Annals of Agrarian Science 14 (2016) 323e325
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Annals of Agrarian Science
journal homepage: http://www.journals.elsevier.com/annals-of-agrarian-
science
Support for agricultural cooperatives is an urgent necessity
Paata Koguashvili
Technical University of Georgia, 59, M. Kostava Str., Tbilisi, 0125, Georgia
a r t i c l e i n f o
Article history:
Received 5 August 2016
Accepted 28 September 2016
Available online 11 November 2016
Keywords:
Cooperative
Effectiveness
Farmer
Planning
Management
Control
1. Introduction
The development of country's agrarian sector largely depends
on financial-economic stability of agricultural enterprises. The
crisis situation faced by agricultural sectors in the current period,
further strengthens the financial support motivation for agrarian
sector from both the State and international organizations and
private sector. Funding of agrarian sector largely depends on a
number of particular issues, among which the main one is the
proper determination of funded entities and the types of funding
that ensures, on the one hand, the purposeful channeling of
financial and organizational resources, and on the other hand,
significantly widens the circle of potential recipients of financial
support.
The countries with successful economies have chosen as priority
of government support and funding the support for those organi-
zations, which are functioning on the co-operative bases, since only
through co-operation it is possible to combine two natures: prop-
erty, which allows its owner for the freedom of choice and scaled-
up fabrication, which conditions, on the one hand, technical and
economic advantages, and on the other hand, the authority and heft
in commodity and financial markets. [1: P. 23].
E-mail address: paata_koguashvili@hotmail.com.
Peer review under responsibility of Journal Annals of Agrarian Science.
http://dx.doi.org/10.1016/j.aasci.2016.09.009
1512-1887/© 2016 Agricultural University of Georgia. Production and hosting by Elsevier B.V. This is an open access article under the CC BY-NC-ND license (http://
creativecommons.org/licenses/by-nc-nd/4.0/).
Based on the current state of Georgian agrarian sector, that is
mostly associated with the economic activities up to 75000
smallholding landowners, only through the co-operative, i.e. the
economic and social solidarity systems, it is possible to undertake a
complex process of overcoming poverty and forming a sound
middle class. Without co-operation, the existence of smaller scale
farming enterprises is possible only at a low-technological level
that can never ensure their development. Thus, for the purpose of
creating an effective model of agro-industrial integration, when
determining the subject of integrated impacts, among the different
organizational forms, special importance is attached to the agri-
cultural cooperatives.
Cooperative is a multi-dimensional association, which creates
macro- and micro-economic capacities in the country. Its success is
explained by the improved economic and social environment.
Cooperative ensures the offset sources of financial markets and
contributes to macro-economic stabilization in the market in terms
of product quality, safety, traceability and stable fiscal and mone-
tary balance; halting migration, development of agricultural
infrastructure, job creation, inculcation of firm and stable produc-
tion factors, and introduction of the protected agro-ecological and
biological productions and innovative technologies. [2: P. 37].
The basis for sustainable and balanced development of agri-
cultural production and processing enterprises consists in their
mutual integration. Within the frames of agricultural cooperation,
the use of vertical integration as a specific form is an objective
necessity at that development stage of production relations, when
the urgency of the organic relationship between agricultural pro-
duction and processing enterprises grows particularly. A model
within the frames of agricultural cooperation, which is based on the
principles of cooperation and vertical integration, will become a
basis for creating a single cycle of primary agricultural production,
processing and selling, wherein product costs keep rising at every
economic level, and the population engaged in agricultural coop-
eration will get significantly increased incomes from the commer-
cial market. For the purpose of increasing the incomes of every
member of this type of economic system of cooperation is inter-
ested in producing more and higher quality products. It is actively
involved in technical-technological improvement of the production
processing processes, marketing of final products, and provides
monitoring of a single cycle at every level of entrepreneurial ac-
tivities. Such a business pattern, on the one hand, creates the basis
324 P. Koguashvili / Annals of Agrarian Science 14 (2016) 323e325
for the creation of cooperation forms with the higher concentration
level of agricultural production (second and third), but on the other
hand, creates motivation for introducing the new effective ele-
ments in funding of agricultural enterprises. [3: P. 46].
Supporting the agro-industrial integration within the frame-
work of agricultural cooperatives is possible through the creation of
the infrastructure of the intensive primary production and pro-
cessing enterprises. In addition, of utmost importance is to make it
possible to replace the ineffective and inflexible form of typical
bank commercial credit for agricultural sector by such financial
instruments as a pledge of collateral, leasing, and soft credit. This
form of financial relations is common in many countries with
successful economies, and mostly is associated exactly with coop-
erative systems.
In terms of security of investments, the management demo-
cratic principles and the prospect of the establishing a single pro-
duction cycle within the framework of cooperation creates real
condition of minimizing the entrepreneurial risks that is of utmost
importance and attractive to the companies interested in “risk
capital” investments. This paves the way to cooperatives for
participation in “soft agro-credit” and other governmental and
non-governmental programs.
The “risk capital” is such a form of funding, which actually has
not been existed until today in Georgia, and is especially attractive
to the initial (start-up) and growing businesses. By investing the
“risk capital”, the investor (the fund, hereinafter) participates as a
partner in distribution of risk and profit of the investment recipient
company. Such type of partnership can be implemented through
the equity acquisition in the company, collaterals for guarantees to
financial institutions, or through granting of participation loan. In
comparison with commercial banks, this type of loan requires
lower mortgage security and has a longer payment period. And
payment, as a rule, is tied to planned cash flow. Due to fact that the
Fund participates in risks and interests, it actively works with
company management for improving general figures of company
performance. This cooperation includes assistance in strategic
planning, financial control, marketing issues, production standards,
sells and so on. Since the company's success mostly depends on
success of the recipient of investment, a prerequisite for any in-
vestment project is searching of qualified and close cooperation-
oriented management. An essential aspect of this cooperation is
the operational and strategic support from the Fund that is not
typical of the organizations making traditional commercial loans.
The Fund will invest capital only in the investment projects having
potential of success. It defines and identifies them itself. Thus, in
each specific case, the Fund makes investments in accordance with
individualized plan. [4: P. 45].
At this stage, the cooperatives cannot obtain credits from com-
mercial banks, and they have not been successful in involving in
“Produce in Georgia”, “Preferential Agro Credit” and other state
programs for the following reasons:

