CAPITULO IV Contrato-Ley
TITULO NOVENO Riesgos de Trabajo
In many rural areas the livestock industry is emerging as a pillar of industry and is receiving an increasing amount of support from rural governments. Due to its capital and labour-intensive nature, livestock production is also contributing a large amount in taxes.
China is unique in that while one-third of livestock production is conducted by large inten- sified operations, two-thirds of the livestock produced comes from a large number of dispersed households (Wang [2009]). This contrasts with most other countries where the majority of livestock production is conducted by large intensified operations with only a small amount of livestock being produced by households or lifestyle farms (MWH [2009]).
Given the rapidly increasing number of animals being produced in China, there is a grow- ing concern about the pollution generated from animal waste. For dispersed households the
Chapter 6. Forms of Farmer Co-operatives only feasible solution to deal with waste is to rely on low-technology, low cost systems that are applicable at a small scale (MWH [2009]). Moreover, the concern that epidemics will be transmitted between animals and people is much higher when production is spread out among small producers and courtyard livestock production. These two concerns give local governments a strong incentive to encourage scaled up operations in livestock production. Further, it is costly for governments to monitor whether the animal waste management practices of small producers are in compliance with laws and regulations.
The Province of Henan is one of the biggest livestock producers in China. Henan is request- ing the World Bank’s support to “provide expertise and share experiences on how to manage livestock waste, and facilitate transfer of national and international best practices and technolog- ical alternatives and innovations in waste management” (World Bank [2009], p. 1) with China. The World Bank has agreed to provide Henan with a $US 80 million loan if China’s sub-national governments provide matched funding.
The World Bank requests that most of the livestock farms that will participate in the project should be already existing. Only new farmers co-operatives formed by small producers can be funded by the new livestock farms because the project is not meant to be a production expansion project; rather it is a waste management project. As a consequence the Henan government sub- mitted to the World Bank project proposals for farmer co-operatives called livestock production parks.
Two livestock parks were proposed by Henan to be funded by the World Bank project: a 500 dairy cow park and a 500 beef cattle park. According to these two project proposals, the production parks will have the following features. First, these parks will acquire land to hold animal sheds, fodder and grain warehouses, workshops, milking stations, waste treatment facilities, and offices. Various pieces of equipment will be purchased, and all of these investments totaling several million RMB will be funded by the project. Second, these farms will employ 30 to 40 staff including managers (general manager, operation manager, accountant, etc), technicians, production staff, and supportive staff.
These parks will be operated like an investor-owned farm rather than being operated in- dividually by member households. For instance the day-to-day decisions will be made by the
management, and financial management will be controlled by the financial staff. Farm invest- ment will be funded by the project in 30 to 40 counties of Henan province. The investments made on these farms are expected to account for the vast majority of the total project costs.
6.4 Concluding Comments
The case studies of farmer co-operatives analyzed in this chapter demonstrate that co-operatives have followed two distinct developmental trajectories. One group of co-operatives is defined by self-reliance, self-help, and spontaneous action taken by small farmers. These co-operatives have been much less successful due to various constraints including lack of assets, unequal rights, changing markets, and poor networks.
The other group of co-operatives – those based on the C+H model – are those initiated and controlled by government officials, rural elites (including big farmers) and investor-owned companies. This group is favoured by the government, and receives the lion’s share of government funding targeted at the co-operative sector.
The C+H co-operatives are the most successful co-operative model. The C+H model repre- sents a greater level of control for the lead company and is a form of quasi-vertical integration. The companies and households are generally able to establish and enforce a particular set of rights to meet each of their interests, even though the two parties lack equality. Indeed, the con- tractual arrangements are made in favour of the investors. The investors design the governance system in their best interest, leaving the vast majority of small producer members excluded from the policy-making process and often with very little benefit.
The next chapter of the thesis provides an in-depth analysis of the nature of these organi- zations, including an exploration of their ownership and control, and the reasons behind the domination of C+H model co-operatives. The analysis is based on institutional analysis and a modeling of their role in vertical integration, competitiveness, and the institutionalization of power.
Chapter 6. Forms of Farmer Co-operatives
Chapter 7
Analysis of the Company + Households Model
The previous chapter distinguished between several types of the company + households (C+H) model of co-operatives. These C+H models appear to be dominating the developmental path of farmer co-operatives in China. They are favoured by local authorities and are often the major recipients of various government support programs targeted at the co-operative sector. This support builds momentum for their further development. In contrast, farmer self-help groups remain marginalized.
This chapter explores the basic nature of the C+H model and examines how ownership rights are defined and how control of these enterprises is assigned to economic agents. It explores the implications of ownership and control for key players in the co-operative, including farmer members and companies. Co-operative theory and property rights theory provide useful analytic tools for designating the boundaries between C+H co-operatives and western co-operatives. It is critical to understand that the organizational structure of companies and organizations is a result of the larger institutional structure in which they are located. We will see that institutional eco- nomics, industrial organization, political theories, and strategic management literature provide theoretical foundations on which to base our understanding and analysis of the relationships between companies and small producers in the C+H co-operative model.
Moreover, the concepts of endogenous institutions and path dependence remind us that in our search for explanations we need to think about causes and effects that are often separated in time, rather than focusing exclusively on synchronic explanations, like the legislative process of the FPCL.
Chapter 7. Analysis of the Company + Households Model This chapter is divided into three parts. The first part of the chapter analyzes the nature and roles of C+H co-operatives. With the aid of co-operative principles, the C+H model co-operatives are compared to western co-operatives. This part also examines the corporate governance of C+H co-operatives, including the structure of power within the organization that determines the allocation of resources and distribution of risks. Drawing on theories of corporate governance and property rights, and the concepts of residual claims and control rights, this part argues that investors and elites are the ones that own, control, and bear the risks associated with operating these organizations.
The second part of the chapter examines the reasons why companies make the institutional choice to become a C+H model co-operative. The theories of endogenous institutional change and path dependency provide a basis to analyze how an institution can persist, and become self-enforcing as a result of pre-existing political, social, and economic structures. Institutions tend to be reproduced and reinforced within structures. Industrial organization theory helps to explore the concept of transaction costs. The strategic management literature provides the perspective from which to view the C+H model co-operatives as a result of strategic planning choices. The final section of this part is dedicated to understanding how decisions are made within co-operatives.
The third part of this chapter builds a model of the C+H co-operative based on the discourse surrounding industrial organization, transaction theory, and strategic management theories. C+H co-operatives are viewed in four ways. First, as a form of achieving vertical integration for com- panies. Second, as a collation of a company and small producers. Third, as an independent business enterprise that can be analyzed as a investor-owned firm. Forth, as a means of strength- ening the power of interests group. One of the conclusions of this section is that the co-operative model has been captured by the emerging elites to institutionalize their power, and by traditional elites to reinforce their existing institutions.