Governance of the member-cooperative relationship: a case from Brazil
Cechin, A.D. - \ 2013
University. Promotor(en): Onno Omta, co-promotor(en): Jos Bijman. - S.l. : s.n. - ISBN 9789461736550 - 144
landbouwcoöperaties - governance - kwaliteit - relaties - ketenmanagement - agro-industriële ketens - participatie - lidmaatschap - brazilië - agricultural cooperatives - quality - relationships - supply chain management - agro-industrial chains - participation - membership - brazil
Recent events in the agri-food sector increased the demand for quality attributes, from healthy and safe products to sustainable agricultural practices (Grunert, 2005). Particularly challenging is the connectedness of transactions between farmers, traders, processors, retailers and final customers in order to comply with quality requirements, which implies a need for value chain coordination. Combined with increased consumer demand for variety and convenience, these changes in sector have led to stronger sequential interdependencies, in which the output of one part is the input for another part. The increasing connectedness between transactions demands more vertical coordination. A major challenge for the agricultural cooperative is to combine horizontal coordination among the members with vertical coordination in the value chain (Bijman 2009; Hanf, 2009). Since they are member-oriented, agricultural cooperatives traditionally buy the farm products of its members regardless of its quality. Increasingly, however, cooperatives need to guarantee product quality towards their customers, and thus assure that members supply products of the right quality.
The objective of this thesis is to disentangle the governance mechanisms that can be used by the cooperative to strengthen the member-cooperative relationship, and to assess the impact of the different governance mechanisms on the coordination of members’ adjustments to higher quality levels. The attempt to organize the participating farmers and firms along the food value chain generates transactional risks and coordination costs in the relationship between agricultural cooperative and farmer-member. This leads to the first research question of this thesis.
R.Q. (1): What are the mechanisms for governing the member-cooperative relationship, and how do they affect transactional risks and coordination costs?
This thesis (Chapter 2) poses that four governance mechanisms - market, hierarchy, community and democracy affect coordination costs and transactional risks through their effect on member commitment and cognitive heterogeneity. It is important that members of an agricultural cooperative are committed to customer orientation; otherwise the involved transactional risks would make vertical coordination more costly. It is necessary to disentangle two types of commitment: to collective action and to customer orientation. Member commitment to collective action prevents side selling, in particular, and free-riding behaviour in general. This leads to the second research question of this thesis.
R.Q. (2): How do the four governance mechanisms - market, hierarchy, community and democracy - affect both types of commitment?
One of the conclusions stemming from this thesis was that, on the one hand, a cooperative may assure members’ compliance in a less costly way if market incentives related to quality, productivity and effort are strengthened, as well as (hierarchy) input control and on-farm monitoring, since these mechanisms are positively related to commitment to customer orientation. On the other hand, democracy and community mechanisms do have an important role in enhancing commitment to collective action which is a sine qua non condition for the viability of the cooperative (Chapter 3).
A large multi-product cooperative in which different activities of the cooperative cater to different groups of members, as the case that was chosen as the empirical basis of this thesis, may face problems related to membership heterogeneity (Hansmann, 1996; Fulton and Giannakas, 2001). The basic assumption in most of the literature on the impact of member heterogeneity on the process and outcomes of decision-making is that farmers pursue individual or subgroup interests when participating in the decision-making of the cooperative. If members primarily pursue individual economic interests, there might be a relationship between the economic reasons for becoming a member (and maintaining membership) and the motivation to participate in the governance of the cooperative. This leads to the third research question of this thesis.
R.Q. (3): How do economic motivations for association affect members’ participation in the governance of a cooperative?
The conclusion of this thesis, regarding this research question, was that besides the role of social mechanisms in enhancing commitment to collective action, there seems to be a role of social mechanisms in enhancing members’ control of their cooperative. Members who participate in boards or committees are not actuated to participate by the same economic motivations that drive their association to the cooperative. Cooperative ideology, in turn, appears to be an important motivation for them to actively participate (Chapter 4).