Most cooperatives are practically in “start-up” state that is not
acceptable to banks;

Most of them have no resource of collaterals for guarantees of
bank credit. However, the priority o the commercial banks ac-
tivities is oriented only towards the fields having guaranteed
return on investment, and consequently towards the projects
supported by collaterals for guarantees;

The disbursement of credits from banks to cooperatives is
associated with studying the financial-economic and material
status of numerous members of the cooperative that signifi-
cantly increases time and costs required for this activity. Thus,
banks give their preference to funding of those organizations,
which have either small number of members, or even to funding
of a person having just one representative power.
One of the main obstacle, due to which the cooperatives cannot
receive credits from commercial banks consists in fact that they are
not able to guarantee security of commercial bank credits. It is
therefore appropriate to include a new, strong element of funding
in the activities for supporting the agricultural cooperatives, by
means of which, after studying the cooperative's real financial-
economic status and capacities, personnel matters, development
opportunities and vitality, there will be provided investing in it just
in matters of collaterals for guarantees, through investing the “risk
capital” by the interested funds and companies. With account for
international practices, collateral for guarantees of commercial
credit required for carrying out the economic activities is imple-
mented by the specialized guarantee funds. [5: P. 24].
Based on the monitoring data, a specialized guarantee fund
carries out assessment of the production risks, and provides
collateral for guarantees of a certain part of credit (see Fig. 1).
We believe that unlike the other organizational-legal forms,
such a model of planning, management and control of entrepre-
neurial activities, as well as industrial relations characteristic of
agricultural cooperatives, represents the basis for minimizing
production risks and eventually for sustainable viability, on the
grounds that:
1. The object of credit collateral for guarantee is represented to a
large extent by assets purchased through this credit itself;
2. Within the framework of cooperative, on the one hand, creating
a single production cycle (value chain), wherein manufacturers
of primary agricultural products will be interested in obtaining
profits from the realization of final products;
3. Economic self-governance (self-repayment, self-regulation, self-
control); characteristic of the cooperative systems;
4. Consulting, monitoring and auditing by giver of investment
(collateral for guarantee, insurance product) and/or by the or-
ganization with the commensurate authority.
System solution of the mentioned issue will contribute to
creating the necessary conditions for economic environment,
scaling-up reproduction and formation of the competitive envi-
ronment that eventually creates firm guarantees for the formation
of strong cooperative development, regional socioeconomic
development and for solving the food safety problems [6]. The issue
is the adoption of a new investment policy of multilateral and
complex character in agrarian sector that will ensure the balance of
all its functions, and makes an excellent opportunity to ensure the
suboptimal functioning of enterprises. Inadequate understanding
of fact that the development of co-operation in agrarian sector is an
essential part of agro-economic reforms, and retraining from the
Cooperative
Fund
Commercial “Preferential Agro
“Produce in Georgia”
Credit
bank
Program”
Fig. 1. A model for cooperation of the Guarantee Fund and cooperative.
 P. Koguashvili / Annals of Agrarian Science 14 (2016) 323e325
adequate effective measures in this field and from sharing the rich
experience of the countries with successful economies in this field,
will cause serious problems that in turn would have an adverse
impact on the effectiveness of these measures and the planned
systemic-synergistic effect.[7: P. 3].
2. Conclusion
Introduction of the new elements in the system of State funding
and regulation, as well as in the activities of international organi-
zations and private companies creates the basis for overcoming
those obstacles, which prevent transformation of many-sided
production and financial relations into the expanded systems.
3. Summary
The development of cooperation in agrarian sector is one of the
most important areas of agro-economic reform. In this paper, the
author reviews the most burning problems that have arisen in
agro-economic sector of the country, as well as opportunities for
cooperation in the development of agrarian regions. They demon-
strate huge cooperation opportunities and suggested the mecha-
nisms of using it effectively. Against the background of a thorough
analysis and the existing international experience, there has been
suggested the issue of establishing a specialized guarantee fund, on
325
which a model of this fund and cooperation is built. The author
believes that unlike the other organizational-legal forms, such a
model of planning, management and control of entrepreneurial
activities, as well as industrial relations characteristic of agricul-
tural cooperatives, represents the basis for minimizing production
risks and ensuring the sustainable development. Unless the effec-
tive measures are made in this regard, we will face serious prob-
lems that would have an adverse impact on the effectiveness of
these measures and the planned systemic-synergistic effect.
References
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the Government, Soc. Econ. 21st Century 5 (2013).
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industrial relations, J. Econ. 9e10 (2013).
[3] P. Koguashvili, Georgian village capacity, J. Econ. Bus. 3 (2014) 43e46.
[4] P. Koguashvili, The village left to the mercy of the commercial banks cannot
solve the agricultural problems. (1.04.13.) http://topnews.mediamall.ge/?
id¼18010.
[5] P. Koguashvili, Support for cooperatives in agricultural sector must be a
fundamental task of State (27.07.15.) http://www.newspress.ge/ekonomika/
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[6] The Law of Agricultural Cooperatives https://matsne.gov.ge/ka/document/view/
1972742.
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