Efficiency, and economies of scale and scope in Japanese agricultural cooperatives

Abstract

The purpose of this study is to investigate regional differences in the business characteristics of Japanese agricultural cooperatives (JAs), which have been widely criticized for depending on non-agricultural activities, contradictory to cooperative principles. We construct a panel data set over 2004–2019 from the financial statements of JAs’ prefectural-level federations and use a stochastic meta-frontier cost function model, which enables the decomposition of meta-frontier efficiency into two components: technical efficiency and technology gap ratios. The operational differences between JAs in urban and rural areas are investigated by comparing their efficiency and economies of scale and scope. The main results are summarized as follows: first, the meta-cost efficiency scores of JAs in urban areas are, on average, larger than those in rural areas, which reflects the differences in technology gap ratios. Second, JAs exhibit overall economies of scale in both areas; however, the product-specific economies of scale differ between financial and nonfinancial outputs. Finally, JAs in rural areas exhibit relatively larger economies of scope than those in urban areas. These findings indicate clear distinctions between urban and rural areas in cost-reduction effects. Finally, financial activities bring higher efficiency for JAs in urban areas, while benefits from simultaneous production are larger for those in rural areas.