strengthening agricultural co-operatives in kazakhstan

OECD Global Relations Secretariat

The project is co-financed by the European Union

Kazakhstan Regional Competitiveness Project Astana, Kazakhstan 21 April 2015

OECD EURASIA COMPETITIVENESS PROGRAMME

Strengthening agricultural co-operatives in Kazakhstan

http://en.wikipedia.org/wiki/File:Flag_of_Europe.svg

2 OECD Global Relations Secretariat

Agenda

1. Overview of work conducted for the Peer Review of Kazakhstan in 2014

2. Presentation of the final report: Strengthening agricultural co-operatives in Kazakhstan


Armenia, Azerbaijan, Belarus, Georgia, Republic of Moldova, and Ukraine

Eastern Europe and South Caucasus Initiative

Afghanistan, Kazakhstan, Kyrgyz Republic, Mongolia, Tajikistan, Turkmenistan, and Uzbekistan

Central Asia Initiative

The OECD Eurasia Competitiveness Programme

The OECD Eurasia Competitiveness Programme was launched in 2008 and aims at contributing to economic growth and development in eleven countries of the former Soviet Union as well as Afghanistan and Mongolia.

Co-chaired by Poland and Sweden

Co-chaired by Kazakhstan and EU

Note: This map is for illustrative purposes only and is without prejudice to the status of or sovereignty over any territory, and to the delimitation of international frontiers and boundaries.


The Regional Competitiveness Project Supporting the design and launch of an FDI approach to regional SME development

• Highlight regional capabilities • Reduce policy barriers and attract FDI • Lead to stronger regional, sector and SME competitiveness • Contribute to the reduction of the gross regional product inequalities

Investment promotion coherence

“Awareness, competitiveness and attractiveness for FDI”

Governance and strategic planning to

attract FDI “Multi-level coordination”

Regional linkages “Inclusiveness while strengthening

entrepreneurships/SMEs”

Regional Competitiveness monitoring &

evaluation “Monitoring impact”

1 2 3 4

Policy areas of the project

• Construction materials (electronic land database)

• Petrochemistry

• Construction materials (electronic land database)

• Agriculture (co-operatives)

• Agriculture (dairy) • Forestry

Objective: to maintain and create permanent jobs and entrepreneurship in the regions

Advice and capacity-building focusing on 3 pilot regions with 2 pilot sectors per region:


Summary of events for the peer review of Kazakhstan

Event Dates What is needed from Kazakhstan

1 First Peer Review Mission to Astana and Akmola

5-7 August 2014

2 Second Peer Review Mission to Astana and Karaganda

23-24 September 2014

3 Capacity building seminar in Trento, Italy

13-17 October 2014

4 OECD Eurasia Competitiveness Roundtable

27 November 2014

5 Final draft policy handbook to be shared with Kazakhstan

10 December 2014

6 Launch event in Kazakhstan 21 April 2015 • Final round of comments and questions for the OECD

✓

✓

✓

✓

✓


• Working groups were held at the Ministry of Agriculture on 6 August 2014 and 24 September 2014. • They included participation of senior experts from the OECD, Food and Agriculture Organisation of the United Nations (FAO), University of Jerusalem, Israel, and University of Adelaide, Australia. • Discussions focused on the legal and regulatory framework, taxation of co-operatives and private sector participation in co-operative development.

The peer review missions in August and September provided a forum for discussion of the main policy barriers to the development of co-operatives in Kazakhstan

Field visits

Working groups

• Field visits and interviews with farmers were held in Akkol district, Akmola region on 5 August 2014, and in Osakarova district, Karaganda region on 23 September 2014. • Interviews focused on farmers’ awareness of the benefits of co-operatives, trust in co-operation, and the prevalence of informal co-operation amongst farmers.


