Co-operatives and Agribusiness inUkraine

Sergiy ShcherbynaProfessorInstitute of Economics and LawEuropean University, Kyiv, Ukraine

Geographical Position of Ukraine

Population- 48.5 million people Capital- Kyiv Territory- 603. 700 sq km (233.100 sq mi) Administrative regions: 24 provinces and 1

autonomy republic Climate: temperately continental The main rivers are Dnieper, Dnister, Danube Mineral Resources (iron, manganese, ores,

natural gas, salt, graphite, limestone)

Source: http://www.lonelyplanet.com/mapshells/europe/ukraine/ukraine.htm

Economic Areas of Ukraine The Southwestern Economic Area

High population density Developed agricultural sector The engineering industry Valuable woods of the Carpathian forests

The Donets- Dnieper Area Rich mineral deposits Heavy industry Cluster of plants producing zinc, mercury, fertilizers,

plastics Food production: vegetable oil, meat and milk

products, sugar

Economic Areas of Ukraine

The Southern Economic Area Shipbuilding Machinery for the power industry Fishing and canning industries Food industry (grape, fruit and vegetable,

grape wines) Holiday playground Produces vast amounts of dairy products

Economic Reforms in Ukraine

Transformation from planned- centralized to market-controlled economy

Incorporating and privatizing enterprises

De-monopolizing and restructuring the economy

Liberalizing prices and foreign trade activities

Implementing banking reforms

Restructuring the agrarian sector

Property reforms, developing non-governmental sector

Number of agricultural entities in Ukraine appeared after reformation, 2002

10,933 collective agricultural farms were reorganized

Reformed agricultural entities:1.Farmer’s households 14,7302.Private farms 2,9013.Economic partnerships 6,7614.Agricultural cooperatives 33,2545.Other agricultural entities 500

Number of food industry enterprises in Khmelnitskiy province, 2003

Independent commerce enterprises 107

Cooperatives 59

Agro departments included in the big industrial company 102

Agricultural joint- stock companies 315

Main differences of collective and private farms

Collective farms: Small incentive for the members; Have bigger volume of products

Private farms: Have high incentive to work Have small volume of product

Historical Periods of co-op development in Ukraine

Cooperative movement in Ukraine as a part of Russian Empire (1865- 1917)

New Economical Policy (NEP) in Soviet period (1921- 1933)

“Co-operatives of a new type” in Soviet Union (1933- 1995)

“Perestroyka Gorbachev cooperatives” (1988- 1999)

Cooperatives of independent Ukraine (1999- present)

Private farmers and restructured collective farms in the same cooperative – pros:

Private farmers benefit from the economical weight of collective farm

Private farmers bring dynamism and objectives for association

Using managerial skills of the best managers of the collective farms in new cooperative structure

Private farmers and collective farms in the same cooperative – cons:

Obvious mistrust in relations between collective farms and private farmers

Disproportion in size involves managerial problems

Private farmers have specific needs

Collective farms are more involved in social sphere

Main activities of Khmelnitskiy Milk Association

Presentation the interests of their members Informational support Technological support Legal and judicial support Co-operation development Search of the investors and partners Publication of the information leaflets Organization of the seminars and trainings

Goals performed by a co-op “initiative group”

Selecting the members

Defining the range of activities

Defining the total amount and distribution of the share capital

Working out the statute

Types of cooperatives developed in Ukraine

Warehousing co-ops 1. co-op grain elevators 2. co-op fruit and vegetable ware house

Marketing co-ops 1. fruits and vegetables

Processing co-ops 1. feed milling

2. milk processing Purchasing

1. consumer co-ops 2. farm supply

Credit 1. credit unions

Production 1. common property resources

Problems, faced by small dairy farmers

Absence of a milk collecting system No access to selection and breeding services Problems to provide fodder and to balance

ratio for the animals Have no financial resources to contribute to a

cooperative Low level of understanding the cooperative

concept Small dairy farmers are not organized Have little access to information

Advantages and disadvantages of involving non- members in co- ops

Advantages 1.More effective use of facilities and

equipment

2.Optimal product volume for marketing

3.Discounts for higher volume of purchased inputs

4.Perspectives to involve new members

Advantages and disadvantages of involving non- members in co- ops

Disadvantages1.Non- members are not reliable partners

2.Non- members are not responsible for co-op activity

3.Work with non- members needs additional control

4.Cooperative can loose its main purpose and become an ordinary profit oriented company

Founding a dairy cooperative

Entrance fee (equal amount or per cow)

Capital contribution from each litre of milk sold

Premises for an office made available by a Rural Council

Office equipment granted by international funds or NGO’s

Investment resources to the dairy cooperative

To rent a cooled storage or a dairy truck in exchange for shares

A dairy plant can lend cooling equipment

Subsidies allocated from district or oblast budget

A credit granted under preferential conditions by the Credit Union

Services provided by the dairy cooperative

Milk gathering, cooling, sorting and delivery to a processing plant

Negotiating price and terms of payment Supply to the members compound feed, seeds,

fertilizers and chemicals at favorable prices Involving oblast breeding services to operate

artificial insemination point in a cooperative area Organizing village public pasture and grazing

management at the disposal of the cooperative

Specialized cooperative

Pros: Better experience in building partnership relations with service, processing or trading

companies in the sub- sector Management advantages Improved know-how as the means of better

performance More possibilities to develop advisory services Cons: Producers need to be members of several co-

ops and have less time to be involved in management

Multipurpose cooperatives

Pros: Can develop complex programs Save time and energy giving an

opportunity to be identified with a cooperative

Cons: Fixed costs give less economical flexibility If one of the activities in which a co-op is

involved face critical problem- the whole cooperative is at risk

The main objectives of the training at UW Center for Cooperatives

Investigation of the cooperation and integration methods

Research of the history and current basis of the regional and federal milk order system

Financial management of dairy cooperatives

Methods of marketing and advertising for dairy products

Comparative analyses of American and Ukrainian cooperative legislation