Performance and causes of development problems among Latvian grain cooperatives

Economic globalisation makes it increasingly more important for companies to cooperate with the aim to contribute to the competitiveness of their products or services in the worldwide market. The cooperation should be developed considering relatively limited resources of Latvia, which is a small country. One of the potential forms of cooperation is the establishment of cooperatives and the expansion of their activities. The Sustainable Development Strategy of Latvia until 2030 emphasises cooperation as one of the strategic principles to promote and ensure the sustainable development of Latvia (Sustainable..., 2010).

The research topic is relevant and important, as cooperation promotes the development of domestic agriculture, which is affected by various factors.

Based on the National Development Plan of Latvia 2014–2020, the promotion of cooperation in agriculture is one of the national priorities, which means that domestic agricultural policies focus on the development of cooperation (National..., 2012).

A conference organised by the European Research Institute for Cooperatives and Social Enterprises and the International Alliance for Cooperatives noted a vital role of cooperatives in the socio-economic development of society. Cooperatives contribute to employment, introduction and spillover of innovations as well as rural development. Cooperatives operating in the agricultural industry encourage crop insurance and the increased availability of cheap loans among the farmers, which would be rather unlikely otherwise. Cooperatives are believed to be more successful than classical businesses in overcoming periods of crisis and post-crisis (Borzaga & Galera, 2012; Development..., 2015).

Italian professor Giovannini pointed out that cooperatives could play a key role in raising public awareness of a sustainable and viable future (World..., 2018).

Cooperation allows establishing prerequisites for a successful business, which is difficult for a single individual to achieve.

This research aimed to examine the performance and causes of development problems among Latvian grain cooperatives.

Specific research tasks were set to achieve the aim:

to examine the theoretical aspects related to the performance of cooperatives;

The research used scientific research papers from various databases, reports on agriculture, statistical databases, European Union and national policy documents, as well as the results obtained from expert questionnaires, and other public information available at a library and Internet resources.

The term “cooperation” comes from Latin “cooperationem”, which means “working together”, participation or collaboration (Vedļa, 2000). The concept of cooperation has been widely researched, and various explanations for it could be found (Kundríková & Holubčík, 2016; Domańska, 2018; Soviar et al., 2016; Bednarz & Markiewicz, 2015; Havierniková et al., 2016). Kučinskis (2004) compiled definitions of the concept given by authors from various European countries. All the definitions emphasise the idea of mutual benefit for the members, the adherence to the principles of volunteering and the aim to increase the level of material wellbeing (Kučinskis, 2004). In their research paper Development of Agricultural Cooperation in Zemgale Region, Buìina and Pabērza (2007) pointed out that Miglavs gave a comprehensive and complete explanation of the term. Miglavs stressed that cooperation is an activity where several persons with common interests come together to achieve a common goal (Buìina & Pabērza, 2007, pp. 115–123; Lismanis et al., 1999).

Gyulgyulyan and Bobojonov (2019) examined the definitions of the concept “cooperation” given by several international organisations. According to a definition by the International Cooperative Alliance, an agricultural cooperative is an autonomous association of persons who voluntarily unite to meet their common economic, social and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise. The authors emphasised that many international organisations indicated similar basic principles of cooperation (Gyulgyulyan & Bobojonov, 2019, pp. 121–134).

One of the founders of the theory on cooperation, Chayanov, believed that cooperation was the most appropriate way and practically the only way for agricultural development (Čajonovs et al., 2001).

In his research, Kaupušs emphasised that cooperation played an important role in the existence and development of small and medium farms that performed two functions:

social — to ensure the protection of farmers and small producers from large companies, lenders and monopolies and provide social support and assistance; and

Vedļa (2000) defined the following objectives of cooperation:

joint sales of products. Cooperation helps to sell more products, thereby creating competition among intermediaries and receiving the maximum price for the products;

The ideas of cooperation are implemented in practice through cooperative societies (CS), which help to achieve the goals set by their members.

According to the definition given by the political organisation Cooperatives Europe, a cooperative is a company owned by its members who have equal opportunities to express their opinions on the management and who share the profits earned. Cooperatives are considered to be key partners in achieving sustainable development goals. A cooperative is a company that is owned and controlled by the people who use its services and receive the revenues earned distributed according to their investments (Dunn et al., 2002).

Vedļa (2002) defined cooperatives as voluntary associations whose members work to pursue common economic interests, which they would not be able or would have difficulty to implement individually. Cooperation allows members to achieve their common goals without losing the economic and legal independence of individual enterprises.

A cooperative is an autonomous association of persons voluntarily grouped together to meet their common economic, social and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise (The Role..., 2001).

According to the Cooperative Societies Law, a cooperative society is a voluntary association of persons, the purpose of which is to contribute to the effective implementation of the common economic interests of the members (Cooperative, 2019). The term “cooperative” is widely used in daily language.

