequal bargaining position. On the other hand the marketing firms, credit and extension agencies find dealing with the bulk of the small farms disadvantageous due to high transaction costs and higher risks. They largely bypass this segment of the producers. To strengthen their bargaining position, and to avail of the economies of scale, cooperative farming societies for small farmers, with varying arrangements for pooling of land resources, were tried in the past. But practically everywhere cooperative farming proved to be a failure. However, with the active support of the state’s cooperatives in areas other than production, e.g. in marketing and credit, came into existence in large numbers. In the initial post-independence period they proved to be very effective organizations of the farmers in certain regions, especially in Western India. Even today they have wide coverage, in spatial as well as in membership terms. However, over the period of time with infiltration of the politicians in management, unimaginative bureaucratic controls, neglect of technical improvements and growing proportion of free riders, their effectiveness declined. In credit as well as in marketing areas the public and the private sector firms have become dominant players. Cooperatives have been able to retain their hold in marketing of a few commodities, such as dairy products and sugarcane, and that too in few regions of the country[6]. In the credit sector they are largely acting as the conduit to distribute loans obtained from financial institutions, principally from the National Bank for Agricultural and Rural Development. In recent years two important institutions impacting on the producers have emerged: first, the producers companies, and second, vertical integration of production units with larger firms of marketers and agro-processors through contract farming. Another important form of collective organization, self-help groups, has mostly covered workers engaged in petty non-farm organizations, although some of these served as nucleus for producer companies in agricultural sector (Singh and Singh, 2014). Producers companies, which is a variant of traditional cooperatives, are emerging in different parts of the country. The special provisions of the country’s Company Law recognize them. They retain the basic characteristic of the cooperatives, namely, “one member one vote,” but the membership is restricted to the producers and they give greater emphasis to professional management. They are sponsored by states (e.g. Madhya Pradesh), by NGOs, by the union of self-help groups, and in few cases by the private sector. Producers companies are more popular among farmers growing high-value commercial crops. Important feature of producers companies are, first, one member one vote, second, limited interest on shares, third, return to members in proportion to their participation in the business, fourth, users, alone, are owners, and fifth, no trading of shares. They are in nascent stage, total number (at the end of 2011) being only 196. However, they

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have shown promise as profit earning ventures. Their further growth is stunted as it is suggested in some quarters that because of their hybrid character they should not be recognized as companies. The organized banking sector is not forthcoming to assist them, and most of the state governments are still patronizing traditional cooperatives. The other route taken by the producers to minimize market risks, ensure input supply and quality improvement, is through contract farming with large marketing and processing firms. Contract farming in different forms ensures lifting of the supplies from the producers on pre-arranged terms. Generally contracts are entered into for high-value crops, vegetables and fruits and with medium to large farmers. Depending on the nature of contract there can be an element of extension and input supplies by the contracting firm. (Singh, 2006; Gulati et al., 2008). These arrangements have largely succeeded in ensuring higher productivity, assured sale of produce and minimizing risks. They have benefitted the agro-processing firms as well as the final consumers. But there are problems of information asymmetry, unequal bargaining power and moral hazards. Reforms should address these problems. Registration of contract farming agreements to facilitate the enforcement of contracts, as in Maharashtra, would be helpful. 3.2.2.2 Emerging changes in supply chains. Agriculture is a state subject in India, and most of the states had marketing acts which make it compulsory to sale agricultural produce only in the designated markets governed by a legally constituted marketing committees. The objective of this legislation was to protect small producers from the machinations of traders and middlemen. But this purpose could not be served; instead producers’ choice was restricted. The traditional supply chain involved producers, small-scale aggregators, wholesalers and retailers, with several in-between rungs at every level. In order to reform the traditional marketing arrangements the central government suggested a Model Agricultural Produce Markets Act in 2003 for implementation by the states. There are some very useful provisions in the Model Act, e.g., provision for direct marketing, contract farming, permission to private sector to establish wholesale markets, single market fee, single license fee, etc. Many states have amended their APMC act, but only a few states have fully adopted the Model Act. Apart from full or partial implementation of the provisions of the model act, by the states, several alternative marketing channels are emerging. More important among these are, contract farming by producers and the large marketing and processing firms, entry of large companies in the retail business, cooperative marketing, parastatal marketing and direct sale to consumers by the farmers in farmers markets. These alternative market channels have fewer intermediaries, low transaction costs, economy of scale and greater attention to the quality of the produce. Another important development has been the large-scale investment in improving logistics, by the state as well as by the private sector. Construction of cold storages and warehouses is considered important for orderly marketing, and are taken up by the public as well as the private sector, latter being supported by the financial institutions. 3.2.2.3 Changes in the organization of the service providers. With the changes in the producers’ organization and in supply chains, importance of supportive services of research, extension and credit is increasing. In response a number of important changes are taking place in the organizations providing these services to agriculture. To illustrate, role of private sector in research and extension is growing; “High science” is being applied to support extension efforts; innovations are introduced in the

