Annex II. Welcome Address

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  This document has been made available in electronic format
          by the Committee for the Promotion and
             Advancement of Cooperatives (COPAC)
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ANNEX 2

WELCOME ADDRESS BY MR. H. CARSALADE
ASSISTANT DIRECTOR-GENERAL
SUSTAINABLE DEVELOPMENT DEPARTMENT
FOOD AND AGIRUCLTURE ORGANIZATION (FAO)


Distinguished guests and fellow colleagues, it is a pleasure and
honour to welcome you to this 3-day International Technical
Meeting on Capital Formation in Agricultural Cooperatives
sponsored by the Committee for the Promotion and Advancement of
Cooperatives (COPAC) in collaboration with FAO.  The topic of
this meeting:   "Capital Formation in Agricultural Cooperatives"
is, in our view, an important and timely one. It is  "important"
because the accumulation of financial capital is one of the vital
foundation stones for sustainable economic growth and because
farmer cooperation is an essential prerequisite for agricultural
development. 
 
It is "timely" because the entire economic, social and
political environment within which cooperatives operate - at
least in developing and transitional economies - is undergoing
dramatic change as governments reduce subsidies and supports to
the agricultural sector, forcing many cooperatives to look for
other sources of capital, especially from their own
members, to finance growth. 
 
Less than two months ago, in Manchester, England, the
International Cooperative Alliance - an international
cooperative apex organization representing more than 750
million individual members worldwide - celebrated its 100th
Anniversary! 
 
There is much for ICA members to be proud of. Nowhere can this
be better seen than in the agricultural sector, where farmer
cooperatives today often hold enormous market shares; for
example,  

- in USA in the farm input supply, grain, rural electric
supply, dairy, fruit and nut sectors. The co-op brand names of
Southern States, Land-of-Lakes and SunKist are familiar to many
of us ;  

- in Denmark where over 90 percent of dairy and pig production
and marketing is handled through cooperatives;  
 
- in Japan where coops market over 95% of the nation's rice;   
- in India in the fertilizer supply, dairy (94%) and sugar (55%)
sectors;  
 
- in Kenya in the coffee (84%) and dairy (79%) sectors;  
 
- in Costa Rica in the fruit and vegetable (89%) sectors (to name
just some examples). 
 
But is all well in the "cooperative world"?  Quite frankly, the
answer is "No".  In those countries where government
intervention and control have been strong, and member
participation and management accountability weak, there are
serious and growing problems which threaten the very survival of
this unique type of farmer business. 
 
A major weakness of agricultural cooperatives, particularly in
developing countries, has been the tremendous problems they have
faced in mobilizing capital for investment and growth. In the
past, many relied heavily on government and outside donors for
support. These "partners" were often all too willing to supply
their capital needs, as this provided them the leverage to
influence or even control the cooperative movement.      
The net result of these "easy money" policies (as recent World
Bank and ICA studies have pointed out) often led to
dependencies which actually undermined, rather than
strengthened cooperative self-financing capacities and member
service orientation. Cooperative business efficiency and
member participation in these "pseudo cooperatives" suffered
greatly.    
 
But now that external sources of funding are drying up, these
weakened cooperatives must learn how to survive on their own. 
The problem is that many simply do not know how to do so!
Long-accustomed to receiving cheap capital infusions from the
outside, many are hard-pressed to ask their members to
contribute. 
 
At least in theory, increased member equity capital
involvement in cooperatives should help to build up each
member's "financial stake" in the group enterprise.  This
would serve as a type of "glue," binding members together and
strengthening group commitment and solidarity which is so
essential in obtaining cooperative economies-of-scale. 
Increased member capital should also help improve management
accountability and could lead to better and more
efficiently-provided member services, since it follows that when
you are paying part of the bill - and know you are paying - you
tend to demand better cooperative business  management and
services!   
 
However finding solutions to this problem is not easy because
cooperatives are different from normal businesses. They are - or
should be - democratically-controlled, collectively-run member
enterprises. Unfortunately, their unique "one person one vote"
and "limited return on capital" principles have
discouraged the accumulation of member capital.   Their
member-clientele orientation also tends to make them more
"inward- looking"  and less interested in courting non-member
investors. 
 
FAO interest in the problem of capital formation in
agricultural cooperatives goes back more than 3 years when, in
collaboration with COPAC and its member organizations, it
decided to launch a major international research programme to
study this issue in more depth.  A major output of this
exercise is expected to be an improved set of guidelines for
cooperative movements, governments and financing agencies
aimed at strengthening  the capital base and self-financing
capacities of agricultural cooperatives.   
 
We are gathered here this week to review the findings of this
research effort and to come up with a set of practical
recommendations to cooperative movements, governments and
donors for improving the situation.           
 
We all have a challenging and important task in front of us,
since the sustainability and continued development of farmer
cooperation, which represents a form of "social capital," is an
essential pre-condition for achieving food security and for
improving the livelihoods of rural men and women and their
children. 
 
Good luck in your discussions and thank you!