Agricultural Co-operatives in the Republic of Slovenia

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    This document has been made available in electronic format
         by the International Co-operative Alliance ICA 
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                         June 1994

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          Agricultural  Co-operatives in the
                Republic of Slovenia 
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                    by Franci Avsec*


Tradition is Rich but Contradictory
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Farmers' co-operatives in Slovenia have a tradition of over a
hundred years. They have managed to survive a variety of
economic and proprietary systems with numerous and often
contradictory changes. It is difficult to understand the
present situation, obstacles and possibilities of farmers'
co-operatives without an insight into those changes.

Although the first Slovenian co-operative is considered to be
the Society for Assistance to Craftsmen and Artisans in
Ljubljana (founded in 1856), the farmers' credit and other
co-operatives began to develop  faster in the last decades of
the 19th century, initially in the north-eastern parts of
present day Slovenia. Following the Czech example and under
the leadership of the  patriotic intelligentsia (brothers Dr
Joze and Mihael Vosnjak), the co-operatives were characterised
by a sense of national self-protection.  As early as 1883,
Mihael Vosnjak initiated the foundation of the first
co-operative union - the Union of Slovenian Loan Societies in
Celje, which started auditing its members five years later
(1888).

Towards the end of the 19th century, the farmers' credit and
other  co-operatives played a distinct social role during the
great debtors' crisis, which ruined many farms and forced
numerous people to flee the country. The most famous organiser
of co-operatives at the time was Dr Janez Evangelist Krek, the
spiritual leader of the Christian social movement.

The situation of the co-operatives was exacerbated by the 
world depression in the 1930s. Numerous state regulations
postponed any settlement of the  farmers' debts and failed to
offer any solution, although the Yugoslavian monarchy unified
co-operative legislation by adopting the Act of Economic
Co-operatives in 1937.

Farmers' debts were written off during the agrarian reform 
which followed the Second World War. The pre-war co-operative
unions, and soon afterwards the  credit co-operatives were
wound up and their property was nationalised, so that 
agricultural marketing co-operatives began to play the most
important role. An enthusiastic post-war recovery caused the
number of co-operators to reach the pre-war level by 1946.

New constitutional provisions and regulations on co-operatives
were initially modelled on the Soviet example. Co-operative
property was introduced as a special, "inferior" kind of
socialist property. However, as the political campaign for
collective farm co-operatives flagrantly violated the
principle of voluntariness and the  collective farm
co-operatives were economically unsuccessful, a decree, issued
in 1953, made it possible for the farmers  to wind up these
so-called  co-operatives. The land shares and other equipment
were then mainly returned to members. Irrespective of the land
limit, introduced at that time, most of the  agricultural and
forest land  continued to be privately owned.

Later, the transition from the state-administered system to
the system of the so called workers' and social
self-management was constitutionally regulated, which was
partly due to the failure of collectivised co-operatives. This
resulted in more efficient,  relatively well-organised
mass-farmers' supply and marketing co-operatives, which united
nearly all the farmers. By the end of 1956, there were 695
farmers' co-operatives with approximately 126,000 members.

New regulations on farmers' co-operatives, issued in 1958 and
1965, however, put farmers' co-operatives on the same level as
social enterprises. The agricultural policy of that time
considered the large, socially-owned non-co-operative
agricultural combines as the prime movers in agricultural
development. In the early 1960s, all representative 
co-operative unions at regional and country level were
administratively merged with the united economic chambers,
while the business co-operative unions were transformed into
non-co-operative enterprises. Farmers' co-operatives had to
cede work in forests to special forestry management units.
These changes were followed by a massive merging of farmers'
co-operatives among themselves and with agricultural combines,
as well as by the attainment of independence of former
processing co-operative plants transformed into autonomous
social enterprises. Co-operatives were denied all proprietary
rights and managerial influence in those social enterprises.
There were only 78 farmers' co-operatives with 48,713 members
in Slovenia by 1965. 

Towards the end of 1960s, the unfavourable political position
on private farmers and their co-operatives began to change.
One of the first signs evidencing this political change was
the 1969 Act, introducing a special financial system into the
agricultural co-operation, based on the "savings and loans
sections" within the agricultural and forestry co-operative
organisations. These sections played an important role in
gathering savings from farmers' and co-operative employees as
well as granting investment loans for the modernisation of
private farms. The Slovenian Republic supported the  financial
activities of the sections, guaranteeing the savings deposits
and granting low interest rates for investment loans. The
investment structure was not always  economically optimal,
because of the limitation imposed on the private farms' land
ownership (the land maximum was not abolished until 1991).

