In order to clarify this question, we need, in both cases, to grasp the economic nature of the process which is being organized on cooperative principles; and we need to realize that in the case of marketing, the effects of centralization, managerial decision-making power and scale are much more significant when expressed in quantitative terms, than they are in the case of purchasing.
We have to remember that the victory of co-operatives is achieved, not by logical argument, but through an intense economic struggle and through the conquest of the market as a result of the efforts of co-operative organizations. That being so, we can point to two crucial differences between, for example, consumer and marketing co-operatives.
First, so far as consumer co-operatives are concerned, the first stages of their work do not in any way involve technical reprocessing, grading, packing or anything else to do with the preparation of the goods for the market, since the co-operative acquires the goods on the wholesale market in a technically ready-made form. However, in the case of co-operatives for the marketing of raw materials, the primary co-operative unit, which replaces the cattle-dealer and buyer, must not only assemble the goods but must carry out the work of technically grading and processing them. It is precisely this aspect of work which is especially difficult for a cooperative in its early stages of existence. And it is precisely here that the guiding hand of the centre - equipped with a high degree of technical experience and able to make the fullest use of science as well as the whole range of technical information - is alone capable of coping with the task in hand. For consumer co-operatives, however, the task of reprocessing usually arises during the later stages of work, rather than at the beginning.
Secondly, what is perhaps even more important is the fact that in the case of a transaction by a consumer co-operative, the decisive stage comes in the small, local retail markets in competition with the small retail trader whose turnover is comparatively limited and whose economic power is slight.
Therefore, a consumer society, even during its initial development, will be large enough to be competitive and can compete successfully against small local traders. And an association at the district level may, even in its initial phase, immediately become a large and powerful firm, invulnerable to competition from the small village trader.
Marketing co-operatives are in a different position. The decisive stage for them when they enter into a transaction occurs on the wholesale market, when they come up against economic giants who possess knowledge and economic experience gained over many
The Basic Principles of the Co-operative Organization 129
years and who also dispose of large amounts of capital and even larger credit facilities. There are a whole number of goods - hides, for example - where the only consignments of any importance for the market are valued in hundreds of thousands of roubles.
Therefore, except in the case of a small number of markets which are specialized by their nature - such as the markets for milk, vegetables, flowers, poultry, and so on - a small co-operative which enters the wholesale market with its consignments of goods will be a supplicant rather than a seller.
To sum up what has just been said, we can outline the following organizational scheme for marketing co-operatives, based on the usual principles of intermediary activity and the granting of secured loans:
1. A special enterprise is set up, with share capital contributed by the peasants, which is enough to maintain the apparatus of the marketing co-operative.
2. The organization set up in this way acquires from the peasants the products of their labour for sale on commission. These goods, after a preliminary valuation, are graded, made uniform and assembled into commercial consignments.
3. At the same time as a commodity is accepted on commission, it is pledged by way of security to the usual co-operative credit apparatus which advances a loan equal to part of the estimated value of the commodity.
4. After the commodity has been sold on the market, the proceeds of its sale are used to meet the loan advanced by the credit apparatus together with the percentage commission to cover the costs of the co-operative marketing apparatus. The remainder of the proceeds of sale, after the deduction of a certain sum which is used to build up the co-operative's own capital, is handed over to the peasants who brought in their goods for sale on commission.
5. A co-operative marketing enterprise is set up in the form of a large centralized organization, managed by elected collective organs in accordance with the rules laid down at the meeting of the members, whose rights are determined by the fact of their membership - and not by the proportion of shares which they have contributed to the capital of the co-operative marketing enterprise.
Such is the co-operative organization which has evolved under the pressure of everyday life and which has proved to be stable.
One has only to compare the five points of its organizational scheme with the corresponding points which we formulated for
130 The Basic Principles of the Co-operative Organization
1. We hasten to point out that all the principles of the Rochdale pioneers themselves had an ideological motivation which is now forgotten and which does not form part of the ideology of present-day co-operative activists.
[Editor's note: For a recent history of the Rochdale Pioneers, see Cooperative Union, Rochdale Pioneers Memorial Museum, The House of Co-operation (The Co-operative Press 1990).]
consumer co-operatives in order to understand the organizational differences between them. Such a comparison will demonstrate that a consumer co-operative as an enterprise is a good deal more detached from the economic activity of its members than is a marketing co-operative. It must be noted, however, that even when marketing co-operatives are strengthened from an entrepreneurial point of view and change over from the system of intermediary activities and the granting of secured loans to a system closer to that of the Rochdale principles - that is, to the Chizhikov system - their links with peasant output cannot disappear. This is because the links between peasant output and the organization of the peasant economy are extremely close, owing to the fact that the interests of joint marketing require that a commodity should be of high quality and should correspond to the demands of the market.
A co-operative organization will naturally try to exert all the influence it can to re-organize the economy so as to meet these demands. Flax co-operatives will make every effort to bring Russian fibres up to the requirements of English flax mills. Co-operatives for the marketing of eggs and poultry will try to organize their output in accordance with the demands of the corresponding markets. And since co-operatives are able to rely not only on advice and practical example, but also on the powerful incentive of offering higher payment for goods of a desirable grade, one need have no doubt that their influence will be effective.
Co-operative principles have been penetrating production as a result of the organization of the market on co-operative principles, in the same way that commercial capitalism in its time paved the way for industrial capitalism.
The Organization of Co-operative Marketing and Reprocessing Enterprises
In order to assemble wholesale consignments of a commodity, it is obviously necessary to rely on large areas which contain scattered peasant settlements. And it is necessary, first of all, to collect the commodities by transporting them across these areas to local centres.
