To What Extent Does Trade Liberalisation Affect The Financial Performance of Korean Co-operatives?

Abstract

This study aims at evaluating agricultural co-operative performance in Korea based on financial data vis-a-vis trade liberalisation after subsequent Free Trade Agreements. With the help of the Du Pont expansion method this paper examines the financial performance and its drivers for 1,060 agricultural primary Korean co-operatives between 2012 and 2016 within the Korean National Agricultural Cooperatives Federation. Subsequently, we estimate the effect of the producer protection ratio, agricultural export and import volumes, co-operative size and world food prices on co-operatives' net profit margins, total asset turnovers and equity multipliers. The empirical results show that trade liberalisation has an ambiguous effect on agricultural co-operatives. Increased exports have a positive effect on the co-operatives' return on equity and profitability while imports have a reducing effect. Greater import and export volumes do not result in significant effects on efficiency and solvency. This study provides valuable lessons for countries seeking to alleviate external shocks on farm income and the rural economy following trade liberalisation by emphasising strong co-operative structures, as benefits and bottlenecks of the co-operative organisational structure are displayed.