Despite a severe drought that hit China this summer, Gao Jinping still sees 2009 as a good harvest year.

Gao, director of the Jinli Marigold Professional Cooperative, in Faku County, northeast China's Liaoning Province expects to make 1,000 yuan (US$147) net profit for each mu (1 mu =666.67 sqm) of farmland.

"This year has not been so bad considering the worst drought in decades," says Gao, 41, a fast-talker who wears short hair and a businesswoman's suit.

In 2008, the cooperative harvested 2,750 kilos of marigolds and the 156 member households each made almost 10,000 yuan (US$1,470), she says.

Gao grew up farming and it is in her blood. "There's no job on a farm that I don't know how to do," she says proudly.

In March 2006, she wanted to try marigolds, which are used in making dyes. It sold better than corn, but farmers in Faku had never grown it before.

Not wanting to rush into large-scale cultivation, she talked 15households into growing marigolds and they signed an agreement to contribute a total of 130 mu (8.7 ha.) of land for a trial crop. In return, Gao promised them 500 yuan (US$74) profit for each mu of farmland. So began the cooperative.

Cooperatives have a long tradition in China. In the early 1980s, rural communities led the economic reforms by drafting the first rural household responsibility contract among 18 villagers in Xiaogang village, Anhui Province.

Cooperatives first emerged as rural skills association. Under the household responsibility system, farmers were allocated land by contract and entitled to sell their surpluses on the market or retain them for their own use after fulfilling the procurement quota.

Cooperatives enhanced incentives to farm more efficiently and that's when such skill associations came into being, says Yuan Peng, director of research at the Rural Development Institute of the China Academy of Social Sciences.

Farmers belonging to no organizations risk buying fake seeds and fertilizers at high prices. They also have less bargaining power with suppliers and buyers, Yuan says. They have little access to credit and if prices fall unexpectedly, they must suffer the losses alone because insurers prefer to sign contracts with a cooperative rather than hundreds of individual farmers.

However, cooperatives never had a clear legal status. With vague identities, organizations operated with a variety of different titles and registration arrangements. This diversity made it hard for all concerned to identify, regulate, collaborate with and participate in the organizations, says Yuan.

Because Gao Jinping's cooperative did not have clear legal status, it was hard for the cooperative to get loans from financial institutions. Instead, members of the cooperative each got small individual loans.

"The biggest problem is capital," says Gao. "It was impossible for us to get loans from the banks because the cooperative is not a legal entity."

Even so, the cooperative managed to make 950 yuan (US$140) per mu net profit, and as promised, each member got 500 yuan per mu.

Gao attributes the success to centralized operation: from what to grow to which seeds to buy, from planting and harvest to sales, everything in the production and management process is uniform to reduce costs.

"The cooperative gives us greater bargaining power than individual farmers with retailers such as supermarkets, and giving us a bigger say in setting prices. Now the cooperative has its own contracts with companies and the prices are really good."

In October 2006, China's lawmakers passed the Law on Farmer's Professional Cooperatives. The law, which came into effect on July1, 2007, aims to unite millions of loosely scattered rural households and pave the way for agricultural industrialization so they can compete under the WTO framework.

The law grants a clear legal status for cooperatives as independent, voluntary and democratically administered organizations, which are registered under the State Administration for Industry and Commerce (SAIC).

Since then, cooperatives have mushroomed. According to the SAIC, 179,100 farmer's professional cooperatives had been registered by the end of June this year. In the first six months alone, 68,200 cooperatives were registered, up 61.5 percent from the end of 2008. The total registered capital was 162 billion yuan (US$24 billion), up 84 percent from the end of 2008.

The marigold cooperative registered, with capital of 400,000 yuan (US$58,824), at the local industry and commerce bureau in September 2007. Gao was elected the director of the cooperative unopposed.

The cooperative's success attracted more members over the years and now it has 156 households, with 1,500 mu of land.

Sun Yuehai, 60, joined the cooperative in 2007. "I saw the income of the cooperative members was really good, so I applied to join," he says.

Sun used to grow soy bean and cabbages, which brought in 400 yuan (US$59) per mu on average, 800 yuan (US$118) when the harvest was good. "There are too many uncertainties when I farm on my own," he says.

However, the cooperative guarantees 500 yuan (US$74) per mu each year and a share of the profits. "There are no risks for me and I don't need to worry about how to sell the produce," he says.

Sun also gets paid 30 yuan (US$4.4) a day for working for the cooperative during the planting and harvesting season. This way he makes a total of 4,000 yuan (US$588) a year.

However, as profitable as cooperatives appear, there are still farmers that hesitate to join. In a neighboring Changgangzi village, farmer Wang Min quit the Changgangzi Chili Cooperative in March before the planting season.

Wang had seven mu of land as shares to participate in the cooperative, which was set up last December. However, he is concerned about the shared costs of everything in the cooperatives: seeds, cultivating tools, etc. "I'm afraid the average cost will be much higher than the cost when I work on my own."

Wang has grown chilis for six years and made more than 10,000 yuan (US$1,470) from 12 mu in 2008. Confident about his own farming skill, Wang rented another 20 mu from other villagers this year.

In addition to costs, Wang is also concerned about the outcome. "What if the cooperative fails and loses money? We end up spending too much on production and will not get any share of profit."

According to the Law on Farmer's Professional Cooperatives, members can join or quit at will. So Wang will wait and see how the cooperative goes for the first year. "If it makes more profits than I do on my own, I will definitely join next year."

Liu Hongyi, head of the county agriculture department, says, "The current situation in rural China is that young laborers have gone to the city to work and the elderly and weak have stayed in the countryside, with little or no ability to farm.

"Farmers' cooperatives free farmers from the land. They give those who are willing to farm a bigger platform and those who lack the ability to enjoy a share of the profits for the land they provide. That's a good way to develop modern agriculture and boost farmers' incomes," Liu says.

He also says that the supply chain from cooperatives directly to supermarkets cuts logistics costs, allows room for cheaper prices and makes products "traceable" when problems occur.

The government's enthusiasm in developing farmer's cooperatives greatly contributed to the growing number of registered cooperatives. However, problems have also surfaced.

A report submitted to the standing committee of the National People's Congress last October says the Law on Farmer's Professional Cooperatives, enables capable cooperatives to carry out national projects to boost the rural economy and agriculture, but "fake" cooperatives have emerged to receive government funding.

"It is a global phenomena: where there are favorable policies for farmers cooperatives, there are fake cooperatives," says Yuan Peng.

According to Sun Zhonghua, director of the rural economy system and management of Ministry of Agriculture, the central government allocated 545 million yuan (US$80 million) for farmer's professional cooperatives between 2003 and 2008.

Some companies use their connections to from fake cooperatives to seek tax exemptions and government funding. Miao Jianping, deputy director of the China Society of Cooperative Economics estimates that 20 to 40 percent of the registered cooperatives are such "fake cooperatives".

To prevent fake cooperatives, Miao says that the central government should not use the number of cooperatives as a criterion to assess local official's work and government funding should prioritize cooperatives with standard operation.

Government organizations, agricultural, finance and science and technology departments have adopted rules to assess funding or subsidy requests from cooperatives. "The core principle is that the cooperative is genuine," Yuan says. "We should be highly aware of the fake cooperatives phenomenon," he warns.

(Xinhua News Agency December 17, 2009)