This trading region must not be too small, since in that case its trade turnovers will be insufficient to pay for the equipment and maintenance of the co-ordinating centre. On the other hand, the trading region must not be too large, since in that case, the transport costs and the physical labour involved in moving the commodities will be disproportionately great. In general, the apparatus that assembles the goods can cope with the transport required for the preliminary collection only if the peasant sellers themselves are made responsible for bringing the product from their households to the preliminary assembly point. For this reason, the area of the original market, that is the size of the trading region which surrounds this co-ordinating centre, has been historically determined by the peasants' transport facilities - by the possibility of making a return journey by horse and cart within a single day, and so forth.
In an historical perspective, these trading areas evolve gradually: they constitute, as it were, the molecules of the national economy and serve as the basis for all kinds of administrative and territorial divisions (such as the volost' [sub-district], and so on). In recent years, these areas of commercial gravitation have been the subject of very detailed statistical investigation. By showing on one map the places where the peasants settled and the centres to which they delivered their products, these investigations have given us a
132 The Organization of Co-operative Marketing
number of vivid geographical pictures of the territorial organization of this initial collection of goods.
In order to get a complete picture of the organizational problem that faces us in regard to the initial collection of agricultural raw material, we have to focus attention not only on the spatial organization of the market but on its organization over time. Different products of agricultural labour are produced in peasant households at different times; and because of varying marketing conditions as well as varying degrees of the need for money, these products are delivered by farmers to the market with varying degrees of rapidity.
The existing data on this question indicate that peak periods of delivery to the market are August and September in the case of grain; December and January in the case of flax; and May and June in the case of deliveries of fresh milk in the area around Moscow. Meat deliveries to the market vary according to variations in the fodder base: in the case of grasslands, deliveries are largest in the summer; in the case of regions that grow sugar beet, deliveries are largest in the winter. It has to be noted that these typical sales curves do not remain constant from year to year: they change under the pressure of the economic situation.
When small consignments of a product are made up into large commercial consignments, they become intermingled and are then reprocessed and regraded; that is to say, they cease to have any identifiable physical connection with their owner and they become depersonalized. For this reason the owner-producer no longer has any right to the specific article, but is entitled only to its value. Therefore the value, or at least the quality, of the product has to be precisely ascertained when the product is accepted; and this must be recorded in the documents handed to the owner.
The fair and accurate valuation of the commodity represents a tremendous moral asset for co-operatives. It is also a highly effective way of influencing the way that peasant households are organized. Recognition of the superior quality of a product, and the readiness to pay a higher price for this quality, will make the farmer aware of the requirements of technical progress. It is no accident that when cooperatives in the Vologda province measured the fat content in milk, this led to the deliberate rejection of certain herds of cows owned by peasants and to the selection of cows according to productivity. This holds out the promise of a major transformation in dairy fanning in the north over the next decade; and it also prepares the way for a wideranging development of specialized associations of producers.
In order to provide maximum encouragement for technical progress in peasant households, the co-operative apparatus can even
The Organization of Co-operative Marketing 133
go slightly beyond its reliance on market valuations: it can award bonuses to the products and grades which it needs by making additional payments over and above the market price. These additional payments can do much to encourage improvements already planned. They must not be unduly high since the peasant household is usually very sensitive to price changes. Therefore, from the financial point of view, the bonuses can be paid for without any difficulty - even, perhaps, by offering reduced valuations for those types of goods which are either due to be discarded, because of the planned agricultural programme, or which are very inconvenient for the co-operative because of the difficulty of selling them on the market owing to lack of demand.
A consignment of goods, once it has been accepted from the peasant and given a valuation, is then sent off to be marketed. It would be quite conceivable in theory - and it would indeed be the best thing from the economic point of view - for the peasant to refrain from demanding any immediate payment when he hands over the produce of his household to the co-operative; and for him to wait until the end of the operation to receive the money earned by the cooperative for the sale of his products.
However, because of the population's level of understanding and constant lack of financial resources, the peasants will very seldom offer their goods for sale on such terms; and when they hand over their products they usually want to be paid at least a part of the goods' value. Therefore, side by side with the co-operative marketing system - and the words 'side by side' should be particularly stressed - a system of co-operative credit is organized on the security of the commodity which is sent for marketing.
The peasant who brings his products for marketing is given a certain sum of money, equal to part of the products' estimated value. But, once again, this sum of money cannot under any circumstances be regarded as a part-payment for the product. It can be regarded as nothing more than a loan, which is separate and distinct from the marketing operation and is secured by the value of the product sent for marketing.
In order J;o explain the exact difference between the earlier system of co-operative marketing - of intermediary activities based on the granting of secured loans - and the new system which has now been adopted by the majority of butter-producing co-operatives, we would offer the following point-by-point comparison of the organizational principles in each case (see table 20).
There is no doubt that the second system considerably simplifies the co-operative's office work and gives it a free hand with its commodity operations. At the same time, it does involve the possible
134 The Organization of Co-operative Marketing Table 20
System based on intermediary System based on final purchase of goods operations and secured loans
(1) A special enterprise is set up, provided by its peasant membership with a small amount of capital necessary and sufficient to maintain the co-operative marketing apparatus.
(2) The apparatus thus set up receives the products of the peasants' labour for the purpose of sale on commission. These products are given a preliminary valuation and are then depersonalized, graded and used to make up commercial consignments.
(3) At the same time as the commodity is accepted for sale on commission, it is pledged to the usual credit co-operative, which advances a loan equal to part of the estimated value of the pledged commodity.
(4) After the commodity has been sold on the market, the proceeds of sale are used to pay off the loan advanced by the credit apparatus and the percentage commission which covers the costs of the marketing co-operative apparatus. The remainder of the proceeds of sale are all transferred to the peasant who handed over the commodity for sale on commission.
(1) A special enterprise is set up, based on special share capital and borrowed capital, sufficient not only to maintain the cooperative marketing apparatus but also to produce a trade turnover.
