Factors supporting the development of producer organizations and their impacts in the light of ongoing changes in food supply chains : a literature review.
Date: 2016-05-23
Institutions: Joint Research Centre
Subjects: agri-foodstuffs, agricultural production, common agricultural policy, competition policy, farming sector, fixing of prices, food industry, foodstuff, research report, single market, supply

Factors Supporting the Development 
of Producer Organizations and their 
Impacts in the Light of Ongoing 
Changes in Food Supply Chains 

A Literature Review 

Jan Fałkowski and Pavel Ciaian 

2016 

EUR 27929 EN 

 
 
 
 
 
This publication is a Technical report by the Joint Research Centre, the European Commission’s in-house science 
service. It aims to provide evidence-based scientific support to the European policy-making process. The scientific 
output expressed does not imply a policy position of the European Commission. Neither the European 
Commission nor any person acting on behalf of the Commission is responsible for the use which might be made 
of this publication. 

Contact information 
Pavel Ciaian 
Edificio Expo, C/ Inca Garcilaso 3, 41092 Seville, Spain 
E-mail: pavel.ciaian@ec.europa.eu 
Tel.: +34 95 448 8429 

JRC Science Hub 
https://ec.europa.eu/jrc 

JRC101617 

EUR 27929 EN 

ISBN 978-92-79-58422-0 

ISSN 1831-9424 

doi:10.2791/21346 

© European Union, 2016 

Reproduction is authorised provided the source is acknowledged. 

All images © European Union 2016 

How to cite: Fałkowski, J. and Ciaian, P. (2016) Factors Supporting the Development of Producer Organizations 
and their Impacts in the Light of Ongoing Changes in Food Supply Chains; EUR 27929 EN; doi:10.2791/21346. 

Table of contents 

1.

Introduction ........................................................................................... 7

2. Producer organizations - some background information ....................... 11

2.1. POs in the light of general developments in food supply chains ...................... 14 

3. Factors supporting the establishment of producer organizations .......... 18

3.1. Informal versus formal enforcement mechanisms of cooperative behaviour ..... 18 

3.2. The role of social structure and networks .................................................... 21 

3.3. The role of group heterogeneity ................................................................ 23 

3.4. The role of human and social capital .......................................................... 24 

3.5. The role of sector and structural characteristics ........................................... 25 

3.6. The role of information and market access .................................................. 26 

3.7. The role of policies .................................................................................. 27 

4.

Impacts of producer organizations ....................................................... 29

4.1. The impact on marketing of agricultural products ........................................ 29 

4.2. The impact on farmers' bargaining power ................................................... 30 

4.3. The impact on farmers' investment ............................................................ 32 

4.4. The impact on product quality and innovation ............................................. 33 

4.5. The impact on adoption of food standards .................................................. 34 

4.6. The impact on small farms ....................................................................... 34 

4.7. The impact on income and prices .............................................................. 35 

4.8. The impact of the PO size ......................................................................... 36 

5. Key findings and conclusions ............................................................... 38

5.1. Policy recommendations ........................................................................... 42 

6. References ........................................................................................... 46

List of abbreviations 

CAP 

EU 

MS 

NMS 

POs 

OMS 

Common Agricultural Policy  

European Union 

Member States 

New Member States 

Producer Organizations 

Old Member States 

OECD 

The Organisation for Economic Co-operation and Development 

5 

Factors Supporting the Development of Producer 

Organizations and their Impacts in the Light of Ongoing 

Changes in Food Supply Chains: A Literature Review1 

Jan Fałkowski1 and Pavel Ciaian2 

1University of Warsaw 

2DG Joint Research Centre, European Commission 

Abstract:  This  report  surveys  the  recent  literature  on  producer  organizations  with  a 
specific  focus  on  factors  affecting  their  establishment  and  their  impact  on  farmers' 
market performance and welfare. The report also discusses producer organizations' role 
in  improving  farmers’  bargaining  power  and  allowing  them  to  respond  to  various 
challenges which result from dynamic changes characterizing commercial relations within 
the  food  supply  chain.  Key  factors  supporting  the  emergence  and  development  of 
producer  organizations  include  human  and  social  capital,  networking,  interpersonal 
relationships between members (with an important role of trust) and the functioning of 
enforcement  mechanism  used  to  govern  group  behaviour.  The  existing  literature 
provides  also  strong  evidence  that  access  to  information  and  farming  experience 
positively  affect the  emergence  of  producer  organizations.  There  is  also  some  evidence 
that  larger  farms  are  more  likely  to  join  collective  action.  The  literature  also  clearly 
points that we are still far from reaching a consensus on who (private or public actors) 
should  support  promoting  cooperation  between  farmers  and  what  incentives  should  be 
provided  to  achieve  this  goal  in  the  most  efficient  way.  Although  there  are  numerous 
studies  pointing  to  positive  effects  of  producer  organizations  on  farm  income  or  farm 
performance- in particular for high-value products – overall, the evidence is inconclusive 
and  often  mixed.  For  example,  the  existing  literature  often  suggests  that  that  the 
benefits of producer organizations in terms of improved farmer bargaining position in the 
food  chain  vary  with  time,  place,  technology,  sector,  scale  of  farming,  and  human  and 
social capital available. An area where there is particularly little evidence on the impact 
of  producer  organizations  concerns  the  nature  and  the  dynamics  of  the  contractual 
relationships  at  various  stages  of  the  food  chain.  Further  research  is  also  needed  to 
improve our understanding of factors determining smallholders' participation in collective 
action, substitutability between formal and informal cooperation, determinants of power 
distribution  throughout  the  food  chain  and  the  occurrence  of  unfair  trading  practices. 
Based  on  the  surveyed  evidence  the  report  concludes  with  a  set  of  policy 
recommendations.

1 The authors are solely responsible for the content of the paper. The views expressed are purely those of the 
authors  and  may  not  in  any  circumstances  be  regarded  as  stating  an  official  position  of  the  European 
Commission. 

6 

1. Introduction

It is commonly argued that food supply chains are characterized by a severe imbalance 

of  bargaining  power.  Indeed,  numerous  papers  support  the  view  that  farm  producers, 

especially those who are small and economically disadvantaged (i.e. with limited capital 

and  market  access),  have  a  much  weaker  negotiation  position  than  their  various 

contractors  be  it  intermediaries,  processing  industry  or  retail  sector  (see,  for  instance, 

the  discussion  in  Key  and  Runsten,  1999;  McCorriston,  2002;  Reardon  and  Berdegue, 

2002;  Reardon  et  al.,  2003;  Weatherspoon  et  al.  2001).  This  observation  is  often 

directly linked to several phenomena which have importantly affected the organization of 

agro-food supply chains worldwide, namely: the rapid rise of super- and hyper-markets, 

increasing levels of concentration in the processing industry; the rise of food quality and 

safety  standards  or  establishing  multinationals  in  developing  regions  (Rogers,  2000; 

McCorriston, 2002; Reardon et al., 2003; Kaiser and Suzuki, 2006; Swinnen, 2007).  

In response to that, power relations and the distribution of rents between the successive 

stages  in  the  food  chain  have  been  of  great  interest  both  to  academicians  as  well  as 

policy makers. On the one hand, this could be illustrated with an extensive and growing 

literature that has investigated the functioning of agro-food supply chains with a specific 

focus  on  strategic  behaviour  of  different  value  chain  agents  and  complex  interactions 

between them. On the other hand, one could recall here initiatives such as a Food Chain 

Analysis Network launched by the OECD or a High Level Forum for a Better Functioning 

Food Supply Chain set up by the European Commission. Both these initiatives aimed to 

help  develop  policy  in  the  food  sector  and  tackle  various  challenges  affecting 

competitiveness  of  the  agro-food  industry.2 Importantly, these  initiatives have provided 

a  platform  for  social  dialogue  on  issues  concerning,  among  others,  transparency  along 

the  food  chain  as  well  as  various  aspects  related  to  sustainability  and  resilience  of  the 

food system. In this respect, a lot of space has been given to unfair business-to-business 

trading practices within the chain and the distribution of bargaining power between chain 

members. A series of regulations adopted by the European Parliament and the European 

Council  which  try  to  establish  a  framework  aiming  at  addressing  the  issue  of  market 

power and various contractual frictions in the European food supply chain can serve as a 

2  More  information  on  the  Food  Chain  Analysis  Network  launched  by  the  OCED  is  available  here: 
https://www.oecd.org/site/agrfcn/.  For  more  on  High  Level  Forum  established  by  the  European  Commission 
see: http://ec.europa.eu/growth/sectors/food/competitiveness/supply-chain-forum/index_en.htm 

7 

further example that strengthening the position of farmers towards other chain members 

is of an active political interest.3  

Hopes  for  a  more  balanced  distribution  of  rents  within  the  food  supply  chain  are  often 

placed on agricultural producers’ organizations. Indeed, as mentioned by several authors 

(see e.g. Menard, 2007; or Barrett, 2008), one response to imperfect competition in the 

marketing  channel  is  to  organize  farmers  so  that  they  can  gain  bargaining  power  and 

extract  better  terms  of  trade  from  downstream  purchasers. 4 In  fact,  negotiating  with 

contractors  is  a  basic  function  of  any  producer  organization  (see  e.g.  Bijman  et  al., 

2012).  Positive  impact  of  producer  organizations  on  farmers’  position  towards  their 

contractors could be expected on several grounds (see further). Most often however, it is 

based  on  the  assumption  that  collective  action  should  allow  farmers  to  exploit  scale 

economies  in  producing  and  marketing  their  output  (see  e.g.  Hendrikse,  1998; 

Hendrikse and Bijman, 2002). Following this logic, the Common Agricultural Policy (CAP) 

established specific measures that aim at enhancing farmers' position in the food supply 

chain.  For  example,  it  facilitates  farmers'  cooperation  through  producer  organizations 

that  can,  among  others,  promote  marketing,  concentration  of  supply  and  in  general  a 

more coordinated response to market pressures. 5,6 

A  key  issue  which  arises  in  this  context  is  whether  producer  organizations  achieve  this 

goal.  This  poses  a  challenge  of  improving  our  knowledge  about  the  functioning  of 

farmers'  collaborative  actions.  Several  questions  which  seem  important  in  this  respect 

are  the  following:  what  factors  stimulate  producer  organizations'  establishment?  what 

are the economic implications of producer organizations on farmers and agro-food chains 

as a whole? and what factors make these organizations sustainable over the long-run?  

Answering  these  questions  may  be  intellectually  interesting  in  its  own  right. 

Investigating them however seems to be of broader importance. This is because it allows 

us  to  gain  better  understanding  of  how  producer  organizations  may  contribute  to 

address  increasing  concerns  about  competition  throughout  the  food  supply  chain  which 

have  been  commonly  expressed  across  countries.  In  this  respect,  the  key  issues  relate 

to power distribution throughout the food chain, and the nature of commercial relations 

between chain members which may importantly affect the way in which farmers are tied 

into the overall functioning of the food chain. 

3

 See 

e.g. 

http://ec.europa.eu/economy_finance/articles/structural_reforms/article16028_en.htm; 

http://www.biicl.org/files/5887_ep_resolution_on_food_chain_imbalances.pdf 
4  Interestingly,  relationships  between  farmers  and  input  suppliers  are  given  much  less  attention  in  the 
literature.  
5 See e.g. regulations 261/2012; 511/2012; 880/2012 or 1308/2013. 
6 Under CAP, farmers' cooperation through recognised producer organisations is legally supported since 2001 in 
the fruit and vegetable sector, and since 2011 in the milk sector. The 2013 CAP reform extended this form of 
farm cooperation to all agricultural sectors. 

8 

Against  this  background,  this  report  surveys  the  recent  literature  on  producer 

organizations  with  a  specific  focus  on  factors  affecting  their  establishment  and  their 

impact  on  farmers'  welfare.  In  addition,  it  discusses  producer  organizations'  role  in 

improving farmers’ bargaining power and allowing them to respond to various challenges 

which  result  from  dynamic  changes  characterizing  commercial  relations  within  the  food 

chain that have been experienced across countries.  

The  rationale  for  analyzing  producer  organizations  in  this  context  is  based  on  the 

assumption that the space of contracts, the nature of the ex-post negotiations between 

farmers and their contractors and, consequently, the division of ex-post surplus between 

them  is  sensitive  to  organizational  structure  of  agents  involved  in  a  given  transaction 

(see, among others, Coase, 1937; Williamson, 1975; 1985; Grossman and Hart, 1986). 

In this way, farmers' cooperation which is a manifestation of horizontal integration, could 

be  seen  as  an  important  element  contributing  to  the  change  in  the  organizational 

arrangements within food supply chains. This in turn, may have important consequences 

for  food  chains'  institutional  and  governance  structure  and,  consequently,  for  their 

performance (either at the country or at the sector level).  

The  literature  review  is  focused  on  studies  published  in  the  top  journals  in  the  field  of 

agricultural  economics  (i.e.  Agricultural  Economics,  American  Journal  of  Agricultural 

Economics,  European  Review  of  Agricultural  Economics,  Food  Policy  or  Journal  of 

Agricultural  Economics).  In  addition  to  that,  it  surveys  the  evidence  on  producer 

organizations  published  in  journals  with  wider  scope  and/or  different  (not  necessarily 

economic) focus, such as Agribusiness, British Food Journal, Journal of Rural Cooperation 

or World Development. Finally, the report also consults key publications on cooperative 

behaviour  and  the  functioning  of  the  food  supply  chain.  Since  the  vast  majority  of 

publications  concerned  with  the  producer  organizations  and  their  role  in  affecting  the 

functioning of the food supply chain focus either on the United States or on developing 

regions,  the  review  covered  in  this  report  is  not  limited  to  studies  concerned  with 

Europe.  

Importantly,  given  that  recently  other  studies  summarizing  the  literature  on  producer 

organizations  have  been  completed  (for  examples  of  comprehensive  surveys  see  e.g. 

Hendrikse and Feng, 2013; Van Herck, 2014), this report tries to focus on issues which, 

to the best of our knowledge, have not been extensively discussed elsewhere but which 

are  of  high  relevance  for  our  understanding  of  the  emergence,  development  and 

implications of farmers' horizontal integration.  

This  report  is  organized  as  follows.  Section  2  briefly  presents  some  background 

information  on  producer  organizations.  Section  3  reviews  the  literature  on  factors 

9 

 
 
promoting  producer  organizations'  establishment,  whereas  Section  4  presents  the  main 

findings as regards their economic impacts for farmers. Section 5 concludes.  

10 

 
 
 
 
2. Producer organizations - some background information 

A  common  definition  of  a  producer  organization  presents  it  as  a  rural  business,  owned 

and  controlled  by  producers,  and  engaged  in  collective  marketing  activities  (Penrose-

Buckley,  2007).  More  specifically,  cooperation  between  agricultural  producers  within 

groups  is  a  manifestation  of  horizontal  integration  of  economic  units  bringing  together 

operators at the same stage of production or distribution. Two types of integration may 

be distinguished: fully horizontal, involving a merger, and partially  horizontal, involving 

integration  of  certain  types  of  business,  e.g.  supplies  or  sales  (Ruben  et  al.,  2006).  As 

for agricultural producers, the latter comes into play. Producer organizations can act on 

their  own  or  group  themselves  into  larger  units  such  as  associations  of  producer 

organizations or inter-branch organizations. 

A producer organization is identified based on the specification of its functions and goals. 

What  is  important  is  that  it  should  be  formed  on  agricultural  producers’  own  initiative, 

and its aim should be to primarily improve economic effectiveness of its member farms, 

mainly  by  adapting  production  and  sales  to  the  market  requirements.  Thus,  the  term 

agricultural  producer  organization  does  not  imply  any  specific  legal  form,  but  refers  to 

the organization whose major objective is to place on the market commodities produced 

on  member  farms,  thereby  ensuring  them  maximum  benefits,  proportionately  to  the 

quantity of products sold by the group.  

In  the  literature,  agricultural  producer  organizations  that  provide  services  of  an 

economic  and  technical  nature  are  known  by  different  names.  Apart  from  the  term  a 

'producer  organization',  others  are  used,  such  as  a  ‘farmer  organization’,  ‘producer 

group’,  ‘marketing  group’,  ‘producer  and  marketing  group’,  ‘agricultural  cooperative’, 

‘producer-own enterprises’ or ‘member-owned firms’ (Harris et al., 1996; Bijman, 2002; 

Bouamra-Mechemache  and  Zago,  2015).  A  common  denominator  to  all  these  types  of 

organization  is  their  objective  to  increase  welfare  of  their  members.  In  addition, 

producer  organizations  are  owned  by  their  members-producers;  they  are  set  up, 

supervised  and  managed  by  producers  in  a  way  which  brings  them  specific  benefits. 

Thus, in a broad sense, producer organizations are, like cooperatives, user-owned, user-

controlled, and user-benefit organizations (Bijman et al., 2012). 

Farmers  have  long  been  encouraged  to  organize  as  associations  or  cooperatives.  Thus 

the phenomenon of farmers’ cooperation is not new. As far as the Common Agricultural 

Policy  (CAP)  is  concerned,  producer  organizations  have been  initially  encouraged  in  the 

fruit  and  vegetable  sector.  Later  they  have  been  also  supported  in  the  milk  sector  and 

11 

 
 
 
 
since 2013 they have been encouraged in all sectors (see the EU regulation 1308/2013). 

A  short  historical  review  of  various  measures  encouraging  farmers  to  cooperate  within 

the  CAP  can  be  found,  for  example,  in  Bouamra-Mechemache  and  Zago  (2015)  or 

Bijman et al. (2012). Some basic information on recent cooperatives' development in the 

EU  is  provided  by  COPA-COGECA  (2015).  As  far  as  the  studies  with  a  bit  more  narrow 

geographical focus are concerned, Gardner and Lerman (2006) describe the evolution of 

cooperation  between  farmers  in  Central  and  Eastern  Europe  in  the  transition  period, 

whereas  Bager  and  Michelsen  (1994)  concentrate  on  Scandinavian  countries.  For 

accounts  on  farmer  organizations'  development  outside  the  EU  see,  for  example,  Hussi 

et al., (1993) for Africa, Golovina and Nilsson (2011) for Russia, Deng et al., (2010) for 

China or Cook (1995) for the United States.  

