Sales distortion in heterogeneous cooperatives

Abstract

We show that the internal conflicts in cooperatives can distort sales and reduce the marketing of high-quality products. The conflicts arise because modern agricultural marketing cooperatives must implement farm-level differentiation to meet requirements from high-quality market segments, e.g. consumers focusing on animal welfare. When standard producers hold the majority vote in the cooperatives, they are reluctant to promote the sales of specialty products to first best levels even though this does not affect the sales of standard products. The cooperatives will therefore tend to under-produce specialty products. © 2007 springer.