(2) The co-operative apparatus thus set up on the basis of the share capital and credit facilities which it obtains, acquires the products of the peasants' labour through the legal process of purchase and sale at market prices and for cash; and the co-operative apparatus becomes the legal owner of the products.
(3) No credit operation takes place. The valuation under the preceding paragraph is made in full on the basis of a final price. However, a record is kept of each member's delivery of products and of its amount.
(4) After the sale of the commodity which has been assembled, the profit obtained by the co-operative apparatus from the difference between the procurement and selling prices is partly used to increase the enterprise's capital and partly repaid to the members who handed over their goods, in proportion to what each of them handed over.
The Organization of Co-operative Marketing 135
risk of losses, which are in theory ruled out in the case of cooperatives engaged in intermediary operations based on secured loans. It also involves the risk that members will be less interested in the affairs of their co-operative as an enterprise.
However, supporters of the second system maintain that when loans equal to 100 per cent of a commodity's estimated value are advanced, we are in fact dealing with exactly the same kind of operation for final purchase, which is merely complicated by the remnants of the already outdated middleman's commission. And indeed, if large amounts of money are advanced on security, there is in fact little difference between the two systems, since, if the goods are resold at a loss, it is hardly possible to recover the money advanced without destroying the authority and reputation of the cooperative.
After a product has been sorted through, it must, in order to become a commodity, undergo a certain amount of processing of the kind required by the market; and it must be packaged. Our co-operators often devote too little attention to packaging. However, it is an important factor in success both in preserving the commodity and in making a favourable impression on the buyer. For these reasons, packaging techniques must be given the highest possible priority.
The problem of determining the selling price is in effect the problem of determining the highest price at which the co-operative commodity which has been assembled can be sold on the market.
In order to ascertain the highest possible prices, co-operative leaders have to analyse the current state of the market as well as the possible development of the factors which determine the formation of prices. The basis for calculating prices is the valuation given to goods when they are accepted, combined with the overhead trading expenses borne by the co-operative apparatus. These two amounts added together represent the limit below which prices must not be allowed to fall. However, the level of this particular 'cost' should be regarded as only the lower limit of prices; and the whole art of those who handle the transaction is to try to raise the bargain price as much as possible above this level.
Only a central organization that is in a position to follow the state of the markets and the changes occurring within it is capable of finding the price level which it is seeking.
Records of prices in the consumer market in present and past years, records of stocks in the hands of consumers, producers and commercial middlemen, the state of harvests and the level of well-being among the peasants who possess the product - these, and scores of other factors have to be taken into account when ascertaining price levels.
136 The Organization of Co-operative Marketing
When the average price level, which is usually calculated for the average brand of a given commodity, has been sought after and ascertained, we then have to tackle the second part of the problem and break down the general price of a commodity into the prices for its particular brands.
In the case of a whole number of agricultural products - butter, eggs, meat, poultry and even bread - it is vitally important to be equipped for the conservation of the products. There is hardly any need in this book to mention the importance of elevators and refrigerators for co-operative marketing. This question has been so often discussed in co-operative literature that one may assume that the importance of elevator and refrigeration equipment is fully appreciated by co-operatives.
Less attention has been given to the problem of the conservation of goods in transit even though this is crucially important for a whole number of products. It is enough, for example, to say that the export of butter abroad during the summer is possible only with the careful provision of refrigeration equipment and packaging on the railway journey.
Even less attention has been paid to our usual warehouses; although the successful provision of enclosed storage space can significantly reduce overhead expenses. It is not difficult to build the usual type of warehouse with a large amount of space. It is much more difficult to organize matters so as to make do with the minimum amount of enclosed space whilst using the available space to the fullest possible extent.
It has been the usual practice of co-operatives to develop three types of warehouse.
1. Warehouses for the reception of products at assembly-points situated near bazaars or local co-operatives. The commodities do not remain for long in these warehouses, but are continually being moved to:
2. Warehouses managed by the co-operative associations and situated near railway stations, from which the commercial consignments already made up are sent to:
3. Central warehouses or warehouses situated in ports.
The accumulation of large quantities of goods entailed a considerable risk of loss in the event of fire. For this reason many organizations preferred to use different warehouses even within one and the same town, thus spreading the risk and protecting themselves against losses through fire.
So long as marketing co-operatives remain weak - selling their
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goods without any charge for storage or dispatch and sending only negligible consignments - questions of transport or transport packaging are of no great urgency. But as soon as marketing cooperatives grow to levels of world-wide importance and begin to dispatch large quantities of their product, on a scale which is significant even in the context of the national economy, the problem of transport becomes increasingly urgent. It becomes essential to prepare co-ordinated plans for transport and storage; to work out the shortest distances; to fight for low fares and low freight charges after carefully studying this question; and to look for ways of minimizing transport costs.
In order to underpin the power of co-operatives in relation to transport, it was necessary to set up a special transport centre, a kind of commissariat of communications. This centre, which handles an exceptionally large volume of freight, had to bring co-operative transport up to the required standard, both in regard to domestic communications and also in regard to maritime export routes.
The problem of supplying a commodity to customers is the problem of the commercial policy of the co-operatives in question. If co-operatives wish to take the maximum advantage of the prevailing market situation, then they have to pursue an active, rather than passive, commercial policy.
The first requirement for success from this point of view is a system of complete and rapid information as to the state of the market. The export organization must always keep its finger on the pulse of the world market and be sensitive to the slightest changes. It must rapidly get its bearings in a changing situation and, while acting in accordance with the situation at the given moment, must not lose sight of what the future may hold in store; and must be able to anticipate market trends.
Such information requires the intensive use of specialized resources. It can only be obtained by a central organization, which is able to set up a research department - a kind of observatory to monitor the state of the market.
Using the data from such an observatory, a co-operative marketing centre must identify its most regular and reliable customers, and must also, as far as possible, identify the customers who are closest to the ultimate consumer. It must try to turn them into its regular clientele.