Within the CAP, farmers can apply both for transitional support for establishing producer 

organization  as  well  as  for  financial  assistance  contributing  to  POs'  operational  fund.7 

Besides  the  requirement  of  being  established  by  producers  of  one  of  the  specific 

products,  the  only  requirements  for  recognized  POs  are  related  to  their  function: 

recognized  POs  should  pursue  specific  aims  related  to  (i)  concentrating  supply  and 

marketing  the  output  of  the  members;  (ii)  adapting  production  jointly  to  the 

requirements  of  the  market  and 

improving  the  product;  (iii)  promoting  the 

rationalization  and  mechanization  of  production;  (iv)  promoting  quality  improvement  of 

production; (v) supporting better cost management (vi) contributing to use and adoption 

of  environmental  friendly  practices;  (vi)  providing  technical  assistance  and  information 

diffusion. No further requirements as to ownership or decision-making procedures apply. 

That said, an important tenet of the producer organizations' philosophy is a democratic 

decision-making process (Bijman et al., 2012).  

Cooperation  between  farmers  is  often  seen  as  a  necessary  condition  to  improve  their 

bargaining  power  with  respect  to  the  downstream  purchasers.  In  fact,  strengthening 

farmers' position in the market is often a predominant motive in arguments introducing 

support  for  setting  up  producer  organizations  into  policy  framework.  This  is  the  case 

especially for developing regions and, in Europe, particularly in some of the New Member 

States  (NMS)  that  joined  the  European  Union  (EU)  in  2004  or  later  where  farm 

cooperation lags behind that observed in Old Member States (OMS). This is well reflected 

in the composition of rural development policies in Europe. Indeed, measures supporting 

horizontal  integration  at  the  farm  level  tend  to  play  a  more  important  role  in  New 

Member States than in Old Member States.  

7 For  more  on  definitional  issues  and  technical  requirements  which  producer  organizations/producer  groups 
should  meet  see,  http://ec.europa.eu/agriculture/fruit-and-vegetables/producer-organisations/pg_en.pdf;  or 
http://ec.europa.eu/agriculture/fruit-and-vegetables/producer-organisations/po_en.pdf 

12 

 
 
                                          
Overall, the EU cooperatives maintain a relatively strong presence in the European food 

supply  chain  (Bijman  et  al.,  2012).  That  said,  while  farmers  increasingly  join  forces  in 

producer  organizations,  the  strength  of  such  organizations  varies  across  Europe  and 

sectors. For example, in Poland the value of products sold by producer groups accounts 

for  only  5.7%  of  the  value  of  total  commercial  production  (Chlebicka  et  al.,  2014) 

whereas  in  France,  Germany,  Great  Britain,  or  Spain,  depending  on  the  sector,  this 

share oscillates in the range from 25% to 95% (Bijman et al., 2012; see also statistics 

presented in COPA-COGECA, 2015).  

This heterogeneity  suggests  that  the  development  of  producer  organizations  is  likely  to 

be  highly  dependent  on  social,  institutional  and  cultural  context.  This  is  well  illustrated 

by  the  striking  difference  between  the  scale  of  farmers'  formal  cooperation  in  the  OMS 

and NMS. In the former group of countries, the degree of penetration of cooperatives is 

roughly 40% on average, whereas in the latter it is below 25% (OECD, 2013; Bijman et 

al.,  2012;  see  also  figures  presented  in  COPA-COGECA,  2015).  This  difference  is  most 

often explained by the historical legacy of the communist regime in NMS (Chloupkova et 

al., 2003; Tisenkopfs et al., 2011). In this context, it has been widely acknowledged that 

a  lengthy  period  of  totalitarian  rule  in  NMS  from  Central  and  Eastern  Europe  has 

negatively  affected  the  level  of  social  capital  and  the  attitude  towards  cooperative 

behaviour  (see  e.g.  Lovell,  2001;  Paldam  and  Svendsen,  2001;  Fidrmuc  and  Gërxhani, 

2008)8.  This  is  because,  during  the  communist  regime,  the  state  not  only  discouraged 

voluntary cooperation, but also tried to forcefully impose collectivization. As a result, not 

only  the  bottom-up  cooperative  initiatives  were  destroyed,  but  also  individuals  were 

forced to engage in ideologically motivated collective action on conditions dictated by the 

state.  Based  on  this  observation,  negative  consequences  of  the  Communism  on 

individuals’  preferences  to  cooperate  has  often  been  called  for  as  an  explanation  for  a 

relatively  low  level  of  cooperation  between  farmers  in  NMS  from  Central  and  Eastern 

Europe (see e.g. Chloupkova et al., 2003; Perepeczko, 2003; Csaki and Forgacs, 2008; 

Tisenkopfs et al., 2011; Bijman et al., 2012).  

What  should  be  noted  here  though  is  that,  while  this  argument  is  consistent  with 

intuition and widely acknowledged, there is a lack of systematic empirical evidence which 

would  support  the  view  that  the  current  low  levels  of  cooperation  between  farmers  in 

former  communist  countries  can  be  explained  by  adverse  past  experiences  with 

collectivization  in  the  past  (see  also  the  discussion  in  Gardner  and  Lerman,  2006).  In 

8 This argument draws, among others, on a more general observation, namely that (totalitarian) dictatorships 
consciously  destroy  values  and  beliefs  promoting  cooperation  in  order  to  minimize  the  probability  of 
cooperation against the regime (see. e.g. Putnam, 1993; Wintrobe, 1998). 

13 

 
 
 
                                          
fact,  the  weight  attached  to  social  capital  in  explaining  the  slow  development  of 

horizontal integration between farmers stands in strong contrast with the availability of 

empirical evidence that could support such conclusions (Wolz et al., 2004; Chlebicka et 

al., 2014). 

2.1.  POs in the light of general developments in food supply chains  

The  rationale  for  initiating  policy  instruments  which  aim  at  providing  incentives  to 

promote  cooperative  behaviour  has  often  been  based  on  the  assumption  that  acting 

collectively should allow farmers to more effectively cope with various challenges which 

agricultural producers face and struggle to address individually (see e.g. Ostrom, 1990). 

Currently,  these  challenges  are  commonly  associated  with  dynamic  and  rapid  changes 

that  have  been  recently  experienced  in  food  supply  chains  all  over  the  world.  These 

changes  include,  among  others,  the  rise  and  spread  of  food  quality  standards, 

modernization  of  retail  and  processing  sectors  and  a  growing  concentration  of  sectors 

downstream  from  farmers  (Reardon  et  al.,  1999;  Swinnen,  2007;  Sexton,  2013).  In 

contrast,  producers of agricultural  raw  materials  are  the  least  concentrated  level  in  the 

food  supply  chain,  which  leaves  them  at  a  comparative  disadvantage  in  terms  of 

bargaining  power.  In fact,  many  studies  argue  that  the modern  food  marketing  system 

in  many 

industries 

is  most  appropriately 

characterized  by  a 

successive 

oligopoly/oligopsony structure (McCorriston, 2002; Sexton et al., 2007).  

As a result it is often assumed that companies in sectors downstream from farmers have 

buying  power  in  the  purchase  of  agricultural  products.  Consequently,  they  can 

appropriate  a  relatively  large  share  of  surplus  created  by  farmer-processor/retailer 

relationship.  Instead,  farm producers who  are  price  takers  are  left  with  a  relatively  low 

share of the total value added within the food chain (Sexton and Lavoie, 2001, Sexton, 

2013;  McCorriston,  2013).  In  effect,  it  is  often  argued  that  the  distribution  of  power 

within the food supply chain is not balanced and farmers are, generally speaking, worse 

off than sectors located downstream from them.  

In  response  to  the  concerns  about  farmers'  weak  bargaining  position,  market  power  in 

the food supply chain has been extensively analyzed in the literature. Recent reviews of 

the impact of market power on social welfare or the research interested in estimating the 

degree  of  market  power  in  the  food  sector  include,  among  others,  Sexton  (2000), 

Sheldon and Sperling (2003) or Perekhozhuk et al. (2016).  

Given the recent consolidation trends both in food manufacturing and retail sector, most 

studies  usually  focus  on  market  concentration.  The  existing  studies  investigating  this 

issue  unanimously show that the  level  of  processing  and retail  sectors' concentration  is 

14 

 
 
 
high (with the 3 firms concentration ratios (CR3) often exceeding 70%) and that it has 

increased  over  the  last  years  (see,  for  example,  OECD,  2013  for  some  figures).  What 

should be noted though, is that the existing evidence also clearly indicates that there is a 

substantial  variation  in  the  concentration  level  both  across  countries  as  well  as  across 

industries.  

That  said,  while  the  high  and  rising  concentration  in  the  food  sector  is  widely 

acknowledged, there is a lot of debate whether this necessarily implies anti-competitive 

behaviour in processing or retailing sectors. Indeed, surveys of the recent empirical work 

by Sexton (2000), Sexton and Lavoie (2001), and Sheldon and Sperling (2003) suggest 

that  a  small  number  of  firms  does  not  necessarily  equate  with  firms  exerting  market 

power  in  purchasing  raw  materials  from  farmers  (see  also  estimates  of  market  power 

parameters  in  Sexton et  al.,  2007,  Table  1).  While  this point  should  be  of  relevance  to 

the  debate  about  producer  organizations,  it  is  relatively  rarely  taken  into  account. 

Instead,  given  high  concentration  levels  in  the  downstream  sectors,  the  focus  in  the 

discussion almost automatically shifts towards conclusions about the need for supporting 

horizontal  integration  of  farmers.  What  should  be  clearly  noted,  this  is  not  to  say  that 

such  support  is  not  needed.  This  is  to  say  however  that  such  support  should  not  be 

treated as an automatic response, even when concentration levels in processing and/or 

retail sectors are high.  

There is yet another important point which draws on the literature on market power and 

which  should  direct  our  discussion  about  producer  organizations.  More  specifically,  the 

literature  focusing  on  market  power  largely  focuses  on  improving  our  understanding 

about  how  prices  are  determined  and  commodity  price  shocks  transmitted  through  the 

food supply chain (see e.g. McCorriston, 2002; Meyer and von Cramon-Taubadel, 2004). 

For example, the price distortions induced by monopolistic or oligopolistic organization of 

the markets have been particularly intensively researched (see e.g. Perekhozhuk et al., 

2016). While these studies are highly relevant and provide very useful information, it is 

important to note that they address only one aspect of the complex relationships which 

characterize agents transacting within food supply chains. In fact, prices paid to farmers 

are  just  one  among  many  forms  in  which  downstream  sectors'  power  can  arise.  As 

argued  in  several  recent  studies,  there  are  many  other  elements  that  firms  with 

dominant position in the market can exploit to their advantage (see e.g. Sexton, 2013). 

In fact, any element of the relationship between firms can be subject to distortions (e.g. 

Renda  et  al.  2014;  European  Commission  2014).  Understanding  whether  and  how 

producer  organizations  can  address  these  various  distortions  is  still  something  which 

deserves more attention both in terms of research and potential policy support.  

15 

 
 
To put it briefly, contractual frictions between members of the food chain may come in 

many  forms.  The  sources  causing  the  emergence  of  market  power  may  be  due  to  the 

imbalances  in  the  bargaining  power  of  the  firms  (e.g.  due  to  the  size  differences), 

switching  costs  of  changing  trading  party  due  to  relationship-specific  investments, 

asymmetric  information  and  incomplete  contracts,  asymmetric  costs  of  contract 

enforcement  (e.g.  asymmetric  costs  in  accessing  justice),  or  perishability  of  goods  and 

seasonality  of  production  (Gow  et al.,  2000; Renda  et  al.  2014).  In line  with  this view, 

European  Commission  (2014)  identified  the  following  four  types  of  unfair  trading 

practices (UTPs) that may occur between firms in the food chain: (i) retroactive misuse 

of  unspecified,  ambiguous  or  incomplete  contract  terms,  (ii)  an  excessive  and 

unpredictable  transfer  of  costs  or  risks  of  a  trading  partner  to  its  counterparty  (e.g. 

transfer  of  transaction-specific  investments,  long  payment  delays),  (iii)  misuse  of 

confidential  information  and  (iv)  unfair  termination  or  disruption  of  a  commercial 

relationship.  What  is  important,  is  that  all  these  types  of  distortions  to  commercial 

relations  within  the  food  chain  have  a  common  denominator  which  is  the  transfer  of 

costs incurred and the shift of entrepreneurial risk to the weaker party in the relationship 

(see, for example, European Commission, 2013). 

In consequence, when thinking about the role of producer organizations in improving the 

performance  of  food  supply  chains  and  farmers'  situation  in  particular,  we  must  not 

focus  on  market  concentration  or  prices  alone.  Rather,  the  trends  towards  greater 

concentration  and  vertical  coordination,  along  with  risks  for  farmers  arising  from 

unforeseen  changes  in  the  contract  or  the  terms  via  which  farmers  are  tied  into  the 

overall functioning of the food sector, must be considered and evaluated jointly (Sexton, 

2013).  

The  existing  studies  focusing  on  impacts  of  producer  organizations  (see  further)  often 

are  interested  in  the  overall  effect  of  collective  action  on  farmers'  welfare.  It  could  be 

argued  therefore,  that,  in  a  sense,  they  allow  to  indirectly  account  for  the  phenomena 

just  described.  Indeed,  the  effects  of  these  various  aspects  should  be  captured  by 

general  farm  performance  indicators  such  as  farm  revenues  or  farm  productivity.  That 

said,  these  studies  will  be  of  little  use  for  identifying  the  exact  mechanisms  through 

which  producer  organizations  may  exert  their  impact.  In  consequence,  their  value  for 

informing policies will be also limited. This is particularly important because, as it will be 

shown  in  the  following  sections,  these  general  studies  on  implications  of  producer 

organizations  for  farmers  often  address  potential  effects  of  market  power  and  unfair 

trading  practices  only  in  a  fragmentary  way  and  thus  do  not  allow  to  capture  the  full 

complexity of various interdependencies within the food chain. In addition, they usually 

bring mixed and inconclusive results.   

16 

 
 
To  improve  our  knowledge  about  the  impact  of  producer  organizations  on  farmers' 

welfare and the functioning of the food chain, it seems crucial to better  understand the 

nature  of  farmers'  collective  action.  This  obviously  poses  the  question  about  factors 

motivating  setting  up  of  producers'  organizations  and/or  barriers  discouraging  it.  In  a 

more  general  sense,  it  brings  to  the  forefront  the  issue  of  how  and  why  cooperative 

behaviour  takes  place.  Improving  our  understanding  of  these  aspects  is  important 

especially  given  the  fact  that  coordination  problems  very  often  have  multiple  stable 

patterns  of  behaviour,  each  of  them  showing  various  degree  of  cooperation  (see  e.g. 

Acemoglu  and  Jackson,  2015).  What  follows,  groups  of  individuals  in  similar  economic, 

social  and  political  environments  may  end  up  with  different  patterns  of  behaviour  or 

switch  from  one  pattern  to  another.  It  is  therefore  crucial  to  expand  our  knowledge 

about  specific  factors  that  may  encourage  cooperative  equilibria.  This  is  done  in  the 

section which follows.  

17 

 
 
 
 
3. Factors supporting the establishment of producer 

organizations 

3.1.  Informal versus formal enforcement mechanisms of cooperative behaviour 

A  useful  way  of  looking  at  the  problem  of  setting  up  agricultural  producer  groups  is  to 

start  with  an  observation  that  every  cooperation  must  be  supported  by  an  effective 

enforcement  mechanism.  The  latter  is  needed  to  assure  that  any  deviations  from 

cooperative  behaviour  would  be  punished  and  therefore  eventually  discouraged. 

Otherwise, in the fear of others deviating from cooperative behaviour, individuals would 

withdraw from cooperation at all. 

Therefore,  an  important  step  to  understand  how  and  why  cooperative  behaviour  takes 

place,  is  to  improve  our  knowledge  about  determinants  and  consequences  of  using 

different  organizational  structures  which  are  chosen  by 

individuals  to  govern 

collaborative  actions.  As  it  is  widely  acknowledged,  in  general,  there  are  two  types  of 

organizations which can be differentiated in this context (see, for example, Greif, 2006; 

MacLeod,  2007;  North  et  al.,  2009).  One  of  them  is  based  on  informal  (personal) 

mechanisms  to  enforce  agreements  and  relays  primarily  on  social  embeddedness 

(Granovetter,  1985).  In  this  case,  the  problem  is  solved  through  informal  institutions 

(such as reputation) and within the group of individuals that cooperate with each other. 

In  that  case  non-cooperative  behaviour  is  discouraged  by  the  threat  of  withholding 

future  cooperation.  The  other  one  instead  is  based  on  more  formal  (impersonal) 

arrangements,  often  utilizing  third  parties  to  enforce  contracts  (Williamson,  1975).  In 

this  case  the  punishment  and  monitoring  is  in  the  hands  of  an  external  party.  As  a 

result,  a  deviation  from  cooperative  behaviour  does  not  need  to  lead  individuals  to 

withhold from future cooperation. 

While  the  functioning  of  the  former  type  of  organization  crucially  depends  on  personal 

relationships,  the  latter  works  mostly  in  an  impersonal  manner.  That  said,  exactly  how 

and  why  these  different  types  of  organizations  are  chosen  is  quite  complex  and  under 

discussion.  In  fact,  starting  from  seminal  contributions  by  Banfield  (1958)  and  Putnam 

(1993)  for  Italy,  a  number  of  studies  try  to  document  different  examples  of  (non-

)cooperative behaviours and identify their drivers as well as consequences for economic 

performance.  