The ability of cooperatives to adapt to a rapidly changing environment characterized by technological change and industrialization of agriculture has been questioned Fulton (1995). The organizational structure of the cooperative is said to have negative implications for its quality management (Mérel et al., 2009). On the one hand, cooperatives may be mimicking Investor-Owned Firms (IOFs) in applying more hierarchical mechanisms which enable them to define and effectively apply quality norms for their supply, control the quality of delivered products and monitor members’ production processes. On the other hand, cooperatives have unique organizational characteristics that could provide them with competitive advantage, such as the tight relationship between members and cooperative, which may enable less costly coordination of the transaction (Sykuta and Cook, 2001). This leads to the fourth and last research question of this thesis.
R.Q. (4): What are the differences in quality performance between a cooperative and an IOF, and can these differences be explained by relationship characteristics?
In the Brazilian broiler industry, suppliers delivering to a cooperative are performing better in terms of quality than suppliers delivering to an IOF. Cooperative and IOF have the same incentive and control mechanisms for production efficiency and high-quality chicken meat. The cooperative’s advantage over the IOF in terms of suppliers’ quality performance could be influenced by the characteristics of the supplier-buyer relationship. This thesis shows (Chapter 5) that there are some important differences regarding relationship characteristics that could account for this higher performance. Dependence on current buyer, which is higher for cooperative members, uncertainty regarding buyer’s behavior, which is lower for cooperative members, and market risk reduction by the buyer, which is higher for cooperative members, can help explain the higher rate of compliance to the “feet callus” quality standard. These three features of the supplier-cooperative relationship are likely to prevent suppliers from shirking behavior and to induce commitment. Moreover, cooperative suppliers receive more technical support from their buyer for adapting to new quality requirements than IOF suppliers do; this is likely to positively affect farmers’ competence in complying with quality standards.
The main methodological approach of this thesis is quantitative. Qualitative data were collected through semi-structured interviews with professional managers of the industrial division, directors and farmers in order to guide the design of the questionnaire. The data that is analyzed in this thesis were collected by using a survey questionnaire applied among 148 farmers, all members of the same multi-product cooperative in Brazil, and 42 broiler suppliers of two major buyers in the same region.
This thesis makes several theoretical contributions, which can be listed as follows:
(1) Member commitment in agricultural cooperatives can be disentangled conceptually and empirically into two types. Commitment to collective action is related to Fulton’s (1995) definition: the willingness to patronize a cooperative even when the cooperative’s price or service is not as good as that provided by an IOF. It is an attitude that precedes loyal behaviour; it is the making of a sacrifice or an effort in the name of the relationship and the success of the organization. Commitment to customer orientation, in turn, is the willingness to give up a part of the autonomy at the farm level for the sake of the cooperative’s compliance with the requirements from downstream customers. It is a positive attitude of members towards the re-orientation of the cooperative and is related to Borgen’s (2001) view on commitment.
(2) Membership heterogeneity might not be a source of inefficiency in decision-making if the organizational goal is precisely to satisfy diverse members’ interests, and if members who occupy representative and managing functions are genuinely seeking to further organizational goals rather than to follow private motives. Most conceptualizations of decision-making problems and influence costs derive from organizational economics, where agency theory has been quite influential. The findings of this thesis (Chapter 4) suggest that assumptions from agency theory, which are often adopted by cooperative studies, could better be treated as an empirical matter.
(3) This thesis presents a different perspective on the comparative advantage of the cooperative in producing food products with higher quality attributes. The literature on the implications of the cooperative structure for quality management (Mérel et al., 2009) emphasizes that cooperatives often fail to adequately reward the highest quality producers, often causing the problem of “adverse selection”. However, despite starting with larger heterogeneity in terms of producers’ capacity to produce high-quality products, cooperatives may achieve high quality products through superior coordination and adaptation support. The findings of this thesis are in line with other empirical studies outside the domain of cooperatives that found that quality performance may be influenced by relationship characteristics, through their effect on transaction costs (Lu et al., 2009; Coronado et al., 2010).
