Business Decisions In A Cooperative Environment

Abstract

The trend for cooperative consolidation in the grain industry continues to be common throughout the United States. In the state of Washington, for example, the total number of agribusiness cooperatives has decreased by nearly 40% over the past 3 decades. Grain cooperatives in eastern Washington have diminished by 30% over this same period, and by 60% over the past 55 years (Monson, 2003). The bulk of this reduction in numbers may be attributed to mergers and consolidations, but a few liquidations are also evident. While many factors have contributed towards this long-standing trend, most would argue that a persistence of “economies of size” appears as a dominant force encouraging industry restructuring at almost every level. The incentive and motivation to lower long-run average total costs by increasing size, capacity and volume is present for both types of grain agribusinesses (cooperatives and private (or publicly) owned businesses) while the implicit objective function for these different business forms is slightly different. The primary objective for privately owned businesses is to maximize profit, subject to a constraint on technology which may be influenced by the private firm’s access to capital and management expertise.