The role of agroholdings in the creation of cooperatives by rural communities

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THE ROLE OF AGROHOLDINGS IN THE CREATION OF COOPERATIVES BY RURAL COMMUNITIES

Polissia National University, Ukraine

Purpose. The purpose of this study was a theoretical and methodological generalization of the agroholdings' social initiatives within their charitable activities with the interaction of cooperatives based on the institutional model.

Methodology / approach. This study was based on applying the general economic and special methods. The abstract-logical method was used for scientific discussion and scientific views about the role of agroholdings and their impact on the rural population. The method of critical analysis was applied to outline the social aspects of agroholdings' activities. The system approach allowed contouring the main problems that arise in the process of agroholding growing. The study of the state of agricultural cooperatives' financing by agroholdings was also conducted. On the basis of the monographic method the motives and directions of the management of separate agroholdings within their social responsibility limits were defined. With the generalization method, the basic forms and resources of agroholdings' social responsibility were determined. Thanks to the correlation-regression analysis, it was established the relationship between the social responsibility indicator of agroholdings and their efficiency by EBITDA, as well as their social responsibility and market capitalization degree.

Results. The study examined the main scientific approaches to the role of agroholdings, which allowed outlining their ambiguity and contradictions. The systematization of the presented materials allowed developing arguments in favor of the agroholdings' functioning and identifying counterarguments of their activities as well as emphasizing the need of the basic methodological provisions for further harmonious development of agroholding structures and cooperatives. The results of the presented empirical analysis showed a low level of agroholdings' social responsibility, which affects the development of the rural areas and significantly increases social tensions. On the basis of the conducted research and data processing the mechanism of agroholdings' and cooperatives' interaction on the basis of social responsibility is offered. It was proved that the basis of the presented interaction must be financial and economic, social, marketing and environmental motives.

Originality / scientific novelty. It was improved the theoretical and methodological approach to the formation of institutional model of the agroholdings' and cooperatives' interaction on the principles of social responsibility, which provides financial and economic, social, marketing, environmental problems solutions by agroholdings and promotes the rural community 's development in the near future.

Practical value / implications. The results of the study are of great practical importance and can be useful for various ownership forms of agricultural producers as well as for agricultural holding organizations which are interested in harmonizing the rural economy development.

Key words: agrarian sector, agroholdings, cooperatives by rural communities, social responsibility, rural society.

agroholding social responsibility resources

Introduction and review of literature

The private business entities, a significant position among which is held by the small enterprises, are the catalysts of the local and national economic development (Mura and Kljucnikov, 2018). Today, small and medium enterprises create the main part of gross domestic product in countries with developed market economies and in Ukraine too. Analysis of the domestic business structure shows that the most part of production belongs to small enterprises (94.3 %) (Sliusar, 2019). At the same time, their functioning is determined by globalization and a significant increase in competition, and, consequently, requires the implementation of the latest agricultural techniques, methods and mechanisms, the energy and energy-saving technologies use. Under such conditions, it is extremely difficult for small enterprises to run their own business successfully and to be competitive. After all, high-performance innovations and technologies are too expensive for small agribusiness entities that carry out economic activities in the absence of financial, material, technical resources and the lack of opportunities to attract them.

Another problem that significantly hinders the Ukrainian agribusiness development is the lack of sale opportunity for manufactured products due to the absence of appropriate infrastructure. Therefore, producers are forced to sell manufactured products in natural markets, but, as V. Boiko et al. noted when wholesale markets and regional agrarian centers are created, buyers and sellers will be able not only to sell or buy products, but also receive a wide scope of services: storing, preparing goods for sale, transporting, making calculations, getting loans, obtaining information from consulting services etc. (Boiko et al., 2019). The imperfection of the mechanism of Ukrainian land relations regulation is manifested in the conflict of interests between rural households, local communities, authorities, farms, small, medium enterprises and agricultural vertically integrated holding companies (Kononenko, 2019). The solution of the identified problems depends on many factors: well-considered state policy of rural development, implementation of government programs by local authorities, the desire and perseverance of rural population on the way towards improving their own living conditions (Dema et al., 2019).

