Abstract

Since the mid-1980s Vietnam has implemented a steady process of economic transformation. Due to the decollectivisation in agriculture, the former agricultural production co-operatives had either to focus on service activities to promote farm production of their members or to cease to exist. During the 1990s many of them were dissolved or existed on paper only. On 1 January 1997 the Co-operative Law incorporating the basic co-operative principles had become effective. Based on this law all still existing co-operatives had to be transformed or they had to be dissolved. In those areas where no agricultural co-operatives are operational anymore, the people's committee of the commune is organising the most important activities. In general, informal self-help groups at the local level are under contract to execute the jobs. In addition, the Law provides the basis to form new agricultural co-operatives. These are either based on already existing informal groups or they have been set up from scratch. This last type of co-operative is quite similar to those known in market-economic systems.

Within this paper the development of agricultural co-operatives since the adoption of the Law is analysed. Emphasis is laid on the development and present situation at the local level with respect to the transformation and dissolution of existing co-operatives as well as the set-up of new agricultural co-operatives. While co-operatives represent both the social group and the business unit, they have to be economically successful to be of a lasting nature. This includes that they have to compete with the private sector. The findings reveal that agricultural co-operatives have limited working funds and no access to credit. Hence, they have to consolidate in concentrating on a few activities only and expand gradually. There are still some outside interventions on the management. But, in general, managers are very pragmatic persons eager to increase the economic power of their co-operatives. Besides the growing number of formal agricultural co-operatives, there is a large number of informal self-help groups (pre-cooperatives) operational in the rural areas. Many of them have the potential of forming successful co-operatives in the future.

1 Introduction

Since the establishment of agricultural co-operatives at the middle of last century, they are rooted, like co-operatives in general, in the insight that individual people who have the same economic difficulties achieve more if they unite. They are inspired with the idea not to draw on outside help but rather to improve their situation through their own initiative. Often this self-help approach used to be the only way to get access to much needed services at all. In general, people voluntarily group together and form a co-operative to take advantage of potential economies of scale in pooling their own meagre individual resources, including the benefit of expert management and pecuniary gains due to stronger bargaining positions.

Like the co-operative movement in general agricultural co-operatives are guided by three major principles, i.e. self-help, self-administration and self-responsibility. Self-help means that people join forces, raise the necessary financial means for the joint co-operative undertaking themselves and are prepared to give mutual help. Self-administration means that the members organise the internal conditions of their co-operative society themselves (“internal democracy”). Hence, the co-operative is not subject to third party's orders. While the broad rules and regulations of all types of co-operatives are outlined in the national co-operative laws, they have to be specified in the bylaws of each individual co-operative. Classically, decision-making was based on the rule of equal rights of all members regardless on the value of shares subscribed (“one member – one vote”). Depending on their number members are either directly or indirectly represented at the general assembly, the highest decision-making body of a co-operative. It is electing the management and supervisory boards. Self-responsibility means that members themselves are responsible for the foundation and upkeep of the co-operative enterprise with respect to business partners in order to establish confidence in economic life (“joint liability”). While formerly members were liable with all their property, they are now liable with their shares only. Members of the management and supervisory boards might be liable with their private property if found guilty of mis-management (IRU, 1991: 9; in more detail. ZERCHE et al.: 9-14).

Two aspects which are of particular importance of any existing or future self-help organisation refer to internal autonomy and external autonomy. Internal autonomy relates to the organisational structure, the management system and the participatory organisation or the internal democracy. External or economic autonomy requires a certain economic efficiency as well as supportive or federate structures which are applying the principles of subsidiarity. Both aspects have to be fulfilled if the self-help organisation is supposed to have a certain economic viability and a social acceptance of its members.

Thus, co-operatives basically comprise individuals who voluntarily join a social group (“co-operative society”). At the same time the co-operative represents a business unit which has to be registered to participate in economic life (“co-operative enterprise”). Hence, co-operatives are characterised by their dual nature (DRAHEIM, 1955: 16). In addition, there is a two-fold connection between a member and the co-operative. On the one side, a member is a shareholder and therefore co-owner of the co-operative enterprise. On the other side, a member is a client of the co-operative to take advantage of its offered services. It follows that members are integrated as holders (i.e. providers of capital or shares), clients (e.g. making use of the activities offered) and decision-makers (or controllers), simultaneously (“identity principle”) (WÖLFLE, 1996: 26).

Vietnam did not follow this more liberal co-operative approach, but embarked since independence on an economic planning system in line with the Soviet model. Collective agriculture in form of agricultural production co-operatives became integrated in the central plan. However, since the middle of the 1980s severe steps from a planned socialist economic system to an open market-oriented one could be observed. First informal steps of economic liberalisation had already been implemented, mostly at the local level, since the mid 1970s. But, particularly, since 1986 with the adoption of the doi moi policy an economic transformation process is on-going. However, the adoption of market economic principles has been gradual. Central planning is still setting the priorities of economic activities. The socio-economic change is guided by the government and the Communist party. But the economic liberalisation affected the various sectors to a different extent. While the general economic system is still dominated by the central planning system, the agricultural sector has been gradually liberalised by Party and Government resolutions since 1981. The last congress of the Communist party in early July 1996 confirmed the more cautious approach to further reform.

During the late 1980s agricultural production had been decollectivised and the farm household became the main decision-making unit in agricultural production, again. The repercussions with respect to agricultural co-operatives had been profound. The tasks and functions of the former agricultural co-operatives had to be adjusted to the new economic situation. They had to give up their role of direct regulation of and intervention in agricultural production activities. While the agricultural co-operatives continued to exist they had no more any land under their disposal. Hence, the option which had been quite popular in various Central and Eastern European countries during the early 1990s, to transform the collective farms into genuine agricultural producer co-operatives, joint-stock companies or limited liability companies and continue agricultural production was not feasible. In Vietnam, it was soon realised that the agricultural co-operatives had only a chance of survival if they were transformed into viable service co-operatives meeting successfully the emerging competition of private rural entrepreneurs. This requires that they have to aim at initiating economic benefits to their member holdings. Otherwise, members will lose interest and they have to be dissolved. On the other side, the millions of small-scale farmers were in urgent need of new institutions and organisations, e.g. to provide efficient support services, in order to improve agricultural production. Transformed and newly-established agricultural service co-operatives based on three major principles have been regarded as the main tool to achieve this objective.

Up to the mid 1990s there had been no national law with respect to co-operatives. All rules affecting co-operatives were based on party rules and provincial decrees. Only in 1996, after lengthy discussions, a national law on co-operatives had been adopted by the National Assembly which became effective 1 January 1997. This law reflects the three basic principles. Since then, immense efforts have been undertaken to transform, dissolve and establish new agricultural co-operatives in the country. In this paper emphasis is laid on the present state, problems and achievements of agricultural co-operatives since the new law has become effective. In order to better understand the present situation of agricultural co-operatives, it is necessary to briefly review the collectivisation and decollectivisation process in agricultural production in Vietnam. Finally, based on these discussions the main conclusions and recommendations will be presented.

2 Collectivisation and Decollectivisation in Agricultural Production and Repercussions on Agricultural Co-operatives

The process of collectivisation [1] following the Soviet model has been started in the North in the late 1950s. In this model, co-operatives had to be understood as peripherical units of a strongly centralised party-state system. The decision-making powers of members and management were almost non-existent as co-operatives had to follow the instructions of the central plans. Membership of an agricultural co-operative was almost compulsory and not voluntary. When long-settled areas had been collectivised, co-operative membership was usually determined by place of birth (FFORDE, 1987: 198). For organisation and management, the party organs provided clear rules, including the convocation of general assemblies every two years, the election of management committees and office peers, the election of control committees, distribution of surplus, internal work organisations etc.

Already at the end of 1960, over 41,000 agricultural production co-operatives were formed by 2.4 million households representing 84.8% of the rural population and cultivating about 76% of the agricultural land. By 1975, 95% of Northern rural households were members of agricultural production co-operatives cultivating 95% of agricultural land and producing 92% of total agricultural output. Since the late 1960s, the government encouraged a process of amalgamation of co-operatives, thereby reducing their number from over 40,000 to less than 20,000. By that time, co-operatives comprised, on average, about 300-500 households and an area of 200-300 hectares.

In the South, after unification, several attempts have been made to introduce collectivisation, i.e. from 1976 onwards. By 1980, 1,750 agricultural production co-operatives have been set up as well as 18,800 production teams. These units accounted for 50% of rural families and 36% of the cultivated land. However, these attempts proved to be largely unsuccessful. Many of these newly formed organisations existed on paper only and members continued to cultivate individually making use of mutual self-help groups in case of need, only. In the Mekong delta, these mutual self-help groups included about 80% of all agricultural households. By 1985, only about 750 of the agricultural co-operatives were active (KIRSCH, 1994: 5-6).

The agricultural production co-operatives used to directly manage the land, organise production activities, the input supply as well as the marketing of the products. The income of farm households was proportional to their contribution of labour to the co-operative. In addition, 5% of land in each co-operative was allocated to farm households for their own use. There was little or no incentive for the labour force to work diligently nor disincentive to farm poorly within the co-operative system. The level of production was quite low. Actually, in many co-operatives people did not have enough to eat. Farmers put their efforts in their small household plots. It is estimated that these plots contributed 40-60% of all production and 60-70% of farmers' income at that time (DAO THE TUAN: 156).

Due to the poor results the organisation of the production co-operatives underwent changes. Already in the late 1960s, a number of co-operatives in the North started tinkering with production arrangements to motivate the labour force, which deviated from the authorised model without attracting unwanted attention from officials. At commune and sub-commune level, local authorities modified what central directives stipulated in order to meet some of the villagers' needs and demands (KERKVLIET: 69). Similarly, the southern peasantry (i.e. in the Mekong delta) refused to be fully cooperativised during the 1976-78 period. Both developments seem to have provided the basic framework of the contract output system. The contract system was adopted by the Government in January 1981 and stipulated in Directive 100.

With the enactment of this directive the first steps of a gradual decollectivisation process had been implemented. The limits of the enforced collective system in agricultural production had been acknowledged. It initiated the first stage in decentralisation of power to farm households and away from the production co-operatives. Households were allocated specific plots of land for cultivation. A contract had been concluded between the farmers and the co-operative. The co-operative was supposed to provide the inputs while the farmers were responsible for transplanting, weeding and harvesting, i.e. the crop management had been under their own responsibility. Similarly, the contract stated a certain level of output to be produced on the respective piece of land, which had to be sold to the state at a fixed price. All output beyond the contracted amount could be kept for home consumption or sold at the market. However, farmers were given a rather limited scope of decision-making. The contract and the allocation of the respective land were mostly covering one year. In general, the farmers were not free to grow according to their choice but had to take care of the crop fixed in the contract, i.e. in most cases paddy. In addition, the co-operative still held a monopoly over the provision of inputs and the marketing of outputs (DAO THE TUAN: 139). However, co-operatives generally were late in supplying the inputs right in time, thus making it quite difficult for the farmers to improve land productivity. Due to the negative experience these contracts were often called "empty contracts" by the farmers.

Nevertheless, this partial decollectivisation of land management (i.e. between 1981 and 1988) gave the farmers at least at the beginning some incentives to increase production. They were encouraged to improve the productivity of their land, but the lack of any secure tenure meant that any improvements they made had to yield results within a very short period of time. The maintenance of long-term productivity level was neglected. Besides the (regularly) late delivery the necessary inputs the co-operatives very often could not procure all the contracted production at the harvest time. The latter regularly resulted in a crash of the free-market price, which negatively affected the income opportunities of the farmers (VO-TONG XUAN: 188-189). Therefore, when shortages of food became regular during the mid 1980s the doi moi policy opened the door for more autonomous ways of production under the responsibility of the household.

It was realised that the role of the agricultural production co-operatives had to be reduced further. With the adoption of the Land Law in 1988 (Resolution or Decree No. 10) farmers were given the opportunity to farm on their own, again. >From now on, the farm households and no more the agricultural production co-operatives were considered the basic unit of agricultural production. Farmers were allowed to manage plots of land on their own which were allotted by the production co-operatives, i.e. they were given the land use rights in exchange for paying a tax while the state retained ownership rights. Most farmers opted to undertake farming on a family farm basis. However, the Law restricted the transferring of land use rights to occasions such as a farm household moving in or out of the co-operative and the death of the person holding land use rights.

However, at that time, it had not been the intention to formally abandon the collective system. Instead, co-operatives were to be given far greater economic independence. While contracts signed with state bodies still had to receive priority, district administrations were prohibited to issue orders to local co-operatives, anymore. In this respect, Decree No. 10 contributed to the decline of the command economy. The co-operative management was free to buy and sell all economic assets apart from land in any place they chose, after paying taxes and meeting economic contracts with the state. The co-operatives were allowed to raise capital, including foreign currency, from their members and to pay a return for it. They were supposed to supervise, to guide and to serve production activities of the farm households. In addition, they had to promote non-farm activities, handicrafts and small-scale industries in the rural areas. A model co-operative statute was planned for 1988, but it never appeared (FFORDE/de VYLDER: 157).

During the following years the Land Law from 1988 had been overtaken by reality. In an environment of strengthened market economy, land use rights became a kind of property. An informal, technically illegal market emerged in which land use rights were bought, sold, mortgaged and rented. A gradual process of land concentration could be observed.

Although the Constitution, as amended in 1992, reaffirmed that land and other natural resources in Vietnam are owned by "the entire people", there was a clear need to legalise the transferability of land use rights and to provide the security to land use which a market economy needed. With the adoption of the revised Land Law in July 1993 the land use rights of the farmers have been strongly secured. From now on, households and individuals to whom the state has assigned land have the right to exchange, transfer, rent, inherit, and mortgage land use rights. In this respect, the revised land law sanctions the emergence of a land market. The land can be rented for a period of 20 years for annually cropped land and aquaculture and 50 years for perennially cropped land, with the possibility of renewal at the end of the first contract. With respect to the amount of land per household, the Law puts an upper limit at three hectares per household for annually cropped land, with specific limits in each locality to be defined by the Government. Land can be assigned to individuals, households, and state offices. While under the former law the co-operative management had the right to assign the land use rights to individuals and households, it was now the right of the people's committees at the district, district capital and city level to do so. Similarly, only officials at the district level were allowed to process the transfer of land use rights from one household to the other (KERKVLIET: 82-85).

The re-emergence of private farming required a different set of organisational infrastructure in support of the family farms. The institutional set-up of the command economy was no more applicable. A new set had to be established based on market-economic principles requiring a profound institutional change. Without the appropriate institutional set-up private farmers were not able to contribute to as well as to participate in economic development. The agricultural co-operatives previously established as collective units, had to face and adjust to this complete change of the legal environment. While they were supposed to guide and support the production activities of the individual farms, they had to respect the economic and social autonomy of the farm households. They had to become attractive for the farmers to justify their participation. If these conditions were met agricultural co-operatives had a very important role to play, since the private sector had not been strong enough to set up an economically efficient supply and marketing network to the benefit of the farmers (HARMS: 14). Otherwise, they had no function anymore and had to be dissolved.

While the idea of collective farming had been pushed aside, the concept of agricultural co-operatives remained. Available information from the late 1980s and early 1990s suggest that farmers did see a role for co-operatives to accomplish things that they could not do individually (KERKVLIET: 71-72). Farmers were urgently looking for ways to ensure the provision of necessary services. However, these co-operatives had to respect the basic co-operative principles. The traditional co-operatives had a very low reputation among the farmers. Hence, a new image had to be established.

Already in the early 1990s [2] many agricultural co-operatives started with first steps of a transformation process in order to become more efficient as service co-operatives. At that time there was still a lot of liberty how to do it, as guidelines and rules were rather vague. Some already had split up, but most did not. There were different ways to start the transformation process. In general, most assets and activities not directly related to agricultural production have been handed over to the communes, e.g. kindergartens, nursery schools and other communal services. Only, the agriculturally related services were supposed to be continued by the new-style co-operatives. These assets were kept by the co-operative. Some co-operatives sold all the remaining assets so that nothing is left. Others divided equally all assets in cash and in kind among the members. Members can join these re-organised co-operatives voluntarily and subscribe shares, although there have been not many cases where members had contributed additional cash. The decision-making power of the members increased as all members of the management and supervisory boards were to be directly elected by them. In addition, the number of elected and employed co-operative staff was gradually reduced.

Almost all agricultural production co-operatives started to adjust to the new situation, but not so many had been successful. During the early 1990s their number declined. Some co-operatives were either disbanded or stopped operating due to their own decision. While their number stood at about 17,000 in 1987, it decreased slightly to 16,243 in late 1994. In addition, another 2,548 mutual assistance groups were registered, based on the members of former production teams. Most of the agricultural co-operatives were located in the North and most of the mutual assistance groups were located in South where collectivisation had not been very successful. In areas, where the co-operatives no longer existed, peasants were urged to set up co-operative organisations to assist in labour exchange, irrigation and other tasks such as marketing. Particularly, in the Northern villages many new, mostly informal, self-help groups were emerging and taking over some service functions either spontaneously or on behalf of the people’s committees of the communes as the co-operatives had been dissolved (THAYER: 43).

Although the number of agricultural co-operatives had been given with 16,243 in late 1994, their performance was not very satisfactorily (HARMS: 2-3). On average, it was stated that about 10% of the co-operatives were working well. Another 40% just showed a decent performance and it could not be taken for granted that they could survive in a market-economic environment. These co-operatives were mainly engaged in providing irrigation facilities and some additional services, but they were not very efficiently organised. Although members had to pay high contributions coming up to 1.5 - 2% of their total paddy harvest, this source of income could not cover the high costs involved. Many of these co-operatives lacked sufficient capital and funds. Members seemed to be no longer satisfied with these co-operatives and tried to get the necessary services elsewhere, either through informal self-help groups or private rural entrepreneurs. Finally, about 50% of the co-operatives were not operational anymore and existed on paper only. The main reason why these co-operatives were still registered seemed to be that many of them were burdened with debts, which had to be written off in case of bankruptcy or closure. This option, however, would have crippled the weak banking system at that stage.

Another reason why so many non-operational co-operatives had been still registered had been the fact that during the early 1990s they were still entitled to collect fees from the farmers. In general, these fees came up, e.g. in Quang Binh Province, to about 50 kg of paddy per ha and year. But many co-operatives could not provide any services in return. Actually, these fees had the character of an internal tax. In 1993 there had been a big change as co-operatives were no more allowed to collect fees without providing services, anymore. So, many co-operatives collapsed in the following years. Hence, their number stood at about 13,000 by the end of 1996. Another 3,000 co-operatives had been dissolved. It was still estimated that just 10 percent out of that number could be regarded as successful ones. During these three years only a very few improved while many stagnated and declined in their performance even more.

This decline in their number seemed to have affected co-operatives differently according to their spatial scope. With respect to their spatial size they were, and still are, not uniform. Agricultural co-operatives covered either a whole commune, several villages of one commune (inter-village co-operatives), or just one village. The main reason of the various sizes of the co-operatives refers to the various sizes of the catchment areas of the irrigation systems. But it also depended on the type of economic activity pursued, the skills of the management staff (“cadre”) and the social coherence and harmony among the members. Depending on the service area, membership varied between about 200 in a village co-operative to more than 1,000 in a commune co-operative. For example, in Quang Binh Province, 146 out of 354 agricultural co-operatives had already been dissolved up to the end of 1996. However, the collapse of co-operatives had been most remarkable at the inter-village level. Among that type their number declined by about 60 percent, i.e. from 225 to 92. The number of commune co-operatives was reduced by about one third, i.e. from 28 to 18. On the other side, just 3 out of the 101 village co-operatives collapsed. MARD officials did not have any explanation, but it seemed that social factors had been very important in ensuring the survival of these co-operatives [3] .

Parallel to the decline in the number of agricultural co-operatives a rapid increase in the number of informal autonomous farmers' organisations can be observed. These organisations might be called self-help groups, associations and/or pre-cooperatives. Their foundations have been either formed by the villagers/ farmers on their own initiative or, in most cases, they were encouraged by the Party or the various mass organisations to do so. These groups emphasise the promotion of agricultural production and/or the improvement of rural infrastructure in general. Already by December 1992 their number was estimated to stand at 30,000. By the end of 1996 their number stood at about 50,000.

