Dairy cooperatives at the crossroads

The business environment of the EU dairy sector has altered drastically because of changes in EU agricultural and trade policy, consumer demand, and innovations since the turn of the millennium. This created new market income opportunities for dairy processors, but also fostered the necessity for investments to access these markets. A literature review sees cooperatives to be disadvantaged at this point, because their organisational structure hinders their access to external financial resources. Confronted with these equity constraints, the purpose of this paper is to investigate how German dairy marketing cooperatives adapted to the new business environment and have been performing from 2000 to 2012.

An approach combining descriptive data from public sources and financial ratio analysis was used to test hypotheses, derived from Transaction Cost Theory.

Contrary to assumptions, cooperatives gained market shares on the German dairy market. However, dairy cooperatives managed to overcome the internal equity constraints only partially via mergers, which intensified structural change. Focusing on cost leadership, German cooperatives were not able to successfully diversify their product portfolio and still operate mainly in the fluid, low margins dairy market segments. Frustrated by their diminishing influence on the decision making process in the vastly grown cooperatives, a majority of farmers cancelled their cooperative membership.

Until today an absolute turning point for the cooperative organisational form has not yet occurred, but if cooperatives do not find the means to invest more heavily in the new markets, a slow decline of cooperatives is expected.

The paper contributes to the existing literature on marketing cooperatives by providing insights on the performance of cooperatives through combination of from theory derived assumptions with qualitative and quantitative analysis methods.