Factors influencing membership of dairy cooperatives: Evidence from dairy farmers in Thailand

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Highlights

  • Dairy farming experience positively influences dairy farmers’ membership of the cooperatives.

  • Education positively influences dairy farmers’ membership of the cooperatives.

  • Distance to the milk collecting centers positively influences dairy farmers’ membership of the cooperatives.

  • Herd size positively influences dairy farmers’ membership of the cooperatives.

  • Monthly payment period negatively influences dairy farmers’ membership of the cooperatives.

Abstract

This study assessed the factors determining farmers’ membership of dairy cooperatives in Thailand using primary data acquired from 385 randomly selected dairy farmers in central and north-eastern regions of Thailand. Two types of farmers were surveyed: members of dairy cooperatives and members of private organizations representing the two key marketing channels. The results of the binary logit regression model showed that educational level, dairy farming experience, herd size and distance to the milk collecting centres had positive significant influence whereas the square of the herd size and monthly payment period had negative significant influence on farmers’ membership of the cooperatives. The policy recommendations are presented.

Introduction

Dairy production is an important segment of the livestock economy of the world accounting for about 30 % production from the livestock sector (Food & Agriculture Organization of the United Nations (FAO), 2016). Approximately 150 million households are associated with dairy production around the world (Food & Agriculture Organization of the United Nations (FAO), 2018). During the last decade, developing countries have expanded their shares in worldwide milk production. Smallholders are an essential part of milk production in most developing countries, and milk production contributes to household livelihoods, food security, and nutrition (Food & Agriculture Organization of the United Nations (FAO), 2018).

Like several developing countries, Thailand’s dairy industry has expanded as domestic milk consumption has increased rapidly since commercial dairy farming started in the early 1960s. The dairy industry has registered steady growth with about 16 % of livestock production (Food & Agriculture Organization of the United Nations (FAO), 2016). The milk production has increased by almost 1.5 times from 0.8 million tons in 2008 to 1.2 million tons in 2017 (Office of Agricultural Economics (OAE), 2017). In addition, the government has promoted new initiatives to strengthen the milk production by enhancing feed quality, milking technology, as well as proper collection and milk storage (Ministry of Agriculture & Cooperatives (MOAC), 2016). As a result, milk productivity has improved from 6 to 7 kg/cow/day in 1992 (Chungsiriwat & Panapol, 2007) to about 13 kg/cow/day in 2017 (Office of Agricultural Economics (OAE), 2017). The nationwide average cattle/farm has also enlarged from 24 cattle in 2008 to 34 cattle in 2017 (Department of Livestock Development (DLD), 2017).

Milk in Thailand is marketed through milk collecting centres (MCCs) that represent the link in the supply chain between dairy producers and milk processing plants. MCCs can reduce the time and transportation costs as well as guarantee the markets for farmers. They can also minimize the collection costs and time for the processing firms (Belmar, Villagra, Marianov, Cortés, & Bronfman, 2017; Demirbaş, Tosun, Çukur, & Gölge, 2009). MCCs in Thailand are classified into two groups, dairy cooperatives (DCs) and private organizations (POs). DCs control about 52 % of domestic raw milk production, while the remaining raw milk production (48 %) is handled by POs (Department of Livestock Development (DLD), 2017). These two milk organizations have considerably distinct management structures and strategies in supporting their members. Cooperatives are organizations that are owned and controlled by a group of people who use their products, supplies, marketing, and services. They do not aim at profit maximization, but their target is to create member benefits on the goods and services markets. They belong to farmers and are managed by the boards of elected farmers (Puusa, Hokkila, & Varis, 2016; Altman, 2016; Hooks, McCarthy, Power, & Macken-Walsh, 2017; Puusa, Monkkonen, & Varis, 2013). On the other hand, POs are owned, financed and controlled entirely by individual entrepreneurs. Profits, revenues, and growth are the organizing principles of POs aiming for economic efficiency (Chareonwongsak, 2017; Krishnan, 2016; Puusa et al., 2013). POs’ administrative structure is likely to be hierarchical; therefore, the decision-making process is controlled by a few individuals, in several instances by a single person. This makes the decision-making process substantially faster than in DCs that are dependent on the decisions of the boards (Koonawootrittriron, Elzo, Yeamkong, & Suwanasopee, 2012).

