National Agricultural Cooperatives Federation (NH) sets up two holding companies to invigorate its operations
Following are excerpts from a written interview with Director Park Bum-su, Ph.D, of the Agricultural Financial Policy Division of the Ministry for Food, Agriculture, Forestry and Fisheries in which he talks about the reform of the business structure of the National Agricultural Cooperatives Federation (NH).
Question: The reform of the business arrangement of NH was one of the largest subjects talked about since the start of the Lee Myung-bak administration. Please, explain to us the progress that has been made on the subject so far.
Answer: Since its establishment in 1961, NH has grown enormously in size with employees totaling 23,000 as of 2011. The farmer’s organization was born out of the merger of the old Nonghyup and Nonghyup Bank in 1961 with the aim of playing the role of a locomotive for the development of Korea’s farm community, especially to boost the quality of life for the people engaged in farming by upgrading their positions economically, socially, culturally and in other ways.
There has been so much discussion on raising the transparency and responsibility in running Nonghyup, along with criticisms that a number of business areas including retailing and animal husbandry have been neglected. There also are complaints that the management system of the farmers’ organization should be reformed, since it has remained unchanged for a half century.
Reform of the organization has been continuously pushed in order to revitalize its businesses related to economic benefits and revive its given role as the voice of the people in the farming sector.
In 2008, an agricultural reform committee made up of 11 people from farm organizations and academia was launched to reform Nonghyup’s structure. It completed its work on March 31, 2011 and it was implemented on March 2, 2012.
The reform called for the creation of a central cooperative federation and two holding companies, one for finance and the other for economy. The central cooperative federation will work for the education of farmers, and provide guidance, leadership, and supervision of the two holding companies as an investor should.
The economics-focused holding company will take charge of the sale of farm produce, retailing, and production of farm products, along with other areas related to economic matters. The financial businesses have been transferred to the financial holding company.
Q: What was the significance of setting up two holding companies under the NH Central Cooperatives?
A: The division of the operations of NH Central Cooperatives was the task that took a long time to realize since the measures for the development of farm and fishing industries were put forth in 1994. NH Central Cooperatives wanted to take the lead in solving various tough problems faced by the agricultural and fisheries sectors by dividing up its operations into the two divisions, finance and economics.
Q: What support has the government provided for the success of Nonghyup’s reform?
A: The government decided to provide 5 trillion won to NH over the next five years to shore up its capital funds, four trillion won to help payment of loan interest, and 1 trillion won in cash. NH issued NH bonds worth 4 trillion won on Feb. 24 and 80.4 billion won to help the payment of interest on NH loans. The government will give 500 billion won worth of the KDB shares it holds and 500 billion won worth of its stakes in Korea Expressway Corp. to NH as part of that 1 trillion won.
Q: What are details of the measures to invigorate the economic businesses of NH?
A: By 2020, NH will sell more than 50 percent of the farm produce and products supplied by farm cooperatives and provide farm equipment so that farmers can concentrate on only farming and leave the sale of their produce and products to NH. Under the reform, all farm households will be organized and the organization will sell farm produce to cooperatives, which will sell them to the NH Central Cooperatives Federation, which will take charge of the retailing of the farm produce. Farmers will see all of their produce sold through the NH sale network all across the country. Already 45 percent of their produce was sold through the network in 2011, 46 percent in 2012, and an estimated 62 percent in 2020.
The NH Central Cooperative (economic holding company) will invest 4.96 trillion won over the next several years to expand the logistics centers and sales facilities all across the country with the economic holding company slated to be an independent business entity managing its own personnel, budget, and other management rights eventually.
Q: Can you please explain in specific terms how the nationwide sales network will work by major areas of its marketing operations?
A: Rice, for example, will be distributed through the rice sales company set up and run by the NH economic holding company, securing a dominant position in the sale of rice in the country. It is projected to handle the sale of 9.2 percent of rice provided by farmers’ cooperatives in 2011, 10.1 percent in 2012, and an estimated 58.7 percent in 2020. The rice sales company will be set up with the investment by the NH Central Cooperative and members of the RPC, totaling around 50 across the country.
Livestock sales will be handled by large cooperative-type packers. They sold 12.8 percent of total livestock provided by the farmers cooperatives in 2011, 12.9 percent in 2012, and an estimated 63.8 percent in 2020, according to the plan. The livestock packers will include those for Korean cows, hogs, and chicken eggs. There will be an integrated livestock logistics center in the Seoul area, and regional eggs marketing centers in key locations across the country. The economics holding company will set up diverse specialized marketing units to handle the sale of Korean beefs, pork, and chicken.
In the area of horticulture, a nationwide sales network centered around wholesale organizations will be set up to lead the nation’s horticultural business. Under the network, sales of horticultural products climbed to 9.1 percent in 2011, a projected 11.6 percent in 2012, and 39.1 percent in 2020. Five new logistics centers will be set up around the country and marketing campaigns will be strengthened to create increased added value from the business.
Under the long-term perspective, the logistics centers and the joint sales units will be merged to create synergy.
Q: What would be the benefits for farmer and consumers if the economic business is invigorated?
A: When the plan is successfully implemented, there will be 3 trillion won worth of benefits to both farmers and consumers by 2020. The farmers will see their earnings increased by 2.15 trillion won as the prices of farm equipment and others will be reduced, with stable marketing routes secured and prices of farm produce increased through the power of negotiations strengthened. The benefits to consumers will be worth about 0.72 trillion won owing to stable supply and demand and fixed prices of farm produce and livestock.
The National Agricultural Cooperative
Federation Headquarters in downtown Seoul.