A quantile regression analysis of farmer cooperative performance

Abstract

Purpose

A financial perspective of farmer cooperative performance is assumed by conceptualizing the cooperative as an independent firm. The purpose of this paper is to explore variability in the financial performance of the largest 1,000 US farmer cooperatives with emphasis on efficiency, productivity, and leverage.

Design/methodology/approach

Cooperative performance is analyzed by means of the extended DuPont identity, an accounting tool which decomposes return on equity into five ratios of efficiency, productivity, and leverage. The extended DuPont identity is applied empirically with quantile regression, which allows estimation of the statistical interrelationship of the DuPont components across the full response distribution.

Findings

Per the results, variability in the financial performance of US farmer cooperatives is for the most part associated with the operating profit margin, which confirms prior findings of cost inefficiency in the empirical literature. Therefore, US farmer cooperatives may improve financial performance by emphasizing sales and operating costs. Specifically, recommendations include placing emphasis on bargaining power, product differentiation, and scale economies. Supply cooperatives may also consider issuing non-qualified equity and securing long-term debt access as additional possibilities to improve financial performance.

Originality/value

The empirical application of the extended DuPont identity with quantile regression facilitates a novel investigation of cooperative performance by placing emphasis on the efficiency, productivity, and leverage of cooperatives with various degrees of performance.

Citation

Grashuis, J. (2018), "A quantile regression analysis of farmer cooperative performance", Agricultural Finance Review, Vol. 78 No. 1, pp. 65-82. https://doi.org/10.1108/AFR-05-2017-0031