The Capacity Building Seminar in Trento provided a forum for discussion of OECD good practices with a view of strengthening Kazakhstan’s institutional capacity

Exchange experience

Discuss good practices and

common challenges

Debate and challenge OECD recommendations

Strengthen

Institutional

Capacity of

Kazakhstan’s

policy makers

Key aim Process

• Case study materials

• Personal work

experiences

• Trento case study

presentations

• Field visits

• Developmental

challenges in the Trento

region

• Kazakhstan’s policy

environment

• Good fit to agricultural

policies in Kazakhstan

Mach Foundation A research centre focused on promotion and innovation of land-based economy products

CONCAST Consortium A consortium specialised in the production of cheese

Winery Mezzocorona A modern wine-producing co-operative


The Capacity Building Seminar in Trento included a mixture of in-house discussions and field visits

Field visits

• Classroom work was based around group work and case studies • Additional case study examples were debated and learning points extracted • Expert presentations introduced the theory behind The Co-operative Model, Governance and Management, as well as Skills Enhancement for Co-operative Members

Classroom work

• Trentino Federation of Co-operatives • Mach Foundation

• Mezzacorona Winery • CONCAST Dairy Consortium


Peer review at the OECD Eurasia Competitiveness Roundtable: Strengthening agricultural co-operatives in Kazakhstan

OECD Eurasia Competitiveness Roundtable

Ka

zak

hs

tan

Lead

expert

OECD

secretariat

OECD

countries

Eurasia

countries

Lead

expert

Lead

expert

The peer review of Kazakhstan was held at the 2nd meeting of the OECD Eurasia Competitiveness Roundtable on 27 November 2014 in Paris

Draft report including reform guidelines

finalised with OECD support

Draft report presented by lead experts and

reviewed by Roundtable members

Finalisation of Policy Handbook based

on comments provided by Roundtable members


Overview of challenges and policy recommendations


Agenda

1. Overview of work conducted for the Peer Review of Kazakhstan in 2014

2. Presentation of the final report: Strengthening agricultural co-operatives in Kazakhstan


Reforms to land ownership and the farm structure resulted in a substantial reallocation of production from agricultural enterprises to small-scale producers

There were 7 965 registered agricultural enterprises in Kazakhstan in 2013, with an average land size of 4 747 hectares. This represents a substantial decline from 1991, when a total of 4 594 agricultural enterprises operated with an average land size of 42 929 hectares.

In 1991 small-scale producers accounted for 32% of agricultural output, and by 2013 their share had increased to 76%.

Source: Committee on Statistics, Ministry of National Economy of Kazakhstan (2014). Note: Small-scale producers = Households + Individual Farms.

1991

1995

2000 2005 2009

2013

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e o

f sm

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rs in

to

tal a

gric

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l ou

tpu

t (%

)

Agricultural land in use by small-scale producers (thousand hectares)


Agricultural output is highly fragmented in Kazakhstan, with households and individual farms accounting for the majority of crop and livestock production

In 2013, households and individual farms accounted for 76% of gross agricultural output in Kazakhstan

Households and individual farms contributed to 66% of crop production and 89% of livestock production

Crop

Livestock

Gross agricultural output

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80%

100%

Households Individual farms Agricultural enterprises

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60%

80%

100%


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Source: Committee on Statistics, Ministry of National Economy of Kazakhstan (2014).


The contribution of households and individual farms to gross agricultural output varies significantly across Kazakhstan’s regions

Source: Committee on Statistics, Ministry of National Economy of Kazakhstan (2014). Key: Small-scale producers = Households + Individual Farms

Households and individual farms contribute over 90% of agricultural output in the Western regions, due to unfavourable soil and climatic conditions

Small-scale farming is well established in the Southern, Central and Eastern regions

Large-scale agriculture is more developed in the major grain-producing regions of North Kazakhstan, Kostanay and Akmola

Small-scale producers > 90% agricultural output

Small-scale producers = 80-90% agricultural output

Small-scale producers < 80% agricultural output

West

Kazakhstan

Atyrau

Mangystau

Aktobe

Kostanay

Kyzylorda

South

Kazakhstan

Zhambyl

Karagandy

Akmola

North

Kazakhstan Pavlodar

East

Kazakhstan

Almaty


Small-scale producers dominate crop and livestock production, particularly in the Western and Southern regions

Source: Committee on Statistics, Ministry of National Economy of Kazakhstan (2014). Key: Small-scale producers = Households + Individual Farms