In 1971, the farmers' co-operatives founded the Union of
Savings and Loans Sections as the central financial
institution in agricultural co-operation. 

On the basis of the first Slovenian Act on Farmers'
Associations, the Cooperative Union of Slovenia was
re-established in 1972. 
After the introduction of the multiparty political  system in
1990, the Republic of Slovenia became an independent  state.
In March 1992, the Act on Co-operatives was one of the first
to be adopted.

Present Changes and Problems 
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The operating of farmers' co-ops is to a large extent defined
by natural features, as well as the social and economic
structure of Slovenian agriculture. Slovenia has a lot of
forests and meadows, if compared to other European countries.
Approximately half of its total territory (the total territory
of the Republic of Slovenia extends over 20,000 square
kilometres) is covered by forests, and more than a half (53%)
of the cultivated land is grassland. Approximately 70% of
agricultural land lies on territories with limited production
capacities (hilly, mountainous, alpine and karst regions).
Private ownership accounts for 83% of agricultural (arable)
land and 62% of forests. It is expected that the share of
private agricultural land and forests will increase due to
denationalization.

The most difficult problem of further agricultural development
is an extreme fragmentation of land. A rapid transition of the
population from agriculture to other activities was indeed not
followed by the process of land concentration. Private
agricultural land has been fragmented especially in the
lowlands. The Slovenian agrarian structure is therefore
characterised by a great number of small farms, which have to
earn an income not only from agriculture but also from other
sources, which is primarily through employment outside the
farm.

In the total agricultural production animal husbandry prevails
(60%, especially cattle breeding), before cultivation of
fields and meadows (34%), whereas wine cultivation (3%) and
fruit growing (3%) have much smaller shares.

According to the data issued by the Co-operative Union  of
Slovenia, there were 130 agricultural co-operative
organisations  with approximately 30,000 members in Slovenia
in the middle  of 1993.

Since wood trading has been de-regulated according to the
newly adopted Forestry Act (1993),  important changes are
expected also in the co-operative organisation  of formerly
privately-run forestry that will no longer be obligatory
separated from agricultural co-operatives.

The share of farmers' co-operatives in the purchase and sale
of agricultural products is substantial in animal husbandry
(milk and meat), and important in cereals (wheat), industrial
crops (sugar beet) and vegetables. Co-operatives also supply
farmers with reproduction material, consumer and other goods.

Since the agricultural and forestry co-operatives have for
many years  been mostly product-oriented, their marketing
function being combined with the distribution of state
subsidies to the private farmers, they are now having problems
adapting to increasing competition. This cannot be done
overnight,  so that improvements are very likely to be slow,
without any spectacular breakthroughs.

Due to the past trend for processing units to become
independent, there is a very small share of farmers'
co-operatives in the processing industry (for example, only
10% in the production of dairy products). It is expected that
the co-ops' share  will be increased due to the right of
co-operatives to participate in the privatisation of the
food-processing industry and the  denationalization
(restitution of co-operative property which has previously
been nationalised).

There are 63 savings and loans societies in membership of a 
Union, which all provide financial services to farmers'
co-operatives. A special Act stipulates that savings and loans
societies are organised as savings banks (not co-operatives).
They accept deposits of co-operators and co-operative workers,
and underwrite liquidity and investment loans raised by
farmers and co-operative organisations.

Central Co-op Organisations
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The (Agricultural) Co-op Union of Slovenia:

According to the 1992 Co-operative Act, the union became a
voluntary association of agricultural and forestry
co-operatives and their  tourist organisations at national
level. The Union's main objective is to promote and support
the interests of its member co-operatives.

As the first steps were taken towards a more open market
economy,  the Co-operative Union  became aware of the 
challenge of increasing competition. In order to concentrate
the crumbled financial and marketing co-operative forces, the
Union took the initiative and acted as the main  promoter for
the establishment of the Slovenian Co-operative Agricultural
Bank, the Co-operative Tourist Agency (both founded in 1990)
and the Co-operative Agricultural  Wholesale Society (founded
in 1991). In 1993,  the establishment of the Co-operative
Insurance Company was planed. However, plans may have to be
postponed due to the deteriorating economic position of
farmers co-operatives' and the introduction of more rigorous
criteria for new insurance companies.
Among its tasks, the Union sees  co-operative education and
auditing as the most urgent. Since co-operative education has
been neglected for decades, it is necessary to develop the
members' capabilities for  solving  their problems by
co-operative decision-making. On the other hand,  competent
employees are badly needed in marketing and financial
management.