Obviously, cooperation can be sustained under each of these scenarios only if individuals 

trust that a given enforcement mechanism is efficacious. In other words there must exist 

appropriate  incentives  for  group  members  (if  it  is  the  mechanism  based  on  informal 

18 

 
 
 
 
institutions) or for a third party (if it is the mechanism based on formal  institutions) to 

punish  individuals  who  deviate  from  their  expected  course  of  behaviour.  The  very 

different  nature  of  these  two  enforcement  mechanisms  suggests  however  that  for  each 

of  them  a  different  type  of  trust  may  be  of  special  importance.  Starting  a  cooperation 

under  the  former  enforcement  mechanism  might  be  dependent  especially  on  mutual 

trust within the group of individuals working with each other. Establishing joint activities 

under  the  second  type  of  enforcement  mechanism  instead  would  require  trust  in  the 

integrity  and  effectiveness  of  a  third  party  which  is  supposed  to  monitor  and  punish 

potential deviations from a cooperative behaviour.9  

In  line  with  these  considerations,  among  many  factors  investigated  in  the  context  of 

establishing  a  cooperation  between  farmers  (see,  for  example,  Hendrikse  and  Bijman, 

2002; Lopez and Spreen, 2008; Menard and Valceschini, 2005; or Pascucci et al., 2012), 

a  special  attention  in  the  literature  is  paid  to  trust.  Indeed,  several  studies  argue  that 

trust  is  crucial  for  the  development  and  performance  of  various  forms  of  farmers' 

horizontal integration (for the recent contributions see, e.g., Fulton, 1999; Hansen et al., 

2002;  Karantininis,  2007;  Nilsson  et  al.,  2009;  Martino,  2010;  or  Szabo,  2010).  In 

particular, these works emphasize that trust may considerably decrease potential agency 

costs  within  the  cooperative,  strengthen  the  cohesion  of  the  group  and  thus  members’ 

commitment to it (for a literature review see Szabo, 2010). Moreover, these studies also 

allow to distinguish between the role of trust among cooperative members and the role 

of trust between members and the management, or highlight the importance of various 

types  of  trust  (cognitive  vs.  affective)  (see  e.g.  Hansen  et  al.,  2002;  Nillson  et  al., 

2009).  

That  said,  most  of  these  works  are  case  study  in  nature.  What  follows,  their  findings, 

while  certainly  very  informative,  might  have  a  limited  external  validity.  It  seems, 

therefore, important to complement them with a more systematic evidence. In addition, 

more work is needed, both theoretical and empirical, to assess various advantages and 

disadvantages  of  different  enforcement  mechanisms  and  the  role  of  different  types  of 

trust  in  promoting  farmers'  horizontal  integration  and  improving  efficiency  of  the 

functioning of the food chain. In relation to that one can recall the study by Fischer and 

Qaim  (2014),  who  show  that  the  intensity  of  participation  in  cooperatives  importantly 

depends on their structure and organization.  

9 Although from a slightly different perspective than that adopted  in  this  paper,  the role of farmers' attitudes 
towards  formal  mechanisms  governing  transactions  in  the  food  chain  is  clearly  illustrated  by  Beckman  and 
Boger  (2004).  Based  on  the  farm-level  data  from  Poland,  this  study  shows  that  attitude  towards  formal 
mechanisms  may  importantly  affect  farmers'  behaviour  and  his/her  willingness  to  accept  losses    in  the 
presence of contractual frictions which occur between farmers and their contractors.  

19 

 
 
                                          
In  this  context,  it  is  also  worth  recalling  studies  which  link  the  issues  of  trust  and 

contractual  relationships  between  chain  members  to  concerns  about  imbalance  of 

bargaining  power  within  the  food  marketing  system  which  were  discussed  earlier.  As 

already mentioned, the fragmentation of the supply base (farm sector) almost invariably 

involves  an  imbalance  of  power  distribution  within  the  chain.  This,  in  turn,  is  likely  to 

negatively  affect  the  level  of  trust  between  interdependent  partners  (Lindgreen,  2003; 

Lindgreen  et  al.,  2005;  Fischer  et  al.,  2007;  2009).  In  consequence,  it  is  likely  to 

weaken  supply  chain  collaboration.  Whether  producer  organizations  can  address  this 

challenge  is  unknown  as  there  is  hardly  any  evidence  on  the  impact  of  farmer 

organizations on trust between representatives of downstream and upstream sectors.  

The  distinction  between  two  different  types  of  enforcement  mechanisms  and  two 

different  types  of  trust  needed  for  sustaining  cooperation  is  important  as  it  shows  that 

our efforts to promote horizontal integration between farmers may take on various forms 

or,  alternatively,  encounter  different  obstacles.  For  example,  in  regions/sectors  where 

producer  organizations  are  established  under  informal  enforcement  mechanisms 

cooperation might be limited in size. This is because the enforcement mechanisms based 

on informal institutions require that individuals' behaviour can be monitored by members 

of the group themselves and the latter can happen only in small groups. Similarly, it is in 

small  scale  rather  than  in  larger  groups  where  the  information  about  individual's  past 

behaviour  will  be  known  to  other  members.  Therefore,  while  in  the  case  of  informal 

enforcement  mechanisms  interpersonal  relationships  and  mutual  trust  can  render 

cooperation  possible  and  effective,  its  scale  can  be  only  limited.  What  follows,  scaling 

cooperation  up  in  this  scenario  might  be  possible  only  if  citizens'  trust  in  a  third  party 

enforcer  could  be  built.  Furthermore,  costs  related  to  this  cannot  exceed  benefits  from 

cooperating on a larger scale. Similarly, wherever there is an absence of entrusted third 

party  enforcer,  projects  encouraging  small-scale  cooperation  based  on  interpersonal 

relationships could be more efficacious than that aimed at stimulating cooperation on a 

large scale, especially in the short-run.  

In addition, the discussion presented above suggests that different types of enforcement 

mechanism  might  be  linked  with  the  type  of  production  in  which  a  given  producer 

organization  is  specialized  (for  a  related  argument  see,  for  instance,  the  discussion  in 

Acemoglu  and  Wolitzky,  2015).  In  general,  one  could  expect  that  third  party  enforcers 

should  be  more  often  used  when  more  advanced  technologies  are  applied.  This  is 

because  in  that  case  the  monitoring  of  each  individual's  behaviour  is  more  difficult. 

Further,  as  more  advanced  technology  are  normally  applied  to  a  production  of  more 

complex goods, often it is also more difficult to assess the quality of an observed output. 

In  our  context,  this  may  be  used  to  argue  that  third  party  enforcement  (rather  than 

20 

 
 
informal  enforcement)  should  be  more  common  for  organizations  specialized  in  animal 

rather  than  crop  production.  This  is  because  the  former  type  of  production  is  relatively 

more  constrained  by  various  animal  welfare  standards.  In  addition,  the  issue  of  quality 

seems  to  be  predominantly  related  to  animal  production  (e.g.  meat  or  milk).  In 

consequence,  one  may  assume  that  monitoring  group  members  is  much  more 

demanding  in  animal  production  than  in  crop  production,  where  essentially  group 

members  are  checked  mostly  on  how  much  they  sell  through  producer  organization 

rather  than  on  the  quality  of  their  output.  There  is  yet  another  point  to  be  observed. 

With animal production all the quality issues are monitored by a third party, most often 

either  by  the  processing  industry  or  by  external  laboratories.  What  follows,  a  producer 

organization  specialized  in  animal  production  is  almost  by  definition  more  likely  to  be 

dependent  on  a  third  party  enforcer.  Establishing  it  therefore  requires  a  given  level  of 

general  trust  towards  this  third  party,  which  is  not  necessarily  the  case  with  producer 

groups  in  crop  sector.  The  existing  studies  showing  that  agricultural  producer 

organizations'  development  is  highly  sector  (and  often  region)  specific  phenomenon, 

with  cooperation  being  more  often  present  in  sectors  characterized  by  higher 

heterogeneity in terms of quality and the number of products offered (see e.g. Barrett, 

2008; Pascucci et al., 2012), seems to be consistent with this view.  

3.2.  The role of social structure and networks 

Given the distinction between personal and impersonal mechanisms highlighted above, a 

key issue to improve our knowledge about factors promoting establishment of producer 

organization  is  to  understand  to  what  extent  farmers'  cooperation  is  driven  by  social 

structure.  Studies  investigating  the  role  of  interpersonal  relationships  for  shaping 

agrarian  institutions  provide  evidence  that  sharing  common  norms  and  membership  in 

networks of interconnected agents might be very important for finding optimal solutions 

to  challenges  faced  by  farmers  (see  e.g.  Ostrom,  1990;  Fafchamps,  1992;  Coate  and 

Ravallion,  1993;  or  Foster  and  Rosenzweig,  2001).  While  these  studies  importantly 

improve  our  understanding  about  the  linkage  between  network  structure  and 

cooperative  behaviour,  they  are  predominantly  occupied  with  the  role  of  interpersonal 

trust  in  creating  mutual  insurance  mechanisms.  Instead,  our  knowledge  about  the 

importance  of  specific  relationships  linking  farmers  as  a  condition  for  their  involvement 

in collective action in the form of producer organizations is much poorer.  

This  is  in  striking  contrast  to  a  more  general  literature  which  has  long  recognized  that 

interpersonal  relationships  play  an  important  role  in  facilitating  social  and  economic 

interaction (Granovetter, 1985; Greif, 2006; Platteau, 1994). More specifically, it is often 

said  that  interpersonal  relationships  favour  exchange  and  potentially  increase  the 

21 

 
 
 
compliance  with  rules  which  accompany  transactions  (see,  for  example,  Durlauf  and 

Fafchamps, 2005; or Jackson, 2008). What follows, they should also facilitate collective 

action.  This  is  based  on  the  assumption  that  social  relations  should  mitigate  potential 

problem of asymmetric information and provide the ability to use reputation mechanisms 

to punish opportunistic breaches of contract.  

This  reasoning  stems  largely  from  the  observation  that  "most  beliefs  about  human 

behaviour  can,  at  least  in  principle,  be  confirmed  or  disconfirmed  by  experience  in  the 

set of social interactions, organizations and networks in which individuals are embedded 

(North  et  al.,  2009,  p.  28)".  This  in  turn  implies  that  "from  an  individual’s  perspective, 

beliefs about those people with whom we interact repeatedly, beginning with the family, 

are more certain than beliefs about those with whom we have less interactions (North et 

al., 2009, p.28)". In this context interactions which are based on family ties, friendship 

or  other  acquaintances  may  be  of  particular  importance  in  promoting  economic 

exchange,  especially  in  the  environment  characterized  by  high  uncertainty.  Put  it 

differently,  repeated  interaction,  since  it  involves  exchanging  favours  and  allows  for 

learning about past conduct of potential transacting partners, can prevent an individual 

from free-riding and misbehaving (Ostrom, 2000). In the context of agricultural producer 

organizations  this  issue  gains  particular  importance  since,  as  argued  in  many  studies, 

key  factors  for  the  success  of  co-operatives  are  the  members'  commitment  and  loyalty 

to  the  cooperative,  its  management  and  other  members  (see,  for  example,  Nilsson  et 

al., 2009; Szabo, 2010; Cechin et al., 2013).  

Beyond  this  argument,  the  role  of  close  social  relations  stems  from  the  fact  that 

individuals'  choices,  also  those  involving  collective  action,  often  are  dependent  on  their 

family  or  friends  as  the  information  flow  within  a  circle  of  close  relationships  is  better 

and  quicker  (Jackson,  2008).  What  follows,  in  our  context,  individuals  may  be  more 

eager to join a producer organization when some of their relatives/friends can tell them 

about  it  (for  a  related  argument  see  e.g.  Banerjee  et  al.,  2013).  Further,  experience 

from colleagues could be more trusted than information coming from other sources. This 

is  particularly  important  in  the  light  of  the  evidence  suggesting  that  farmers'  access  to 

information  about  producer  organizations  is  still  imperfect  (see  e.g.  Monderlaers  et  al., 

2014).  

As  regards  the  existing  studies  concerned  with  the  problem  of  producer  organizations' 

development,  quite  surprisingly,  the  role  of  interpersonal  relationships  is  very  poorly 

documented.  One  of  the  few  exceptions  which  is  related  to  these  considerations  is  the 

work by Petruchenya and Hendrikse (2014) who provide a theoretical model to account 

for  different  patterns  of  cooperatives'  emergence.  Importantly,  their  focus  is  on  the 

distance between  farmers and  the  role  of  external  party which  may also be  involved in 

22 

 
 
the process of setting up a cooperative. In their analysis, this distance may refer both to 

a  spatial  distance  as  well  as  to  a  social  distance.  Their  results  suggest  that  when 

distance  costs  are  low,  a  cooperative  emerges  bottom-up  by  all  farmers  taking  an 

initiative.  With  medium  distance  costs,  one  of  the  farmers  takes  a  lead.  With  high 

distance costs, no cooperative emerges. Including an outsider in the game changes the 

equilibrium strategies of the players. With complete information, a cooperative is either 

formed with an initiative of one farmer or it emerges top-down with outsider’s support. 

When information is incomplete, a cooperative thus emerges either bottom-up, i.e. with 

two active farmers, or top-down.  

Other related papers are that by Banaszak (2008) and Banaszak and Beckmann (2010). 

Essentially,  they  show  that  close  friendship  may  make  it  more  difficult  for  the  group 

leader  to  impose  sanctions  on  members  not  complying  with  general  rules.  While  this 

result is interesting, it says nothing about other potential linkages between the level of 

acquaintance  and  the  way  in  which  farmers’  groups  are  organized  or  perform.  One 

important  issue  concerns  the  extent  to  which  family  ties  may  affect  the  tendency 

towards cooperating with farmers who are similar to each other (for instance in terms of 

farm  size,  productivity/performance,  etc.).  The  latter  issue  gains  particular  importance 

especially in the following context.  

3.3.  The role of group heterogeneity 

In general, there is a common tendency of individuals to associate with others who are 

similar  to  themselves  (in  network  theory  this  phenomenon  is  referred  to  as homophily, 

Jackson, 2008). The literature on the effect of group heterogeneity on collective action is 

mixed  though  (Francesconi  and  Wouterse,  2015).  Some  authors  argue  that 

heterogeneity  in  member  characteristics,  e.g.  their  wealth,  leads  to  a  multiplicity  of 

outcomes  that  are  impossible  to  predict  in  the  absence  of  knowledge  about  members’ 

behaviour  (Varughese  and  Ostrom,  2001).  Others  emphasize  that  more  heterogeneous 

groups  tend  to  take  advantage  of  greater  complementarity  of  skills  and  resources.  In 

addition,  such  groups  may  have  greater  opportunities  to  diversify  risks  (see  e.g.  Cook 

and  Burress,  2009).  On  the  other  hand  though,  it  has  been  argued  that  more 

heterogeneous  groups  may  face  higher  management  and  transaction  costs  as  social 

homogeneity  may  increase  creditability  and  trust  within  the  group  (see  e.g.  Fulton, 

1999; Agrawal, 2001; or Bernard et al., 2008).10  

10 Yet  from  another  perspective,  the  relevance  of  heterogeneity  in  hindering  or  supporting  collective  action 
might be also sector specific and depend on the type of cooperation (e.g. horizontal versus vertical cooperation 
in food chain) 

23 

 
 
 
                                          
Importantly from our perspective, farmers' homogeneity (measured most often in terms 

of farm size) has been frequently found to characterize (successful) agricultural producer 

groups/cooperatives  (see  e.g.  Fulton,  1999;  Hendrikse  and  Bijman,  2002;  Thorp  et  al., 

2005;  Chlebicka,  2011).  In  addition,  several  other  papers  observe  that  farmers' 

horizontal integration takes place within local areas (see e.g. Sexton and Sexton, 1987; 

Liang and Hendriske, 2013) and argue that this assures greater level of homogeneity of 

farmers  involved  in  a  collective  action.  Benefits  of  cooperating  within  a  homogenous 

group have also been demonstrated if similarity between farmers is defined in relation to 

the  quality  of  farm  output.  When  a  cooperation  consists  of  heterogeneous  members,  it 

may become more attractive for high-quality farmers to leave the cooperative and form 

a  smaller  homogeneous  high-quality  cooperative  (Hendrikse  and  Bijman,  2002).  This 

way they can solve potential free-rider problem on the side of group members producing 

lower quality output.  

That said, the level  of homogeneity of farmers (e.g. in terms of farm size) may be low 

(e.g. due to unequal land distribution or geographical dispersion  - making it impossible 

to cooperate with similar farmers within local areas). In addition, it could be noted that 

according  to  the  'cooperative  life-cycle  model'  (Cook  and  Burress,  2009),  building 

linkages  with  external parties  and  increasing  the  level  of  group  heterogeneity  might  be 

indispensible at some stage in order to keep the cooperative growing and maintaining its 

competitiveness.  What  follows,  getting  involved  in  a  producer  organization  with 

heterogeneous  members  might  be  the  only  alternative  for  farmers  who  wish  to  act 

collectively.  The  question  therefore  is  whether  interpersonal  relationships,  which  are 

supposed to mitigate problems such as asymmetric information or hold-up, may be used 

to govern collective activities between heterogeneous farmers.  

Again, based on the assumption that costs of maintaining relationships and involvement 

in  collective  action  is  expected  to  increase  in  social  distance  between  two  individuals, 

one  could  hypothesize  that 

in  agricultural  producer  groups 

in  which 

family 

ties/acquaintances  play  an  important  role  in  governing  coordinated  behaviour  the  level 

of heterogeneity of farmers (for example in terms of farm size) is higher than in groups 

based  on  social  ties  other  than  kinship  or  acquaintanceship.  The  reasoning  behind  this 

assumption  is  that  moral  hazard  problems,  information  asymmetries  or  the  ability  to 

inflict sanctions are likely to be the more severe the more distant cooperating individuals 

are to each other (see e.g. Fafchamps and Gubert, 2007).  