Small-scale farms produce over 70% of crop output in all regions, except for the major grain-producing regions of North Kazakhstan, Kostanay and Akmola

Households and individual farms account for the vast majority of livestock production in Kazakhstan – ranging from 78% of livestock output in Kostanay to 99% of livestock output in Atyrau

Small-scale producers > 90% crop output

Small-scale producers = 80-90% crop output

Small-scale producers < 80% crop output

West

Kazakhstan

Atyrau

Mangystau

Aktobe

Kostanay

Kyzylorda

South

Kazakhstan

Zhambyl

Karagandy

Akmola

North

Kazakhstan Pavlodar

East

Kazakhstan

Almaty

West

Kazakhstan

Atyrau

Mangystau

Aktobe

Kostanay

Kyzylorda

South

Kazakhstan

Zhambyl

Karagandy

Akmola

North

Kazakhstan Pavlodar

East

Kazakhstan

Almaty

Small-scale producers > 90% livestock output

Small-scale producers = 80-90% livestock output

Small-scale producers < 90% livestock output


Households and individual farms account for the majority of production in a number of important commodity sectors

In 2012, households and individual farms accounted for 96% of milk production, 83% of meat production, 93% of vegetable production, 95% of potato production, 97% of cotton production, 95% of wool production and 51% of oilseeds.

Small producers also play an important (albeit less significant) role in the output of other products, such as grain (37% in 2012), rice (39%) and eggs (36%).

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100

Shar

e o

f sm

all-

scal

e p

rod

uce

rs in

to

tal p

rod

uct

ion

(%

)


Source: Committee on Statistics, Ministry of National Economy of Kazakhstan (2014).


Small-scale producers can play an essential role in ensuring food security and reducing Kazakhstan’s reliance on imported food products

In recent years agricultural imports have outpaced exports, leading Kazakhstan to become a net importer of agricultural products from 2009.

Reducing the country’s reliance on food imports and ensuring food security are strategic policy objectives for the government of Kazakhstan.

Source: UN Comtrade (2014), United Nations Commodity Trade Statistics database, UN Comtrade, http://comtrade.un.org/data/, accessed September 2014.

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Agricultural exports Agricultural imports Agricultural trade balance

http://comtrade.un.org/data/

http://comtrade.un.org/data/


Small farms and households in Kazakhstan face significant difficulties and structural disadvantages in competing with large-scale agricultural enterprises

Limited information on prices

Missing input and output markets

Credit constraints

Low bargaining power with large processors and input suppliers

High transportation costs

Difficulties investing in innovation and new technologies

Difficulties purchasing farm machinery and transportation equipment

Limited access to advisory services


The government of Kazakhstan should increase efforts to integrate small-scale farms and households into agricultural markets

Helping small-scale households to integrate into supply chains is a key recommendation of the OECD Review of Agricultural Policies: Kazakhstan 2013.

Policy options to support small-scale producers

Improve the provision of general services, particularly extension and advisory services

Facilitate increases in farm operations by removing regulatory and administrative barriers to acquire agricultural land

Strengthen credit programmes for small producers

Promote vertical arrangements between processors and small-scale farmers

Support the development of agricultural co-operatives


Agricultural co-operatives can help to create a level playing field for small-scale producers

Purchase of farm inputs in bulk, leading to lower per-unit costs for members

Joint sale and delivery of members’ output, allowing the cooperative to meet minimum quantity barriers imposed by large processors and retailers

Establishment of processing facilities, generating higher prices for members’ produce

Collective ownership or leasing of machinery and transport vehicles

Negotiation of credit for members, achieving better terms and lower interest rates than a typical small farm would obtain on its own

Provision of agricultural extension, advisory and market information services

Lobbying the government for reforms to national and regional policies

A co-operative is defined as “an autonomous association of women and men, who unite voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically controlled enterprise” (ICA, 2014)

Source: ICA (International Co-operative Alliance) (2014a), “Co-operative identity, values & principles”, ICA website, http://ica.coop/en/whats-co-op/co-operative-identity-values-principles, accessed September 2014.

http://ica.coop/en/whats-co-op/co-operative-identity-values-principles















Agricultural co-operatives are well developed across most OECD countries, with the average farmer being a member of at least two cooperatives in Austria, the Czech Republic, Finland, Germany, the Netherlands, Portugal and Sweden

1 Includes membership in several co-operatives. 2 A total of 844 “rural consumer co-operatives” and 1 448 “production co-operatives” were registered in 2013. Source: COGECA (2010); Eurostat (2010); ICA (2014c); Lerman and Sedik (2014a); Okan and Okan (2013); USDA (2014).

