Cooperatives’ level of vertical integration and farm financial performance amongst smallholder farmer‐members in Sri Lanka

This paper assesses the impact of the level of cooperatives’ vertical integration on the financial performance of smallholder rice farmers in the North Central province, Sri Lanka. A sample of 309 smallholder rice farmers was surveyed using a structured questionnaire. The sample represented 152 partially and 157 fully integrated smallholder rice farmers who are members of partially and fully vertically integrated cooperatives, respectively. The propensity score matching technique was applied to correct for potential selection biases. Three financial performance indicators: cost of production, operating profit and sales revenue have been used. Results show better financial performance for the farmers who are members of fully integrated cooperatives except for the cost of production. They receive higher operating profit and sales revenue than those farmers who are members of partially integrated cooperatives. However, the cost of production remains more comparable for both groups of farmers. Overall, the findings of this study suggest that the smallholders can enhance their financial performance through cooperatives that are fully vertically integrated.