Farmers’ self-reported value of cooperative membership: evidence from heterogeneous business and organization structures

Abstract

The value of membership of an agricultural producer cooperative to a farmer is universally understood to include market access, improved bargaining power, and reduced transaction costs. As a result of consolidation in agriculture, many farmers in developed countries have found themselves in complex cooperative structures in which market orientation may elevate capital-related membership benefits over the traditional patronage and farming-related benefits. This study utilized the heterogeneity in producer organization structures to examine the significance to farmers of membership in modern agricultural cooperatives. Survey data including 682 Finnish agricultural producers in the livestock sector enabled the subjective value of cooperative membership and the relationship with transaction cost benefits to be analyzed. The effect of vertical integration in cooperatives on the self-reported value of membership benefits was assessed with a sample consisting of members in three types of cooperative organizations: dairy marketing, dairy supply, and meat cooperatives. The findings confirm that a stable market channel is still the most important benefit that producers perceive as deriving from cooperative membership. Multivariate ordered probit analysis indicated that the market channel is equally appreciated by large and small producers, but the reduced uncertainty brought by a cooperative buyer is particularly valuable to farmers who are investing in farm expansion. The survey findings indicate that the more competition for the raw material from producers there is in an area, the greater is the pressure cooperatives may be under to develop their service offering in order to attract members.