Big is efficient: Evidence from agricultural cooperatives in Ethiopia

Abstract

In Ethiopia, there is a renewed interest in agricultural cooperatives as an institutional tool to improve the welfare of smallholder farmers. One of the pathways through which cooperatives benefit their members is scale economies. However, the establishment of cooperatives in Ethiopia seems to pay little attention to the size of the organizations. This paper aims at This article is protected by copyright. All rights reserved. 2 investigating the effect of size on cost efficiency of agricultural cooperatives. More specifically, the purpose is to examine whether a single cooperative can serve a given number of farmers at a lower cost than two or more smaller cooperatives could. We employ the concept of cost subadditivity to compare the cost efficiency of large versus small cooperatives, and by extension unilateral actions. We estimate a flexible production technology using cross-sectional cooperative-level data. Findings show that costs would drop by 78 to 181% if farmers join hands in relatively large rather than small cooperatives.

Financial structure and cooperative efficiency: A pecking‐order evidence from sugarcane farmers in Eswatini

“…This could be attributed to the coordination problems associated with the operations of large organizations. While this finding aligns with that of Katz (1997) for a sample US cooperative, it is inconsistent with Arcas et al (2011) and Gezahegn et al (2019) for Spanish and Ethiopian cooperatives respectively.…”

“…The organization of farmers into cooperatives is seen as a mechanism to address the myriad of problems faced by smallholder farmers with low yields, financing constraints and high transaction costs associated with market participation (Markelova, Meinzen‐Dick, Hellin, & Dohrn, 2009; Mojo, Fischer, & Degefa, 2017 as cited in Abdul‐Rahman & Abdulai, 2018). Through aggregation, producer cooperatives can benefit from economies of scale advantages, bargaining power and reduced transaction costs (Holloway, Nicholson, Delgado, Staal, & Ehui, 2000; Ito, Bao, & Su, 2012; Saitone, Sexton, & Malan, 2018; Soboh, Lansink, Giesen, & Van Dijk, 2009 as cited by Gezahegn, Passel, Berhanu, & D'Haese, 2019). These benefits associated with cooperative organizations are mostly pronounced for smallholder farmers in rural areas, in the form of high output prices, income (Bachke, 2019; Bernard, Taffesse, & Gabre‐Madhin, 2008; Fischer & Qaim, 2012; Mojo et al., 2017) and savings, and reduced input cost (Getnet & Anullo, 2012) which have the potential to reduce poverty (Verhofstadt & Maertens, 2015).…”

“…aggregation, producer cooperatives can benefit from economies of scale advantages, bargaining power and reduced transaction costs (Holloway, Nicholson, Delgado, Staal, & Ehui, 2000;Ito, Bao, & Su, 2012;Saitone, Sexton, & Malan, 2018;Soboh, Lansink, Giesen, & Van Dijk, 2009 as cited by Gezahegn, Passel, Berhanu, & D'Haese, 2019). These benefits associated with cooperative organizations are mostly pronounced for smallholder farmers in rural areas, in the form of high output prices, income (Bachke, 2019;Bernard, Taffesse, & Gabre-Madhin, 2008;Fischer & Qaim, 2012;Mojo et al, 2017) 1 and savings, and reduced input cost (Getnet & Anullo, 2012) which have the potential to reduce poverty (Verhofstadt & Maertens, 2015).…”

Heterogeneous welfare effects of farmer groups in smallholder irrigation schemes in South Africa

“…Sebhatu et al (2021) highlighted the importance of group total assets, membership size and occurrence of conflict among members as vital factors that influence group performance. It is difficult to monitor and enforce rules in bigger groups because of the increasing transactional cost for rule enforcement due to free-riding among members (Gezahegn et al 2019). Groups dominated by males tend to be more successful because male farmers have better access to resources in rural areas due to patriarchy (Barham & Chitemi 2009;Sharaunga & Mudhara 2016;Sinyolo et al 2018).…”

Risk pooling cooperative games in contract farming

“…Agricultural cooperatives in Turkey have favorably impacted the economic, social, and industrial development of the country and the democratization of the agricultural sector and the wider community (Özdemir, 2005). In Ethiopia, agricultural cooperatives are taking advantage of the effect of scale economies to benefit their members and have been used as an institutional tool to improve the welfare of farmers (Gezahegn, Van Passel, Berhanu, D'Haese, & Maertens, 2019). Ofori, Sampson, and Vipham (2019) illustrated that agricultural cooperatives were increasingly advocated as a way to improve incomes, livelihoods, and the sustainability of smallholder farmers in Cambodia.…”