[Viewpoint]Return Nonghyup to its roots

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[Viewpoint]Return Nonghyup to its roots

A committee under the Ministry for Food, Agriculture, Forestry and Fisheries has recently announced reforms for the National Agricultural Cooperative Federation that would shave its chairman’s power. The federation, better known as Nonghyup, had once announced a similar reform plan.

It is, however, still debatable whether Nonghyup can be returned to its actual owners - the farmers. The reform plans have a long way to go before they get to the core of the issues the organization faces. They are just wasting time overhauling the surface.

The changes are aimed at restoring Nonghyup to its original purpose, from an organization that does well in the money business to one that does well selling agricultural products. To this end, the credit business of the federation and its branches need to be separated. Then, Nong-hyup must reinforce the marketing end of its business that sells the agricultural goods produced by its members.

The need for separation is urgent - the federation must be reorganized so it can extricate itself from the finance business. This is the only way to stop it from continuing to use its cooperative branches as banks.

If this is done, the organizational structure - once focused on the federation - will also change, and cooperatives will become the center of Nonghyup’s operations.

Then the committee’s plan to overhaul the ownership structure of Nonghyup will be unnecessary. It won’t really matter whether the
Nonghyup chairman is elected directly or not, or whether that chairman is allowed to run for a second term.

Any true reform of Nonghyup will create an organization that can focus on marketing agricultural goods instead of being involved in banking. Nonghyup should concentrate on selling agricultural products at the right price and at the right time. It should also be concerning itself with supplying high-quality farming materials to the people that need them. This is the reason for its existence.

Nonghyup was formed more than 50 years ago, but it still has many problems. Why is that? Why has Nonghyup become a financial institution, and not a seller of farm products?

The answer can be found in events that happened in 1961. At the time, Nonghyup was absorbed into the Agricultural Bank and the new Nonghyup was born. Although the organization carried the name
“Nonghyup” after the merger, it was actually a financial business. Since then, Nonghyup’s actual marketing and sales business failed to find its own identity and became a part of the financial end of the business.

The marketing and sales division didn’t have any assets, so it borrowed a certain amount of resources every year from the credit division. At the end of each year, the marketing and sales division paid back the principal with interest, but continuing the cycle of deficits.

While Nonghyup’s marketing and sales division suffers from this structural problem and continuously records a deficit, the financial division has covered up that loss with its banking business. This was how Nonghyup has been run up until now.

As of now, Nonghyup has become a privileged financial institution, enjoying a range of benefits and support from the government under the justification that it carries out programs that aid farmers.

Once, Nonghyup used the justification that the surplus money from urban areas would be sent to agricultural regions for the development of the nation’s farming business.

But the government has increased its subsidies for farmers since the 1990s, and the justification is no longer valid. Nonghyup’s credit business currently targets unspecified clients who are not farmers, and Nonghyup is now overtly calling itself a financial group with diversified products.

Under the circumstances, it is ineffective to demand that Nonghyup focus on its programs for farmers.

For today’s Nonghyup, such programs are simply a formality that creates a deficit. The cooperative branches’ marketing and sales business has also become inefficient and politicized.

Because the deficit comes from structural problems, more and more cooperatives are covering up their losses with profits from banking operations or zero-interest loans from the federation. Cooperatives that actually put efforts into programs to assist farmers have been falling behind.

As a result, the agricultural market has become distorted and the cooperative spirit has been tainted. If these problems are not corrected, farmers will suffer even further.

The essential requirement for any Nonghyup reform is the separation of the banking business from the institution and the empowerment of the marketing and supply business so it can stand alone.

Nonghyup, however, is still trying to justify its current organizational structure by defending the banking business.

Now is the time to seriously think about how to cleave away the banking and cooperative finance sector of Nonghyup and how to transform the organization.

This is the way to build
Nonghyup into an institution that is “for the farmers, by the farmers and of the farmers.”

The planned discussion on the organizational structure, therefore, is the true beginning of the association’s reform.


*The writer is a visiting professor at Chonnam National University and a co-chairman of the National Movement for Agricultural Cooperative Reform. Translation by the JoongAng Daily staff.

by Choe Yang-boo
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