Country

No. of

agricultural

co-operatives

No. of

co-operative

members1

No. of farmers

Co-operative

members as a

share of total no.

of farmers Eurasia

Kazakhstan 8442 16 700 2 420 821 0.7%

Ukraine 801 21 521 5 300 000 0.4%

Selected OECD member countries

Austria 1 049 405 930 150 170 270%

Czech Republic 596 55 700 22 860 244%

Finland 46 183 000 63 870 287%

France 3 000 580 000 516 100 112%

Germany 2 994 1 807 000 299 130 604%

Greece 6 170 714 000 723 060 99%

Hungary 58 20 177 576 810 3.5%

Ireland 150 181 000 139 890 129%

Italy 5 748 866 615 1 620 880 53%

Netherlands 60 156 750 72 320 217%

Portugal 905 1 044 900 305 270 342%

Slovenia 76 16 539 74 650 22%

Spain 3 989 972 380 989 800 98%

Sweden 30 275 000 71 090 387%

Turkey 13 935 4 462 754 3 900 000 114%

United States 2 186 1 976 700 2 103 210 94%

Selected OECD partner countries

Latvia 107 8 422 83 390 10.1%

Lithuania 201 8 739 199 910 4.4%


Short-term challenges to the development of agricultural co-operatives in Kazakhstan: Weaknesses in the legal and regulatory framework

In Kazakhstan, the Civil Code distinguishes between “production co-operatives”, which were mostly created from the restructuring of former collective farms, and “rural consumer co-operatives”, which are somewhat comparable to the agricultural service co-operatives that are widespread in OECD member countries.

According to the Civil Code, “rural consumer co-operatives” are defined as “non-commercial” (non-profit) entities and are prohibited from distributing their surplus amongst members.

There are currently a total of five separate laws covering co-operatives in Kazakhstan: the Law on Production Co-operatives (1995), the Law on Agricultural Partnerships and Associations (2000), the Law on Rural Consumer Co-operation (1999, 2012), the Law on Consumer Co-operatives (2001, updated in 2012) and the Law on Rural Water User Co-operatives (2003).


Short-term challenges to the development of agricultural co-operatives in Kazakhstan: Weaknesses in the legal and regulatory framework

Individual farms and households are discouraged from setting up new co-operatives or joining existing co-operatives, because doing so would lead to a higher tax burden.

“Rural consumer co-operatives” have the status of legal entities, and are eligible for the special tax regime (i.e. 30% of the standard taxation rate).

Individual farms are classified as non-legal entities, pay a single land tax payment (calculated as 0.1% to 0.5% of the estimated cadastral value of the land), and are exempt from all major tax payments, including personal income tax and VAT.

Households are classified as “physical persons” and are not required to declare and pay personal income taxes.

To be eligible for the special tax regime, a legal entity must not have subsidiaries and

members of co-operatives must not be members of other co-operatives using the special tax regime. This restricts farmers from joining more than one co-operative, and is a barrier to the development of a multi-level co-operative network.

The current requirements and procedures for the registration of co-operatives are burdensome for farmers and need to be streamlined further.


Short-term challenges to the development of agricultural co-operatives in Kazakhstan: Low awareness of the benefits of co-operatives and limited trust co-operation

Due to Kazakhstan’s Soviet legacy, farmers do not understand the concept of agricultural co-operatives in the context of a market economy. They automatically associate the term “co-operative” with a production co-operative, which is a structure that still exists in Kazakhstan today as a remnant of the former collective farm system.

