Source : Co-operatives in Eastern and Central Europe - Estonia, Latvia & Lithuania by Mats Ahnlund, Studies and Reports 22nd in the serie, 77pp, ICA, Geneva, 1993
4.1 Main characteristics of the present co-operative structure
4.1.1 Models of co-operatives and their significance in quantitative terms:
At present the consumers' co-operative movement is one of the biggest organizations in Lithuania. And, with around 40% of the retail market, the consumer co-operative movement is also one of the biggest enterprises in Lithuania. In the countryside the co-operatives have a virtual monopoly in food retailing. The few private shops that existed in Autumn 1992 do not yet pose any real competition.
In 1992 there were:
- 518,000 members
- 51,500 employees
- 109 local co-operative societies
- 34 regional co-operative unions
- 9 regional co-operative societies
- 3,564 shops
- 1,322 restaurants/cafeterias.
The turnover was 80 million US$.
Consumer co-operative societies and their enterprises are concentrated in the retail and wholesale trade, the purchase of agricultural products and raw materials, production of food and non-food goods, catering, building, transport, and education.
Analysis of retail sales (percentage)
Trade is the main activity of the Lithuanian Union of Consumer Co-operative Societies. Co-operative societies are responsible for about 41 percent of the republic's retail market. The members are able to shop in more than 4,000 shops, with a trading area of about 384,000 square metres, and more than 2,600 catering enterprises, in which almost 165,000 visitors can be fed at once. More than half of all trade and catering business enterprises are situated in the countryside.
The only other type of co-operative in existence today is the local housing co-operative. Nominally, these are independent of the State, but in practice they are directly under the Ministry for Economy or, in some cases, the local authorities. The housing co-operatives don't have their own membership or organize their own maintenance, but discussions have recently started to create co-operative bodies to support the local housing co-ops.
4.1.2 Brief historical background:
The co-operative movement has a long history in Lithuania. The first consumer co-operative society was founded in 1869.
At the end of last century many new consumer co-operatives were started and grew rapidly. However, as in the other Baltic states, over half of them disappeared very quickly due to the lack of capital and advice, competition from the private sector and difficulties in obtaining supplies.
The Tsarist power in Russia was overthrown as a result of the 1917 Revolution, and the Provisional Government passed the Co-operative Act on March 20. Only a few months later the Lithuanian Consumers' Co-operative Association (LCCA) was founded.
In 1922, Lithuanian political forces decided to proclaim Lithuania as an independent state.
During the 20s and 30s the LCCA became an established part of the economy, even though the authorities, which became more and more dictatorial under the inspiration of the German leadership, didn't entirely approve of co-operative ownership. One of the biggest differences from today is, of course, that the present capital, Vilnius, was a part of Poland following the Polish occupation of 1920.
In 1940, the Soviet Union invaded Lithuania. This quickly affected the whole society, including co-ops. The Soviets soon disbanded the co-operative press and ensured that the co-operative trade organizations were under the control of `reliable' people, who supported the Soviet system.
The statutes in force in the Soviet Union were enforced in Lithuania, ensuring a strict hierarchy of co-operative organizations.
In Summer, 1941, Lithuania was occupied by the German troops. The Germans appointed boards of directors and reintroduced the old rules within consumer co-ops. Other kinds of co-operative activity were allowed too, with the exception of co-operative insurance.
Before the beginning of World War II, the Lithuanian co-operative movement had become very influential. All sectors of the movement were growing: banking, insurance and agriculture.
In 1944, after the German defeat in Stalingrad, the Soviets came back and the situation returned to what it had been in the early part of 1941. All financial co-ops were nationalized. The `real' agricultural co-operatives were dissolved and farmers forced to hand their land to the collective farms.
On November 1, 1950, Lithuania became part of the unitary administrative-territorial system of the Soviet Union, and the consumer co-operatives' regional unions were created.