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service delivery systems. Some of the developments in these areas are noted in the following paragraphs. For quite some time private sector has a major role in input supplies, particularly seeds. Many firms, some linked to the multinationals, have started vigorous R&D efforts in evolving better varieties of seeds with the application of biotechnology. They have registered particular success in bringing out cotton varieties. They are also active in the areas of bio-fertilizers and bio-pesticides. There is huge potential for growth of these companies provided the constrains of infrastructure, particularly electricity, is relaxed and the regulatory regime is made more supportive. There is an apprehension that the private sector companies are interested in evolving improved varieties of “commercial crops,” neglecting poor farmers crops. Also, there is fear that for certain varieties of seeds they may acquire monopoly position. So long as the public sector is also active in R&D, as it is, these fears can allay (Singh et al., 2014). Another area where the role of private sector is assuming importance is that of extension of research to farmers’ fields. The input suppliers were always an important source of information on farming. However, they got a bad name as many of them pushed their wares aggressively even at the cost of productivity and returns to the producers. As a result farmers in some areas made huge and unnecessary investment in inputs and had to court bankruptcy. New firms in this area are more responsible. A number of large firms have developed platforms for providing information on available technology, products, prices, weather related information and the like (Gulati et al., 2008). These activities are introduced to eventually provide a “one-stop” shopping for all agricultural inputs, and in some cases even household goods and other services such as insurance. Generally these service providers cater to the needs of the large farmers and in more prosperous region. But there are examples of the companies meeting the requirements of the small farms and in backward regions in collaboration with local NGOs or on their own. India’s advances in science and technology, particularly in information technology are benefitting the farm sector also, though not yet to the extent they could. Most of the apex scientific institutions have arrangements to extend the knowledge generated by their scientists to assist the common man. A typical example is the establishment of the Krishi Vigyan Kendra (Farmers Science Centers) established by the Indian Council of Agricultural Research all over the country, with the objective of ensuring that the advances in agricultural sciences reach the farmers and also farmers’ views on technology are relayed to the scientists. The Indian Space Research Organization (ISRO) in promoting Village Resource Centers has taken a similar initiative. ISRO has undertaken this program with cooperation of the knowledge-generating institutions like universities, state and central government agencies NGOs and other civil society institutions. ISRO provided hardware and software for these centers for interaction between scientists and the village people (Shaijumon, 2014). As the importance of knowledge for raising productivity in agriculture is recognized, all apex scientific institutions, especially in the public sector are pressurized to prove their usefulness to the community at large. Several organizational and technological changes are taking place to extend their reach and adapt their products to meet the needs of the small farmers. A typical example is that of the provisions of credit to the small farmers and agriculturally backward regions. Various organizational and process related changes have been introduced to reach this objective. There has been significant expansion of bank branches in the unbanked areas, banking correspondents have been appointed in large numbers to supplement brick and mortar branches, technology has been devolved to