3.4.  The role of human and social capital 

In  line  with  theoretical  considerations  outlined  above,  emergence  of  agricultural 

cooperatives and farmers' involvement in collective action are found to be closely linked 

24 

 
 
 
to their human and social capital resources. Indeed, social capital is often argued to be 

one  of  the  most  important  factor  which  influences  the  speed  of  the  development  and 

stability  of  cooperation  between  agricultural  producers  which  (indirectly)  supports  the 

role of trust (see e.g. Chloupkova and Bjornskov, 2002; or Kenis and Oerlemans, 2008). 

In  addition,  numerous  studies  provide  evidence  that  the  age  of  the  household  head, 

along  with  educational  attainment,  farming  experience,  and  access  to  social  networks 

and  information  have  a  positive  effect  on  the  likelihood  of  cooperative  membership 

(Bernard  and  Spielman  2009;  Fischer  and  Qaim 2012;  Francesconi  and  Heerinck  2010; 

Ito  et  al.,  2012;  Markelova  and  Mwangi  2010;  Okello  and  Swinton  2007;  Zheng  et  al., 

2012).  

3.5.  The role of sector and structural characteristics 

Further important insights on factors affecting the emergence of producer organizations 

are  highlighted  also  by  Pascucci  et  al.  (2012)  who  clearly  show  that  the  patterns  of 

horizontal  integration  between  farmers  are  likely  to  be  very  sector  and  region  specific. 

This  in  turn  is  consistent  with  the  argument  presented  earlier  showing  that  sector 

characteristics  may  importantly  determine  governance  mechanisms  used  to  sustain  the 

cooperation and, depending on the level of different types of trust, the scale of farmers' 

collaboration.  Pascucci  et  al.  start  their  analysis  with  an  observation  that  farmers 

delivering  their  products  to  an  agricultural  cooperative  are  not  necessarily  co-op 

members.  Similarly,  cooperative  members  not  always  decide  to  deliver  their  (whole) 

output  to  their  cooperative.  Intrigued  by  this  observations,  the  authors  analyze  the 

driving  forces  affecting  cooperative  membership  and  delivery  decisions  using  data  on 

roughly 15 thousands farmers included in the Italian Farm Accountancy Data Network. It 

should  be  noted  here  that  this  is  one  of  the  very  few  studies  with  a  focus  on  producer 

organizations  which  is  based  on  such  an  extensive  dataset.  The  analysis  suggests  that 

farmers’ decisions on cooperative membership and deliveries to cooperatives are related 

to  each  other.  Further,  they  show  that  farmers'  relations  with  agricultural  cooperatives 

depend to a large extent on the specific sector and on the social and institutional context 

in which farmers operate. More specifically, the authors find that farmers who decide not 

only to join a cooperative but also to deliver there their products are located in regions 

with a smaller number of food processing firms in a region, underlining the competitive 

yardstick function of cooperatives. In addition, membership accompanied by deliveries is 

observed  more  frequently  among  farmers  that  supply  to  drinks  and  beverages 

cooperatives  in  regions  that  have  a  high  share  of  those  co-ops,  and  farm  owners  that 

also work on their own farm, and farmers that use a business plan. Membership without 

deliveries in turn, occurs when there is a large share of cooperatives in the total number 

25 

 
 
 
of  food  processing  firms,  and  this  especially  holds  for  vegetable  oil  cooperatives,  in 

regions where agriculture is the main economic activity and in southern Italy. Deliveries 

without  membership  instead  occur  with  large  shares  of  co-ops  in  the  total  number  of 

food processing firms and for farmers who process products on their own farm. Finally, 

the analysis presented indicates that no membership is associated with a large share of 

co-ops in the meat and fish sector, among arable and horticultural farms and farms with 

permanent crops.  

Other  paper  studying  the  intensity  of  participation  in  producer  organizations  is  that  by 

Wollni  and  Fischer  (2015).  Based  on  survey  data  from  cooperatively  organized  coffee 

farmers  in  Costa  Rica,  the  authors  find  that  the  share  delivered  to  cooperatives 

decreases with farm size, albeit at a decreasing rate. The empirical results thus confirm 

the  theoretical  model  prediction  of  a  u-shaped  relationship  between  farm  size  and 

member deliveries.  

Related  to  that  is  also  the  study  on  Kenyan  banana  producers  by  Fischer  and  Qaim 

(2014). The authors provide evidence that low participation can mostly be attributed to 

structural and institutional conditions, such as group size and the timing of payments for 

collective product sales. In addition, it has been found that more diversified farmers are 

less  likely  to  sell  collectively  when  group  marketing  activities  only  concentrate  on  one 

particular commodity. 

The  results  of  this  study  tie  with  another  strand  of  the  literature  which  investigates  to 

what  extent  the  development  of  producer  organizations  relates  to  the  scale  of  farm 

output  of  potential  members.  Several  studies  suggest  that  producers  with  larger  farm 

sizes are more likely to belong to cooperatives (Bernard and Spielman, 2009; Ito et al., 

2012;  Ma  and  Abdulai,  2016).  Also  Fischer  and  Qaim  (2012)  in  their  study  for  Kenyan 

banana  producers  report  that  although  farmer  organizations  are  generally  inclusive  of 

poor farmers, ownership of land and other agricultural assets as well as access to credit 

significantly increase the probability of joining a group.  

3.6.  The role of information and market access 

The  importance  of  market  access  for  the  emergence  of  producer  organization  is 

investigated  and  illustrated  by  Hellin  et  al.  (2009).  Based  on  the  data  for  Mexico  and 

several  Central  American  countries,  the  authors  argue  that  benefits  of  farmer 

organizations are closely linked to transaction costs associated with market access. What 

follows,  their  analysis  suggests  that  the  higher  these  costs,  the  stronger  the  incentives 

for  farmers  to  engage  in  collective  action  and  farmer  organizations.  This  leads  the 

authors  to  argue  that  the  benefits  of  farmer  organization  for  market  access  are  more 

26 

 
 
 
evident  in  the  vegetable  sector,  where  transaction  costs  are  relatively  high,  whereas 

they  are  much  lower  for  farmers  producing  an  undifferentiated  commodity  such  as 

maize.  

Additional  important  aspect  affecting  the  likelihood  of  being  a  member  of  a  producer 

organization  concerns  farmers'  access  to  information.  Numerous  papers  show  that 

farmers with higher capacity to absorb and exchange information are more likely to get 

involved  in  a  collective  action  (Fischer  and  Qaim,  2012,  Ma  and  Abdulai,  2016).  The 

importance of access to information is also confirmed by Monderlaers et al. (2014). More 

specifically,  the  authors  show  that  Flemish  dairy  farmers  still  lack  the  knowledge  on 

producer organizations and potential benefits that they may bring. This in turn, suggests 

that farmers' access to information is still an element which should be improved and that 

could be potentially tackled using policy instruments. Importantly, this study also shows 

that  facilitating  farmers'  access  to  information  on  producer  organizations  might  be 

advocated not only for developing regions but also for developed countries.   

3.7.  The role of policies 

Finally,  it  is  commonly  argued  that  both  private  and  public  sectors  can  and  should 

stimulate the development of farmer organizations (Hellin et al., 2009). Various studies 

show that there are important and complementary roles for government and the private 

sector  in  enabling  producer  organizations  to  deal  with  the  constraints  they  face  in 

marketing their products (Markelova et al., 2009). That said, the question remains open 

about  how  this  support  should  be  organized  in  order  to  be  efficient.  This  issue  gains 

particular  importance  in  the  light  of  the  existing  concerns  that  producer  organizations 

which are set up using top-down approach are not sustainable in the long-run (see e.g. 

Golovina and Nilsson, 2011 for their evidence on Russia; or Petruchenya and Hendrikse, 

2014 for a theoretical model discussing related points). Similar issues have been raised, 

for example, in relation to several EU New Member States. In these countries concerns 

have been expressed that some of local producer organizations were established just to 

take  advantage  of  the  available  financial  support  and  they  will  quit  as  soon  as  this 

support  finishes.  It  should  be  noted  that  similar  arguments  have  been  raised  by 

Meinzen-Dick  (2009)  and  Hoff  and  Stiglitz  (1993)  who  suggest  that  producer 

organizations are often dormant (or passive) in developing countries because they were 

largely established to attract external support and thus lack an economic justification.  

In  this  context,  it  is  important  to  recall  the  evidence  provided  by  Francesconi  and 

Wouterse  (2015).  Using  data  on  500  farmer  organizations  in  Ghana,  the  authors  show 

that  programs  offering  support  for  collective  action  may  be  counterproductive.  More 

specifically, their results indicate that when a program sets criteria for participation and 

27 

 
 
 
offers in-cash and in-kind support to selected farmer organization, it may promote rent-

seeking and crowd-out equity capital formation. This is so because farmer organizations 

may  have  formed  for  the  sole  purpose  of  benefitting  from  incentives  offered  by  the 

program  and  thus  lack  an  economic  justification,  which  is  an  important  condition  for 

progression through the cooperative life cycle. Further, by setting stringent participation 

criteria,  the  program  may  end  up  selecting  younger  organizations  while  it  is  the  more 

consolidated  organizations  that  are  more  likely  to  establish  linkages  with  external 

organizations  and  thanks  to  this  improve  their  performance.  Indeed,  as  it  was  already 

mentioned, it is often argued that producer organizations may maintain their growth and 

competitiveness  only  if  they  are  able  to  build  connections  with  other  relevant  entities 

(Cook and Burress, 2009; Markelova et al., 2009; Nilsson et al., 2012; Francesconi and 

Wouterse, 2015).  

When  discussing  the  role  of  various  actors  in  initiating  the  establishment  of  producer 

organizations, it is also worth mentioning again the study by Monderlaers et al. (2014). 

While  the  results  presented  by  the  authors  might  be  very  specific  to  the  case  under 

study and therefore should be further confirmed, they suggest that often the main actors 

in the process of producer organization's formation are not farmers but farmers’ unions 

and processors. This, in turn, poses the question to what extent these organizations can 

be  effective  in  promoting  farmers’  interests.  This  is  because  if  establishing  producer 

organizations  is  initiated  by  processors,  there  is  a  threat  that  the  latter  may  influence 

the way they function. It seems that examining this issue in more details and for other 

contexts  (sectors/countries)  could  be  very  informative  for  policy  and  academic  debates 

concerning  the  development  and  performance  of  various  forms  of  farmers'  horizontal 

integration.   

Overall, it can be summarized that human and social resources are commonly found to 

affect  the  development  of  producer  organizations.  A  particularly  important  role  is  to  be 

played  by  trust,  both  towards  potential  cooperators  and  towards  external  party 

responsible  for  contract  enforcement.  That  said,  the  reasons  for  choosing  between 

various  governance  mechanisms  to  sustain  cooperation  and  the  role  of  interpersonal 

relationships between farmers are very poorly understood and documented.  

The  existing  literature  provides  also  strong  evidence  that  access  to  information  and 

farming  experience  positively  affect  the  emergence  of  producer  organizations.  There  is 

also some evidence that larger farms are more likely to join collective action. That said, 

there is a need to better understand under what conditions collective action is useful and 

viable (Poulton et al., 2010). The literature also clearly points that we are still far from 

reaching  a  consensus  on  who  (private  or  public  actors)  should  support  promoting 

28 

 
 
 
horizontal  integration  between  farmers  and  what  incentives  should  be  provided  to 

achieve this goal in the most efficient way.  

4. Impacts of producer organizations 

There  is  a  growing  body  of  research  in  the  literature  which  attempts  to  investigate  the 

impact  of  producer  organizations  on  the  functioning  of  the  agro-food  supply  chain  and 

farmers' welfare. An important issue in this strand of the literature is whether producer 

organizations are likely to eliminate or reduce the importance of factors responsible for 

unequal  distribution  of  bargaining  power  within  the  food  supply  chain.  Notwithstanding 

some  important  contributions,  our  understanding  of  what  is  the  ultimate  impact  of 

producer organizations and through what channels it may occur is still incomplete.  

The  evidence  provided  by  the  existing  studies  is  rather  mixed  and  results  from  these 

analyses  are  difficult  to  generalize.  It  seems  that  the  potential  benefits  which  producer 

organizations  may  bring  about  are  very  product  and  context  specific,  and  they  also 

depend on the concrete collective activities pursued. This is well illustrated, for example, 

by  the  evidence  provided  by  Fischer  and  Qaim  (2014),  who  argue  that  the  effects  of 

producer  organizations  can  be  heavily  influenced  by  their  structure  and  organization. 

Also  other  studies  (including,  for  example,  Markelova  et  al.  2009;  or  Hendrikse  and 

Feng,  2012)  argue  that  the  performance  of  farmer  organizations  depends  on  their 

structure  and  characteristics  of  the  group.  In  line  with  this  view,  Verhofstadt  and 

Maertens  (2014),  using  data  on  Rwanda,  provide  evidence  that  overall  farmer 

organizations provide a positive impact on various farm performance indicators but that 

this effect varies across different types of these organizations.11  

4.1. The impact on marketing of agricultural products 

Overall, the experience of countries where cooperation among farmers is at a high level 

shows  that  agricultural  producer  groups  can  perform  important  functions  in  the  system 

of  marketing  agricultural  products.  This  is  consistent  with  results  coming  out  from  the 

recent report commissioned by DG Competition which shows that producer organizations 

may  perform  different  roles  and  improve  total  welfare  of  their  members  (Van  Herck, 

2014). A single producer whose production is on a small scale and who has no access to 

technical equipment and state-of-the-art technology is usually unable to respond to the 

11 Please  note  that  this  evidence  is  consistent  with  the  arguments  presented  in  the  previous  section  showing 
that  understanding  the  role  of  governance  mechanisms  used  to  sustain  cooperation  might  be  crucial  for 
improving our knowledge about the emergence, development and implications of producer organizations.    

29 

 
 
 
 
 
                                          
changes  taking  place  both  in  micro-  and  macro  environment.  Recently,  these  changes 

have  been  connected  predominantly  with  the  necessity  of  meeting  increasingly 

demanding  requirements  of  consumers  who  want  high  quality  products  at  affordable 

prices, supplied in a form convenient and attractive for consumption throughout the year 

(see  e.g.  Menard  and  Valceschini,  2005;  Fischer  et  al.,  2009).  Of  great  importance  are 

also  transformations  within  the  structure  of  market  operators,  resulting  in  the 

strengthening  of  the  processors  and  retailers’  position  (Fearne  et  al.,  2001;  Boselie  et 

al.,  2003).  Intense  processes  of  concentration  among  buyers  and  the  growing 

importance  of  supermarket  chains  in  retail  trade  lead  to  a  situation  where  agricultural 

producers have to increase efficiency of their production, ensure large, stable supplies of 

products of homogenous quality (Markelova et al., 2009; Hellin et al., 2009). In contrast 

to  supplying  basic  staples  to  local  markets,  producers  now  often  supply  long  and 

sophisticated  value  chains,  delivering  processed  and  branded  products  to  mainly  urban 

consumers (Hellin et al., 2009).  

4.2. The impact on farmers' bargaining power 

As  mentioned  above,  producer  organizations  are  often  believed  to  increase  farmers' 

bargaining power and thus contribute to a more balanced distribution of rents along the 

food  chain. While  the  list  of  potential  arguments  supporting  this view is  quite long,  the 

positive  effects  for  farmers  arising  from  horizontal  integration  between  agricultural 

producers  are  most  often  expected  on  the  following  grounds  (see,  among  others, 

Hendrikse  and  Veerman,  2001;  Menard  2007;  or  Bijman  et  al,  2012).  First,  acting 

together may allow farmers to take advantage of the economies of scale and to minimize 

transaction  costs  accompanying  the  processes  of  producing  and  selling  agro-food 

products.  Second,  it  should  enable  concentration  of  supply  of  agricultural  products, 

thereby facilitating negotiations of the conditions of their sales. Similarly, by opening the 

possibility for planning joint production and concentrating demand for agricultural inputs, 

it  ought  to  reinforce  farmers'  negotiation  position  vis-à-vis  the  providers  of  goods  and 

services  to  the  farm  sector.  Finally,  by  making  it  possible  to  take  advantage  of 

economies  of  scale,  such  cooperation  may  also  enable  farmers  to  cover  the  costs  of 

investment  projects  aimed  at  improving  the  quality  of  the  commodities  produced  or 

creating  and  promoting  their  own  brands.  Thus  horizontal  integration  is  often  expected 

to  allow  farmers  to  offer  greater  diversity  of  products  and  therefore  access  high  value 

markets.  Furthermore,  the  search  costs  for  new  markets  are  essentially  fixed,  so  by 

going together farmers share that cost, instead of each having to bear that cost on his or 

her own (see e.g. Markelova et al., 2009). In addition, it is worthwhile to mention that a 

certain  side  effect  of  producer  groups'  existence  might  manifest  itself  in  the  links 

30 

 
 
 
between  producers,  processors  and  commercial  agents  which  should  contribute  to  food 

chains'  sustainability  and  resilience.  This,  in  turn,  might  be  important  for  the 

performance of the food sector as a whole, resulting in market and price stabilization.  

Given the abovementioned arguments, horizontal integration between farmers has often 

been  advocated,  both  within  political  circles  as  well  as  in  an  academia,  as  a  potential 

stimulus  to  increase  efficiency  of  agricultural  production  and  a  tool  to  improve  the 

functioning  of  the  agro-food  supply  chain.  That  said,  one  should  not  forget  that 

cooperation  and  the  related  benefits  make  farmers  relinquish  their  autonomy  in 

marketing  and  production  activities  (see  e.g.  Cechin  et  al.,  2013).  From  an  individual 

producer’s  perspective,  membership  in  producer  organization  may  also  imply  a  slower 

decision  making  process  or  the  necessity  to  incur  costs  of  additional  investments 

(Chlebicka  et  al.,  2009;  Wollni  and  Fischer,  2015). 12  Finally,  as  in  the  case  of  all 

collective actions, producer organizations need to overcome free rider problem (see e.g. 

Cook, 1995; or Fulton, 1999).  