The organization of permanent commercial ties of this kind is an immensely important task; and for this purpose, co-operatives can and must forgo all kinds of dubious transactions which sometimes offer large profits, but profits in the short term only.
It must never be forgotten that co-operatives are designed to last,
138 The Organization of Co-operative Marketing
not for one year but for centuries at the very least; and thought has to be given to the co-operative's well-being over a period of many years and not just to its advantage in any one year. This is why a regular clientele is one of the surest foundations of success in the entire work of co-operative marketing. By gradually studying the requirements of regular customers, by learning their wishes, by winning their confidence in the quality of co-operative produce, it is possible to achieve mutual harmonization of interests and benefits. For the producer this means getting a high reward for his labour. For the consumer, it means a high quality product, produced even in its initial stages so as to conform with the consumer's requirements.
At the present time, a system of regular clienteles is organized by agricultural co-operative centres and associations, which enter into general contracts with trusts, syndicates and other purchasing organizations. Provided that they are entered into on a basis of equality, we regard contracts of this kind as a grain gain.
Co-ordination between consumers and producers has been achieved to a high degree by the egg co-operative system in Denmark, where every consumer is able, from the number displayed on the egg, to find the actual producers and convey praise or criticism to them.
Permanent commercial links of this kind may be confirmed by special preliminary agreements or by contracts between the parties; but must not, of course, restrict the right of the organized producer to defend his interests.
We pointed out at the beginning of this book how the right to enter into a transaction gradually passed from the local association to the central organization. Another question of very great importance is the question of exactly who, within the central organization itself, should have the right to enter into final transactions.
This brings us to a fundamental question relating to the organizational-administrative development of co-operation.
The nature of co-operative institutions entails a collegial form of management. The collegial bodies which run the affairs of cooperative institutions are the general meeting, the council and the board of management; and there is no doubt that only their proper functioning can guarantee that the will of the co-operative truly reflects the will of the majority of its members.
A proper implementation of the principle of collegiality will lend stability to what the co-operative does, it will produce cohesion among the co-operative's membership and it will make the nature of the work clear to all who take part in the organization.
However, a co-operative is not only a self-sufficient democratically structured organization. It is also an economic enterprise operating
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in the conditions of the capitalist world. The advantages of collegiality from the point nl view of the co-operative's internal structure are often outweighed by major shortcomings from the point of view of the business requirements of organizing an enterprise.
Every businessman in the capitalist world who manages an enterprise on his own, will run the enterprise by closely monitoring the pulse of economic life, by making rapid and flexible organizational adjustments in response to changes in the economic situation; and to a great extent grasping what needs to be done by relying on hunch.
A co-operative organizer is in a different position. Because the cooperative is managed on a collegial basis, he must not only satisfy himself that a particular step is sound and advantageous, but must unfailingly satisfy his partners on the collegial bodies. Persuasion, above all else, takes time. Often, by the time that the collegial bodies have been won over by the argument, the favourable economic situation has vanished irretrievably and the step which had been contemplated ceases to have any purpose.
It need hardly be pointed out how greatly this weakens the position of co-operatives in their struggle against private entrepreneurs who proceed mainly through action and above all through action without discussions or consultations.
Thus, while the nature of co-operation calls for the principle of collegiality in management, the interests of commercial success call for the principle of individual decision-making.
Life has to reconcile these two principles. In fact, it is the principle of individual decision-making which predominated in the largest and most successful co-operative undertakings. But it was maintained not on a formal basis, but on the basis of authority and personal trust.
It is, of course, difficult to offer any prescriptions for such a complex and controversial problem. But it seems to us that collegial bodies should confine themselves to giving general instructions as to the aims of work; and that they should leave the task of implementation to the individual decisions of those whom the collegial bodies have chosen as their agents. The collegial principle should apply to the election of officers and the approval of their plan of work; but the work itself should be left to individuals. In cases where such an agent finds that it is beyond his capacity to carry out a particular decision, he should inform the collegial body.
Such is the basic organizational problem. The success of cooperative work will itself depend on the successful solution of this problem.
After repaying all borrowed money to credit institutions - this repayment being deemed to have satisfied all loans taken out by the peasants on the security of goods - the central association has to pay
140 The Organization of Co-operative Marketing
the surplus funds to the producers, after deducting its own percentage commission and after covering its own trade expenses as well as the commissions and expenses of local associations and cooperatives.
Financial settlements with the peasants may be made on the basis of the final purchase of the products which they deliver to the cooperative. This system does not exclude the possibility of supplementary payments. But in this case, the supplementary payments will be made to the peasants by way of a distribution of co-operative income, and not by way of a handing over of the proceeds of sale after the payment of commission and other deductions.
During good years, the amount of these supplementary payments may be as high as 20-5 per cent of the original valuation of the commodity; and the possibility of these supplementary payments undoubtedly strengthens co-operative discipline. Nevertheless, cooperative organizers who hand out millions of roubles for these supplementary payments, cannot help thinking that at least some of these millions of roubles, instead of being scattered among individual peasant households, ought to be accumulated within co-operative organizations in the form of indivisible capital.
For marketing co-operatives the most important capital of this kind is 'guarantee capital' which is built up to cover losses which may result from a disastrous fall in prices; and, in some cases, for the purpose of selling their commodities below their 'cost' in new markets.
Capital of this kind may serve a number of other purposes - such as insurance, the organization of production, educational activities, and so forth. In any case, all capital of this kind enhances the strength of the co-operative association and thus enhances the strength of the peasant farmers on the world market.