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make it easier for the poor to avail of banking services and stop leakages. The Reserve Bank of India has directed all banks to cover large section of the poor by “no-frill” accounts; collateral requirements for small loans have been removed. A massive program of linking the self-help groups and joint liability groups constituted by the small farmers with the banks has been launched commercial banks are encouraged to issue Kisan credit cards to agricultural producers. With the changes in the organizational framework and the processes, there has been significant improvement in reaching extension and credit to the small producers, yet a large section of agricultural producers are left out. Again taking the example of credit, nearly 40 percent of agricultural producers, mostly the small farmers, are not yet in the orbit of the organized financial sector[7]. Similarly, only a small section of the producers are reached by the organized extension services. The main gaps are in dovetailing “products” to the requirement of the small producers, e.g. provision for consumption loans to poor farmers or long-term loans for horticultural production. It is now recognized that the emphasis on the organization and processes is not enough, there has to be innovations in the products to be offered to suit the requirement of various sections (Prahlad, 2005). 4. Adequacy of farmer organizations Changes in the economy of these two countries have led to the emergence of new institutions in agriculture, and prompted existing institutions to adapt to the changing economic environment market norms in agriculture as in other sectors. Various types of institutions are reflection of existing situation, and change with changes in key economic variables, farmer organizations are an organic system and they co-exist in different stages, sectors, and areas, depending on product characteristics and resources. Development trends of farmer organizations in both China and India are, basically, characterized by can be exploited from two aspects, i.e., horizontal cooperation and vertical integration. Horizontal cooperation is taking place among farmers in the same sector, and is where an example of the same is the FSCs in China started. It helps farmers to pool their resources and therefore enhance their bargaining market power. A number of various cooperatives have been organized with this objective. China and India are developed based on horizontal cooperation to pool scarce resource, farm lands. Nevertheless, however, the pure horizontal cooperation among farmers has its limitation in diversifying agriculture and contributing to agro-processing. For this to happen larger cooperatives of the type of cooperative unions are more effective. In some displays an insufficient capacity as the development of agricultural industrialization. There is a tendency of further cooperation between organizations represented by cooperative unions. In both countries integration at different stages in supply chain is attempted vertical integration between different stages of supply chain is developed to reduce transaction costs and ensure value addition. Farmers are trying to integrate with upstream input supplier and downstream processors through organizations such as farmer cooperatives, contract farming and producer companies. It is now clear that family farms need to join specialized cooperatives to obtain required services. In the Western countries it is common for the family farms to join different types of organizations for this purpose. However, in China family farms and farmer cooperatives compete with each other. They are not yet properly integrated. It is desirable to direct family farmers to join FSCs. In India producers collaboration with service providers, i.e., vertical integration, has helped the family farms, and this tendency needs to be encouraged.

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It is clear that in sum, the co-existence of various types of farmer organizations will continue sustain for a long time period in both countries China and India. Various institutions that have come into existence over a period of time have benefitted the farmers, and particularly the surplus generating farmers. However, incompatibility between these organizations and vast small farm sector is not disappearing. Next set of institutional reforms should need to address the critical question of “reaching the unreached.”