The  abovementioned  pros  and  cons  of  producer  organizations  already  provide  some 

intuition  behind  their  positive  impact  on  farmers'  bargaining  power  or  potential  factors 

hindering  their  development  and  limiting  their  success.  That  said,  most  papers 

concerned with economic implications of producer organizations for farmers concentrate 

on the effects on general household welfare, most often on farm revenues/income (see 

further). Instead, the evidence on the exact channels through which this effect may take 

place  is  very  scant.  Consequently,  it  is  difficult  to  match  the  obtained  results  with 

existing theoretical models that would be consistent with the data.  

To  see  how  producer  organizations  may  improve  farmers'  bargaining  power  one  may 

refer  to  various  arguments  based  on  incomplete-contracting  theories  of  integration. 

Three  of  them  seem  to  be  the  most  relevant  in  the  context  of  collaborative  actions  of 

agricultural producers. First, it is useful to consider the impact of producer organizations 

on  the  elasticity  of  substitution  between  farm  inputs  faced  by  the  processing 

industry/retail  sector.  By  pooling  members'  deliveries  together,  establishing  a  producer 

organization  should  decrease  this  elasticity  as  it  should  make  farmers  cooperating  with 

each  other  more  essential  for  production  of  a  final  good.  What  follows,  the  share  of 

revenues  appropriated  by  farmers  grouped  in  producer  organizations  should  increase. 

Second,  the  impact  of  producer  organizations  on  farmers'  bargaining  power  may 

manifest  itself  through  the  effect  that  farmer  collective  actions  have  on  the  severity  of 

potential  hold  up  problem.  In  the  presence  of  incomplete  contracts  farmers  may  be 

12 This argument can be related to a more general literature originating from the work by Hayek (1988), who 
noticed that "[Cooperation] makes sense in a small group whose members share particular habits, knowledge 
and  beliefs  about  possibilities.  It  makes  hardly  any  sense  when  the  problem  is  to  adapt  to  unknown 
circumstances ..." (p. 19).  

31 

 
 
                                          
vulnerable to contract hold-up problems if they are supposed to undertake investments 

specific  to  the  relationship  with  their  contractors.  To  the  extent  that  establishing 

collective  action  decreases  costs  of  these  investments  per  unit  of  output,  farmers 

grouped  in  producer  organizations  will  be  less  severely  affected  by  potential 

opportunistic  behaviour  of  their  contractors.  This  is  because  costs  of  a  hold  up  will  be 

split  over  the  whole  group.  Third,  producer  organizations  may  increase  farmers' 

bargaining  power  if  they  succeed  in  increasing  farmers'  outside  options.  Having  more 

alternatives to market their output, farmers involved in a collective action should have a 

stronger  negotiating  position  towards  potential  contractors.  Please  note  that  this  may 

have also  an  effect  of farmer contractors' outside  options  (as  regards  their alternatives 

to  source  raw  agricultural  materials)  and  thus  exert  an  impact  on  the  bargaining 

process.   

While these predictions seem clear, their empirical assessment poses several challenges 

with  respect  to  the  data and  methodology.  In  consequence,  the  actual  evidence  on the 

relationships  just  mentioned  is  very  scant.  This  is  important  as  without  improving  this 

state of affairs it is difficult to explain why do we observe a positive or negative impact 

of producer organizations of farmers' welfare. A notable exception is the study by Fischer 

and  Qaim  (2012)  (see  further).  In  this  context  it  is  also  worth  recalling  the  study  by 

Beckman and Boger (2004). Based on farm-level data for Poland, the authors show that 

a membership in producer organizations increases farmers' willingness to accept losses, 

related  to  contract  breaches,  before  going  to  court.  This  in  turn  is  in  line  with  the 

argument suggesting that farmer collective actions may decrease the severity of contract 

hold-up problems from a single farmer's perspective. It may also suggest that collective 

action  can  provide  an  alternative  to  pursuing  one's  rights  in  a  court  indicating  that  the 

negotiating  position  towards  downstream  sectors  of  farmers  involved  in  a  producer 

organization is indeed higher than that of individual producer.  

4.3. The impact on farmers' investment 

There  is  another  relevant  issue  which  is  related  to  the  discussion  just  mentioned  and 

which  concerns  the  impact  of  producer  organizations  on  farmers'  productivity  and 

income  as  well  as  on  improving  performance  of  the  agro-food  chain  as  a  whole.  More 

specifically, it concerns the impact that producer organization may have on the level of 

farm investments. It can be presented as follows. With complete contracts, all those who 

benefit from an investment can be forced to pay their share of the cost. In the presence 

of  incomplete  contracts  however there  are  many  situations  in  which  certain  contractual 

arrangements  cannot  be  stipulated.  In  these  circumstances  if  farmers  face  the  risk  of 

being held-up they will have a tendency to underinvest because the ex post bargaining 

32 

 
 
 
over  division  of  total  revenue  gives  them  less  than  the  full  benefit  of  their  investment. 

Alternatively,  they  will  make  these  investments  less  specific,  or  move  resources  to 

sectors with lower asset-specificity requirements (see e.g. Cungu et al., 2008). In either 

way this is likely to lead to inefficient allocation of resources both at the farm, within a 

particular  sector  and  between  sectors.  This  is  because  risk-averse  farms,  fearing  that 

their investments will leave them vulnerable, refuse to make them in an efficient way. If 

producer organizations decrease the severity of contract hold-up, then they should also 

(indirectly) contribute to moving farm investments closer to their optimum. As a result, 

an  improved  performance  of  the  farm  and  the  food  chain  as  a  whole  could  be 

expected.Another potential impact of producer organizations could be to attract (foreign) 

investors.  As  argued  by  Minten  et  al.  (2007),  farmer  groups  may  importantly  decrease 

transaction costs by  eliminating  the  need to deal  with  many  individual  producers  (for a 

similar  argument  see  also,  e.g.,  Chowdhury  et  al.,  2005).  This  obviously  depends  on 

whether farmers are able to start a collective action, internalize verification system and 

consequently achieve economies of scale (see the discussion in the previous section). 

4.4. The impact on product quality and innovation 

To  ensure  quality  and  consistent  supply  of  perishable  goods,  downstream  sectors  are 

pushing the food marketing system toward more vertical coordination, allowing retailers 

and processing industries to standardize quality, improve bargaining power, and achieve 

economies  of  scale  (Boehlje,  1999).  Indeed,  numerous  contributions  have  stressed  the 

need  to  recognize  the  vertically  linked  nature  of  the  food  sector  (see,  for  instance, 

Sexton  and  Lavoie,  2001;  Hobbs  and  Young,  2001;  or  McCorriston,  2002,  among 

others).  Therefore,  in  analyzing  the  impact  of  producer  organizations  on  farmers’ 

position,  it  is  necessary  to  understand  the  vertical  linkages  that  characterize  food 

markets.  In  particular,  it  seems  important  to  improve  our  knowledge  about  the  role  of 

producer organization in facilitating farmers’ access to high value chains as well as their 

potential  for  reorganizing  farmers'  relationships  with  buyers  of  their  products  and 

providers of goods and services to the farm sector. One of the key issues here relates for 

example  to  the  fact  whether  producer  organizations  enable  farmers  to  coordinate  on 

quality control (Barrett, 2008).  

A  study  related  to  these  points  is  that  by  Hellin  et  al  (2009).  More  specifically,  the 

authors provide some  evidence that producer organizations facilitate farmers' access to 

agricultural inputs (such as credit and seed) and could potentially facilitate adding value 

to farm output by allowing to differentiate farmers' products. This is consistent with the 

results from other  papers that  suggest that  cooperatives can  ease  the  dissemination  of 

33 

 
 
 
knowledge among the members and can contribute to the adoption of new technologies 

and better management practices (see e.g. Abebaw and Haile, 2013).   

4.5. The impact on adoption of food standards 

It is worth mentioning in this context the study by Narrod et al. (2009). As the authors 

argue,  organized  producer  groups  may  help  farmers  to  comply  with  stringent  food 

standards.  This  evidence  is  important  as  it  shows  that  even  small-scale  farmers,  when 

they  join  forces  together,  may  be  able  to  meet  market  requirements  and  successfully 

participate  in  high  value  markets.  Interestingly  though,  complying  with  food  standards 

may  require  changes  to  group  size  and  composition.  To  achieve  this  reorganization, 

policy  support  may  be  needed.  Facilitating  linkages  of  farmer  groups  with  external 

experts  who  can  provide  them  with  appropriate  market  knowledge  could  serve  here  as 

an  example.  That  said,  the  evidence  in  this  paper  is  based  on  two  case  studies  from 

India and Kenya. Therefore, the potential role of collective action in ensuring that small-

scale farmers are not excluded and are able to tie into high value markets needs further 

investigation.  

Related  to  that  is  the  evidence  on  Madagascar  provided  by  Cadot  et  al.  (2006)  which 

suggests that producer organizations increase the welfare of commercial farmers but are 

not  facilitating  market  access  of  subsistence  producers.  This  adds  additional  dimension 

to  already  complex  picture  that  emerges  from  the  literature  surveyed  above.  These 

latter  results  are  in  line  with  some  views  suggesting  that  supply  chain  transformation 

may  have  a  detrimental  effect  on  small  scale  farmers'  market  participation  and  benefit 

mainly  farmers  already  generating  surpluses  and  selling  to  market  (see,  for  instance, 

Reardon et al., 1999; Weatherspoon et al., 2001; Humphrey et al., 2004). That said, it 

should  be  noted  that  this  latter  issue  is  a  subject  of  a  vivid  debate  and  other  evidence 

suggests  that  excluding  small-scale  farms  from  modern  food  supply chains  need  not  to 

take place (see e.g. Swinnen, 2007). 

4.6. The impact on small farms 

The issue of smallholders' exclusion/inclusion in the context of farmers collective action 

is  one  of  the  most  important  topics  in  the  literature  concerned  with  the  impact  of 

producer  organizations  on  farmers'  welfare.  Indeed,  the  debate  is  often  focused  on 

whether producer organizations/agricultural cooperatives, if they prove to be successful 

in a given context, provide benefits to all members irrespective of their farm size. While 

some studies show that cooperatives have helped members to reduce transaction costs 

and  mitigate  exclusion  (Holloway  et  al.,  2000;  Berdegue,  2001),  overall,  the  existing 

34 

 
 
 
 
evidence  on  this  issue  is  again  mixed.  The  general  conclusion  to  be  drawn  is  that 

cooperative  organization  does  not  automatically  improve  market  access  for  small  scale 

farmers.  In  fact,  the  impact  of  cooperatives  on  the  integration  of  smallholders  in  the 

agricultural value chain remains highly contested (Francesconi and Wouterse, 2015).  

On the one hand, using data on apple producers in China, Ma and Abdulai (2016) report 

that  cooperative  membership  exerts  a  positive  and  statistically  significant  impact  on 

agricultural  productivity,  farm  net  returns  and  household  income.  In  addition,  and 

interestingly,  the  authors  undertake  a  disaggregated  analysis  which  shows  that  small-

scale farms tend to benefit more from cooperatives than medium and large farms.  

Also  Ito  et  al.  (2012)  in  their  analysis  for  watermelon  producing  farm  households  in 

China  arrive  to  similar  conclusions  and  show  that  being  a  member  of  a  cooperative 

positively  affects farmers'  income  only  in  case  of  smallholders.  In  addition,  the  authors 

show  that  these  benefits  are  relatively  large  compared,  for  instance,  to  benefits  arising 

from  government  extension  services.  That  said,  Ito  et  al.  (2012)  clearly  note  that 

cooperatives addressed in their study restrict participation of small scale farmers.   

Also  related  is  the  paper  by  Bernard  and  Spielman  (2009).  The  authors  find  that 

although  the  poorest  farmers  are  often  excluded  from  collective  action,  they  may  still 

benefit  from  positive  spillover  effects  of  the  cooperatives’  presence  such  as  improved 

access to inputs, output markets and information.  

4.7. The impact on income and prices 

Important nuances concerning the relationship between collective action and benefits for 

its  members  can  be  added  to  this  discussion  using  evidence  provided  by  Fischer  and 

Qaim  (2012)  who  analyzed  banana  producers  in  Kenya.  Based  on  the  propensity  score 

matching analysis, the authors show that although group membership positively affects 

members'  income,  this  effect  holds  only  for  those  who  actively  participate  in  group 

marketing  activities.  Therefore,  it  is  not  group  membership  per  se  which  seems  to 

matter.  Interestingly,  the  authors  look  for  exact  channels  through  which  these  effects 

are  transmitted.  They  conclude  that  this  is  mainly  due  to  the  fact  that  active  group 

members expand their banana production and become specialized and more commercial 

producers.  In  addition,  group  participation  is  associated  with  higher  rates  of  tissue 

culture technology and higher use intensities of chemical inputs in their production. The 

authors  perceive  this  result  as  a  clear  illustration  that  collective  action  can  spur 

innovation  through  promoting  efficient  information  flows.  However,  they  do  not  find 

positive  impacts  on  productivity.  As  regards  the  price  advantages  associated  with 

collective marketing, although being positive, they are relatively small in magnitude.  

35 

 
 
 
Importantly,  this  latter  issue,  i.e.  the  impact  of  producer  organizations  on  the  level  of 

prices,  adds  to  places  where  the  existing  studies  are  relatively  limited  and  produce 

mixed  findings.  For  example,  Bernard  et  al.  (2008)  show  that  producer  organizations 

achieve  higher  output  prices  for  their  members.  On  the  other  hand,  Vandeplas  et  al. 

(2013)  do  not  find  significant  differences  in  prices  received  by  farmers  in  different 

marketing channels (including cooperative channel).   

Relevant from our perspective is also study by Verhofstadt and Maertens (2015). Using 

propensity  score  matching  methodology  and  data  for  401  farm  households  in  Rwanda, 

the  authors  analyze  heterogeneous  treatment  effects  across  farmers  by  analyzing  how 

estimated  treatment  effects  vary  over  farm  and  farmer  characteristics  and  over  the 

estimated  propensity  score.  The  findings  suggest  that  cooperative  membership  in 

general  increases  income  and  reduces  poverty  and  that  these  effects  are  largest  for 

larger  farms  and  in  more  remote  areas.  Further,  the  analysis  by  Verhofstadt  and 

Maertens  (2015)  shows  that  cooperative  membership  is  as  effective  at  improving  farm 

income  for  more-educated  farmers  as  for  less-educated  farmers,  for  female-headed 

households as for male-headed household, and for households with many workers as for 

households  with  few  workers.  The  authors  also  find  evidence  of  a  negative  selection 

because  the  analyzed  impact  is  largest  for  farmers  with  the  lowest  propensity  to  be  a 

cooperative member.  

Also  related  is  the  paper  by  Vandeplas  et  al.  (2013)  who  study  the  impact  of  various 

marketing  channels  on  dairy  farmers  in  India.  The  results  show  that  farmers  supplying 

informal channels are less efficient and earn lower profits per dairy animal than farmers 

supplying  the  cooperative.  The  latter  however  were  less  profitable  than  farmers 

delivering to a multinational.13  

4.8. The impact of the PO size 

Studies  concerned  with  the  impact  of  producer  organizations  often  analyze  also  the 

relationship between the size of a given organization and services it provides/benefits it 

brings.  Overall,  this  literature  suggests  that  larger  producer  organizations  are  more 

efficient  and  profitable  than  smaller  ones.  This  is  because  they  can  take  advantage  of 

higher economies of scale and thus offer higher prices and reduce their costs per unit of 

output  (see  e.g.  Lerman  and  Parliament,  1991;  Ariyaratne  et  al.,  2000;  Arcas  et  al., 

2011).  That  said,  it  should  be  noted  that  there  also  exist  some  studies  which  conclude 

13 Importantly, the authors note that dairy productivity and profitability levels in the analyzed context are very 
low.  

36 

 
 
 
                                          
that the size of producer organizations is not systematically related to their profitability 

(see e.g. Fulton et al., 1995; McKee, 2008).  

In  addition,  Heyder  et  al.  (2011)  finds  a  positive  relationship  between  the  scale  of 

producer  organizations'  activities  on  international  markets  and  their  performance.  This 

could  be  linked  to  the  fact  that  the  presence  on  foreign  market  might  require  higher 

productivity.  This  explanation  is  in  line  with  conclusions  that  follow  from  the  seminal 

contribution  to  the  international  trade  literature  by  Melitz  (2003).  Using  a  theoretical 

model, the author argues that in the presence of increasing competition firms which are 

more  productive  enter  foreign  markets,  whereas  less  productive  firms  produce  only  for 

domestic  customers  or  are  driven  out  of  the  market.  Predictions  from  this  model  have 

been  widely  confirmed  including  products  from  the  agro-food  sector  (see  Curzi  et  al., 

2015).  

Notwithstanding  the  number  of  different  topics  which  have  been  addressed  by 

researchers  interested  in  examining  the  role  of  producer  organizations,  there  is  one 

important issue which seems to be highly relevant from policy perspective and which has 

been  largely  omitted  from  the  discussion.  As  commonly  argued,  horizontal  integration 

among  agricultural  producers  may  potentially  bring  many  benefits  for  farmers  and 

contribute to more equal distribution of rents along the food chain. That said, as noted 

by Bouamra-Mechemache and Zago (2015), producer organizations themselves need to 

avoid  abusing  their  position.  This  is  because  producer  organizations  that  are  successful 

may  overdo  and  exercise  market  power.  Closely  related  to  that  is  another  point  which 

seems  very  relevant  for  policy  makers  but  which  is  very  poorly  documented  and 

understood.  A  political  economy  approach  to  this  topic  suggests  that  what  may  matter 

here is the role that producer organizations/cooperatives can play in increasing  farmers' 

lobbying  power  and  thus  improve  their  market  position  through  political  rent  seeking 

(see, e.g., Goddard et al., 2002). 

