FARMER ASSOCIATIONS IN A MARKET ECONOMY CHALLENGES AND OPPORTUNITIES from CANADIAN and INTERNATIONAL EXPERIENCE GARY STOREY, UNIVERSITY OF SASKATCHWAN CANADA

What are the problems that small farmers face in a market economy that can be most effectively solved by forming farmer associations? Objective 1to outline the characteristics of a market driven agricultural market economy that presents challenges (problems) and opportunities for small farmers to work together through farmer associations to solve mutual problems. Objective 2to outline the alternative types of Farmer Associations that have been used in the Canadian experience to solve these problems, and respond to challenges and opportunities and provide examples.

Problems that farmers face in an agricultural market economy Finance lack of credit for capital investments and operating capital Resource Problems land availability and ownership land management water management farm inputs not available Low Incomes from Farmingi.e. farm cost/price squeeze lack of bargaining ability, resulting in low prices for farm commodities high price of farm inputs

Unstable Farm Incomes farm commodity price instability yield instability Lack of Information on Agronomic Practices, Markets etc. Ability to Influence Government Policies and Programs

Characteristics of an agricultural market economy individuals (farmers, merchants as buyers of farm commodities, farm input suppliers, processors, wholesale/retailers, engage in economic activity for their own benefit (profit) result is a competitive rather than a cooperative environment

structure of markets for farm inputs and outputs is not always competitive leading to situation of market failures * those with the best information have bargaining advantages * firms that farmers deal with may collude, and act as a monopoly farmers often compete with each other for land and other resources governments often fail to deliver public goods effectively, e.g. legal framework for organizations, market regulations, research, information etc.

Can Farmer Associations be a solution to these problems? Yes, certainly from the Canadian experience What is a farmer association? A farmer association is any organization that farmers form for a particular purpose that is designed to contribute to their well being.

Farmers may organize to manage resources,(e.g. land or water), enter into joint business arrangements to process and market commodities, to bargain collectively for inputs or outputs, to conduct research, to provide information to governments on agricultural problems. Farmer Associations are a mechanism through which government and market failures can be addressed and solved.

Farmer associations are usually formed under government legislation (e,g cooperative) that provides them with the legal power to make contracts, borrow money, make investments, etc. Farmer associations are usually self governed with the members providing the leadership through an elected board of directors that hire employees to manage the association’s chosen activities. Members set the goals, the policies and thus the direction for the association.

Problem:Land erosion due to soil conditions and farmer agronomic practices Solution example #1: Farmers with provincial government assistance form Saskatchewan Soil Conservation Association in 1987 –Objective to promote soil conservation production systems to improve land for future generation by promoting minimum tillage –Objective to represent farmers interests to government on issues of the environment and the Kyoto agreement Solution example #2 ： Saskatchewan government allows farmers using government owned land to form community pastures to manage the land for cattle grazing purposes

Problem: Water use and management problems Solution example Governments passe legislation that allows farmers to form associations to jointly manage water for irrigation and other uses E.g.Province of Alberta Irrigation Projects Association formed in 1946.

Problem:When the grain economy was first established in Western Canada in early 1900s farmers faced problems marketing their grain to non competitive grain buyers Solution example Farmers form Associations for the purpose to lobby the Canadian government for solutions to marketing problems, such as weighing, dockage, transportation etc.

Canadian government appoints Commission of experts including farmers to investigate problems and recommend solutions. Government acts on recommendations, passes legislation and forms authority to regulate the market. E.g. Canada Grain Act and Canadian Grain Commission –Sets grain standards, grades grain for export, regulates rail transportation etc.

Problem: Government regulation of certain market problems does not solve problem of pricing grain where the grain buyers are acting non competitively Solution example Through Farmer Associations farm leaders take action to form grain marketing cooperatives. E.g. Grain Growers Grain Company in 1906, Saskatchewan and Alberta Cooperative Elevator Cooperatives in 1911, Saskatchewan Wheat Pool in 1926

Farmer cooperatives provide competition to private grain buyers. Profits earned in marketing grain returned to farmers as patronage dividends or reinvested in businesses. Provincial governments assist farmers to construct local facilities to store and process grain by guaranteeing loans from lenders.

