National Agricultural Cooperative Federation of Korea

From Wikipedia, the free encyclopedia

[edit] National Agricultural Cooperative Federation (NACF)

National Agricultural Cooperative Federation (Nonghyup in Korean) refers to the central organisation for 1,327 farmer owned multipurpose co-operatives, with business interests ranging from agriculture to trade. NACF is one of five specialised banks operating in South Korea and is believed to be the second largest financial institution in South Korea with 11% of sector assets, 937 branches and 20,400 ATMs.

[edit] History of the rural cooperative sector in Korea

This section is based on information provided by NACF on their public webpage: [1]

Roots of the Korean Cooperative Movement

The cooperative movement has a long history in Korea. Since 30 B.C., many of the groups Dure, Pumasi, Kye, and Hangyack - Korean terms for cooperatives - were formed by farmers who needed either finance or labor in order for them carry out farm activities. Many similar organizations in rural communities can be still found today.

Cooperative Associations under the Colonial Rule

The Kwang-ju Local Financial Association, set up in 1907, is regarded as having been the first modern cooperative organization in the country. The Association tried to help small farmers and had some of the principles of a cooperative as it was patterned upon the model of rural credit unions in Germany. The Associations were, however, still far from being voluntary self-help cooperatives in that they had very little equity capital and received too much interference from the government.

Formation of Agricultural Cooperatives

The Agriculture Bank had been established, at first, as a joint-stock company in 1956, by restructuring the Financial Associations. In 1957, it was reorganized into a special bank exclusively in charge of agricultural credit and banking. Following the passing of the Agricultural Cooperative Law in 1957, the Agricultural Cooperative was founded in 1958 to engage in the supply and marketing businesses. The Agriculture Bank remained conservative, was reluctant to take risks, and aimed at making a profit. The Agricultural Cooperative had no financial means to carry out economic business and extensions, and thus was compelled to limit its activities to handling a certain portion of fertilizer in the private sector, in competition with merchants. After the military coup in 1961, the government first organized the National Agricultural Cooperative Federation (NACF) from the personnel and facilities belonging to the former Agricultural Cooperative and Agriculture Bank. The federation, in turn, provided guidance and assistance for the establishment of member cooperatives.

[edit] Recent developments

Foundation of Multi-purpose cooperatives (1961-1968)

NACF was compelled to handle most of its businesses through city as well as county cooperatives, and at the same time, provide guidance to village cooperatives about their operations as well as familiarize farmers with their cooperatives. Being small in scale, subsequently lacking funds available and competent managers, the village-level primary cooperatives failed to take a prominent role in the economic activities of farmers. Initially, there were over 20,000 member cooperatives, their average number of members being only 105 and the average total business revenue per cooperative amounting to 350,000 won. As a result of the cooperative restructuring, the number of village cooperatives decreased from 21,239 in 1963 to 16,089 at the end of 1968. The average number of members rose from 105 to 139 while the number of large-scale cooperatives at the township level increased from 2 in 1963 to 72 in 1968. The average capital owned by a cooperative increased accordingly from 30,000 won in 1963 to 430,000 won in 1968. Also, the average business revenue per cooperative increased substantially from 855,000 won in 1963 to 2.71 million won in 1968, thus, the average patronage dividend to individual cooperative members rose from 7,367 won to 19,424 won. In spite of these developments, most village cooperatives still struggled. Activities of the cooperative stores did not go beyond supplying daily necessities, while marketing of farm products was almost negligible. In time, even the supply of daily necessities began to wane due to the sub-marginal scale of the activities, poor management and slow revenue of commodities. Up to 1968, the village cooperatives' role remained limited to providing farm loans and supplying fertilizers while city as well as county cooperatives played a leading role in a number of activities including credit services, cooperative insurances, economic development projects as well as advisory services. Cooperative Restructuring (1969-1974)