Giving up the concept of the agricultural production co-operative as a collective economic organisation and acknowledging the right of private farming, the new freedom of association and voluntary membership required a general Co-operative Law. Only in March 1996, after years of discussion, a general Co-operative Law has been adopted by the National Assembly, which became effective 1 January 1997. Up to that time no co-operative law has been existed in Vietnam. In the past, the legal environment for agricultural production co-operatives was changed, sometimes drastically, on the basis of government decrees and party resolutions. The new Law covers all the various types of co-operatives and reflects the will to renovate co-operative principles. In fact, the legal basis has been laid to establish genuine co-operative structures in order to ensure the autonomous development of farmers' self-help.

In the Co-operative Law it is emphasised that co-operatives can act free from outside interference. However, the local party and government officials are still important stakeholders as will be discussed below. Other stakeholders are the members, managers and employees of the co-operatives. Another issue might be that members will over-estimate the so-called shareholder value and not the so-called stakeholder value. In principle, for self-help organisations, the stakeholder value and not the shareholder value will be of major interest for the members/ shareholders. It is not just the dividend but the preferential services and often even the provision of services at all which are of particular interest for members. Stakeholder interests can be related to services, dividends, the provision of jobs, and/or social reputation.

3 The Transformation of Agricultural Co-operatives

With the implementation of the Co-operative Law all co-operatives had to be transformed accordingly [4] . In addition, newly established co-operatives could be registered under the Law. But during the first years the major question had been how to transform traditional agricultural co-operatives, i.e. from “old-style to new-style co-operatives”. This included the basic challenge of how to change the existing co-operatives (“state-managed style“) into share-holding co-operatives with individual shares. After briefly reviewing the development of the transformation process at the national level, it will be discussed in more detail at the co-operative level, which implies the transformation procedure, the nature of main activities of the transformed co-operatives and the main problems encountered, so far.

3.1 National Development

At the beginning of 1997, once the Co-operative Law had become effective, the number of agricultural co-operatives stood at 13,120. Most of them could be found in the Northern and Central provinces as it is shown in Table 1.

Table 1: State of Agricultural Co-operatives Before Implementation of the Law

Region	Total No. of coops	Of which
		Still operate	of which			do not operate
		Still operate	better off	medium	poor	do not operate
Total	13,120	10,219	2,126	5,611	2,482	2,901
1 Northern Mountainous Region	5,407	3,158	546	1,568	1,044	2,249
2 Middle Land	1,111	998	345	452	201	113
3 Red River Delta	2.561	2,525	402	1,544	579	36
4 Northern Central	2,384	2,186	445	1,083	658	198
5 Southern Central	838	796	249	547	-	42
6 High Land	266	159	28	131		107
7 South East	418	302	70	232		116
8 Mekong River Delta	135	95	41	54		40

Source: MARD (ed.): One year’s implementation of the Co-operative Law and other governmental decrees in agriculture. Hanoi, 2 June 1998.

Out of the total number of registered agricultural co-operatives 2,901 (or about 22 percent) were not operating at all anymore. The other 10,219 agricultural co-operatives were classified as operational, but again 2,482 of them (or about 19 percent) as poor meaning that there might be just one service offered but run very badly. Just 2,126 co-operatives (or about 16 percent) have been classified as better-off, indicating that they were offering more than three different services to their members in a quite efficient manner. This group has been regarded as the core group, which might work efficiently as transformed co-operatives. Nevertheless, it was doubted whether all of them could do so. Another 5,611 agricultural co-operatives (or about 43 percent) were classified as operating unstably. In general, these co-operatives offered up to three services. It was expected that some of them had a certain chance to continue as a transformed co-operative if economically viable business activities could be identified. All in all, it was estimated at that time that about 50 percent could operate well under the new Law.

Once the Co-operative Law became effective various decrees had to be issued during the first months in order to implement it effectively at the local level. The most important decrees are the following ones:

- Decree 02 (2 January 1997) regulates the responsibilities of institutions and apex structure for the different co-operative branches;

- Decree 15 (21 February 1997) regulates the policy concerning the registration of co-operatives;

- Decree 16 (21 February 1997) regulates the transformation of former co-operatives, particularly the assessment of assets and capital and their conversion into common and member shares.

- Decree 43 (29 April 1997) gives guidelines about the model rules and regulations, i.e. bylaws and statutes, of agricultural co-operatives.

Based on Decree 16 the transformation process could be implemented. Originally, a deadline for the completion of the transformation process had been set at 15 March 1998, i.e. actually one year after Decree 16 has become effective. At that time it was hoped to proceed with the transformation process as quickly as possible. Those with business opportunities should be quickly re-registered, the others quickly dissolved. But the process had been rather slow, so far. By the end of March 1998, the picture summarising the development in 39 selected provinces looked as follows, as it is shown in Table 2.

Table 2: Preliminary Results of the Transformation of Agricultural Co-operatives in 39 Selected Provinces (31 March 1998)

Region	Total Number	Transforming Co-operatives
		Total Number	of which
		Total Number	Preparing	Applying	Registered
Total	10,280	3,270	1,010	1,127	1,133
1 Northern Mountainous Region	4,773	438	189	194	55
2 Middle Land	1,111	408	132	184	92
3 Red River Delta	2,405	1,453	310	573	570
4 Northern Central	1,283	451	277	65	109
5 Southern Central	369	358	40	63	255
6 High Land	261	127	51	34	42
7 South East	62	27	7	12	8
8 Mekong River Delta	16	8	4	2	2

Source: MARD (ed.): One year’s implementation of the Co-operative Law and other governmental decrees in agriculture. Hanoi, 2 June 1998 .

At 31 March 1998 there had been 10,280 agricultural co-operatives in the 39 selected provinces. Out of these 3,270 (or about 32 percent) had started with the transformation process. But just 1,133 (or about 11 percent) had been registered as new-style co-operatives, so far. Another 20 percent are in final stage of the transformation process. It seemed to be that the most efficient co-operatives had been transformed most quickly. By the middle of 1998, based on provincial reports, 2,494 agricultural co-operatives (or about 18 percent) had been transformed and newly registered (NGUYEN: 33). Due to the large number of problems in the process, which will be discussed below, the deadline of finalising the transformation process had been extended to 31 December 1998. But, even, by the end of September 1999 the transformation process had not been terminated. At that time just about 50 percent of all co-operatives had been transformed, so far. While no figures about agricultural co-operatives had been given, it can be assumed that the percentage share is not higher (NHAN DAN: 24 October 1999). It seems to be more realistic that just those co-operatives which started the transformation process already by March 1998 have a certain economic perspective as a co-operative enterprise.

Legally, old-style agricultural co-operatives had the option to transform themselves into another legal business entity. In that case they will fall under the Business Law (Company Law). But no case has been reported that any co-operative did so. One reason seems to be the fact that co-operatives are taxed to a lesser extent than other legal forms of business entities.

One of the main issues in the transformation process had been the identification and economic valuation of assets of the old-style co-operatives and their transfer to the transformed ones. The average value of assets of a selected number of agricultural co-operatives undergoing the transformation process is summarised in Table 3.

Table 3: Value of Assets of a Selected Number of Agricultural Co-operatives Undergoing the Transformation Process (31 March 1998) (Unit: Million VND)

Region	No. of Co-operatives	Average value of assets	Transfer to which organisation
Region	No. of Co-operatives	Average value of assets	new-style co-operative	commune	selling
Total	2,835	470.6	387.4	75.7	7.5
1 Northern Mountainous Region	499	61.7	33.9	27.7	0.1
2 Middle Land	417	324.1	280.9	33.5	9.7
3 Red River Delta	1,138	571.2	455.2	113.2	2.8
4 Northern Central	261	313.3	291.2	19.7	2.4
5 Southern Central	382	961.3	854.2	91.1	16.0
6 High Land	108	435.2	304.6	87.0	43.6
7 South East	27	313.2	312.0	1.2	-
8 Mekong River Delta	3	1,238.0	606.0	632.0	-

Source: MARD (ed.): One year’s implementation of the Co-operative Law and other governmental decrees in agriculture. Hanoi, 2 June 1998 .

All old-style co-operatives had to make an inventory of all assets and their value had to be assessed. On average, the value of all assets had been estimated to be around VND 470.6 million. Those assets directly related to their business activities (production or services) were transferred to the transformed co-operatives. Other assets which are of common use for the entire community such as kindergartens, health care stations, media systems etc. have been transferred to the communes. On average, co-operatives had to transfer assets of a value of VND 75.7 million or about 15 percent. However, at the local level this rule was handled rather flexible as will be discussed in Chapter 3.2.2 below. In addition, some co-operatives sold some of their assets to raise cash, either to repay debts or to distribute some funds among the members. On average, this amount came up to VND 7.5 million or less than 2 percent of the total value of assets.

Although there had been a process of amalgamation of co--operatives during the 1970s, just a few of them opted to separate during the 1980s. When it came to transformation there had been no report, so far, that one old-style co-operative had been split up into 2 or 3 successor co-operatives as it could be observed in various Central and Eastern European countries.

Besides setting the legal basis for transforming old-style co-operatives, the Co-operative Law set the stage for establishing new agricultural co-operatives. By the end of 1997, as many as 99 agricultural co-operatives have been newly registered, 53 in the north and 46 in the south (AAP, 18 February 1998). In addition, it is estimated that there are about 100,000 agricultural groups of a pre-cooperative type, which might be able to get registered as co-operatives in the long run.

3.2 Transformation Process at the Local Level

3.2.1 Transformation Steps

Once the Co-operative Law had become effective, the transformation process had to be implemented at two levels; (a) in a more general way at the provincial and districts levels, and (b) in a very detailed way at each agricultural co-operative itself. While the guidelines have been set in Decree No. 16, there had been a lot of liberty at the local level in solving concrete issues, such as assessing the value of assets, funds, capital, debts of the individual co-operative as well as identifying its members and the value of individual shares after transformation.

Before starting the transformation process at the co-operative level, steering committees at provincial and district levels had been established to ensure the proper implementation of the new Law. Usually, the vice-chairman of the respective people’s committee was heading these committees. Members were delegated from various departments and mass organisations, e.g. agriculture, planning and investment, economic department (which comes under the party), farmers’ union, co-operative union, women union, etc. The main function of these steering committees had been to support the transformation process. Their main tasks had been to disseminate all information available, e.g. to familiarise all persons concerned with the Co-operative Law and relevant decrees. In addition, workshops and training courses for co-operative staff and farmers were organised about the law and governmental regulations (MARD: 1). In general, it had been the management staff of the old-style co-operatives who had been targeted. With respect to implementing the broad national guidelines each province and district seemed to have had their own particular way. Provincial and district leaders have sought ways proving that their method was appropriate to their province’s and district’s conditions (FFORDE, 1997: 3). Once the transformation process had been on-going, the role of the steering committees declined. In these days, it is the staff of MARD at provincial and district level who is giving guidance to the agricultural co-operatives, e.g. offering short-term training courses for co-operative chairmen, or in-depth courses in accounting.

At the local level each agricultural co-operative had to undergo various steps until it could be registered as a transformed unit. After a period of information and awareness creation in line with the public relation campaigns by the steering committees at the provincial and district levels, the necessary transformation steps looked as follows:

(1) In a first step, a transformation board had to be established. Usually, the board itself comprised 5-7 persons. It had been appointed by the people’s committee at the commune or district level. The government administration and the various mass organisations had to be represented. In addition, there were representatives from the former management board of the old-style co-operative and ordinary members. Usually, each individual member of the transformation board represented various groups or organisations simultaneously. Within the following 3-4 months this transformation board had to accomplish various tasks as stipulated under Step (2) to (5). In general, the board set up various sub-groups to accomplish these specific issues. Additional resource persons were invited to give their support.

(2) Once the transformation board had been set up, its main task was to identify and validate all assets and to estimate all debts. Usually, assets comprised fixed assets, i.e. irrigation facilities, electrical equipment, buildings, machines, etc. and current assets, i.e. inputs in store, cash, etc. As it was shown above, some assets had been turned over to the respect commune or sold as the transformed co-operatives were supposed to concentrate on those services, which promote agricultural production of their member farms. The board and the people’s committee had to agree which assets were to be transferred to the commune. The problem of debts included two sides: (a) debts of the co-operatives to other companies and banks, and (b) outstanding debts of members to the co-operatives. Both types of debts had to be assessed very carefully, whether they were still valid or whether they were to be released. Based on the value of all assets and the amount of debts an opening balance sheet had to be prepared.

Based on the value of the existing assets and once the number of members had been known it had to be decided on the value of the individual shares. These individualised shares stay with the co-operative. It might also be decided that each member had to contribute some extra cash to fill up the value of their respective share. These additional contributions might differ according to the respective member. Older members, i.e. with more working years might be required to contribute less cash than younger ones. Those members elected to the management board might be asked to contribute even a bit more to keep them more responsible. But in all these cases the rule “one member – one vote” had to be respected. In general, however, not many cases have been reported where traditional members were asked to contribute any extra cash.

(3) The calculation of shares required that all members willing to join the transformed co-operative had been identified. A new membership list had to be prepared. Very often transformation boards had to start from scratch as many old-style co-operatives have not kept any list. In general, almost all former members re-applied and joined the new-style co-operatives as they felt the need of the services offered. Those few members who did not want to join the transformed co-operative had the option to get their individual share in cash, paid out on an instalment basis over a couple of years. On the other side, the transformed co-operatives were ready to accept new members. In this respect, two types of members can be distinguished: (a) former members of the “old-style” co-operative joining the transformed unit, and (b) new members who had no connection with the old-style entity. These persons had to buy a share in cash. But, as reflected in the case studies, there are no cases reported that new members were joining. However, this will happen in the years to come. On average, membership comes up to 500-700, in some cases to even 2,000 persons.

(4) The transformation board had to draft the rules and regulations, i.e. bylaws and statutes, of the co-operative. By-laws have to be in conformity of the Co-operative Law. Within the by-laws the name, purpose and location are specified. In addition, the amount of share capital, the power of the general assembly, the number of members in the managing and supervisory boards, the lengths of election periods, the distribution of any surplus (profits) have to be regulated.

(5) In addition, the transformation board had to work out a work plan (business plan) indicating what type of services the co-operative will offer in the future. This (draft) business plan has to be in line with the market economic principles. Business plans have to cover one, two and five year periods, respectively. Similarly, the budget of the co-operative had to be drafted stating the prices and fees for the respective services. The salaries and/or compensations of the elected and employed staff had to be stated. Finally, it had to be proposed how the envisaged profits will be distributed.

(6) Once these points had been sorted out, a general assembly of all members who wanted to join was convened. The main activities were: (1) to discuss and approve the opening balance sheet, which included the membership list and the value of individual shares; (2) to elect the management and supervisory board; (3) to adopt the bylaws, and (4) to adopt the future business plan. The general assembly was free to accept, amend and/or reject all proposals made by the transformation board.

(7) The minutes of the inaugural general assembly had to be sent to the district people’s committee in order to apply for the registration of the co-operative. This committee is entrusted to register all new-style agricultural co-operatives as legal entities. Only if registered (“having the right for a stamp”), the co-operative is legally recognised as a business entity and can start operating.

In general, it has been a very slow process to become registered. Usually, the whole transformation process took 6-12 months. Therefore, the national deadline for the transformation process had been overstepped several times already. As the main reasons it was stated that the management capacities at the local level to do the various transformation steps were quite low. Similarly, there was not enough support available from the government. In most provinces there were just 1-2 persons at MARD who were knowledgeable enough in the transformation procedure to advise the transformation boards. The main critical issues will be discussed below. Hence, more skilled persons are needed to solve the critical issues in order to speed up the transformation process.

3.2.2 Critical Issues at Transformation

The implementation and finalisation of the transformation process had been rather slow. The guidelines available as stipulated in the various decrees left a lot of leeway to the transformation boards in finding feasible solutions to specific problems. The most critical issues were (a) the valuation of existing assets, (b) the assessment of debts, (c) the identification of members, (d) the determination of the individual share value, and (e) the distribution of profits.

Valuation of assets

Almost in all cases the transformed co-operatives were supposed to take over the remaining assets of the old-style co-operatives. The first problem which had to be solved was due to a lack of a proper file system in many co-operatives. Hence, at the time of transformation, it was difficult to identify what items had been bought in the past. In the old days co-operatives used to subsidise their respective communes a lot. Hence, it was difficult to define what property and assets actually belonged to them. As stated above the general guideline had been to transfer all social and cultural assets to the respective commune. In reality, there was much scope for interpretation whether a specific asset should belong to the commune or the transformed co-operative. Particularly, with respect to electricity networks it depended on the local leadership whether the co-operative could continue this service, which is only indirectly related to the promotion of agricultural production, but an attractive source of income. Once this problem had been settled, a list of all property items was written down which included both, fixed and current assets.

The major problem, however, had been to quantify the value of the fixed assets available. Actually, all these assets were in kind, anyway. They had to be evaluated according to their current value. As books and documents were not always complete, it was not only difficult to identify what assets have been bought in the past but also at what price. The value of the assets was supposed to be assessed according to the procurement price minus the depreciation value. Besides, the problem in identifying the procurement price the rate of depreciation can be highly influenced by subjective estimates. At that stage, some argument might have come up due to different estimates. On the other side, in those cases, where books had been kept properly, the original investment costs have often been copied from previous record-keeping books without evaluation or adjustments by the transformation boards. In reality, many assets had been completely depreciated already. In case there had been no agreement on the estimation of value of a specific item, there was the option to assess the value indirectly by inviting open tenders. But this option had been applied very seldom. In general, it was agreed on a certain value in the end. In many cases, the final book value as shown in the balance sheets was inflated and did not reflect the actual market value. In general, the actual value of fixed assets is quite low.

With respect to the current assets it was much easier to identify and to validate them. These current assets comprised inputs in store, available cash, if at all, and also outstanding debts by members, an issue, which will be discussed below. In general, the value of the current assets is not very high either. That is why only a few transformed co-operatives had enough operating funds at their disposal to provide any services effectively. On average, the value of current assets just comes up to about 10-20 percent of the value of fixed assets.

Assessment of debts

In a next step all debts and creditors (liabilities) had to be assessed. As with assets all debts had to be transferred to the transformed unit. The issue of debts covers two aspects: (a) On the one side, many old-style agricultural co-operatives were indebted to banks and companies; (b) on the other side, many members had outstanding debts to their co-operatives.

The total amount of debts of all agricultural co-operatives has been estimated to come up to about VND 300 billion. While the size of debts is known, knowledge is missing for what purposes the money has been used/invested. In the old days co-operatives used to carry out public investments which were only indirectly related to agricultural production, but were more to the benefit of the whole village or commune. In addition, very often co-operatives had to sell their agricultural products at low prices to the government, which were not covering their costs. Then, credits had to be accepted to finance all running operations. However, records were not always kept properly and the repayment was not strictly enforced.

In the long run, it has to be decided which debts can be forgiven or cancelled. To start this procedure co-operatives have to submit legal documents for what purposes the money had been originally invested. Only if it is known for what purposes the money has been spent in the past a process of cancelling or reducing the indebtedness can be started. For the time being these debts cannot be written off or waived due to the principle of equality with respect to those co-operatives which have repaid their debts or which are not indebted. It is a question of justness for all. However, there has been no clear policy how to proceed with debts. While some transformed co-operatives had to sell some of their assets in order to repay debts, others were not pressed to do so. For example, in Bac Giang Province, each transformed co-operative was burdened by debts coming up, on average, to VND 58 million. During the last years, however, neither interest nor principal had been paid back. In this respect, this debt can be termed as an irredeemable interest-free loan.

Nevertheless, it is understood by all sides clear that transformed co-operatives will only have a chance economically if they can start operating without any debts. At least, the value of debts should be lower than the value of all assets otherwise transformation does not make much sense, as nobody will be inclined to join. Even in that case the economic situation of the transformed co-operative is still quite precarious.

But there is also another side when it comes to debts. Actually, many co-operatives would not have any problem in repaying their debts, if their own members were repaying their debts to the co-operatives. While most co-operatives lacked the cash to provide credit, they were providing production inputs in form of credit-in-kind which they themselves received on credit from the state-owned companies. However, many farmers failed to produce the necessary quantity of products after harvest to repay the loans. Hence, they became indebted to their co-operatives which themselves were indebted to the companies and banks. This process already started during the time of contract system, i.e. the period between 1981 and 1988 when there were very specific contracts between the government with the districts, the district with the co-operatives and the co-operatives with the farmers.

Generally, the co-operatives have waived those debts accumulated from before 1988. Most of the present day debts have been accumulated during the last years. Already before transformation management reduced the debts of those households, which were classified as poor, comprised just a single working member or were burdened by war invalids or war dead. In addition, debts of those families moving to other places were, in general, cancelled. On the other side, some co-operatives have mobilised the debts of their members. Debts do not need to be repaid in cash only, but can also be repaid in form of labour contributions, like feeder road construction, construction and maintenance of irrigation canals, etc. This form of repayment might be labelled "work for debts".