The formation of these kinds of capital is far more important from the national point of view than might at first appear. The cooperative apparatus, by eliminating the private commercial middlemen, thereby considerably reduces the capitalist profit which is formed in the country's national economy; and it achieves a democratization in the distribution of the national income. The national income ceases to be concentrated in the hands of a small number of people; and is distributed amongst tens of millions of small producers. But despite the positive significance of this process from the social point of view, one is bound to recognize that this income, if scattered among millions of owners who have no connection with each other, will be consumed to a considerably greater extent than in a capitalist society; and therefore the country's capacity for capital formation will be lessened by this democratization. Therefore, for
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the purpose of compensating for this phenomenon, and of increasing the capacity for capital formation, the formation of the peasantry's social capital mentioned above is a matter of special importance.
Financial settlements with the peasants mark the end of all direct co-operative marketing operations. In addition to these, however, co-operative institutions inevitably have to take a number of measures for the purpose of changing the organizational principles of the peasant economy itself, which constitutes the foundation of this co-operative structure.
This activity is, it is true, only at the stage of being planned; but it is objectively essential and therefore inevitable in a wide-ranging form.
Marketing co-operatives are interested in obtaining from the peasants only those raw materials which are greatly in demand and which can easily be sold on the market. Therefore co-operatives naturally make every effort to persuade the peasants to adopt methods of cultivation which actually produce the kind of raw material required by the market. And since, in most cases, the labour applied to such raw materials is more generously remunerated by the market, such persuasion - if backed up by higher valuations when products are accepted - cannot fail to influence the peasants and lead to the progressive reform of the peasant household.
In this area of its activity also, the peasant co-operative system changes - imperceptibly but very profoundly - from an organization of middlemen into an organizer of production. And it would probably be no great exaggeration to say that the influence of marketing cooperatives on the organization of the peasant economy is no less important, and may perhaps be more important, than are our publicly sponsored projects relating to agronomy or the work of our special agricultural societies. The level of remuneration for the peasant's labour when he sells his products is very often the most powerful factor which influences his economic effort. And in many cases where the most impassioned sermon about agriculture does nothing to win over the peasant mind, the valuation of products accepted for co-operative marketing proves a more effective method, which does not even attempt to get the peasant's conscious agreement to the reform being carried through. An even more powerful factor will, of course, be the combined influence on agricultural reform of all the resources which the peasant co-operative system has at its disposal.
Such are the basic organizational elements in the process of cooperative marketing which we have been analysing. The work of turning them into a system of concrete activities, of co-ordinating these activities over time and space and choosing executive staff - all these are tasks which depend on the personal skill of the organizers and leaders of the co-operative movement.
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Table 21 The organization of the work of flax cultivation (number of working days per hectare)
Two ploughings and two
harrowings 8.2 10.1
Sowing 2.4 2.9
Picking the flax 14.1 17.5
Spreading and removing the
flax from the fields 12.6 15.2
Drying and threshing 10.0 12.1
Braking 14.5 17.6
Scutching 20.4 24.8
Total 82.2 100.0
Thus 54.2 per cent of the work of flax cultivation is taken up by mechanical reprocessing and only 45.8 per cent is taken up by working the soil, care of the land and harvesting.
If we take not only labour-intensive flax cultivation but also field cultivation, we find that in an average household in Volokolamsk the various forms of primary processing of flax, grain and clover account for 39.3 per cent of all work.
The mechanical methods of primary reprocessing can - unlike
THE CO-OPERATIVE MARKETING OF AGRICULTURAL PRODUCTS COMBINED WITH REPROCESSING
Primary reprocessing is, generally speaking, an integral part of the peasant household's activity. For example, the threshing of crops and the separation of the wheat from the chaff effectively involve an element of primary reprocessing. In the broad sense of the word, primary reprocessing includes all mechanical processes which alter the form either of the produce which has been harvested, or of the produce of cattle-rearing. Examples of such reprocessing are: the skimming of cream from milk, the manufacture of butter, cottage cheese or soured cream [smetana]y or the curing of tobacco. The considerable importance of such reprocessing can be demonstrated from the example of flax cultivation. It can be seen from Table 21 that out of 82.2 days spent on cultivating a hectare of flax, 44.9 days are spent on threshing, braking and scutching, that is, in the primary reprocessing of the product.
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biological processes - easily be detached from the organizational plan of the individual household, and can with considerable advantage be organized as large-scale production. Second only to marketing, procurement and credit, primary reprocessing is perhaps the most promising sector of an agricultural enterprise, for the purpose of demonstrating the advantage of a large-scale form of production.
It is, therefore, quite natural that when the peasants organized marketing on co-operative principles they also sought to extend the co-operative system to the primary reprocessing of the products which they were marketing.
At the same time, however, it should be noted that the practitioners of co-operatives did not confine themselves to organizing those types of primary reprocessing which already existed in individual peasant households (butter manufacture, scutching of flax, and so on). They also began to introduce types of reprocessing which were beyond the capacity of individual peasant households and which had never previously been undertaken although they were necessitated by the requirements of marketing operations. These included:
1. Reprocessing which made a commodity easier to transport and thus expanded the geographical areas in which co-operative marketing operations could be carried on. This included the reprocessing of potatoes into starch and treacle, the drying of vegetables, and so on.
2. Reprocessing for the purpose of preserving highly perishable products. For example, the canning of fruit and vegetables, the salting or refrigeration of meat, the preparation of dried eggs, cheese-making, etc.
3. Reprocessing which enabled the owner of a raw material to earn the high income derived from the reprocessing industry - for instance, the milling of grain, the reprocessing of oil, the preparation of tobacco, and so on.
Undertakings like these are so obviously beneficial they have long since become commonplace in the co-operative movement. In the two following chapters we shall look at the way these ideas have been embodied in practice.