From the early stages of Perestroika and Glasnost, the economic decline has been obvious, with decreased levels of production and rampant inflation fuelled by panic buying. As the shelves of stores were emptied it became necessary to implement a system of rationing, so as to ensure that everyone got an opportunity to purchase at least some urgently-needed food and consumer goods.
As a result of the new Soviet co-operative law of 1988, new statutes were accepted by the Lithuanian consumer co-operatives. The Union returned to its status of an organization serving the consumer co-operatives, and lost its position of top tier organization with the character of a ministry.
Discussions have now started regarding the transformation of the existing local housing co-operatives, which were previously part of the planned economy, into real co-operatives.
In Lithuania, the policy concerning agricultural co-operatives is very clear. The agricultural production units (kolchoses) and State farms (sovchoses) are being split up. As a result of the Farming Law of 1989 the land is being sold to individual farmers. Originally, it was not possible to sell the land or to use it as security for a loan, but the new post-independence law allows farms to be returned to the former owners or their heirs, or (in those cases where this is not possible) sold to individuals, with full ownership rights.
4.1.3 Member relations in the existing co-operatives:
In the consumer co-operatives the co-operative principles are acknowledged and the organization has completely altered since the change of 1988. In theory, formal democracy is working. But in practice the implementation of this democracy seems to be a problem.
Public opinion is still coloured by the long period when consumer co-operatives were a part of the State and Party system. Very few members seem willing to participate in the democratic processes, such as the AGMs. As in the other Baltic countries, the law demands a quorum of at least half the membership at AGMs in order to validate any of the meetings' decisions. Nowadays, this is never achieved.
As the consumer co-operatives still control virtually all rural retailing, it is difficult to judge whether the members patronize their co-ops through choice, or simply because they have no other option.
The Lithuanian co-operative union has retained much of its former structure at local, regional and national levels. Whereas the Estonians have altered the powers of their elected leadership and the employed management, such a change has not yet been introduced in Lithuania. Here, it is still much as it was during the Communist regime, with one president chairing the board and heading all the staff.
The Lithuanian housing co-operatives do not have a functioning co-operative membership. They used to be nominally independent of the State, but were really ruled directly by the Ministry of Housing. Today, after a great deal of effort, the inhabitants of co-operative housing are finally beginning to feel less like tenants and more like the members of their housing co-ops and owners of their own homes.
4.1.4 Secondary organizations, federations and their companies:
The national union of the Lithuanian consumer co-operative movement has all the traditional functions which can be seen in the other Baltic countries and in most Western co-operatives. The union runs some wholesale, warehousing and manufacturing processes. It also functions as an effective lobbyist, influencing Parliament in favour of co-operatives.
In addition to the national union, there is also a regional infrastructure. The consumer co-operative societies jointly own eight wholesale centres; two purveyancing centres; five food processing industries; six factories producing other goods; five building firms; five motor depots; Kretinga fur farm; a computer information centre; 'Litcoopimpex', a firm responsible for maintaining economic relations with other countries; and the Republic of Lithuania consumer co-operative bank. (See Chart 3 on page 63).
At present, because of the high inflation rate, turnover in roubles is increasing rapidly: but in real terms it is actually decreasing.
The consumer co-operative societies' wholesale network is formed by Alytus, Kaunas, Klaipeda, Marijampole, Panevezys, Taurage, Telsiai and Vilnius interregional wholesale bases and 25 trade centres situated in the regions. The wholesale warehouses cover an area of about 328,000 square metres, 137,000 of which belong to the regional co-operative societies.
Purveyancing has an important place in the activities of the consumer co-operative societies, with an annual turnover of 240 million roubles. The purveyancing enterprises purchase agricultural products, forest berries, mushrooms, beef, and other raw materials, salt and pickle vegetables, and process secondary raw materials. In Kretinga fur farm minks, silver and light blue foxes are raised. These enterprises also supply the population with lacking farming products, importing them from foreign countries. In return, they export mushrooms, edible snails, honey, furs, fruit, vegetables, their preserves and other products into these countries.