Agriculture is an industry that is entering the crisis more slowly than others, while other industries are experiencing a downturn (Onegina and Vitkovskyi, 2020). However, its operation is characterized by the dynamic processes, increased competition and the need to adapt to the European economic practices. This can only be achieved through cooperation and joint efforts. The world experience has confirmed the undeniable importance of the cooperative idea, the main purpose of which is to unite peasants and to optimize the conditions for their business operations. Agricultural cooperatives are the most common and effective form of such integration, the share of which in the EU agricultural market is 40-50 % and up to 70 % in the individual sectors. The annual turnover of the 10 largest farmer cooperatives in the EU is over 93 billion USD, which is almost equal to the annual Ukraine GDP (Sakovska, 2020). In addition, the farmers who cooperate and become members of public organizations dominate the market, sell products more efficiently, buy means of production cheaper than buying them separately (Ramanauskas et al., 2017).

Ukrainian agribusiness differs from the world one because of the need to create not only traditional cooperatives for farmers or other enterprises, but also cooperatives by rural communities. According to L. Ivanova, the formal cooperative relations are based on commodity-money relations, which provides for maximum profit and relations within the rural community - mainly on the moral and ethical society norms (Ivanova, 2020). In this case, we see the essence of cooperative by the rural community in the producer's initiative association which can bring them to the fundamentally new management level and to improve their economic situation by the private needs concentrating while using a flexible, optimized pricing system; with the technical re-equipment possibility, farms modernization and production process improvement; expansion of the activity spheres; investment resources attracting; strategic relationships with counterparties establishing and the effective reduction of the economic risks.

This is impossible to achieve in the modern economic space with separate management. Contrary to the convincing prospects and advantages of cooperation, it has not yet found its proper distribution in the domestic agricultural sector of the economy. As V. Zinovchuk emphasizes, in recent decades, cooperative development strategies, closely aligned with the sustainable development goals of the agricultural sector and rural areas, have become widespread in many countries, mostly developed ones. For Ukraine, with rare exceptions, it is still terra incognita, although the need to initiate such trends in the evolution of the cooperative movement is obvious and urgent (Zinovchuk, 2020). We share this vision on the relevance of the cooperative idea and its inseparability for agriculture. Besides, the introduction of the cooperative movement effective mechanism in agribusiness will have a complementary social and economic effect (Budnik, 2019). We support V. Zinovchuk's vision about the cooperative idea and its inseparability for agriculture. We should remark that, despite a number of reasons and public resistance caused by ignorance of the cooperation benefits, the sprouts of the cooperative movement still exist. In some cases, the initiators of this process are agroholdings. In this regard, the question arises about the reasons and motivating of such agroholdings' activity.

The study of the theoretical and methodological aspects of agroholdings' activity has received considerable attention from well-known researchers. The agricultural holdings occurrence is associated with the range of increasing raw materials as well as their competitiveness enhance by a closed business cycle, logistics, the coordinated management of the entire production chain creating, reducing the financial business risks and a separate brand formation (Cherevko, 2012). As Y. Prokopenko points out, the development of holding structures opens new opportunities for the population and for local government, creates preconditions for the country social sphere decline suspension, reduces the outflow of rural residents to cities, promotes agricultural production (Prokopenko, 2019). M. Lazareva emphasizes that the significant advantage of the integration processes is mainly transaction costs saving (Lazareva, 2018). Objectively, their management level is much higher than in other forms. Moreover, as noted T. Zinchuk et al. the crop capacity level (especially for cereals and legumes) in the enterprises-participants of vertically integrated business structures is much higher compared to the other producers (Zinchuk et al., 2019).