Commercial milk farming was introduced in Thailand in the 1960s based on a King’s initiative and organized in the form of cooperatives. The growing milk collecting business has attracted private investors resulting in the creation of POs in the dairy industry. As a consequence, DCs’ market share has steadily declined, and the farmers’ milk marketing channels have changed from DCs to POs over the past decade. The reason is that, in recent years, many new POs have emerged with heavy advertising campaigns. Their main advertising message being quick and higher levels of access to credit as well as low transportation costs persuaded many farmers to join these organizations. Furthermore, some DCs have certain requirements and restrictions to admit new members, such as guarantees by other members, maintaining a minimum daily production or a waiting period for rejoining the DCs, for those farmers who were previously members who had left to join POs, and want to return. For these reasons, it was difficult for farmers to be DCs members. At present, DCs contribute about 52 % to dairy production and marketing in Thailand compared with 63 % in 2007 (Department of Livestock Development (DLD), 2017). The DCs’ number and their members has steadily decreased from 109 cooperatives with 23,137 members in 2007 to 98 cooperatives with 18,299 members in 2017 (about 10 % decline in cooperatives’ number and 21 % decline in members) (Cooperative Promotion Department (CPD), 2017) whereas the POs’ number has considerably increased from 63 to 89 (41 % increase) during the same period (Department of Livestock Development (DLD), 2017). This indicates that DCs face stiff competition from alternative marketing channels like POs.

The previous studies on the milk marketing of dairy farmers have focused on the analysis of determinants of cooperatives’ membership (Chagwiza, Muradian, & Ruben, 2016; Gupta & Roy, 2012; Kumar, Saroj, Joshi, & Takeshima, 2018). The majority of the existing studies used a small number of explanatory variables. This made it difficult to identify the most important factors influencing cooperative membership. Additionally, some studies specified the factors using descriptive statistics rather than econometric analysis, which could result in incorrect and biased outcomes due to ignoring relations between factors. Since cooperatives are a significant component of organized dairy markets in Thailand, which link smallholder milk producers with the markets, it is important to understand the membership of these cooperatives. To the best of our knowledge, there is no detailed study that examined the factors influencing farmers’ membership of dairy cooperatives in Thailand. Therefore, this study sought to answer the following question: What are the factors influencing farmers’ membership of dairy cooperatives? The study aims to address this research question from the perspectives of the two groups of farmers who are members of either DCs or POs.

Section snippets

Dairy cooperatives in Thailand

Dairy cooperatives (DCs) in Thailand have played a prominent role in improving the socio-economic conditions of dairy farmers in rural areas, bringing farmers a regular income, and decreasing the migration of workers to cities (Chungsiriwat & Panapol, 2007). DCs are a crucial component of organized dairy markets in Thailand. They buy milk from farmers at a guaranteed price, then refrigerate and sell the collected milk to processing plants or sometimes process the milk. The daily refrigeration

A brief exposition on the importance of cooperative membership

Cooperatives are crucial institutional vehicles to facilitate information sharing and to enhance collaboration, innovation, and market access for smallholder farmers (Reed & Hickey, 2016). They have played an increasingly essential role worldwide especially for smallholders in reinforcing economic growth, social development, and job creation (Ruostesaari & Troberg, 2016). There are many advantages of cooperative membership, such as market entry, strengthened farmers’ bargaining power,

Study area

The study was conducted in Provinces of Central (Saraburi and Lop Buri) and Northeastern (Nakhon Ratchasima) Regions of Thailand (Fig. 1). These three Provinces were selected because they represent the top three dairy production areas in Thailand in terms of the population of dairy farmers and dairy cattle. Additionally, these regions host a variety of farm types and operating scales produced within a highly competitive environment among DCs and POs, which was more appropriate for this study. A

Descriptive results

Data on the socio-economic characteristics, marketing and institutional factors of households collected using survey questionnaires are described and discussed in this section. Interviewed households were classified into DCs and POs members. Table 5 shows that 159 (41 %) of the farmers interviewed were DCs members whereas 226 (59 %) were POs members.

The results revealed that socio-economic characteristics of DCs and POs members appeared similar. There were no mean differences between age, the

Conclusions and recommendations

When Thailand’s dairy market has evolved from a niche market to nationwide business, more and more POs started to compete with DCs for a portion of multimillion-dollar businesses. Although DCs production is growing in volume and value, their milk market share has steadily reduced, and the milk marketing channels have shifted from DCs to POs over the past decade. Consequently, for a deeper understanding of dairy farmers’ decision on the milk marketing, this study investigated the factors

Author statement

The authors declare that there is no conflict of interest with respect to the publication of this manuscript.

Acknowledgements

This research was financially supported by the Government of Thailand, Ministry of Agriculture and Cooperatives and the Asian Institute of Technology, Thailand. The authors gratefully acknowledge the cooperation and support of the farmers and the MCCs during the data collection.

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