However, before we turn to these particular relationships, we have to resolve the basic question as to what kinds of activity are suitable for peasant co-operatives engaged in reprocessing. Specifically, the most important problem when organizing co-operative reprocessing is to decide up to what stage this reprocessing should be taken. Thus, for example, flax co-operatives can confine
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themselves to setting up scutching centres, they can build mechanical equipment for flax-combing, they can set up their own flax mills or even build weaving factories and supply the market with the produce of their fields in the form of finished products. So far as potato production is concerned, co-operators can confine themselves to setting up potato-grinding factories manufacturing raw starch. But they can take their reprocessing even further by manufacturing processed starch, treacle or even treacle jam, sweet-meats and spice cakes. Ought we to try to take all these stages of reprocessing into our own hands? Or should we confine ourselves to a narrower range of co-operative production and limit ourselves to the manufacture of semi-finished products?
A capitalist organizer has an incentive to set up a projected enterprise if, and only if, he calculates that this may bring him a high revenue. But for us, the co-operators, the question is a good deal more complex. We must not forget that our basic task as producers, as well as in all other spheres of co-operative work, is not to obtain the highest possible profit from enterprises which we have set up on the basis of hired labour, but to use these enterprises so as to increase the remuneration for our own labour.
It is unacceptable for co-operative reprocessing to be turned into the capitalist exploitation of hired labour. The peasant who has become a co-operator must not turn into a capitalist. The overwhelming bulk of the labour expended on the products which he sells on the market must be the labour of the peasant co-operators themselves.
This rule is based not only on ideological but also on purely practical economic considerations. As we demonstrated in earlier chapters, the main competitive strength of marketing co-operatives stems from the fact that by working, not with purchased goods but with their own goods, co-operatives can withstand any fall in prices without disturbing their own apparatus, by shifting losses on to the peasant household itself which possesses tremendous stability and flexibility.
This advantage makes co-operatives invulnerable in the struggle with commercial capital; and it is an advantage which co-operatives also possess when dealing with raw material produced within the peasant household. But the advantage is noticeably diminished when the raw material is subjected by the co-operative to significant reprocessing, organized on capitalist principles; and when the value of other people's labour and the financial costs begin to make up a significant part of the value of the product sold. In that case all these advantages will eventually disappear and the co-operative enterprise will find itself in the same economic conditions as those that apply to
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commercial and industrial capital.
A co-operative, since it is always less enterprising and rejects in principle many forms of commercial work, will find it extremely difficult to compete with commercial and industrial capital in the organization of capitalist production. For these reasons, any excessive enthusiasm for reprocessing will undermine our positions.
Such are the considerations which oblige peasant co-operatives to confine themselves only to those stages of reprocessing where the value of the raw material constitutes the overwhelming part of the value of the finished product, thus maintaining all the advantages of a co-operative enterprise over a capitalist enterprise.
This golden rule should not be forgotten by today's peasant fanners. It is precisely the mineral substances - so important for the soil - which largely end up as technical waste material when reprocessing takes place. Therefore, a peasant who wants to maintain the fertility of his land must not lose these minerals; and for this reason he must organize all the various kinds of reprocessing in such a way that such by-products remain in the hands of peasant co-operatives.
These are the purely agricultural considerations which make it necessary, other things being equal, to leave peasant co-operatives in control of cream production, the production of sugar beet, and flour-grinding. A number of prominent agronomists headed by A. Minin consider this to be imperative.
Having thus set out the various considerations which are usually taken into account when organizing one or other kind of co-operative production, we should note that the reprocessing of a particular product may quite often be appropriately undertaken, not only by agricultural co-operatives, but by other kinds of co-operative.
This inevitably raises the question of possible competition between different co-operatives. Those who support the unity of the cooperative movement would like co-operative production to provide a basis for the fusion of co-operatives of all types - whether run by workers, peasants or townspeople. They would also like to organize industrial enterprises as joint co-operative ventures. However, such a fusion does not seem to us to be feasible. Peasant and urban cooperatives may be able to avoid mutual enmity. They may, furthermore, be able to enter into commercial transactions with each other. They may even achieve unity at congresses or in common organizations, based on a common idea or formed for financial or insurance purposes. But the producers' interests and the commercial interests, which it is sought to protect, are so utterly opposed that they cannot be unified within a single organization, because the will of such an organization will inevitably be undermined by internal
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contradictions between the opposing interests which have been combined into a single whole.
Therefore, we think it is better not to talk about organizing production in factories and mills through the joint efforts of different types of co-operatives, but to talk instead about demarcating different sectors of production between these co-operatives. The criteria for such a demarcation exist, and earlier pages of this book have shown in great detail why agricultural co-operatives can control those types of production where agricultural raw material has a preponderant importance and where waste material can be used for agricultural production.
We would willingly leave all remaining types of production to consumer co-operatives, since in their case, the co-operative principle is maintained not through production but through ensuring stability of demand.
From a logical point of view these propositions, like many others, are beyond dispute. However, economic entities come into being not in a logical, but in an historical fashion. Therefore, it is in the sphere of production above all that we shall see the most marked competition between different types of co-operative system. Mills, treacle factories and tobacco factories, and so on, operated respectively by consumer and peasant co-operatives, will exist at one and the same time; and the question of what belongs to whom will ultimately be determined by the course of economic history. No planned regulation will be able to eliminate this struggle between different systems.
Our enterprises for the primary reprocessing of agricultural products at present constitute the area of co-operative work which most urgently needs attention. It is precisely these enterprises which provide us with the broadest opportunities and most fascinating prospects; and it is also these enterprises that give rise to the greatest doubts and apprehensions. The success of butter manufacture co-operatives and the numerous failures of the flax-processing factories require particular study.
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The butter-producing partnership, the consumers' shop, the marketing association and the credit association organize on co-operative principles most of those elements in the peasant household's organizational plan which link the family farm with the outside world.
