Study On Vertical Integration Of Specialized Farmer Cooperatives

Chinese farmer specialized cooperatives have grown rapidly since the "Farmer Specialized Cooperatives Law of the People’s Republic of China" enacted in2007. By the end of July2014, about1.19million farmer cooperatives have been established. Regardless of the rapidly growing numbers, the vertical integration degree of Chinese cooperatives is still low. By the end of2011,52.3%or266,000cooperatives have been vertically integrated in production and sales. The ratio declined to52.16%by the end of2011, although the number increased to330,500. In the United States, products processed by agticultural cooperative accounted for80%of total agricultural outputs. Apparently, vertical integration in China needs to be enhanced. The "2012No.1Central Document" highlighted "supporting farmer cooperatives to set up agro-processing enterprises or equity agricultural enterprises", while the "2014No.1Central Document" highlighted "implementing and improving the related tax preferential policies to support farmer cooperatives processing and circulation of agricultural products". This shows the firm determination of the Chinese government to accelerate the transformation of the mode of farming.In order to find the reason behind the low degree of vertical integration of farmer cooperatives and to provide effective policy implications, the dissertation tested the impacts of environmental and conditional factors determined by transaction attribute indices on the vertical integration of specialized farmer cooperatives. The analyses were based on the transaction cost theory. And the "situation-structure-conduct-performance (SSCP)" framework and the empirical strategies including econometric model, exploratory factor analysis, hypothesis testing, and descriptive statistics were used. The influences of vertical integration on economic performances of cooperatives and participating families were examined. The dissertation then did research on appropriate models of vertical integration for different products, lastly proposed policy implications for Chinese farmer specialized cooperatives to improve their level of vertical integration at the national level, cooperative level and society environmental level.The dissertation has seven chapters. The organization is as follows.The first chapter is an introduction. It explains the research background and proposes research questions, purposes and meanings.It defines the key concepts and establishes the framework and technical route for following studies.The second chapter is a literature review of theoretical backgroud. Based on the classical cooperatives theory and its recent development, transaction cost economics, especially the research on vertical integration of cooperatives, is reviewed to provide theoretical support for empirical analyses.The third chapter is the vertical integration development history of Chinese cooperatives in provinces sampled by this study:Heilongjiang, Sichuan, and Zhejiang. Productions in sampled provinces are representative and typical. History reasons that cooperatives in different provinces currently present different characteristics are found. Detailed information of sampled provinces for further analysis is mastered.The fourth chapter discusses influencing factors of vertical integration of Chinese farmer specialized cooperatives. The chapter first measures two transaction attributes, i.e. asset specificity and uncertainty, by specific indices. It then creates two Logistic models to estimate their effects on vertical integration of farmer cooperatives. Both marginal effects and the model’s prediction accuracy are discussed. Finally, practical and policy reasons for the low degree of vertical intergration of Chinese cooperatives are found. The main conclusions are:physical asset specificity, brand asset specificity, furthest marketing scope, primary market, site specificity as reflected by geographical features, human capital as reflected by the member size and the director’s age, and "natural uncertainty" have significant impacts on the vertical integration of spcialized farm cooperatives by meaning of statistics.The fifth chapter tests the effects of vertical integration of Chinese farmer specilized cooperatives on their economic performance. This chapter has built two linear models to measure the effect of vertical integration of cooperatives to growth of their pure earnings and the influencing of participating in the vertical integration of cooperatives to member family’s growth of net earnings. The aim of thest tests is to verify related theories of New Institutional Economics about vertical integration can save transaction cost and propose policy implication including Chinese farmer specialized cooperatives should get pure surplus growth by advance their vertical integration, and members should take part in cooperatives vertical integration activitily to earn sustainable increase net surplus.The sixth chapter is the vertical integration model of Chinese farmer specialized cooperatives of development based on product characteristics. After combing conclusions of effect of product characteristics to vertical integration through former empirical researches, this chapter has proposed the view of highlighting the vertical integration of farmer specialized cooperatives engaged in different product should rely on different mode. Grain cooperatives are suitable for developing’government supporting’mode, fruit and vegetable cooperatives are suitable for developing ’farmers union’mode, and livestock cooperatives are suitable for developing ’corporate-lead’mode.The seventh chapter is conclusion and policy implication. This chapter has proposed policy implications to improve the level of vertical integration of Chinese farmer specialized cooperatives from government policy level, cooperatives level and whole society environmental dimensions.