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Organisational models for agricultural co-operatives

a comparative analysis of the Irish dairy industry

Gunnarsson Myrelid, Patrik (1999). Organisational models for agricultural co-operatives. Uppsala, Sweden.

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Abstract

The aim of the thesis is to study the effects that different financial solutions may have on the organisational mode of Irish dairy co-operatives. Membership, marketing and management are examined in four different enterprises. These areas are examined using the agency theory and property rights theory. Glanbia Group PLC, Golden Vale PLC and Kerry Group PLC were all former traditional co-operatives transformed into Public Limited Companies (PLCs) in the 1980s. Dairygold remained a traditional co-operative. The environmental conditions of the Irish dairy sector are studied in order to better understand the accomplished changes into PLCs.

European co-operative dairy processors endeavour to expand their business operations internationally and into markets for value-added products. The organisational structure and the financial capability of the co-operatives confine investments in such businesses. External investors could be necessary in order to raise sufficient capital. The Irish dairy processors have such experiences.

The findings show that the Irish dairy farmers are acting on a “sellers market”. The milk-quota regime, together with the intervention system, are guaranteeing the dispose of the farmers’ milk to a satisfying profit. This combined with a large number of processors and a transparent price system implies that the farmers do not perceive any market failure. The farmers have small incentives in organising the processing of their milk vertically in co-operative firms according to the transaction cost theory.

The result of the interviews suggests that Dairygold, the traditional co-operative, plays an important role as competitive yardstick regarding the milk price paid to farmers. Notwithstanding, the substantial amounts of unallocated capital and the international businesses suggest that the patron role and investor role of the members are weak. This creates serious agency problems. Consequently, Dairygold could be considered as a degenerated co-operative.

Glanbia and Kerry could be considered as entrepreneurial co-operatives. The introduction of tradable shares in the PLC-part of the organisation has better defined the property rights and removed the agency problems associated with traditional co-operatives. However, the agency problems have remained within the farmers’ new co-operative societies. The reason is the substantial amount of unallocated capital in that part of the organisation.

Golden Vale quoted the whole enterprise on the stock exchange market. The farmers in the original geographical area of where the firm is located retained control of some parts of the primary processing. Golden Vale could be considered as a combination co-operative. The organisation is not associated with any agency problems characterising traditional co-operatives.

There is no conflict between the external investors and the milk suppliers in the PLCs regarding the milk price, due to a competitive market structure. For the same reason the farmers’ formal influence of the PLCs is of subordinated importance.

The introduction of tradable shares in the PLCs has made them more market oriented. It has opened the possibility for the PLCs to act from an organisational point of view and develop the potential of the skills and competencies of the enterprises. Dairygold is much more producer oriented.

The presence of a share price allows the PLCs to use a senior management remuneration system that give managers clear incentives of acting in the interest of the shareholders. The transformation into PLCs has probably increased the possibilities of recruiting managers from outside the “co-operative sphere”. The usage of external experts on the boards of directors in the PLCs is enhancing the possibilities of finding competent and skilled directors.

Authors/Creators:Gunnarsson Myrelid, Patrik
Title:Organisational models for agricultural co-operatives
Subtitle: a comparative analysis of the Irish dairy industry
Year of publishing :1999
Page range:1-87
Number of Pages:87
Place of Publication:Uppsala, Sweden
Publisher:Dept. of Economics, Swedish University of Agricultural Sciences
Language:English
Additional Information:Publikationen är en del i serien "Examensarbete / SLU, Institutionen för ekonomi", Nr. 219, ISSN: 1401-4084
Publication Type:Other
Version:Published version
Full Text Status:Public
Subjects:(A) Swedish standard research categories 2011 > 5 Social Sciences > 502 Economics and Business > Business Administration
Keywords:cooperative, dairy, Ireland, conversion
URN:NBN:urn:nbn:se:slu:epsilon-e-1764
Permanent URL:
http://urn.kb.se/resolve?urn=urn:nbn:se:slu:epsilon-e-1764
ID Code:10915
Faculty:NL - Faculty of Natural Resources and Agricultural Sciences (until 2013)
Department:(NL, NJ) > Dept. of Economics
Deposited By: Professor Jerker Nilsson
Deposited On:21 Jan 2014 15:44
Metadata Last Modified:02 Dec 2014 11:04

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