The Evolution of Cooperatives in Developing Countries

Across the developing world, millions of small-scale farmers share a common challenge: they produce food for entire nations but remain among the most economically vulnerable. Limited access to credit, weak market linkages, low bargaining power, and unpredictable incomes have defined rural life for generations. Cooperatives emerged as a direct response to these realities – not as a Western import, but as organized expressions of a very human instinct to pool resources, share risks, and demand better terms together. The story of how cooperatives evolved in countries like India, China, Indonesia, and the Philippines is one of socio-economic necessity, policy shifts, and persistent grassroots resilience.

Why cooperatives matter in developing countries 🔗

In developing countries, agriculture is not just an economic activity – it is a way of life for the majority of the rural population. Small and marginal farmers often work fragmented plots of land, face high transaction costs, and have little leverage in input or output markets. Research on cooperative emergence across Asia shows that smallholders formed producer organizations primarily to access markets, public services, and policy spaces that were otherwise beyond their individual reach. According to the World Bank, small-scale farmers in agriculture struggle with high transaction costs, limited bargaining power, and an inability to access public services or influence policymakers. Cooperatives addressed all of these constraints simultaneously – and that is exactly why they took root so deeply in developing economies.

India: from colonial legislation to a national movement 🔗

India’s cooperative journey is among the oldest and most comprehensive in the developing world. The cooperative movement in India has deep roots, drawing on centuries of informal collective practices – village communities pooled resources through chit funds, kuries, and mutual-loan associations well before any formal legislation existed. The modern cooperative framework began with the Cooperative Credit Societies Act of 1904, enacted during British rule, which created a legal basis for village credit cooperatives. However, this early law was limited in scope – it covered credit societies only, excluding marketing and artisan cooperatives.

The Cooperative Societies Act of 1912 broadened the framework, bringing handloom weavers, marketing societies, and other groups under the cooperative umbrella. After independence in 1947, cooperatives became a central pillar of India’s rural development strategy. The Indian government integrated cooperative expansion into successive Five-Year Plans, recognizing cooperatives as tools for poverty reduction, agricultural productivity, and financial inclusion. According to estimates, more than half a million cooperative societies are currently active across India, spanning agriculture, dairy, credit, sugar, housing, and consumer goods. India’s commitment to the sector deepened further when it established a dedicated Ministry of Cooperation in July 2021, with the vision of “Sahkar se Samriddhi” – prosperity through cooperation – aimed at reaching every village and deepening cooperative institutions at the grassroots level.

The Amul model: a blueprint for rural empowerment 🔗

No discussion of Indian cooperatives is complete without Amul. Founded in 1946 in Gujarat amid a struggle against exploitative middlemen, the Amul dairy cooperative began with just two village societies and 247 liters of milk. Under the leadership of Verghese Kurien, it grew into the engine of India’s White Revolution, which transformed the country into the world’s largest milk producer. Today, Amul is owned by 3.6 million dairy producers – a model that has since been replicated across the country in what is known as the Anand Pattern. Amul demonstrated that cooperatives could not only secure livelihoods but could also compete at a national and global scale when backed by strong governance and professional management.

China: from collectivization to farmer cooperatives 🔗

China’s cooperative history follows a markedly different trajectory – shaped not by colonial legislation but by the political economy of a socialist state. In the early 1950s, peasants pooled their land into lower-stage cooperatives to create larger fields and share farm implements. This evolved into the People’s Commune system introduced in 1958, which merged cooperatives into large collective units controlling tens of millions of acres of arable land across China. However, centralized control and an egalitarian distribution system stripped farmers of production incentives, leading to inefficiencies and eventually contributing to severe agricultural stagnation.

The turning point came in 1978. In November 1978, 18 farmers in Xiaogang Village, Anhui Province took the bold step of distributing farmland to individual households, initiating what became known as the Household Responsibility System (HRS). Under this reform, collective land was contracted out to individual households, which maintained ownership at the collective level but granted farming families full control over production decisions and the right to keep surplus income after paying state quotas. This system proved to be a dramatic success – growth in agricultural output in the first half of the 1980s accelerated to rates several times the previous long-term average, after decades of stagnation under the commune model.

The HRS restructured the foundation on which new cooperatives would later be built. Rather than replacing cooperatives, it created a new kind – voluntary, market-oriented, and focused on providing technical support, input supply, and market linkages. Agricultural cooperatives in China have expanded rapidly since the early 21st century, reaching 2.22 million by September 2023 and providing services to nearly half of all farming households. The government formalized this with the Cooperatives Law of 2006, giving legal standing to farmer-led organizations and integrating cooperative development into poverty alleviation campaigns.

