The Problem of Production
A model for cooperative development
Zvi Galor
1987
Introduction
The model that we describe sets out a possible way of developing a region or country. Before describing this model in detail, we should look closely at another characteristic of rural areas prevalent presently almost all over the world where agricultural produce is grown for sale. It is about other necessary factors determine the success of the farmer in the efforts to produce the agriculture. Agriculture is based of course on production. But the farmer cannot produce if he does not have the necessary agricultural inputs, among the other elements necessary for being successful.
The Problem of Production
In order to acquire these needed inputs he has to finance them but he seldom has the means for this. He therefore has to find credit in order to buy the required inputs. Once this has been done, the farmer is in a position to start producing. He will eventually have to pay back the credit, which has been granted, to him. This becomes possible when he sells his agricultural produce. Through marketing he converts his production into an amount of money, which will serve to repay his debts. These transactions are illustrated by a triangle of which the 3 sides represent credit, input and marketing. To summarize: the farmer obtains funds with which he acquires the inputs needed for production, which once sold will provide the money to pay back the initial credit.
Diagram 1
In the case of a traditional society, the farmer uses brokers and obtains funds at a very high price. He buys the inputs from merchants who charge high prices and impose harsh payment conditions. The farmer's production is acquired by middlemen who pay the lowest possible price. This situation, termed traditional, is encountered everywhere and always to the disadvantage of the farmer. It can, however, be changed by introducing into the triangular relationship an additional element, which rescues the farmer, namely: the cooperative. The credit and savings cooperative provides the peasant with the credit, which is indispensable for the purchase of inputs from a supply cooperative. This is the starting point of production. The sale of his total agricultural produce, solely by the marketing cooperative, enables the peasant to repay the credit, which he has received, at the end of the farming season. As we can see, the addition of the cooperative to the essential triangular relation of agriculture facilitates agricultural and rural development.
A Model of Cooperative Development for Traditional Rural Areas
We can follow on the process, which lead the Arabs in Israel to move from their traditional agricultural practices towards new ones, as described in the model of Prof. Arnon[1]. This process may serve as a general model for other traditional rural areas in the world. But Arnon's model is incomplete because it does not contain one very important aspect of this process - cooperative development. Cooperative development in the Arab agricultural sector in Israel is one of the rare cases of success worldwide of a traditional rural area.
We are going to present a general model of rural cooperative development, in order to make it easier to understand the success achieved by the introduction of cooperation in the Arab traditional sector.
Our model indicates that agricultural cooperative development almost always requires the setting up of a multi-purpose cooperative. This development (by the setting up of a cooperative) is achieved in stages.
The first of which is the setting up of a cooperative for agricultural production. Production depends on the following factors: land, capital, work, knowledge and initiative.
The second stage involves the following factors: credit, supply of inputs, marketing. In addition to production, our cooperative has another function, i.e. the organization:
l) of credit supply: mainly short term credit which serves to finance seasonal agricultural production, but also long term credit for investment in fixed assets.
2) of supply of the various inputs which are indispensable to
Agricultural production and which are charged to the peasants at the lowest possible price (thanks to the cooperative structure).
3) of the marketing system of the entire agricultural production of its members, paying them the highest possible return.
When the second stage is reached we witness the creation of a multi-purpose cooperative.
The third stage of development involves the cooperative supply and distribution of water for irrigation. This service is a corollary to production. Another function at this stage is storage, which is necessary in order to sell the entire amount of produce and by spreading it out over the year enables this to be done to maximum advantage. Processing depends on storage and also increases the farmer’s income.
The fourth stage of development of our cooperative relates to the consumption function, which is directly derived from the supply function of inputs and is the extension of this function to include the supply of all goods of daily necessity for the members of the cooperatives and their families. At the same time the cooperative takes care of the supply of living accommodation by building houses and agricultural facilities for its members and also buildings belonging to the cooperative. During this stage the cooperative develops a transportation network which wi11 be responsible for transporting the entire production of the cooperative to the market, and of the transportation of the needed inputs to the cooperative.
The fifth stage entails the setting up of technical services. What do we mean be this? The central idea of an agricultural cooperative with multiple functions is that the farmer devotes his time, energy, sense of initiative to the work of agricultural production and all the other worries are handled by the cooperative. We are referring to the supply of credit, inputs, water and consumption products, anything concerning marketing, transportation of the stock and processing, building and housing as well as the various technical services which a farmer requires daily. Moreover the cooperative sets other services such as accounting, which will serve each farmer Individually, and the cooperative as a whole; insurance for the members individually and for the cooperative; and a project for a retirement fund which will guarantee income for the members in their old age.
A multipurpose cooperative, which has succeeded in realizing these five stages, is then ready to face the six stage, which has a special importance - the integration of cooperative development into community development. The members of the multi-purpose cooperative have in fact organized themselves to form a community which has a wide range of service at its disposal, and under its control,
Summary
The description we have given of a multi-purpose cooperative could lead us to think that we have in front of us the "plan" of a Moshav. The answer is definitely no. Although the multi-purpose cooperative is the best developed existing cooperative, it is in no way a Moshav.
The crucial element of the development problem is how to develop the rural areas. We know that in many countries of the world the stress is not on developing rural areas. When we encounter some experiments to develop rural areas one has to admit that most attempts have failed. This failure is all the more striking when it concerns cooperative development. The example of rural cooperative development in Israel is quite interesting and we should mention in this context the kibbutz, the Moshav and the Moshav Shitufi. One must bear in mind that these cooperatives developed in special conditions, which differ from those of traditional rural areas. It is usually said that the Moshav succeeded in Israel only because it provided an answer to Jews from all over the world that were not necessarily farmers by tradition. It has been verified that the Moshav as a model for development cannot succeed in a traditional area. Israel has tried to popularize the idea of developing a cooperative village in various countries of the world and all attempts have failed. Why? If we follow carefully our presentation up to now, we see that cooperative development is achieved by steps and that the Moshav is at the top of the ladder.
1
[1]ARNON, I:MODERNIZATIONOFAGRICULTUREIN DEVELOPING COUNTRIES
JOHN WILLEY & SONS, l98l