Abstract
Agricultural cooperatives are expected to generate sustainable profit as they are established as a vehicle of economic development. Efficiency and profitability analysis measures the performance of a firm, and assists management in decision-making through benchmarking with other firms (Marwa & Aziakpono, 2014). To understand the performance of agricultural cooperatives, our study analysed efficiency and profitability using an efficiency-profitability matrix to provide for multi-dimensional analysis. The study used secondary data from annual financial statements for the financial years 2015/16 collected from 19 agricultural cooperatives. Technical efficiency was estimated using Data Envelopment Analysis (DEA) and profitability was estimated using Returns on Assets (ROA). The median scores were 68% for technical efficiency and 10% for profitability. Using the 68% efficiency and 10% profitability benchmark, the matrix separated best performers from low performers. The matrix indicated that 26% of the cooperatives had high-efficiency levels with high profitability (stars), however there was an even distribution between the stars and sleepers: 5 out of 19 cooperatives were sleepers and 5 out of 19 were stars. The majority of the decision-making units (DMUs) at 42% (8 out of 19) are in quadrant 3, categorised as ‘question mark’. These DMUs had low-efficiency scores and low profitability ratios. Only 1 out of 19 cooperatives had high-efficiency levels and low profitability scores. The results demonstrate that technically efficient firms do not always translate to profitable firms: in this regard, management needs to investigate how best to allocate resources in order to remain relevant within the business context and competition. Policy makers need to investigate other drivers of efficiency and profitability when measuring the performance of a firm to influence future policy directives.
Highlights
Cooperatives are formed as a vehicle of economic development, as members or small producers combine to capture economies of size, and have bargaining power (Lerman & Parliament, 1991)
Descriptive Results: Table 1 below gives a summary of our results from the 19 agriculture cooperatives using Data Envelopment Analysis Program (DEAP) version 2.1 developed by Coelli (1996)
What is interesting to note is that when the observation is done on individual decisionmaking units (DMUs), only 21% of the DMUs are 100% technically efficient, operating at constant returns to scale (CRS)
Summary
Cooperatives are formed as a vehicle of economic development, as members or small producers combine to capture economies of size, and have bargaining power (Lerman & Parliament, 1991). The major role of the Cooperative Act has been to coordinate functions such that cooperatives promote economic and social development through employment creation and generating income (Ortmann & King, 2007a). Since the enactment of the Cooperative Act, there have been concerns over whether the cooperatives are achieving economic and social development goals (Ortmann & King, 2007b; Chibanda, Ortmann & Lyne, 2009). This study employs performance measurement through efficiency and profitability analysis. The objective of the study is to establish if the cooperatives as organisations are efficient and profitable, can withstand economic shocks, and are able to achieve economic gains for its members or patrons. The study further employed the profitability-efficiency matrix to determine the correlation between profitability and efficiency, separating the best performers from low performers
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