48 consumer co-operative society bakeries produce about 160,000 tons of bread and cakes per annum. This is 50 percent of the bread and cakes baked in the republic.
Each year, other co-operative production enterprises manufacture more than 40 million standard sized tins of fruit and vegetables, about 15 million cans of concentrated fruit and berry juices, about two million decalitres of non-alcoholic liquors, almost three thousand tons of sausages and smoked products. And the Stakliskiai 'Lithuanian mead' experimental plant produces various natural meads and brandies. These products have won prizes and commendations at many international fairs and exhibitions, and are exported worldwide.
`Litcoopimpex' is concerned with the export of produce. It exports fruit preserves and canned fruit jelly, concentrated apple juice, Lithuanian natural mead and brandy produced by the co-operatives' industrial enterprises and also the purveyancing enterprises' goods, namely fresh, pickled and dried chanterelles, pickled and dried edible boletus, edible snails and other produce.
The consumer co-operative societies own construction companies in Vilnius, Kaunas, Klaipeda and Siauliai. In those cities there is also a co-operative plant manufacturing the products used by these construction companies.
Consumer co-operative societies' organizations and enterprises are served by 5 depots situated in the various regions, with a fleet of 4,000 motor vehicles.
The movement has two educational institutions: Vilnius higher co-operative school, where middle-management specialists study, and Kaunas commercial co-operative school, which trains sales, bar and kitchen staff.
Workers and members of consumer co-operative societies also have the right to use the 'Zuvedra' sanatorium in Palanga, which is open all year.
Within the housing co-operatives there are no secondary organizations. Until recently they were all directly controlled by the Ministry of Housing. It is only in the last year that discussions have started regarding the establishment of a local infrastructure. However, such discussions are still in the initial stages, as most people living in homes owned by the housing co-operatives still consider themselves to be tenants.
In the agricultural sector the transformation has been quick. Most of the land has now been handed over to individuals. There are many attempts by Western co-operatives, e.g. LRF of Sweden, VOCA of the USA etc. to interest the new farmers in co-operative solutions for their marketing and supply. However, there is a lot of resistance among the farmers against becoming involved in anything called co-operative. So the solutions are very often as co-operative as the law permits, but their titles avoid the use of the word 'co-operative'. 'Farmer-owned companies' is one of the titles favoured by the new agricultural co-operatives.
4.1.5 Evaluation of the existing co-operative system:
The Lithuanian consumer co-operatives are experiencing many problems:
a) Member participation is very low and the members do not object particularly loudly when the new authorities decide to sell or give away co-operative shops and other property.
b) Management is in urgent need of know-how. There is a general lack of knowledge regarding how to run a co-operative business operation in a market economy.
c) There is also a lack of democratic tradition. The local presidents are still elected as both chairman and CEO. And in practice they have an enormous amount of power, very often being able to choose both board members and vice-presidents.
d) Furthermore, there is a lack of modern infrastructure in almost every area: transport, storage, shops, housing, heating and refrigeration etc.
The housing co-operatives have a more secure future. They do exist and seem to have more general support from the public and among politicians. They experience little competition, because there are no private investors in real estate at the moment. So the possibility that State or co-operative housing will be privatised is very small. And nobody wants to increase the public sector by building new council or State housing. The State and the local authorities are instead seeking co-operative solutions to their housing problems.
The problem will, of course, be to make the owner-members aware that they are not just tenants. However, inside a housing co-operative the awareness of ownership is usually more easy to achieve than within, for example, a big consumer co-operative.
The newer co-operatives are of two kinds: the first were started after the introduction of the 1988 co-operative law. As this was the only kind of private ownership possible, a large number started immediately. Entrepreneurs who, in other circumstances, would have started a joint-stock or limited company were forced to use the co-operative form. But the law was applied to all types of business, whatever their size. It was not unusual for a 'co-operative' with three owners to have fifty employees, and in some cases the owners did not work in their own co-operative but just lived on the dividend from their capital.