(4) Overall, the main scientific contribution of this thesis is the use of the ‘chemistry of organizations’ framework proposed by Grandori and Furnari (2008) in seeking a better understanding of the governance of cooperatives. By adopting that framework the thesis addressed in an integrated way the role of social capital (Ostrom, 1999) and community governance (Bowles and Gintis, 2002; Hayami, 2009) in facilitating collective action, and the role of relational contracts (Poppo and Zenger, 2002; Lazzarini, Miller and Zenger, 2004) in assuring commitment from parties in a transaction. Furthermore, with that framework, the thesis addressed the cognitive role of governance mechanisms, such as knowledge exchange (Conner and Prahalad, 1996; Grant, 1996) and competence enhancing (Nooteboom, 2004).
The implications of this thesis for management and policy are listed in the three following groups:
(1) Rewarding farmers appropriately and controlling and monitoring delivery and production processes are important for enhancing commitment both to collective action and to customer orientation. Giving “voice” and building a social community for members and their families are important to prevent members’ free-riding and selling “outside”. It is advised to combine at least the following governance mechanisms: hierarchy control, market incentives, community involvement and democratic voice. Finally, communication is an important tool for enhancing farmers’ commitment to customer orientation.
(2) Cooperatives can participate in high-quality value chains and be as efficient and effective as other organizational arrangements in the agri-food sector. More importantly, cooperatives might even have an advantage in the production and marketing of goods with credence attributes, such as animal welfare, organic and fair trade. Therefore, policies aiming to promote sustainable food production may target cooperatives, as this organisational form is more effective in lowering the risks associated with farmer’ opportunistic behavior.
(3) Member participation, commitment, satisfaction with leadership and with the cooperative’s strategy are examples of what could be additional performance criteria besides reported profits, which taken alone could be misleading. Because the cooperative’s objectives are beyond the economic viability of the collective enterprise, (Birchall and Ketilson, 2009), the intangible social assets should be assessed in order to evaluate the performance of the cooperative, and thereby to compare cooperatives with investor-owned firms and among cooperatives themselves.
Regional Concentration and Specialisation in Agricultural Activities in EU-9 regions (1950-2000)
Leeuwen, E.S. van; Strijker, D. ; Terluin, I.J. - \ 2010
European Spatial Research and Policy 17 (2010)1. - ISSN 1231-1952 - p. 23 - 39.
Both traditional (von Thünen) and modern (Hayami & Ruttan, Krugman) theories on land use suggest that productions with a high value added per unit of land tend to be located near urban centres. In this article it is tested to what extent these theoretical findings are confirmed by empirical data on agricultural land use and production for the EU-9. The focus is not only on the degree of concentration and specialisation, but also on their development over time. Growth and decline of agricultural productions are here related to the degree of rurality. It is found that high value productions indeed tend to be located in urban regions. It is also found that most specialisation patterns that already existed in 1950 are even stronger in 2000
|Urbanization in history. A process of dynamic interactions.
Woude, A.M. van der; Vries, J. de; Hayami, A. - \ 1995
Oxford : Oxford Univ. Press - ISBN 9780198289586 - 371 p.