The city and county cooperatives were expected to serve as the advisor to strengthen the organization and activities of the village cooperatives. However, the results turned out to be far from the original prognosis. In 1969, priority was placed on making the village cooperatives more self-sufficient and allowing more freedom in making decisions. Policies also focused on merging numerous small village cooperatives into fewer, larger cooperatives of the township level. The township level cooperatives, or primary cooperatives, were given more responsibilities since parts of the city otherwise county cooperatives' businesses were transferred to them. The merger of village cooperatives into primary cooperatives was completed over the five-year period between 1969 and 1973. In 1973, there were about 1,500 primary cooperatives; the average number of each cooperative members rose from 139 in 1968 to 1,400 in 1973. The two new projects primary cooperatives were involved in were the mutual credit and the establishment of chain stores to supply daily necessities. Starting from 1971, primary cooperatives developed into multipurpose cooperatives by taking over some of the key business areas of the city and county cooperatives, including farm credit lending services, supply of fertilizers, chemicals, as well as cooperative insurance services. Starting in 1971, primary cooperatives developed into multipurpose cooperatives by taking over some of the key business areas of the city and county cooperatives, including farm credit lending services, supply of fertilizers, chemicals, and cooperative insurance services. The restructuring proved profitable for the cooperatives. The three-tier system operated more effectively for the primary cooperative, the city/county cooperatives and NACF became better defined, and the overlapping services were reduced. Relationships among members improved, and more member capital flew into the cooperatives. The total business turnover of primary cooperatives recorded a steady growth in almost every sector including mutual credits, supply and marketing. More competent staffs were hired, and most farmers gradually acquired warehouses as well as vehicles. Expansion of the cooperative business (1975-1980)

Primary cooperatives initiated the Integrated Income-Generating Saema-eul Development Project and the Farm Machinery Joint Utilization Project in 1977. The Saema-eul Project was the first that integrated the agricultural and rural development to maximize the use of regional development resources. The NACF transferred the responsibility of the cooperative life insurance policy sales, domestic exchange, and medium as well as long-term loans to primary cooperatives, which had previously been handled by city/county cooperatives. Other transferred responsibilities to primary cooperatives were those of the cooperative insurance loans and sales of large-scale farming machinery. The transfer of businesses to primary cooperatives led to the tangible growth in their total revenue. The supply of the fertilizer, agricultural chemical and farming machinery was restructured in a manner which could serve farmers better. Efforts were also made to promote joint marketing groups and to expand product distribution facilities, including collection points, warehouses as well as processing facilities. Retails were also strengthened to expand marketing outlets, such as grain retail stores, supermarkets, etc. To help farmers cope with changes in market conditions, the farm product marketing information center was established, and the marketing standards were adopted for 30 farm products to improve their marketability. Organizations of agricultural cooperatives at the village level were renamed the Saema-eul Farming Society, the Saemaul Women's Club, the Saema-eul Youth Club and the Farming Group, their functions more specified. Agricultural cooperatives also began to formally undertake the rural housing improvement project in rural communities. The period was marked by improvements in the cooperative's ability to serve farmers, owing to the remarkable growth of the primary cooperatives. Strengthening the cooperative management (1981-1987)

Beginning from January 1, 1981, agricultural cooperatives streamlined their three-tier organization (primary cooperatives, city/county cooperatives, and the federation) into a two-tier system, by placing the city/county cooperatives under the federation. Subsequently, the former city/county cooperatives were renamed city/county branch offices of the NACF. The government recognized the need to restructure the agricultural cooperatives, and therefore completed guidelines for the improvement of their organizational structure in 1980. It then revised the Agricultural Cooperative Law to provide the legal ground for the present two-tier system and for the transfer of the livestock-related services to the National Livestock Cooperative Federation. The organizational rearrangements have made it possible for the agricultural cooperatives to reduce the operational costs and increase the efficiencies in cooperative enterprises. The federation, in particular, was able to channel the funds and personnel to the development of the primary cooperatives. the primary cooperatives expanded by taking over warehouses, branch offices and other services from the county branch offices of the NACF. Democratization and Autonomy (1988-1993)