Identification of members

At transformation one big problem had been the identification of the members. Membership used to be determined by place of birth and management did not bother to update membership lists. Actually, in many co-operatives membership lists were missing at all. When it came to determining the value of individual shares, it has to be defined first who actually is a member of the respective co-operative. In general, it had to be decided whether all working members of the farm households, both active and retired, or just the households represented by the household head were becoming members of the transformed co-operative. In addition, other co-operatives opted for a third alternative in accepting all land owners as members.

This decision usually had to be taken by the transformation board and approved by the respective inaugural general assembly as a membership list had to be prepared. However, in some cases this decision had been taken by political bodies, e.g. in Quang Binh Province where the people’s committee had decided that individual persons and not households will be registered as members of the transformed co-operatives. In general, the transformation boards preferred individual membership as it was argued that those households with more working members contributed more to the co-operative in the past than those households with very few working members. In those days all working members were regarded as members.

There are no figures at the national level, how many of the former members joined the transformed co-operatives. Based on case studies the figure varies between 80 and 100 percent, but in most cases the figure comes close to 100 percent. Nobody wanted to be an outsider when all others joined. In this respect, the principle of voluntariness sounds a bit theoretical. With respect to irrigation facilities all farmers benefiting from them had to co-operate, hence they all joined. In addition, many member realised the benefits of joining the transformed unit in form of better services, e.g. in form of lower prices for irrigation water or electricity, or the reliable supply of inputs at reasonable prices.

However, for the farmers there were also other reasons to join. Agricultural co-operatives, even if not operational anymore, had an important role to play, particularly in North and Central Vietnam, when it came to the distribution of land titles among the farmers. In line with the Land Law from 1993, it is the function of the people’s committees at district level to hand out land titles (“red book”). But, in general, the district administrations are not contacting the individual farmers, but act through the agricultural co-operatives. Hence, these co-operatives act as an intermediary. The individual farmers get their titles through or with the help of their co-operatives. At a first stage farmers just get a preliminary title deed (“green book”). In order to get the final land use rights (“red book”) a land survey including mapping and an entry in the land register has to be performed. The co-operatives have to help otherwise it is difficult to do it. Hence, farmers always joined the transformed co-operative out of fear that they might not get the proper title deed.

Depending on the number of members either all members can participate at the general assembly or they have to elect their representatives (indirect presentation). In case, just the households are members and presented by their household heads there is a direct presentation as the number of members is smaller. In case, all working persons of the commune or village are members, the indirect system has to be adopted.

Determination of the individual share value

Once the value of all assets and the level of debts have been assessed as well as a membership list been prepared, the value of the individual shares of the members can be deduced. Again, there had been a lot of leeway how it was done at the co-operative level, as there have been no general guidelines. It was up to each single general assembly to decide on that. But it was soon realised that the concept of individual shares was not always understood properly at management level.

According to the officials the value of shares was supposed to be based on the difference of the value of current assets and the debts. The difference was to be divided equally by the number of eligible members in order to deduce the value of an individual share. Similarly, that value should be paid out if a member wants to leave the co-operative. On the other side, if a new member wants to join she/he has to subscribe a share of the same value. The value of the fixed assets should not be included as part of the share capital, but be set-aside as reserves, particularly for future investments. Only in this way the transformed co-operatives would have a basis for development. In addition, it had been emphasised that all members should get a certificate of their share to increase their sense of ownership of the transformed co-operative.

In reality, however, most transformation boards opted to propose a different approach to the general assemblies in deducing the value of the individual shares. In most cases, the total value of all assets minus the debts formed the basis in calculating the share value. Hence, no assets had been booked as reserves but it was left to the future to build them up as required by the Co-operative Law. In this respect, the value of an individualised share might be quite high. This figure just represents the average value of all assets per member. But it is expected that any person willing to join the co-operative has to subscribe a share of that value. However, on the other side, in case a member might cancel his/her membership, he/she will be paid out the equivalent value of the current assets only. Hence, the concept of individualised shares is still ambiguous and needs to be clarified in the future.

While the amount of share capital and the number of shares are listed in the balance sheets, co-operatives, in general, have been slow in handing out share certificates to their members. Hence, many members were not familiar with this new concept and did not know anything about their own shares. In some co-operatives, it was tried to call for more cash contributions from the members to expand business activities. While, in general, it is up to the respective general assembly to decide on that, in some cases the provincial people's committees have set a ceiling. For example, in Bac Giang Province, there has been the rule that a cash contribution should not be more than VND 40,000 per member. In general, members did not contribute any cash, but waited and observed how the co-operative was operating. In that sense, it can be stated that members might have subscribed shares but have not fully paid up, yet.

In addition, the eligible members were not always entitled to the same value of shares, but to different levels according to various criteria as adopted by the general assemblies. In the end, it had been up to each co-operative itself which approach had been adopted. Three main different approaches can be distinguished within the country.

(1) The most common pattern had been the equal distribution of shares among all members. This is the most easy approach as the value of assets minus debts had to be divided by the number of eligible members only. While it was understood that not all members contributed equally to the economic success of the co-operative in the past, it was stated that it would have been too complicated to calculate the value of shares for each individual according specific criteria.

(2) Alternatively, the shares were distributed according to the age or the number of years worked for the co-operative in the past. It was argued that those persons who had been members for more years and had worked for the co-operative in the past should get a higher amount of share value than those who only joined recently. Those who joined later, i.e. the younger ones, were entitled to a fraction of that value. For example, in a co-operative in Quang Binh Province, the value of one share had been set at VND 645,000 which was based on the value of both fixed and current assets. However, only those who had been member for 24 years and longer were entitled to a full share. For the others it was agreed on the following pattern: Those who had been member for up to 8 years just got 15 percent of a share; those who had worked for 9 – 13 years got 30 percent; those who had worked for 14 – 18 years got 50 percent and those who worked for 19 – 23 years got 70 percent of a share. On the other side, if a person wants to join the co-operative he/she has to subscribe a share of the full value.

(3) A few co-operatives opted for a distribution of shares according to the size of land over which the person has the land use rights. This implies that the more land is under one's jurisdiction the higher the value of shares assigned to that respective person. However, at that time this fact was not very decisive as in Northern and Central Vietnam all agricultural land had been distributed relatively equally. More important is the fact due to the deadline as fixed in the Land Law from 1993 all living persons were entitled to a piece of land. Hence, also newly born household members got agricultural land allocated in their name. At transformation, it was decided that all landowners were eligible to join the co-operative, which included all land-owning children from about four years upwards. For example, in one case in Quang Binh Province, the number of eligible persons stood at 1,346; all of them became member. However, the number of members with voting rights was restricted to all active and retired working members, i.e. those older than 16 years whose number came up to 733 persons. In this respect, there are two types of members; i.e. members with and members without voting rights.

Concerning the rules about the number of shares each member is allowed to subscribe and the application criteria for membership each co-operative is free to elaborate their own stipulation in the bylaws. In general, there is the option for members to subscribe more than one share. There is just the legal stipulation that limits the number of shares one person might own to 30 percent of all. Particularly, in well-managed co-operatives, which ensured attractive dividends each year, a number of members subscribed more than one share. For example, in the relative well-run co-operative at the outskirts of Ho Chi Minh City the general manager had signed even four shares. Voting rights were still practised according to the rule "one person - one vote". However, in many co-operatives it was decided that each member is entitled to one share only to stress the equal character of membership.

In general, membership is restricted to farm households and their members of the respective catchment area of the co-operative. However, in some cases, also non-farming persons were even required to join when they were recruited as staff member. In case of death the share remains within the family. In case the member moves out of the area, membership has to be given up. In general, the share can be sold to another member of the co-operative willing to buy. However, in those co-operatives, which allowed one share per member only, the share had to be returned to the management.

So far, it has not been reported that any new member had joined a transformed co-operative who had no connection with it, so far. One reason seems to be that most persons interested joined at the time of transformation anyhow and no new farm households have been set up during the last few years. Another reason is the fact that many co-operatives have put up the price of one share quite high, particularly when the value of the fixed assets had been included. In addition, new members are always required to put up a down payment in cash of, at least, 30 percent of the share value. There seems to be not that many persons in the rural areas who can afford such a price. The financial hurdle seems to be quite high. In the future, management has to make sure that the transformed co-operatives will not degenerate into closed societies.

Distribution of profits

The co-operative enterprise is supposed to earn a profit in order to stay competitive although it is not aimed at maximising profits. In case a co-operative shows a profit it is legally required to build up reserves. As it was discussed above, many co-operatives had not booked reserves at the time of transformation but left it to the future. Hence, the reserves are very small. On average, co-operatives allocate about 60-70 percent of the profits into reserves. Most of the funds are put into the development or investment fund. Most chairmen realised that a lot of investments will be needed to remain attractive for the members in the future. Another part is applied for a training and skill development fund to improve the skills of elected and employed staff members. In case the co-operative is economically very successful parts of the profits are allocated to a social fund or a fund for emergencies or natural calamities.

About 30-40 percent of the overall profits are distributed among the members. In reality, there are two ways of doing so: On the one side, members are entitled to dividends on the shares they own. In addition, members might be entitled to a special refund according to the size of business turnover they had with their co-operative (“patronage refund”). In this way members are supposed to be encouraged to do most of their business activities, e.g. the purchase of inputs, with the co-operative and not with private competitors. So far, just a few co-operatives have included patronage refunds, most co-operatives distribute profits according to shares, only. In case, certain members are still indebted to the co-operative, they do not get cash, but their debts will be reduced accordingly.

Some co-operatives, like the one at the outskirts of Ho Chi Minh City, have been economically very successful since transformation. At that co-operative a dividend of VND 90,000 per share amounting to VND 250,000 has been paid in 1998. This dividend represented an interest rate of about three percent per month, which has been far more attractive than any other savings opportunity.

Some co-operatives allocate a part of their profits, in general about 10 percent, as a bonus for their elected and appointed staff members. In that case, monthly salaries and/or compensations have been kept lower in order to motivate the staff to work more diligently.

3.2.3 Preliminary Assessment

With the transformation of agricultural co-operatives two aspects are particularly striking and need some further elaboration. On the one side, it has to be assessed what have been the pushing forces in the transformation process and, on the other side, it will be looked at the effects on the internal structure of co-operative management.

When looking at the forces, which pushed for the transformation of the co-operatives, it was stated that the party and the government, particularly MARD and the people's committees at provincial and district levels, had been the prime movers. It was realised that the old-style co-operative system were of no benefit to the farmers and the government, anymore. Its reputation was bad and it had become a drain of the state finances. Although the Co-operative Law permits farmers to freely form their own co-operatives, many do not seem to have understood the concept yet based on the three basic principles of co-operatives because the law uses the old term - hop tac xa. As discussed above, it had not been the farmers, which pushed for a transformation, but the administration. Once the process had been started the farmers joined due to various reasons although it was stressed that co-operatives have a poor reputation among them. They had the option to stay outside but not many acted like this. At this point of time, it is open for discussion whether the transformed co-operatives can be regarded as autonomous organisations or private co-operatives or whether they are state co-operatives which were established mainly to meet political and social interests of the administration rather than those of the family farmers (FFORDE, 1997: 2-5; FEER: 18/12/1997). Some observers have been quite bleak about the future prospects of the transformed co-operatives because they are initiated by the government and such initiatives have been rarely effective elsewhere in the world ( World Bank: 44).

At the local level it is understood that, if the transformed co-operatives will become too dependent on local administrations, they will be not successful in the long run and collapse. Local officials might act paternalistically to some extent, but they are eager to see that the co-operatives will be economically successful in order to serve the agricultural population. They know very well that a rising standard of living among the population is increasing their reputation among their superiors. In general, most members of people' s committees and party functionaries at the local level are farmers themselves and, hence, members of a co-operative. It is to their own personal benefit that the co-operatives are managed successfully. While interference cannot be avoided, completely, there is the rule that active government officials are not allowed to stand for elections to the management boards. In addition, much depends on the personality of the co-operative chairmen whether he/she will stand up against any interference from local officials. Many co-operatives are lucky to have such a person in charge. Nevertheless, a strict division of the socio-political instructions and wishes of the local administration demanding services, which are not economic, and the more economic-oriented objectives of the co-operatives has to be developed in daily life in the coming years.

One of the main direct results of the transformation process has been the radical downsizing of management staff. Already during the early 1990s staff had been reduced, but not on a larger scale as co-operatives were still allowed to collect fees and even taxes from the farm households. Management boards used to comprise 20-30 persons who were all entitled for some kind of compensation. Since transformation management boards usually comprise about 7 persons. Out of them just 2-3 persons are elected by the general assembly, i.e. the chairman, his deputy and one more member. These elected persons form the executive board (“inner management board”), which is in charge of the day-to-day business. The election period usually lasts for three years. Re-election is possible. The other (up to four) members of the management board are appointed by the elected ones. These are e.g. the cashier, accountant and bookkeeper. In general, these persons have to be member of the co-operative. Within the smaller co-operatives the chairman also acts as the general manager. Only, if the co-operative is offering a lot of services a general manager will be employed who is accountable to the (inner) management board.

In addition, the Co-operative Law requires the election of a supervisory board. It is up to the respective co-operative how many persons will be elected to this board. Three persons seem to be the maximum number. In most cases, however, just one person is elected as supervisor. It has to be seen whether one person will be enough to control the day-to-day management on behalf of the members. But there is the option that, in case a bigger problem has come up, the supervisor is free to appoint other persons to form a temporary supervisory board. This board will look into that respective problem in more detail. Once a decision about the problem has been taken the board will be dissolved, again.

In general, all elected and employed staff members work on a part-time basis. Their main occupation is farming. They are entitled to a compensation and/or salary. Only, bigger co-operatives employ some staff full-time.

3.3 Main Activities of the Transformed Co-operatives

While it has been the political objective that transformed co-operatives provide as many services as possible, it is also understood that all costs have to be covered by the prices. Hence, most co-operatives concentrate on a few services only and will gradually expand once they have gained more experience. In general, it can be stated that the activities of the transformed co-operatives have not changed much compared to the time before but there is a stronger focus. While the focus of the services provided varies from co-operative to co-operative they are guided by the following principles:

- The prices of the services are supposed to cover all costs. In addition, a reasonable rate of profit should be ensured. It is understood that prices have to be revised, as it is required by the circumstances. At least, every second year they should be reviewed. Only for special, more socially oriented services profits margins might be waived, as approved by the respective general assemblies.

- Most services will be available for members and non-members alike. In general, contracts will be signed in advance between the clients and the co-operative. In order to attract potential members to join there is always a price differential, i.e. non-members are charged higher prices than members.

- The respective services offered are managed by specialised groups comprising several members of the co-operative. These members are specialised in certain fields. They are entitled to a certain commission. The management of the co-operatives signs contracts with the group leaders to ensure the provision of the respective activity as well as the compensation fee. Evidently, this cost item is included in the final service price.

Concerning the work plan or business activities, the transformed co-operatives are open to follow all activities they like depending on their financial and managerial capabilities. Usually they provide several services. Otherwise it will be very difficult to become an efficient entity in the long run. While figures on the national level are missing, most co-operatives seem to concentrate on three following ones:

(1) The management of the irrigation systems is the most important activity of all co-operatives. Without a certain level of co-operation these systems cannot be upheld and they become more or less useless. The provided services include the cleaning of canals and exact distribution of irrigation water. The irrigation groups are responsible to provide water to every internal channel. Farmers have to pay irrigation fees, which can be paid either in cash or in kind depending on the regulations of the respective co-operative. In case the groups are not meeting their commitments the farmers have the right to withhold their payments.

(2) For most co-operatives, the management of the electricity facilities has become the second most important economic activity. The electricity group is responsible for supervision, maintenance, and provision of power to each household according to contracts. Actually all households of the commune willing to pay are served by the lines. This activity is a reliable source of income as some money can be earned due to the positive margin between the buying and selling price of electricity. Since the early 1990s this activity has become more and more important in line with the ongoing electrification of rural areas. As it was discussed above, it was left to the local decision makers whether the co-operative or the commune were responsible in managing the system at the local level.

(3) In addition, the reliable supply of necessary inputs used to be an important activity since many years. In general, the co-operatives are concentrating on the organisation of the timely supply of fertilisers, pesticides, and seeds to strengthen crop production at their members' farms, particularly paddy cultivation. More and more co-operatives, however, diversify the input supply to other production activities of their members, e.g. vegetables and fruit trees growing (orchards) or, even, animal husbandry. Many co-operatives are linked by contract to input producing factories (state-owned companies) which are supplying the inputs on a credit basis. The co-operatives themselves offer the inputs to those members in need as a credit-in-kind as well. After harvest the farmers pay their co-operatives and these repay the companies.

Some agricultural co-operatives, particularly those that are better off, provide additional services. Many of them are actively supporting extension activities ("technology transfer") to promote the quality and quantity in farm production among their members. An extension group is responsible to acquire up-to-date information about improvements in production technologies, e.g. adoption of new high-yielding varieties, seed multiplication, plant protection, or animal husbandry. In general, they get their information through MARD. The groups have to pass on this information about new technologies to their fellow members. In general, training courses are organised. As participants farmers just have to pay any material costs. The extension group is entitled to a small compensation, which is in general covered by the co-operative.

Other services offered relate to field preparation, in case the co-operative owns the necessary machines or the organisation of field protection activities, i.e. organising watchmen during harvest times.

One of the major drawbacks so far, is the fact that very few co-operatives provide any marketing services to their members. In general, members still have to sell their crops and other products on their own as individuals. However, as it is shown in the case studies some co-operatives have already started to get more experience in marketing. For example, the co-operative located at the suburb of Bac Giang City has begun small-scale marketing activities with respect to vegetables and flowers some time ago. It has set-up a stall at the central market which is supplied daily. For the management, the regular supply of this market stall was seen as a first step in fostering self-marketing of their products. However, this start had only been possible due to the regular surplus income from the electricity services. In another co-operative, located at the outskirts of Ho Chi Minh City, activities not only concentrated on the promotion of milk production among members which includes veterinary support (disease prevention) and input supply (particularly cattle feed and hay). In addition, it organised a milk collecting centre and the sale to the milk processing company in the city.

But some managers were already eager to open up new fields of business activities. Some years ago the co-operative in Ho Chi Minh City started in bottling water and soft drinks. This business became quite profitable and the management opted to expand in beer production. The production and bottling of beer has become the most important source of income by now. The same co-operative organised financial services in a quite efficient manner without any interference of SBV. The co-operative is providing both, savings and credit facilities. The options to save are offered to members and non-members alike. While savings can be deposited by non-members as well, credit is available to members only. The repayment rate is very good. The total amount of savings saved and available for credits comes up to 500 million VND. Actually, the system works like a local PCF without registration. All financial services are managed on its own as the co-operative does not even have a bank account itself.

While, in general, agricultural co-operatives do not offer any financial services themselves, they have an important role to play in this respect. Agricultural co-operatives are entitled to provide letters of recommendation for their members if these want to apply for credit at the local branch of VBA or a local PCF. In these letters it is certified that the respective farmers own certain property, which is accepted as collateral. For the time being, credit is available to individuals only. Agricultural co-operatives themselves are not eligible for credit, so far.

The transformed co-operatives might support any social activities if they earn any profit. Some co-operatives have set up a special reserve fund, which supports members in case of natural calamities or personal and familial emergencies.

From the members' point of view the transformed co-operatives have brought various advantages. Most importantly, the co-operatives provide services, no matter how few up to now, on a reliable basis. Compared with the old-style co-operatives the service activities have become cheaper. In some cases they have become an effective competitor to private entrepreneurs. In general, they can compete effectively in one or two activities. Whether this competitiveness is based on certain monopoly powers protected directly or indirectly by the local administration and party committees (FFORDE, 1997: 4) seems to be confirmed in a very few cases only. With respect to many activities, the competitiveness of the transformed co-operatives is still quite low. All management boards have to identify those activities in their respective regions in which they have a certain comparative advantage. This requires time and experience.

3.4 Main Problems after Transformation

While it had already been discussed above who had been pushing for the transformation at the local level and what had been one of the most direct outcomes (see Ch. 3.2.3), it will be looked in this chapter at the most pressing issues once the transformed co-operatives started operating. Two of the most important problems which keep on repeating in all reports and discussions in Hanoi refer to the weak management capacities and the lack of working funds. As it was shown above, a number of co-operatives had been dissolved or were no more operational before and during the transformation process. Among those agricultural co-operatives, which have been transformed already, as reflected in the findings at the local level, these statements can be supported to some extent, only. Actually, most of the managers are eager to find solutions.