Cooperatives are organisations that set certain economic goals for themselves or represent joint economic activities (Balodis, 1934). This statement is in line with the opinion of authors underlining that cooperatives are made of population groups working in one field of economy. In essence, a cooperative helps all members regardless of their size, to gain advantages that are normally only available to very large companies.

A cooperative is an economic organisation characterised by a business relationship (benefit), a decision-making relationship (control) and a financial relationship (ownership) (Dunn et al., 2002).

Kučinskis (2004) pointed out that the purpose of a cooperative was not to make a profit or to pay the highest possible dividends but to provide members with the means of production at reasonable market prices. To ensure solidarity, each member of the cooperative has only one vote for decision-making. Cooperatives are non-profit voluntary organisations that cannot have a limit on the number of their members.

The goal of a cooperative is to gain market power by reducing costs owing to integration (Čajonovs et al., 2001).

The operation of a cooperative is based on the principles of economic democracy, transparency and solidarity, which strengthen the stability of the cooperative and promote its long-term growth (Development..., 2015).

According to Kučinskis (2004), cooperatives exist in almost every area of life in Europe. The main types of cooperatives are credit, consumer, agricultural, fishermen, dairy, apartment, production cooperatives etc.

The cooperation movement and cooperatives also undergo continuous restructuring in the context of market globalisation. Many countries question the traditional pattern of operation of cooperatives, and the restructuring efforts are linked to the aim to strengthen the competitiveness of agricultural cooperatives in the international market (Nilsson, 1998, pp. 39–48).

Nilsson (2001) compiled a meta-research on the opportunities and risks of cooperation. Contrary to the opinion about the limited influence of cooperative members on the decision-making and the low efficiency of cooperatives, researchers emphasised the positive benefits related to the sale of cooperative products and the reduced impact of purchase prices set by large retail companies (Nilsson, 2001, pp. 329–356).

Researching the role of cooperatives in agriculture, Valentinov (2007) noted that one of the advantages of participation in agricultural cooperatives is the capability to supply large enough quantities of agricultural products, which could not be done by an individual farm. The efficiency of an agricultural organisation is determined by two orthogonal criteria: the efficiency of labour division in agricultural production and the efficiency of monitoring activities. The importance of the second criterion is determined by the organisational characteristics of agricultural production specific to the industry. Farms considered small in terms of area, to which the author refers as family farms, are more effective in controlling the use of resources. However, such farms have a limited output, which is directly affected by the available resources, which are mainly agricultural land. In Western agriculture, family farming is the dominant form of an agricultural business organisation. Due to the specifics of the agricultural industry, farmers are almost always at a disadvantage compared to their trading partners, so they can use cooperatives for counterbalance (Valentinov, 2007, pp. 55–69).

A survey of cooperative members within the thematic assessment into the Development of Cooperation in Agriculture and the Development Strategy for 2013–2020 (2012) revealed that the key benefit of participating in a cooperative was the opportunity to sell agricultural products at equal prices and receive regular payments.

Arnis Vējš, the owner of Uzvara lauks Ltd and a member of the ASCS Latraps, was cautious about cooperation and believed that access to cooperative services was essential. He emphasised the importance of the distance for grain delivery. Grain collection points should be geographically distributed so as not to increase the total length of the route for grain delivery (Large Framer..., 2019).

Summarising the research studies and findings mentioned above, the authors concluded that many problems faced by farmers could be resolved by joining efforts by way of cooperatives. The problems often affect several farmers, which can be close to impossible to overcome for individuals, depending on personal traits. A cooperative usually has a person who stands out from among the members, has leadership skills and is able to take the lead. It is desirable that this person is well known and trusted by all other members. After overcoming the first obstacles and achieving success, all members gain confidence and trust in the movement. However, for a cooperative to continue to be successful in the long term, it has to be able to bring tangible benefits to its members. Besides, cooperatives need professional management, which should be properly motivated. Although a cooperative is not intended to make a profit, it is not different in nature and business philosophy from other forms of business organisations, as it has to bring economic benefits to its members. Besides, the benefits have to outweigh the personal contribution of each member. Each member has to understand that everyone is the owner of the cooperative, and each member has to promote the development of the cooperative through a personal attitude.

Cooperatives could be categorised and systematised according to various distinctive features: legal status, the type of economic activity, territorial distribution, the position in the production process chain and the economic status of the members (Lismanis et al., 1999).

Associations of people united by one common interest could be distinguished according to legal status. This is the simplest legal form of an organisation built upon an agreement among the participants. According to its legal status, a cooperative society is a mutual company for achieving common goals. Cooperative unions are established by several cooperative societies operating in the same field of economic activity and representing associations of various industries, which could cover a certain region, country or continent (Čajonovs et al., 2001).

According to the national legislation, agricultural cooperatives could be subdivided by industry, for example, grain production, dairy farming, vegetable production etc. (Cooperative…, 2019).