It is precisely this enlargement of the scale of economic turnover that has brought the most visible and the most profitable results for the peasant household while leaving its individuality virtually intact. It was here that the process began of organizing the peasant household on co-operative principles; and it is here that co-operation has been most extensively developed. However, this still leaves the possibility that there may be certain other processes, inherently connected with the internal economic activities of the family farm, which can also be organized on co-operative principles - and which can bring an appreciable benefit to the household, while likewise doing nothing to destroy the individuality of the peasant household's remaining sectors.
A thoughtful observer who examines the organizational plan of the peasant family farm can see that it involves a good many technical processes where an enlargement of the scale of operations can bring a considerable profit. Furthermore, the practical experience of cooperatives points to a good many cases where co-operative principles have penetrated into the very core of peasant production and into areas of the household's economic activity which have no connection with the market.
The most characteristic example of this kind of co-operation is the so-called machinery users' association. This enables a small self-employed peasant farm [trudovoye krest'yanskoye khozyaistva^ to
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where n equals the number of days per year when the machine was in use.
It is clear from this formula that the cost of one day of mechanized work will be lower, the higher the variable «, in other words the more fully the machine is used.
In order to ascertain the cost of work done by a machine per hectare of land, it is necessary to divide the resulting figure for the cost of work per day into the number of hectares per day which the machine services.
If the daily productivity of the machine is equal to k hectares, then the cost of mechanized work per hectare will be equal to:
make use of complex machinery which can only be profitable when substantial areas of land are being worked or when large quantities of a product are being reprocessed. In order to get the clearest possible notion of their economic nature and of their importance for the organization of small peasant farms, we have to analyse the general problem of the mechanization of agriculture.
From the economic point of view, the question of the mechanization of agriculture fundamentally hinges on calculating the cost of mechanized work - both in absolute figures and in comparison with the cost of the same work done by hand.
Among all the literature in this field, the simplest, clearest and most distinctive treatment of the question which concerns us here is to be found in a small book written by the French agronomist, F. Begu. In this book, which consists of a study of labour organization in the French department of the Pas-de-Calais,2 Begu produces the following general formula for calculating the cost of mechanized work.
Let us, so Begu says, use the symbol A to denote the amount of annual expenditure incurred on a machine, irrespective of whether the machine is used or whether it remains idle, i.e. the expenditure on amortization, the interest on the capital invested in the machine and the insurance premiums.
Let us then use the symbol B to denote the costs of employing mechanized labour for each day that the machine is used, i.e. the wages of the workers operating each machine, the cost of traction and the costs of oiling and repairs.
The cost of mechanized work per day will then be expressed by the symbols:
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n + B
A machine often performs only part of the work, leaving the remainder to be done by hand (for example, the operation of reaping machines requires manual work by the binders). Therefore, if we use the symbol C to denote the cost of this residual manual work per hectare of land, we can abbreviate the formula above so as to obtain a final expression of the cost per hectare of work done by a machine as follows:
Z — -+--h C
If, on the basis of Begu's formula, we now use the symbol R to denote the cost of manual work per hectare, we can confirm that the replacement of manual work by mechanized work is profitable if:
A + A + cW R n.k k
Let us now try to examine the conditions which are necessary to produce this disparity:
On the left-hand side of this formula are the quantities denoted by A, B, C and K, which depend on the cost and quality of the machine and on the level of wages. These amounts are relatively stable and constant. The amount subject to the most variation is the one denoted by n, i.e. the number of days during which the machine can be used during the year. This amount depends on the area of land at the disposal of the household; and the amount denoted by n.k in our formula is a direct expression of this all-important land area.
If the area of land used (n.k) decreases, the costs of amortization and the interest on the capital (A) will relate to a smaller number of hectares; and as a result of this the cost of mechanized operations will substantially increase and will exceed the usual cost of manual work. In order to determine the limit of the area of territory on which the use of the machine is possible, i.e. the area in which the cost of work done by a machine is equal to that of manual work, we have, in our formula, to use the symbol x to denote the amount n.k which we are trying to discover; and we have to write the following equation:
R= I A + _IL + c
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It is obvious that if x is greater than this amount, then the cost of mechanized operations will be less than R (the cost of operations by hand), whereas if x is less than this amount, then it will be greater than R.
We shall now explain these theoretical calculations by reference to the specific example of the operation of a mowing-machine. Let us suppose that its productivity covers a land area of 3.5 hectares per day, that it costs 200 roubles and that the basic components of our formula work out as follows:
4% on capital 8 roubles
Amortization (over 10 years) 20
Total of amount A = 28 roubles
Wages of worker 1 rouble
Cost of traction (with
two horses) 1 rouble 50 k.
Oiling and repairs 1 rouble
Total of amount B = 3 roubles 50 k.
C is equal to zero since the mowing is entirely mechanized.
The mowing by hand of 1 hectare per day requires three workers. If they are each paid 1 rouble per day, then the cost of the manual operation is 3 roubles.
Let us suppose that a household possesses 70 hectares of meadow. In that case, according to our formula, the cost of the mechanized reaping of 1 hectare is as follows:
z = — + = 1 rouble 40 kopecks 70 3.5
Thus, given 70 hectares of meadow, mechanical reaping is more than twice as profitable as reaping done by hand. Let us now use our formula in order to ascertain the minimum land
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area on which it is economically possible to use a mowing machine. We find that:
x =-—-= 14 hectares
Thus mechanized mowing is profitable only in households which possess at least 14 hectares of meadow.
Let us take, for example, a household which has only 7 hectares of meadow. In this case, the cost of mechanized mowing of 1 hectare will work out as follows:
28 ^ 3.50 . kl z = — +-= 5 roubles
that is, it will cost 2 roubles more than mowing by hand.