In general, most co-operative managers have a relative low level of education. However, as most of them used to work as co-operative managers or leaders of production teams in the past they have developed some management skills over time. They are familiar with those services which co-operatives used to provide before transformation already, i.e. irrigation and electricity management as well as the provision of input supply. It is understandable that they concentrate on those services first to gain experience in the new market-oriented economic environment. As it was discussed above, in many cases these services provide a reliable source of income to the co-operatives. However, managers know very well about their low level of legal skills and their limited knowledge about product markets. The necessary legal skills can only be acquired with the help of special training courses, but knowledge about the markets and marketing have to be built up through experience in daily life. As the risks are high some managers have started already on a small scale. It can be assumed that most co-operatives will provide reliable marketing services to their members in the years to come.

Almost all managers of transformed co-operatives complain that they are very short of operating funds but the needs for investments are high. The value of share capital is quite small as it just represents the value of fixed and current assets, which generally have been overstated at transformation. The value of operational funds is even smaller. Most of the operational funds available are tied up as short-term loans in form of credit-in-kind to the members. In addition, many co-operatives have outstanding debts of the members, which have to be recovered by the management. As most of the members have been regarded as too poor, almost all co-operatives avoided asking for cash contributions from them when fixing the value of the individual shares at the time of transformation. Finally, the transformed agricultural co-operatives have to face the bad image of co-operatives from the past. Even those without any debts and good investment proposals will not be eligible for any credit from the banks for the time being. This is also explained by two other facts: The resale value of the assets, which could be used as collateral, is in general very low. Similarly, the transformed agricultural co-operatives do not have established any track record with the banks, so far.

While access to formal credit through VBA is not possible for the time being, there are political discussions that VBA should provide credit to transformed co-operatives, which have to be secured by the local people’s committees. A directive has been issued. In this respect, the government is supposed to promote co-operatives more eagerly. On a broader basis it is complained that there is a lack of a suitable legal environment in which transformed co-operatives can develop. On the other side, it is warned that co-operatives will have no strong incentive in running their services economically effective as the banks, and indirectly the government, become liable for any losses incurred. Hence, the whole system would be similar to the one of the late 1980s.

In the long run, there is only one way for the transformed co-operatives to become economically viable entities: They have to make fully use of their own resources. The first years since transformation have shown that the transformed units can earn profits. These profits have to be used to build up reserves and to enlarge their own capital. At this stage it is not that important that members get paid dividends every year. It is in their main interest to have a reliable and economically well-managed organisation at their disposal, which supports their farm activities effectively. Since their production costs can be reduced with the help of their co-operatives, they already realise an increase in farm income.

It will be more easy to reflect and solve problems if the transformed agricultural co-operatives will be organising themselves at higher levels. So far, a federative or vertical structure at district, provincial or, even, national level is missing, e.g. a co-operative league or a federation of agricultural co-operatives. Up to 1988 there used to be certain type of vertical structure under the umbrella of MARD when there had been the department for co-operatives. When that department had been abolished, agricultural co-operatives were looked after by the more broad-based department for rural development.

According to the Law co-operatives are supposed to deal at the grass root level. However, there is the option to organise at higher levels as well, to serve as a bridge between the government and the primary co-operatives. For the time being, there are discussions to set up federations of agricultural co-operatives, particularly at the provincial level. However, it is open whether it will become a completely separate and independent federation or whether it will be again within MARD, e.g. as a special provincial department of MARD. Besides protecting their members' interest and having the right to make requests in policy, these federations should provide support in setting up accounting standards and in doing auditing. At the moment, every accountant in every co-operative has to do this on his own. External auditing is done by state institutions specialised in this work. There might also be the option that external audits will be executed by specialised audit unions in the future.

The major reasons given for a still missing network seems to be that the number of transformed, but also newly formed agricultural co-operatives is still too small, so far. In addition it was stated that there is a lack of trained staff qualified to manage co-operative federations at higher levels. At the co-operative level managers were expressing the need for federations, but they were not sure yet how to do it. Similarly, officials at provincial levels saw the need for some type of organisation. In some areas first trials in setting up a structure have been started at the district and provincial level on a pilot basis, e.g. in Quang Nam and Binh Dinh Provinces. These organisations are loosely structured groups for the time being.

When it comes to forming federations of agricultural co-operatives there seems to be some competition between the cooperatives and MARD on one side and the existing apex organisation for some co-operatives in Vietnam, the Vietnam Central Council for Co-operative Unions and Small and Medium-Sized Enterprises (VICOOPSME) on the other. It has been established in 1986 out of a merger of the former Ministry of Co-operatives and the Ministry of Industry. Due to the decline of the production co-operatives of artisans and small-scale industries in line with the agricultural ones, it is not very strong for the time being. However, as a former government agency it still gets some support and it is the internationally recognised representative of Vietnamese co-operatives (KIRSCH, 1997: 8). With the adoption of the Co-operative Law VICOOPSME looked out to become the national umbrella organisation for all co-operatives. That is why the name had been changed into Vietnam Cooperatives Union (VCU). For the time being, VCU does not have an agricultural structure, as very few agricultural co-operatives have become member.

Nevertheless, VCU is issuing guidelines to agricultural co-operatives, which might overlap or contradict with those issued by MARD. In general, managers of agricultural co-operatives still look at MARD with respect to support and, therefore, these guidelines are not binding for them. However, both MARD and VCU adopt a heavy top-down approach when dealing with agricultural co-operatives. In the end, it is not so important under what agency agricultural co-operatives organise themselves. It is important that this organisation will be member-oriented (bottom-up) and follows the three major principles.

4 Situation Without Agricultural Co-operatives

4.1 Dissolution of Old-Style Co-operatives

Even before the adoption of the Co-operative Law a large number of agricultural co-operatives had been dissolved. In addition, many stopped operating, but they were still listed. A co-operative can only be dissolved once it is officially approved by the people's committee of the district. In general, there are two ways how it is implemented.

On the one side, the management of the respective co-operative realise that there is no perspective for the time being and it would be better to close down the co-operative. Once there is the principle approval by the people's committee of the commune certain rules have to be followed. In a first step a dissolution (or dismantling) committee has to be established. This committee has to look into all aspects of importance, i.e. items and value of all remaining assets, the amount of debts and the amount of outstanding debts by members. All remaining assets have to be transferred to the commune. In addition, the commune has to take over all debts to banks. With respect to the outstanding debts of the members, these will be transferred to the commune, which will collect them in the future. However, the dissolution committee might propose that not all defaulters have to repay equally. Often, it was distinguished between three groups: (a) members who could repay but did not do so; (b) members who had difficulties in repaying, and (c) members who had moved away. Those members who had the resources were required to do so. Those who had not enough resources or were regarded as too poor had to repay a reduced amount or their debts were cancelled in total. Finally, the debts of those who moved away were left as they were and it was waited for the return of these persons. Normally, members will be required to repay the principal while no interest costs are charged. All proposals are presented at the last general assembly meeting, which formally decides on the dissolution of the co-operative. The minutes of this final meeting have to be presented to the people's committee of the district, which is formally acknowledging the dissolution.

On the other side, the people's committees at district level might decide to abolish and dissolve all old-style agricultural co-operatives in their respective area of jurisdiction. For example, the people's committee of Viêt Yên District, Bac Giang Province took that decision in October 1991. It was argued that no co-operative had been operational anyhow at that time. Since then, no agricultural co-operative had been registered in this district. Before 1990, there used to be 9 co-operatives at the commune level and another 90 at the hamlet/village level in the district covering 1 town, 17 communes and 145 villages. With respect to assets and debts the same rules are followed as described above.

Hence, it can be stated that the communes becomes the legal successor of the dissolved co-operatives. They take over all remaining assets, even those related to agricultural production. In general, they are supposed to repay all remaining debts. On the other side, they have the right to enforce the repayment of debts of the former members to their now dissolved co-operatives. Usually, communes have been active in gradually recollecting these funds. It depends on the commune whether it keeps the funds for its own budget or whether these funds are redistributed among all former members of the dissolved co-operative.

4.2 Organisational Set-up

Already in case a co-operative is no more operating the respective commune becomes responsible to manage the main activities. During the last years several approaches could be observed how the people's committee of the communes accomplished that task. In general, self-help groups were looking after the main activities under the guidance and supervision of the communes.

(1) The commune might decide to organise the services itself in employing some persons on its own or through a bidding process so that individuals or groups are providing the necessary services. These individuals or groups can be either those persons who did the same job already before, or they could be recruited from scratch. In some cases, as e.g. in Quang Binh Province, contracts are signed with private companies who are providing the staff. The commune has to decide on the price ceilings or price ranges, which the individual households will have to pay. The individuals or groups will get paid a fixed compensation or a percentage share of the turnover. In some cases, these groups have been economically quite successful where (old-style) co-operatives failed. However, it is still difficult to make people understand that individuals or groups can make profits with assets, which belong to the commune or general public.

(2) Another option, as adopted in Viêt Yên District, Bac Giang Province, has been that the commune will put the village headmen in charge to look after the continued provision of the most important activities. Then the village headmen, in addition to their administrative tasks, are actually becoming the executive managers of all activities, which used to be done by the co-operatives. They are supported by village committees comprising in total 5 persons. Four persons are elected by the population, i.e. besides the village headman, his deputy, one accountant and one cashier. In addition, the local chairman of the party is member. In this district village committees have been set up in all villages once agricultural co-operatives had been dissolved. However, they are of a temporary nature, only, as they do not have their own legal status. All over the country, the people’s committee at the commune level is recognised as the lowest legal entity at the local level.

Since then all important services in the village are managed by local groups. The members of these groups are not elected by the people but selected by the village headman with the support of the village committee. With these groups a contract is signed specifying the duties and the compensation. All village groups are specialised on one activity only. Hence, there might be several different groups in one village. Depending on the activity groups comprise one to ten members. For all these services fees have to be paid by the households. In general the fees are paid in kind, i.e. in paddy. It is actually one of the tasks of the village headmen to ensure that the fees are paid properly.

The payment with respect to the various services is decided at the village meetings, which are convened once a year. All household heads are represented. >From the farmer’s point of view, the meetings are organised in more or less the same manner like the general assemblies of the now defunct agricultural co-operative. This ensures a minimum level of control on the village headman.

In case of the dissolution of an agricultural co-operative the general picture looks as follows: specialised (informal) groups will take over the most vital activities. They might work under the commune administration and/or the village headmen either on a contract or on a self-help basis. The most important activities to be continued refer to the management of the irrigation systems and electricity networks. The commune will sign a contract with the pumping station or the electricity supply station, mostly at the district level. Other services are continued in exceptional cases, only. The day-to-day management at the local level is with the contracted groups. The bookkeeping can be done at the group level. A simplified version of a balance sheet has to be followed. In case of non-observance of contracts and commitments, the people's committee of the respective commune is putting up a lot of pressure on the group that all obligations are fulfilled. The households are required to pay for these services. They might also be asked to provide their labour and material to keep the system going. From the farmers' point of view, there might be not many changes compared to the situation when the co-operative had been in charge.

4.3 Experience and Limits

Through the transfer of the main tasks of the dissolved co-operatives to the communes the continued provision of the most vital services in agricultural production are ensured. As most communes are providing these services with the help of contracted groups their number has jumped up tremendously during the last years. However, a large number already existed before, particularly in the southern part of the country, where the collectivisation process had been implemented to a small extent only. There, production teams and other forms of informal groups existed already since the early 1980s. Nevertheless, their number has been estimated to stand at 73,400 by mid 1998, of which about 67,500 were located in the South (MARD: 5). In general, these informal groups are water user groups and electricity groups. On average, one group comprises 5-10 members. As these groups perform important services in their communes and are under contract, they are recognised and registered by the local people's committee. Some of these groups, in addition to their main activity, might work as a joint negotiating group for credit from VBA on behalf of their members. In that case, membership will come up to about 40-50 persons.

One of the main conclusions, which can be drawn out of this model, is the experience that proper services can be provided to the farm households without co-operatives. For the clients at the local level there seems to be no difference in the quality of services provided. However, two repercussions can be observed: (1) The number of services provided has been reduced to the most important ones. Farmers do not feel this disadvantage for the time being as their co-operative had already collapsed and not many services had been available, anyhow. Only if they need more services and realise that co-operatives will work effectively elsewhere they will be aware of their own disadvantage. (2) In many cases, the fees they have to pay are higher compared to the situation when a co-operative is managing these activities. To employ the specialised groups is more expensive. In addition, there are some administration costs with the village and commune. For example, in Quang Binh Province the irrigation fees with a co-operative, on average, come up to about 250 kg of paddy per ha and season while under village management farmers have to pay about 300 kg (or about 20 percent more). Again, farmers will only realise this difference when they compare their own situation with the one in other communes.

Hence, from the farmers' point of view, there feelings concerning the present situation is mixed. On the one side, it is stated that they see no need for agricultural co-operatives. The services are provided in a timely and efficient manner. Other services are well managed by private entrepreneurs. All what is needed are small self-help groups at the village level to organise a better co-operation in agricultural production. On the other side, those farmers who were concentrating on commodity production felt the need for better marketing systems. They voiced the opinion that the more important the sale of farm products will become for their farm income, the higher the need for efficient agricultural co-operatives.

From the administrations' point of view it becomes more and more evident that this approach just has to be seen as a transitional arrangement as the communes cannot replace agricultural co-operatives effectively in the long run. It has to be regarded as a “survival strategy”. The people’s committees of the communes have to combine economic functions with administrative functions in one institution. However, the local administration is not trained in dealing with economic issues. After some years experience, as in Viêt Yên District, Bac Giang Province, it became clear that the dual function of the village headmen, responsible for public administration and in charge of managing the necessary services at village level, had become a disadvantage. For most of the population it had been difficult to understand when they paid their taxes and fees for which item the money had actually been used although there had been the decision by the district people’s committee to strictly separate these two different sources of funds. As the standards of book keeping are not very high, there was a constant suspicion that the fees were spent for other things or misappropriated. It had been realised that the administrative and economic functions of the commune administrations and village headmen had to be separated again in the long run and new co-operatives were needed.

But also the self-help groups, which are working under contract, have to face certain limits in their operations. These informal groups or teams are no legally acknowledged entities and they are without regulations. The relations among their members are quite loose and they might collapse easily. In addition, they are short of experienced managerial staff. Since they are not registered as legal business entity with the people's committee at district level, they are not allowed to do any business activities. But such units will be needed more and more in the future in order to increase farm production and farm income, particularly as more capital for investments will be needed.

On the other side, many of these informal groups will form the nucleus of new agricultural co-operatives. They have made experience in performing one or several activities on a group basis. In these days, it is discussed at the provincial level whether these informal groups should be formalised in the long run. There is the option that these groups might be registered under the Civil Code as an association (or pre-cooperative) or as a co-operative in line with the Co-operative Law. In both cases they could take over the remaining productive assets from the communes. At the national level there is the policy that local authorities should encourage households to create or set up their own co-operatives. As it will be discussed below, many of the newly established agricultural co-operatives are rooted in former informal groups.

5 Establishment of New Agricultural Co-operatives

The Co-operative Law not only provided the legal framework for the transformation of old-style agricultural co-operatives, but also - more importantly - the basis for setting up new ones. As it was shown above, by the end of 1997 already 99 new agricultural co-operatives had been registered. While national figures are missing, the process seemed to have speeded up in the following years. For example, in An Giang Province, the number of newly formed agricultural co-operatives stood at 20 by 30 June 1998, but it increased rapidly to 63 by the end of February 1999. Hence, all of them are relatively young and first conclusions can be drawn only.

The main reason for setting up new agricultural co-operatives is the fact that there are limits with the informal group approach. Informal groups, like e.g. water user groups can manage the irrigation system on a day-to-day basis. However, they cannot do the job that effectively as these groups can just perform the simple tasks. All those tasks which require machines and hence capital have to be done by private companies which have to be sub-contracted by the commune and are paid by the end-users. Therefore, prices for the provision of irrigation water have been relatively high. Once a co-operative has been registered and members have subscribed share capital the necessary equipment can be bought by it. Then it is cheaper to do the job within the co-operative than to hire private people as has been proven in An Giang province. In addition, a legally accepted entity is needed to do business activities vis-à-vis other business units to the benefit of the farmers.

Broadly, the newly established agricultural co-operatives can be divided into two groups: On the one side, there are those, which have been built up on already existing informal groups or mutual assistance teams. On the other side, there are those whereby a group of people comes together and agrees to do certain activities in common. These people start from scratch.

5.1 Registration of Operating Informal Groups

The establishment and registration of formal agricultural co-operatives out of existing and operating informal groups is quite similar to the transformation process. In the following the important steps in forming new agricultural co-operatives, their main activities and the main critical issues since registration will be discussed.

5.1.1 Formation Steps

The dominant forces, which push for the set-up of agricultural co-operatives, come from two sides. On the one side, there are local officials, which regard co-operatives as a useful tool to create more employment locally and to follow social aspects like reduction of poverty. On the other side, there are the people themselves who try to get and improve employment and income in their area. Many among them are business-oriented people who want to increase their income through the cultivation of cash crops. This they can only accomplish effectively once they are organised at a higher level. The formation and registration process follows the same pattern as discussed above in connection with the transformation.

(1) In general, the leaders of one or several informal groups realise the need to set up a co-operative. They will act as promoters or founders. Usually, the promoters get support, guidance and advice from the district and provincial office of MARD. For example, in one commune in An Giang Province, there used to operate 6 informal self-help groups quite independent from each other since the late 1980s. Once, the idea of forming a co-operative had been spread each self-help group had their own meeting where they elected two representatives to prepare the necessary steps. These 12 founding members got further training and spread the idea further on. On the other side, if the members themselves realise the need for a co-operative, they just elect a small number of persons among themselves who will act as founding members.

In general, newly set-up agricultural co-operatives are supposed to continue and expand those activities, which have been done by the informal groups already. However, the formation of a co-operative might sometimes require a shift of its activities. For example, in another commune in An Giang Province, there used to be a credit-negotiating group specifying the terms of credit with VBA for its members. The actual incentive of forming the co-operative had been the decision of the irrigation department to close down the District Irrigation Co. under its jurisdiction since it used to be very costly and no economic prospect had been seen in its equitisation. Therefore, farmers were encouraged to put the irrigation services into their own hands.

In general, the newly set-up co-operatives are not that successful in organising all potential members at the beginning. While many farmers understand the need for a formal organisation, a lot of efforts have to be put up to convince them. Many farmers are reluctant to join due to bad experiences in the past. Therefore, almost all newly established agricultural co-operatives see the option to broaden their membership.

(2) Many informal self-help groups own some assets of their own which they will transfer to the newly established co-operative. Then, the situation is almost the same as with transformed co-operatives. The value of these assets has to be re-assessed. On the other side, many groups do not own any assets at all. They have to start from scratch and build up their own capital base. Hence, the value of fixed and current assets is much smaller compared to the situation of transformed units. While figures at the national level are missing, the average value of assets owned by a newly established agricultural co-operative, e.g. in An Giang Province, just comes up to about VND 110 million. The issue of debts to banks or outstanding debts by members is not relevant for these informal groups.

(3) Once the value of assets is determined, the value of share capital and the value of individual shares had to be established. Again, there is no clear-cut pattern about the regulations, but it is up to each co-operative itself to decide on that. Those who have some assets at their disposal have the option to put up reserves at the time of formation, already, or to leave it to the future to build them up. Many converted the total value of assets into share capital, i.e. no funds have been allocated into reserves. Others decided rather deliberately, or more or less like a rule of the thumb, to allocate a certain percentage of the value of assets as reserves. Hence, the value of share capital was reduced.

In general, the new members have not been asked to contribute any cash as share capital. The value of the individual shares is commonly calculated on the value of existing assets, either on the number of members equally, or on the size of land over which a person has the land use rights. In this case, the value of each share has been calculated on a hectare basis. The value of shares for each member depends on the size of land he or she is cultivating. Although the various informal groups amalgamating into one agricultural co-operative might contribute assets of different values there seemed to have been no problems in allocating individual shares according to a model equal to all members.

For the members the set-up of a co-operative is a positive development as they do not have to contribute any cash in general, but can make use of its services. Members have the option to leave the co-operative. In that case, he/she is entitled to take out the respective value of their share in cash. While this in not a problem for the time being, these co-operatives might be in a delicate position if many members might do so in the future, as the amounts of current assets and working funds are very limited. Then, the co-operative might quickly run out of cash.

