Study On The Principal Agent Relations And Governance Mechanism In Farmers’ Professional Cooperatives

The Law of the People’s Republic of China on Farmers’ Special Cooperatives, which was formally implemented in July2007, has made great contribution to the development and normal functioning of the farmers’ economic cooperative organizations. According to the State Administration for Industry and Commerce, by the end of2012, the number of rural households that have enrolled in farmers’ special cooperatives totaled0.552million, accounting for16.4%of all the rural households in our country. Farmers’ special cooperatives have been serving as a vital force in perfecting the rural basic management system in China, boosting modern agriculture as well as pushing the building of a new countryside.But compared to those of developed countries, the ratio of registered farmers in China is still relatively low, thus the benefits brought by farmers’ special cooperatives to the farmers are quite limited. For the moment, most farmers’ special cooperatives in China were mainly set up under the leadership of those core members from agricultural enterprises, production and marketing majors, rural supply and marketing cooperatives and other grass root organizations. Devoted to providing those decentralized and small individual peasant households with production materials and the processing and marketing services of agricultural products, these cooperatives, however, are generally characterized by a small scale, lack of market competitiveness, undesirable service quality and loose connections with the farmers. Owning to the disparities in agricultural production conditions, social cultures and economic development of different regions, there exists a wide gap in the development between different farmers’special cooperatives. And with the continuous progression of our national industrialization and urbanization, the gap between the urban and the rural as well as between different regions, the intensification of the rural class differentiation, the heterogeneity in labors, commercial and social resources among enrolled rural households will all grow more prominent. Under the interactivity of both internal and external factors, the principal-agent relationship between members of the cooperatives will play a more and more crucial role in shaping the organization structure and the course of farmers’special cooperatives in China.Based on the existing research results, this paper makes a creative exploration in the following several aspects. First, building an analytical paradigm of "Situation-structure-relation-governance-performance". As for the system arrangement and governance issues of the farmers’specialized cooperatives, it gets the principal-agent relations and governance of cooperative members organically embedded in The SCP analysis paradigm of the industrial organization theory and analysis SSP paradigm of the system behavior theory with the normative analysis method. Based on the analysis of the Institutional arrangements for the farmers’ professional co-operatives, this paper make the first attempt to apply SSRGP analysis paradigm to the relationship choice among the cooperative internal members and cooperative governance as well as the performance study, and to reveal the deep logic of relationship between organization structure, behavior, relationships, and governance and performance in homogeneity and heterogeneity cooperatives from the perspective of principal-agent, in order to provide the scientific evidence for the enhancement of the objectivity and integrity of understanding in farmers’ professional co-operatives.Second, the possibility and stability of the cooperative relationship among the farmers’ professional co-operatives members were studied for the first time. Starting from the system arrangement structure of cooperative organization, introducing the stability of the cooperation relationships into the analysis of the organization structure and governance issues in farmers’ professional cooperatives and discussing the possibility and stability of the cooperative relationship among the farmers’ professional co-operatives members for the first time, the study breaks through the traditional principal-agent relationship research perspectives to some extent, and perfects the range in the existing related research of the principal-agent relationship, supplements the cooperative principal-agent relations and governance beneficially in theory.Third, design a questionnaire and the use of a case study on the principal-agent relationship with the governance mechanisms of the homogeneity and heterogeneity of farmer cooperatives. Designed the questionnaire to professional farmers’ cooperatives and members Based on the purpose and content, a comparative study of homogeneity and heterogeneity of farmer cooperative agency relationship with governance mechanisms. Academic governance mechanisms and performance of farmers ’professional cooperatives, mostly limited to qualitative analysis, quantitative analysis of existing, the selected variables are the weights of a set of parallel variables, we constructed a farmers’ cooperative governance hierarchical model of the mechanism, and the use of objective weighting method-entropy method of the governance variables empowerment of the Council, Executive Compensation, ownership structure and supervision mechanism, members of the right of withdrawal and external oversight and competition variables for cooperatives relationship of governance mechanisms, therefore, this study can be said that the study of farmers’ professional cooperatives made a new exploration.This article conducts the research in related issues from the four levels named "organization status, organizational structure, the principal-agent relationship and governance" in the farmers’ professional co-operatives principal-agent relationship. For details about organization status of farmer professional cooperatives in our country, this research setting out from the background of the rural reform in China, analyses the cooperative organization status and influencing factors presented since the agricultural cooperation movement period in China, the people’s commune period, and reform and opening-up in1978, based on which it gets further analysis on the characteristics of organizational structures and the principal-agent relationship under different organizational status, and illustrates the impact of organizational state of cooperatives on its organizational structure, member relationships, governance mechanisms and governance performance. Results show that:from mutual aid team, elementary agricultural producers’ cooperative, people’s commune, to the transformation of farmers’ professional co-operatives, principal-agent relationship grows from weak to strong, from simple to complex, from single to multiple. Governance mechanisms and performance of different types of principal-agent relationship exists obvious difference. Of which, the principal-agent relationship and governance between the "members-cooperatives" and "small and medium-sized members-core members" since the1990s in the farmers’ professional co-operatives are the major problem