In market economies, co-operatives do not aggregate small land parcels for primary production on a larger area of land as production co-operatives do. Farmers in co-operatives continue to produce independently on their own land, and the main objective of the co-operative is to improve the welfare of its members.

Farmers in Kazakhstan also have little confidence in the potential benefits of co-operation, due to their negative experience with collective agriculture and government policies during the Soviet period.

The government does not provide any non-financial support to co-operatives, such as education programmes, dissemination of leaflets and publications on the benefits of co-operatives, or legal assistance for the establishment of new co-operatives.


Short-term challenges to the development of agricultural co-operatives in Kazakhstan: Lack of targeted financial support

Co-operatives in Kazakhstan face substantial difficulties obtaining bank loans and government financing. Their inability to obtain financing from commercial banks is typically the result of stringent collateral requirements, insufficient assets and reserves, and a lack of alternative lending mechanisms such as group lending or lending against production committed under forward contracts.

The ACC established a lending programme to support agricultural co-operatives in 2006, with USD 22 million of funding allocated in the first year. However, funding has since decreased dramatically, and accounted for just 2% of the ACC’s credit portfolio in 2009-2011 .

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2006 2007 2008 2009 2010 2011

Loans to co-operatives (USD million) Share in ACC credit portfolio (right axis, %)


Short-term challenges to the development of agricultural co-operatives in Kazakhstan: Lack of targeted financial support

Existing policies offering financial support for co-operatives suffer from inefficiencies and poor targeting. Consequently, a large proportion of co-operatives in Kazakhstan are inactive and do not provide real benefits to their members. These inactive co-operatives were often established to take advantage of government support, were formed without a clear development strategy and suffer from insufficient commitment from their members.

Furthermore, agricultural co-operatives are unable to obtain funding from many of the other KazAgro agencies: co-operatives are not eligible to participate in state grain purchases by the Food Contract Corporation, there are no micro-lending programmes targeted to co-operatives under the Fund for Financial Support to Agriculture, and co-operatives do not have access to machinery and equipment leasing from KazAgro Finance.


Overview of challenges and policy recommendations


Key characteristics of co-operative legislation

1. Voluntary and Open Membership: Co-operatives are voluntary organisations, open to all persons able to use their services and willing to accept the responsibilities of membership, without gender, social, racial, political or religious discrimination.

2. Democratic Member Control: Co-operatives are democratic organisations controlled by their members, who actively participate in setting their policies and making decisions. Men and women serving as elected representatives are accountable to the membership. In primary co-operatives members have equal voting rights (one member, one vote) and co-operatives at other levels are also organised in a democratic manner.

3. Member Economic Participation: Members contribute equitably to, and democratically control, the capital of their co-operative. At least part of that capital is usually the common property of the co-operative. Members usually receive limited compensation, if any, on capital subscribed as a condition of membership. Members allocate surpluses for any or all of the following purposes: developing their co-operative, possibly by setting up reserves, part of which at least would be indivisible; benefiting members in proportion to their transactions with the co-operative; and supporting other activities approved by the membership.

Source: ICA (International Co-operative Alliance) (2014), “Co-operative identity, values & principles”, ICA website, http://ica.coop/en/whats-co-op/co-operative-identity-values-principles, accessed September 2014.
















Key characteristics of co-operative legislation

4. Autonomy and Independence: Co-operatives are autonomous, self-help organisations controlled by their members. If they enter into agreements with other organisations, including governments, or raise capital from external sources, they do so on terms that ensure democratic control by their members and maintain their co-operative autonomy.

5. Education, Training and Information: Co-operatives provide education and training for their members, elected representatives, managers, and employees so they can contribute effectively to the development of their co-operatives. They inform the general public - particularly young people and opinion leaders - about the nature and benefits of co-operation.

6. Co-operation among Co-operatives: Co-operatives serve their members most effectively and strengthen the co-operative movement by working together through local, national, regional and international structures.

7. Concern for Community: Co-operatives work for the sustainable development of their communities through policies approved by their members.

Source: ICA (International Co-operative Alliance) (2014), “Co-operative identity, values & principles”, ICA website, http://ica.coop/en/whats-co-op/co-operative-identity-values-principles, accessed September 2014.
















