A Competitiveness Approach to Assessing Performance of Agricultural Cooperatives: Cases of Coffee and Macadamia Cooperatives in Kenya

Smallholder producers derive their competitiveness from acting collectively as members of producer organizations such as cooperatives and associations. Nevertheless, producer organizations face many challenges (including: poor... [ view full abstract ]

Smallholder producers derive their competitiveness from acting collectively as members of producer organizations such as cooperatives and associations. Nevertheless, producer organizations face many challenges (including: poor infrastructures, governance and financial market access), which undermine their competitiveness. They also face competitive pressure from market actors, locally and internationally.

Agricultural cooperatives in Kenya also face stiff competitions at micro and meso levels, from middlemen and processing companies. This study assesses the performance of coffee and macadamia cooperatives within this competitive environment. The study applies competitive advantage (competitiveness) approach to measure the cooperative performance. A competitive advantage refers to as “an advantage a firm has over competitors by offering its consumers greater value, either by selling products at lower prices (cost advantage) or by providing greater benefits and service justifying higher prices (differentiation advantage)” (Katchova and Woods, 2013). Unlike financial measures, which underestimate cooperative performance, competitiveness approach also captures non-financial performance. Using competitiveness as a measure cooperative performance is also appropriate because it is one of the goals of cooperatives. It also recognizes the fact the survival of smallholders in the increasingly globalized and competitive agricultural markets depends on their ability to compete.

Using data collected from Kenya, bivariate statistics were generated. The statistics show that middlemen and private companies are more competitive than cooperatives at micro level because of two main advantages. Firstly, middlemen and private companies buy on cash basis, but cooperatives pay at much later dates. Late payment encourages farmers having liquidity constraints to sell to middlemen and private companies instead of cooperatives. Secondly, middlemen and private companies tend to buy at farm gate. Buying at farm gate eliminates transport costs that producers incur in delivering commodity to bulking centres. It also eliminates risks of produce being stolen from farmers’ home and bulking centres.

Even at meso level, the cooperatives are increasingly out-competed by private companies. This follows from observations that more cooperative sell to private millers than to Kenya coffee planters cooperative union (KCPU), which is a secondary cooperative. This is partly attributed to low prices offered by KCPU and mistrust primary cooperatives have in KCPU.

The result shows that the competitiveness of coffee and macadamia cooperatives depends on cost, payment and risk advantages as well as trustworthiness. Unfortunately, the cooperatives have no competitive advantages over middlemen and private companies. Gaining their competitiveness requires better access to financial resources and good governance.