farmers’ professional cooperatives are facing.To further explain the cooperative organization status, organizational structure, the interaction mechanism of principal-agent relationship and governance, based on principal-agent theory as the guidance and combined with related case, this article applies an analytical paradigm of the "Situation-structure-relation-governance-performance" to do an analysis of the homogeneity and heterogeneity cooperatives respectively and make comparison between them leaning from related theory. The results show that:First, the homogeneity of members depends on the interests of members, factor endowments, providing the product, motivation of entering the club and member role, etc. In homogeneity cooperatives, members are the unity of the users, patronage, owner and controller. Second, homogeneity decides the membership to be bidirectional principal-agent. Since agent chain is short, communication and exchanges become quite easy among members, the information asymmetry is reduced and the stability of the cooperatives is increased. The study of the "Situation-space formulation" and "parameterized distribution formulation" have shown that, members and managers of homogeneity carry on the rational game in accordance with the individual utility maximization,the relational contract based on win-win cooperation can reduce the managers’ opportunism behavior much more; Third, the capital formation of homogeneity cooperatives is restricted to members, the cooperative property belongs to all the members, and the right to vote is limited to the members only. Homogeneity cooperative have no common assets to redeem, cooperative surplus mainly come back to the member in price adjustment way after deducting public accumulation, and the price adjustment is equal to every member. Fourth, the difference in the demographic characteristics, resources endowment and the role, risk taking and expectations, ability etc. is the important condition during the generation of member heterogeneity. The structures of membership heterogeneity lead to a more complicated principal-agent relationship between member and cooperatives. Membership heterogeneity determines the core members has the right to control, make decision and profit, the characteristics of small and medium-sized members such as factor endowments, risk-taking, and the shares cannot be assigned etc determines the demutualized property right structure is not in favour of long-term stability of the cooperative.In order to interpret the governance mechanisms and performance of farmers’ professional co-operatives principal-agent relationship accurately in our country, this paper focuses on the management of heterogeneous farmer cooperatives along the SSRGP analysis paradigm.First, on the basis of the deep analysis on the principal-agent relationship of the heterogeneous cooperative members, learning relevant theories for reference, this paper studies the possibility and stability of the cooperative relationship among the farmers’ professional co-operative members, and proposes the management mechanism for the cooperative principal-agent relationship from the view of both inside and outside the cooperatives. Research results indicate that:in the first place, according to the Stackelberg competition model and Bertrand model, analysis shows that there exists the fining Nash balance in the cooperation among the small and medium-sized members, cooperation can create the increment of value and realize the collective rationality; in the second place, the analysis of Cournot model shows that, heterogeneous members can cooperate as long as the yield of the cooperation meet the certain conditions. The analysis using KMRW reputation model for reference reveal that, cooperative equilibrium exists in the stage repeated game of the different types of the members in the cooperative, there is certain stability in the cooperative relationships among the members.Second, making empirical analysis to the governance mechanism of farmers’ professional co-operatives principal-agent relationship in our country. Research shows that:in the first place, Cooperatives principal-agent relationship governance mechanism mainly includes:decision-making mechanism, incentive mechanism and internal governance and external constraint mechanism of the supervision mechanism, through the hierarchical model of cooperative principal-agent governance mechanism, the evaluation applying the entropy method to the sample cooperative indicates:different variables of the governance mechanism play a different role in the process of cooperative governance respectively.In the second place, the effective cooperative governance relies on the perfect governance structure. In present, the focus of the agency problem governance of the farmers’ professional co-operatives in our country should reflect on the membership meetings and board of supervisors inside the cooperative and strengthening of the external supervision and competition mechanism, etc; In the third place, in the principal-agent relationships of "membership-co-operatives", the preference of the members is determined by the private information in board of directors and the supervising level of the board of supervisors. If the board of supervisors is of a high degree of independence, board of directors would not share the internal private information with board of supervisors, board of supervisors will choose a supervision of relatively low strength, and not provide advice or provide advice without any value. The informal institutional governance such as cooperatives internal specification, members of the sense of ownership, trust and loyalty to each other prove out to be more effective; In the last place, in the principal-agent relationship of "small and medium-sized members-co-operatives", the higher the degree of independence of the board of supervisors, the higher the marginal cost for the core members to occupy the efforts of the small and medium-sized members, the core members are more reluctant to take implementation to encroach on the interests of small and medium-sized members. When the board of supervisors is independent of the core members, the core members are difficult to carry out the encroachment of the interests of the small and medium-sized members through the control of the board of supervisors, their choose a relatively low degree effort of occupations. Through strengthening the effective restriction and supervision of external forces, especially the government to the cooperatives, with the reasonable participation by external forces, the interest conflict of the small and medium-sized and core members can be coordinated, and the negative impacts of the membership heterogeneity on the cooperative development will be eliminated.At last, on the basis of the researches above. By means of the respects to the main types and experience of farmer cooperation’s principal-agent relationships in developed countries. And from the point of improving the patterns of the farmer cooperation, increasing the economic efficiency, consummating the legal system of the cooperation, specificating the regulatory mechanism and so on, to raise corresponding policy suggestions.