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AGRICULTURAL SERVICE COOPERATIVES IN LVIV REGION: TRENDS AND PROBLEMS

Tsymbalista Natalia

PhD in economics, junior researcher

State Institution “Institute of Regional Research named after M.I. Dolishniy
of the National Academy of Sciences of Ukraine”

Lviv, Ukraine

 

AGRICULTURAL SERVICE COOPERATIVES IN LVIV REGION: TRENDS AND PROBLEMS

 

An agricultural service cooperative (hereinafter ASC) is a form of economic cooperation and integration of small agricultural producers: farmers and personal subsidiary plots of the rural population. Among the important institutional characteristics of this phenomenon we should mention a voluntary and open membership, non-profit nature of cooperatives in the service of its members and democratic management based on the principle of "one member – one vote". The development of service cooperatives in the rural areas of Lviv region, as well as in Ukraine in general, is important because of the presence of a large number of small farms that produce the bulk of certain agricultural products, such as vegetables, milk and meat.

The number of ASCs registered in the region, decreased by 12 units during the period 2006-2010. However, the last years are characterized by a gradual growth. The bigger number of cooperatives (10 units) was established in 2013 (Fig. 1). Such changes in dynamics are in particular related to the support policy for the development of ASC at the national and regional levels. For example, an increase in the number of registered cooperatives in 10 units in 2013 coincides with the adoption of a Comprehensive program to support the development of agriculture in Lviv region in 2013-2015, which among other actions, contained measures of financial assistance to cooperatives by allocating funds from the local budget. However, the next year the increase in the number of cooperatives virtually stopped, due to the complicated procedure of the contest and determination of the winners among cooperatives, as well as problems during the allocation of funds from local budgets for the purchase of equipment for cooperatives.

Figure 1. Number of agricultural service cooperatives in Lviv region during the period 2006-2015 (at the beginning of the year), units

Source: According to the Department of Agricultural Development of Lviv Regional State Administration and [1]

Most of the ASCs established in Ukraine are multifunctional. The reason for this is that their members often need to be provided multiple types of services, but have no desire to participate in the activities of several different cooperatives. In contrast to the national trend, Lviv region belongs to the few regions in which agricultural products marketing cooperatives dominate and most of them are diary marketing cooperatives. This fact shows one of the most vital problems of the local small agricultural producers – their need to get access to the products sales on the agricultural market, while predominantly dairy specialization of the marketing cooperatives is caused by the implementation of the “Ukraine Dairy Business Development Project” supported by the Canadian Government in collaboration with the Lviv Agrarian Advisory Service. In terms of the mentioned project, dairy marketing cooperatives could get loans in banks due to the provision of financial guarantees at the expense of the project.

Speaking about the extent of service cooperatives among the rural population of the region we should explore their size structure (fig. 2). The size of the agricultural service cooperative is determined by the number of its members. The more members has a cooperative, the more services it can provide and the more products produced by the members it may sale.

 

Figure 2. Size structure of the ASCs in Lviv region in the year 2014

Source: Author’s own data processing according to the Department of Agricultural Development of Lviv Regional State Administration

As shown in Fig. 2, most of the cooperatives registered in the Lviv region have membership which is strictly equal to the minimum value - three members who actually are the founders of the cooperative. However, most of the existing cooperatives are concentrated in the group with the number of members from 4 to 32 members. These ten operating cooperatives together sell agricultural produce of the total value over 2 million UAH and they have at their disposal fixed assets amounting to almost 2.5 million UAH.

There are 1465 members in 53 registered cooperatives in the region, including 607 members in the operating ASCs. The fact that most of cooperatives are characterized by a small number of members (below 32 members) and the share of operating cooperatives in total number of registered ASCs is relatively small (only 22 of 53 cooperatives or 42,3%), shows the lack of activity of the population in participating in the cooperative movement in the region. Not a single cooperative is founded in Pustomyty district, and six other administrative districts have no operating cooperatives among the registered ASCs. However no obvious correlation between the date of establishment of the cooperative, its size and operational activity was found.

As for the marketing of agricultural products, we should mention that one of the objectives of ASC is to overcome the monopoly power of commercial intermediaries on the agricultural market [2, p. 15]. However, the evidence shows that the situation is less optimistic. In 2014 sales revenues received by the ASCs of the Lviv region amounted to 4,7 million UAH. This is 3,8 more than in 2013. At the same time during 2013-2014 the role of commercial intermediaries increases. Thus, in 2013 cooperatives have sold them about 29% of production, in 2014 the share of commercial intermediaries share was 39% in the total sum of the ASCs sales revenues, which is only by 3,1% less than the share of processing enterprises. Simultaneously the share of production sold by the ASC directly on markets decreased from 26,3% to 16,8%.

So, among the main problems of ASCs development in Lviv region we should mention the following: the low activity of rural population in participating in cooperatives; the lack of funds to finance the fixed assets (e.g. technique and equipment) purchase, which is one of the reasons why most of the ASCs do not operate in fact; weak positions of the active cooperatives on the agricultural market and the prices for the agricultural products sold by cooperatives are still low.

 

References

  1. Burak, A. (2013). Organizational-economic characteristics of agricultural cooperatives development. Retrieved from : http://irbis-nbuv.gov.ua/cgi-bin/irbis_nbuv/cgiirbis_64.exe?C21COM=2&I21DBN=UJRN&P21DBN=UJRN&IMAGE_FILE_DOWNLOAD=1&Image_file_name=PDF/Vlnau_econ_2013_20(1)__10.pdf [In Ukrainian]
  2. Borshchevsky, V. V., Mahas, V. M. (2014). Agricultural cooperation: market mechanisms of development. The Economy of Agro-Industrial Complex. 10, 14-19.
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