37 

 
 
 
 
 
5. Key findings and conclusions  

Following  the  increasing  levels  of  concentration  in  retail  and  manufacturing  sectors, 

concerns  have  been  expressed  about  competition  throughout  agro-food  chains  across 

countries.  Thanks  to  both  theoretical  contributions  as  well  as  extensive  empirical 

research our knowledge about the organization of production processes within the agro-

food  chain  has  considerably  improved.  That  said,  addressing  the  role  of  market  power, 

bargaining  between  chain  members  and  the  nature  and  consequences  of  various 

contractual frictions between them, are where some of the major gaps in understanding 

how the food supply chains function still exist. As commonly argued, such knowledge is 

crucial  for  designing  a  fair,  sustainable  and  innovative  food  sector  (McCorriston,  2013; 

Sexton, 2013; European Commission, 2014; OECD, 2015;).  

In  response  to  many  challenges  resulting  from  ongoing  changes  that  have  been 

experienced in food supply chains all over the world, farmers have been encouraged to 

organize  as  producer  groups  or  cooperatives.  Benefits  which  are  likely  to  arise  from  a 

cooperation  between  farmers  have  received  a  lot  of  attention  both  in  academic  and 

political  circles.  This  is  reflected,  for  example,  in  the  composition  of  the  EU  Rural 

Development  Policy,  in  which,  especially  in  some  member  states,  the  measures 

supporting  horizontal  integration  at  the  farm  level  play  an  important  role.  The 

recommendations  of  the  High  Level  Group  on  the  Competitiveness  of  the  Agro-Food 

Industry or regulations proposed within the Dairy Package which acknowledge the role of 

producer  groups  and  agro-food  cooperatives  in  influencing  the  competitiveness  of  the 

European food industry can serve as another illustration.  

In relation to the concerns about the unequal distribution of bargaining power in the food 

chain  it  should  be  mentioned  that  also  producer  organizations  can  potentially  limit 

competition as at one point they may exercise market power themselves. That said, it is 

still to be fully understood when producer organizations can be successful and comply at 

the  same  time  with  competition  rules  (OECD,  2013;  Bouamra-Mechemache  and  Zago, 

2015).  

In this context, it is important to note that when analyzing bargaining power of various 

chain  members  our  focus  should  not  be  only  on  market  concentrations  levels.  In 

addition,  as  this  report  tried  to  argue,  any  element  of  the  commercial  relationship 

between farmers and processors/retailers can be distorted and therefore we should not 

be concerned only with price distortions. The complexity of integrated markets between 

farmers  and  downstream  industry  makes  distortions  arising  from  various  forms  of 

38 

 
 
 
 
market  power  a  multidimensional  problem.  In  effect,  conclusions  generated  from 

analyses  which  adopt a too narrow view  (e.g.  focus  on prices  alone)  are  likely  to  differ 

significantly from those that try to address the role of producer organizations by taking 

into  account  such  issues  as  product  differentiation  and  vertical  coordination  (Sexton, 

2013). 

As  regards  factors  supporting  development  of  producer  organizations,  the  literature  is 

quite unanimous in emphasizing the role of trust. Different types of trust (towards other 

group  members  or  towards  formal  institutions  responsible  for  contract  enforcement) 

might be of special importance, depending on what governance mechanisms are used to 

sustain cooperation. The latter can be based either on formal institutions (e.g. courts) or 

informal institutions which use reputation mechanisms to punish opportunistic breaches 

of the contract. This suggests that interpersonal relationships between farmers might be 

crucial  for  the  patterns  of  cooperative  behaviour.  That  said,  our  understanding  of  how 

social  structure  relates  to  the  emergence  of  producer  organizations  is  still  insufficient 

and only tentative evidence exist in this respect.   

Further,  given  the  importance  of  trust  for  the  emergence  and  development  of  farmers' 

collective  action,  it  is  now  crucial  to  better  understand  the  circumstances  in  which 

successful  producer  organizations  can  be  established  without  using  personal  relations 

and what policy signals may be used to support this process. Several studies argue that 

external  support  for  promoting  producer  organizations  may  fail  to  achieve  its  goal  if 

farmers  themselves  do  not  have  a  common  understanding  of  organizational  problems 

which  they  are  likely  to  face  and  lack  sufficient  knowledge  and/or  resources  to  solve 

potential conflicts within the group stemming from differential preferences farmers may 

have  towards  the  membership  (see  e.g.  Varughese  and  Ostrom,  2001;  Golovina  and 

Nilsson,  2011).  Although  based  only  on  anecdotal  evidence,  it  can  be  questioned 

whether  some  producer  organizations  in  the  EU  New  Member  States  do  not  lack 

economic justification and whether they exist just to take advantage of the available CAP 

support.  

In  addition,  the  existing  literature  seems  to  suggest  that  farmers  have  differential 

preferences  as  to  cooperative  membership.  As  a  result  many  studies  conclude  that  the 

benefits  of  cooperatives,  in  terms  of  improved  farmer  bargaining  position  in  the  food 

chain, vary with time, place, technology, scale of farming, and human and social capital 

available  (see,  for  example,  Markelova  et  al.,  2009;  Bijman  et  al.,  2012;  Van  Herck, 

2014).  This,  in  turn,  emphasizes  the  importance  of  taking  into  account  different 

conditions  and  circumstances  in  which  producer  organizations  operate  if  we  want  to 

better understand how they function and what impacts they may bring. 

39 

 
 
The  literature  provides  numerous  examples  where  successful  agricultural  producer 

organizations were characterized by a significant degree of homogeneity among farmers 

involved  in  a  collective  action.  There  is  however  no  consensus  with  respect  to  which 

dimensions  of  this  homogeneity  is  most  important.  The  existing  studies  define 

homogeneity  with  respect  to  various  aspects  of  farm  or  product  characteristics  (e.g. 

farms  size,  farmers'  age,  degree  of  specialization,  level  of  commercialization;  product 

quality;  productivity).  In  addition,  there  are  several  studies  showing  that  larger  farms 

are  more  likely  to  engage  in  establishing  producer  organizations.  This  in  turn  calls  for 

better understanding what factors may allow smallholders to increase their involvement. 

The  available  literature  analyzing  the  smallholders'  participation  in  collective  action  is 

mixed and inconclusive. 

In relation to that, several authors argue that increasing the level of group heterogeneity 

might be indispensible for producer organizations, especially if they are to maintain their 

growth and competitiveness in the long-run. In this context it is important to note that 

we  still  lack  systematic  evidence  on  factors  allowing  farmers  to  overcome  barriers  to 

cooperation  which  are  induced  by  heterogeneity  between  individuals.  In  particular,  we 

know  relatively  little  about  potential  role  which  interpersonal  relationships  and  social 

structure can play in this respect.  

The existing studies investigating welfare implications of producer organizations for their 

members  are  mostly  focusing  on  developing  regions.  Instead,  the  number  of  studies 

analyzing these issues for developed world is very limited, and often confined to studies 

on the United States.  

Further,  a  vast  majority  of  impact  studies  focus  on  a  single  cooperative  or  on  multiple 

cooperatives  in  a  single  sub-sector.  Very  few  studies  explicitly  look  at  differences  in 

impact  across  different  cooperatives.  This  makes  it  very  difficult  to  assess  advantages 

and disadvantages of different type of mechanisms governing farmers' collective action. 

Moreover,  the  existing  analyses  very  rarely  include  time  dimension  which  constitutes 

another  barrier  to  properly  assess  whether  farmers  improve  their  market  position  and 

bargaining power after joining producer organization.  

In  relation  to  that,  there  is  still  only  scant  evidence  with  respect  to  the  impact  of 

producer organizations on the nature of the contractual relationships at various stages of 

the  food  chain.  Moreover,  most  of  the  existing  studies  focusing  on  producer 

organizations rarely consider dynamic interactions between chain members. As a result, 

we  still  have  insufficient  knowledge  about,  among  others,  the  responsiveness  of  chain 

members’  behaviour  to  changes  in  bargaining  power  introduced  by  the  emergence  of 

producer organizations. How do these dynamic interactions affect the distribution of risk, 

profit margins and added value along the chain is also largely unknown.  

40 

 
 
Having these caveats in mind, there are numerous examples pointing to positive effects 

of  producer  organizations  on  farm  income  or  farm  productivity.  This  clearly  shows  that 

producer organizations definitely have the potential to perform many different roles and 

bring  beneficial  effects  both  for  the  members  and  for  the  total  welfare.  For  example, 

several  studies  provide,  evidence  suggesting  that  producer  organizations  facilitate 

members'  adoption  of  improved  technologies  and  access  to  high  value  markets. 

However,  there  are  also  other  examples  showing  that  horizontal  integration  between 

farmers  is  not  always  successful.  Overall  therefore,  the  existing  studies  find  mixed 

results depending on the local context in which producer organizations operate. Indeed, 

it seems that whether farmers are better off being members of a cooperative or act on 

their  own  depends  on  the  particular  characteristics  of  the  product,  the  farm  and  the 

market structure.  

In general, collective marketing seems to be more beneficial in high-value supply chains 

than in local markets for staples and other traditional food crops (e.g. cereals). Indeed, 

as  noted  by  Barrett  (2008)  most  evidence  on  farmers  organizations  generating  better 

terms  of  trade  for  producer  members  comes  from  cash  crops,  especially  dairy  and 

horticulture. 

As  this  literature  review  clearly  shows,  the  literature  on  producer  organizations  is 

extensive and covers a wide range of topics. Yet, notwithstanding this fact it seems that 

at least several gaps could be identified in the current understanding of the topic which 

still need to be filled. This relates both to the reasons of why cooperative behaviour does 

(not) occur or to the resources required for this cooperative behaviour to be sustainable 

in  the  long-run.  In  addition,  we have still  rather limited knowledge  about  the  extent  to 

which producer organizations succeed in addressing negative impacts stemming from an 

unequal  power  distribution  throughout  the  food  chain  and/or  the  existence  of  unfair 

trading  practices.  More  specifically,  while  the  literature  offers  several  studies  analyzing 

the  impact  of  contracts,  for  example,  on  farm  household's  welfare,  production  scale  or 

propensity  to  invest  we  know  relatively  little  whether  similar  effects  could  be  or  should 

be expected if instead of individual farmer we would focus on producer organizations. In 

addition,  much  more  detailed  studies  are  needed  to  map  the  occurrence  of  various 

distortions  to  commercial  relations  in  the  food  chain  and  to  appropriately  and 

comprehensively  assess  to  what  extent  their  social  and  economic  impacts  might  be 

changed by the presence of agricultural producer organizations.  

Yet  another  question  which  needs  further  investigation  concerns  the  impact  of  growing 

vertical integration on farmers incentives to join forces under various forms of producer 

organizations.  As  argued  in  a  number  of  studies,  access  to  markets  and  capital  have 

been  commonly  mentioned  among  the  main  reasons  for  farm  producers  to  cooperate 

41 

 
 
with each other. Given that both farmers’ access to markets and access to capital could 

be  improved  by  closer  cooperation  with  downstream  sectors,  there  is  a  need  to  better 

understand  under  what  conditions  these  horizontal  and  vertical  arrangements  are 

complementary to each other and under what conditions they are substitutes.  

Finally,  it  seems  that  we  still  have  an  insufficient  understanding  of  the  potential 

substitutability  between  formal  and  informal  cooperation.  This  is  important  from  the 

policy  perspective  as  in  the  presence  of  social  norms  encouraging  informal  rather  than 

formal  cooperation,  our  efforts  to  promote  producer  organizations  with  traditional 

support measures may be ineffective.  

That said, given the ongoing extensive research efforts which attempt to address these 

and  other  gaps,  one  can  be  optimistic  that  our  understanding  of  the  role  of  producer 

organizations  for  the  efficient  functioning  of  the  food  supply  chain  will  be  further 

improving.  

5.1. Policy recommendations 

Based  on  the  analysis  of  this  report  the  following  policy  recommendations  can  be 

formulated: 

  Policy action of supporting cooperation among farmers might be desirable from social 

welfare  perspective  in  situations  when  market  failures  are  present  caused  by  high 

transaction  costs  of  cooperative  behaviour  (e.g.  high  cost  of  contract  enforcement, 

imperfect information transmission if food chains) as long as it does not distort other 

form of cooperation existent in the market. 

  Although  there  are  numerous  studies  suggesting  positive  effects  of  producer 

organizations  on  various  elements  of  farmers  performance,  the  evidence  on the  net 

gains to the society in general and its members in particular is still inconclusive.  

  Activities  of  producer  organizations  which,  according  to  the  existing  literature,  may 

generate  gains  to  its  members  and  thus  may  render  relevance  of  policy  action 

include  the  promotion  of  marketing  of  products  and  market  access,  information 

diffusion,  strengthening  bargaining  position  in  supply  chain,  and  adoption  of 

innovation and food standards. 

  Said  that,  the  strengthening  of  bargaining  power  of  farmers  through  producer 

organizations  may  need  careful  consideration  as  it  may  not  necessarily  address 

market  failures  but  rather  cause  distortions  in  the  markets  (e.g.,  vis-à-vis 

consumers) if excessive in magnitude and disproportional to concentration of market 

power in the downstream sectors. 

42 

 
 
 
  Any  policy  action  needs  to  ensure  the  compliance  of  the  rules  governing  the 

functioning  producer  organizations  with  the  competition  rules  and  to  promote  the 

cooperation that does not lead to the abuse of producer organizations’ position in the 

market. 

  Formal  recognition  of  producer  organizations  and  policy  support  for  them  definitely 

might  be  conducive  to  sustained  cooperation  among  farmers.  This  could  be 

particularly  relevant  in  regions  with  lower  tradition  of  collective  action.  Particularly 

important  in  this  respect  is  supporting  the  establishment  of  an  effective  external 

(third  party)  enforcement  mechanism  that  could  be  used  by  producer  organizations 

to  disincentives  free  riding  and  dishonest  behaviour  of  its  members.  This  could 

include  either  supporting  the  existent  external  enforcement  mechanism  (e.g.  court) 

or promoting the establishment of out-of-court resolution mechanisms.  

  An  added-value  of  formalization  of  producer  organization  (as  opposed  to  informal 

forms  of  cooperation)  is  that  it  may  support  creation  of  producer  organizations  of 

larger size which might be better positioned to address the imbalance of bargaining 

power  of  farmers  in  the  supply  chain.  Formalization  of  producer  organization  might 

be  also  important  for  ensuring  sustained  cooperation  in  the  long-run,  when 

establishing linkages with external parties may be indispensible for the organization 

to maintain its competitiveness and growth.  

  That  said,  it  is  important  to  note  that  supporting  formalization  of  producer 

organizations puts in relative disadvantage informal forms of cooperation of farmers 

which  are  based  on  personalized  relationships,  trust,  reputation  and  informal 

networks.  In  this  context,  other  types  of  support  could  be  envisaged  to  limit  this 

problem  (e.g.  providing  support  for  joint  farmers'  projects  without  imposing 

requirement  of  having  formalized  cooperation,  providing  support  for  shared 

ownership of assets/investments). 

  The  policy  should  refrain  from  imposing  a  specific  organizational/governance 

structure  of  producer  organizations  as  there  is  limited  evidence  to  support  the 

existence of an optimal type of organization/governance. Rather the evidence tends 

to  support  the  existence  of  heterogeneous  organizational/governance  forms  of 

producer organizations depending on the context (e.g. sector, production technology, 

farm size, market structure, contracting and vertical integration). 

  Providing technical assistance and supporting the dissemination of information about 

the benefits of producer organizations can enhance the establishment and the growth 

of  producer  organizations  in  particular  among  farming  communities  with  lower 

human and social capital and lower presence of developed social networks. 

43 

 
 
  Facilitating the networking and linkages among existent producers organizations and 

farmers  to  exchange  experiences,  challenges  and  knowledge,  may  foster  better 

undestanding  of  their  benefits  and  costs  amomg  farmers  and  may  stimulate  their 

growth. 

  Benefits  from  cooperation  tend  to  be  larger  in  regions  with  lower  market  access  of 

farmers;  hence  gains  from  supporting  producer  organizations  are  expected  to  be 

greatest  in  such  regions.  Thus  technical  assistance  and  information  dissemination 

could  be  important  in  these  regions  to  promote  the  emergence  of  producer 

organizations  given  that  this  type  of  regions  often  tend  to  be  also  endowed  with 

lower human and social capital which reduces cooperative actions. 

  Benefits  from  cooperation  also  tend  to  be  larger  for  high-value  products  such  as 

fruits,  vegetables  and  dairy,  hence  gains  from  supporting  producer  organizations  in 

these  sectors  are  expected  to  be  greater  than  for  traditional  food  crops  with  lower 

value-added (e.g. cereals). 

  When  providing  financial  support  for  the  establishment,  functioning  and  investment 

activities  of  producer  organizations,  the  assessment  of  their  viability  is  crucial  in 

order  to  avoid  inefficient  deployment  of  public  resources;  that  is,  to  avoid  the 

emergence  of  cooperation  among  farmers  only  for  the  purpose  of  accessing  public 

support.  

 

Important  in  this  respect  is  regular  monitoring  and  evaluation  of  the  development 

and  functioning  of  producer  organizations  in  particular  in  the  long-run  as  well  as 

identifying  the  type  of  the  financial  support  which  promotes  genuine  cooperation 

from the support which leads to non-desirable cooperation with the purpose of rent-

seeking  and  extraction  of  public  support.  The  evidence  available  in  the  literature  is 

largely inconclusive in guiding policy makers on which type of support is efficient in 

this respect and in what context. 

  However, (although inconclusive) the literature tends to suggest that public support 

targeting  activities  which,  from  producer  organization  members'  perspective,  share 

the  characteristics  of  a  public  good  (e.g.  set-up  costs,  running  costs  of  POs, 

marketing  costs)  may  be  more  effective  in  promoting  genuine  cooperation  and  less 

prone  to  rent-seeking  than  the  support  focused  on  the  private  activities  of  POs 

members (e.g. on farm related investments).  

  Although  being  far  from  conclusive,  the  evidence  tends  to  suggest  that  small  farms 

participate  less  in  collective  actions  than  large  farms.  Hence  providing  targeted 

support to small farms may stimulate their participation in producer organizations. 