Besides those co-operatives, which could take over assets from the informal self-help groups, there have been many others, which have no assets at their disposal when they were set up. These co-operatives have to start from scratch. Hence, the joining members have been required to subscribe share capital in cash. In general, an individual share has been set at VND 200,000 - 300,000. Depending on the co-operative, this sum has to be paid up in cash in one sum or on an instalment basis. However, as these co-operatives are very short of funds most ask their members to pay in one sum. Members have the option to sign more than one share if they have the necessary funds.

Summarising it can be stated that the value of an individual share is not fixed. In general, it fluctuates from co-operative to co-operative between 100,000 and 300,000 VND. Among those co-operatives, which got transferred assets from the former informal self-help groups, the value of an individual share might be higher.

(4) In a next step, the by-laws have to be drafted. Similarly, a work plan indicating what activities the co-operative intends to pursue in the future has to be developed. Officials from MARD are giving support.

(5) Once the preparatory work has been accomplished, the founding general assembly will be convened. In case the number of persons willing to join the new co-operative is too big, an election of the members' representatives has to be organised. At this general assembly the by-laws and the work plan have to be adopted. In addition, the members of the self-governing bodies have to be elected. In general, it is aimed to keep their number as small as possible. Often the members elect three persons into the management committee including the chairman who might also take over the function of the general manager. Another one to three persons are elected into the supervisory committee. The management committee is employing some staff, in general a chief-accountant, cashier and bookkeeper. In general, these people are also members. In total, between 6 to 10 persons are actually running a co-operative. All these jobs are done on a part-time basis, as all members are farmers in the first place. The elected and employed persons are entitled to a compensation or salary.

(6) After this meeting, the management has to present the minutes to the people's committee of the district in order to become officially registered. In general, the time needed to set up and register a new agricultural co-operative takes about four to six months.

The number of members, on average, is by far smaller compared to the transformed ones. In general, membership comes up to 100 and 300. For example, in An Giang Province, average memberships just stands at about 120 persons. But it could be observed that more and more fellow-farmers are joining later on.

5.1.2 Main Activities

All activities, which will be offered to members and non-members alike, will be discussed and finally decided at the general assembly. Actually, most of these services have been offered before, but they have been more costly. Similarly, the co-operatives are offering them in a more reliable manner. So, it is the primary objective of the management to improve those services already done and, then, to enlarge them on a step-by-step basis. The most important services, which support the farm activities of the members directly, are the following ones:

(1) The major activity of almost all newly established co-operatives, which are based on former informal groups, is the proper organisation of irrigation systems in their respective areas. In general, this activity can be much better coordinated now than before. For example, in one co-operative which had been set-up out of several self-help groups, the irrigation pumps can be used in all areas according to the highest need. Before, each pump had been used in the respective and rather limited area of the self-help group, only. In another case, the district administration used to provide the basic irrigation services, but very often the water distribution did not fit the cropping requirements. The co-operative took over the system and some of their land-poor members, after a proper training, are running it much more diligently.

In general, the co-operatives can manage the irrigation systems more effectively and, hence, the irrigation costs can be reduced. From the members' point of view the immediate effect is a reduction of irrigation fees while the service has been improved. But also non-members benefit although they are charged higher fees. For example, in one newly established co-operative in An Giang Province, the situation looked as follows: Before the set-up the irrigation fee came up to 470 kg of paddy per ha and season. Due to more diligent care the irrigation fees could be reduced to 430 kg of paddy per ha and season for members (or by 8.5 percent), and to 450 kg for non-members (by 4.3 percent). In this respect, both groups could save production costs with the help of the co-operative. Other co-operatives in the same province have been even more successful in cutting the irrigation fees for their members. Most managers interviewed saw more scope for further cost reductions in the future.

(2) The second important activity deals with the organisation of the supply of agricultural inputs in a more cost-effective manner. In general, the most important production factors (inputs) will be sold through the co-operative. As most agricultural co-operatives themselves are short of working funds they have established links with the (state-owned) production companies and, sometimes, the provincial farmers' unions. Hence, the co-operatives get these inputs as a credit in kind, which they pass on to their members. These have the option to re-pay after harvest. The average interest rate members were charged in early 1999 came up to 1.2% per month, which is lower than the on-going interest rate on credit by VBA and by far much better than the rate asked by the private sector with 5.0% per month. The co-operatives just earn a small margin for doing this service as a "middle-man". For many, it is not the objective to make much profit with this activity. From the member's point of view, this option of getting credit in kind at a low interest rate level is a very attractive incentive to join. In this respect, not much cash from the side of the co-operatives is needed to strengthen the economic position of the farmers. In case the co-operatives are required to do a down payment for the delivery of the required inputs, almost all the available working funds will be spent on this activity.

(3) Many co-operatives have concluded summary contracts on behalf of their members with private entrepreneurs concerning the mechanisation of crop production. While formerly each farmer had to bargain on a price individually, the co-operatives have negotiated a general contract for all members. With the help of these contracts production costs at farm level can be reduced, significantly. They mainly refer to the following production steps: land preparation (ploughing and harrowing), threshing and transport of paddy from the road to the barn. In general, the prices, which farmers had to pay for these services, could be reduced by 10 - 20 percent. In this respect, the production costs of each member declined due to the help of their own organisation. On the other side, this new pattern is also cutting costs for the private entrepreneurs as the respective services can be done in a more effective manner. These private entrepreneurs, or machine owners, are members as well as non-members of the respective co-operatives.

(4) Although their budgets are tight, many co-operatives are organising extension activities. This is mostly done in close co-operation with the district and provincial extension service under MARD. Extension workers are invited to work with farmers. For the members this service is usually free of charge. Sometimes the co-operatives are getting some refunds if the extension activities are part of a specific national programme, e.g. the organisation of integrated-pest-management courses for farmers. In addition, co-operatives might cooperate with state-owned food companies, like e.g. one co-operative in An Giang Province, which collaborates closely with the Angifood Company in the distribution of new rice varieties. In general, most of the costs involved are borne by the company.

(5) While not many co-operatives are pursuing marketing activities on their own, some have started with joint price negotiations on behalf of their members. For example, in An Giang Province, farmers used to negotiate the selling price individually with the agents of Angifood Company during the last years. This company has a monopolistic position in the province. The farmers themselves were responsible to deliver the paddy to the company. This year, the management has negotiated a common price for the paddy on behalf of its members. It could be raised by about 2-3 percent compared to individual contracts.

Besides these production oriented activities co-operatives are also active in other spheres. Some of them are of a more supportive social character for the members. The most important one concerns the support of their members in form of letters of recommendation or acknowledged certificates when the members apply for credit at a bank. Farmers can only apply for credit as individuals and they have to provide collateral. To do so, they need a certificate issued by the people's committee that they are without debts, own some assets of value and have the "red book". This certificate they have to present to the banks (in general VBA) together with their loan application. Since its registration, the chairman of a co-operative is entitled to issue such a certificate as well which is acknowledged by the banks. The farmers prefer this way since quite often they are reluctant to go to the office of the people's committee. Although they get the certificate relatively quickly at this office, they usually are asked all types of questions which they want to avoid. Sometimes co-operatives might support the banks in collecting the repayments. For this service they get a small commission.

In addition, few co-operatives even adopt administrative functions like in the past. One co-operative in An Giang Province has been asked by the people's committee of the commune to collect the land tax from its members. Other co-operatives offer some social activities, like the promotion of family planning activities among their members. Others participate at the poverty alleviation programme in identifying and supporting poor member households eligible for subsidised credits. Some administrative pressure seems to be involved as for the co-operatives these are actually loss making activities. For example, with respect to the programme of subsidised credit they are not only handling it without a commission, but the poor households can also buy the inputs on credit, which is free of interest. Hence, the co-operatives are subsidising this programme in two ways and it cannot be regarded as an economic activity but as a welfare service.

In general, managers of the newly established agricultural co-operatives are very confident about the future development. They are sure that they can cut costs further and they will gradually expand their activities. In addition, they feel more support from MARD is available once they have been registered compared to the period when they were organised as informal groups.

5.1.3 Critical Issues of Newly Established Agricultural Co-operatives

The newly established agricultural co-operatives share many of the problems, which are also worrying to the transformed ones. In this chapter just three most pressing issues will be discussed: the low value of share capital, the membership structure and the economic performance. As it was stated above, as these co-operatives are relatively young just a preliminary assessment can be given.

Share Capital

Many co-operatives are plagued by the fact that the value of their assets is quite small. The newly joining members contributed either no cash at all, in case when some assets could be transferred from the former informal groups, or just a small sum amounting to VND 200,000 - 300,000. Since the number of members comes to about 100 persons the total value of capital is not very big, particularly among those, which did not get transferred some assets. Hence, the equity is quite small and the management has to concentrate on the most vital services for their members, first. Gradually, the capital base might be broadened and the number and quality of services expanded and improved.

For the time being, also this type of agricultural co-operatives is not eligible for any bank loans. The general reputation of co-operatives is spoilt with the banks. So far, banking staff is wondering whether this new type of co-operative will work well under the market-oriented system. Therefore, banks have to be convinced which is only possible if these co-operatives gradually expand their capital base and develop a track record with the banks. While they are not eligible for credit for the time being, almost all co-operatives of this type have their own bank account, in general with VBA.

Membership Structure

In general, the newly established agricultural co-operatives start with a relative small membership. Many farmers have been reluctant to join due to the bad experience with production co-operatives in the past. However, most of them have been economically successful and more persons joined during the following time. On average, the number of members increased by about 20 - 30 percent during the first year of operation. In general, all co--operative managers know the number of their potential members, as a co-operative is restricted to one water catchment area of the irrigation system. While the co-operatives are offering their services to both members and non-members, non-members have to pay a higher price (price differential). In this way, these farmers are encouraged to join.

On average, a newly established agricultural co-operative comprises about 80 - 150 members. With respect to the membership structure, the first assessments seem to reveal that particularly the middle strata of the farming population are joining. The richer farmers might use the services offered but in general they can manage on their own. The poorer strata including the landless farmers might not have the resources to join. In case the newly joining members were asked to subscribe shares in cash, they had not enough extra-cash available. For many landless farmers it did not make sense to join, as the provision of irrigation water is the main activity. On the other side, in case the co-operative took over assets from the informal groups actually all farmers of the respective area could join and did so.

But as shown above it is in the interest of the co-operatives themselves to enlarge the number of their members. In case the co-operative has been economically successful during the last year, its total value and the average value per member has increased. Some co-operatives require from the new members to pay up this increased price for a share. In that case, it will become difficult for potential members to join as the price keeps on increasing. Other co-operatives have decided to keep the value of one share at a certain fixed level, so that it is not too expensive for potentially new members to join. Long-term members will be compensated with bonus shares in the future.

Membership does not seem to be restricted to the agricultural population only. In one co-operative in An Giang Province, 21 out of a total membership of 101 are rural non-farm entrepreneurs. These 21 non-agricultural members own 78 shares (or about 4 each, on average) while the 80 farmers own 168 shares (or about 2 each, on average). These 21 persons joined right at the beginning. Professionally, they are small-scale entrepreneurs and traders as well as carpenters.

Economic Performance

Despite their relative small capital base and the competition of the private sector many of the newly established co-operatives managed to earn a surplus during their first years of operation. The annual turnover, e.g. for 1998 in An Giang Province, stood at 30 - 300 million VND per co-operative. Roughly, it can be stated that costs and expenditures made up about two-thirds of that some. The remaining third were reported as gross profits. During the first three years of operation no taxes have to be paid. The distribution of these profits varies from co-operative to co-operative. In one co-operative, about 30 percent of the gross profits have been allocated to the various reserve funds, i.e. investment or development funds, risks funds and social or welfare funds. One other co-operative allocated about 70 percent of its gross profits to these funds. The rest is distributed as dividends among the members. In both cases, the level of dividends is quite attractive compared to other forms of investments or savings. Very often, the value of dividends represents an interest rate of 3.5 - 5.0 percent per month.

Some co-operatives ensured even higher dividends and follow a deliberate policy to pay high dividends. The patronage refunds for using the services offered are not so popular. In this respect, members benefit twice from their co-operative. On the one side, their production costs can be reduced with the help of their organisation. On the other side, they receive dividends once a year. However, if the co-operative becomes economically too successful there is the danger that potential new members will be left out. It is often argued that newly joining members should pay the increased average value per member as a share, e.g. instead of VND 300,000 at the beginning VND 388,000 after one year. It has to be seen whether the potential members have enough funds to do so.

5.2 Starting from Scratch

Finally, there is a small group of agricultural co-operatives, which have been set-up without any links to any formal or informal organisation in the past. This model can be characterised as follows: A group of persons joins forces to do a service activity together as it becomes too costly to do that on an individual basis. Economic reasons for its establishment are predominant. Good links to the administration are important but the promoters are the members themselves. Members are prepared to put up cash and subscribe shares. A small number of members and a strong focus of the activities are characteristic. This type of co-operative is quite similar to those known in market-economic systems. It can be expected that this type of agricultural co-operative will become more or more dominant in the years to come.

While many characteristics and problems are similar to those already discussed above, just the most striking differences will be elaborated in more detail. One of the main characteristics is the small number of members. Often they just comprise 10 - 20 persons. A careful membership selection has to proceed any steps to establish and register the co-operative. On the one side, the perspective members seem to know each other a long time. So, they know the personal and familial background from each other very well and trust each other. On the other side, they must meet technical criteria, e.g. members of a fish fattening co-operative in An Giang Province must own at least one fish fattening cage or members of a rice-seed multiplication co-operative in Bac Giang Province must have at least 0.4 ha available for seed multiplication. It is evident that the members must have a good technical knowledge in their respective fields. In this respect, it can be concluded that members of these co-operative usually are better off than their neighbours and they are very market-oriented.

These newly formed agricultural co-operatives are highly specialised. They concentrate on some service activities, which support the production activities at the farm level. They are active in the following three fields only:

(a) the regular supply of high quality inputs: For example, a fish fattening co-operative organises the supply of fish seedlings or fries and of fish feed. The rice-seed multiplication co-operative organises the supply of quality seeds and the provision of fertiliser. In general, the co-operative has signed contracts with supplying companies. Most of the inputs have to be paid in cash, immediately.

(b) supervision of production: Members supervise and control each other in order to ensure high quality production. The co-operatives are active in getting access to and in disseminating the latest production technologies. As these co-operatives are relatively young they have not much equipment or special-purpose machines for the time being. But it is planned to invest in such items in the future.

(c) marketing of products: The co-operative is negotiating quality criteria and prices with buyers, either private traders or state-owned companies. It might sign selling contracts with interested agents on behalf of their members. Some members, usually of the managing boards, inform themselves regularly about the market of their respective products. One fish and turtle fattening co-operative in Bac Giang Province already plans to establish its own trademark.

As these co-operatives start from scratch they have to build up their capital base from the members' shares at the beginning. The combined value of the share capital is their only asset. In general, the value of an individual share is set at VND 100,000 - 300,000. Members are free to subscribe more than one share. This is done quite regularly. Once operational, the co-operatives will earn income through commission fees in buying inputs or when selling the products, e.g. VND 100 for each sold kg of multiplied paddy seeds. This paddy seed multiplication co-operative has been operational since about three years and its capital and reserves stood already at VND 160 million by the end of 1998. But, in general, the value of assets is quite small and most of the share capital is used as operating funds to buy inputs. Some co-operatives even did not bother to open a bank account, so far, as the available share capital is spend in buying inputs. Any surplus cash is kept by the cashier at home.

Most of these co-operatives were just operating less than one year, but all chairmen were confident that profits would be made. How the profits will be distributed has not been decided yet, in most cases. For the members it is not important to get dividends. For them it is more important that these co-operatives become stronger and economically more powerful.

Due to the small number of members, also the number of persons in the self-governing bodies is kept at a minimum. In general, the management board just comprises three persons, i.e. the chairman, the accountant and the cashier. In some cases, just the chairman will be elected and he is responsible for the day-to-day management. In addition, one person is elected as supervisor. All tasks are done on a part-time basis, as all of them have to manage their own farms. In general, the elected board members get a small monthly compensation.

All co-operatives are open to new members, but due to the careful membership selection the number of potential candidates is quite small. It has to be ensured that the co-operative is sticking to its focus. Besides the general requirement that the bylaws will be accepted and observed, the potential member should follow that production activity on his/her farm, which is promoted by the co-operative. In addition, he/she should have a similar production capacity and financial standing as the present members.

The chairmen acknowledged that the legal form of a co-operative as a business entity was deliberately chosen by them since the tax rate is relatively low. During the first three years no taxes at all have to be paid as their emphasis is on farm production in specific fields. When they will be taxed finally the tax rate will just amount to a 1 percent of the turnover with respect to production. With respect to marketing and other business activities it stands at about 10-15 percent of the turnover. In any case, taxes will be still lower compared to other legal business entities.

6 Conclusions and Recommendations

Based on the Co-operative Law, effective 1 January 1997 two main types of agricultural co-operatives can be observed for the time being, (a) transformed ones as the successor organisations of the former agricultural production co-operatives and (b) newly established ones. The latter can be divided further into two sub-groups, i.e. those that are based on already operating informal self-help groups (pre-cooperatives) and those, which are starting from scratch. While the last sub-group is definitely similar to those co-operatives, which have been established, in market-economic systems all over the world, the other ones have to show in every day life that they correspond to this model. All agricultural co-operatives will have to compete with private entrepreneurs to be successful.

In that respect it is important to stress that co-operatives are only a form of business organisation that help to develop the household economy of their members. Hence the establishment and operation of co-operatives has to be based on economic principles, relations and rules. Co-operatives should not be regarded as social organisations that provide charity to needy farmers (LE/VU: 71). The combination of economic and administrative functions, so characteristic in former times, is no more allowed according to the Law, but informally there still seems to be some intervention by the local administration on the management of the co-operatives. This is particularly difficult to avoid in those areas where almost the whole population of the commune is also member of an agricultural co-operative. At the local level it will take some time to develop a precise division of responsibilities: The management of the agricultural co-operatives is concentrating on economic aspects while the local administration is in charge of the socio-political issues of the commune. This is no contradiction to the option that, in case a co-operative is making profit, the general assembly is free to allocate parts of it for social purposes. In the following paragraphs the main conclusions and recommendations will be drawn.

6.1 Conclusions

(1) The agricultural co-operatives are much better than their reputation. They have privatised the ownership of their assets through the introduction of shares. Through lengthy discussions, the members are now familiar with the shareholder concept of co-operatives and they know the value of their own share(s). They know very well to differentiate between share capital (i.e. owned by each member individually) and undividable funds (owned by the co-operative), too. Compared to the present situation of the soon-to-be-equitised state-owned agribusiness companies, agricultural co-operatives, even the transformed ones, are in a better shape.

(2) Nevertheless, both the transformed co-operatives and the newly established ones are very young organisations, which have not built up much experience, so far. Gradually, they have to develop self-confidence and experience in their activities and establish a positive track record. Needless to say that all, but particularly the transformed co-operatives have to face the negative image of co-operatives from the past which can be only overcome in the long run.

(3) Not all old-style co-operatives have to be transformed into new-style co-operatives. Either farmers felt co-operatives were not needed at all, or the important activities (e.g. irrigation) have been organised quite satisfactorily by the communes, small self-help groups (pre-cooperatives) or the private sector.

(4) Particularly, all transformed co-operatives start with an impressive work programme, i.e. they want to do quite a number of activities. Besides economic activities many non-economic activities are to be pursued which put a strain on the funds of the co-operative as well as the time and expertise of its management. It seems that, in general, co-operatives cannot fulfil their ambitious work plans which is said to be due to lack of funds and management capacities.

(5) In general, managers of co-operatives are very dedicated persons who know very well what they do and, especially, what not. Often the managers are pressured from outside to fulfil a broad based work programme which obviously overburdens most of them. While they try to fulfil this obligation, they concentrate on those activities where they have most experience with and which also ensure an income. This behaviour makes sense as the managers have to develop self-confidence in a setting, which is more and more determined by market-economic criteria.

(6) Newly formed co-operatives seem to be more business oriented, i.e. they provide services, which increase the income potential of their members' farms. Their activities seem to be more streamlined, i.e. they concentrate on a few only. They, particularly those starting from scratch, are very careful in selecting their membership. Depending on the services offered the price for a minimum share can be quite high. Hence, the number of members of the new co-operatives is in general much smaller than of the transformed ones.

