Cooperative pricing and scale efficiency: The case of Korean rice processing complexes

Authors


  • The views expressed here are those of the author(s), and may not be attributed to the Economic Research Service or the U.S. Department of Agriculture. Data used in this study are proprietary. Researchers wishing to test or replicate results presented in the article should contact the authors, who will extend their best efforts to help secure access to the data from Korea's National Agricultural Cooperative Federation.

Corresponding author. Tel.: +541-737-1410; fax: +541-737-1410. E-mail address: sbuccola@oregonstate.edu (S. Buccola).

Abstract

Unlike most investor-owned enterprises, cooperatives often have freedom to choose among a variety of firm objectives. Using 2002–2008 plant- and province-level data, we ask in the present article which of several alternative maximands a Korean cooperative rice processing firm pursues. In contrast to earlier studies, farmer-member supply functions are incorporated into the cooperative's optimization framework. We show that only large cooperative firms have operated at efficient scale, while small and medium-sized ones have been scale-inefficient. Because the latter operate where scale returns are increasing, mergers of small and medium-sized cooperatives likely would be cost-reducing and member-return-enhancing.

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