The reaction to these 'co-operatives' was generally very negative. As many of the new 'co-operators' earned a lot of money, and some had very ostentatious lifestyles, they soon got a bad reputation. Many co-operatives, especially the more visible ones like restaurants, increased their prices several times, so most of the population couldn't purchase their goods and services on an ordinary Soviet salary.
Furthermore, many decided to accept only hard currency, putting them out of the reach of most ordinary citizens. Thus, as in all other former Soviet republics, 'co-operative' has many negative associations.
The other new co-operatives, those more like the Western ones, are small. Some efforts are being made to start co-operative insurance, banking and credit union activities again. But so far these have been organized by the existing consumer co-operatives, which have a lot of their own problems to deal with.
The only exception seems to be the agricultural co-operative sector,
which is expanding. As the old system of collective farms is dismantled,
the farmers are joining together to form new companies. Even if they
don't yet want to call themselves co-operative, most of them are.
So it is highly possible that the agricultural co-operative sector will
4.2 The co-operative reform process
4.2.1 The need for, and main field of, co-operative reform:
The co-operative reform process has already been partly described in the section above. The sweeping changes have not yet started. Neither democratic activities nor business operations have been adapted to the demands of a modern Western democratic system and the free market economy.
Most of the managers of both the local consumer co-operatives and the union are unchanged since independence.
Of course, co-operative leaders need to understand the market economy, and the present management is well aware of that. The most important change is that the co-operatives are truly independent of the State and political parties. Whereas most of the managers used to be approved by the Communist party, they are now elected or appointed in the same way as their Western counterparts.
However, the main area of concern is member involvement. The fact that most members do not feel like the owners and rulers of their local and secondary co-operatives is already creating problems. It means that unsuccessful or, even worse, dishonest leaders are not dismissed: because virtually no one cares. The disinterest of members also means that there is no protest from ordinary people when the authorities make decisions that disfavour co-operatives. Only the higher co-operative management objects.
Another problem, which is evident in all Eastern and Central European co-operatives with only a few exceptions, is that the elected chairman is also the general manager. The balance of power developed in Western co-operatives, with local boards elected from within the membership and responsible for the appointment of top management, is as yet unknown in Lithuania.
Another deviation from the co-operative principles is that profit is distributed to members only in relation to their shareholding. There is no advantage in buying more from your co-op, because your share of the profits is not influenced by that. Instead, most of the profit (which was an unknown word until recently) is ploughed back into the business, or hopefully into its reserves. A small part is given out as a dividend on the members' shares, but this does not even cover inflation. This means that the members' shares are continually losing in value, so even if you, as a co-operator, believe that the capital investment in your co-op will make you identify with it, that reason for participating is also decreasing.
But, as has been mentioned in another part of this report, the new law proposes that dividends should be distributed in a more traditionally co-operative way, according to the co-operative principles, on the basis of purchases made, rather than on invested capital.
In both new and established housing co-operatives everything remains to be done. There is, for example, no co-operative tradition, and no system of decentralized joint maintenance. Ownership is still only symbolic, and a strategy needs to be established for increasing the involvement of individuals in their housing co-ops.
4.2.2 Government co-operative policies:
Most of the bigger changes inside consumer co-operatives: selling shops, closing down factories and catering enterprises, have been the result of Government decisions, and in Lithuania the reform process and privatization have been pushed through more quickly than in most other countries.
Since Lithuania had to adopt the Soviet model, with regard to the consumer co-operative's role and methods of working, the majority of their shops are to be found in the countryside. The rules which permitted former owners to reclaim their properties have naturally applied here too. This has meant that many thousands of rural co-operative shops have already been privatized. These have often been small, old fashioned shops, but sometimes the properties include the newer shops which were given to the co-operatives by the State when a new housing area was developed.
