THE PERFORMANCE OF AGRICULTURAL COOPERATIVES AND THEIR WELFARE IMPACT ON SMALLHOLDER FARMERS IN EAST HARERGHE ZONE, OROMIA REGION, ETHIOPIA

Abstract

In Ethiopia, agricultural cooperatives are deemed as an important institutional mechanism to overcome market failure and facilitate smallholder farmers’ market access, and consequently to attain rural poverty reduction. However, most are not successful in this case. Constraints of investment capital, to pursue growth strategies, that arise due to members’ reduced investment incentive is often indicated as the main reason for their poor performance. Identifying factors influencing members’ investment incentive will inform decisions with regard to specific measures to be taken to enhance agricultural cooperatives’ performance. However, such empirical evidence is scanty in Ethiopian context. This study was initiated to assess factors influencing members’ investment incentive, measure members’ satisfaction and identify influencing factors, and evaluate the impact of cooperative membership on member households’ welfare. Multi-stage sampling procedure was followed to select districts, rural Kebeles, and 364 member and non member households. Data was collected through key informant interview, focus group discussions and household survey. Qualitative data was analyzed through content analysis technique, and quantitative data was analyzed using binary and ordinal logistic regressions models, and propensity score matching technique. The content analysis showed that institutional and governance failures created four incentive problems (free-riding, portfolio, control and influence problems) that affected members’ investment incentive. The logistic regression analysis revealed that education, past role as a committee member, and trusts on other members’ commitment and directors’ leadership positively and significantly, while age and perceptions on the cooperative’s weaknesses negatively and significantly influenced on members’ willingness to contribute equity capital. The ordinal logistic regression analysis revealed that education, distance to market, income from farming, membership duration, perception about members’ influence on decision making, and having consistent participation in general assembly positively and significantly, while age and perception on all members’ participation in general assembly negatively and significantly influenced on members’ satisfaction with benefits obtained from membership. The result of the logistic analysis for the determinants of membership in cooperatives revealed that education, ownership of livestock, distance to market and taking credit positively and significantly, while age negatively and significantly influenced on membership in cooperatives. The propensity score matching revealed that membership in agricultural cooperatives has a positive impact on member households’ welfare. Further research is recommended on why the positive welfare impact of membership in agricultural cooperatives do not attracted more smallholder farmers to membership