Through Farmer Associations, farmers lobby Canadian government to enact legislation to form Canadian Wheat Board (CWB) to market grain on behalf of farmers through a pooling arrangement. CWB formed in 1935 and has operated continuously to market Prairie wheat, oats and barley. (today on wheat and barley for the export and human domestic market. Farmers receive initial payment when grain marketed, and final payment at year end when all grain is sold and all costs deducted CWB carries out production and market research to assist market development activities.

Problem:Farm inputs such as fertilizers, pesticides, feedstuffs for livestock, farm machinery etc. are either not being provided by the private market or not priced fairly with sellers making excess profits. Examples of integrating forward up the market chain Solution example #1 Farmer cooperative grain companies enter into the input business to supply inputs(fertilizers etc) to local farm cooperative members at fair market prices.

Cooperative able to purchase inputs at discount prices by buying on a large scale basis. Solution example #2 Farmer cooperatives enter into the manufacture of farm inputs such as farm machinery and other inputs. E.g.. Canadian Cooperative Implements Limited formed in 1940 to buy and distribute farm machinery to farmers and in 1940 to manufacture farm implements. Owned by farmers

Problem: Banks and other lenders fail to lend to farmers for investment and for operating loans, or lend at rates and conditions that are unfair or unsatisfactory Solution:Canadian farmers, fishermen and others form credit unions (caisses populaires in Quebec) to provide financial services to members. Credit unions are cooperative financial institutions owned and controlled by their members. The ownership and governance is based on cooperative principles. Customers must become members.

There are 10 million members of credit unions in Canada, 33 % of Canada’s population, 70% in Quebec and 60% in Saskatchewan. Credit Unions have 40%of assets of deposit taking institutions. Where private banks close credit unions enter the market to ensure that all Canadians have access to financial services. They have been innovators; first to offer consumer loans, first to introduce ATMs.

Problem:Governments fail to provide public goods such as research, information, market development. Or governments provide opportunities for farmers to participate in joint cost sharing programs to provide public goods. Solution:Under legislation farmers develop associations that provide for voluntary and compulsory check-offs on farm sales of commodities. Money used to conduct research to assist in farm productivity (e.g.. plant breeding, fertilizer trials etc,) market development, information to farmers.

Check-offs range from 0.5 to 1.0 % of value of sales or as a levy on quantity marketed. Levies collected by buyers of commodities. Associations are commodity based such as Saskatchewan Canola Development Commission, Saskatchewan Pulse Growers Association and others, Canola Council of Canada and others23. Associations are governed by farmers electing a board of directors that hires management to carry out Association programs.

Problem and Opportunity:Problem that there may be no processor of a particular farm commodity, or farmers see opportunity to move up the value chain and engage in processing Solution:Farmers use model of new generation cooperative (NCG) to engage in processing of farm commodities. In some cases the Cooperative would tend to follow the value chain approach to identify and develop food products for a specific group of consumers or market that is willing to pay a premium price for the product.

NCG has closed membership, delivery rights to the farm commodity tied to level of farmer equity investment, and often high level of investment required by farm member.NCG Examples found in the United States such as NGC ？ ’s formed in the 1970s to process sugar beets when private companies were closing processing plants. Bison ranchers in 1992 form North American Bison Cooperative to process bison.

Conclusions:From Canadian experience with farmer associations Historically and currently farmer associations have played a very important role in the Canadian agriculture and food industry in improving farm income and farmer well being through economic, social and political actions. Most farmer associations that have engaged in business activities have tended to follow a cooperative legal and governance structure.

Principles of cooperation(trust, honesty, willing to work together) amongst members have been important to the success of farmer associations. External agents from government and from the cooperative sector have been instrumental in the formation of new cooperatives, but only after farmers have made the decision to form an association. Leadership from farmers has been a necessary condition for farmer association success.

Governments must be prepared to provide enabling legislation under which farmer associations of many types can be formed, including cooperative legislation, marketing board legislation, and provide policies and programs that assist farmer associations to carry out their activities in a successful manner.