Institutional Analysis Of China's Farmers' Professional Cooperatives

Household contract system in rural China not only provides an effective stimulation mechanism for the microeconomic agents but also pushes farm households to the market frontier and makes them face various potential risks independently. However, weak individual farm households can neither respond to the market risks nor satisfy the consumers' needs effectively nor deal with the benefit loss caused by asymmetric market powers. In such a background, farmer specialized cooperative as an institutional arrangement for organizing farmers into market is deemed as one of effective ways to promote agricultural development, increase farmers' incomes and promote harmonious urban and rural development.Since 1980s, farmer specialized cooperatives have been rising and developing in China. After entering 21^st century, in many areas of China, especially in Zhejiang, farmer specialized cooperative has become a noticeable new force. On one hand, it changes the operation models of farmers and organization structure of agricultural industry;on the other hand, it also brings about the institutional arrangement issues for the cooperative itself. The main questions concerning the institutional arrangement of are as follows: (1) Is there any survival room for farmer specialized cooperatives? (2)How do the various cooperatives operate? The following questions can also derive from the last question: Why farmer specialized cooperatives in China usually adopt a developing way depending on the external force? What are the places of the investors, operators and patronizers in the ownership structure of the existing farmer specialized cooperatives? Who and what benefit groups can benefit from the development of cooperatives and what are their way of making profits and shares? How about their future development? When the dim definition of property right of cooperatives is universally criticized by economists, how to define the property right of farmer specialized cooperatives in China? Have cooperatives established comparatively perfect governance structure? What're the features of principle-agent relations of cooperatives? What factors affect the above institutional arrangement of cooperatives?The core of the paper is to use the concerned theories of new institutional economics to answer the above questions. Answers to all the questions are based on the general theories of cooperatives and with the full consideration of the factors such as small production scale, diversified operation and strong heterogeneity of farm households in China. Based on the logical order of the researches on modern enterprise theories and the data from my field surveys, the paper consists of eight chapters. Chapter One is an introduction, including the research background and foundation, research objectives, logical framework, research contents and methodologies. The chapter also defines clearly some confused concepts on farmer specialized cooperatives and identifies the research objects of the paper. Chapter Two reviews literature on cooperatives and introduces the achievements and latest development of cooperatives within and outside China. Each of the remained chapterbasically focuses on one aspect of the institutional arrangement of cooperatives to achieve a full understanding of the institutional arrangement of farmer specialized cooperatives in China.Chapter Three is on "nature of agricultural cooperatives and growth room for fanner specialized cooperatives in China". This chapter uses the theories on transaction cost and collective action to discuss the frontiers of agricultural cooperatives and enterprises as well as the possibility of development of farmer specialized cooperatives in the agricultural development environment in China. The chapter points out that agricultural cooperative is an institutional arrangement of transaction cost saving. However, cooperative can only be used in the field with comparatively higher asset specificity, stronger degree of information asymmetry, higher transaction cost caused by serious externality. The organizational cost within the cooperative restricts its development. Small production scale and diversified operation of farm households in China restrict the development of cooperatives. But the circulation of farmland and development of labor-intensive agricultural industry create a few major producers, which makes the development of farmer specialized cooperatives become possible.Chapter Four is on "ownership structure as the basis of agricultural cooperatives: theoretical models and changes of ownership structure of international agricultural cooperatives". The chapter sums up the main opinions on the allocation of enterprise ownership, puts forward the model on the ownership structure which is a basis for agricultural cooperatives based on Yang Ruilong and Zhou Ye'an's theories on ownership structure of enterprises, and explains the rationality of ownership structure of traditional agricultural cooperatives and the evolution of ownership structure of cooperatives.Chapter Five is on "ownership structure of farmer specialized cooperatives in China: empirical study of Zhejiang". This chapter is the extension of Chapter Four. Taking Zhejiang as an example, it describes the characteristics of farmer specialized cooperatives in China based on the survey data and predicts the evolution trend of the ownership structure of farmer specialized cooperatives in China.Chapter Six is on "definition of property right of agricultural cooperatives and China's practice". Definition of property right not only brings about benefits but also derives costs. Observation on definition of property right from the perspective of game theory indicates that the existing property right arrangements can be understood as equilibrium achieved by all participants' comparison of costs and benefits of property right definition within the established internal and external constraints. When the constraints change and the further definition of property right becomes necessary, cooperatives will keep making measures to clarify property right. The chapter analyzes the economic rationality of property right definition of traditional cooperatives and conditions for further clarifying property right of cooperatives, introduces concerned measures and performance of international cooperatives. Finally, with Zhejiang as an example, it discusses the characteristics of property rightdefinition of cooperatives and their causes.Chapter Seven is on "principle-agent relation of agricultural cooperatives: common and China's practices on cooperatives". Due to different internal institutional arrangement and external constraints between cooperatives and investors' enterprises, the ways of using agent are also different. The chapter discusses the way of reducing agent cost from four aspects, namely, external market competition, stimulation, supervision and dual agent characteristics of cooperatives, analyzes the effects of increasing cooperative members, external expert management and member heterogeneity on agent of cooperatives. A distinctive characteristic of farmer specialized cooperatives in China is that the cooperatives are controlled by the minority, which results in so called "dual principle-agent" relation. Based on the analysis of connotation of "dual principle-agent" relation of cooperatives, the chapter thinks that the main aspect of the contradiction is to prevent the backbone members from hurting benefits of medium and small shareholders. The key to solutions is to improve the governance structure of cooperatives. Related suggestions and measures are put forward according to Zhejiang's practice.Chapter Eight is on "governmental support and development of agricultural cooperatives: theoretical foundation, measures, efficiency and China's practice". As an extension of institutional economic analysis, the chapter summarizes many foreign countries' supports to agricultural cooperatives, concludes theoretical foundations for governments to support cooperatives, and introduces economists' doubts on governmental support policies. The chapter puts forward that governments should know clearly "what kind of cooperatives to support" and "how to support". Related solutions and suggestions are put forward based on the conclusion of Zhejiang's experience in supporting the development of farmer specialized cooperatives as well as the existed problems.