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Big is efficient: Evidence from agricultural cooperatives in Ethiopia

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  • Tafesse W. Gezahegn
  • Steven Van Passel
  • Tekeste Berhanu
  • Marijke D'Haese
  • Miet Maertens

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 article aims at 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.

Suggested Citation

  • Tafesse W. Gezahegn & Steven Van Passel & Tekeste Berhanu & Marijke D'Haese & Miet Maertens, 2019. "Big is efficient: Evidence from agricultural cooperatives in Ethiopia," Agricultural Economics, International Association of Agricultural Economists, vol. 50(5), pages 555-566, September.
    • Handle: RePEc:bla:agecon:v:50:y:2019:i:5:p:555-566
    DOI: 10.1111/agec.12509
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    Cited by:

    1. Phakathi, S. & Sinyolo, S. & Fraser, G.C.C. & Marire, J., 2021. "Heterogeneous welfare effects of farmer groups in smallholder irrigation schemes in South Africa," African Journal of Agricultural and Resource Economics, African Association of Agricultural Economists, vol. 16(1), March.
    2. Schoneveld, George C., 2022. "Transforming food systems through inclusive agribusiness," World Development, Elsevier, vol. 158(C).
    3. Zhanwen Shi & Erbao Cao, 2021. "Risk pooling cooperative games in contract farming," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 69(1), pages 117-139, March.
    4. Gelo, Dambala & Muchapondwa, Edwin & Shimeles, Abebe & Dikgang, Johane, 2020. "Aid, collective action and benefits to smallholders: Evaluating the World Food Program's purchase for progress pilot," Food Policy, Elsevier, vol. 97(C).
    5. Ahmet Candemir & Sabine Duvaleix & Laure Latruffe, 2021. "Agricultural Cooperatives And Farm Sustainability – A Literature Review," Journal of Economic Surveys, Wiley Blackwell, vol. 35(4), pages 1118-1144, September.
    6. Kuhle Prudence Mnisi & Abdul Latif Alhassan, 2021. "Financial structure and cooperative efficiency: A pecking‐order evidence from sugarcane farmers in Eswatini," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 92(2), pages 261-281, June.
    7. Phakathi, Sandile & Sinyolo, Sikhulumile & Marire, Juniors & Fraser, Gavin, 2021. "Farmer-led institutional innovations in managing smallholder irrigation schemes in KwaZulu-Natal and Eastern Cape Provinces, South Africa," Agricultural Water Management, Elsevier, vol. 248(C).
    8. Qiao Liang & Rongrong Bai & Zhi Jin & Linlin Fu, 2023. "Big and strong or small and beautiful: Effects of organization size on the performance of farmer cooperatives in China," Agribusiness, John Wiley & Sons, Ltd., vol. 39(1), pages 196-213, January.
    9. Gezahegn, Tafesse & Van Passel, Steven & Berhanu, Tekeste & D'Haese, Marijke & Maertens, Miet, 2020. "Structural and Institutional Heterogeneity among Agricultural Cooperatives in Ethiopia: Does it Matter for Farmers’ Welfare?," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 46(2), August.

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