DRIVERS OF TRUST – SOME EXPERIENCES FROM HUNGARIAN AGRICULTURAL COOPERATIVES Dr. habil. László Vasa associate professor, deputy director Institute for Foreign Affairs and Trade

Context of the topic According to a European Research Project (“Support for Farmers’ Cooperatives” 2011- 2012) agricultural co-operation is underdeveloped in most of the 27 member countries Partnership of farmers might have a major role in improving the profitability of farms and reducing the costs of production. Cooperation of farmers in the agriculture of countries with structural and efficiency problems can be especially important Evidences from literature and practice – coops can work well What factors that have fundamental role in trust development between fieldcrop farmers? Researching the phenomenon of trust has been used widely in sociology, anthropology, law but relatively new in the agricultural economics

Trust – theoretical approaches McAllister (1995) Affective: subjective and emotional bonded, Cognitive: based on rational calculations and empirical evidence Hansen et al. (2002) develop these categories further, using a process based approach among members between members and the management Wilson (2000) classifies different trust hierarchies changing types of trust in business relationships (trust mix) over time trust can reduce transaction costs and create additional (time) resource and flexibility for the management

Trust – theoretical approaches Sodano (2002) states “…that trust is essential to guarantee the success of cooperative relationship.” Trust as a form of social organization (impersonal trust), and Trust as an exchange coordinating means or governance structure (interpersonal trust). To realize the importance of trust and social capital to co-operatives is to some extent to return to the roots of co-operation (Fairbairn, 2008: 207) Török and Hanf (2009): “trust plays an important role for farmers to join a marketing cooperative in transition countries”

Problem setting - HU Apart from the traditional economic advantages, co-operatives in Central Europe have additional, often non-economic advantages as well: for example they can contribute to rural development and secure jobs (by multifunctional agriculture, rural tourism, employment by the co-operative etc.) Marketing co-operatives in agriculture of transition countries may solve many problems of transaction related problems via horizontal and/or vertical coordination – theoretically However, the number of co-operatives is still limited in transition countries like Hungary – why? One possible explanation is the lack of trust and willingness to co-operate among producers, as well as between farmers and their business partners Most important causes to join a co-operative: quantity, the existence of contract, flexibility and trust

Researches in the field – Hungary The results by Bakucs et al. (2008) suggest that trust among co-operative members and trust between member and management have positive effects on group cohesion. affective trust has a greater impact on group cohesion than cognitive trust on both levels. trust among members has a greater impact on group cohesion and members’ satisfaction than trust between members and the management Dudás (2009), analyzing the co-operative’s role in coordinating fruit and vegetable producers, deals with trust issues as well. “Producers’ low willingness to cooperate is possibly due to lack of trust.” affective trust has a greater impact on group cohesion than cognitive trust. group cohesion and affective trust has a positive impact on members’ performance and satisfaction. the emotional foundations of an association and cooperation are stronger than tangible economic results.

Empirical research on machinery-sharing arrangements in Hungary - methodology Using Sholtes’s trust model (Sholtes, 1998) placing trust in the matrix of loyalty and capability H1. Higher level of trust is developed if the faith in loyalty as well as in capability has high values among the partners H2. The faith in the loyalty and capability of partners is equally important regarding the level of trust Questionnaire survey 132 fieldcrops farms in Southern Great Plain region (Békés county) Statistical methods in the research: descriptive statistics, t-tests, one-way ANOVA with Post Hoc Tests, hierarchical ANOVA and linear regression

Sholtes’s trust model Capability “The value I consider my   Capability “The value I consider my partner is capable and qualified” Low High Loyalty “The value I believe my partner likes me and he will support me in future” Sympathy TRUST Mistrust Respect

Empirical research on machinery-sharing arrangements in Hungary – results Statistical analyses have proved that the loyalty dimension is more important in the development of trust than the faith in professional competence. H1: all of the replies related to the faith in the qualities of fellow farmers received higher average marks than the items used for measuring the loyalty. The higher level of faith in capability can be statistically proven H2: The analyses made with explanatory models prove that the level of trust is mostly determined by the faith in loyalty, although the impact of faith in capability is also very strong; hypothesis 2 (H2) rejected. Our results clearly confirm the theoretical model, according to which trust is formed if the faith in both the loyalty and the capability is high among the partners.

Problems in behind Apart from some legal regulation and macro-economic issues the main problem of the co-operation in Hungary is the lack of trust and the low level of social capital. A number international (Wiesinger et al, 2008) and Hungarian researches (Barta et al., 2010; Kapronczai et al., 2005, Szabó and Barta, 2014 etc.) showed that the willingness to cooperate is very low in Hungarian agriculture. In some cases govt support measures like purchasing machinery were counterproductive since crop farmers were not motivated to co-operate because they could get access to all machines they needed. However farmers invested heavily into machines therefore they got less capital to invest in more value added activities. One of the obstacles of practical co-operation in Hungary is that in agriculture everybody knows the “secret” and does not like to accept somebody else’s decision. In some cases bigger farmers are not willing to co-operate with small ones, but it mostly depends on the charisma of the founders/leaders of the co-operative to be able to handle this phenomenon (trust issues). Co-ops have very limited ownership in processing industry due to lack of capital and vertical strategy thinking.

Conclusions The biggest obstacle to co-operation is in the attitude of the farmers: they do not like to depend on anybody else and/or they do not like to commit themselves. Huge lack of information is also a big barrier: farmers do not know their possibilities and have not got enough information on the different forms of cooperation. A lot of producers take up opportunities offered by informal co-operation (especially in case of technical resources) EU and/or governmental supports cannot solve all of the problems of agricultural co-operation in Hungary; hence further policy actions influencing macro-level factors are needed in order to demolish mental barriers Willingness to cooperate and trust should be improved

Thank you for your attention! Laszlo.vasa@ifat.hu