Cooperatives Membership And Smallholder Farmers’ Welfare - Evidence From Shaanxi And Shandong Provinces, China

Cooperatives are regarded as an institutional vehicle to help farmers mitigate market imperfections and improve smallholder welfare. Though much research has been done on what effect cooperatives have on farmers’ welfare, the question of how cooperatives affect farmers’ welfare remains largely unanswered. By using the case of apple farmers in China, we seek to answer this question by examining the effect of cooperative membership on yield and profit. The empirical analysis is based on field survey data collected among 551 apple farm households in Shaanxi and Shandong. An endogenous treatment regression model is employed to assess the average treatment effects of cooperative membership on the yield and profits per unit area. Our research shows that cooperative membership has a significantly positive effect on yields, but no significant effect on profits per unit area. Two pathways explain the different effects. First, cooperative services change members’ production practices, especially the use of inputs that lead to higher land productivity. Second, members on average spend more on fertilizers and use more hired labor than non-members, which results in higher production costs. The extra revenues generated by the increased yields roughly compensates the extra production costs of the members.