Because many co-operatives are in financial trouble, 
co-operative auditing  is equally essential, not only  to
safeguard members' interests, but also to regain the
confidence of existent and potential members. Therefore, the
Union is striving to restore the system of co-operative
auditing which  functioned efficiently from 1903 till 1961.

The Union of Savings and Loans Societies:

In 1980, the  savings and loans sections within the farmers'
co-operatives formed themselves into autonomous savings and
loans societies, while the farmers' co-operatives retained the
founder's control rights. Also other legal persons, but not
individuals (like farmers), could join the co-operative as
founders of the savings and loans society. In this way, the
savings and loans societies could expand into other activities
such as the food-processing industry.

In the recent years of the economic recession, the savings and
loans societies,  with their widely-spread network have proved
to be efficient and have guaranteed  the liquidity of the
whole farmers' co-operative system. However, they are also
facing serious difficulties arising from the restrictive
monetary policy and reduced long-term investments in private
agriculture.  The banking authorities are pressing to
introduce similar capital and control requirements for
co-operative savings and loans societies as those used to
regulate other financial organisations. Although the measures
for financial stability cannot be disputed, it must be borne 
in mind that the savings and loans societies are legally
allowed to operate within a narrower range of activities than
banks.

The Slovenian Co-op Agricultural Bank:

For example, the Co-operative Bank was established because
some important financial transactions, like giro accounts for
legal persons, and foreign currency transactions, were not
allowed to savings and loans societies, and that is still the
case today. The Bank was established as a company limited by
shares (joint-stock company) in January, 1990. The
shareholders of the Bank are not only farmers' co-operatives
and their savings and loans societies, although they are
holding the majority of ordinary (voting) shares. In order to
gather the minimum capital required and  then raise it through
new emissions, the Bank accepted several forestry and
food-processing enter-prises as important shareholders, while
the nonvoting, preference shares were allotted to farmers and
other individuals.

After several emissions of shares, it could be said that
increasing  the capital and maintaining more than half of the
shares in the hands of the farmers' co-operatives has  become
a problem for the future development of the Bank, while  the
financial authorities are introducing more severe criteria
here  also, directly binding the range of activities with the
amount of the guarantee capital of a bank.

The Bank  concentrates on transactions with legal entities,
above all, farmers' co-operatives and food-processing
enterprises. There is some informal division of activities
between the Bank and the savings and loans societies. The
basic financial services for rural farmers and individuals are
almost exclusively provided by savings and loans societies,
acting at local level and having a better knowledge of the
circumstances (credit capability and so on) of their numerous
customers. 

Since the Bank has begun to establish its first branches in
the most agricultural regions of Slovenia, it would appear
that the  co-operation between the two financial systems will
be even more important in  the future. 
The Co-op Agricultural Wholesale Society:

The Society was founded as a company with limited liability by
farmers' co-operative organisations in June 1991. It is
registered for wholesale and retail trade as well as import
and export activities, market research, consultancy, and the
organisation of fairs and commercial exhibitions, and acts as
an intermediary and representative with consignment and
similar business services.

Through joint purchasing power, the co-operatives have rapidly
managed to  become  one  of the greatest national wholesalers
for agricultural requisites, like fertilisers, feeding-stuff,
seeds and other materials. Agricultural inputs, especially
final branded products seem to be  subject to far greater
import barriers than  other products.  Moreover, the
agricultural co-operatives still have a small share of the
market not only in the food-processing industry, but also of
the large shopping centres.

The Co-operative Tourist Agency:

The Agency was established in 1990. The major shareholders of
this limited liability company are individual farmers and a
few  co-operatives. The main object  is  to sell the tourist
facilities which farms have to offer but the agency also deals
with other tourist services for farmers and tourist services
connected with agriculture. 

* Mr Avsec is Legal Advisor of the Co-operative Union of
Slovenia and Assistant Lecturer at the University of Maribor,
Slovenia.