Differences between co-operatives, investor-owned corporations and non-profit organisations (1/3)

Co-operatives Investor-owned corporations Non-profit

organisations

Ownership Member-owned Investor-owned Generally not “owned” by a

person or members

Control Democratically controlled;

one-member, one vote basis;

equal voice regardless of their

equity share. Members are

involved in the day-to-day

business operations and

receive services for their input.

Controlled by shareholders

according to their investment share.

Business decisions and policy are

made by a board of directors and

corporate officers.

May be controlled by

members who elect a board

of directors or, in non-

membership organisations,

the board of directors may

elect its own successors.

Control is maintained by

those not receiving the

services.

Board

membership

and

compensation

Made up of co-op members

elected by the members.

Usually, they do not work for

the co-op. Costs reimbursed

for board meetings. Board

members usually serve on an

uncompensated, volunteer

basis.

Board is comprised of a

combination of independent

directors, management and other

directors with financial or business

ties to the organisation. Chief

executive officer may serve as the

board chair. Significant financial

compensation is provided for board

service.

Board is generally made up

of people who do not

receive the services, usually

chosen for philanthropic or

political reasons. Board

members usually serve on a

volunteer basis.

Source: ICA (2014), Factsheet: Differences between Co-operatives, Corporations and Non-Profit Organisations, ICA, Geneva, http://ica.coop/sites/default/files/Factsheet%20-%20Differences%20between%20Coops%20Corps%20and%20NFPs%20-%20US%20OCDC%20-%202007.pdf,

http://ica.coop/sites/default/files/Factsheet - Differences between Coops Corps and NFPs - US OCDC - 2007.pdf









Co-operatives Investor-owned

corporations

Non-profit

organisations

Board

nomination

and elections

Candidates nominated by

membership either directly, or by a

nominating committee made up of

members. Usually, any member

can nominate a director candidate.

Board is elected by the members

on a one-member, one vote basis.

Candidates nominated by the

board of directors and

management, often by a

nominating committee.

Shareholders have limited ability

to nominate and elect director

candidates.

Either by members or the

board of directors.

Accountability The board is directly accountable

to members through nomination

and election procedures.

Board election and nomination

procedures afford little oversight

opportunity to shareholders.

Shareholders are not likely to be

able to remove board members.

Generally accountable to

members of the

organisation and those

who provide the funding to

the organisation.

Earnings /

dividends

Any surplus revenues (profits)

earned by the co-op are reinvested

in the business and/or returned to

members based on how much

business they conducted with the

co-op that year. Many co-ops are

obligated to return a portion of their

“surplus revenues” to members

each year. Members share losses

and earnings.

Profits returned to shareholders

based on ownership share.

Corporations are generally not

obligated to pay out dividends.

Timing and amount of dividend

pay-out are determined by the

board of directors.

Re-invest any profits they

make in their public benefit

purpose and their own

operations.












Co-operatives Investor-owned

corporations Non-profit organisations

Purpose /

motivation

Maximise member services

and satisfaction.

Maximise shareholder returns. Primary motivation is to serve in

the public interest. Redistribute

resources to provide

educational, charitable and other

services.

Source of

funds /

generation of

money

Raise resources through the

equity of members: 1) direct

investment; 2) retained

margins; and 3) per-unit

capital retains (capital

investments based on the

number of physical units

handled by the co-op or on a

percentage of sales).

Typically raise money through

capital markets.

Typically funded by donations

from the private or public sector

or the government. Tax-exempt.

Community Promote and assist community

development.

May engage in selected

community philanthropic

activities.

Serve as a mechanism for

collective action based on a

common good.









Calculation of taxable income for an agricultural marketing co-operative and an input supply co-operative

Source: Lerman, Z. (2013), “Cooperative development in Central Asia”, Policy Studies on Rural Transition, No. 2013-4, FAO Regional Office for Europe and Central Asia, Budapest.

