The Role of Cooperatives in NZ Agriculture
Cooperatives are major players in the NZ agricultural sectors and account for a significant share of NZ's economic activity. The NZ Institute for the Study of Competition and Regulation was commissioned by the Ministry of Agriculture and Forestry (MAF) to examine the role and significance of cooperatives in NZ agriculture. This report considers why farmers opt for cooperative ownership of certain activities, whether there are artificial reasons for the level of cooperative formation in NZ, and whether this has desirable or undesirable consequences.
Main Findings
- The overall environment for forming cooperatives in NZ is fairly neutral compared with other jurisdictions. NZ cooperative legislation is flexible, less tied to cooperative principles than corresponding legislation overseas, and free of policies favouring cooperatives over IOFs (investor-owned firms) and other types of organisation.
- NZ cooperatives show considerable adaptability in response to market and other pressures. Many variations within the cooperative model have been adopted to overcome problems associated with more traditional cooperative forms; allowing a number of them to grow and integrate further along the supply chain (for example, joint ventures and strategic alliances between cooperatives and IOFs).
- Neither cooperatives nor IOFs are uniformly superior organisational forms in all industries.
- Although cooperative governance is sometimes predicted to be inferior to that of listed IOFs, evidence exists that cooperatives enjoy certain governance advantages relative to IOFs that allow them to adopt alternative methods of resolving governance issues common to all organisations in which there is a separation of ownership and control.
- Cooperatives tend to arise more naturally where multiple, small and competing producers of a product face market power due to industry concentration further downstream in their supply chain. This is particularly the case where product perishability further increases producers' vulnerability to such market power. Additionally, what is required for cooperative development is a strong commonality of interest among cooperative owner-patrons, such as that you find when dealing with a product with relatively consistent characteristics (as is the case for milk); coupled with what the authors refer to as "cultural homogeneity and stability" (as is often the case in rural communities).
- These features often arise in agricultural sectors, particularly those based around family-owned and operated farms, where there are economies of scale in downstream processing, marketing, transportation and/or distribution. However, in certain sectors, such as forestry and fishing, producers are able to wield power. In other sectors, such as wool and many horticultural sectors, there is considerable product diversity, which can create conflicts of interest among suppliers that raise the costs of cooperative ownership.
- Moreover, even where the situation favours the formation of cooperatives, this does not mean that other organisational forms such as IOFs cannot co-exist. In fact, some models of cooperative evolution predict that cooperatives will arise as a competitive discipline on IOFs, wresting some of their market share, particularly where those IOFs are otherwise able to exercise market power over the cooperative's owner-suppliers.
- Evidence suggests that cooperatives are dominant in NZ in agricultural sectors where they are dominant overseas. The dairy sector is a notable example. In some sectors cooperatives are more dominant in NZ than in overseas jurisdictions, such as in meat processing and fertiliser production. In yet other sectors, NZ has less cooperative involvement than in some other jurisdictions, such as in the apple, fishing and forestry sectors.
- Finally, there is no obvious association evident between performance and cooperative presence in NZ's main agricultural sectors.
The report, "The Role and Significance of Cooperatives in NZ Agriculture: A Comparative Institutional Analysis", can be downloaded (in pdf) from: www.maf.govt.nz/mafnet/rural-nz/profitability-and-economics/ |
Contact for Enquiries
The Ministry of Agriculture and Forestry
Pastoral House
25 The Terrace
PO Box 2526, Wellington
Tel: 0800 00 83 33
Fax: +64 4 894 0720
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