Recommendations for Optimizing Internal Management Mechanism of Farmers’ Specialized Cooperatives

College of Economics and Management, Huazhong Agricultural University, Wuhan 430070, China

1 Introduction

As an excellent economic form promoting agricultural economic development and richness of farmers’ living in socialist market economic condition, farmers’ specialized cooperative has received rapid development. However, there are still many problems in internal management mechanism of these cooperatives, which greatly restrict sustainable development of farmers’ specialized cooperatives. In view of these problems, domestic scholars have made extensive researches. Shao Ke and Xu Xuchu analyzed factors influencing management mechanism of cooperatives from the perspective of member heterogeneity[1]. Ma Yanli and Meng Caiying studied existing problems in internal management of farmers’ specialized cooperatives from the level of dual principal-agent relation[2]. Fu Chen contended that transaction share system and member limitation system are favorable for effectively solving problem of difficult control of cooperatives[3]. Cui Baoyu and Li Xiaoming stated that withdrawal right can realize protection of members’ benefits to a certain extent[4]. At present, most domestic scholars carry out studies based on industrial statistical data[5- 10], while few studies are based on large sample survey. In view of these, we took Hubei Province as main survey object, to seek existing problems in internal management mechanism of farmers’ specialized cooperatives.

2 General information of the survey

In this survey, we obtained data mainly through questionnaire and field interview. The survey content involves general information of farmers’ specialized cooperatives, operation of internal management mechanism of cooperatives, and attitude and opinions of members to internal management. The survey objects are 38 typical farmers’ specialized cooperatives in Hubei Province, including 14 in farm production, 8 in breeding, 8 in processing, and 8 in service industry, covering small, medium-sized and large farmers’ specialized cooperatives. 25 of these cooperatives have members more than 300. Thus, the samples are typical. We issued 128 copies of questionnaire to 38 cooperatives and collected 128 copies, and the 116 copies were valid.

3 Existing problems and causes for internal management mechanism of farmers’ specialized cooperatives

3.1Decision-makingmechanismisnotperfectandcentralizedcontroliswidespreadAccording to theLawofthePeople’sRepublicofChinaonFarmers’SpecializedCooperatives, the member assembly or the conference of members’ representative is the highest organ of power exercising decision making power of major matters. According to survey, the decision-making power of most farmers’ specialized cooperatives is exercised by promoter and leader of cooperatives, the problem of centralized control is widespread. There are mainly four causes as follows: (i) 92.1% cooperatives are established by leading enterprises or able farmers who have higher power of speech in major matter decision; (ii) In more than 80% cooperatives, the director holds a concurrent job of manager, which strengthens the control over cooperatives and intensifies the centralized control; (iii) 93.1% cooperative members join in the cooperatives for economic benefits, and have the psychology of free rider and neglect exercise of their rights; (iv) at government level, the support and concern for large and influential cooperatives are greater, while the support and concern for small cooperatives are limited, leading to insufficient attention to internal management, leading to widespread problem of centralized control.

3.2SupervisionandrestrictionmechanismisnotperfectandnotstandardizedThe executive supervisor or board of supervisors shall be responsible for the supervision and internal audit over the financial affairs of this cooperative. In our field survey, about 31.58% cooperatives do not have supervision organ; in those with supervision organs, only 46.15% are founded through democratic election. Others are appointed by the director, showing non standardized supervision and restriction mechanism. Besides, many boards of supervision perform practically no function, they do not report to cooperative members in regular period and fail to bring into play their due functions. At the cooperative level, since relevant laws have no statutory stipulation about the establishment of board of supervision, some cooperatives do not set up board of supervision for saving costs. From the perspective of cooperative members, they are not clear of the importance of board of supervision, so they present no idea about establishing a supervision organ, leading to imperfect and non standardized supervision mechanism. At the government level, government does not impose administrative punishment for cooperatives in external supervision, leading to lack of effective supervision and failure to rectify non standardized internal supervision of cooperatives.

Table1Statisticsofdecision-makingmodesformajormattersofsamplecooperatives

Decision-makingmodesNumberofcooperativesPercentage%Decisionbydirector2565.79Decisionbybigshareholders923.68Decisionbymemberassembly37.90Othermodes12.63

Data source: calculated by survey data.

3.3ThereisnoeffectiveincentivemechanismEffective incentive mechanism is of great importance to raising enthusiasm of cooperative members for participating in operation and management of cooperatives, and increasing operating efficiency of cooperatives. According to our survey, only 2 cooperatives implement monthly pay system for main managers and 5 cooperatives implement way system coupling with performance. Vacancy of effective incentive mechanism is mainly due to power structure arrangement of cooperatives and managers. Most farmers’ specialized cooperatives are established by large farmers, able personnel and leading enterprises. The input and return of managers are not symmetrical. Therefore, it is difficult for them to keep sustained enthusiasm for management of cooperatives, leading to violation of rules and regulations in the administration of cooperatives.

