Big is efficient: Evidence from agricultural cooperatives in Ethiopia. (14th August 2019)

• Record Type: Journal Article
• Authors: Gezahegn, Tafesse W.; Van Passel, Steven; Berhanu, Tekeste; D'Haese, Marijke; Maertens, Miet
• Is Part Of: Agricultural economics. Volume 50:Number 5(2019)
• Page Start: 555
• Page End: 566
• Publication Date: 2019-08-14
• Subjects: Agricultural cooperatives -- cost efficiency -- cost subadditivity -- Ethiopia -- scale economies -- J54 -- O13 -- Q13; Agriculture -- Economic aspects -- Periodicals; 338.105
• DOI: 10.1111/agec.12509
• Languages: English
• ISSNs: 0169-5150

Abstract

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.