Our analysis suggests that farmers are better off selling their rice if they sell it in the area where there is direct competition between marketing cooperatives and private intermediaries where farmers receive a 10.9% price premium from private intermediaries relative to those who sell rice in other areas. This result provides support for the view that the presence of marketing cooperatives can significantly force private intermediaries to competitively raise prices paid to farmers.
Recent years have seen an increased interest in the economic impacts of marketing cooperatives on smallholder marketing performance. This attention has re-emerged because of a widespread belief that marketing cooperatives can be an efficient mechanism for overcoming smallholders’ marketing constraints that are caused by their small scale and the structural transformation of agri-food value chains.
In rice value chains, for example, ongoing trends of “disintermediation” and vertical coordination (contract farming) between midstream actors (e.g., milling companies) and farmers and vertical integration in the agribusiness sector are eliciting farmers’ need for horizontal coordination strategies.
Recent evidence from Vietnam suggests that vertical and horizontal coordination can be encouraged through well-designed policies and that cooperative strategies can successfully enhance the inclusiveness of rice value chain upgrading and increase smallholders’ access to modern market channels. Given its potential for improving smallholder marketing performance, significant progress has been made in estimating cooperative effects on participating farmers.
However, little is known about the existence and magnitude of the spillover effect or the cooperative effect on nonparticipating farmers. Nevertheless, this knowledge is critical for food policy debates regarding the role of marketing cooperatives in agri-food value chains since it is well recognized that the presence of marketing cooperatives may force private intermediaries to raise prices paid to nonparticipating farmers.
In this paper, we address the endogeneity issue by using the instrumental variables (IV) approach to estimate the spillover effect of marketing cooperatives in rice value chains in Thailand. The Thai Jasmine rice value chain provides a critical case study because, since 2014, the Thai government has shifted rice policies from direct market intervention to the empowerment of farmer organizations in rice value chains.
Moreover, policymakers from other countries have always been interested in Thai rice policies because of the successful development of the Thai rice industry towards its leading role in the world market and the concomitant potential impact of Thai rice policies on the world rice situation.
Our paper tests the hypothesis that nonparticipating farmers or farmers who sell rice to private intermediaries in the areas where there is direct competition between marketing cooperatives and private intermediaries (treated areas) are likely to receive a higher price than those who sell rice in other areas (comparison areas).
The paper also contributes to recent literature that studies interventions which may generate spillovers. As the spatial dispersion of agriculture and the presence of high transaction costs could create local economies, implying that interventions on some farmers may generate a wide range of spillover effects, several studies have investigated the spillover effect of agricultural interventions.
However, prior studies on marketing cooperatives have focused on estimating the effect of cooperatives on members or participating farmers only. Moreover, despite the widespread belief that marketing cooperatives’ benefits may extend beyond participating farmers, there is no empirical evidence to reject or support it.
Therefore, our study fills a gap in the literature by providing empirical evidence of the untested dimension of the economic performance of marketing cooperatives. This evidence has four crucial implications for food policy debates regarding the role of marketing cooperatives in agricultural development.
First, evaluating the inclusiveness of marketing cooperatives toward poor farmers should not be limited to sampling and analyzing participating farmers only. Second, prior studies that do not control1 for the spillover effect of marketing cooperatives
Despite the widespread belief that marketing cooperatives’ benefits may extend beyond participating farmers, little progress has been made in estimating the spillover effect of marketing cooperatives.
To the best of our knowledge, this study is the first attempt to empirically unveil the existence and magnitude of the spillover effect of marketing cooperatives in agricultural value chains.
Our analysis suggests that farmers are better off selling their rice if they sell it in the area where there is direct competition between marketing cooperatives and private intermediaries (treated areas). Namely, farmers in treated areas receive a 10.9% price premium from private intermediaries relative to those who sell rice in other areas.
This result provides support for the view that the presence of marketing cooperatives can significantly force private intermediaries to competitively raise prices paid to farmers.
Our empirical findings have crucial implications for food policy debates regarding the role of marketing cooperatives in agricultural development.
First, evaluating the inclusiveness of marketing cooperatives toward poor farmers should not be limited to sampling and analyzing participating farmers only, because poor farmers can benefit from the spillover effect of marketing cooperatives, whether the latter are inclusive or not.
Second, prior studies that do not control for the spillover effect of marketing cooperatives may underestimate the effects of marketing cooperatives on participating farmers as well.
Third, the spillover effect needs to be incorporated in future evaluations of marketing cooperatives’ performance. Failure to consider the spillover effect could lead to substantial underestimation of the impact of marketing cooperatives on societal welfare.
Finally, the free rider problem is a significant challenge for marketing cooperatives that needs to be addressed.
This study has some limitations. First, although we found language to be a good instrumental variable in the context of our study of Thai rice farmers, it may be imperfect. If this is the case, our imperfect instrumental variable estimate provides a lower bound for the spillover effect. Secondly, while the investigation focuses on the Thai Jasmine rice value chain, it is not clear whether similar results would hold in other settings.
Future research using data from other crops and countries is needed to enlarge our knowledge about the spillover effect of marketing cooperatives in agricultural value chains.
Read the study:
Kumse K, Suzuki N, Sato T, Demont M (2021) The spillover effect of direct competition between marketing cooperatives and private intermediaries: Evidence from the Thai rice value chain. Food Policy Volume 101.
