An Analysis of the Success of UK Agricultural Marketing Cooperatives: Can They Effectively Redress Power Imbalances in Current Market Conditions?
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An analysis of the success of UK agricultural marketing cooperatives: can they effectively redress power imbalances in current market conditions? By Jane Francesca Eastham A thesis submitted to the University of Birmingham for the degree in Doctor of Philosophy Centre of Strategy and Procurement Birmingham Business School University of Birmingham July 2012 University of Birmingham Research Archive e-theses repository This unpublished thesis/dissertation is copyright of the author and/or third parties. The intellectual property rights of the author or third parties in respect of this work are as defined by The Copyright Designs and Patents Act 1988 or as modified by any successor legislation. Any use made of information contained in this thesis/dissertation must be in accordance with that legislation and must be properly acknowledged. Further distribution or reproduction in any format is prohibited without the permission of the copyright holder. ABSTRACT This is exploratory research that has examined the efficacy of agricultural marketing cooperatives in the UK as a mechanism to redress power imbalances when faced with highly consolidated downstream markets. This issue would appear to be of particular significance in the light of the continued UK government emphasis on the cooperative action as a means of supporting farm gate prices following the deregulation of European Markets. This research draws upon, and examines the possible linkages between two key bodies of literature, Power Dependency Theory and literature based on the issue of common property and the free-rider problem and presents, through the exploratory framework, the idea that cooperative success is contingent upon an iterative relationship between leverage and cohesion (Emerson, 1962: Olson, 1965). This understanding is used to examine the three diverse marketing cooperatives, and findings from which suggest that cooperatives in current market structures are unable to improve their leverage position over the longer term. The research also suggests that there is not necessarily an iterative relationship between cohesiveness and improved leverage. What is apparent is that Cooperatives endure because they offer other types of benefits to farmers and currently play an important role is sustaining a failing farming sector. ii iii ACKNOWLEDGEMENTS I would like to thank my family, friends and supervisors for their support and interventions for the duration of this study. I would also like to thank farmers, processors, marketers, farmer directors, category managers, retail buyers, experts in the field, for their time and participation in this research. In recognition of their fears that transparency in contested consolidated markets could undermine the farming community still further, as promised, identities are hidden in the final thesis. iv Contents Page no Chapter 1 Agricultural policy and the issues of cooperatives 1 1.0 Introduction 1 1.1 The UK farming sector 4 1.1.1 Decline in agriculture – evidence of economic problems 5 1.1.2 Cause of problems – market concentration downstream 7 1.1.3 Causes of problems – liberalisation of trade 10 1.1.4 Discussion 13 1.2. UK policy response 14 1.2.1 Business/ Market orientation 14 1.2.2 Changes to commercial relationships 16 1.2.2.1 Direct to market / New customers – the development 16 of new markets. 1.2.2.2 Changing relationship with existing customers 17 1.2.3 Delivery of changes to commercial relationships 19 1.2.3.1 Subsidy and short term income protection and 19 modulation 24 1.2.3.2 Education about relationship development 25 1.2.3.3 The emphasis on cooperatives 26 1.3 Cooperatives 27 1.3.1 Defining cooperatives 29 1.3.2 Definition of success 30 1.3.3 Explanation of success and failure 34 1.3.4 History of cooperatives in the UK 37 1.4 Conclusion Chapter 2 – Literature review 38 v 2.0 Introduction 38 2.1 Insights into existing literature on the effectiveness of cooperatives in the generation of financial benefits 40 2.2 The basis of business in exchange 43 2.2.1 Cooperative and competitive surplus value 44 2.2.2 Conventions in Business exchange 45 2.2.3. Alternative models of exchange 53 2.3 What determines distribution of value in power dependency theory 53 2.3.1 Emerson and Power 60 2.3.2. Balancing mechanisms 63 2.3.2.1. The cooperative as a balancing mechanism 65 2.3.2.1.1 Consolidation – through coalition formation 66 2.3.2.1.2 Differentiation- increasing motivational interest - status giving 68 2.4 Weaknesses of theory 69 2.5. Conclusions 71 Chapter 3 Theoretical framework 72 3.0 Introduction 72 3.1 Olson, Common Property and calculative rationality 74 3.2 Examination of issues in marketing cooperatives 78 3.2.1 New institutional theories, costs to members and cohesion 80 3.2.2 Direct costs Asset specific costs and investments 81 3.2.2.1 The nature of Asset specific costs and investments 81 3.2.2.2 The implications of Asset specific investments 83 3.2.3. Indirect costs –the common property problem 84 3.2.3.1 Internal free riding 86 3.2 3.2 External free riding 89 3.2.3.3. Implications of free riding 92 3.2.3.4 Transaction costs. 