Multiple roles of agricultural cooperatives in improving farm technical efficiency: A case study of rural Gansu, China

Abstract

The establishment of agricultural cooperatives is widely viewed as an institutional arrangement to remove constraints that prevent smallholders from accessing profitable business opportunities in agriculture. Agricultural cooperatives in China offer a wide range of services within the framework of contract farming and vertical integration. This study empirically examines the multiple roles of China's cooperatives in improving farm production efficiency and conserving the agricultural environment. Considering that agricultural cooperatives' services can be broadly divided into biological and machinery services, we specify a stochastic frontier production function in a special form, called the separated Cobb–Douglas. The empirical results present clear evidence that Chinese agricultural cooperatives play essential roles in increasing biochemical technical efficiency and protecting the agroecological environment. However, the involvement of cooperatives as vertical integrators is demonstrated to have a detrimental effect on biochemical technical efficiency. The pressing challenge for agricultural cooperative development in China is to accommodate the conflicting consequences that their entry into farming has on biochemical and machinery technical efficiencies. This has strong policy implications, although our study has certain limitations in terms of the narrow focus on a single specific region. [EconLit Citations: C26, Q12, Q13, Q15, Q18].