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Other publication, 1999

Organisational models for agricultural co-operatives

Gunnarsson Myrelid, Patrik


The aim of the thesis is to study the effects that different financial solutions may have on the organisational mode of Irish dairy co-operatives. Membership, marketing and management are examined in four different enterprises. These areas are examined using the agency theory and property rights theory. Glanbia Group PLC, Golden Vale PLC and Kerry Group PLC were all former traditional co-operatives transformed into Public Limited Companies (PLCs) in the 1980s. Dairygold remained a traditional co-operative. The environmental conditions of the Irish dairy sector are studied in order to better understand the accomplished changes into PLCs. European co-operative dairy processors endeavour to expand their business operations internationally and into markets for value-added products. The organisational structure and the financial capability of the co-operatives confine investments in such businesses. External investors could be necessary in order to raise sufficient capital. The Irish dairy processors have such experiences. The findings show that the Irish dairy farmers are acting on a “sellers market”. The milk-quota regime, together with the intervention system, are guaranteeing the dispose of the farmers’ milk to a satisfying profit. This combined with a large number of processors and a transparent price system implies that the farmers do not perceive any market failure. The farmers have small incentives in organising the processing of their milk vertically in co-operative firms according to the transaction cost theory. The result of the interviews suggests that Dairygold, the traditional co-operative, plays an important role as competitive yardstick regarding the milk price paid to farmers. Notwithstanding, the substantial amounts of unallocated capital and the international businesses suggest that the patron role and investor role of the members are weak. This creates serious agency problems. Consequently, Dairygold could be considered as a degenerated co-operative. Glanbia and Kerry could be considered as entrepreneurial co-operatives. The introduction of tradable shares in the PLC-part of the organisation has better defined the property rights and removed the agency problems associated with traditional co-operatives. However, the agency problems have remained within the farmers’ new co-operative societies. The reason is the substantial amount of unallocated capital in that part of the organisation. Golden Vale quoted the whole enterprise on the stock exchange market. The farmers in the original geographical area of where the firm is located retained control of some parts of the primary processing. Golden Vale could be considered as a combination co-operative. The organisation is not associated with any agency problems characterising traditional co-operatives. There is no conflict between the external investors and the milk suppliers in the PLCs regarding the milk price, due to a competitive market structure. For the same reason the farmers’ formal influence of the PLCs is of subordinated importance. The introduction of tradable shares in the PLCs has made them more market oriented. It has opened the possibility for the PLCs to act from an organisational point of view and develop the potential of the skills and competencies of the enterprises. Dairygold is much more producer oriented. The presence of a share price allows the PLCs to use a senior management remuneration system that give managers clear incentives of acting in the interest of the shareholders. The transformation into PLCs has probably increased the possibilities of recruiting managers from outside the “co-operative sphere”. The usage of external experts on the boards of directors in the PLCs is enhancing the possibilities of finding competent and skilled directors.


cooperative; dairy; Ireland; conversion

Published in

Publisher: Dept. of Economics, Swedish University of Agricultural Sciences

UKÄ Subject classification

Business Administration

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