Value chain integration for rural co-operatives : comparative analysis in the rice sector in Sri Lanka : a thesis presented in partial fulfilment of the requirements for the degree of Doctor of Philosophy in Agribusiness at Massey University, Palmerston North, New Zealand

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Agri-food industry is transforming in developing countries due to trade liberalisation, globalisation and urbanisation trends. As a result, linking smallholder farmers to modern markets has been a concern among scholars, development agencies and policymakers. Although the transformation in agri-food industry has created many opportunities for smallholder farmers to elevate their income and welfare, they are confronted with many challenges such as poor access to technology, information, inputs, credits, and value-adding services. In this context; co-operatives are recognised to play an important role in improving smallholder farmers' market access. There is an ample amount of literature that discusses the advantages co-operatives are providing to their members/smallholder farmers. Most recent studies on co-operatives have compared members to non-members in terms of benefits and performance. Nevertheless, member benefits and performance of vertically integrated co-operatives gain less attention despite their importance. Vertically integrated co-operatives perform a range of activities related to supply of inputs, services and market information. Yet, there is scant information on how co-operatives' vertical integration benefits their members/smallholder farmers. This study aims to analyse and compare member benefits and performance of co-operatives vertically integrated into two levels: partially and fully integrated co-operatives. In particular, this study addresses whether there are better performance and members' benefits in fully integrated co-operatives than partially integrated co-operatives. This study was conducted in one of the main rice-producing provinces in Sri Lanka using a mixed-methods approach. Co-operatives involved in rice business activities in the province were studied and divided based on their level of vertical integration: partially or fully integrated. Partially integrated co-operatives centrally control some of the successive activities of a value chain (supply of inputs, provision of services and information, production, and assembling and marketing of primary products). Fully integrated co-operatives centrally control all the successive activities of a value chain (supply of inputs, provision of services and information, production, assembling and marketing of primary products, processing, wholesaling, and retailing). Cross-case comparisons of interview data complemented with financial data revealed that co-operatives' financial performance was not significantly different between partially and fully integrated co-operatives and was comparably unsatisfactory at both levels. Further, the financial performance of co-operatives was affected by their governance, managerial, technical and financial attributes. Survey data of 307 rice farmers were used to analyse and compare member-perceived benefits and performance between partially and fully integrated co-operatives. Exploratory factor analysis of data revealed five key areas of benefits: business and financial, livelihood, technology and information, low-cost inputs, and democratic control and education. It was found that business and financial, and technology and information benefits, were better among members in fully integrated co-operatives. Besides, propensity score matching analysis revealed better profits per kilogram of paddy rice and higher economic profit among members in fully integrated co-operatives. However, the regression analysis results showed varying financial performance among the members of co-operatives depending on their demographic and household, farm, and contextual factors. Findings in this study provided some important theoretical and practical implications. The benefits studied in this research provide directives for managers in formulating rice-related business strategies that are well-aligned with members' interests. Contradictions between members' perceived benefits and their actual financial performance in fully integrated co-operatives suggest a lack of awareness among members about the benefits of value-added activities and emphasise a need for improving member communication and engagement. Policymakers should be encouraged to promote vertically integrated co-operatives and provide training to their managers (including directors) on formulating and executing competitive strategies, good governance, and revisions concurrent to changing market forces.
Agriculture, Cooperative, Farms, Small, Rice farmers, Rice trade, Sri Lanka, co-operatives, vertical integration, member benefits, financial performance, rice