Cooperatives operating in the field of forest management, which unite a large number of forest owners, are widespread in the Scandinavian countries. Successful cooperation examples can also be found in other fields, such as electrification, slaughterhouses, sewing, construction etc.

Cooperatives could also be divided according to the territory, in which they undertake economic activities. Some cooperatives may operate within a city only, and others — a county or a country.

Cooperatives could be divided into vertical and horizontal by the position in the production process chain. Horizontal cooperatives unite enterprises or farmers engaged in the same field of economic activity. For example, grain farms join a cooperative to work together on production and marketing issues. Vertical cooperation is a form of cooperation, which is widespread in the world but not popular in Latvia. Vertical cooperatives include enterprises that fully or partially complete all the stages of the product production process (Buìina & Pabērza, 2007, pp. 115–123). Such cooperatives are most often formed by enterprises with a fully closed production cycle. The chain includes farmers as the producers of agricultural commodities and owners of the cooperative and enterprises engaged in the processing of agricultural commodities, logistics and the production of final products.

By the economic status of cooperative members, cooperatives are divided into employee, producer or consumer cooperatives. Such cooperatives are established to implement the interests of each social group. Employee cooperatives are established to implement interests that are specific to individuals engaged in one industry (Lismanis et al., 1999).

Vedļa (2000) grouped cooperatives according to their common features:

by the function to be performed (procurement, production, sales, finances etc.);

The scientific literature also offers other types of cooperatives, such as equity cooperatives, new generation cooperatives, and cooperatives with limited liability.

Equity cooperatives are those that issue bonds. This type of cooperatives developed at the end of the last century to issue bonds in a closed or open offer (Bekkum & Bijman, 2006, pp. 1–15). In such cooperatives, investors often become members who gain more voting rights in decision-making, and the cooperatives are often privatised (Spear, 2010).

New generation cooperatives have high member trust and can supply specific niche products of high value (Fulton, 1999). They still retain several similarities with traditional cooperatives, e.g. only farmers may be the members, a limited amount of dividends can be paid out, one member has one vote in decision-making, and dividends are paid according to the number of shares purchased. Several differences distinguish the new generation cooperatives from traditional ones:

new generation cooperatives seek to produce products that could be processed and sold at a maximum profit;

The new generation cooperatives have several advantages related to member loyalty. Their members are considered very loyal due to significant investments in the cooperative (Dunn et al., 2002).

The research used monographic and descriptive methods that allowed determining the problem in detail, which was investigated from a theoretical perspective based on an extensive review of relevant scientific literature. The research also used several other approaches, including induction and deduction, comparison, the graphical method, statistical analysis, cause and consequence analysis and a sociological research method in the form of structured expert survey and interviews. A structured expert survey was conducted to identify the most significant problems for grain cooperatives and their causes. The survey involved seven experts who were competent in the grain production industry and were engaged in operating cooperatives. The experts represented the Latvian Agricultural Cooperatives Association, the Agricultural Services Cooperative Society (ASCS) Latraps and the ASCS VAKS. For confidentiality and at the request of experts, their identities were concealed.

The nature and types of cooperation have been extensively researched in the scientific literature; however, there are relatively few research studies on grain processing by cooperatives.

Multidisciplinary agricultural cooperatives are widespread in the EU, yet in Latvia, they have not been operating for a long time.

During the analysed period, the area cropped with cereals increased by 90%, the amount of exported cereal increased by 126.6%, the number of small farms (up to 20 ha in size) decreased, and the proportion of large farms grew, resulting in an increase in average cereal yields, which is indicative of the development in the Latvian grain production industry.

In 2018, compared with 2015, the membership of grain cooperatives increased by 446 or 24.3%. Large cooperatives had the fastest growth in the membership of grain cooperatives. During the analysed period, the number of grain cooperatives decreased, and the calculated correlation coefficient showed a strong relationship between the number of cooperatives and their memberships, indicating that the cooperatives expanded and developed, gaining more importance in the grain production industry.

The research examined the theory on the development of cooperatives in Latvia and the world as well as the Latvian grain production industry and performed a statistical analysis into the performance of grain cooperatives. The total output of cereals was also affected by the total area cropped with cereals, which was proved by the correlation coefficient r = 0.90. An increase in the area used for cereals leads to an increase in the total cereal output. The correlation coefficient showed a strong relationship between independent and dependent variables.

Structured interviews with experts allowed the authors to identify factors that hinder the development of grain cooperatives in Latvia. The industry experts identified the technological factor of poorly developed agricultural processing. The experts identified the possible causes of the problem, i.e. lack of financial resources, the unclear market situation, workforce problems, additional costs, a lack of initiative for identifying new opportunities.

Using the internal and attracting external financing, the managements of grain cooperatives should establish processing enterprises to increase the revenue of the cooperatives and expand the sales market.