(7) Transformed co-operatives and new-ones are all trying to manage a financial surplus at the end of the budget year. They try to earn money and to cut costs to a minimum. Membership of the management and the supervisory boards has been reduced drastically, in many new co-operatives even to the minimum required by the law, i.e. to three members in the management board and one supervisor. Their compensation as well as the payment of the staff is modest which reflects the fact that these posts are only on a part-time basis. The surpluses are mainly used for building up reserve funds (including funds for future investments) and for paying out dividends.

(8) Agricultural co-operatives are an important source of credit for their members. Most credit is given in kind (in general for agricultural inputs) on a short-term basis. Very often the co-operative itself gets these inputs on a credit basis from the (in most cases state-owned) production companies. But some agricultural co-operatives provide credit in cash as well or might even accept cash savings of their members. In this respect, they act like a people's credit fund without registration and financial supervision. Both types of services show that co-operative managers are very pragmatic people.

(9) In general, agricultural co-operatives do not get bank loans. Due to their bad reputation in the past, both transformed and newly established agricultural co-operatives do not enjoy any trust and confidence by the banks despite a directive that banks should provide credit to them. Hence, small economic cycles are developed between the co-operatives and their members, very often not in cash but in kind. Many co-operatives do not even bother to open a bank account but distribute surplus cash as credit among their members. On the other side, particularly the transformed co-operatives still depend very much on the (state-owned) production companies. These are actually their major source of credit since they provide inputs in kind which have to be repaid after harvest. Hence, barter-trade business transactions are pre-dominant. This shows that many co-operatives have no confidence in banks either.

(10) Besides the growing number of agricultural co-operatives, there is a large number of informal self-help (i.e. pre-cooperatives) operating in the rural areas. Within many of these groups it is already realised that they cannot provide good services for their members in the long run. They see the need to formalise their status in order to become a legally recognised business entity.

(11) So far, there is no exchange of views and experience among the managers of agricultural co-operatives themselves. They get training courses offered by MARD without referring much on their own respective experience. The training schools located in Hanoi and Ho Chi Minh City respectively are quite far away from their home areas and it needs quite some effort to attend the courses. In this respect, federations of agricultural co-operatives at the provincial and national levels are still missing. Managers of agricultural co-operatives in general act on their own without any or little exchange with managers of neighbouring ones. Various managers already realise that their own co-operative will become too small to ensure economic success of future activities, particularly when it comes to marketing. They see an urgent need of federate structures at provincial and higher levels.

6.2 Recommendations

(1) Not all old-style co-operatives have to be transformed into new-style ones. If farmers as potential members do not see any need for a co-operative for the time being, there should be no outside pressure to do so. In that case the traditional co-operative should be liquidated.

(2) The general assembly and management of each respective co-operative decide on their activities. They should not be burdened with too many requirements from outside, as they have to cover any risks. The co-operatives have to serve their members. There can be as many co-operatives in each commune as long as they can be managed economically viable.

(3) Co-operatives are no welfare organisations but have to earn income in order to survive. For the farmers it is most important to get necessary services provided in an efficient and timely manner. In addition, these services have to be on a cheaper basis than before the set-up of the co-operative. In this way, farmers benefit most as they save production costs. The co-operatives have to earn profits in order to be in a position to offer their services over time. Evidently, the general assembly has the right, in case of profit, to spend part of it on social and cultural items.

(4) The services of co-operatives should be available to members as well as non-members. However, members should pay a lower price than non-members. In this sense, there is an incentive for non-members to join. In signing up shares new members will enlarge the equity of the co-operatives.

(5) Both transformed as well as newly established co-operatives are relatively young organisations. Hence, they cannot show a long proven track record. Similarly, the experience of the management is quite small. Therefore, the co-operatives have to start with one or two activities only and gradually expand once they have gained experience. Agricultural co-operatives cannot solve all rural development problems over night. Management has to start on a "step-by-step" approach and in this way broaden its capacities. Experience in the field shows that managers know what they are doing. The most important training for them is the daily management of their co-operatives.

(6) Similarly, a proven track record is needed for convincing banks to provide credit. Co-operatives do not have any rights in getting access to credit, but they have to prove that the respective investment is making economic sense. As young organisations co-operatives have to earn the trust and confidence of banks first. For a beginning, co-operatives should open a bank account with a bank. A certain payment record will be developed. Banks can be best convinced to provide credit if the annual balance sheets show that the co-operative is earning surpluses. Again start with small investments over short periods and gradually expand with the amount and the repayment period. However, to establish a track record at the beginning as well as to establish long-term relations with banks quite some time is needed.

(7) Lack of capital is not a major constraint for most agricultural co-operatives. Many of them are in a position to earn income. However, a large share of the surplus funds is paid back to the members in form of dividends. Co-operatives should allocate most of their surpluses to reserve funds, particularly for future investments. During the first years there should be just a small and no dividends at all as the survival of co-operatives depends to a large extent on their financial position. Members, in general, already benefit as their production costs can be reduced with the help of their organisation. In addition, the higher the share of an investment which can financed out of its own sources the higher the chances that banks will provide credit for the balance.

(8) Training does not seem to be a limiting factor for the management although knowledge of financial and economic aspects needs further improvement. But training should not only be understood as a transfer of knowledge from one person to the other (e.g. classical classroom teaching) but an exchange of views and experience among each other. Managers also have to reflect and learn from their own experience and from each other. Teachers have to adopt the role of moderators and facilitators. These exchanges of experiences have to be on a regular basis, which can only be organised if teaching centres are at the provincial or regional level (i.e. covering several provinces) so that the distance to them is not too far.

(9) Agricultural co-operatives need a federate structure in the medium run. Some managers already see the need to get organised at a secondary or tertiary level. These federate organisations have to be as member-oriented as the co-operatives themselves as it is already organised to some extent with the Regional Credit Funds within the PCF-system. The will to establish these federate structures has to come from the primary co-operatives at the local level and not from already existing pre-cooperative structures.

All in all, as agricultural co-operatives are relatively newly established organisations providing services to their members, they have to get experience as a market partner in the economy. They have to consolidate first. Hence, they have to concentrate on a few activities first and gradually expand. Only those activities have to be pursued which ensure some profits and are competitive to those offered by the private sector. Otherwise, these services should be given up. Most co-operative managers are very pragmatic persons, they accumulate experience in day-to-day management. In this way, they develop a certain degree of self-confidence over time, which is essential for successful co-operatives. In addition, there is a large number of self-help groups (or pre-cooperatives) working in the rural areas. Many of them have the potential of forming an agricultural co-operative in the future. Hence, in the long run, the differentiation between transformed and newly established co-operatives will be of no relevance anymore. Then, agricultural co-operatives can be only divided into successful and not successful ones.

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Annex 1: Development of Agricultural Co-operative in Selected Provinces

(a) Bac Giang (October 1998)

(b) Quang Binh (October 1998)

(d) An Giang (March 1999)

Annex 2: Case Studies

(a) Transformed Agricultural Cooperatives

(b) Situation without Cooperatives

Annex 1: Development of Agricultural Co-operatives in Selected Provinces

Bac Giang (October 1998)

The economy of Bac Giang Province is characterised by agriculture. More than 90 percent of the population are farmers (amounting in total to 1.5 million), which provide more than 50 percent of the provincial GDP. More than 300,000 farm households cultivate about 100,000 ha. Hence, the average farm size comes up to just 0.3 ha which is spread over 14 plots. The main areas for future investments will be the improvement of the irrigation systems and rural road network. Irrigation systems just cover 30 percent of the potential area.

Before 1997 there have been 135 old-style co-operatives. Up to now 66 have been transformed out of which 62 have been legally registered already. However, in some districts (e.g. Yen Dung or Viêt Yên) there are no co-operatives at all, anymore. In addition, 7 agricultural co-operatives have been newly established under the Law.

Usually, a co-operative covers either a village (hamlet) or a whole commune. This fact might be decided politically to some extent, but more important seems to be the size of the catchment areas of the respective irrigation system and/or the size of the service area of the electricity facilities. Depending on the service area, membership varies between about 200 in a village co-operative to about 1,000 in a commune co-operative. On the provincial level, the average number of members stands at about 500 and 600. With respect to the newly formed and registered agricultural co-operatives membership is much smaller. On average, it comes up to 15 and 20 members.

The registered amount of assets of the 66 co-operatives stands, on average, at VND 546 million, out of which VND 490 million are fixed assets (reserves) and the VND 56 million variable funds (or removable assets). Most of the equity has been transferred from the old-style co-operatives. In general, members did not contribute additional cash or funds. On the other side, each co-operative is burdened by debts coming up, on average, to VND 58 million. During the last years, however, neither interest nor principal had been paid back. In this respect, this debt can be termed as an irredeemable interest-free loan.

Membership in one of the transformed co-operatives seems to be very attractive. About 90 percent of all families living in the areas covered by the respective co-operative have joined. This is considered as quite high. In general, membership is assigned to the household.

In most co-operatives the share value is not always properly understood. Very often, the average value of equity per member is termed as share value. But the equity includes the fixed assets or reserves as well which will not be paid out to members in case they cancel their membership. The business share of each member comprises both, the average value of the variable assets plus an optional cash contribution. In Bac Giang Province, there has been the rule that a cash contribution should not be more than VND 40,000 per member. But so far, not many co-operatives have enforced their members to put up some cash.

The co-operatives concentrate on the management of irrigation systems, the provision of electricity, input supply and extension (technology transfer). Due to lack of funds and the limited capabilities of the management the emphasis of the activities is laid on, for the time being, the organisation of input supply. Most of the activities are done by specialised groups under the umbrella of the co-operatives. In addition, there is a large number of self-help groups working outside the co-operative system within the province.

In many areas where the old-style co-operatives have collapsed, the assets have been transferred to the respective communes. Sometimes it had been a political decision to dissolve old-style co-operatives. For example, the people’s committee of the district decided in October 1991 to abolish and dissolve all old-style agricultural co-operatives as no one had been active anymore. Before 1990 there had been 9 co-operatives on the commune level and another 90 on the hamlet/village level. In total, the district is made by 1 town, 17 communes and 145 villages. The farmers and members had been in support of this decision.

Following the decision of the District People’s Committee all assets of the co-operatives had been transferred, wherever applicable, to the respective village. The village headmen, in addition to their administrative tasks, were actually becoming the executive manager of all activities, which used to be done by the co-operatives. They are supported by village committees elected by the village people. In addition, in all 145 villages self-help groups have been set up to carry out the necessary support services for the farmers, i.e. management of irrigation and electricity systems, provision of input supply and/ or plant protection. All village groups are specialised on one activity only. Hence, there are up to four different groups in a village. For all these services fees have to be paid by the households. In general the fees are paid in kind, i.e. in paddy. It is actually one of the tasks of the village headmen to ensure that the fees are paid properly.

The experience with this approach had been mixed. On the one side, it showed that proper services can be provided to the farm households without co-operatives. In general, small groups have been entrusted in doing the respective activities. These informal groups often formed on a self-help basis, might form the nucleus for future co-operatives. On the other side, it became clear that the dual function of the village headmen, responsible for public administration and in charge of managing the necessary services at village level, had become a disadvantage. For most of the population it had been difficult to understand when they paid their taxes and fees for which item the money had actually been used although there had been the decision by the district people’s committee to strictly separate these two different sources of funds. As the standards of book keeping are not very high, there was a constant suspicion that the fees were spent for other things or misappropriated.

At the district level, it was finally realised that the administrative and economic functions of the village administrations had to be separated again in the long run and new co-operatives were needed. There had been support from the provincial authorities in setting up new co-operatives, but it was felt that the general rules and guidelines were not properly adjusted to the local situation. At the district nobody wanted to rush in order to implement the new system, but they wanted to learn from others, first. It is aimed to set up agricultural co-operatives in a very cautious manner. In case new co-operatives will be established they will take over the remaining productive assets from the communes.

(b) Quang Binh (October 1998)

The province comprises one town, 7 districts and 149 communes. In 1988 there had been 354 agricultural co-operatives. Their regional coverage is not uniform. 101 of them just covered one village only, another 225 had been inter-village co-operatives, while the remaining 28 were in charge of the whole commune. The main reason of the various sizes of the co-operatives refers to the various sizes of the catchment areas of the irrigation systems. But it also depended on the type of economic activity pursued, the skills of the management staff (“cadre”) and the social coherence and harmony among the members. The members preferred the smaller type of co-operative while some economic activities required larger units. During the 1970s there had been a policy to amalgamate smaller co-operatives. But it was soon realised that the management capacities of the cadre was quite low and these newly formed units were no more manageable. Hence, most of these co-operatives were split again.

During the following years 146 co-operatives had collapsed already. When the Co-operative Law became effective at 1 January 1997 just 208 were registered. Concerning the rate of collapse it is striking that it had not been equal. While still 98 village co-operatives are operational, the number of inter-village co-operatives declined to 92 and the one of the commune co-operative to 18. Hence, the collapse of co-operatives had been most remarkable at the inter-village level. Among that type their number declined by about 60 percent. The number of commune co-operatives declined by about one third, while just 3 out of the 101 village co-operatives collapsed. MARD officials do not have any explanation, but it seems that social factors are very important in ensuring the survival of the co-operative.

Based on these 208 remaining agricultural co-operatives their total assets are valued, on average, at VND 318.2 million, of which VND 256 million are of a fixed nature. The problem of debts to the banks is of minor importance within this province. On average, outstanding debts come up to VND 6.7 million. Nevertheless, the co-operatives are in different shape. 55 of them are classified as well operational, i.e. they offer up to 5-6 different services to their members. Another 80 co-operatives offer just a few services while the remaining 73 do not operate at all, anymore. These will be the first ones to be closed down in line with the transformation process.

Right after the adoption of the Co-operative Law the provincial people’s committee established a supervisory (“guidance”) board to support the transformation process at the local level. The vice-director of the people’s committee had been appointed as chairman, while officials from MARD and mass organisations had been members. Their main function had been the dissemination of all information concerning the transformation process to the districts and co-operatives, e.g. to familiarise them with the Co-operative Law and Decrees 2, 15 and 16. In addition, training courses were offered. In general, it had been the management staff of the old-style co-operatives who had been targeted. Similarly, in each district a supervisory board had been established. In these days, it is the staff of MARD at provincial and district level who is giving guidance to the co-operatives, e.g. offering short-term training courses for co-operative chairmen, or in-depth courses in accounting.

So far, 75 out of the 208 agricultural co-operatives had started the transformation process. 63 of them had already finalised the process and had been registered as new-style co-operatives. The other 12 co-operatives had been closed-down and their assets transferred to the communes. Not one newly established agricultural co-operative has been registered in this province, so far.

When it comes to the transformation, more or less all members of the former co-operatives wanted to join the transformed ones. Nobody wanted to be an outsider. In addition, there are some incentives to become member e.g. in form of lower prices for irrigation water or electricity. Members might also get some inputs on credit with a low or even without interest. In this province it had been decided that individual persons and not households will be registered as members of the transformed co-operatives. Hence, one household might comprise several members. The main reasons for this decision have been that in the old-style co-operatives all active labourers had been members. In addition, household members are becoming a bit more independent: In case one household member moves away the others are not affected.

Within the transformation process the rights and obligations of the members had been codified in the bylaws. The value of individual shares has been calculated, only. Members did not have to contribute any cash in the transformation process. In case a transformed co-operative is making profit, these should be distributed among members in two ways. On the one side, members are entitled to dividends on the shares they own. In addition, members will be entitled to a special refund according to the size of business turnover they had with their co-operative (“patronage refund”). In this way members should be encouraged to do most of their business activities (e.g. purchase of inputs) with the co-operative and not with private competitors.

One of the major outcomes has been the significant reduction of management staff. While management boards used to comprise 16-18 members before transformation, their number has been cut down to a maximum number of 7 persons. Out of them just 2-3 persons are elected by the general assembly, i.e. the chairman, his deputy and one more member. These elected persons form the executive board (“inner management board”), which is in charge of the day-to-day business. The other (up to 4) members of the management board are appointed by the elected ones. These are e.g. the cashier, accountant and bookkeeper. These persons have to be member of the co-operative. The daily activities are managed by specialised groups comprising members of the co-operative. The executive board is just looking into all aspects referring to outside relations, e.g. signing of a contract with the pumping station. In Quang Binh Province, it was decided that one person is enough to be elected as supervisor, i.e. there are no supervisory boards. However, if there might be a bigger problem to be solved the supervisor is free to appoint other persons to a temporary supervisory board. This board will look into the problem in more detail. Once a decision about the problem has been taken the board will be dissolved.

All administrative and social functions of the former co-operatives had been transferred to the people’s committee of the communes. The co-operatives will concentrate on economic activities only. The main activities are (a) the management of irrigation systems, (b) the management of electricity supply, (c) extension (“technology transfer”), and (d) provision of input supply, mainly seeds. Input supply is mostly done on a credit-in-kind basis whereby the co-operative itself gets the seeds from the company and distributes the seedlings among the members. The outstanding sum is settled after harvest by the members with their co-operative and the co-operative with the company. Some co-operatives still have some funds to finance this type of business. In that case, the company is paid right after the delivery of inputs. It is envisaged that each transformed co-operative should set up a special fund to finance input supply amounting to about VND 50-70 million.

In case the co-operative is dissolved the respective commune will continue to organise the most important activities, i.e. irrigation facilities and electricity supply. Then, the commune or village headman will appoint groups to perform the respective activities. In general, contracts are signed with private companies who are providing the staff. The commune will sign a contract with the pumping station or the electricity supply station, mostly at the district level. The day-to-day management is with the contracted groups. For the clients at the local level there is no difference in the type and quality of services provided. However, the fees they have to pay are usually higher compared to the situation when a co-operative is managing these activities. To employ the specialised groups is more expensive. In addition, there are some administration costs with the village and commune. For example, the irrigation fees with a co-operative, on average, comes up to about 250 kg of paddy per ha and season while under village management farmers have to pay about 300 kg (or about 20 percent more).

Based on first experiences, the agricultural households seem to profit from the transformed co-operatives. But there are a number of problems: (i) Management seems to focus on the quantity, but not on the quality of the services offered. (ii) There is a lack of working capital. While, on average, the value of assets stands at VND 318 million, this is just a figure. In reality, the co-operatives do not have much capital to work with.

(c) Nam Dinh (February 1999)

The Province of Nam Dinh is made up by 10 districts, one provincial town and 225 communes. Agricultural production is by far the most important economic activity. The main agricultural activities are paddy and upland crop cultivation (e.g. sweet potato, cassava, soybean, vegetables), animal husbandry (particularly pig and poultry raising), and aquaculture. There are several traditional off-farm activities in the province such as knitting, carpentry, embroidery, lacquer ware, metal casting and other handcrafts. About 98.5 percent of the labour force see agriculture as their main occupation. With an average population density of about 1,000 persons per km² the province is highly overpopulated. Therefore, average agricultural area per capita is very low amounting to about 700 m².

Up to 1997 there used to be 313 agricultural co-operatives in the province, of which 125 were operating at commune level and the other 188 at village level. 93 co-operatives (or about 30 percent) were classified as well functioning, another 147 (or about 47 percent) as medium well, while the other 73 (or about 23 percent) were classified as badly operating. The number of co-operatives did not change much since 1997. Almost all of them have been or are still in the process of being transformed in accordance with the Co-operative Law. So far, 205 have already been registered while another 97 are in the process of fulfilling the necessary requirements. Just 11 co-operatives have been dissolved, so far.

It was decided that all local residents in working age could become members of the transformed co-operatives (i.e. 16-60 years old for male and 16-55 for female persons). In general, a list of the old members had been signed again by all eligible persons without filling individual application forms. Therefore, for most members joining was just a formality. On average, the value of capital of a co-operative stands at around 1 billion VND, of which about 70% can be classified as fixed assets. In general, these assets represent the value of electricity and irrigation construction and equipment. In general, the value of the individual shares as been set according to the agricultural land under cultivation. Mostly, it stands at 100,000 VND per sao (which equals 360 m²). Depending on the size of the land the individual share value might be higher or lower. Debts are of a minor importance, although its size increased somewhat during the 1990s.

Most co-operatives concentrate their services on the management of irrigation and electricity facilities. The support in crop protection activities and the organisation of input supply, particularly of fertilisers and pesticides, are an important activity in many co-operatives. A few are active in the provision of seeds, but none has developed any marketing activities, so far. Most services are made available to the members through specialised servicing groups, e.g. water groups, electricity groups, crop protection groups, etc. These groups work under contract signed by the management of the co-operatives. The members have to pay fees for the services used. All co-operatives are calculating the fees in such a way to ensure a full recovery of the costs. Most activities should ensure a profit by the end of the year. In 1997, about three quarters of the co-operatives showed a profit, amounting to 20.6 million VND, on average.

