Efficiency of Cooperatives and Investor Owned Firms Revisited

Abstract

The objectives of dairy processing cooperatives differ from those of investor‐owned firms (IOFs). However, the literature usually assumes the same performance measures for cooperatives vis‐a‐vis IOFs. This study compares the performance of dairy cooperatives and IOFs in major European dairy producing countries. A traditional input oriented approach is used and two alternative approaches are used to account for the differential objectives of cooperatives. Cooperatives’ performance differs across the two approaches from being outperformed by IOFs using the input oriented approach to outperforming them when using an approach that is more in line with cooperatives’ objectives.

A Review of the Empirical Literature on Farmer Cooperatives: Performance, Ownership and Governance, Finance, and Member Attitude

“…Second, Soboh et al. () conducted a comparative study of firms and cooperatives in the west European dairy industry with different input–output models: a traditional model with a cost‐minimization objective, and a hyperbolic model which allowed expansion of outputs and some inputs. While the mean cooperative in the sample has many more assets as compared to the mean firm, the traditional model indicated the mean cooperative had lower scale (−10%), technical (−50%), and allocative efficiency (−20%).…”

The cooperative capital constraint revisited

“…Finally, differences in financing behavior and performance stem from differences in business objectives of cooperatives and non-cooperatives (Sexton and Iskow, 1993;Lerman and Parliament, 1993;Akridge and Hertel, 1992;Soboh, Lansink, Giesen, and Van Dijk, 2009;Soboh Lansink and Van Dijk, 2012). Cooperatives must be profitable; however, within the scope of the user-owner principle, a cooperative can be managed to achieve an objective other than strict profit maximization, such as maximizing patronage payments, optimizing net prices to producers, maximizing value to members, and maximizing quantities of products sold and marketed.…”

“…Cooperative equity accumulation is further challenged considering that members' equity in a traditional cooperative is nonmarketable, non-transferable, and its stated value does not appreciate through changes in market values. Also, if producers consider and weigh heavily the opportunity cost to investing in the cooperative instead of pursuing other investments (Soboh, Lansink and Van Dijk, 2012) -potentially in their own operation -added strains to equity accumulation occur. Finally, illiquidity of members' equity creates a horizon problem.…”

Measuring the technical efficiency of cooperative societies in Kuwait

“…Another strand of literature surveyed by Soboh, Oude Lansink, Giesen, and Van Dijk () points out that direct comparisons of efficiency between coops and IOFs are difficult because coops maximize a multiobjective member benefit function, whereas IOFs only maximize profits. After adjusting for differences in objective functions, Soboh, Oude Lansink, and Van Dijk (, ) find that although IOFs are more profitable, coops perform better than IOFs when evaluated under multiple objective criteria. Rather than directly comparing coops with IOFs in the same industry using a single efficiency frontier, studies such as Latruffe, Davidova, and Balcombe () have chosen to estimate separate production functions for coops versus IOFs.…”