Dairy co-operatives: application to the New Zealand organisational structure

Abstract

The issue of organizational efficiency is manifest in the debate regarding the appropriateness of the export and marketing arrangements for dairy products in New Zealand that are characterised by the co-operatively owned and single desk NZ Dairy Board. Based on the assumption that corporate companies may perform relatively better than co-operatives, proposals for deregulation to allow contestable dairy exporting and marketing in New Zealand have been misinterpreted as implying that both the Dairy Board and co-operative dairy companies be reorganized from co-operatively owned firms to investor owned firms. Contrary to this general assumption that corporate companies are superior and therefore they are naturally expected to be the dominant organizational structure in most sectors, vertically integrated processing co-operatives are principal producers of major manufactured dairy products in many countries. It is against this background that this study seeks to examine whether vertical integration through processing co-operatives is a more efficient way to organize dairy processing relative to other organizational forms. In order to understand the dominance of co-operatives, an analyses of the monopsony problem applied to dairy processing from first principles will be made as well as examining the intrinsic features of milk that arguably make vertical integration through co-operatives contribute to efficiency in dairy processing. Qualifications on the relative performances of co-operatives are made with the help of empirical literature on comparative performances of co-operatives and investor owned firms. The study also analyses the main issues that arise in the Board structure. Drawing from theory on co-operative behaviour and empirical literature on co-operative performance. New Zealand can learn (although not as blue prints) from the cases of U.S.A and Australia and allow contestable exporting by a few co-operatives and specialty private firms.