After the declaration of national democracy on June 29, 1987, member farmers wanted to democratize agricultural cooperatives. Opinions from member farmers, staff members, scholars and specialists were sought. The NACF held seminars and workshops from the second half of 1987 to the end of 1988. The Agricultural Cooperative Law was amended to reflect most of the agricultural cooperative recommendations, even though there were disputes on some clauses, for example, the clauses on government restrictions on cooperative business. Elections of the Presidents of Primary Cooperatives and the NACF The interim law for the appointment of agricultural cooperative board members was abolished, and member farmers could elect the presidents of the primary cooperatives directly under the new law. In addition, the president of the NACF, formerly appointed by the national president in accordance with the recommendation of the Minister of Agriculture and Forestry (MAF), now was to be elected by the presidents of the primary cooperatives. Under the revised law the number of the board members increased from six to nineteen. Eleven members out of the total were non-standing members, composed of the presidents of primary cooperatives. The remaining eight standing members were specialized managers. Autonomy and Beginning of the New Agricultural Cooperative Movement Under the revised law, the agricultural cooperatives gained more autonomy eliminating clauses restricting their self-control. The prior consent of the Minister of MAF for the business plans and budgets were no longer required. Only subsidized businesses or credit projects of the government needed the Minister's prior approval. Auditing the member cooperatives by the local government was also abolished. The revised law greatly expanded the business scope of the agricultural cooperatives to include the brokerage business related to the sales of farm land, the transportation business utilizing trucks owned by the cooperatives, the banking business of the special cooperatives, the direct investment in related corporations, the diversification of the investment of the NACF 's surplus funds and the abolition of the limit on credit guarantee as well as bill discounting. Lobbying The agricultural cooperatives tried to affect government policies by lobbying on behalf of member farmers, particularly after the Uruguay Round Negotiations at the end of 1980. The agricultural cooperatives supported patronizing domestic agricultural products by launching a campaign to counter food-exporting countries mounting pressure to open the domestic market. In November 1991, in a signature collecting campaign against rice imports from foreign countries, the agricultural cooperatives collected 13 million signatures nationwide within 42 days from the time the campaign started. This was recorded in the Guinness Book of Records as the largest number of signatures collected in the shortest period ever. During the final stage of the Uruguay Round Negotiations, delegates traveled to Geneva in December 1993 to deliver Korea's strong opposition against the free trade and in particular, the opening of rice markets. Expanding Agricultural Marketing and Processing • Expanding Marketing Facilities The agricultural cooperatives shut down the poorly performing Cooperative Shipping Groups and old Agricultural Production Groups, to form the new Agricultural Production Group. By the end of 1993, 181 agricultural collection points, 116 cold storage warehouses, and 30 fruit sorting centers had been established. For the first time, modern rice processing complexes for drying, storing, milling and packing harvested rice were established in Dang-Jin as well as in Eui-Sung. The number of agricultural supermarkets increased from 38 to 217, direct marketing stores from 38 to 151, and shipping centers from 1 to 6 between 1990 and 1993. Small agricultural product shopping corners were set up inside most of the NACF branch offices which had previously dealt with banking only. • Raising deficit compensation funds The agricultural cooperatives raised 44.7 billion won as deficit compensation funds for losses incurred in marketing, and the NACF provided member cooperatives with 250 billion won for the installation of marketing facilities. The total sales volume of agricultural products by the cooperatives increased from 3 trillion won in 1990 to 5 trillion won in 1993, and their market share increased from 25 percent to 30 percent. • Processing plants The agricultural cooperatives were also actively involved in raising the value added on products, reducing imports of foreign products. Nine processing plants run by cooperatives until 1988 increased to 112 in 1993, and a food-processing department was established at the Agricultural Cooperative College in 1991 to develop specialists in the field. • Establishment of the Agricultural Cooperative Trading Co., Ltd The NACF also set up the Korea Agricultural Cooperative Trading