In line with the transformation process the organisational structure has been streamlined. In general, 2 - 3 persons are elected to the managing board and another 1 or 2 to the supervisory board. In addition, 3 - 4 professional staff members are needed, e.g. accountant, cashier, planer. Depending on the co-operative, the team leaders of the various service groups might be counted as members of the enlarged management board. In total, the number of decision-making persons comes up to 10 - 15. This number is much lower than the one co-operatives used to have during the 1980s. In general, all elected and employed staff is working on a part-time basis. Hence, their monthly compensations are rather modest and range between 150,000 and 200,000 VND.

The agricultural co-operatives now focus on economic activities, i.e. to provide services to their members on a self-financing basis. Many activities, like the collection of various fees, which used to be very important in the past have been passed to the local administrations. However, their support is still very important to become more self-reliant as economic entities. In sum, the transformation of agricultural co-operatives has helped farmers much to cope with the new economic conditions. However, their further development is hampered by several constraints, as for example the low level of working capital in order to expand the services offered, the rising indebtedness of members to their co-operatives which limits their working capital as well, or the low contributions by members in form of share capital.

(d) An Giang (March 1999)

The province is made up of 11 districts and 138 communes. No old-style co-operatives had been registered in this province since the 1980s. There has been a quick expansion of newly formed co-operatives. While at 30 June 1998 20 newly formed agricultural co-operatives have been registered, its number expanded to 63 by the end of February 1999. Hence, just 17 agricultural co-operatives operated longer than one year. Out of these 63 co-operatives 2 are specialised in aquaculture while the rest is engaged in the promotion of crop production, in general paddy production.

The 61 co-operatives promoting paddy production have a combined membership of 7,165 persons cultivating 14,634 hectares in total and a combined equity value of 6.7 billion VND. On average, a co-operative covers about 120 members and represents an equity of about 110 million VND. The value of a minimum share is not fixed, but fluctuates from co-operative to co-operative between 100,000 and 300,000 VND. The annual turnover stood at 30 - 300 million VND per co-operative. The main activities are concentrated on the organisation of irrigation (since the connection to the national power grid, the costs of irrigation could be reduced by 30-40%), the supply of inputs and the threshing, drying and transportation of paddy. Farmers seem to benefit economically from their co-operatives, as they get dividends. The dividends are relatively high. Based on the share capital, the value of dividends represents an interest rate of 4.5 to even 10 percent per month. In general, 60-80% of all surplus funds are distributed as dividends among members. The rest is allocated to various reserve funds, including investment funds, risks funds and social or welfare funds.

Membership of the two aquaculture co-operatives is much smaller. They just comprise 12 and 17 members, respectively. This reflects the fact that only those persons are accepted as members who are actively pursuing fish fattening. The activities are concentrated on three services: the supply of seedlings or fries, the supply of fish feed and on marketing of the fattened fishes. The fattening of fishes is done individually. The annual gross income of each member of the co-operative is estimated to stand at about 80 million VND.

In general, the co-operatives elect three persons into the management committee including the chairman who might also take over the function of the general manager. Another one to three persons are elected into the supervisory committee. The management committee is employing some staff, in general a chief-accountant, cashier and bookkeeper. In general, these people are also members. In total, between 6 to 10 persons are actually running a co-operative. All these jobs are done on a part-time basis, as all members are farmers in the first place. The elected and employed persons are entitled to a compensation or salary. In total, personnel expenditures may come up to 20 percent of total income. The payment is not done on a monthly basis, but after each season, i.e. twice a year.

Since, on average, an agricultural co-operative comprises about 120 members, not all farmers in the communes seem to join. The landless farmers cannot join since for them a membership does not make sense, as the provision of irrigation water is the main activity. Other farmers have been reluctant to join due to the bad experience with co-operatives in the past. But now the land-owning farmers in general do want to join as they see the economic benefit. With an average farm size of about 2 hectares per member they belong to the better off of the rural society. The co-operatives actually correspond more to the water channel system or water catchment areas than to the administrative structures. Therefore, in some communes there are one or even two co-operatives while in others is none. Up to the set-up of agricultural co-operatives as well as in those communes where no co-operative has been established so far, specialised groups or water user groups are managing the irrigation system. However, they cannot do the job that effectively as these groups can just do the simple tasks. All those tasks which require machines and hence capital have to be done by private companies (sub-contracting). Therefore, prices for the provision of irrigation water have been relatively high. Once a co-operative has been registered and members have subscribed share capital the necessary equipment can be bought by it. Then it is cheaper to do the job within the co-operative than to hire private people.

While the co-operative is offering its services to both members and non-members, non-members have to pay a higher price (price differential). In this way, these farmers are encouraged to join the co-operative. Concerning the provision of irrigation water the general picture in the province looks as follows: On average, members are just paying 350 kg of paddy per season or 700 kg per year. Non-members have to pay 430 kg of paddy per season. This amount is still lower than the one provincial farmers had to pay, in general, before the set-up of agricultural co-operatives. Up to then, all farmers had to pay, on average, 450 kg of paddy per season.

Besides the subscription of share capital, the agricultural co-operatives do not have other sources for mobilising capital. So far, they are not eligible for bank credit. They cannot offer any collateral. But co-operatives are required to open bank accounts. In this way, first contacts with banks are established. Some co-operatives offer inputs as credit in kind, i.e. the inputs have to be repaid after harvest. Farmers get credit as individuals from banks if they can offer the "red book" as collateral.

It is one of the tasks of the provincial office of MARD to support and guide all people who are interested in setting up agricultural co-operatives. Training courses and background material are offered. In the future, more agricultural co-operatives will be formed. However, there seem to be problems in the remote areas. Here, it is difficult to find persons who are willing to act as promoters of an agricultural co-operative. There is lack of management staff and management skills, but also of financial resources among the farmers. Similarly, state enterprises are not eager to support these farmers as they do in other, more prosperous parts of the province, e.g. in providing inputs on credit basis which has to be repaid by the co-operative after harvest.

Annex 2: Case Studies

(a) Transformed Agricultural Cooperatives

Case Study 1: Bac Giang City, Bac Giang Province (13 October 1998)

In April 1998 this co-operative had been transformed according to the Co-operative Law. Total membership comes up to 1,726 persons. One household is represented by one member only. As the total number of households in this commune stands at 2,010, the share of organised inhabitants is very high. Actually, all former members joined the transformed co-operative.

The total capital and reserves come up to VND 778 million of which about VND 729 million are fixed assets (reserves) and the other VND 49 million comprise current assets which formed the basis for calculating the value of individual shares. So far, there have been just a very small amount paid out as dividends. On the other side, members have not been asked to contribute cash in order to fill up their shares. In the long run, the management plans to set the value of individual shares at VND 300,000. Once it is agreed upon the new activities to be implemented there will be an urgent need to increase the capital base of the co-operative. The co-operative is one of the lucky ones as it is not indebted to anybody. But its financial position would be much healthier if all those members who are indebted to the co-operative were repaying their debts. For these members the co-operative seems to be a major source of interest-free long-term credit.

Seven persons have been elected as members of the management board. Three of them are forming the executive committee, which is responsible for the day-to-day management. The supervisory board comprises three persons. The chairman voiced the opinion that the technical and managerial capacities of the management are relatively low. The chairman is paid a monthly compensation coming up to VND 120,000.

The co-operative is concentrating on the provision of the following services:

(1) The management of the irrigation system is the most important one with respect to farming. This includes the cleaning of canals and exact distribution of irrigation water. Farmers have to pay irrigation fees, which come up to 200 kg of paddy per hectare and season. In general, this fee is still paid in kind.

(2) The management of the electricity facilities is an important activity as it is a very reliable source of income. Actually all households of the commune are served by the lines. The transmitter had been built in 1990 and its running has been entrusted to the co-operative. The price for the customer stands at VND 630 per KWhour.

(3) The co-operative is actively supporting extension activities. Farmers are trained in a number of farm activities, e.g. adoption of new high-yielding varieties, seed multiplication, plant protection, or animal husbandry. An extension group has been set-up once the transformation process had been completed. The group comprises 13 persons, i.e. one person is responsible for the overall co-ordination at the commune level while the other 12 are responsible for one of the 12 hamlets, respectively. The participants just have to pay any material costs while the trainers are paid partly by the co-operative partly by MARD. The co-operative pays each of the 13 group members a monthly compensation coming up to VND 30,000.

(4) While no activities in marketing agricultural products have been started so far, there are some small-scale marketing activities with respect to vegetables and flowers. Since the co-operative is located at the suburb of Bac Giang City it has set-up a stall at the market, which is supplied daily. This is a first step in doing self-marketing of their products. This start has only been possible due to the regular surplus income from the electricity supply.

In addition, the co-operative is providing letters of recommendation for the members if they want to apply for credit at the local branch of VBA. The co-operative itself does not get credit. Credit is provided to individuals. In general, they have to own any property, which is accepted as collateral.

For the time being the co-operative is not active in organising the input supply of their members. The irrigation system is a bad condition and needs quite some investment to improve it. Unfortunately, the co-operative has no funds for doing it and it is difficult to ask members for a higher contribution. The management fears that many members might leave the co-operative if the irrigation fee is increased.

Case Study 2: Le Thuy District, Quang Binh Province (22 October 1998)

This agricultural co-operative has been transformed in March 1998. It is covering one village. The number of households comes up 319 and the agricultural area amounts to 121 ha. Double cropping is the rule and almost all land is devoted to paddy production.

The value of total assets comes up to about VND 788 million, out of which VND 524 million are fixed assets and VND 264 million are classified as current assets (variable capital). The whole amount of equity had been calculated as share capital, i.e. no funds have been set aside for reserves. The shares have been distributed equally among all eligible persons, i.e. no provisions have been made for the number of working years with the co-operative. It was stated that it is too complicated to calculate the value of shares for each individual according the number of working years. This approach seems to be adopted by the majority of the transformed co-operatives.

The number persons eligible for a share was set at 1,346. This is the number of landowners in the village. Based on the Land Law from 1993 and Decree 64 from 1994 all agricultural land had been distributed among all living residents in the village regardless of their age. They got the land use rights of their respective plots (“red book”). The general assembly of the co-operative decided that all land use owners should get an equal share. The value of one share was set at VND 585,593 (i.e. VND 788 million / 1,346 persons). However, the number of members, i.e. those with voting rights, was restricted to all active and retired registered workers. Their number stands at 733 persons. In this respect, there are two types of members; i.e. members without (i.e. in general they are younger than 16 years old) and members with voting rights.

In case a member dies or wants to leave the co-operative, only the part of the variable capital will be paid out, i.e. about VND 196,000 (or VND 264 million / 1,346 persons). If a new member wants to join, he/she has to contribute a similar amount. This option is, however, theoretical for the time being, as only those persons born after 1994 might join in the future. Members have the option to transfer their share to somebody else in the village. Eligible persons are those without a share as each member is allowed to own one share only.

It is assumed that there will be some profits during 1998 despite a severe drought. As there are no taxes to be paid profits will be used as follows: 10 percent will be distributed as a bonus among the elected and appointed staff. Another 20 percent will be spent for training and skill development of the staff. The final 70 percent will be allocated for reinvestments and dividends. The chairman stated that most of these funds are needed for reinvestments and the payment of dividends is not that important for the time being. Actually, according to him, if reinvestments are done the value of shares will increase, so that all will benefit. A certain percentage has to be allocated for reserve funds. The chairman acknowledged that at the time of the transformation no need for a reserve had been seen. Now they are required by law to set them up.

The co-operative is pursuing a number of activities, which are to some extent interrelated. The most important ones are the (a) the management of the irrigation system and (b) the preparation and supervision of a common cropping pattern on village land. Due to the high dependence of irrigation and the unpredictable natural conditions farmers have to agree on a common cropping pattern. Transplanting, weeding and plant protection measures have to be done synchronically. If someone drops out, all others are negatively affected. The cropping plans are adopted at the general assembly of the co-operative. In order to cut labour peaks traditional mutual assistance groups are of vital importance.

In addition, the co-operative supports (c) land preparation activities. It owns a tractor, which is subcontracted to one member. Members directly approach the tractor driver. Similarly, the co-operative has set up standard contracts for renting buffaloes among the members. Other activities include (d) the supply of paddy seeds and (e) the support in plant protection measures. Finally, the co-operative manages the electricity system within the village.

(b) Situation without Cooperatives

Case Study 3: Viêt Yên District, Bac Giang Province (14 October 1998)

In this village the agricultural co-operatives had been dissolved in October 1991 based on a decision by the district people’s committee. Since then, the most important services are managed at the village level under the responsibility of local groups. All members of the various groups are not elected by the people but selected by the village headman. He is supported by the village committee comprising in total 5 persons. Four persons are elected by the population, i.e. the village headman, his deputy, accountant and cashier. In addition, the local chairman of the Party is member. Actually, village committees have been set up in all those villages where agricultural co-operatives are no more operational and dissolved. It is of a temporary nature. It is not an entity with its own legal status. All over the country, the people’s committee at the commune level is recognised as the legal entity at the local level.

The most important activities continued under the village administration comprise the provision of irrigation water and electricity. The irrigation system is managed by a group comprising 10 persons; one of them is the leader. All group members are appointed for a two-year period. Contrary to the former brigade-system all of them must have some experience in managing irrigation systems. They are paid by the village administration, which also has concluded the water supply contract with the company running the pumping station. The farmers as the users pay an irrigation fee to the village administration amounting to 5 kg of paddy per sao and season (i.e. about 140 kg/ha and season). In the same manner, an electricity group is working in the village. It comprises 5 members. Private traders, in general households within the village, are organising the marketing of agricultural products and the provision of input supply.

The payment with respect to the various services is decided at the village meetings, which are convened once a year. All household heads are represented. From the farmer’s point of view, the meetings are organised in more or less the same manner like the general assemblies of the now defunct agricultural co-operative. There is a certain level of control on the village headman so that, according to their opinion, there is no need of separating administrative and economic functions in the village again.

One farmer stated that he was very satisfied in the way the services are provided in the village. Since most of the group members are not exchanged every second year, they are becoming more and more experienced and professional. Nevertheless, the level of services can be improved as he voiced the opinion that more on-the-job-training will be required in the future.

Case Study 4: Bó Trach District, Quang Binh Province (21 October 1998)

This commune comprises 9 villages. The total number of inhabitants comes up to 4,800 persons living in 1,005 households. The total agricultural area stands at 850 ha. Formerly, there used to be three agricultural co-operatives, which were in charge of irrigation systems, provision of input supply, land preparation and plant protection. But all of them were not very efficient. Due to Decree 5 in 1993 the co-operatives were no more allowed to collect fees from the farmers. When funds dried up, the work groups could not be paid anymore. At that stage members decided to close down the co-operatives. In late 1993 the dissolution had been applied and in 1994 it had been granted.

All assets amounting to about VND 400 million had been transferred to the commune. In addition, the commune took over the debts to banks amounting to VND 50 million. These debts have been paid off by now. On the other side, there were liabilities, i.e. debts by the member to their co-operatives, amounting to about VND 320 million. The members themselves decided in 1993 that the debts should be paid back but without any interest payments. During the last years the commune has been active in gradually recollecting these funds. By now there are still about 30 percent overdue.

Most of the former activities have been continued under the management of the people’s committee of the commune. For the main activities, i.e. the management of irrigation and electricity facilities special groups have been formed. (a) With respect to electricity supply the group comprises 8 persons under the leadership of the chairman of the people’s committee himself. In addition there is one person employed on a full-time and another 6 on a part-time basis. In total, there are three electricity stations within the commune, which have been financed by the commune but managed by the former co-operatives. The organisation of electricity is quite attractive. The purchasing price stands at VND 360/KW/h while the households are charged VND 650/KW/h and rural enterprises a price ranging from VND 550 – 855/KW/h depending on the amount supplied. The monthly net income from this activity comes up to about VND 1.5 million. (b) All irrigation activities are managed by one person employed on a full-time basis. He is supported by 1-2 part-time persons in each of the 9 villages. They can handle most of the necessary tasks. In case bigger jobs have to be done, e.g. cleaning of larger canals, repair of dams, the local population will be mobilised. (c) For both activities, crop production and animal husbandry one person each has been employed by the commune on a full-time basis. In general, these people do extension work.

In general, all these services are provided in timely and efficient manner. Input supply and marketing are well handled by the private sector. Similarly, about 70 percent of the household do get credit either from VBP or VBA. Hence, people do not voice the wish to set up an agricultural co-operative. They do not see any need for it, so far.

Case Study 5: Le Thuy District, Quang Binh Province (22 October 1998)

All three agricultural co-operatives active in this commune have been dissolved in 1997. The co-operatives used to act as intermediaries in distributing extension knowledge but they did not provide any services to the members anymore. The main reason seemed to be the lack of working capital. While all three co-operatives were not indebted to banks, there were outstanding debts of the members to their co-operatives amounting to about VND 60 million.

The dissolution of the co-operatives had to follow certain rules. Once there is the decision to dissolve a co-operative it had to establish a dissolution (or dismantling) committee. This committee had to look into all aspects of importance. With respect to the three co-operatives, the most important point had been the problem what to do with the outstanding debts of the members. It was proposed to distinguish the defaulters into three different groups: (a) members who could repay but did not do so; (b) members who had difficulties in repaying, and (c) members who had moved away. The outstanding amount of money looked as follows: (a) VND 43 million; (b) VND 9 million; and (c) VND 7.6 million. The dissolution committee proposed that, if the members had the resources to repay the money they will have to do so. The commune will have to enforce it. The debts of those members who were too poor to repay should be cancelled. Finally, the debts of those who had moved away should be either reduced to some extent or left as they were. It had to be waited anyhow until those persons return to the commune. These proposals were presented at the last general assembly meeting, which formally decided on the dissolution of the co-operatives.

Since, then the commune is actively enforcing the repayment of these debts. A special group has been formed at commune level to look into this aspect. If any money has been repaid, the commune transfers that sum to the villages of the respective (now defunct) co-operative. In general, that money is then distributed among the former members.

The commune took over the activities of the co-operatives. (a) There are only a few irrigation activities as most of the agricultural land can only be cropped under rain fed conditions. Just half of the area under winter crop (i.e. 220 ha) can be cultivated with a second crop or spring crop, i.e. 110 ha. (b) The provision of electricity is the most important activity. As irrigation is not very important, this activity is a reliable source of income. There are three power distribution stations within the commune, i.e. in former times each co-operative was responsible for one station. Now there is one person employed by the commune who is responsible for whole system. He has hired one person for each station who is looking after it on a part-time basis. The service is good and for the clients there is no change compared to the times when the co-operatives were in charge. (c) There are some small extension activities ongoing but nothing of big importance.

In general, there seems to be no need for an agricultural co-operative. What is needed are small self-help groups at the village level to organise a better co-operation in agricultural production.

(c) Newly Established Agricultural Cooperatives

Case Study 6: Chau Doc District, An Giang Province (27 March 1999)

This agricultural co-operative has been registered at 31 March 1998. It has been formed out of three pre-co-operatives, i.e. irrigation groups. Actually, these three as well as another 8 groups were originally formed as agricultural production teams during the late 1970s. These other 8 irrigation groups still exist within the area of the commune, but they are responsible for other catchment areas. At the time of the registration 306 interested farm households joined the co-operative. During the last year another 10 households did so, so that the total number of members comes up to 316 by now. These households cultivate all the 219.6 ha under irrigation within this catchment area. Hence, 100% of the farmers cultivating under irrigation have become members. There are another 17 households living in these villages but having their land in other ones, so that there is no reason for them to join. These farmers are somewhat richer than the members of the co-operative. They have invested some money in tractors and other agricultural machines. The number of all inhabitants within the whole commune stands at about 850 households. Paddy is cultivated as a cash crop in this area. There are two seasons. During the main season lasting from November to February the average yield comes up to about 8 tons per hectare. During the minor season, lasting from April to August, the average yield stands at 6 tons per hectare. Between August and November the fields are usually flooded.

The value of all assets taken over by the co-operative from the 3 groups stands at 419 million VND, all of which are classified as fixed assets. The co-operative does not have any operational capital or cash. Rather deliberately, or more or less like a rule of the thumb, it was decided that 40% of the fixed assets (i.e. 168 million VND) were classified as a common reserve, or as undivided funds. The other 60%, i.e. 251 million VND were declared as share capital. The value of each share has been calculated on a hectare basis, i.e. one hectare of irrigated farmland gets allocated one share. Thus, the value of one share comes up to about 1.143 million VND (i.e. 251 million VND / 219.6 ha). The value of shares for each member depends on the size of land he or she is cultivating. So far, no member has been asked to contribute cash for share capital.

