Economic Management Aspects of Cooperatives

Abstract

It has been defined that not all aspects of classical theory of cooperatives can be applied to agriculture during the transitive period to the market economy. Some of them must be newly created. The most important conditions for successful establishment and development of cooperatives are economical management aspects: the accumulation of the primary stock capital (the size of the share), the rules of profit distribution, the right to vote, etc. One peculiarity of the agriculture of post-communist countries of this period that influences and hinders the activity of the cooperatives is the variety of farm sizes. In Lithuania thousands of small farms (with 2-3 ha of land) producing large part of the production exist beside the big farms (not numerous yet) and the agricultural communities with several hundred or even thousand ha of land, the great number of cattle, large green houses and manufacturing lots of produce. This stops the foundation and development of the cooperatives, because the small farmers without enough capital for the investments are unable to establish cooperatives. Big farmers and other agricultural subjects being more powerful economically and technically are not willing to cooperate with the small producers, because the cooperative regulations of Lithuania (like the rest countries) require that one member of the cooperative can have only one vote despite the size of his share. Besides the main part of the profit is distributed in accordance with the turnover, and only 10 per cent of the after-tax profit can be paid as dividends in accordance with the law (the maximum amount of the dividend is defined in the cooperative regulations). The traditional definition methods of the size of the members’ share (the amount of the member share is equal to all the cooperative members, as well as the number of votes, etc.) are peculiar to the cooperatives (the amount of the share of the member is equal to the value of the paid advances), and are successfully used in all the classical cooperatives in the world. Such cooperatives have been founded at the same time as the rest enterprises of various kinds, they have created good material basis and many of them are united in strong cooperative structures. They are economically strong and competitive in modern market. But not all the aspects of cooperative theory can be applied in agriculture during the transient period to market economy. Some of them must be newly created. The paper describes the ways enabling to theoretically differentiate the share of the cooperative members in dependence on the turnover. The ways can be group, individual, mixed and striped. The mechanism of application of the proposed methods for the cooperatives where the property of the members differs greatly is given. The share differentiation enables to comprise the member groups: the smallest group number is two – the stimulated and the overloaded members. When the groups are compiled, the turnover sum total of every individual group is the most important criterion. The share coefficients are also chosen in accordance with the turnover sum total of the group members, and the share is calculated and the profit is divided in accordance with the individual member turnover. The first and the last member of every group are the boundary members, and their turnovers are estimated as boundary turnovers. The sums of the overloaded and stimulated turnovers should not vary significantly. The less the turnover of the stimulated members, the easier is to divide their discount to the rest members of the group, because the same share value should be accumulated in either case. Theoretical assumptions are given and the proposed method for the definition of the distribution of the differentiated share value for the cooperative members enables to achieve: the smaller ratio between the share to be accumulated and the whole cooperative turnover; the bigger possibility to get the share paid in kind; the more speedy increase of the profit; the more simple way to get the loan.