Journal of Rural Cooperation
Special issue: Cooperative values in internationalized operations
No. 40-2
Edited by:
Ayal Kimhi
Zvi Lerman
Michal Palgi
Michael Sofer
This special issue of Journal of Rural Cooperation has its origin in an eRNAC (electronic Research Network of Agricultural Cooperatives) conference held in Helsinki, Finland, June 14-16, 2012. The general theme of the conference was Cooperative Values in Internationalized Operations. The operations in the agro-food industry are becoming so large that operational areas grow larger than national borders. Many agro-food firms are global. Agricultural cooperatives are obliged to follow the development. However, cooperatives’ internationalization turns out to be problematic. How to deal with members and non-members in different countries? Who is entitled to the residual? Are old principles such as equal treatment and democratic decision-making still applicable? In the process of internationalization the relations between various actors in the cooperative organizations come into focus. In addition to more heterogeneous membership, relations between members and managers and between members and internal as well as external investors financial issues become more complex. Not all those conflicting interests can be managed through economic arguments. Also social factors play a role. Daniela Maria Pozzobon, Decio Zylbersztajn, and Jos Bijman analyze decision-making relations between members and managers. Their starting point is that when democratic costs increase, agency costs of monitoring hired management decrease. The cooperative members’ active participation reduces the costs for monitoring the management. This argument also functions other way around. The research question is: How is a cooperative’s ability to control both democratic and agency costs related to the level of member participation? One finding is that cooperatives are more inclined to reducing the opportunity agency costs (member participation) rather than opportunity democratic costs (e.g. incentive payments to the managers). The horizon problem’s influence on cooperative financing is analyzed by Murray Fulton and Konstantinos Giannakas. The horizon problem has a direct connection to the open membership policy. Upon the establishment of a cooperative the first generation of members may not have an incentive to support the next generation through an open membership policy. The first generation may want the second generation to invest more than they have done themselves. Even though there would be an incentive to restrict new members, the vaguely defined property rights may, however, make an open membership policy plausible. The horizon problem also plays a role in Jeffrey Royer’s analysis of why cooperatives are seldom integrated in down-stream value-added markets. Royer presents a wide range of reasons why access to capital, characteristics in cooperative decision-making and cooperative managers’ behavior prevent cooperatives from expanding their activities to value-added markets. Cooperatives’ limited access to equity capital together with memberships’ riskaversion seem to act as barriers to expansion in down-stream activities, which usually are more capital intensive than up-stream operations. Royer suggests that “member investment in food and agribusiness stocks may provide an effective way to hedge against business risk while capturing some of the benefits of retained ownership without an extension of ownership interest.” Gregory McKee and Ryan Larsen focus on cooperative members’ and managers’ decision-making concerning financing issues. If retained patronage refunds can be regarded as a primary source of capital, the question arises how much to pay to members and how much to reserve for future investments in the cooperative. This issue may create conflicts between members and the management. The authors use member-controlled and manager-controlled variables to analyze the effect on risk, debt and investment behavior. They find that relatively small cooperatives have a larger potential to improve their risk management and optimal borrowing. Fabiana Cherubim Bortoleto and Davi Rogério de Moura Costa examine the meaning of loyalty and social responsibility to agricultural cooperative members. The starting point is the notion that members’ loyalty towards their cooperatives is crucial for cooperative success, and social responsibility is an important factor in increasing the cooperatives’ value from both members’ and external parties’ point of view. The data originates from a sample of Brazilian cooperatives. Results indicate that better capacity to provide services increases members’ loyalty. However, no significant relationship between social responsibility and loyalty is found. Daniel May investigates whether also non-economic drivers influence farmers’ incentives to cooperate. He compares farmers’ incentives to cooperate prior to a major policy reform (stable business environment) and their incentives after it (turbulent business environment). Day finds that the noneconomic drivers influencing willingness to collaborate are different in a stable business environment than in a turbulent one. In a pre-reform environment clarifying joint business goals and objectives influenced to joining together, as well as cooperative being a means to be in a closer contact with suppliers and buyers. In post-reform conditions such factors as cooperation as a means of maintaining or supporting farming life style become important. Tursinbek Sultan and Axel Wolz compare the development of agricultural cooperatives in China and Vietnam after the decollectivization. Compared to the Western world, the development of cooperatives has been different in socialist and former Soviet Union countries. The authors provide a description about newly established cooperatives as well as converted state farms in the environment of farmers’ reluctance and local authorities’ control. Despite of cooperatives’ relatively small role their importance in securing both up- and downstream markets is expected to increase. Writers in this issue: Jerker Nilsson, Petri Ollila, Daniela Maria Pozzobon, Decio Zylbersztajn, Jos Bijman, Murray Fulton, Onstantinos Giannakas, Jeffrey Royer, Gregory McKee, Ryan Larsen, Fabiana Cherubim Bortoleto, Davi Rogério de Moura Costa, Daniel E. May, Tursinbek Sultan and Axel Wolz. Journal of Rural Cooperation Home Page
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