Are cooperatives transitioning from cost minimizers to profit maximizers?

PurposeThe purpose of this paper is to examine the optimizing behavior of agricultural supply and marketing cooperatives in the US Midwestern states.Design/methodology/approachThis paper uses firm-level data from CoBank, the primary lender to agricultural cooperatives, to evaluate optimizing behavior of 77 Midwestern agricultural marketing and supply cooperatives from 2014 through 2017. The study uses the data envelopment analysis (DEA) and the weak axioms of cost minimization and profit maximization to identify whether or not a cooperative is following a cost minimization and/or profit maximization objective.FindingsIn contrast to previous research, results provide stronger support for profit maximization as the behavioral objective of agricultural cooperatives instead of cost minimization, especially for larger cooperatives.Practical implicationsTraditional firm theory for investor-owned firms states that businesses seek to maximize profits. Agricultural cooperatives however, could aim to maximize profits so as to redistribute profits back to user-owners as patronage refunds. Or, they could minimize costs so as to lower cost of products sold and services provided to their user-owners. Given users-control the cooperative, knowing the primary objective of agricultural cooperatives will allow for better design of research and education programming.Originality/valueGiven recent changes and consolidation in the agricultural industry among farms and agricultural cooperatives, this study reexamines past work that evaluated the optimizing behavior of agricultural cooperatives. Changes in industry and the necessity to remain competitive from an agribusiness standpoint have resulted in an anticipated shift toward a profit maximizing objective. The value of this study is providing an evaluation framework, using a firm-level comprehensive dataset, that represents the cooperative system.

Financial leverage and agency costs in agricultural cooperatives

Purpose The purpose of this paper is to examine the extent to which agency costs of leverage are present in farm supply and marketing cooperatives. Design/methodology/approach The authors calculate total factor productivity growth of a sample of agricultural cooperatives from 2005 to 2010 and use regression to determine the effect of leverage on productivity growth. Findings The findings indicate that there is a small but statistically significantly negative effect of leverage on productivity growth. This indicates that, at the margin, the costs of leverage outweigh the benefits. Originality/value This paper measures the magnitude of what is typically considered an important financial transaction cost. The authors find that the magnitude of this effect is small, indicating that government policy should address other financial issues.

Data Analysis and Suggestions of Supply and Marketing Cooperatives Industry in the Agricultural and Sideline Products Deep Management

China's supply and marketing cooperatives play an important role in the depth of management for the agriculture, rural areas and farmers service and agricultural and sideline products. This paper analyzes the plight of this industry to participate in agricultural and sideline products business and the problems of enterprises in operating management and financial management, and finally puts forward suggestions and countermeasures from six aspects.

Urban and Rural Logistics and Distribution System Based on Supply and Marketing Cooperatives

China is a vast country with 800 million farmers. An amelioration of their general living condition is a pressing issue. In China, it is not uncommon to encounter lower grain price due to the delays in their transportation. There are many reasons for the low living standards in rural areas, the obsolete rural logistic system, especially regarding agricultural products, is obviously one of them. Recently, to improve logistics development conditions of China's agricultural products, every levels of government increased rural logistics investment in construction projects; however, there are still delay issues from the productions centers to the urban areas. This paper looks the breaks in the logistics chain by studying the current distribution style, and proposes logistics system based on supply and marketing cooperatives in order to improve the existing system.

Marketing and Social Structure in Rural China, Part III

Even before the completion of land reform, the Communist regime had introduced in most parts of China the two new institutions through which it planned eventually to socialize rural trade, namely the state trading companies and the supply and marketing cooperatives. The former, wholly owned by the state and controlled by governmental departments of commerce, were normally established in cities and central market towns. Each company specialized in certain lines—e.g., grain, edible oils, marine products, stationery supplies—and established branches in nearby market towns as required for sales or purchases. With few exceptions, free competition obtained between the state trading companies and private firms until November 1953, when the companies began to acquire official monopolies of important commodities. By the end of 1954, state concerns had absorbed a number of larger private firms and captured a major share of the wholesale market.