The purpose of this book is to describe experience of agricultural cooperatives of Korea (ACK) for 1945~1990, when was similar to the current situation of developing countries, and to suggest implications for developing countries. The ACK as policy assistant institutions have significantly contributed to agriculture and rural development since they were established. The Cooperatives implemented smooth money supply to the agricultural sector by successfully mobilizing savings in rural and urban areas and absorbed chronic usurious loans in rural financial markets. They supplied farm inputs and living goods, where markets were not fully developed, and thus elevated agricultural productivity and convenience of living. The Cooperatives led development of agricultural marketing by selling of members' agricultural products, expanding distribution facilities and providing information on them.
There had been many trials, errors and complications over a long period of time to reach the current state of the Agricultural Cooperatives of Korea. The Cooperatives went through a time of no hope due to poverty, debts, the tragic Korean War, no competent leaders, political selfishness and conflicts. It took 10 years from the start of discussing to the establishment of agricultural cooperatives, and did another 14 years from the birth to completing their organizational and managerial bases.
Korean government established separately the Agricultural Cooperative and the Agricultural Bank in 1958, which were specialized to economic businesses and banking business respectively. The two institutions were merged into a multipurpose agricultural cooperative in 1961, because of system inefficiency caused by conflicts between them. The organizational structure was three tier system, village Ri-dong cooperatives (village level), Shi-Gun cooperatives (county level), and National Agricultural Cooperative Federation (NACF). The Ri-Dong cooperatives were too small to be sustainable, thus were consolidated to a township (Ub or Myoun) level cooperative as a primary agricultural cooperative until 1972. This made the primary cooperatives start actively their own businesses with their offices and full time personnel. As the primary cooperatives grew, the functional duplication of primary cooperatives and Shi-Gun cooperatives became an issue. In 1980, the Shi-Gun cooperatives were abolished and the Livestock Cooperatives were separated from the ACK.
Korea did not wait to see the development and results of a few Cooperatives as farmers’ self-help, independent and self-regulating organization. Instead Korea courageously utilized Agricultural Cooperatives as important policy partners to develop agriculture and rural society, from the socio-legal viewpoint for protecting farmers who were socially weak. The government allowed the ACK to handle exclusively the fertilizer, chemicals, farm machineries, and operation of government grains so that the ACK could take smoothly roots in the ground in rural markets. The government supported the ACK with business protection and tax exemption rather than direct subsides.
The extension service promotion system of ACK as a strategic instrument for rural development demonstrated great effects during the period of take-off and growth of the national economy. The objective system, the organization system, the business system and the management system of the extension service of ACK made a great contribution to combining human resources, endowed resources and organization resources in rural areas into the cooperative business to comply with government’s strong will of promoting economic growth.
The ACK successfully carried out agricultural supply business including fertilizers, agricultural chemicals and agricultural machinery to achieve self-sufficiency of food and to contribute to the continuous growth of agriculture. The ACK organized producers for members’ innovated agricultural product sale and agricultural products and expanded distribution facilities including joint marketing centers and supermarkets in urban areas. The ACK invested in developing and disseminating packing materials, collecting and spreading agricultural product distribution information, processing agricultural products and operating the business. The ACK supplied vital commodities to remote rural areas for members and residents through the Chain Store business of ACK. The ACK employed the single supply price system across the country so that farmers and fishermen in unfavorable remote areas could buy materials and vital commodities at the same price as in urban areas. It would be hard to enforce this system without the cooperative management idea.
The credit business achieved the most outstanding outcome among the businesses of the Agricultural Cooperatives. The funds mobilized in urban areas were supplied to agriculture and rural areas to alleviate the limited credits and to enable positive investment. The system continued to normally operate by transferring the policy funds of the government to people to be supported and to normally recover them through appropriate management. The success of mutual credits is especially outstanding. Most people thought there was no room for saving because they were semi- self-supporting farmers in the 1970s. However, savings were mobilized from farmers to supply the money to farmers who needed it. The deposits of mutual credits had increased by 14.2 times during the period from 1974 to 1980.
Korea’s model of agricultural cooperatives focused on organizational efficiency. The ACK got advantages of scope economies from operating multipurpose cooperatives rather than efficiency from specialization in economic and banking businesses. Although economic businesses such as buying farm inputs and selling farm products have shown minus income, they could have been maintained due to the income of banking business.
The model of Korea-type multipurpose Agricultural Cooperatives can be a model appropriate for developing countries in which most of the farmers are small-scale farmers. Most developing countries do not have time to wait smooth evolution of agricultural cooperatives like advanced western countries such as Europe or North America. Therefore, they may need strong leadership of government and collaboration of the government and agricultural cooperatives. However, it is also important to care about the weak point of Korea’s model that strong government intervention deteriorated cooperative identity and voluntary development.


Researchers: Seong-Jae Park, Joon-Kee Park, Kie-Yup Shin
Research period: 2011.4 - 12.
E-mail address: seongjae@krei.re.kr