Marketing co-operative Input supply co-operative

–

Costs (incl. risk margin):

Initial payment to members (dividends)

Operating costs of the co-operative +

Revenues (incl. risk margin):

Initial payment received from

members for purchases of inputs

+

Revenues:

Sale of members’ products on the

market –

Costs:

Payments to wholesale input suppliers

Operating costs of the co-operative

= Gross income (surplus/deficit) = Gross income (surplus/deficit)

–

Distribution of surplus/deficit

“Patronage refund” payment

to/deduction from members in

proportion to use of co-operative

services

–

Distribution of surplus/deficit

“Patronage refund” payment

to/deduction from members in

proportion to use of co-operative

services

= Transfer to reserve fund and other funds = Transfer to reserve fund and other funds

After accounting for the initial transaction with members, operating costs and the distribution of patronage refunds, the co-operative may be left with some additional surplus. This surplus is typically transferred to a reserve fund, which is liable for taxation at the standard corporate tax rate.

This practice is observed in a number of OECD member countries, including the United States and the Netherlands.


Educate farmers to build awareness about the benefits of co-operatives

The government should develop a targeted education programme to inform and educate farmers on the benefits of working with co-operatives.

Basic education: definition of a co-operative, differences between co-operatives and other organisational forms, main functions and types of agricultural co-operatives, benefits of co-operatives, alternatives to the co-operative model, potential risks and limitations.

Guidance on establishing a new co-operative: the main steps to undertake when forming a co-operative, including how to conduct a feasibility study, develop a business plan, register a co-operative, prepare legal documents and obtain start-up capital.

Preparation of legal documents: specific guidelines and examples on how to prepare legal documentation for a newly formed co-operative, such as the organisation agreement, articles of incorporation, bylaws, membership applications and marketing agreements.

Financial support: advice on the various options available to obtain financing for the co-operative, including grants, concessional loans, subsidies, supply chain finance and equity finance.


Develop targeted financing instruments for agricultural co-operatives (1/2)

Financing programmes for agricultural co-operatives are an essential source of start-up capital and funding for short and long-term investments. However, it is important to ensure that financial support does not lead to dependency, and that co-operatives remain financially sustainable in the long term, particularly after support has ended.

Co-financing of grants to co-operatives is a technique commonly employed in the EU to encourage member-producers to take ownership and show commitment to active participation in the co-operative. Partial participation of governments and international donors can be developed for a range of support instruments, including seed capital, grants for machinery and equipment, leasing systems and access to concessional lending for working capital. In all cases, funding should be conditional on a co-contribution from the co-operative, to ensure adequate incentives are built into the financing mechanism.


Combining financial support with technical assistance can be a useful strategy to increase productivity, improve skills, promote financial autonomy and support management independence within co-operatives. This increases the likelihood that the co-operative’s activities will remain sustainable in the long-term.

Targeting financing instruments to meet specific investment needs. In Moldova, for instance, co-operatives are eligible for preferential access to government subsidy programmes, including credit, risk insurance and investments into orchards, vineyards, greenhouses, livestock, machinery and processing equipment.

Strict monitoring and evaluation of lending is necessary to ensure that financial support is targeted to co-operatives that are economically viable, and not distributed to unprofitable or inactive co-operatives. This includes the collection of detailed structural statistics on agricultural co-operatives, which is necessary to assess performance and identify policy and regulatory barriers that impede co-operatives from operating effectively.

Develop targeted financing instruments for agricultural co-operatives (2/2)


Contact details

Jean-François LENGELLE Project Manager OECD Eurasia Competitiveness Programme e-mail: [email protected]

Antonio SOMMA Head of the OECD Eurasia Competitiveness Programme e-mail: [email protected]

Wouter MEESTER Project Co-ordinator OECD Eurasia Competitiveness Programme e-mail: [email protected]

Jibran PUNTHAKEY Economist/Policy Analyst OECD Eurasia Competitiveness Programme e-mail: [email protected]

mailto:[email protected]






strengthening agricultural co-operatives in kazakhstan

Government & Nonprofit

sme competitiveness

peer review mission

fdi approach

fdi lead

fdi governance

agriculture organisation

ministry of agriculture

agricultural cooperatives