Co., Ltd. as a subsidiary company in July 1990 and opened Agricultural Product Shopping Centers in New York, U.S.A. as well as Fukuoka, Japan. Expanding Range of Services for Member Farmers • A stable supply of fertilizers and seeds The NACF became a major shareholder in the Namhae Chemical Corporation having purchased 25 percent of its shares. The NACF was then able to assure a stable supply of fertilizers at reasonable prices. To provide farmers with quality seeds at reasonable prices, the NACF opened the Seed Breeding Center. • Farm machinery service centers The number of farm machinery service centers established in member cooperatives increased to 710 in 1993 to expedite farm mechanization. After a certain member cooperative opened the first farm machinery parts center in Seoul in February 1991, similar centers opened in every province to speed up the provision of machine parts. • A new insurance policy for farmers In 1989, the NACF introduced a new insurance policy protecting farmers from financial losses induced by poor health, property damage, injuries, farm machinery accidents and agricultural chemicals poisoning. To reduce farmers' financial burdens, the agricultural cooperatives have been providing member farmers with funeral services since 1989. • Other Activities The NACF has offered the Rural Culture Prize since November 1990 to those who devoted themselves to the development of rural culture. The Housewives Club, Thinking of the Rural Hometowns, organized by graduates of the Agricultural Cooperative Housewives College in January 1993, started to play a key role in bridging the cultural gap between urban and rural societies. Expansion and growth (1994-1999) Expansion of Cooperative Services for Farmers At the end of 1994, and the Agricultural Cooperative Law was amended. According to the new Law, the president of the NACF had to be a member farmer, and the portion of seats of the presidents of member cooperatives in the NACF board meeting increased from one-half to two-thirds. The names of the primary cooperatives and the specialized agricultural cooperatives were changed to the Regional Cooperatives, the Special Cooperatives, respectively. The establishment of additional special cooperatives and their federations, formerly banned, was allowed according to the new law. The most meaningful change, however, was the distinct separation of the management of the banking and the non-banking sectors of the NACF. Under the federation two separate headquarters were set up with both headquarters being fully accountable and with the independence in the management of funds, and personnel. The agricultural cooperatives devoted most of their efforts to reform the cooperative organization and its operations. For instance, they introduced the farm-gate pickup service of farm products and the farm delivery service for farm inputs on a regular basis. They also tried to raise their incomes by attracting new deposits by introducing new accounts named Farmers' Assets Formation Savings. New Agricultural Marketing Channels • Agricultural Marketing Complex To prepare for the anticipated influx of foreign competitors and to strengthen its own cooperative marketing, the NACF focused its retailing marketing efforts on the "Agricultural Marketing Complex" engaged in both wholesale as well as retail marketing. Under the plan, the NACF has established big- city centers which have collection and distribution rooms, cold storages, warehouses, packinghouses, as well as sales corners. Collection and packing centers have also been established in rural areas. By the end of 1998, Yang-Jae, Chang-Dong and Cheong-Ju agricultural wholesale and distribution centers had been established. The centers in Sung-Nam and Gunwi in 1999, and Koh-Yang in 2001 were constructed. The market share of the cooperatives was about 40% in 2000. • RPC & DSC For more effective rice marketing, the NACF has established modernized rice processing complexes (RPCs) as well as Drying and Storing Centers (DSC) in major producing areas. The rice-processing complexes are facilities used to dry, store, mill and pack a large volume of rice in an integrated manner reducing management and labor costs. As of the end of 2000, the agricultural cooperatives ran 197 RPCs and 350 DSCs in major rice producing areas. Strengthening Rural Extension Services • Supports for producing high-quality products Nowadays, urban consumers pay more attention to food safety than in the past. Confronting this trend, agricultural cooperatives have started to provide loans to foster high-quality product farming groups. The groups take part in the production of organic fertilizers by constructing manure factories around the country. • Farmers of the month The NACF selects 20 farming couples every month as leading farmers of the month and rewards them with training trips to foreign countries. Since 1966, 2003 couples have been awarded with this prize. The couple's farm is then