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«DEVELOPMENT STRATEGY OF THE AGRICULTURAL COOPERATIVES IN THE MEKONG DELTA, VIETNAM: SIGNIFICATION OF DIVERSIFICATION INTO BUSUNESS AND ACTITITIES ...»

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1.2.5 Organization related agriculture in Vietnam 1.2.5.1 Farmer Union (Hội nông dân) In general, farmer union is a special organization of farmer in Vietnam. It is an association but it is management and sponsors by government. Farmer union is organized from central government level to hamlet government level. Farmers are free to enrollment membership. The principles of farmer union are including transferring farm-technology and improving agriculture production.

Vietnam Farmers’ Union (VNFU) is a social – political organization of the Vietnamese peasantry under the leadership of the Communist Party of Vietnam.

It was established on 14 October, 1930. Over the various periods of Vietnam revolution, VNFU has been playing a key role in gathering and uniting farmers in the struggle for national independence, national defense and construction.15 Vietnam farmer’s Union website, introduction 15

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farm technology and develop production.

Farmer’s Union(FU)is organized at 4 levels from central level down to grassroots one with 63 provincial and city FU Executive Committees; 655 district and town FU Executive Committees; 10.474 grassroots FU Executive Committees;

92.500 FU branches in hamlet16.

1.2.5.2 Cooperative groups (tổ hợp tác)17 The cooperative groups which are formed on the basis of cooperation contracts authenticated by Peoples Committees of communes, wards and townships (below collectively referred to as commune-level Peoples Committees) by three individuals or more who jointly contribute assets and labor to carrying out certain works for mutual benefit and responsibility.

Cooperative groups are organized and operate on the following principles: i) Voluntariness, equality, democracy and mutual benefit; ii) Majority voting; iii) Financial autonomy, self-financing and self-responsibility with assets of the groups and their members.

According to MARD, cooperative groups had been developed very fast since Decree No.151 on the organization and operation of cooperative groups enacted in 2007.

There is 93,907 cooperative groups in 2002, increases to 136,097 in 2011. The Mekong Delta has the largest number of cooperative groups18 Farmer’s Union report, 2013.

16 Decree 151/2007 NĐ-CP on the organization and operation of cooperative groups, chapter I, 17 article 1 & 2.

MARD, changing and improving cooperative groups in agriculture,pp3-4 18

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agriculture in their communities and scale size of service is limited of size. In addition, cooperative groups cannot register for business permission and stamp and it cannot sign contract for doing business. However, cooperative groups have some advantages such as: simple management, easy open and free business tax on agricultural services.

1.3 Research Questions As I stated, Vietnam’s Agricultural cooperative (AC), in general, and the Mekong Delta’s (MD) Agricultural Cooperative, in particular, have been significant development as well as other business sector in Vietnam. The national statistic show that development index of ACs the Mekong Delta is lowest compared with other eight national economics regions. However, the Mekong Delta region has appeared some broken successful ACs.

Therefore, my concern question in this paper is follow:

What is the most successful key of ACs in Mekong Delta?

How is related between diversification in business and activities and sustainable development of agricultural cooperatives? And, How is development strategy of agricultural cooperatives in the Mekong Delta, Vietnam?

1.4 Objectives

Objective of this research are including:

- To describe current status of cooperatives and agricultural cooperatives in

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- To analyze current status of agricultural cooperatives in the Mekong Delta, Vietnam.

- To introduce contributions of agricultural cooperatives in the Mekong Delta to farming practices.

- To find successful business and activities and factors affect the success of ACs in the Mekong Delta, and

- To discovery strategy development of agricultural cooperative in the Mekong Delta, Vietnam.

1.5 Hypothesis The significant in diversification services is sustainable development strategy for agricultural cooperatives in the Mekong Delta, Vietnam

1.6 Literature Review 1.6.1 The World History of Cooperatives The earliest cooperatives originated in Europe around the late 18th and early 19th century. One of the most common cooperatives which resulted in the genesis of the modern cooperatives movement was the formation in 1844 of the

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cooperative established in Rochdale, in northern England, by a group of twenty eight workers in a weaving factory in the form of a shop.

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principles governing their organisation (Zimbelman, 2007). Another important development regarding cooperatives serving as credit or banking institutions was the establishment of the first savings and credit cooperative in 1864 by Friedrich Wilhelm Raiffeisen in Germany. The objective of the Raiffeisen Bank was to provide savings and credit services in urban and rural areas based on the idea of “self-help” (Ingalsbe and Groves, 1989, as cited by Ortmann and King, 2007)19.





The development of cooperatives over time has been shaped by many factors and influences. Ingalsbe and Groves (1989) group these into three main types (all interrelated): (1) economic conditions (caused by war, depression, technology, government economic policy, etc.); (2) farmer organizations (including quality of their leadership, their motivation and enthusiasm to promote cooperatives, power to influence public policy, etc.); and (3) public

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initiative, and judicial interpretation). Since about 1988 two phenomena

have been occurring in the organization of agricultural cooperatives in the US:

(1) the restructuring and consolidation of conventional cooperatives and (2) the emergence of new generation cooperatives (NGCs) (Cook, 1995). NGCs retain many of the characteristics of conventional cooperatives, but they focus on value-added activities. Member capital contributions are linked to product Thomas & Hangula, 2011, reviewing theory, practices and dynamics of AC, Journal of 19

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an increasing role in influencing national agricultural policies.

