Half a century ago, South Korea was one of the poorest countries in the world, with rural life particularly harsh. In the aftermath of the Korean War, devastated communities were suffering from chronic food shortages. A government-led push created an agricultural cooperative system to revive the rural economy, eradicate poverty and improve the socio-economic status of farmers. As part of this process, the government created the National Agricultural Cooperative Federation (NACF) in 1961, uniting the Agricultural Bank and the existing agricultural cooperatives. Since then, the NACF, known as Nonghyup in Korea, has played a crucial role in the development of the Korean economy and the modernization of agriculture and rural communities.
Now South Korea is one of the world’s wealthiest nations, a modern economic and cultural powerhouse. As Korean pop culture grows in popularity around Asia and the rest of the world (the “Korean wave”) and electronics brands like LG and Samsung dominate the global sector, the NACF has also grown to become a hugely successful cooperative. According to last year’s World Cooperative Monitor, it is the world’s third-largest agricultural cooperative.
The Korean agricultural cooperative system has a unique diversity of activities, including banking, insurance, agricultural marketing and extension services. This multipurpose system was initially adopted to support Korean farmers because small-scale, diversified farming was the norm, with the average farm covering barely one hectare. The success of agricultural cooperatives in the country is based partly on their multipurpose nature, bringing credit unions and consumer cooperatives to rural communities and facilitating rural development.
Reflecting this, the NACF is a multipurpose cooperative with four main business divisions: agricultural marketing and supply, livestock marketing and supply, banking and insurance, and the extension service, which offers guidance. Following a restructuring in 2012, the NACF now serves its members and customers through 27 subsidiaries and two affiliate organizations. It represents 2.44 million individual members from 1,165 member cooperatives: more than 80% of all the Korean farmers.
The agricultural marketing and supply business is the most essential of NACF’s services, as it directly involves ensuring higher returns and benefits to member farmers. For example, in the 1990s, to cope with changes following market liberalization and increased foreign imports, the NACF opened the discount warehouse supermarket chain Hanaro Club, selling mainly Korean farm products. The introduction of this direct sale system between producers and customers allowed retail prices to fall, while still paying farmers fairly. Now, over half of all the agricultural products in South Korea are shipped by the NACF and its member cooperatives in the production area, while 20% of all the agricultural products sold in the consumption area are channelled by the NACF and its member cooperatives.
The NACF’s banking business (NH Bank) serves 19.3 million customers with 43.9 million bank accounts, while member cooperatives provide banking services to 27.7 million customers with 77.8 million bank accounts. Considering 36.7 million overlapping customers, approximately 70% of the national population is currently using the NH Bank or its member cooperatives. This extensive client base is derived from diverse banking services including private banking, retail banking, corporate banking, insurance, credit cards, mutual credit and, most of all, convenient nationwide branches. These are particularly needed in rural areas underserved by commercial banks.
The extension service conducts varied activities that contribute to representing farmers’ interests and rights, supporting their welfare and promoting cultural activities. It also engages in research and development on new technologies in the agricultural field. Through exchange programmes between urban and rural communities and its “I Love Farm” campaign supporting the coexistence of cities and farms, it also contributes to the balanced development of the national economy.
The challenge for NACF in the future will be to remain true to its identity as a cooperative organization, while ensuring greater competitiveness for its members in an economic system dominated by the investor-owned model.
Story originally published in 2014 World Co-operative Monitor.