44 

 
 


Important  is  to  note  that  concentration  of  farmers  supply  through  producer

organizations  may  generate  benefits  not  only  to  its  members  but  also  to  their

purchasers  (e.g.  processors).  This  is  because  the  concentration  of  supply  decreases

purchasers'  transaction  costs  of  dealing  with  many  farmers  for  their  deliveries.  The

processors'  gains  are  greatest  in  regions  with  farm  structure  dominated  by  small

producers.

 Said  that,  producer  organizations  initiated,  established  or/and  supported  by  third

parties  (e.g.  processors)  may  not  necessarily  generate  full  potential  gains  to  its

members  as  the  actual  distribution  of  gains  from  collective  action  might  be  biased

towards  those  who  initiated  the  cooperation.  In  such  cases  if  public  support  is

granted  to  producer  organizations  it  might  be  fully  or  partially  leaked  away  to  third

parties  rather  than  benefited  by  members  of  producer  organizations.  To  avoid

potential  policy  leakages,  such  type  of  producer  organizations  should  be  avoided

being granted public support or carfeully evaluted before providing support.



It  must  be  recognized  that  any  public  support  designed  towards  producer

organizations  operates  in  a  certain  'knowledge  vacuum'  given  that  the  benefits  and

costs of producer organizations are not fully understood. This is in particular (but not

only)  related  to  the  contribution  of  producer  organizations  in  addressing  unequal

power  distribution  throughout  the  food  chain,  in  combating  unfair  trading  practices,

long-run  benefits  and  sustainability  of  producer  organizations,  and  determining  the

contractual relationships  at  various  stages  of  the  food  chain.  Overall,  this reasoning

implies that based on the available evidence one cannot fully conclude whether public

support  to  producer  organizations  generates  net  benefits  from  a  social  welfare

perspective.

45 

6. References 

Abebaw, D., Haile, M. G. (2013). The impact of cooperatives on agricultural technology 

adoption: Empirical evidence from Ethiopia, Food Policy, 38, 82–91. 

Acemoglu,  D.,  Jackson,  M.O.  (2015).  History,  Expectations,  and  Leadership  in  the 

Evolution of Social Norms, Review of Economic Studies, 82(1), 1–34. 

Acemoglu,  D.,  Wolitzky,  A.,  (2015).  Sustaining  Cooperation:  Community  Enforcement 

vs. Specialised Enforcement, mimeo. 

Agrawal,  A.  (2001).  Common  property  institutions  and  sustainable  governance  of 

resources. World Development, 29(10), 1649–1672.  

Arcas,  N.,  Garcia,  D.,  Guzman,  I.  (2011).  Effect  of  size  on  performance  of  Spanish 

agricultural cooperatives. Outlook on Agriculture, 40(3), 201–206. 

Ariyaratne,  C.  B.,  Featherstone,  A.  M.,  Langemeier,  M.  R.,  Barton,  D.  G.  (2000). 

Measuring  X-efficiency  and  scale  efficiency 

for  a  sample  of  agricultural 

cooperatives. Agricultural and Resource Economics Review, 29(2), 198–207. 

Bager,  T.,  Michelsen,  J.  (eds.)  (1994).  The  Dynamics  of  Cooperatives.  Lessons  from 

Scandinavia. Annals of Public and Cooperative Economics, 65 (1), 3–216.  

Banaszak,  I.  (2008).  Agricultural  Producer  Groups  in  Poland:  Empirical  Survey  Results, 

Journal of Rural Cooperation, 36(1), 73–86.  

Banaszak,  I.,  Beckmann,  V.  (2010). Compliance  with  Rules  and  Sanctions  in  Producer 

Groups in Poland, Journal of Rural Cooperation, 38(1), 55–70.  

Banerjee,  A.,  Chandrasekhar,  A.G.,  Duflo,  E.,  Jackson,  M.O.  (2013).  The  Diffusion  of 

Microfinance, Science, 341(6144), DOI:10.1126/science.1236498. 

Banfield E. (1958). The Moral Basis of a Backward Society. Free Press, New York.  

Barrett,  C.  B.  (2008).  Smallholder  market  participation:  Concepts  and  evidence  from 

eastern and southern Africa, Food Policy, 33, 299–317. 

Beckmann,  V.,  Boger,  S.  (2004).  Courts  and  contract  enforcement  in  transition 

agriculture:  theory  and  evidence  from  Poland,  Agricultural  Economics,  31,  251–

263.  

Berdegue,  J.  (2001).  Cooperating  to  compete,  associative  peasant  business  firms  in 

Chile. Unpublished doctoral dissertation, Wageningen University, The Netherlands. 

46 

 
 
 
Bernard,  T.,  Spielman,  D.J.  (2009).  Reaching  the  rural  poor  through  rural  producer 

organizations?  A  study  of  agricultural  marketing  cooperatives  in  Ethiopia.  Food 

Policy, 34, 60–69. 

Bernard,  T.,  Taffesse,  A.  S.,  Gabre-Madhin,  E.  (2008).  Impact  of  cooperatives  on 

smallholders’  commercialization  behaviour:  Evidence  from  Ethiopia,  Agricultural 

Economics, 39, 147–161.  

Bijman  J.  (2002).  Essays  on  Agricultural  Co-operatives,  Governance  Structure  in  Fruit 

and  Vegetable  Chains,  Erasmus  Research  Institute  of  Management  (ERIM),  123-

155.  

Bijman,  J.,  Iliopoulos,  C.,  Poppe,  K.J.,  Gijselinckx,  C.,  Hagedorn,  K.,  Hanisch,  M., 

Hendrikse, G.W.J., Kühl,  R.,  Ollila,  P.,  Pyykkönen,  P.,  Sangen,  G.  van  der (2012). 

Support for Farmers’ Cooperatives, Wageningen: Wageningen UR.   

Boehlje,  M.  (1999).  Structural  changes  in  the  agricultural  industries:  how  do  we 

measure,  analyze  and  understand  them?  American  Journal  of  Agricultural 

Economics, 81(5), 1028–1041. 

Boselie D., Henson S., Weatherspoon D. (2003). Supermarket procurement practices in 

developing  countries:  redefining  the  roles  of  the  public  and  private  sectors. 

American Journal of Agricultural Economics, 5, 1155–1161.  

Bouamra-Mechemache,  Z.,  Zago,  A.  (2015).  Introduction:  Collective  action 

in 

agriculture. European Review of Agricultural Economics, 42(5), 707–711.  

Cadot,  O.,  Dutoit,  L.,  Olarreaga,  M.  (2006).  How  Costly  Is  It  for  Poor  Farmers  to  Lift 

Themselves Out of Subsistence? World Bank Policy Research Working Paper 3881.  

Cechin,  A.,  Bijman,  J.,  Pascucci,  S.,  Omta,  O.  (2013).  Decomposing  the  member 

relationship 

in  agricultural 

cooperatives: 

Implications 

for 

commitment. 

Agribusiness, 20, 39–61.  

Chlebicka A. (2011). Czynniki wpływające na sukces grup producentów rolnych. Journal 

of Agribusiness and Rural Development, 4(22), 31–39. 

Chlebicka, A., Fałkowski, J., Łopaciuk-Gonczaryk, B. (2014). Grupy producentów rolnych 

a kapitał społeczny - potencjalne zależności, Wieś i Rolnictwo, 3(164), 137–156.   

Chlebicka, A., Fałkowski, J., Wołek, T. (2009). Powstawanie grup producentów rolnych a 

zmienność cen, Zagadnienia Ekonomiki Rolnej, 319(2), 59–73. 

Chloupkova  J.,  Bjornskov  C.  (2002).  Could  social  capital  help  Czech  agriculture?, 

Agricultural economics, 48(6), 245–248.  

47 

 
 
Chloupkova, J., Svendsen, G.L.H., Svendsen, G.T. (2003). Building and destroying social 

capital:  The  case  of  cooperative  movements  in  Denmark  and  Poland.  Agriculture 

and Human Values, 20, 241–252.  

Chowdhury, S., Gulati, A., Gumbira-Sa’id, E. (2005). High Value Products, Supermarkets 

and  Vertical  Arrangements  in  Indonesia  MTID  Discussion  Paper  No.  83.  IFPRI, 

Washington, DC. 

Coase, R. H. (1937). The Nature of the Firm, Economica, 4, 386–405. 

Coate, S., Ravallion, M. (1993). Reciprocity Without Commitment: Characterization and 

Performance  of  Informal  Insurance  Arrangements,  Journal  of  Development 

Economics, 40, 1–24. 

Cook,  M.L.  (1995)  The  Future  of  U.S.  Agricultural  Cooperatives:  A  Neo-Institutional 

Approach. American Journal of Agricultural Economics, 77, 1153–1159.  

Cook,  M.  L.,  &  Burress,  M.  J.  (2009).  A  cooperative  life  cycle  framework.  Unpublished 

manuscript accessed at: http://departments.agri.huji.ac.il/economics/en/events/p-

cook.pdf  

COPA-COGECA  (2015).  Development  of  Agricultural  Cooperatives  in  the  EU.  2014. 

Brussels.  

Csaki  C.,  Forgacs  C.  (2008).  Observations  on  Regional  Level.  in:  Csaki,  C.,  Forgacs, 

Milczarek-Andrzejewska,  D.,  Wilkin,  J.  Restructuring  market  relations  in  food  and 

agriculture of Central and Eastern Europe - Impacts upon small farmers. Budapest: 

Agroinform, 29–51. 

Cungu, A., Gow, H., Swinnen, J.F.M., Vranken, L. (2008). Investment with weak contract 

enforcement:  evidence  from  Hungary  during  transition.  European  Review  of 

Agricultural Economics, 35(1), 75–91.  

Curzi D, Raimondi V., Olper A. (2015). Quality Upgrading, Competition and Trade Policy: 

Evidence  from  the  Agro-Food  Sector,  European  Review  of  Agricultural  Economics, 

42(2), 239–267 

Deng,  H.,  Huang,  J.,  Xu,  Z.,  Rozelle,  S.  (2010).  Policy  support  and  emerging  farmer 

professional cooperatives in rural China. China Economic Review, 21, 495–507.  

Durlauf,  S.,  Fafchamps,  M.  (2005).  Social  Capital,  in :  Aghion,  P.,  Durlauf,  S.  (eds.), 

Handbook of Economic Growth, Vol. 1B, North Holland, 1637–1699.    

European  Commission  (2013).  Green  Paper  on  Unfair  Practices  in  the  Business-to-

Business  Food  and  Non-Food  Supply  Chain  in  Europe,  COM(2013)  37  final, 

Brussels.  

48 

 
 
European  Commission  (2014).  Tackling  unfair  trading  practices  in  the  business-to-

business food supply chain. Communication From The Commission to the European 

Parliament,  the  Council,  the  European  Economic  and  Social  Committee  and  the 

Committee 

of 

the 

Regions, 

European 

Commission, 

Strasbourg, 

<http://ec.europa.eu/internal_market/retail/docs/140715-communication_en.pdf 

Fafchamps, M. (1992). Solidarity Networks in Pre-Industrial Societies: Rational Peasants 

with  a  Moral  Economy,  Economic  Development  and  Cultural  Change,  41(1),  147–

174. 

Fafchamps,  M.,  Gubert,  F.  (2007).  The  formation  of  risk  sharing  networks,  Journal  of 

Development Economics, 83, 326–350.  

Fearne  A.,  Hughes  D.,  Duffy  R.  (2001).  Concepts  of  Collaboration  –  Supply  Chain 

Management  in  a  Global  Food  Industry.  In: Sharples,  L.,   Ball,  S.,   Eastham,  J.F., 

(eds.)  Food  and  Drink  Supply  Chain  Management  -  Issues  for  the  Hospitality  and 

Retail Sectors. Butterworth-Heinemann, 55–89.  

Fidrmuc, J., Gërxhani, K. (2008). Mind the Gap! Social Capital, East and West, Journal of 

Comparative Economics, 36, 264–286. 

Fischer,  C.,  Gonzalez,  M.,  Henchion,  M.,  Leat,  P.  (2007).  Trust  and  economic 

relationships in selected European agrifood chains, Acta Agriculturae Scandinavica, 

Section C – Food Economics, 4(1), 40–48.  

Fischer,  C.,  Hartmann,  M.,  Reynolds,  N.,  Leat,  P.,  Revoredo-Giha,  C.,  Henchion,  M., 

Albisu,  L.M.  and  Grazia,  A.  (2009).  Factors  influencing  contractual  choice  and 

sustainable relationships in European agri-food supply chains, European Review of 

Agricultural Economics, 36(4), 541–569. 

Fischer, E., Qaim, M. (2012). Linking smallholders to markets: determinants and impacts 

of farmer collective action in Kenya. World Development, 40, 1255–1268. 

Fischer,  E.,  Qaim,  M.  (2014).  Smallholder  Farmers  and  Collective  Action:  What 

determines  the  Intensity  to  Participate.  Journal  of  Agricultural  Economics,  65(3), 

683–702.  

Foster, A.D., Rosenzweig, M.R. (2001). Imperfect Commitment, Altruism and the Family: 

Evidence  from  Transfer  Behaviour  in  Low-Income  Rural  Areas,  Review  of 

Economics and Statistics, 83(3), 389–407. 

Francesconi,  G.N.,  Heerink,  N.  (2010).  Ethiopian  agricultural  cooperatives  in  an  era  of 

global  commodity  exchange:  Does  organizational  form  matter?  Journal  of  African 

Economies, 20(1), 153–177. 

49 

 
 
 
Francesconi,  G.N.,  Wouterse,  F.  (2010).  Promoting  the  role  of 

farmer-based 

organizations  for  value  chain  integration:  the  tension  between  a  program’s 

targeting  and  an  organization’s  investment  strategy,  Agricultural  Economics,  46, 

527–536.  

Fulton,  M.  E.,  Fulton,  J.  R.,  Stephen  Clark,  J.,  Parliament,  C.  (1995).  Cooperative 

growth: is it constrained? Agribusiness, 11(3), 245–261.  

Fulton,  M.  (1999).  Cooperatives  and  member  commitment.  The  Finnish  Journal  of 

Business Economics, 4, 418–437. 

Gardner,  B.,  Lerman,  Z.  (2006).  Agricultural  Cooperative  Enterprise  in  the  Transition 

from Socialist Collective Farming, Journal of Rural Cooperatives, 34(1), 1–18.  

Goddard,  E.,  Boxall,  P.,  Lerohl,  M.  (2002).  Cooperatives  and  the  Commodity  Political 

Agenda: A Political Economy Approach, Canadian Journal of Agricultural Economics 

50, 511–526. 

Golovina, S., Nilsson, J. (2011). The Russian top-down organised cooperatives - reasons 

behind the failure. Post-Communist Economies, 23(1), 55–67. 

Gow,  H.R.,  Streeter,  D.H.,  Swinnen,  J.F.M.  (2000).  How  private  contract  enforcement 

mechanisms can succeed where public institutions fail: the case of Juhocukor a.s., 

Agricultural Economics, 23 (3), 253–265.  

Granovetter,  M.  (1985).  Economic  Action  and  Social  Structure:  The  Problem  of 

Embeddedness, American Journal of Sociology, 91(3), 481–510. 

Greif,  A.  (2006).  Institutions  and  the  Path  to  the  Modern  Economy:  Lessons  from 

Medieval Trade. New York: Cambridge University Press. 

Grossman, S. J., Hart, O. D. (1986). The Costs and Benefits of Ownership: A Theory of 

Vertical and Lateral Integration, Journal of Political Economy, 94, 691–719. 

Hansen, M.H., Morrow, J.L. jr., Batista, J.C. (2002). The impact of trust on cooperative 

member 

retention,  performance  and  satisfaction:  an  exploratory  study. 

International Food and Agribusiness Management Review, 5, 41–59. 

Harris A., Stefanson B., Fulton M. (1996). New generation cooperatives and cooperative 

theory. Journal of Cooperatives, 11, 15–28. 

Hayek, F.A. (1988). The Fatal Conceit. The Errors of Socialism. Chicago: The University 

of Chicago Press.  

Hellin,  J.,  Lundy,  M.,  Meijer,  M.  (2009).  Farmer  organization,  collective  action  and 

market access in Meso-America. Food Policy, 34, 16–22. 

50 

 
 
Hendrikse, G. W. J. (1998). Screening, competition and the choice of the cooperative as 

an organizational form. Journal of Agricultural Economics, 49(2), 202–217. 

Hendrikse, G. W. J., Bijman, J. (2002). On the emergence of new growers’ associations: 

self-selection  versus  countervailing  power.  European  Review  of  Agricultural 

Economics, 29(2), 255–269. 

Hendrikse,  G.  W.  J.,  Feng,  L.  (2013).  Interfirm  Cooperatives.  In:  Grandori,  A.  (Ed.), 

Handbook of Economic Organization, Edward Elgar, Cheltenham, UK, 501–521. 

Hendrikse  G.W.J.,  Veerman  C.P.  (2001).  Marketing  Cooperatives  and  Financial 

Structure:  a  Transaction  Costs  Economics  Analysis.  Agricultural  Economics,  26, 

205–216. 

Heyder, M., Makus, C., Theuvsen, L. (2011).  Internationalization and Firm Performance 

in  Agribusiness:  Empirical  Evidence  from  European  Cooperatives.  International 

Journal on Food System Dynamics, 2(1), 77–93.  

Hobbs,  J.S.,  Young,  L.M.  (2001).  Vertical  linkages  in  agri-food  supply  chains  in Canada 

and  the  United  States.  Report  for  Research  and  Analysis  Directorate,  Strategic 

Policy Branch, Agriculture and Agri-Food Canada.  

Hoff,  K.,  Stiglitz,  J.E.  (1993).  Imperfect  information  and  rural  credit  markets:  Puzzles 

and  policy  perspectives.  In:  Hoff,  K.,  Braverman,  A.,  Stiglitz,  J.E.  (Eds.)  The 

Economics  of  Rural  Organization:  Theory,  Practice  and  Policy,  Oxford  University 

Press, Oxford.  

