Investigating the Inclusive-Performance Tradeoff in Agricultural Cooperatives: Evidence from Nepal (New Working Paper!)

In my new (and first!) working paper, I address the question of whether agricultural cooperatives can benefit the poorest producers while maintaining market competitiveness. Using a dataset that covers 2,856 households across 108 smallholder livestock cooperatives in Nepal, I investigate the inclusive-performance tradeoff in agricultural cooperatives. My results suggest that including the most vulnerable producers in a cooperative’s membership may damage market performance, but providing more opportunities for existing members to participate in cooperative activities may improve market performance.

Prior studies highlight a tradeoff between inclusive membership and market performance, in which cooperatives with performance-oriented membership rules are better able to reduce transaction costs and achieve higher levels of market competitiveness. This has important implications for the role that cooperatives play in alleviating poverty, since these rules tend to exclude the most vulnerable households from receiving the benefits of cooperative membership. Studies on this topic have largely focused on binary membership as the source of inclusion, overlooking the extent to which existing members are included in group activities. This is an important distinction since the number of members that are included in a given activity can improve the bargaining position of the cooperative.

To address this gap in the literature, I expand the definition of inclusive membership to account for two separate sources of inclusion:

Extensive inclusion: the inclusion of a diverse set of households in a cooperative’s membership.
Intensive inclusion: the extent to which existing members are included in cooperative activities.

I first analyze the relationship between inclusive membership and market performance across the extensive and intensive dimensions. I then use the Oaxaca-Blinder decomposition to determine whether these relationships are best explained by differences in observable characteristics or differences in the returns to those characteristics.

Inclusive membership and the revenue earned from cooperative goat sales

This figure displays the overall gap in revenue earned from cooperative goat sales between the most and least inclusive cooperatives in each dimension (extensive and intensive), the portion of the gap that is explained by differences in observable characteristics and the portion that is explained by differences in the returns to those characteristics. I sort cooperatives into the most and least inclusive groups by creating a summary index across each dimension and splitting cooperatives at the median value of the index. I report the decomposition results for each index as well as the individual components of that index.

The left panel demonstrates that the most extensively inclusive cooperatives (those that are most inclusive of a diverse set of members) perform significantly worse than their less inclusive counterparts. The right panel demonstrates that the most intensively inclusive cooperatives (those that include a larger share of their members in group activities) perform significantly better than their less inclusive counterparts. The decomposition of these performance gaps suggest that they are largely not explained by differences in observed characteristics between groups. This implies that the most and least inclusive cooperatives are similar in terms of their observed characteristics, but appear to differ in their ability to translate those characteristics into performance.

What does this mean for the role that cooperatives play in alleviating poverty?

At the extensive margin, the inclusion of nonliterate and asset-poor farmers appears to be a detriment to achieving market performance. This suggests that cooperatives may be able benefit smallholder producers while maintaining market competitiveness if membership is coupled with literacy and asset-transfer programs. At the intensive margin, communicating sale information and awarding loans to a larger share of members appears to improve market performance. The development of streamlined communication tools and improved lending practices may remove important barriers to intensive inclusion and increase market performance for struggling organizations.

Be sure to check out the full working paper for more results and discussion!

This work was funded in whole or part by the United States Agency for International Development (USAID) Bureau for Food Security under Agreement # AID-OAA-L-15-00003 as part of Feed the Future Innovation Lab for Livestock Systems. Any opinions, findings, conclusions, or recommendations expressed here are those of the authors alone.

Published by Scott Miller

Scott is currently earning his PhD in development economics at the University of Florida. He has worked for various non-profits and international organizations, including USAID. Scott has worked on a number of research projects around the world, including projects in Haiti, Nepal and Brazil.

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