In all the preceding tabulations and calculations, we have assumed that mechanized agricultural work will be of the same quality as work done by hand. But this is not so in reality. We know that when sowing is carried out with a seed drill, we achieve not only a saving of labour but an economy in sowing material and we save 6-8 poods of seed per hectare. Furthermore, sowing in drills increases the crop yield. We also know that when a threshing-machine is used, the speeding-up of the operation reduces the amount of grain which is devoured by mice - although straw, on the other hand, suffers more damage from a threshing-machine than it suffers from a flail. We also know that to use modern harrows not only speeds up the work but increases the harvest yield, and so forth. We obviously need to make allowance in our formula for this effect, translated, of course, into roubles. If we express the improvement (or worsening) of the quality of work as a result of mechanization in terms of N roubles per hectare, we can calculate the cost of mechanized work compared to manual work in the following way:
A + Ä + C-N > R w.k k <
On this basis, the limit of the area for the profitable use of machine can be expressed in the form: A
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Table 22 Influence of the size of farms on the dissemination of agricultural machinery
Size of farms (ha) Percentage of farms using machinery
100.0 or more 97.5
It must, however, be pointed out that the formula just explained is an immutable law only for enterprises organized on capitalist lines. The ideas that underlie the organization of a self-employed peasant family farm will often result in substantial modifications of this law.
Thus, for example, in the south of the USSR at the present time, the use of reaping-machines and even of binders has become widespread in the peasant economy. Furthermore, these machines are being operated by farms whose land area is so insignificantly small that, according to our formulas, the operation of machines cannot be profitable to these farms. Therefore, in this case, the reasons for their widespread use have to be sought not in their profitability but in the special characteristics of a self-employed peasant farm.
One of the problems of such a farm, which distinguishes it from a farm organized on capitalist lines, is that of spreading its work as evenly as possible over time. Capitalist farms, which obtain their manpower on the free market for labour in accordance with the requirements of their organizational plan, are able to ignore this requirement. For that reason their organization of manpower usually
In the case of some machines (such as the seed drill and the wooden plough) the land area calculated in this way will be less than in the case of a calculation which disregards the qualitative factor.
The situation examined above is due to the well-known fact that the use of machinery declines in proportion to the diminution in the area of the farm. Thus, for example, in Germany before the [First World] war the percentage of farms using machinery in relation to the overall total of farms is shown in Table 22.
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Figure 9: Distribution of labour at different times on sugar beet farms in Austria
The curve showing the distribution of labour is extremely uneven, as can be seen from the diagram.
0 10 20 30 40 50
It can be seen from this figure that the curve showing the distribution of labour is extremely uneven.
Figure 10: Distribution of work in the cultivation of wheat during different months
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
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involves an extremely uneven distribution of effort over different periods of the year. Thus, for example, a study carried out by K. Linder of one of the farms in Austria organized for the production of grain, with a considerable development of sugar beet, has given us the following curve (Figure 9) which shows the number of workers employed on the farm from week to week.3
But a self-employed peasant farm cannot allow its periods of effort to follow such a curve, since the farm cannot accomplish the necessary work during periods of peak activity, while during the slackest periods it is obliged to leave its manpower idle. As a result, peasant households usually suffer acutely from the uneven organization of labour over time, which is an inherent problem with many crops. Thus, for example, Figure 10 shows how uneven is the distribution of labour in relation to the growing of spring wheat.
The harvest time, which is the peak period of effort, thus determines the area of land which it is feasible to work. If ripened wheat can remain in the field, let us say for IV2 weeks, without deteriorating, then it is obvious that the land area that the peasant household can sow is determined by the area from which the family can gather the harvest during those one and a half weeks. These limitations on the land area that can be exploited have an extremely unfavourable effect during other periods of the year, because during these periods the family is unable, on this limited area of land, to provide employment for all its manpower; and it suffers from a surplus of labour for which there is no work.
When seeking to expand the land area that it can exploit, the peasantry in the south of the USSR sometimes sows its fields with varieties of wheat that can remain in the field for a long time without
Table 23 Labour needed for production process on 1 hectare of land sown with wheat (in days)
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deteriorating (for example, beloturka). By sowing it instead of other more profitable varieties of wheat, the peasant household consequently reduces its 'net income' per unit of land; but at the same time it gains the opportunity to increase its land-holding worked by family labour and thus to increase its gross income.
The same significance attaches to the use of harvesting machines over small areas of land, where the machines do not repay their cost.
Thus, for example, according to statistical data for the Zemstvo in the Starobelsk district of the Kharkov province,4 the gathering of the harvest from 1 hectare of land requires an outlay of 4.3 working days out of the 21.4 days needed for the production process as a whole.
Let us then suppose that we have a family with two workers and that the period of harvesting can be extended over ten days. In that case, the maximum area from which the family can gather the harvest by its own labour will be:
= 4.65 hectares
And since a hectare requires in all 21.4 working days and yields a gross income of 29 roubles 10 kopecks (after deducting the cost of seed) it follows that our family which is engaged in economic management will be able to perform a total of 94.8 days' work (47.4 working days per worker per year) and will be able to increase its means of livelihood by a total amount of 139.3 roubles.
However, by using a reaping-machine, the household can achieve a more than twofold expansion of the area it cultivates; and by sowing, let us say, 10 hectares, it will be in a position to perform about 200 days' work over the year and to earn 291.6 roubles of gross income. If, from this sum, we subtract 30 roubles for amortization and for the repair of the machinery, we arrive at a sum of 261.6 roubles, that is, over 100 roubles more than can be produced by the use of manual labour only. Such a significant increase in the means of livelihood is of immense advantage to a self-employed peasant farm, despite the fact that on a book-keeping calculation, the use of a reaping-machine on 10 hectares of land would undoubtedly make a loss.
This, then, is the significance of machinery in a self-employed peasant family farm in coping with the critical periods when extra effort is required. But the mechanization of labour has an entirely different role during slack periods. Thus, for example, at a conference of agronomists in Perm in 1900, one agronomist, D. Kirsanov, pointed out that:
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