3.4CooperativeslackspecializedmanagementpersonnelAt present, there is no definite regulation of establishment of cooperative managers in laws. To obtain superior position in intense market competition, cooperatives need management of specialized personnel. According to survey data, only 10% farmers’ specialized cooperatives have professional managers hired, and more than 65% cooperative managers are undertaken concurrently by their directors. Since the directors of cooperatives are elected mainly from farmers or leading enterprises, their specialized management knowledge is limited and they are not good at commanding the duty of cooperative managers in market economy. Few cooperatives are large and strong, while most cooperatives have low operating ability and fail to provide excellent development opportunity for specialized personnel. Most cooperatives lack market-oriented management concept and do not have definite and systematic personnel recruitment mechanism, examination method and incentive means, and subsequent management disorder hinders normal development of specialized personnel.

3.5ParticipationofcooperativemembersinadministrationofcooperativesislimitedTheLawofthePeople’sRepublicofChinaonFarmers’SpecializedCooperativesclearly specifies rights and obligations of cooperative members, and cooperative members have the right of election and to be elected and should undertake obligations of providing funds and implement decisions of general meeting. According to our survey, non-core members have low participation in administration of cooperatives, and do not properly exercise their due rights granted by law, and fail to participate in actual management of cooperatives. Cooperative members’ exercise of their power is not ideal and their participation in administration of cooperatives is limited possibly because of following three reasons. Firstly, from the perspective of cooperatives, the access threshold is low, so members have low sense of responsibility, which will restrict their enthusiasm for participating in administration of cooperatives. Secondly, since the motive for joining the cooperatives is simple for economic benefit, their concern about administration of cooperatives is little. Thirdly, the propaganda of relevant regulations and knowledge is not deep.

4 Recommendations for optimizing internal management mechanism of farmers’ specialized cooperatives

4.1Buildingdemocraticdecisionmakingmechanismwithcoordinationofcooperativemembersandablepersonnel(i) Strengthening the highest power authority of member (representative) general assembly. It is recommended to implement decision making power by member (representative) general assembly, and major matters specified in articles of association and institutions should be decided by member (representative) general assembly. (ii) It is recommended to guarantee added voting right of able members who have great contribution to foundation and development of the cooperatives, to manifest fair decision making mechanism and fully consider due benefits of able members. (iii) Coordinating able members and ordinary members in management of cooperatives. Under the premise of democratic decision making, it is recommended to bring into play wisdom of cooperative members through pooling ideas of cooperative members, point out direction through authority, and bring into full play active role of able members in efficient operation of cooperatives.

4.2Establishingasupervisionmechanismsuitablefordevelopmentofcooperatives(i) Regulating the establishment of supervision system within the cooperatives. It is recommended to specify the establishment of supervision mechanism in detail in theLawofthePeople’sRepublicofChinaonFarmers’SpecializedCooperatives, build a supervision mechanism suitable for their development demands. Small cooperatives may set up an executive supervisor, while large cooperatives may set up the board of supervision. The director, directors, managers, and financial personnel should not hold a concurrent job of supervision organ. (ii) Strengthening the establishment of supervision mechanism within the cooperatives. Relevant government authorities can establish effective external supervision and examination mechanism with reference to German and Japanese experience. Through establishing supervision mechanism and implementing strict auditing system, it is expected to enhance control and supervision of management system and member benefit, and conduct supervision of routine financial affairs, assets, and organization, and operating legitimacy.

4.3Improvinginternalincentivemechanismofcooperatives

(i) Improving incentive mechanism for ordinary members. The earnings of cooperatives should be allocated in accordance with patronage amount dividends and shares, and may also adopt implicit incentive method. It is recommended to summon up enthusiasm of cooperative members through reducing price for members purchasing production means, providing special services for cooperative members, and improving small area market environment. (ii) Improving incentive mechanism of management personnel. It is recommended to grant the residual claim to management personnel and connect return of management personnel with performance of cooperatives.

4.4EstablishingspecializedpersonnelintroductionandcultivationmechanisminpropertimeQualified cooperatives should establish specialized personnel introduction mechanism, scientifically position specialized personnel of cooperatives, specify detailed requirements of professional ability, issue definite and specific post description, and recruit specialized personnel suitable for development demands of cooperatives. In addition, it is recommended to completely separate decision making level and execution level, and increase efficiency and standardization of management of cooperatives. For small cooperatives, it is feasible to cultivate members of cooperatives through scientific cultivation plan.

4.5Strengtheningmembermanagementofcooperatives(i) Reinforcing examination of farmers joining in cooperatives. On the basis of voluntary participation, it is required to strengthen

examination of capital contribution and participation degree of farmers, and enhance members’ undertaking of responsibilities for management of cooperatives, to raise concern of cooperative members for operation and management of cooperatives. (ii) Strengthening guidance on members’ learning. It includes learning of related laws and regulations, article of association, systems, documents, to strengthen cognition of their rights and obligations of cooperatives. (iii) Treating members and non-members of cooperatives differently. Cooperative members have responsibilities for cooperatives, while non-members concern about purchase and selling. If there is little difference between them, cooperative members will shake necessity of joining in cooperatives and reduce their enthusiasm for participation in management of cooperatives.

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