Agricultural cooperatives usually extend farmers' businesses back ward into input supply or forward one or more levels into marketing. Further, what is the impact of this integrative activity by farmers on others in the food and fiber sector? Although there are other motivations for
Figure 8.1 Illustration of an agricultural system.
Cooperative activity, it is accepted that the primary motivation for farmer participation in a cooperative is to improve their well-being (usually in come). Rational persons or well-managed firms would not voluntarily engage in activities that would be expected to leave them less well off. Economic growth is generally associated with increasing specialization and trade among economic units. This usually implies larger firms operating at each level of an economic sector, not the integration of activities from several levels into a single firm. The existence of economies of size up to some size, which is often larger than a typical proprietorship, encourages firms to expand horizontally That is, if major economies of size exist, there is incentive to increase output of a given product or service rather than to expand by extending the firm into marketing or input production. Given this reasoning, one would expect a moderately sized farmer to invest available capital in expanding cotton production rather than in building a cotton gin, whether alone or as part of a group. Thus the choice by a group of relatively small farmers to in capital (as a cooperative) in an operation at another level in the system rather than investing in the expansion of their farms begs for an explanation