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Notes 1. Under Indian Constitution, agriculture is a state subject. 2. Figures quoted in the paper, unless otherwise mentioned, are from various issues of Agricultural Statics at a Glance, published by the Government of India, Ministry of Agriculture. 3. Data source: The Ministry of Agriculture of the People’s Republic of China, www.moa.gov.cn/ 4. There are no standards of size for family farms yet. Some provinces require that family farms of fruits, vegetables, and other cash crops must have production areas of larger than 30 mu, while those of cereal crops larger than 50 mu. Some areas require a minimum planting area of 100 mu. Each hectare equal to 15 mu. 5. Data source: three problems need to be solved to develop family farms, Financial Times, March 31, 2104. 6. See, various issues of the annual reports of the National Bank for Agriculture and Rural Development. 7. With the launch of the Prime Minister’s Jan-Dhan Yojana ensuring linkage with banks for every household the situation may improve. References Bolton, P. (1995), “Privatization and the separation of ownership and control: lessons from Chinese enterprise reform”, Economics of Transition, Vol. 3 No. 1, pp. 1-12. Gao, Q., Liu, T. and Kong, X. (2013), “Institutional analysis on family farms: features, occurrence mechanism and effects”, Economist, No. 6, pp. 48-56. Gulati, A., Joshi, P.K. and Landes, M. (2008), Contract Farming in India: A Resource Book, Indian Council of Agricultural Research, New Delhi. Huang, Z. (2001), “Land shareholder cooperatives: an institutional innovation during circulation of land use rights”, Zhejiang Social Science, No. 5, pp. 41-44. Ji, X. and Qian, Z. (2010), “Innovations of farm land property rights in land shareholder cooperatives: based on a case study on Jiangsu Luyanghu land shareholder cooperative”, Agricultural Economics Issue, No. 5, pp. 77-83, 111-112. Liang, Q. (2013), Governance, CEO Identity, and Quality Provision of Farmer Cooperatives, Erasmus Research Institute of Management, Rotterdam. Liang, Q., Hendrikse, H.Z. and Xu, X. (2015), “Governance structure of Chinese farmer cooperatives: evidence from Zhejiang province”, Agribusiness, Vol. 31 No. 2, pp. 198-214. Liu, T., Zhou, Z. and Kong, X. (2014), “An empirical study on the foundation motivation, development model, and problems of cooperative unions”, Rural Economy, No. 4, pp. 7-12. Ma, X. (2012), “The legal issues in land shareholder cooperatives”, Legal System and Society, No. 1, pp. 215-216. Planning Commission, Government of India (2013), Twelfth Five-Year Plan, Oxford University Press, New Delhi.

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Prahlad, C.K. (2005), The Fortune at the Bottom of the Pyramid, Wharton School Publishers & Parton Education, Princeton, NJ. Shaijumon, C.S. (2014), “Space technology institutions for technology diffusion and development agriculture”, Agricultural Economics Research Review, Vol. 27, pp. 67-74. Singh, A., Girish, K. and Kumar, S. (2014), “Capitalizing the potential of private sector in strengthening agri-business R&D and commercialization in India”, Agricultural Economics Research Review, Vol. 27, pp. 1-10. Singh, S. (2006), Contract Farming and the State, Kalpaz Publishers, Delhi. Singh, S. and Singh, T. (2014), Producers Companies in India – Organization and Performance, Allied Publishers Pvt. Ltd, New Delhi. Sun, Y. (2006), The Study on New Style Farmer Cooperative Development, Social Science Academic Press, Beijing. Vyas, V.S. (2002), “Changing contours of Indian agriculture”, in Mohan, R. (Ed.), Facets of the Indian Economy, Oxford University Press, New Delhi, pp. 183-214. Wan, G. and Cheng, E. (2001), “Effects of land fragmentation and returns to scale in the Chinese farming sector”, Applied Economics, Vol. 33 No. 2, pp. 183-194. Wang, J. (2005), “Going beyond township and village enterprises in rural China”, Journal of Contemporary China, Vol. 14 No. 42, pp. 177-187. Wang, J. (2010), “Enlightened localism in contemporary China: political change in property-rights institutions of township and village enterprises”, Comparative Sociology, No. 9, pp. 631-662. Xu, X. (2005), Institutional Analysis on Farmer Specialized Cooperatives in China, The Publishing House of Economic Science, Beijing. Zhang, J. (2012), “Transition path of cooperative unions”, Rural Economy, No. 11, pp. 121-125. Zhang, X. (2010), “Comments on land shareholder cooperatives”, Chinese Farmer Cooperatives, No. 5 p 28. Zhou, H. (2013), “The development of cooperative unions in China”, master thesis, Hebei University of Economics and Business, Shijiazhuang. Further reading Huang, Y. (2012), “How did China take off?”, Journal of Economic Perspective, Vol. 26 No. 4, pp. 147-170. Liang, Q. and Hendrikse, G. (2013), “Core and common members in the genesis of farmer cooperatives in China”, Managerial and Decision Economics, Vol. 34 Nos 3-5, pp. 117-361. Vyas, V.S. (2013), “Reaching the unreached – to make poverty alleviation programme more effective”, working paper, Centre for Social Studies, Surat.

Corresponding author Dr Qiao Liang can be contacted at: [email protected]

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