Landbouweconomie als beleidswetenschap : een pragmatische kritiek
Silvis, H.J. - \ 1994
Agricultural University. Promotor(en): J. de Hoogh; C.P. Veerman. - Wageningen : Silvis - ISBN 9789054852988 - 208
agrarische economie - landbouwbeleid - groene revolutie - economie - overheidsbeleid - agrarisch recht - Nederland - agricultural economics - agricultural policy - green revolution - economics - government policy - agricultural law - Netherlands
AGRICULTURAL ECONOMICS AS POLICY SCIENCE:
A PRAGMATIC CRITICISM
This study aims to make a contribution to the discussion of how to increase the scientific quality of agricultural economics, by means of an epistemologically based assessment of the discipline. The analysis consists of two parts. Part I outlines the foundations of the study. The work begins with a pragmatic or instrumentalistic view of science, as elaborated by Meehan (1982). The criteria derived from this view for the assessment of policy-oriented empirical research are illustrated in two scientific areas that are closely tied to agricultural economics: economics and the agricultural sciences. Next, the history of agricultural economics is examined. Part II presents case studies of characteristic examples of modem, post-war agricultural economics research. For this purpose seven examples were chosen that have been presented as relevant for policymaking, are representative of their types, and that together give an accurate picture of major trends in agricultural economics research.
This summary includes a short overview of the assessment criteria used, followed by the most important findings and general conclusion of the research.
Agricultural economics exists as a specialization within the field of economics due to the shared characteristics of economic issues concerning food supply and agricultural production. These characteristics stem from agriculture's specific technology and institutional framework, and they are expressed, among other ways, in price and income formation and in the use of production factors (Horring, 1960).
To substantiate its existence, the discipline must contribute to the handling of relevant issues. Economic issues are by nature issues of choice. Questions such as which goods and services should be produced, how scarce resources should be utilized, who should be allowed to benefit from the fruits of production, and which policies should the society institutionalize to achieve its goals are of central importance.
Extensive knowledge is necessary to handle these policy issues. Reasoned choices require empirical as well as normative knowledge. Normative knowledge is considered here to be the ability to choose between various possible courses of action, and to systematically defend that choice.
One of the starting points of this research is the belief that the discipline of agricultural economics wants to and also must provide the empirical knowledge needed for policymaking. The policy concept of Meehan (1982), defined as a manual on how to achieve important goals, offers a way to further specify the knowledge that is required. The empirical requirements of policyaking are instruments with which processes can be directed. To obtain these, knowledge of causal relationships is necessary, in the sense of fixed connections between actions and effects. Such relationships are generally defined in theories. If the policy-oriented empirical sciences take their pretensions seriously, they will have to strive to develop and assess theories regarding causal relationships in important policy areas.
A generally accepted research theory that leads to results which are reliable and adequate for policyaking is not available. However, it is advisable to use the research methods that give the greatest possible chance of achieving such results. As explained in Part 1, indications for the use of such methods can be based on the assumption that theories are creatively developed from generalizations of specific experiences (induction). Generalizations are made up of concepts and observations, descriptions and predictions. Predictions can be based on theories, but also on classifications and on correlations between variables. For the development of both theories and predictions, precise and adequate empirical descriptions are needed. Descriptions, in turn, are dependent on the quality of observations and the concepts used.
Based on the above considerations, the assessment criteria for policy-oriented research are defined as follows:
These criteria apply to theoretical research. It cannot be expected of descriptive research that it reveals causal relationships, because it does not profess to. Considering their role in the development of theory, descriptions must be not only precise, but also adequate for the purposes for which they are eventually used.
Critics of the economic discipline in general contend that a great deal of modem theoretical work does not relate directly to reality, that it does not attempt to develop instruments with which processes can be directed, and that it therefore cannot make a meaningful contribution to policymaking. In the agricultural sciences, however, conscious efforts have been made to describe actual processes and to develop methods for improving and increasing agricultural production. This is accomplished by influencing naturally occurring processes (for example: fertilization, cattle feeding, crop protection, improvement of machinery and buildings). 'Agricultural scientists', according to C.T. de Wit (1977, p.93), 'have long known that very little will be accomplished with a laissez faire approach'.