I would, however, like to say that the consequences of reprivatization for consumer co-operatives are not altogether negative. Some difficult decisions, which would otherwise have had to be taken, will now resolve themselves, even if some valuable shops and locations are lost.
Even if there are advantages, reprivatization has one very unjust consequence for co-operatives. In no case has a co-operative been permitted to reclaim those city shops confiscated by the State during the 40s. These are often large properties in excellent positions, the result of a great deal of hard work by the co-operative pioneers. Such a loss could be serious in the long term, as Western experience shows that the main area of development for consumer co-operatives will be in the larger towns and their suburbs.
When property is unclaimed by its original owners, the methods of privatisation differ. Lithuania has had the most advanced plans on privatization, even of those co-operatives established since 1992, but these will probably be revised after the election in October.
However, before these plans were implemented, the post independence Government, ruled by the Lithuanian independence movement, Sajudis, sold off a lot of consumer co-operative shops, in addition to returning some to their former owners. There has also been a massive sale of those consumer co-operative shops built in the newer rural housing developments and given to the co-operatives to run.
In many cases these now have private owners, having been sold in a public action (co-operatives were not allowed to bid). These shops were the bigger, often more modern ones. So the local co-ops in Lithuania now have competition in many of the villages.
In early 1992, the Government of Lithuania decided that 34 percent of the property currently owned by co-operative societies should belong to the State. It also proposed that all property owned by non-existent members (dead, moved or invented) was also to be taken by the State. In many local societies this was half of the assets remaining (after the State had taken its 34% share).
The remainder of the co-operative society's property was to be shared between its members according to their investments. Following privatization, members will be the stockholders in the society. There are efforts being made to reconcile the interests of shareholders and stockholders.
This proposal, and the recent decisions of the Lithuanian Parliament, deviates from the international co-operative principles and norms concerning property rights and independence. During the fact-finding mission to Lithuania for this report, and after discussions with representatives of the State and of the co-operative movement, the ICA sent a letter to the former President Landsbergis and the Prime Minister then in power. The letter made the following points:
a) We are not sure that the State's decision to repossess the State property freely given to consumer co-operative societies, and certain purpose-built properties erected as part of new housing estates, is quite legitimate. Thus, the 34% of co-operative property to be repossessed by the State seems to have been estimated without adequate basis.
b) A desire to revert to the pre-communist property situation should, of course, result in the restitution of property belonging to co-operatives before the period of Soviet occupation. This mainly concerns locations in the bigger cities.
c) The demand to transfer to the State the indexed share investments belonging to co-op members who have died, disappeared, emigrated etc. and property created using these shares does not have any legitimate basis. According to the property rights and their practical application, such property should belong to the co-operatives.
d) In contrast to most other countries, Lithuania has no co-operative Law to legitimize and regulate co-operative property and business activities. Co-operatives can not operate under a law that was intended to regulate joint-stock companies.
The ICA's leadership is attentively watching the reform of Lithuanian Consumer Co-operatives. The ICA would prefer the reform to be in accordance with the worldwide Co-operative Principles. Consequently, we are asking you to:
- postpone the ratification of the proposed legislation 'On Lithuanian Consumer Co-operative Property';
- reconsider the question of pre-war property belonging to the Lithuanian co-operative system;
- legalize former co-operative members' share investments and new property created on the basis of those investments as co-operative property, belonging to the present members.
- reconsider whether it is reasonable to apply joint-stock ownership principles to a co-operative company.
Finally, I wish to inform you that Poland made a similar decision with the aim of abolishing all national and regional co-operative structures. The present Government of Poland has expressed deep regret for this in a personal meeting we had a few months ago. It might, perhaps, be an idea to contact them (or the President of the Consumer Co-operative Union in Poland, Mr. Boback, formerly of the Solidarity Movement) for further information. ICA's concern is to protect not the co-operative leaders but the co-operative movement and its principles.
