On the power and influence of the cooperative institution: Does it secure competitive producer prices?

Abstract

Institutional marketing plays key role in improving the economic incentives of smallholders to enhance their market participation and commercialization. Such incentives derived from marketing cooperatives include indirect benefits such as reduction in transaction costs arising from participation in imperfect factor and product markets. However, whether marketing through cooperatives also creates direct economic benefits as additional incentives by securing competitive producer prices is not empirically established in the relevant development literature to augment related policy debates and to rationalize investments on such institutions. Using a farm economic model on producer price data taken from Ethiopian smallholders who produce sesame as a traditional cash crop, this paper empirically tested the power and influence of the cooperative institution on the level of producer prices received by farmers. The results show the instrumental role of marketing cooperatives in terms of securing competitive producer prices to farmers. The evidence provides empirical support to justify the desirability of revitalizing institutional marketing schemes as appropriate mechanisms to improve the economic incentives of smallholders for better market participation and commercialization towards poverty reduction.