In developing countries attempts to organize farmers into cooperatives have often failed, although cooperatives have the potential to supply farm

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accountable to the members (i.e., moral hazard), leading to inappropriate political activities or financial irregularities in management. Van Niekerk (1988) reports that cooperative failures in the former (less-developed) homelands of South Africa were due mainly to lack of management

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disloyalty of members due to ignorance. Some successes include foodprocessing cooperatives in Argentina and Brazil, and cooperatives processing and marketing milk, sugar, and oil seeds in India (Hoyt, 1989). ACDI/VOCA (2005) lists a number of successful cooperative ventures that they helped to establish in developing countries. Government policies regarding cooperatives are critical because they can constrain or enhance independent cooperative

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Other historians have found evidence of cooperation between many groups of people in Europe, Middle East, America and Africa. According to Zimbelman (2007) early agriculture would have been impossible without reciprocal aid among farmers. She also stated that farmers relied on one another to defend land, harvest crops, build barns and storage buildings, and share equipment. These examples of informal cooperation of working together were the pioneers to the cooperative form of business. According to Fairbain (2004), cooperatives were typically formed by those experiencing difficulty in dealing with aspects of economic change.

1.6.2 Theory of Cooperatives Helmberger and Hoos (1962) can be regarded as having developed the first complete mathematical model of behavior of an agricultural cooperative. Sexton (1995: 92), who provides a brief overview of developments in the economic theory of cooperatives in the US prior to Helmberger and Hoos’ paper (LeVay, 1983;

Sexton, 1984), as “a landmark in the economic theory of cooperatives.” (Helmberger and Hoos Agrekon, Vol 46, No 1, March 2007). (Ortmann & King (1962) use the neo-classical theory of the firm to develop short-run and long run models of a cooperative (including behavioral relations and positions of equilibrium for a cooperative and its members under different sets of assumptions) using traditional marginal analysis. In their model, the cooperative’s optimization objective is to maximize benefits to members by GF Ortmann & RP King (2007), Agricultural Cooperatives I: History, Theory and 20

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to members in proportion to their patronage volume or use” (Torgerson et al., 1998: 5). Sexton (1995) regards this “landmark” paper so highly because (1) the (correct) analysis of cooperative and member behaviour is based on a clear set of assumptions; (2) the model clearly distinguishes between short and long-run behavior in a cooperative; and (3) based on these characteristics, the model set the stage for further advances in cooperative theory in the 1970s and 1980s.

Torgerson et al. (1998) contend that Emelianoff (1942) made a major contribution to understanding the internal economics of cooperatives with his conception of the cooperative as a form of vertical integration, and his focus on the structural and functional relationships of members (the principals) to their cooperative marketing organization (the agent). His model was later refined by Robotka (1947), Phillips (1953) and Aresvik (1955).

There have been various debates on whether a cooperative enterprise should be treated as a firm (a decision-making entity), as Helmberger and Hoos (1962) did, or as an organization (aggregation) of economic units (members), as treated by Emelianoff (1942), Robotka (1947), and Phillips (1953), for example. Rhodes (1995) presents an overview of the debate on the Helmberger-Hoos and Phillips models, with the former initially having the greatest support among economists, although their contribution has also been criticized (e.g.,LeVay, 1983; Lopez and Spreen, 1985; Sexton, 1986). Sexton (1995: 94) views this debate as “primarily one of semantics,” and considers the issue not important to understanding cooperatives. He sees the development ofalternative models as application of advances in economic theory of cooperatives reflecting “the richness of the

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models that apply in different settings” (p. 97). Staatz (1994), Royer (1994) and Torgerson et al.(1998) also contribute to this debate.

In addition, (Helmberger and Hoos, 1962). The cooperative model of enterprise can be applied to any business activity. For example, types of cooperatives include producer, consumer, workers and service cooperatives.

Ortmann and King (2007) maintain that in general, agricultural cooperatives can

be classified into three broad categories according to their main activity namely:

i) Marketing cooperatives, which may bargain for better prices, handle, process or manufacture and sell farm products,

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and inputs such as seed, fertilizer, feed, chemicals, petroleum products, farm equipment, hardware, and building supplies, and iii) Service cooperatives, which provide services such as trucking, storage, ginning, grinding, drying, artificial insemination, irrigation, credit, utilities, and insurance.

Further, the same authors point out that most of the agricultural cooperatives are relatively small businesses. Empirical evidence suggests that profit margins are generally lower in markets with a substantial cooperative presence (Rogers and Petraglia, 1994; Haller, 1993 cited by Torgerson et al., 1998: 11).

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Agricultural cooperatives may have increasingly important roles to play in providing agricultural producers access to markets and providing vehicles for capturing value added (Torgerson et al., 1998). Using the dynamic model, Royer and Smith (2007) argued that contrary to conventional thinking, cooperatives can successfully distribute surplus earnings to producers as patronage refunds, while

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ability of cooperatives to restrict producer output to optimal levels and that, as a result, cooperatives are unable to pursue objectives or exercise market

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Louw WD Walt, the cooperative will be successful if it promotes the wealth if its members and provide competitive products and services.

On the other hand, the co-operative movement in general agricultural

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self-administration and self-responsibility. Self-help means that people join forces, raise the necessary financial means for the joint co-operative undertaking themselves and are prepared to give mutual help. Self-administration means that the members organise the internal conditions of their co-operative society themselves (“internal democracy”). Hence, the co-operative is not subject to third party's orders. While the broad rules and regulations of all types of co-operatives are outlined in the national co-operative laws, they have to be specified in the bylaws of each individual co-operative (Thomas and Hangula, 2011).

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members regardless on the value of shares subscribed (“one member – one vote”).



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