It should be objectively acknowledged that the level of the agroholdings' management is much higher compared to other entrepreneurial forms. Along with this, O. Moroz et al. suggested that the land concentration leads to the productivity labor sharp increase and it results the reduction in the employer's number, so the social impact of agroholdings' activities can be assessed negatively. They concluded that agrarian corporations, as the only economically recognized path of development, lead to the same trap in which soviet-era agriculture found itself on the eve of market reforms. And these problems are complex (Moroz et al., 2014). R. Levek emphasizes that in Ukraine, in agricultural holdings with an area of 5-30 thousand hectares growing cereals, 80 % of value added is returned to the owners of capital, land tenants, while employers receive less than 10 % and about 8 % are given to landowners (Levek, 2020).

L. Zaburanna and Yu. Yarmolenko said that the result of the agroholdings' activities has become a threatening level of indicators related to the environment: the application of mineral fertilizers since 2000 year has increased 6 times, organic - almost 3 times; the level of arable land use increased from 79.7 % in 2000 year to 85.4 %; the share of the most profitable maize, sunflower and rapeseed, which is extremely depleting arable land, increased from 16.6 % in 2000 to 41 % in 2016 (Zaburanna and Yarmolenko, 2017). M. Pidgrebelna also notes that it is useless to expect the environmental effects of the agroholdings ' functioning. It can be explained by the facts that these economic structures are maximum profit orientation (Pidgrebelna, 2013). This view is supported also by T. Ozhelevska, who emphasizes that the further agriculture development through the agroholdings ' expansion and prosperity will lead to the complete destruction of rural areas (Ozhelevska, 2011). Yu. Khalep and A. Moskalenko indicated that the environmental aspects of production efficiency and the consequences of increasing anthropogenic pressure on the environment are often underestimated and the degree of their consideration depends mainly on the level of environmental awareness of a particular entity (Khalep and Moskalenko, 2020). We agree with the authors ' scientific position that the ecological state of production is threatening the rural areas. However, it should also be noted that this trend is typical for almost all modern agribusiness forms (farms, private enterprises, etc.) and not only for agricultural holdings.

Summarizing the leading researchers' views and opinions, we can say that the emergence of agricultural holdings is a consequence of the post-reform period of domestic development. This form of economic activity has significant advantages, such as the ability to produce large goods consignments, obtaining a “scale effect”, to integrate production and processing, to optimize the sales and trade, to avoid the intermediaries, the high-tech operations and innovative technologies use. In addition, practice of agroholdings leads to a significant slowdown in the development of small agricultural enterprises, due to the inability to compete because of lack of the main resources. However, small agricultural enterprises contribute to the rural population self-sufficiency, its survival in today 's extremely difficult economic conditions, that deepened by the global pandemic.

The purpose of the article was a theoretical and methodological generalization of the agroholdings' social initiatives within their charitable activities with the cooperatives interaction on the basis of institutional model.

Results and discussion

The emergence of agroholdings is a natural process and a consequence of transformational changes in the agricultural sector. However, regulatory irregularities, the lack of a proper institutional environment and the instability of the economic development in domestic agricultural sector, extended by inflation and the crisis, has provoked a number of challenges for the functioning of small and medium-sized agricultural enterprises. Despite attempts to ensure of management organizational and legal forms parity, large business units are dominant. They are the undisputed leaders in the production and sale. Such imbalance gives them the opportunity to penetrate into new areas; to be financially stable and have a strong material and technical base; to be innovative and investment attractive; to have stable market positions based on constant market conditions monitoring; vary prices due to the possibility of reducing the production cost; to establish a system of goods supply and sale; be effective in communicating with consumers.

