Humboldt-Universität zu Berlin - Economics of Agricultural Cooperatives

Performance

In subject area Performance, the objective of the Raiffeisen Chair is to contribute to a better conceptualization of the factors determining cooperative performance. This affords both, empirical and theoretical analysis: It is assumed that cooperatives benefit their member-owners with for example price or cost advantages, the reduction of risk, or by offering valuable services. For the analysis of these advantages usually the monetary effects of cooperative membership or general economic figures of the cooperative enterprise have been measured and compared. As indicators for cooperative performance for example differences in market margins, paid producer prices, return on cooperative equity as well as return on and growth of cooperative turnover have been used [1].

Data requirements for the analysis of cooperative advantages are relatively high, as the comparative analysis of cooperative performance requires differentiation between cooperative enterprises and other enterprises on the market. Analyses targeting specific economic advantages for members also require a distinction to be made between those services exclusively offered to members and those offered to customers. Depending on the used criteria for measuring cooperative performance, this may include modeling cooperative performance parameters and subsequent econometric analysis of household surveys or panel data [2]. Indicators of market performance might not differ between cooperative firms and their shareholder value-oriented competitors. Yet, because the shareholders of cooperatives are at the same time their customers, it is assumed that, looking at performance from an ownership perspective, performance indicators between cooperatives and shareholder value-oriented corporate firms should differ. In searching for concepts of cooperative performance which can better capture member preferences, it needs to be assumed that members, who have a clear focus on the success of their individual farm enterprise, will over time also develop preferences for certain practices of participation in and control of their cooperative firm, preferences for market position and increased coordination of bulking and sales as well as preferences for secure transportation and product absorption by their cooperative [3]. In order to better understand when and why, in times of rapid changes, members remain loyal to their cooperative, a set of performance indicators will have to include standard business figures as well as indicators expressing what members expect of their cooperative. Comparative analysis of cooperative performance will have to employ methods which enable measurement of how these member preferences are met by the general strategies of their cooperatives. Producer-owners may develop preferences related to decision making processes, for example on the location of a processing unit, the design of collection routes, single contract stipulations such as length of delivery contracts, or delivery guarantees.

At the same time, it is plausible to assume that for the members, information about the main dynamics and developments of the market and information about the behavior and strategies of the primary competitors and the resulting risks for member investments should gain in importance. Information about a cooperative’s market strategy and the ways in which its management justifies this strategy vis-à-vis member-owners may also become quite relevant. For understanding why some cooperatives do better than others while, at the same time, keeping their owners satisfied with their services, indicators for comparative analysis have to be developed. Business figures, for example, need to be supplemented by indicators measuring how the changeable preferences of the owners of a cooperative are met.

For measuring member preferences regarding cooperative services, choice experiments are a suitable method [4], which allows the general measuring of member preferences for the brand value of their cooperative as well as for single cooperative attributes. Member-customers can express their appreciation of, for example, being served by a cooperative versus being served by a corporate competitor. At the same time, choice experiments can enable measurement of member preferences regarding single cooperative attributes, such as participation in their cooperative’s quality decisions, receiving market information about the cooperative with member bulletins, market risk reduction, single-liability stipulations for members, insurance against certain price risks with patronage refunds or pooling instruments, delivery rights, regional product orientation or the equal treatment of larger and smaller producer-members.

During the current process of dynamic change in the agri-food sector, it can be expected that member perspectives regarding the performance of their processing or warehouse cooperative will also “globalize” and that, in the future, for the members other performance attributes will count more than those considered relevant only a few years ago. Results of comparative research on cooperative performance that includes how the preferences of members as customers of their cooperative are met can provide important insights for the future development of agricultural cooperatives. The relevance of such results for the strategic decisions of cooperative management and cooperative associations as well as for the design of agricultural policies would seem obvious.

 


[1]    See LeVay (1983); Schrader et al. (1985); Henehan & Pelsue Jr. (1986); Parliament et al. (1990); Fulton & King (1993); King et al. (1997); Pritchett & Hine (2007), Harte & Connor (2007).

[2]    At the end of 2011, the consortium members of the EU-tender project Support for Farmers’ Cooperatives had gathered data on different cooperative branches and sectors in 27 countries of the EU. This data can be supplemented with Eurostat-Amadeus data and sector-specific data bases such as, for example, the data base of the European Milk Board (EMB) or the data bases of national cooperative associations. Together, these new sources can provide a unique base for comparative analysis of cooperative business figures.

[3]    See Schlecht et al. (2013).

[4]    Choice experiments are survey-based methods to derive demand functions characterizing certain product and service attributes, for which market prices cannot easily be observed (Müller et al. 2012, 5). The respondents articulate their preferences in the form of stated preferences. With the background of, for example, the quota abolition in the dairy sector in mind, it may make sense to ask cooperative members about their preferences regarding milk delivery rights to their cooperative, preferred contract duration, or for preferred terms for delivery obligations in order to better understand what the attributes of cooperative performance are from a members perspective.