93 vi 3.2.3.5 Agency costs 95 3.3 Conclusions 98 Chapter 4 The exploratory framework 100 4.0 Introduction 100 4.1 Summary of argument 101 4.2 Understanding the delivery of leverage through motivational 102 interest/status giving and coalition formation 4.2.1 Coalition formation and the creation of scarcity- Supplier power 105 4.2.2 Coalition formation and the creation of scarcity – Buyer power 106 4.2.3Increasing motivational interest –status giving buyer and supplier 107 dependency 4.3 Cooperative longevity and cohesion 109 4.3.1 Direct costs-Asset specific investment 109 4.3.2 Indirect costs - costs of free riding 109 4.3.3 Indirect costs and Indirect costs – monitoring, sanction, 111 lobbying negotiation, search, control and free rider costs 4.3.3.1 Monitoring, lobbying, negotiation , search and control 111 costs 4. 3.3.2 Sanction costs 114 4.4. Conclusion 115 vii Chapter 5 – Methodology 117 5.0 Introduction 117 5. 1 Summary of Research Question 118 5.2 Research design 119 5.2.1 Research philosophical worldview and design 120 5.2.2 Methodology or logic of inquiry 125 5.2.3 The validity of case study design- The choice and number of 128 case studies 5.2.3.1. The choice of case studies in this study 131 5.2.4 Data collection and analysis - implications of data sources for 133 validity 5.2.5 Method and Sources of Data and validity 136 5.2.5.1 Step 1- data collection 136 5.2.5.1.1 Interviews 137 5.2.5.1.2. Published data 140 5.2.5.2 Step 2 Analysis of Data- familiarisation and coding 140 5.2.5.3 Step 3 Analysis of Data- analysis techniques 141 5.3 Conclusion 143 Chapter 6 –Preface to case studies 145 6.0 Introduction 145 6.1 The basis of selection of the three case studies 146 6.2 The following chapters 149 Chapter 7 – Society of Growers of Top fruit 150 7.0 Introduction 150 7.1 Historical background to the sector- dealing with horizontal competition. 152 7.1.1 The historical structure and characteristics of the top fruit sector 152 7.1.2 Horizontal competition and impact on the top fruit sector on 153 entry to the European Market. viii 7.2 Retail consolidation and the sustainability of the cooperative 160 7.2.1 Retail consolidation and the ability of SGT to counteract vertical 160 threats derived from retail consolidation 7.2.2. Longevity and cohesion – cost of coalition 169 7.2.3 The Longevity of the coalition , the distribution of costs to 173 members and non-excludability 7.2.4 Summary of previous sections 173 7.2.5 The impact of longevity of the cooperative on the sector as a 174 whole 7.3 Lessons learnt 175 7.3.1 Creation of leverage through absolute scarcity/relative scarcity and/ or motivational interest 176 7.3.2 The stability and cohesion of the cooperative 177 7.3.3 Problems of non- excludability 178 7.4 Conclusion 179 Chapter 8 – Case study First Milk 180 8.0 Introduction 180 8.1 Historical background to milk supply 181 8.1.1 The historical structure and characteristics of the Dairy sector 182 8.1.2 Horizontal competition and market liberalisation 184 8.2 The emergence of First Milk. 189 8.2.1 The emergence of First Milk and its ability to counteract vertical 190 threats derived from retail consolidation increasing scarcity. 8.2.2 First Milk and its value as a counterbalance to vertical 191 competition, increasing motivational interest. 8.2.3 Longevity and cohesion-the costs of coalition 202 8.2.4 The distribution of costs between members and the non- 210 excludability of benefits 213 8.3 Lessons learnt 8.3.1 Creation of leverage through absolute/relative scarcity and/or 215 ix motivational interest. 215 8.3.2 The longevity of the coalition in relations to perceived direct 216 costs of coalition 8.3.3 Problems of non-excludability 217 8.4 Conclusion 218 Chapter 9 –Case study 3 Yorkshire Farmers Livestock Marketing 220 9.0 Introduction 220 9.1The historical background to the pork supply chains 222 9.1.1The historical structure and characteristics of the pig sector 222 9.1.2 Horizontal competition, EU membership and market 227 liberalisation 9.2 Retailer consolidation 230 9.2.1 Retail consolidation and the cooperative as a counterbalance – 230 increasing relative scarcity 9.2.2 Retail consolidation and the cooperative as a counterbalance – 241 increasing motivational interest 9.2.3.