Along with that, the comprehensive expansion of agroholdings and growth led to the hypercapitalization and to the occurrence of agromonopolies. Therefore, according to T. Zinchuk and Ye. Levkivskyi, the practice of companies, including agricultural holdings, require a business philosophy change in the direction of strengthening in their social mission and responsibility to future generations on maintaining prosperity and a decent quality of life (Zinchuk and Levkivskyi, 2019). The current socio-economic situation in Ukrainian villages is far from the European standard of living. O. Borodina et al. pointed out that, the agroholdings participate in the construction of country social infrastructure objects (The community..., 2015). At the same time, it should be noted that social responsibility should not be limited only by charity in the rural infrastructure development. Such position as social business responsibility is too little compensation for rural communities.

We agree with the definition of an agroholding “as an association of different organizational and legal form of agricultural enterprises aimed at maximizing the economic effect” (Dankevych, 2011). We believe that their interaction with cooperatives in rural communities will provide an opportunity to receive complementary economic benefits as well as social benefits, social progress and can significantly increase their prestige in rural society.

The issue of the introduction of social responsibility by agricultural enterprises are considered by L. Levkivska and L. Levkovych (2017); A. Mints et al. (2020) and many others. O. Pasko et al. noted that they were the first scientists, who analyzed deep the process of the formation of Ukrainian agricultural holdings (Pasko et al., 2021). Moreover, I. Irtyshcheva and T. Stroyko underscore that it is socially oriented activities bring companies tangible benefits, so they operate much more successfully and efficiently than companies that do not have such programs, by strengthening their reputation and image, improving the efficiency of doing business and investment attractiveness of the company (Irtyshcheva and Stroyko, 2013). T. Galetska et al. also notes that features of the current socio-economic situation require strengthening of their socially responsible behavior, introduction and observance of new interaction forms between business and society on the principles of systematic and long term (Galetska et al., 2020). In support to these scientific attitudes, it should be noted that the implementation of social responsibility by agricultural holdings becomes part of their business strategy and advertising card to build the commitment of rural communities and one of the most promising areas of their development is the social adaptability. Therefore, reconciling the interests of holdings and rural residents by creating cooperatives for them in rural communities can become an integral part of balanced economic development of Ukraine, as the main purpose of such cooperation is compliance of social functions. Ultimately, this may determine the undeniable importance and uniqueness of this cooperation, which will help agricultural holdings solve the farmer's problems, including social.

Agroholdings with the foreign investment, which transfer modern world practices, principles and standards of cooperation to Ukrainian business are active in the social responsibility policy. This is confirmed by the empirical experience of the “Continental Farmers Group”, whose charitable foundation gives financial support for cooperatives' establishment by the rural communities. In particular, since 2015 (the agroholding was called “Mriya”), its fund has invested more than 1.5 mln UAH to the cooperative movement development. Their main funds were directed to the necessary equipment purchase. In addition, part of the agroholdings' equipment was transferred to the cooperative members. During 2018, the agroholding implemented a number of social projects in six regions of the Western Ukraine (this is 27.4 mln UAH). Besides, thirty cooperatives were allocated in the Khmelnytsky region with its support (SMIDA, 2020).

The agricultural holdings with foreign investments, which attract funds on public platforms - stock exchanges, are more actively introducing modern world practices, principles and standards of cooperation with rural society into domestic business and form a policy of social responsibility. During 2015 -2019, 14 Ukrainian agricultural holdings placed their shares on the international stock exchanges (Table 1).

The placement of shares requires such companies to have an appropriate level of transparency and accountability. However, some companies in the agricultural sector do not report about social responsibility and their sustainable development (Table 2).

Among the 14 agroholding companies whose securities are listed on the world stock exchanges only 6 companies provide information about their social responsibility directions (that is 43 % and only three companies the non-financial reports form and GRI Standards are used (that is 21 %). This information makes it possible to single out 3 groups of agricultural holdings that cover social responsibility projects: companies that do not provide any information; companies have only websites information about the social responsibility; companies that disclose information, including using the Global Reporting Initiative (GRI) approaches.

Table 1 The dynamics of the capitalization of agroholdings, whose securities are listed on the world stock exchanges, mln USD