The System of Transformation and Upgrading of Agricultural Production and Marketing Groups into Agricultural Cooperatives
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The System of Transformation and Upgrading of Agricultural Production and Marketing Groups into Agricultural Cooperatives

Han Yen(China Productivity Center Agriculture Management Department )

The Background of Agricultural Production and Marketing Groups

1. Predicament in the development of agricultural production and marketing groups

The agricultural production and marketing groups (APMGs) were started by farmers associations to facilitate promoting new farming techniques. Later, functions were added like joint procurement, joint marketing logistics, and joint brand making, so as to expand the operation scale, reduce production costs, and increase bargaining power. As of the end of September 2010, there were 6,057 APMGs in Taiwan (under categories of farming, animal husbandry, fishery, and other agricultural production and marketing groups). Due to the aging of the agricultural population, however, APMGs now have gradually failed to exercise their functions. Their disqualification as legal corporates often involves problems and disputes of property ownership, financing, and legal transactions.

2. Development as Enterprises

The Agriculture and Food Agency (AFA) of the Council of Agriculture (COA) launched programs of "APMG Soft Power Enhancement Program - Corporate Management and Workshop Consulting" in 2019. The purpose was to help the APMGs upgraded to companies or cooperatives (in accordance with the "Company Act” promulgated by the Ministry of Economic Affairs or the “Cooperatives Act” promulgated by the Ministry of the Interior), so that based on ideas initiated by APMGs, government resources are invested with professional consultation, to create new profitable business models.

A Case of APMG innovation led by Chen Chien-Hsing

1. The 13th APMG of Vegetables of Pingtung City, Pingtung County

The 13th APMG of Vegetables of Pingtung City, Pingtung County, headed by Mr. Chen Chien-Hsing, has 17 members. The total area is 11.69 hectares, mainly producing organic (and in-conversion) burdock with traceability certificates. Chen was a senior executive in a food processing company before he returned home to inherit the burdock farming from his ancestors. Witnessing the low production efficiency, he exercised his professional management skills to develop burdock products like organic burdock tea (winner of the 2012 Pingtung Hakka Souvenir), organic burdock slices, burdock dried tea, burdock powder box (winner of the 2019 "Good Farm Product" by the Council of Agriculture), burdock crisps, Delisen burdock essence (for health care, winner of the 2010 Pingtung Famous Brand "Biotechnology Brand") and other products. It has started the Delisen brand and opened a new chapter for the burdock industry.

2. Innovation of the 13th APMG of Vegetables of Pingtung

A gradual growth has turned the major source of profit of the 13th APMG of Vegetables of Pingtung from first-level products to those of the second level. It has enhanced machinery investment and developed a vertical marketing supply chain in recent years. As it is not in the form of a legal corporate, however, the group finds fund raising difficult for the individual members. By a joint agreement, the 13th APMG of Vegetables of Pingtung decided to transform into an agricultural cooperative. Members are recruited from within and outside the 13th APMG of Vegetables of Pingtung. The cooperative is owned and operated by all the members so they share the risks and the profits together.

The direction of transformation of the 13th APMG of Vegetables of Pingtung has been very clear on a strong basis of consensus at the beginning. The application procedure was entrusted to a professional agency. With its geographical proximity, it chose to join the ROC Fruit and Vegetable Cooperative Alliance, with professional consultants providing assistance on the building of new business models (including the new brands).

3. The business model of "Pingtung Delisen Special Agricultural Products Production Cooperative"

In the new business model, there is a clear distinction of the functions between the agricultural production and marketing group (the 13th APMG of Vegetables of Pingtung) and the agricultural production cooperative (Pingtung Delisen Special Agricultural Products Production Cooperative). The APMG does the production, and the responsibility of an agricultural production cooperative is to manufacture processed agricultural products and sell agricultural (processed) products. There are two main reasons for this distinction:

As APMG is not a legal corporate, Dali Organic Medicinal Co., Ltd. was supposed to serve the function of marketing. The new Organic Agriculture Promotion Act effective since May 30, 2020 (This Act enters into force one year after the promulgation date of May 30, 2019) stipulates that enterprises with the term “organic” in the name shall not sell anything inorganic. As certain products like burdock powder boxes and burdock crisps are not within certified organic products, those inorganic products will be marketed by the Delisen Cooperative.

