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Economics, Management

Agricultural cooperatives in Bosnia and Herzegovina: Potential drivers of rural development?

Long time ago someone wise coined a proverb that goes something like this: ‘If you want to be incrementally better: Be competitive. If you want to be exponentially better: Be cooperative.’ While it is arguable to what extend this message may hold true in the face of current institutional set up in the world of market economies, its wisdom can without doubt be found in its clear message: Cooperation pays off. However, the crucial questions remain: Under what conditions? And for what kind of organizations?

Potential for cooperation in agricultural markets of developing and transition economies is a special case in point where answering these questions becomes a matter of choosing accurate or inaccurate coordinates for future navigation of rural development. As pointed out by Swinnen and Vranken (2009), transition countries do share an initial decline in agricultural production, the depth and the magnitude of which depend in large part on the immediacy and adequacy of economic and social reforms. Interestingly enough, the data on Central and Eastern European countries indicate that after an initial shock of an overall decrease in agricultural production, productivity per worker rises tremendously over the first ten years following the introduction of reforms (Swinnen and Vranken 2009; Lerman 2004, 2008). It turns out that the essence of the transitional sobering depends on how well the reforms of institutional setting are envisaged, designed and carried out. This points out to the fact that source of the reforms needs to be taken into account when aiming at a country-wide reinstitutionalization. When relics and legacies of past regimes are in need of reimagining, institutional change and reforms as well as their source and/or stimuli become even more important.

The purpose of my PhD research on agricultural cooperatives in Bosnia and Herzegovina (BiH) is to try and shed some light on the abovementioned issues with special focus on policy recommendations in terms of accommodating cooperatives in rural development strategies of BiH. It does so by examining both internal and external determinants of cooperative performance, their overall role in agricultural market and the impact of policy environment within which they function on their future prospects in terms of being a take off point for sustainable development of BiH rural areas. Preliminary findings of the research point to the fact that, apart from their very rigid internal structures inherited from the socialist regime, BiH cooperatives are economic entities that are almost entirely dependent on external stimuli for any kind of change, however incremental it may be. Their economic visibility and financial viability in agricultural market of BiH is, among other things, largely limited by an ill-defined property rights regime, contradictory laws on ownership of cooperative property acquired during the socialist times, highly politicized cooperative unions, utter lack of second-level cooperatives and financial dependence on government subsidies for survival.

The complexity of transition society in Bosnia and Herzegovina certainly does not help these problems be addressed in a systematic manner. If anything, Bosnia and Herzegovina seems to be among the isolated cases not supporting empirical findings of Mathijs (1999), Swinnen and Vranken (2004), Lerman (2008) who, after examining economies of similar historical heritage and with similar sector composition of economy, concluded that even after the initial shock of alarmingly decreased production there comes a period of agricultural consolidation, when newly created institutional matrix supports organizational structures for efficiency and productivity.

Regardless of how neglected it may be, agricultural sector of Bosnia and Herzegovina still places this country in the group of pridominantly agricultural states, if not by its outputs in agricultural production then certainly by sheer numbers of people involved in agricultural sector either through full or seasonal employment. With rather favorable climate conditions, relatively low input prices and more than 20.6% of its formal workforce employed in agriculture (and around 43% of informal workforce), this sector remains an important source of rural economic development in BiH (World Bank 2010).  However, currently available entity level policy instruments neither recognize the diversity of economic actors in BiH agricultural sector nor peculiar problems related to their functioning in the market. This especially holds true for agricultural cooperatives that are mostly perceived as relics of the past, and as such not deserving of special policy treatment. Policy environment within which they have to compete for their share of market is everything but enabiling as it does not reflect the complexity and structure of agricultural sector and its many actors.

Until recently, it was believed that there are some 500 agricultural cooperatives in BiH. However, Barmore (2011) showed that only around half of this number are actually cooperatives that can be considered as active participants in the market. The rest of them are inactive partily due to lack of organizational flexiblity and inability to compete in the market, and partily because of unresolved property rights that certainly drive the economic potential of cooperatives down.

Several studies have been carried out on the organizational matters in agricultural cooperative sector (Valentinov 2007; Bonus 1986; Staatz 1987) and they have mostly judged the efficiency, and subsequently the productivity levels of cooperatives based on the ability of cooperatives to economize on transaction costs and invest in their monitoring activities. In order for cooperatives to achieve the ideal of their dual nature, firstly to contribute to an increase in living standards of its members and secondly to contribute to higher levels of social cohesion in the local community, as originally coined in 1952 by Georg Draheim and reiterated in Hogart Bonus’s (1986) paper on the economics of transaction, they need to have a supporting web of organizations and structures that would guide them through the transition process. In the absence of enabling public policies, cooperatives of all kinds face market challenges they are unequipped to handle. In a new system of market economy they have to be rejected by state structures (and especially so in countries with socialist past), and being ill equipped to handle competitiveness on local and international markets many of them simply go out of business, as is the case in Bosnia and Herzegovina. Public policies in BiH fail to pick up on this phenomenon and seem to disregard the fact that over 60% of BiH population lives in rural areas and depends on agricultural activities for survival. Cooperation is their only way out of now already alarming levels of rural poverty. For them, cooperation is not a matter of exponential progress as much as it is a matter of sheer survival.

References

Bonus, H. (1986), The Cooperative Association As a Business Enterprise: A Study in the Economics of Transaction, Journal of Institutional and Theoretical Economics, 142: 310-339.

Barmore, C. (2011), Agricultural cooperatives in Bosnia and Herzegovina, USAID/FARMA publication.

Lerman Z, Csaki C, Feder G (2004) Agriculture in transition: landpolicies and evolving farm structures in post-Soviet Countries. Lexington Books, Lanham, MD.

Lerman Z (2008) Agricultural recovery in the former Soviet Union: an overview of 15 years of land reform and farm restructuring. Post-Communist Econ 20(4):391–412.

Staatz, J. (1987), ‘Farmers’ Incentives to Take Collective Action via Cooperative: A Transaction Cost Approach’ in Jeffrey Royer (ed.), Cooperative Theory: Recent Developments, Agricultural Cooperative Service, Research Report 84, Washington, DC: USDA.

Swinnen, J. and Vranken, L. (2009), Reforms and agricultural productivity in Central and Eastern Europe and the Former Soviet Republics: 1989-2005. LICOS discussion paper no.172.

Valentinov, V. (2007), Why are cooperatives important in agriculture? An organizational economics perspective, Journal of Institutional Economics, 3: 55-69.

Samira Nuhanovic is a PhD student in the School on Local Development and Global Dynamics (LDGD),University of Trento,Italy. Prior to joining LDGD doctoral programme, she worked on a number of development and research projects with various international organizations and various levels of governance in Bosnia and Herzegovina. She gained her B.A. in Political Science with a minor in Islamic Studies at the International Islamic University of Malaysia in Kuala Lumpur and an MPhil in International Relations at the University of Cambridge, UK. Her PhD research concerns internal and external determinants of performance of agricultural cooperatives in Bosnia and Herzegovina as well as their role in triggering rural development by reaching their economic and social purpose in ethnically diverse societies. Email contact: samira.nuhanovic@gmail.com

About emesphdnetwork

EMES is a research network of established university research centres and individual researchers whose goal is to gradually build up a European corpus of theoretical and empirical knowledge, pluralistic in disciplines and methodology, around “Third Sector” issues.

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