The agricultural sciences, thus, generally meet the criteria for research goals. This is also the case for the economic specialization within the agricultural sciences. In the history of agricultural economics there are many examples of empirical research conducted for the purpose of contributing to the solution of policy issues. For example, the physiocrats of the eighteenth century, led by F. Quesnay, conducted agricultural economic research to increase the wealth of the French monarch, and thereby also improve the wealth of the entire kingdom. The British forerunner of agricultural economics, Arthur Young, developed models of the ultimate profit-making farms. This was also one of the central objectives in the work of A.D. Thaer, the founder of the agricultural sciences. Thünen discovered that the relative attractiveness of agricultural enterprises is dependent on price ratios, which are in turn partially influenced by transport costs. Another eminent German economist who worked extensively on agriculture, W.G.F. Roscher, tried to find a business structure that would best serve the interests of society. Buchenberger looked for practical ways to improve the critical condition of agriculture, and conducted research to determine, among other things, under what circumstances price controls for agricultural products could be justified.
Modem agricultural economics, at least in the selected examples, strives to meet the following objectives:
These examples of modem agricultural economics research are all concerned with socially relevant issues. Furthermore, nearly all of them meet the criteria that research should attempt to identify causal relationships. The LEI reporting does not claim to do this, but such reporting is a prerequisite for theoretical research and policymaking The PSE and CSE studies of OECD and USDA are also descriptive in nature, but they claim to measure in part the income effects of agricultural politics. The other studies deal explicitly with causal relationships. The question is whether, and under what circumstances, the relationships actually hold.
Aside from being designed with good intentions, research must also be based on responsible methods if it is to make a meaningful contribution to policyaking In the agricultural sciences, observation and description of phenomena occurring under specified conditions (in the field, greenhouse, and laboratory) play a central role in research. This is much less the case in theoretical economics. As explained in Part I, Meehan and others have criticized general theoretical economics for allowing the postulational and rationalistic research strategy to dominate over the empirical. More attention is paid to axioms and mathematical manipulations than to empirical data. Such methods and assumptions form an obstacle to the emergence of theories that are suitable for policymaking.
The agricultural economics discipline, as shown in this research, has a strong empirical tradition. The gathering and interpretation of factual matter was already a major part of research for the forerunners of the profession, the physiocrats and Arthur Young. Big names in the history of the profession (including Thaer, Thünen Roscher, Buchenberger, Laur, and Taylor) are known for their original answers to the questions of what data should be gathered and how this must be done. They used comparative business research, data from bookkeeping records, agricultural surveys, bookkeeping networks, historical material, and production and price statistics.
The seven examples demonstrate the role empiricism plays in modem agricultural economics:
The examples illustrate that empiricism has not been forgotten in modem agricultural economics. However, modem neo-classical economics with its axioms, nominal concepts and deductive methods has played an increasingly important role in the discipline. Gardner's (1987) textbook is the best example of this, but Hayami and Ruttan (1985) and Tyers and Anderson (1992) confirm the trend. With regards to methods, these researchers are unlike Schultz (1945), who used a much more inductive approach.
Validity of research results
Causal assumptions are only defensible - and useful for policymaking - once they have been subjected to a proper test programme and have thereby been proven accurate. The completeness of the results is also very important: they can not be suitable for policymaking if they neglect to address important side-effects.
There appear to be great differences in the above mentioned areas between modem theoretical economics and the agricultural sciences. According to critics, the results of modem theoretical economics are often insufficient: the designed instruments are unsatisfactory, models or logical structures are often not appropriate, supporting evidence for assumptions is seldom offered, and there is the problem of incompleteness. The latter is an important area of concern in the agricultural sciences as well. Nevertheless, agricultural scientists have undeniably achieved impressive research results.
The history of agricultural economics demonstrates that this specialization has achieved results which are useful in policymaking. Some immediate examples are recommendations regarding the design, structure and planning of agricultural enterprises; instruments for market and price regulations and income protection, and instruments for agricultural development polities.