designated as an Agricultural Cooperative Model Farm and is open to other farmers for educational purposes. • Consulting groups Due to globalization, crop specialization is very important to increase competitiveness. Agricultural cooperatives help specialized farms and groups to form voluntary consultation bodies dealing with the production and marketing of their goods. From 1993 to 1998, 20 consultation groups specializing in pears, apples, flowers and so on were organized in the village, county, province as well as nationwide. • Introduction of new farm facilities and technologies It is difficult and risky for farmers to invest in modern farming facilities. The NACF has introduced advanced farming technologies from countries such as Israel, where they have successfully developed their agriculture industry despite unfavorable farming conditions. As a part of its strategies to propagate high-tech farming, the NACF has hosted seminars as well as exhibitions on modern farming equipments, and dispatched training teams composed of staff members as well as farmers to other countries. • Lowering the prices of inputs The NACF has lifted restrictions banning member cooperatives from buying goods and equipments for themselves rather than through the NACF channel up, in cases if the conditions are more favorable than those applying to bulk purchase through the NACF. To reduce farmers' financial burdens, the NACF has also played a key role in lowering the prices of many inputs such as fertilizers and chemicals, by negotiating with manufacturers. In addition, many member cooperatives have opened gas stations where they service farm machinery. • A Top Class Bank in Korea In 1994, the government amended the Agricultural Cooperative Law to institute the clear separation of the banking and non-banking business sectors in the NACF. The banking sector worked to make itself more customer-oriented in order to provide farmers and customers with up-dated financial services. The NACF developed various types of new banking services, opened new branch offices, ran savings campaigns under special themes and encouraged local governmental bodies to deposit their budget funds into the NACF accounts. The NACF became the second largest commercial bank in terms of the deposit volume in Korea as of the end of 2000. The NACF and its member cooperatives comprise the largest banking institution if the deposits of the agricultural cooperatives under mutual credit schemes are taken into consideration. The total deposit reached 127 trillion won, equivalent to about 101 billion US dollars by the end of December 2000. The credit guarantee system run by the NACF was also amended to increase the amount of its maximum credit guarantee. The wire transfer service among the member cooperatives was expanded to connect it to other major banks in Korea by using the nation's largest on-line network of the NACF. Improvement of Rural Welfare Services • Medical services for member farmers The NACF sponsors surveys conducted by hospitals on diseases caused by greenhouse farming. This has been very helpful in advising farmers on how to use chemicals, how to reduce the use of chemicals and how to improve working conditions inside greenhouses. The NACF and member cooperatives provide farmers with medical equipments such as blood pressure gauges, diabetes gauges, etc. Protective clothing, videotapes demonstrating safe chemical applications and reflectors attached to tractors for driving safety are provided to farmers. Regular medical checkups are provided for the mutual insurance policy- holders. • Legal services for member farmers Agricultural cooperatives have given legal advices to member farmers at a disadvantage in disputes due to their lack of legal knowledge. The Hanaro Service Center, established in 1995, helps to protect farmers' rights and provides legal advises for member farmers. The center helps farmers settle disputes, file suits by proxy and execute legal dispositions upon request. • Funeral services for member farmers The assistance for funeral services is given to member farmers of most member cooperatives, both to reduce financial burdens and maintain traditional customs. • Activities for the environmental protection As for the environmental protection, the NACF and its member cooperatives designate garbage collection as well as waste burning areas, and help farmers dispose used chemical bottles properly. Each branch office is supplied with gauges to check the quality of the groundwater used for drinking. • Cooperation Between Urban and Rural Communities The NACF links corporations located in urban cities with those in rural villages. Almost 3,000 sisterhood relationships between urban corporations and rural villages have been established since 1995. Corporations taking part in this campaign are able to promote their own business and improve their image by being involved in community. Rural villages are to secure markets for their products.