On the other hand, to have distinction from the relatively senior groups of customers for the Delisen products, with the assistance of AFA, a new brand name of “gobō” (沃蒡) was invented for non-organic products and organic products targeted for the young customers.

In the process of organizing cooperatives, the shareholding and profit-sharing system has made members more proactive and dedicated to the key functions in the new businesses.

A Case of APMG Innovation led by Tsai Yi-Hsiu

1. The 9th APMG of Vegetables of Jutang Township, Changhua County

The 9th APMG of Vegetables of Jutang Township, Changhua County has 18 members headed by Mr. Tsai Yi-Hsiu. The average age of the group is barely over 30, comparatively much younger compared with among the national average farmers’ age of 57. The entire farming space is 16.94 hectares, with main products of cabbage, rice, cucumbers, bitter gourd, etc. Under the project of the Soft Power Program of the AFA, the 9th APMG of Vegetables of Jutang Township, came up with the brand "KAZ", simulating the crisp sound of fresh fruit and vegetables.

2. Innovation of the 9th APMG of Vegetables of Jutang Township

Mr. Tsai Yi-Hsiu takes the approach of the "A-TEAM" bicycle model to integrate cross-field resources vertically and horizontally, and foster a corporate culture of competition, cooperation, and mutual learning. The members recruited include different roles on the industry chain, such as seedlings, production, wholesale, etc. Vertical industrial chains can be jointly developed, and horizontal competitors can cooperate and observe and teach each other as long as business secrets are maintained. The "Changhua County Fresh Jin agriculture (彰化縣鮮勁農業生產合作社) (the "Fresh Jin agriculture") is established, with the name suggesting the passion and energy devoted by the young members.

3. The business model of "Fresh Jin agriculture"

Since the Fresh Jin agriculture mainly sells bulk vegetables, the initial development is on the formation of a large corporate and the main job is to make shipment to wholesale fruit and vegetable markets. It has joined the Federation of Taiwan Provincial Taiwan Agriculture Cooperatives (FTPAC), which helps handing the tally work in the auction markets.

The Cooperatives Act Article 49 stipulates that "In the meeting of a members’ congress, each member can take only one vote." The equal value of vote regardless of the number of shares held results in the tendency to limit the development of new members. Article 3-1 of the "Cooperatives Act" stipulates that "users of the business activities operated by a cooperative shall be limited to its members," however, with the proviso that “in the event that the business activities are offered to non-member users for the development needs of the of the cooperative, the revenue generated shall not exceed thirty percent of the turnover.” but there is also a proviso that "the business needs to be provided for the development of the cooperative by non-members shall not exceed 30% of the turnover. Therefore, the service targets of the Fresh Jin agriculture are mainly members, and it also provides services to non-members. The new business model of Fresh Jin agriculture is expected to charge different proportions of handling fees to members and non-members, and require members to bear the work of managing non-member business, reducing the workload of the cooperative’s management of non-member business, and the difference in handling fee will be used as the member service cost.

Conclusion

The above article provides two cases of the APMG transformation into agricultural production cooperatives. In the initial period of cooperative development, Delisen Cooperative adopts the cooperative system to achieve shareholding and profit sharing, so all the members share risks and profit together. Fresh Jin agriculture uses the cooperative system to develop an organizational structure. Under the system, the cooperative can seek continuous operation and sustained growth. The production and marketing groups of different crop types and different transformation objectives should have different development paths. Before the transformation and upgrading, the production and the marketing groups should carefully consider the purposes, and the methods of the transformation, as well as the future business model, etc., and understand the norm and ideals of the new companies or cooperatives. It is necessary to achieve an internal consensus among the members and shareholders so that the cooperative business can maintain sustained development.

This article acknowledges with gratitude for the extensive reference materials from to the AFA "2019 APMG Soft Power Enhancement Program - Corporate Management Workshop Consulting."