In the case studies of modem agricultural economics the research results are validated as follows:
As far as validity of results in concerned, most of the examples do not meet the established criteria. In some cases an attempt is made to identify causal relationships, but supporting evidence is often lacking. Moreover, the completeness of the research results is problematic. The exception to the rule is Schultz (1945) who developed testable predictions and useful policy instruments.
As a policy science, the agricultural economics discipline aims to provide knowledge for policyaking Considering the economic problems faced by Dutch, European and global agriculture, this is a very worthwhile goal. The policy issues, some that have
Scientific endeavour in these fields can therefore not be taken lightly. On the contrary, it brings with it a great deal of responsibility. The knowledge required to comprehensively deal with these policy issues is overwhelming. One of the starting points of this research is that agricultural economics should provide the empirical information needed to make reasoned normative choices. Namely, it should make predictions regarding future developments and theories that can connect actions with their effects (causal relationships). Due to the dynamics and complexity of society, it is a very difficult task to provide such information, but not an impossible one.
This study has demonstrated that the history of agricultural economics offers examples of high-quality policy-oriented research. It has also shown that post-war agricultural economics research provides important information about developments in the agrarian sector, and thereby creates a basis for theorizing, and for the making and evaluation of policy. The discipline also boasts a classical policy-oriented study, by Schultz (1945), that can be recommended to economists as an example worth following. There is thus some justification for the praise given to agricultural economics by Leontief (1971).
By contrast, the other examples of modem agricultural economics in this study cannot provide the scientific results needed for policyaking This judgement confirms the general view expressed by several critics (cited in Part 1), including Paarlberg, Brandow, Bonnen, Doering, Dietze, Hagedorn, Brandes, Louwes, Van den Noort, De Hoogh, Veerman and Oskam, that the quality of current agricultural economics can and must be improved.
From the described epistemological analysis of modem agricultural economics it can be concluded that the shortcomings, at least of the examples considered, are not in the goals of the research, but in the research methods and the validation of causal assumptions. Empiricism should play a much more central role in research, and assumptions about the characteristics of people, things and their interrelationships should agree as much as possible with reality. Alas, in modern agricultural economics, just as in modern general economics (including neo-institutional economics), the postulational and rationalistic research approach has become increasingly popular in the last decennia. The overwhelming trust in formal methods and nominal concepts, such as demand, supply and equilibrium, coincides with a great abstraction of real conditions and problems. As a result, the validation of causal assumptions is inadequate for the potential users of the information.
This development in agricultural economics stems from the idea that the reality to be researched can be represented as an axiomatic system. This idea in turn comes from the classical mechanistic view of the world. Such a Newtonian view of science and reality has been extremely successful in some scientific fields, but it has not been accepted as generally applicable in the natural sciences for years. The world as seen in the modem view is much more complex, less understandable, and also less predictable than in the mechanistic one. Not unrelated to this is the replacement of fundamentalism with fallibilism, according to which all knowledge is in principle fallible. The pragmatic epistemology upon which this research is based makes the same claim: only that which works is 'true'. This view is universally accepted by agricultural scientists, and also had a considerable following among classical agricultural economists.
Agricultural economics has gone through a fundamental change during the past decades. Agrarian economists nowadays lean heavily on general neo-classical microeconomics, which typically neglects the traditional policy-oriented and applicable character of the economics discipline. Colander (1992) refers to this as 'The Lost Art of Economics'. Indeed, if agricultural economists wish to contribute constructively and scientifically to the resolution of policy issues, they will have to go back to practising their trade as an art.
|Introduction: the hierarchy, provisioning and demographic patterns of cities.
Woude, A.M. van der; Vries, J. de; Akira Hayami, - \ 1990
In: Urbanization in history / van der Woude, A.M., de Vries, J., Hayami, Akira, Oxford : Oxford Univ. Press - p. 1 - 19.
|Urbanization in history. A proces of dynamic interactions.
Woude, A.M. van der; Vries, J. de; Akira Hayami, - \ 1990
Oxford University Press - 371 p.