Holloway, G., Nicholson, C., Delgado, C., Staal, S., Ehui, S. (2000). Agroindustrialization 

through  institutional  innovation  transaction  costs,  cooperatives  and  milk-market 

development in the east-African Highlands, Agricultural Economics, 23, 279–288.  

Humphrey,  J.,  McCulloch,  N.,  Ota,  M.  (2004).  The  impact  of  European  market  changes 

on  employment 

in  the  Kenyan  horticulture  sector,  Journal  International 

Development, 16, 63–80. 

Hussi,  P.,  Murphy,  J.,  Lindberg,  O.,  Brenneman,  L.  (1993).  The  Development  of 

Cooperatives  and  Other  Rural  Organizations:  The  Role  of  the  World  Bank,  World 

Bank Technical Paper 199. 

Ito,  J.,  Bao,  Z.,  Su,  Q.  (2012).  Distributional  effects  of  agricultural  cooperatives  in  China: 

exclusion  of  smallholders  and  potential  gains  on  participation.  Food  Policy,  37, 

700–709. 

Jackson M.O. (2008). Social and Economic Networks, Princeton, NJ: Princeton University 

Press. 

51 

Kaiser, H. M., and Suzuki, N. 2006. New Empirical Industrial Organization and the Food 

System: Summary. In: H. M. Kaiser and N. Suzuki (eds.) New Empirical Industrial 

Organization and the Food System. New York: Peter Lang Publishing. 

Karantininis, K. (2007). The network form of cooperative organisation. In: Karantininis, 

K.,  Nielson,  J.  (eds.),  Vertical  Markets  and  Cooperative  Hierarchies.  Dordrecht: 

Springer, 19–34.  

Kenis  P.,  Oerlemans  L.  (2008).  The  social  network  perspective:  understanding  the 

structure of cooperation, In: S. Cropper, M. Ebers, Ch. Huxham and P. Ring (eds.) 

The  Oxford  Handbook  of  inter-organizational  relations.  Oxford  University  Press, 

289–313. 

Key,  N.,  Runsten,  D.  (1999).  Contract  farming,  smallholders,  and  rural  development  in 

Latin America: the organization of agroprocessing firms and the scale of outgrower 

production. World Development, 27(2), 381–401. 

Lerman,  Z.,  Parliament,  C.  (1991).  Size  and  industry  effects  in  the  performance  of 

agricultural cooperatives. Agricultural Economics, 6(1), 15–29. 

Liang,  Q.X.,  Hendrikse,  G.W.J.  (2013).  Core  and  common  members  in  the  genesis  of 

farmer  cooperatives  in  China,  Managerial  and  Decision  Economics,  34(3-5),  244–

257. 

Lindgreen,  A.  (2003).  Trust  as  a  valuable  strategic  variable  in  the  food  industry: 

different  types  of  trust  and  their  implementation,  British  Food  Journal,  105  (6), 

310–327. 

Lindgreen, A., Palmer, R., Trienekens, J. (2005), Relationships within the supply chain: a 

case study, Journal on Chain and Network Science, 5(2), 85–99. 

Lopez,  R.A.,  Spreen,  T.H.  (2008).  Co-ordination  strategies  and  non-members’  trade  in 

processing co-operatives, Journal of Agricultural Economics, 36(3), 385–396. 

Lovell,  D.  (2001).  Trust  and  the  politics  of  postcommunism.  Communism  and  Post-

Communism Studies, 34, 27–38.  

Ma,  W.,  Abdulai,  A.  (2016).  Does  cooperative  membership  improve  household  welfare? 

Evidence from apple farmers in China. Food Policy, 58, 94–102.  

MacLeod, W.B. (2007). Reputations, Relationships and Contract Enforcement, Journal of 

Economic Literature, 45(3), 595–628. 

Markelova,  H.,  Meinzen-Dick,  R.,  Hellin,  J.,  Dohrn,  S.  (2009).  Collective  action  for 

smallholder market access. Food Policy, 34, 1–7. 

52 

 
 
Markelova,  H.,  Mwangi,  E.  (2010).  Collective  action  for  smallholder  market  access: 

Evidence and implications for Africa. Review of Policy Research, 27(5), 621–640. 

Martino,  G.  (2010).  Trust,  contracting,  and  adaptation  in  agri-food  hybrid  structures. 

International Journal of Food System Dynamics, 4, 305–317. 

McCorriston,  S.  (2002)  Why  should  imperfect  competition  matter  to  agricultural 

economists? European Review Agricultural Economics, 29(3), 349–371.  

McCorriston, S. (2013). Competition in the Food Chain. Background Paper for the OECD.  

McKee, G. (2008). The Financial Performance of North Dakota Grain Marketing and Farm 

Supply Cooperatives. Journal of Cooperatives, 21, 15–34. 

Meinzen-Dick, R.S., 2009. Coordination in natural resource management. In: J. Kirsten, 

A.  Dorward,  C.  Poulton,  and  N.  Vink  (Eds.),  Institutional  Economics:  Perspectives 

on  African  Agricultural  Development.  International  Food  Policy  Research  Institute, 

Washington, DC. 

Melitz,  M.J.  (2003).  The  impact  of  trade  on  intra-industry  reallocations  and  aggregate 

industry productivity. Econometrica, 71(6), 1695–1725. 

Menard, C., Valcescini, E. (2005). New institutions for governing the agri-food industry. 

European Review of Agricultural Economics, 32, 421–440.  

Menard,  C.  (2007).  Cooperatives:  Hierarchies  or  Hybrids?  In:  K.  Karantininis  and  J. 

Nilsson (eds.) Vertical Markets and Cooperative Hierarchies. Springer, 1–17. 

Meyer, J., von Cramon-Taubadel, S. (2004). Asymmetric Price Transmission: A Survey, 

Journal of Agricultural Economics, 55(3), 581–611.  

Minten,  B.,  Randrianarison,  L.,  Swinnen,  J.F.M.  (2007).  Global  Supply  Chains,  Poverty 

and  Environment:  Evidence  from  Madagascar,  in:  Swinnen,  J.F.M.  (ed.)  (2007). 

Global Supply Chains, Standards and the Poor, CABI, Oxon, UK. 

Monderlaers,  K.,  Baecke,  M.,  Lauwers,  L.  (2014).  Coping  with  market  power:  dairy 

farmers’ interest in Producers’ Organizations and contracts, Paper presented at the 

EAAEA 2014 Congress in Ljubljana (26-29 August 2014).  

Narrod, C., Roy, D., Okello, J., Avendano, B., Rich, K., Thorat, A. (2009). Public–private 

partnerships  and  collective  action  in  high  value  fruit  and  vegetable  supply  chains, 

Food Policy, 34, 8–15.  

Nilsson,  J.,  Kihlen,  A.,  Norell,  L.  (2009).  Are  Traditional  Cooperatives  an  Endangered 

Species?  About  Shrinking  Satisfaction,  Involvement  and  Trust.  International  Food 

and Agribusiness Management Review, 12(4), 101–121. 

53 

 
 
Nilsson,  J.,  Svendsen,  G.L.H.,  Svendsen,  G.T.,  (2012).  Are  large  and  complex 

agricultural cooperatives losing their social capital? Agribusiness, 28(2), 187–204. 

North,  D.,  Wallis,  J.J.,  Weingast,  B.R.  (2009).  Violence  and  social  orders:  a  conceptual 

framework  for  interpreting  recorded  human  history.  New  York:  Cambridge 

University Press.  

OECD  (2013).  Competition  issues  in  the  food  chain  industry.  Directorate  for  Financial 

and Enterprise Affairs, Competition Committee, DAF/COMP(2014)16. 

OECD (2015). Food Price Formation. Report of the7th OECD Food Chain Analysis Network 

Meeting. 

Okello, J.J., Swinton, S.M. (2007). Compliance with International Food Safety Standards 

in  Kenya’s Green  Bean  Industry: Comparison  of  a Small-  and  a Large-Scale  Farm 

Producing for Export. Applied Economic Perspectives and Policy, 29(2), 269–85. 

Ostrom, E. (1990). Governing the Commons. The Evolution of Institutions for Collective 

Action. Cambridge, UK: Cambridge University Press. 

Ostrom,  E.  (2000).  Collective  action  and  the  evolution  of  social  norms,  Journal  of 

Economic Perspectives, 14, 137–158. 

Paldam, M., Svendsen, G.T. (2001). Missing social capital and the transition in Eastern Europe. 

Journal for Institutional Innovation, Development and Transition, 5, 21–34.  

Pascucci,  S.,  Gardebroek,  C.,  Dries,  L.  (2012).  Some  like  to  join,  others  to  deliver:  an 

econometric  analysis  of  farmers'  relationships  with  agricultural  co-operatives, 

European Review of Agricultural Economics, 39(1), 51–74. 

Penrose-Buckley,  C.  (2007).  Producer  Organisations.  A  Guide  to  Developing  Collective 

Rural Enterprises, Oxford, Oxfam GB. 

Perekhozhuk,  O.,  Glauben,  T.,  Grings,  M.,  Teuber,  R.  (2016).  Approaches  And  Methods 

For  The  Econometric  Analysis  Of  Market  Power:  A  Survey  And  Empirical 

Comparison. Journal of Economic Surveys, forthcoming. 

Perepeczko,  B.  (2003).  Powojenne  uwarunkowania  kapitału  społecznego  współczesnych 

rolników, Wieś i Rolnictwo, supplement to 3 (120), 62–71. 

Petruchenya,  A.,  Hendrikse,  G.  (2014).  Emergence  of  cooperatives  and  farmer 

heterogeneity,  paper  presented  at  EAAE  congress  in  Ljubljana,  26-29  August, 

2014.  

Platteau,  J.  (1994).  Behind  the  Market  Stage  Where  Real  Societies  Exist:  Part  II  -  The 

Role of Moral Norms, Journal of Development Studies, 30(4), 753–815. 

54 

Poulton, C., Dorward, A., Kydd, J. (2010). The future of small farms: New directions for 

services, institutions, and intermediation, World Development, 38, 1413–1428. 

Putnam,  R.D.  (1993)  Making  Democracy  Work:  Civic  Traditions  in  Modern  Italy. 

Princeton, NJ: Princeton University Press. 

Reardon,  T.,  Codron,  J.M.,  Busch,  L.,  Bingen,  J.,  Harris,  C.  (1999).  Global  change  in 

agrifood  grades  and  standards:  Agribusiness  strategic  responses  in  developing 

countries.  International  Food  and Agribusiness  Management  Review,  2(3/4),  421–

435.  

Reardon,  T.,  Berdegue,  J.  (2002).  The  Rapid  Rise  of  Supermarkets  in  Latin  America: 

Challenges and Opportunities for Development. Development Policy Review, 20(4), 

371–88.  

Reardon, T., Timmer, C.P., Barrett, C., Berdegue, J. (2003). The Rise of Supermarkets in 

Africa,  Asia,  and  Latin  America.  American  Journal  Agricultural  Economics,  85(5), 

1140–1146.  

Renda, A., Cafaggi, F., Pelkmans, J., Iamiceli, P. de Brito, A.C., Mustilli, F. and Bebber , 

L.  (2014).  Study  on  the  Legal  Framework  Covering  Business-to-Business  Unfair 

Trading  Practices  in  the  Retail  Supply  Chain.  DG  Internal  Market,  European 

Commission. 

Rogers,  R.T.  (2001).  Structural  Change  in  U.S.  Food  Manufacturing,  1958–1997. 

Agribusiness, 17(1), 3–32. 

Ruben,  R.,  Slingerland.  M.,  Nijhoff,  H.  (2006).  Agro-food  chains  and  networks  for 

development:  issues,  approaches  and  strategies,  In:  Ruben,  R.,  Slingerland.  M., 

Nijhoff,  H.  (eds.)  Agro-Food  Chains  and  Networks  for  Development.  Netherlands: 

Springer, 1–25. 

Sexton,  R.J.  (2000).  Industrialisation  and  consolidation  in  the  US  food  sector: 

implications  for  competition  and  welfare,  American  Journal  of  Agricultural 

Economics, 82, 1087–1104.  

Sexton,  R.J.  (2013).  Market  power,  misconceptions,  and  modern  agricultural 

markets. American Journal of Agricultural Economics, 95(2), 209–219. 

Sexton,  R.J.,  Lavoie,  N.  (2001).  Food  processing  and  distribution:  An  industrial 

organization  approach,  In:  Gardner,  B.,  Rausser,  G.  (Eds.),  Handbook  of 

Agricultural Economics, Elsevier Science B.V., Amsterdam, Holland, 863–923. 

Sexton,  R.J.,  Sexton,  T.A.  (1987).  Cooperatives  as  entrants.  The  RAND  Journal  of  Economics, 

Winter, 581–595. 

55 

 
 
Sexton,  R.J.,  Sheldon,  I.,  McCorriston,  S.,  Wang,  H.  (2007).  Agricultural  trade 

liberalization  and  economic  development:  the  role  of  downstream  market  power, 

Agricultural Economics, 36(2), 253–270.  

Sheldon,  I.,  Sperling,  R.  (2003).  Estimating  the  extent  of  imperfect  competition  in  the 

food  industry:  what  have  we  learned?  Journal  of  Agricultural  Econmics,  54,  89–

110. 

Swinnen,  J.F.M.  (ed.)  (2007).  Global  Supply  Chains,  Standards  and  the  Poor,  CABI, 

Oxon, UK. 

Szabo,  G.G.  (2010).  The  importance  and  role  of  trust  in  agricultural  marketing  co-

operatives. Studies in Agricultural Economics, 112, 5–22. 

Thorp, R., Stewart, F., Heyer, A. (2005). When and how far is group formation a route 

out of chronic poverty? World Development, 33(6), 907–920. 

Tisenkopfs,  T.,  Kovach,  I.,  Lostak,  M.,  Sumane,  S.  (2011).  Rebuilding  and  Failing 

Collectivity: Specific Challenges for Collective Farmers Marketing Initiatives in Post-

Socialist  Countries.  International  Journal  of  Sociology  of  Agriculture  and  Food 

18(1), 70–88. 

Vandeplas,  A.,  Minten,  B.  Swinnen,  J.  (2013).  Multinationals  vs.  Cooperatives:  The 

income  and  efficiency  effects  of  supply  chain  governance  in  India,  Journal  of 

Agricultural Economics, 64, 217–244. 

Van  Herck,  K.  (2014).  Assessing  efficiencies  generated  by  agricultural  Producer 

Organisations. Report for the EU Directorate-General for Competition. 

Varughese,  G.,  Ostrom,  E.  (2001).  The  contested  role  of  heterogeneity  in  collective 

action:  Some  evidence  from  community  forestry  in  Nepal.  World  Development, 

29(5), 747–765. 

Verhofstadt,  E.,  Maertens,  M.  (2014).  Smallholder  cooperatives  and  agricultural 

performance  in  Rwanda:  do  organizational  differences  matter?,  Agricultural 

Economics, 45 supplement, 39–42.   

Verhofstadt,  E.,  Maertens,  M.  (2015).  Can  Agricultural  Cooperatives  Reduce  Poverty? 

Heterogeneous Impact of Cooperative Membership on Farmers' Welfare in Rwanda, 

Applied Economic Perspectives and Policy, 37(1), 86–106.  

Weatherspoon, D., Cacho, J., Christy, R. (2001). Linking globalization, economic growth 

and  poverty:  impacts  of  agribusiness  strategies  on  sub-Saharan  Africa.  American 

Journal of Agricultural Economics, 83(3), 722–729. 

56 

Williamson,  O  E.  (1975).  Markets  and  Hierarchies:  Analysis  and  Antitrust  Implications, 

New York, NY: The Free Press. 

Williamson,  O  E.  (1985).  The  Economic  Institutions  of  Capitalism,  New  York,  NY:  The 

Free Press. 

Wintrobe,  R.  (1998).  The  Political  Economy  of  Dictatorship.  Cambridge,  UK:  Cambridge 

University Press. 

Wollni,  M.,  Fischer,  E.  (2015).  Member  deliveries  in  collective  marketing  relationships: 

evidence  from  coffee  cooperatives  in  Costa  Rica,  European  Review  of  Agricultural 

Economics, 42(2), 287–314.  

Wolz  A.,  Fiege  U.,  Reisenberg  K.  (2004).  The  role  of  social  capital  in  promoting 

institutional  changes  in  transitional  agriculture.  In:  G.  van  Huylenbroeck,  W. 

Verbeke,  L.  Lauwers  (eds.)  Role  of  institutions  in  rural  policies  and  agricultural 

markets. Elsevier, 413–114. 

Zheng, S., Wang, Z., Awokuse, T.O. (2012). Determinants of Producers’ Participation in 

Agricultural  Cooperatives:  Evidence  from  Northern  China.  Applied  Economic 

Perspectives and Policy, 34(1), 167–86. 

57 

Europe Direct is a service to help you find answers to your questions about the European Union 
Free phone number (*): 00 800 6 7 8 9 10 11 
(*) Certain mobile telephone operators do not allow access to 00 800 numbers or these calls may be billed. 

A great deal of additional information on the European Union is available on the Internet. 
It can be accessed through the Europa server http://europa.eu 

How to obtain EU publications 

Our publications are available from EU Bookshop (http://bookshop.europa.eu), 
where you can place an order with the sales agent of your choice. 

The Publications Office has a worldwide network of sales agents. 
You can obtain their contact details by sending a fax to (352) 29 29-42758. 

L
F
-
N
A
-
2
7
9
2
9
-
E
N
-
N

JRC Mission 

As the Commission’s  
in-house science service,  
the Joint Research Centre’s 
mission is to provide EU  
policies with independent,  
evidence-based scientific  
and technical support  
throughout the whole  
policy cycle. 

Working in close  
cooperation with policy  
Directorates-General,  
the JRC addresses key  
societal challenges while  
stimulating innovation  
through developing  
new methods, tools  
and standards, and sharing 
its know-how with  
the Member States,  
the scientific community  
and international partners. 

Serving society  
Stimulating innovation 
Supporting legislation 

doi:10.2791/21346 

ISBN 978-92-79-58422-0 

2