| Farm supply cooperatives are major actors in the agricultural input industry, providing a wide range of products and services for their farmer members. But there is a growing concern that farmer cooperatives are no longer living up to their potential. Problems within the federated cooperative system surface at two levels. In a vertical sense, there has been an erosion of patron-owner commitment to their cooperatives. Manifestations of this problem are evident in patronage and capitalization issues. A second problem involves the coordinating relationships among cooperative firms. Poor horizontal coordination is demonstrated by the often aggressive and detrimental competitive behavior among local and regional cooperatives.;An important finding of the study is that vertical coordination in the federated system is hindered by the structure of incentives facing participants and the specialized nature of many inputs used by farmers. A mean-variance model of farmer decision making showed that a producer's major incentive to forward contract is the discount premium attached to the purchase, not a desire to minimize risk. Finally, the confluence of a competitive ideology, economic necessity and the vested interests of persons in positions of power, are the major reasons why competition among cooperatives persists.;This research examines the barriers and opportunities to improved micro and macro coordination of federated supply cooperatives by utilizing a systems approach. The systems analysis is supplemented with game theory and transaction cost economics. Transaction costs demonstrates the effect asset-specificity has on the coordination and performance of the input system and the response of farmer-members to these class of inputs. Game theory emphasizes the structure of incentives to explain the behavior of various players in the input system. Finally, a case-study of farmers, local and regional midwest supply cooperatives is the primary research method used to illustrate these conceptual tools. |
