Factors Influencing Organic and Fair Trade Coffee Growers Level of Engagement with Cooperatives: The Case of Coffee Farmers in Mexico

Abstract

We study the factors influencing the percentage of organic and fair trade certified coffee sold through a cooperative by growers of five cooperatives in Mexico. The percentage of coffee sold through the cooperative was used as a proxy of growers’ engagement with a cooperative. Using factor analysis and a fractional probit regression, we evaluated the proposition that the level of engagement can be explained by transaction cost economics, social norms and connections, and farmer and farm business characteristics. We found that farm size, uncertainty regarding cooperative time of payment to the members and cooperative commitment on price to be paid negatively influence the level of engagement. In contrast, asset specificity, relational commitment, and price have a positive impact on engagement. Our results may help cooperatives and policy makers to build strategies aiming to increase this level of engagement. This is relevant because lower grower engagement has been found to be positively correlated with weak performing cooperatives.

Keywords:

• Cooperatives
• factor analysis
• fractional probit regression
• organic and fair trade coffee
• transaction cost economics

Notes

Notes

1 Plaisier (2015) uses the term engagement in her analysis of certified Ethiopian coffee growers, operationalizing engagement through several concepts, including loyalty, participation of growers in the cooperative, commitment, and financial investment. Free-riding is the counterpart term of engagement in the literature of cooperatives. In this study, we define free-riding as negative engagement; that is, the more farmers side-sell the more they free-ride. Free-riding occurs when individuals receive benefits from investments, which they have not fully contributed to (Olesen, 2007). The free-riding problem is persistent in agricultural cooperatives (Cook, 1995; Giannakas, Fulton, & Sesmero, 2016), and its conceptual framework provides a basis for the development of hypotheses in this study. At the end of the literature review section we discuss how free-riding occurs in the cooperatives we studied.

2 At the end of the 2014–2015 production season 89% of the production was concentrated in four States (Flores & Harrison, 2016): Chiapas (37%), Veracruz (27%), Puebla (17%), and Oaxaca (8%).

3 Residual rights of control and residual claims are the components of a typology of ownership rights in cooperatives by Chaddad and Cook (2004).

4 In this study we found that some members sell a significant portion of their production outside of the cooperative without losing membership. We did not have access to the bylaws of the cooperatives. We assume that the definition of “consistency” is left to the discretion of members of the General Assembly, who make final decisions regarding membership.

5 The Mexican law regulating cooperatives in Mexico (Ley General de Sociedades Cooperativas) allows non-members (Article 41) to be involved in management decisions related to cooperatives. In the five cooperatives included in this study only members participate in the management decision process.

6 LGSC, updated by the Mexican House of Representatives on January 19, 2018, is available at: http://www.diputados.gob.mx/LeyesBiblio/pdf/143_190118.pdf

7 Particularly if producers side-sell larger volumes when coffee prices are high. When prices are low producers may find favorable to sell to the cooperative as they can benefit from price floors.

8 Prices of side-sold products and prices of products sold through the cooperative are similar. Thus, it appears that low quality is not a reason for side-selling.

9 Gadzikwa et al. (2007) and Nilsson et al. (2009) hypothesize a negative relation between trust and side-selling. Since we define engagement as negative side-selling, we hypothesize a positive relationship between these two variables.

Additional information

Funding

Carlos Trejo-Pech acknowledges that this work was partially supported by the USDA National Institute of Food and Agriculture, Hatch Multi-State project [1012420].