The management states that there has been no need for working capital, so far. After one year of operation, the co-operative managed to earn a profit coming up to 148.6 million VND. Out of this amount about 16.7 million VND have been needed for staff payments. Of the net profit, i.e. 131.9 million VND, about 28.9 million VND have been put into reserves, mainly for planned investments in the extension of the electricity lines and in electric pumps in order to improve the irrigation system. The remaining 103 million VND (or about 78.1% of the net profits) have been returned to members as dividends and patronage refunds. These dividends and refunds have been distributed among all members on an equal basis and not on the respective value of shares.

All functionaries have been elected for a two-year period at the first general assembly. The management board just comprises three persons, i.e. the chairman and two deputies. Another three persons were elected into the supervisory board. The professional staff includes an accountant, a cashier and a storekeeper. In addition, there are three team leaders who are responsible for managing the irrigation system. The actual work in running the irrigation system is done by contracted workers who are being paid a certain sum, which also includes the provision that, in case of emergencies, additional costs have to be covered by them. In this way, the co-operatives do not have to put aside some funds for emergencies. Finally, the co-operative employs two women who look after the shop where agricultural inputs are sold on a credit basis.

During the first two years, the chairman, his two deputies, the three professional staff members and the three team leaders are all paid equally. The management argues that they are responsible in the same manner. They are paid in kind, i.e. 900 kg of paddy per season. After two years, it will be discussed whether to continue with this system of equal payment or to change the pattern.

The co-operative manages quite a number of activities, which are both, of a direct economic character and of a more supportive (social) character for the members. Actually, most of these services have been offered before, but they have been more costly. Similarly, the co-operative is offering them in a more reliable manner. So, it is the primary objective of the management to improve those services already done and, then, to enlarge the scope of them. The activities, which support the farm activities of the members directly, are the following ones:

(1) provision of irrigation water: The co-operative has six pumping stations at its disposal in order to irrigate the whole catchment area amounting to 219.6 ha. One pumping station is already powered by electricity, the other five by fuel. Since the set-up of the co-operative the irrigation costs of the members could be cut significantly. While farmers used to pay 560 kg of paddy per ha and season, they now just pay 430 kg. They saved 130 kg or about one quarter of these costs. Since the irrigation activities are now organised much more efficiently, the co-operative still manages to earn quite a surplus.

(2) support in input supply: The co-operative has signed contracts with the provincial farmers' union and the state-owned companies to distribute the necessary inputs to their members. All the inputs, mainly fertilisers and pesticides are sold on a credit basis. The system works as follows: The state-owned companies have delivery contracts with the provincial farmers' union. Within its catchment area the co-operative acts as the distributor (or like a middleman) for the farmers' union. It has its own shop. The farmers get the necessary inputs when needed. After harvest they repay the co-operative, which pays back the farmers' union, which, finally, settles the bill with the companies. In this respect, not much cash is needed. The co-operative gets a small margin for doing this service. It is not the objective of the management to make any profit with this activity.

(3) conclusion of summary contracts with private entrepreneurs: This helps to cut production costs mainly in respect to land preparation, threshing and transport of paddy from the road to the barn. Those 17 households, which are living in the village, but have not become member, have invested in agricultural machinery. Before the set-up of the co-operative each farmer had to bargain individually in order to get the services by these private entrepreneurs. Now the co-operative has bargained a general contract for all members. Due to this contract the prices for these service could be reduced significantly. The prices for land preparation, i.e. ploughing and land flattening could be reduced by about 10%, i.e. from 220,000 VND/ha to 200,000 VND/ha. The prices for threshing could be cut by about 30%, i.e. from 250 kg of paddy per ha and season to 170 kg. The transport prices from the roads next to the fields to the barns decreased by about 10%, i.e. 330,000 VND/ha to 305,000 VND/ha. In this respect, the production costs of each member declined due to the help of their own organisation. On the other side, this new pattern is also cutting costs for the private entrepreneurs as the respective services can be done in a more effective manner.

(4) organisation of agricultural extension: This is mostly done in close co-operation with the district and provincial extension service. Extension workers are invited to work with farmers. For the members this service is free of charge. Sometimes the co-operative is even getting some refunds by MARD if the extension activities are part of a specific national programme, e.g. the organisation of integrated-pest-management courses for farmers. In this respect, it is of great benefit that one of the members is employed by the extension service.

Besides these production-oriented activities the co-operative is also active in other spheres.

(1) support in family planning work: The co-operative is actively encouraging family planning activities among its members.

(2) support in financial services: When members apply for credit as individuals, they have to provide collateral. In general, they need a certificate issued by the people's committee that they are without debts, own some assets of value and have the "red book". This certificate they have to present to the banks (in general VBA) together with their loan application. Since its registration, the chairman of the co-operative can issue such a certificate as well which is acknowledged by the banks. The farmers prefer this way since quite often they are reluctant to go to the office of the people's committee. Although they get the certificate relatively quickly at this office, they usually are asked all types of questions which they want to avoid. Similarly, the co-operative supports the banks in collecting the repayments. For this service it is getting a small commission.

(3) collection of land tax: The co-operative is collecting the land tax from its members directly for the people's committee of the commune. For the time being, the annual land tax comes up to 550 kg of paddy per ha.

All in all, the management is very optimistic about the development of the co-operative. Since its registration, it is felt that more support from the government was given, e.g. the electricity line has been set-up and it is planned to be expanded. Similarly, the extension service is more active than during the time without the co-operative.

The co-operative plans various investments in the future to cut the production costs of their members even further. The electrification of the all pumping stations is of first priority. In addition, it is planned to buy tractors to reduce the dependence on private entrepreneurs. Although the co-operative does not have any bank account it is offered credit by VBA and other commercial banks from the town close-by. It shows that it has established quite a good reputation. However, the management is still reluctant so far to accept this offer since, it thinks the interest rates are too high.

Case Study 7: Cho Moi District, An Giang Province (30 March 1999)

This co-operative has been registered at 11 November 1997. It covers three villages out of 12 of the commune. There used to be a credit group formed out of three credit co-ordinating groups whose members formed the core of the new co-operative. This credit group used to negotiate the terms of credit with the bank for its members. Actually, it can be said that an informal group had become a formal one and the activities have changed a bit. The actual incentive of forming the co-operative had been the decision of the irrigation department to close down the District Irrigation Co. under its jurisdiction since it used to be very costly and no economic prospect had been seen in its equitisation. Therefore, farmers were encouraged to put the irrigation services into their own hands. Based on the Co-operative Law the farmers now saw an advantage in forming their own co-operative. Six farmers took up the idea and acted as founding members. It took just two months to get the co-operative registered. At the beginning it comprised 85 members. Now membership has increased to 101.

The catchment area of the irrigation system covers 184 ha spread over the three villages. This land is double-cropped with paddy. The 101 members together are cultivating 50 ha. Hence, the average farm size stands at 0.5 ha. In addition, most farm households do have some garden land. The total number of households in the three villages comes up to about 500. Therefore, there is still a large pool of potential new members. However, many who are eager to join lack the money to buy a share. It seems that the members are a little better off compared to the other households.

One interesting feature of this agricultural co-operative is the fact that not all members are farmers. Only 80 out of the 101 members are farmers while the others are rural non-farm entrepreneurs. The 21 non-agricultural members own 78 shares (or about 4 each, on average) while the 80 farmers own 168 shares (or about 2 each, on average). These 21 persons joined right at the beginning. Professionally, they are small-scale entrepreneurs and traders as well as carpenters.

At the beginning the co-operative issued 195 shares valued at 300,000 VND each. In the meantime, 246 shares have been subscribed so that the subscribed capital stands at 74.8 million VND. During 1998 the co-operative managed to earn a gross income of 210 million VND. The costs and expenditures came up to 141 million VND. The net profit amounting to 69 million VND is divided into two parts. 70%, i.e. 48.3 million VND, have been allocated to the reserve funds making up the development or investment fund with 43.5 million VND (or 90%) and the risk and welfare funds which both got allocated 2.4 million VND (or 5%), each. The remaining 30% of the net profits, i.e. 20.7 million VND, are distributed as dividends among the members. As some members joined later, only those 195 shares of the first 85 members are entitled to this dividend. The total dividend comes up to about 110,000 VND per share which equals an interest rate of 3.6% p.m.

It is the deliberate policy of the co-operative to pay high dividends. The patronage refunds for using the irrigation system has been kept quite low compared to other agricultural co-operatives. This might reflect the influence of the non-agricultural members who are more interested in getting a high dividend than a high patronage refund. They are more interesting in a high “shareholder value”. Due to the good economic performance the value of the co-operative has increased significantly during the first year. However, the general assembly has decided to keep the value of one share at 300,000 VND, so that it is not too expensive for potentially new members to join. Long-term members will be compensated with bonus shares in the future.

The managing board comprises three persons, i.e. the chairman and his two deputies. In addition, one supervisor has been elected by the general assembly. One accountant and one cashier have been employed. Two members are subcontracted to look after the pumping station. Small repairs have to be done and financed by them, the bigger ones have to be borne by the co-operative. All elected and employed staff has an agricultural background. All work for the co-operative on a part-time basis. The chairman who is also the general manager gets a monthly compensation of 300,000 VND. Both vice-chairmen and the accountant are paid 250,000 VND p.m. The supervisor and the cashier are entitled to 200,000 VND p.m.

All 101 members have a say in decision-making at the general assembly. The rule “one member – one vote” applies. The non-agricultural members participate actively at the meetings. Actually, they are quite active in checking the management regularly.

The chairman has no experience as a group leader. He is relatively young, but has got a good education in Ho Chi Minh City where he earned a B.Sc. in biology. According to his opinion, doing business as a co-operative in these days is not so risky as acting as a private entrepreneur.

The co-operative is concentrating on a few activities only, which are the following ones:

(1) provision of irrigation services: The proper organisation of this service had been the major incentive to set-up the co-operative as the irrigation department wanted to liquidate the District Irrigation Co. Right after its registration the co-operative bought the pumping station for 185.5 million VND from the irrigation department. It does not have to pay any interest. The principal has to be repaid in six instalments over three years, i.e. after each cropping season. Three instalments have already been paid and the management is confident to continue as agreed upon.

The members pay the fees in cash. While the District Co. used to charge 960,000 VND per ha and season, the prices could be reduced by more than 40%. Now, members pay 550,000 VND per ha and season while non-members are charged 650,000 VND. In addition, members are given a patronage refund of 10,000 VND per share in case the co-operative is making profit.

(2) conclusion of summary contracts with private entrepreneurs: The co-operative has negotiated summary contracts on behalf of its members with private entrepreneurs to cut production costs with respect to land preparation. While farmers used to pay 250,000 VND per ha for tractor ploughing and land levelling, they now save 10% and pay 220,000 VND. The tractor owners are members as well as non-members.

(3) support of credit applications: The chairman of the co-operative certifies that the credit applicant has the necessary collateral at his disposal. This certification is accepted by the banks, i.e. VBA.

The co-operative has its own bank account with VBA.

The management plans to expand its activities. It wants to buy tractors to smooth the activities of land preparation. The tractors are supposed to be rented to interested members who will work with them on their own. A tractor will cost about 70 million VND. So far, it is open where the necessary funds will come from. In addition, it is planned to organise the supply of the most important production inputs. A small shop will be opened.

Case Study 8: Tan Yen District, Bac Giang Province (13 October 1998)

This co-operative has been set-up out of one production team (brigade) form the former co-operative. The old-style co-operative used to have about 1,500 members but it became ineffective and, finally, collapsed. This co-operative has been established in 1995. While it is termed as a transformed co-operative it is in a strict sense a newly established one. It comprises 20 members. It is specialised in rice-seed multiplication. All members used to form a production team in the old days, which was specialised in paddy production. All 20 members live in the same village/hamlet, which comprises 45 households in total.

As the co-operative had been set up in 1995 it had to be transformed according to the Co-operative Law effective 1 January 1997. But, as the discussions about the drafts had been widespread and the provincial government had already issued a provincial decree on co-operatives (03/95), only very small adjustments had to be done to get (re-) registered. From the former co-operative no assets have been left. The irrigation system and the electricity facilities went into the hand of the commune, which employs persons to do the actual job. There is the opinion that these services used to be more effective during the times of the co-operative than now.

When it came to establishing this co-operative, there has been a careful selection of members. The basic requirements were: (a) to have a certain technical knowledge about seed multiplication; (b) to have at least 0.4 ha available as a minimum multiplication area; and (c) to subscribe a share at VND 300,000 which has to be paid in two instalments. The first half had to be paid when the co-operative had been established, the other half after 6 months, i.e. when the first season had been over. Some members bought two or more shares.

During the last three years the co-operative has been very successful. The main source of income is in connection with the sale of multiplied rice-seeds. Of each kg sold VND 100 is kept by the co-operative. In total, capital and reserves already make up about VND 160 million. About VND 140 million can be classified as fixed assets and another VND 20 million as variable funds (current assets). The total turnover comes up to about VND 220 million per season, or about VND 440 million annually.

The number of elected persons has been kept to a minimum. The management board just comprises three persons, i.e. the chairman, the accountant and the cashier. In addition, there is one supervisor. All tasks are done on a part-time basis, as all of them have to manage their own farms. The chairman gets a monthly compensation in cash.

All activities are concentrated on improving rice-seed multiplication. The activities are the following ones: (a) organisation of quality seeds for multiplication; (b) supervision of seed multiplication and quality control, and (c) marketing of the multiplied seeds. Just recently the co-operative has signed an agreement with a fertiliser company to ensure the timely delivery of fertilisers to their members.

In general, the co-operative has signed contracts with the National Institute of Seeds and other seed companies to get first generation seeds, which have to be multiplied. This multiplied seed is then used at the farm level. Most of the seeds are multiplied under contract farming arrangements, i.e. the multiplied seed is returned to the companies, which are organising the marketing or the final distribution to the farmers themselves. About 30 percent of the multiplied seeds are marketed by the co-operative itself. The co-operative is selling within the province and there is no problem in finding buyers. The price of multiplied seeds is fixed to the paddy price. The price one kg of seeds is always the equivalent of the price of 1.3 kg of paddy.

As the members just own 0.4 ha of agricultural land, they are highly specialised in seed multiplication as a source of income. However, in between seed multiplication a quick maturing crop like maize or vegetables can be grown on the plots. Nevertheless, all members have to buy their rice for home consumption from neighbours or on the market.

A strong need was seen for a federation of co-operatives. In this district, there are already three more co-operatives specialised in rice-seed multiplication. The collaboration among each other should be strengthened institutionally.

Case Study 9: Chau Thang District, An Giang Province (28 March 1999)

This co-operative has been registered just one year ago at 27 March 1998. It is specialised on aquaculture. It comprises 12 members who are specialised in fish production. There used to be a self-help group already coming up to 40 members in total. However, just 12 out of these 40 formed the co-operative. The others had been hesitant to join and are still members of the self-help group. The chairman of the co-operative attended a workshop in Hanoi where he was introduced to the advantages of forming a co-operative under the new law. With the active support of the MARD staff at the provincial and district levels, respectively, the idea of the co-operative had been promoted. Both, the chairman and the supervisor of the co-operatives had experience in managing groups as they used to be leader and deputy leader of the self-help group.

The members are relatively wealthy. In total, they own assets valued 930 million VND, or about 77.5 million VND per member. The 12 members are managing 14 fish cages in total. On average, one cage comprises about 120 m³ in which about 13 t of fish can be fattened. The annual turnover comes up to about 170 million VND per cage (i.e. 13 t of fish sold at about 13,000 VND per kg). The annual costs come up to about 100 million VND of which about 50 million VND are fixed costs for the cage and another 50 million VND comprise variable costs, mainly fish feed.

The fee for setting up a cage in the river is just nominal. It costs about 60,000 VND to be registered at the Department of Aquaculture of MARD. Since, the investment costs are very high there is not much competition in this field. Actually, the co-operative is eager that more persons take up aquaculture in this area. While most of the members have now specialised in fish production, some are still doing some paddy cultivation or small-scale trades in fruits and soft drinks. Fish production is a fairly young activity in this area. The supervisor started about 5 years ago while the chairman just began two years ago. Before that time they had been fruit and paddy farmers.

At the time of registration, the co-operative handed out 153 shares valued 100,000 VND each. Thus, the total amount of equity stood at 15.3 million VND. However, the shares are not distributed equally. The number of shares ranges from just one to 25 per member. The chairman has signed 25 shares while supervisor, accountant and cashier own 20 shares each. Hence, the four most important persons of the co-operatives hold together more than half of all shares.

The co-operative does not have a bank account. The cashier keeps any surplus cash at his home. As the budget year ends with the annual sale of fishes, i.e. May/June, there have been no income calculations for the first year in operation. So no decisions about dividends and compensation for the management have been taken so far. But the chairman has been confident that the co-operative will show profits after the first year.

Due to the small membership the official positions are kept to a minimum. There is just one chairman taking over the function of the management board and one supervisor. Both persons are elected by the general assembly, which is meeting once a year. The election period comes up to two years. In addition, the accountant and cashier are confirmed by the general assembly. Due to the small size members and managers do meet very often. So far, no compensation or salaries have been paid to the functionaries. But it is planned that after the next annual sale of fishes they are entitled to compensation although it has not decided about the size.

The self-help group just concentrated on two activities. It provided support to the members in getting credit from the bank, as it is still quite difficult in getting loans as individual farmers. In addition, it organised extension in improving fish production. Right from the registration, the co-operative has expanded its scope of activities.

(1) common purchase of fish feed: This is the most important activity of the co-operative for the time being. All the share capital is invested in buying fish feed. With the amount of 15.3 million VND the fish feed lasts for about 10 days. Within that period members must have repaid their debts in order to buy new feed. Nevertheless, the co-operative is making a profit of about 100 VND of each kg of feed sold.

(2) common purchase of fish spawn and small fishes for fattening: In general, there is no cash involved ("payment in kind"). The members pay for the young fish with the fattened fish of the last season.

(3) common price negotiations for selling the fattened fish: Fish production or fattening is a highly seasonal business. The fattening periods takes about one year and selling season is about May and June. Three different types of fishes are fattened which are all destined for domestic consumption. Generally, the fish is sold at the market or to traders at the provincial capital (Long Xuyen City). Sometimes, traders come straight to fish farmers to buy.

(4) support of credit applications: The chairman of the co-operative certifies that the credit applicant has the necessary collateral at his disposal. This certification is accepted by the banks. Generally, the people's committee of commune has to certify the ownership of collateral. Thus, the procedure of applying for credit is much smoothened for the members. All credits are provided to the members individually. But the co-operative acts as a joint credit insurance group, i.e. in case one member cannot repay his credit all members will not get any credit anymore. However, they are not acting as a joint liability group, i.e. members do not have to repay for those who cannot. This is an important reason to select the membership very carefully. All financial activities are handled with VBA, which comes to credit only as no member does have a personal bank account.

(5) organisation of extension activities for the improvement of fish production

At the beginning it was planned that all members of the self-help were group joining the co-operative. But at that time many were reluctant to do so. Later on these persons wanted to join but then the co-operative became hesitant. Now it looks as if the remaining members of the self-help group will form a second co-operative. Nevertheless, the co-operative is interested in broadening the membership in the future. Similarly, it is planned to raise the share capital to about 100 million VND.

[1] See for a more detailed analysis of collectivisation and decollectivisation of agricultural production: Tran Thi Que: 12-97; Fforde/de Vylder: Chapter 4-7; Trogemann: 24-93; Großheim: 222-266. Other sources are quoted in the text.

[2] If not indicated otherwise, the following parts are based on several rounds of discussion with staff members of the Institute of Agricultural Economics, Hanoi in April 1997.

[3] Personal communication: Tran To, Dep. Director, MARD-provincial office, Dong Hoi, 20 October 1998

[4] If not indicated otherwise, this and the following chapters are based on several rounds of discussion with staff members of the Institute of Agricultural Economics, Hanoi in April 1997, October 1998 and March/April 1999 as well as with Prof. Nguyen Van Bich, Central Institute for Economic Management, Hanoi, 15 April 1997 and 22 April 1998, Dr. Chu Tien Quang, Central Institute for Economic Management, Hanoi, 8 October 1998 and 6 April 1999 and Mr. Nguyen Phuong Vy, Department for Agriculture and Rural Policy, Ho Chi Minh City, 23 March 1999. In addition, it is drawn on the findings of the interviews in the provinces whereby the main findings are summarised and attached in the annex.