Measuring X-Efficiency and Scale Efficiency for a Sample of Agricultural Cooperatives

This paper examines the efficiency of a sample of Great Ptains grain marketing and farm supply cooperatives during 1988 to 1992. In generrd, larger cooperatives were more X-efficient and scrde efficient. Labor tended to be under-utilized and capital over-utilized. Petroleum product sales and fertilizer sales were negatively related to overall efficiency. Sales of goods other than grain, fertilizer, agricultural chemicals, petroleum products, and feed was positively related to overall efficiency. Overall efficiency was significantly correlated with the rate of return to assets, Increased competition and consolidation have in-tensified the interest in the structure of the grain marketing and farm supply cooperative industry. Grain marketing and farm supply cooperatives have consolidated dramatically over the last de-cade. Farmer Cooperative Statistics (Kraenzle et al. 1999) indicate nominal net cooperative business volume increased from $72. I billion in 1989 to $104.7 billion in 1998, but the total number of marketing and farm supply cooperatives declined from 4,353 in 1987 to 3,210 in 1998; a net decline of 26Y0.The long term decline in the number of cooperatives reflects, in part, the decreasing num-ber of farmers in the U.S. Achieving X-efficiency and scale efficiency is critical to the future of individual cooperatives. Leibenstein argues that X-inefficiency arises from the fact that “neither individuals nor firms work as hard, nor do they search for information as effec-tively, as they could (p. 407). ” More specifically, Berger (1993) defines X-efficiency as the ratio of the minimum costs that could have been expended to produce a given output bundle to the actual costs expended. Scale efficiency measures whether a firm is operating at the optimal size. The structure of the cooperative industry has been studied by others. Akridge and Hertel (1992