Indonesia: independence, policy, and institutional growth 🔗

Indonesia’s cooperative movement began in the early 20th century under Dutch colonial rule, driven largely by the need to protect indigenous communities from exploitative moneylenders and middlemen. After independence, cooperatives became constitutionally embedded in the national economic vision. The establishment of the Indonesian Cooperative Council (DEKOPIN) in 1947 was a milestone, providing institutional advocacy for cooperative development across agricultural, credit, and consumer sectors.

Indonesia’s cooperatives have been shaped by the country’s unique agrarian structure – a largely smallholder farming population spread across thousands of islands, growing rice, palm oil, rubber, and other commodities. The government has historically played an active role in organizing and financing cooperatives, though this top-down approach has at times limited member autonomy and organizational sustainability. The shift toward trade liberalization in the 1990s and 2000s introduced new pressures and opportunities. Research on Indonesia and the Philippines shows that more liberalized governance tends to reduce discriminatory price controls on farmers, creating an environment where cooperative marketing and collective bargaining become more valuable. Indonesian cooperatives have had to adapt – moving from state-dependent institutions toward more autonomous, market-responsive entities capable of adding value through processing, storage, and direct market access.

The Philippines: from Rizal’s vision to the Cooperative Code 🔗

The Philippine cooperative story begins in 1896, when national hero José Rizal organized the first agricultural marketing cooperative as part of his broader movement for social reform. This early initiative laid an ideological foundation linking cooperatives directly to self-determination and rural empowerment – a connection that has endured throughout Filipino cooperative history.

The formal legislative framework developed slowly. The Rural Credit Act of 1915 established rural credit associations, and by 1926, 544 such cooperatives had been organized across 42 provinces. In 1952, the government enacted Republic Act 821, creating the Agricultural Credit and Cooperative Financing Administration (ACCFA), which had four core objectives: providing liberal credit to small farmers, grouping them into cooperative associations, establishing an orderly marketing system controlled by farmers, and placing agriculture on economic par with other industries. The ACCFA provided financing through the US Agency for International Development (USAID), ultimately organizing 455 Farmers’ Cooperative Marketing associations covering over 259,000 farmers across 50 provinces.

Under President Marcos, cooperatives were further institutionalized through Presidential Decree 175 (1973), which sought to strengthen the cooperative movement during a period of agrarian reform. The Agricultural Land Reform Code of 1963 had already sought to establish cooperative-cultivatorship as a system for production, processing, marketing, and credit among small farm tillers. The movement’s legal and operational framework was eventually consolidated in the Cooperative Code (Republic Act 6938), which was modernized through Republic Act 9250, giving registered cooperatives tax exemptions and a clear governance structure. Despite episodes of political instability and economic disruption, Filipino cooperatives demonstrated consistent resilience, adapting to new conditions while maintaining their core mission of rural economic inclusion.

Common threads: socio-economic drivers of cooperative evolution 🔗

Across all four countries, certain patterns consistently drove cooperative development. Access to rural credit was almost always the first trigger – small farmers without land titles or collateral could not borrow from commercial banks, making cooperative credit societies an essential alternative. Market access and price volatility were equally powerful motivators: individual farmers had no leverage in negotiations with traders or processors, but cooperatives could pool produce, negotiate collectively, and cut out exploitative intermediaries.

Trade liberalization added another dimension. As these economies opened up to global markets from the 1980s onward, small farmers became vulnerable to price competition from cheaper imports. Cooperatives became crucial buffers – enabling farmers to achieve economies of scale, improve product quality, adopt better technology, and access export markets that would otherwise be entirely out of reach. Research on Southeast Asian agriculture confirms that agricultural trade liberalization, when combined with strong institutional support including cooperatives, significantly reduces agricultural inefficiency.

Governments, too, played a decisive role – sometimes enabling, sometimes constraining. State-sponsored cooperatives in China and Indonesia often faced sustainability issues due to bureaucratic control and lack of member ownership. The most resilient cooperatives, as comparative research across the Global South shows, tend to be those combining democratic member governance with professional management and genuine market linkages. The lesson from India’s Amul, China’s post-2006 farmer cooperatives, and the Philippines’ agrarian reform cooperatives is consistent: cooperatives thrive when members have real ownership, real benefits, and real agency.

Looking ahead 🔗

The evolution of cooperatives in developing countries is not a completed story – it is an ongoing process shaped by climate change, digital transformation, and shifting global supply chains. The foundational challenge remains the same as it was in 1904 India or 1896 Philippines: how to give small-scale farmers the collective power they need to secure fair prices, stable incomes, and long-term livelihoods. Cooperatives have proven, across vastly different cultural and political contexts, that they are capable of meeting that challenge when the conditions are right.

What do you think? Given that government-led cooperatives often struggled with sustainability while member-led ones thrived, what does this tell us about the conditions necessary for cooperatives to genuinely empower small farmers? And as developing countries integrate deeper into global markets, can cooperatives alone bridge the gap between smallholder farming and competitive international trade?

References

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