FARMERS, UNITE!

The realities of post-oil period call for the qualitative changes in the organization of national agriculture. The key objective of the current reforms is to redirect the agricultural sector to harnessing external markets. However, the boosting of the production of competitive export commodities is only possible through establishing large-scale commercial farms capable of reducing costs and increasing profitability. The shortest way to achieve this goal is the consolidation of smallholder farms into larger agricultural cooperatives.

The agricultural cooperatives in Azerbaijan emerged during the Soviet era, namely during the period of mass collectivization. However, almost immediately these associations have become strictly centralized state-owned enterprises lacking market flexibility and the ability to dispose of their own incomes. After gaining the state independence and the implementation of land reform launched in 1997, the kolkhoz form of management ceased to exist. This deregulation initiative has soon resulted in the establishment of nearly 800 thousand small private farms in rural areas of the country, which have been engaged in semi-natural farming on small plots of land. Such small plots have inhibited the effective use of agricultural machinery and other modern agricultural practices by scattered farms, as this would increase production costs markedly on such small areas of land. For the same reason, a number of drainage canals and irrigation networks remaining from kolkhozes (collective farms) has been abandoned and failed. Moreover, insignificant market price of small plots have hampered farmers' ability to use land as collateral to obtain bank loans.

Over the past 15 years, the government has put many efforts to reform and to improve technical capacity of the agricultural sector. However, the main beneficiaries of government support were large- and medium-sized farms, as well as the processing and logistics companies. Over the same period, thanks to the support of international donor organizations, there have been attempts to consolidate farmers into voluntary associations on land and water use. About 50 credit unions and a few hundred rural communities that would contribute to the development of both the agrarian and market infrastructures in rural areas have been created in 24 districts of the country.

There were also attempts to create classic agricultural cooperatives in some regions of the country: being organized upon market-driven principles, these entities would jointly create loan funds and acquire the necessary materials including the seeds, fuel, lubricants, and fertilizers through the bank loans or own funds. The members of such cooperatives cultivated the lots thus being a part of a collective work. During the income distribution, the activity rate and the value of each member’s share had been taken into account.

However, most of these initiatives were pilot projects, and even in the peak period, the number of agricultural cooperatives had not exceed one hundred and fifty being very few when compared nationwide. Subsequently, some of these cooperatives have been disbanded or transformed into larger farms buying or leasing land from smallholders.

For comparison, only a few years ago, there were about 50 thousand agricultural and trading cooperatives in the US (historically known for domination of large farms) providing nearly a quarter of the American agricultural production.

"The development of the system of agricultural production and consumer cooperatives and their unions is the favored method in most of the world. Today it is the most progressive and socially fair way of development of the agricultural sector ", says Islam Ibrahimov, Head of the Department of agrarian reforms, rural development and entrepreneurship at the Ministry of Agriculture.

According to experts, the underdevelopment of cooperatives in Azerbaijan is largely due to the absence of a modern legal framework and administrative mechanisms regulating this sphere, as well as the lack of specific fiscal and financial incentives that would encourage farmers to consolidate into cooperatives. On the other hand, the insufficient awareness of rural population about the benefits of associating in co-operatives does not allow overcoming the habits of smallholder farmers who conservatively distrust to collective forms of management.

Nevertheless, considering the protracted global economic crisis, the government is making every effort to transform the agricultural sector into a leading export sector of our economy. Thus, the need of creating powerful cooperatives cluster in the agricultural sector is actual again.

It is worth noting that the government authorities began developing the bill "On Agricultural Cooperation" almost six years ago while it was adopted by the parliament in the first reading back in April 2012. However, the second reading of the bill took place only by the end of May 2016 following the adoption at the plenary session of the extraordinary special session of the Milli Mejlis on June 14, 2016.

The existing law requires at least five individuals to be the members of the cooperative for successful registration of the entity.

The law clearly regulates the employment rights and obligations of cooperative’s members. Thus, according to relevant articles of the document, the members of cooperative must produce at least 70% of the work. The number of employees of any production cooperative may not exceed 30% of the core members of the cooperative except the seasonal employees. The objective is to protect the rights of ordinary members of the collective structure excluding the possibility of establishing phantom cooperatives or withdrawal of the organization’s operating assets due to the involvement of external entities.

The new law provides for the establishment of large collective agricultural associations including production and consumer cooperatives, regional cooperative unions, central cooperative unions, and the national cooperative union.

From now onwards, these entities will receive government’s financial support, as well as the fiscal and credit concessions and other incentive measures. The law also provides for additional incentives such as insurance of cooperatives’ deposits. However, this mechanism will be used in certain cases only: for example, when the cooperative yields over 50 dt/ha of grain crops or more than 5 thousand liters of milk per cow. These benefits will also be provided, if at least 25% of the production are exported or 15% of the profits are allocated for social and infrastructure projects.

The new law formulates government tasks in support of agricultural cooperation. In particular, the document provides for the enhancement of cooperation between rural municipalities and cooperatives in the context of placing orders for the agricultural and food products, as well as meeting the annual requirements of the state and ensuring reliable supply of the urban population. On the basis of appeals, the municipalities will have to allocate land for the construction of cooperative markets and the organization of trade fairs, as well as to facilitate the provision of sales opportunities for cooperatives at existing agricultural markets.

According to Eldar Ibrahimov, the chairman of the parliamentary committee on agrarian policy, the adoption of a dedicated law on cooperatives and the establishment of the national voluntary association of landowners will spur a new stage of reforms in the agricultural sector. It is equally important that the cooperative form of rural economy will ensure the implementation of new agricultural technologies making the products of our farmers more competitive on global markets both in quality and in terms of profitability and reduction of production costs. Among other things, the development of cooperatives in rural areas will improve the policy of import substitution and make a significant contribution to the implementation of the state program on food security.

Our reference

The history of agricultural cooperatives spans a half-century and by the beginning of the 20^th century, the process of consolidation of farmers into collective commercial farms has become quite massive. The cooperative movement has gained the greatest prominence in the Netherlands, Austria, Germany, Italy, the Nordic and the South American countries, as well as in the Eastern Europe, India, and Israel starting from the second half of the past century. Production and trading cooperatives have helped small farmers to jointly lease land and purchase agricultural equipment, to maintain irrigation infrastructure, to establish trade and logistics network, thereby achieving effective management and production of competitive products.