The letter resulted in the bill's withdrawal, and the new Government of December 1992 seems to have a more positive attitude towards co-operatives, as we can see from the next section on co-operative legislation.
4.2.3 Co-operative legislation:
Before 1988, co-operatives were a part of the planned system. As such, they had to abide by the decisions made by the State, and also approve the leaders which it put forward. The faithfulness of the co-operatives to the Communist party's leading role was even written into their rules.
After 1988, as one result of Perestroika, the new Soviet co-operative law gave the co-operatives formal independence. The law was primarily intended to promote the formation of new co-operatives in service and production sectors, but it also applied to the existing consumer co-ops.
The independence of Lithuania in 1991 meant that the old Soviet co-operative law had no real status. And the only new law concerning private business regulated limited liability enterprises and other capital associations.
Since December 1992 there has been a new Government, which took steps to introduce co-operative legislation. However, the co-operatives are working in a vacuum, because the draft law was still under continuous discussion at the time of writing (April 1993).
The proposed law is similar to any Western co-operative law. The first draft stresses the social function of the co-operative for its members. There are also other proposals, such as the obligatory funding of education for members and personnel to the tune of around 5% of the net profit. This is not usually regulated by the State in most Western countries.
The draft law's treatment of the property question is more fair to the co-operatives. Members cannot withdraw their share of the collective property, as had been proposed by the Government in 1992. The new law would permit them to withdraw only their initial investment and their share of distributed profit for the years during which they belonged to the society.
The part that regulates the distribution of profit now stresses that dividends will be paid to the members in relation to their contribution to turnover.
Although the law has some flaws, the fact that the co-operatives will
now get their own legal statutes is a big step forward.
4.3 Future options for co-operatives
4.3.1 The major trends of changes:
In the future there will certainly be a consumer co-operative sector. Its role is very big today, especially in the countryside. Of course, several factors will lead to the diminishing of consumer co-operatives' share of the market:
a) The free market, with its private competition, is only just getting underway and there are few competitors in the co-operatives' main areas of operation. The only real change in Lithuania is that the State has forced the sale of a lot of co-operative shops, and these are now being increasingly successful in competing with the co-operative shops in the heartland of the Lithuanian consumer co-operative movement: the villages.
In town, one can also see a certain development of private shops, since most of the State shops there have now been sold. When the competition grows, especially when the currency is convertible in a few years and foreign retail chains are interested in investing in the country, the co-operatives will find it much more difficult to compete.
b) The fact that the Communists took all the property that consumer co-operatives owned in the bigger villages and towns is, of course, a problem as most of the increase in purchases will probably be in the towns. It is not really a good business move to run thousands of small shops in the countryside. The big retail development will be elsewhere.
c) The large numbers of shops and staff, and the size of the overheads, could put the co-operatives out of business. Unprofitable shops need to be closed, but this is proving difficult due to local opposition and also because financial planning within the co-operative movement is still not very developed.
d) Member relations could be much better. The legacy of the Communist system is still there, and is hard to get rid of. And the present leadership has probably not developed strategies to encourage increased member participation in the consumer co-operatives.
On the other hand, the present leadership is now turning to its neighbours in the West and to other western co-operatives for assistance. As a result of management training programmes, a new leadership is slowly growing. And some of these new leaders seem to be very well aware of the threats for the future.
4.3.2 The need for international assistance:
International assistance is as necessary here as in Latvia and Estonia. The general remarks made in the sections on these countries are also applicable to Lithuania.
However, Lithuania is in more urgent need of help in learning how to fight private retail competition, because such competition is already strong and growing rapidly within the villages and the countryside. This is due to the rapid privatization programmes of the former ruling party, Sajudis.
Another need seems to be inside the agricultural sector, where the one-family farms have to be catered for. Co-operative solutions for supply and marketing have to be found now, otherwise these small farms will soon disappear.