Increasing smallholder farmers’ productivity and technical efficiency (TE) may facilitate agricultural development in countries like China where small-scale smallholder production predominates. The primary objective of this study is to analyze cooperatives’ impact on TE. This research theme is worth exploring for four reasons. First, among China’s agricultural producers, 99.2% are small-scale farmers, and their efficiency is, on average, much lower than those in developed countries [
1]. Improving the technical efficiency (TE) of small-scale farmers would significantly improve China’s overall production efficiency. Second, agricultural cooperatives may enable smallholder farmers in China to increase productivity and efficiency more cheaply than through other means, such as hiring more labor or using improved seeds and agrochemicals. Third, this study distinguished cooperatives by functions to compare their TE, and the implications of this paper can also be used by other developing countries and transition countries that use cooperatives to enhance agricultural production. Last, compared with developed countries such as the United States and Germany, the development of cooperatives in China needs to be further improved. Therefore, to explore the impact of cooperatives on agricultural production is conducive to the formulation of sustainable agricultural production policy recommendations. TE is defined as producing a given level of output using the minimum feasible amounts of inputs and using the same technology in production systems as previously applied, avoiding investment in new technologies.
Literature Review
It is notable that cooperatives were established earlier in Western countries than in China. Internationally, research has focused on understanding how to optimize regulations and governance structures associated with the sustainable development of cooperatives [
2,
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4]. For example, Bijman et al. (2012) have identified three types of cooperative governance models in Western countries, based on the distribution of decision-making power between cooperatives’ governing bodies and external managers: traditional, managerial, and corporate, with the board’s power decreasing across these three groups from direct management to minor supervision [
5]. Indeed, numerous studies have investigated the functions of cooperatives at both the micro level (examining impacts in relation to farmer and organizational behaviors) and the macro level (where regional or country perspectives are investigated), e.g., [
6,
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9]. The results indicate that the impacts of co-operative membership are mixed and may be dependent on the local context. For example, in China, the impact of farmers’ cooperative membership may also be influenced by national policy initiatives.
After the implementation of the Law of the People’s Republic of China on Specialized Farmers Cooperatives in 2007 (revised in 2017 and 2018), together with associated supporting governmental policies, many farmers’ cooperatives were established that aimed to take advantage of tax benefits and government subsidies linked to these policies [
10]. Notably, some cooperatives were established by agricultural corporates rather than by farmers to facilitate acquisition of tax advantages [
11]. Deng et al. (2016) argued that the lack of controls on agricultural product quality, the high level of heterogeneity in quality associated with China’s smallholder farmers’ products, the small-scale operation of most farmers, and the lack of effective support from external resources have resulted in problems in reducing transaction costs [
10]. Against this, cooperatives are expected to increase farmers’ price-negotiating power and to widen their marketing and information channels [
12]. Thus, cooperatives that “sell” products on behalf of farmers have the potential to increase TE. The aim of the research presented here was to understand which factors associated with Chinese cooperatives are likely to improve the TE of their members, in particular the “selling” or “marketing” function. The focus of the research is on apple production. China is the largest country in terms of apple consumption, (FAOSTAT (Food and Agriculture Organization of the United Nations statistics data), although the TE associated with their apple production is poor.
Some studies have attempted to differentiate the TE advantages delivered by various types of cooperative. For example, Wu (2013) researched the efficiency associated with six types of farmers’ cooperative in the Guangzhou and Anhui provinces in China according to their managerial pattern [
13]. ‘Enterprise’ type cooperatives that aimed to support product processing and marketing were the most efficient, followed by the ‘supply and marketing’ type, while the ‘ambiguous’ type scored the lowest [
13]. In order to explore the relationship between type of cooperative and the TE of farmers, Liu et al. (2019) used data from beef cattle farmers in China to analyze the impact of different organizational models on beef cattle farmers’ TE and found that membership of cooperatives provided the greatest increase in efficiency [
14]. Data from fruit farmers in Anhui were examined to understand the effect of farmers’ participation in cooperatives on their TE [
15]. The findings suggested that, when sample selection bias arising from observed factors (e.g., age, gender, education, etc.) was not considered, farmers’ participation in cooperatives was associated with a significant improvement in their production TE. However, when sample selection bias was eliminated by applying propensity score matching (PSM), participation in cooperatives showed no substantial impact on TE. Two studies have investigated cooperative membership on apple farmers in China. Ma and Abdulai (2016) used an endogenous switching regression model to account for sample selection bias and examined the effect of cooperative membership on farmers’ income [
16]. The results indicated that cooperative membership improved farmers’ apple yield and income. Another study examined the impact of cooperative membership on apple farmers’ efficiency level using the stochastic production frontier (SPF) model, which was combined with PSM to account for the observable selectivity bias [
12]. The results demonstrated that cooperative members attained higher efficiency than non-members [
12].
Previous research has assessed the mechanisms and functions of agricultural cooperatives, including their impacts on farmers’ TE and income; however, understanding the impact of smallholder farmer’s cooperatives has less frequently been the focus of research. In addition, given that the cooperative mechanism emerged much later in China than in Western countries, a considerable number of Chinese cooperatives were established in order to obtain benefits from related policies (e.g., tax benefits) and did not provide services to facilitate agricultural practice and business [
10]. Therefore, investigations into the actual impacts of cooperatives on smallholder farmers’ efficiency must consider the service delivery functions of cooperatives, including the selling and marketing functions. The importance of assessing this in the context of apple production in China is underscored by the fact that China is the largest apple-producing country in the world by quantity; however, its production efficiency is only one third that of the most efficient country (FAOSTAT).
In the research presented here, The SPF model was applied to estimate the apple production function and the efficiency level of each group. Specifically, this paper will classify the cooperatives according to the services they provide; in particular, whether they provide selling and marketing functions. This will enable comparison between those cooperatives with marketing functions and those which offer similar functions other than these. In addition, PSM will be applied to match farmers who are members of cooperatives with those who are not, according to a household’s characteristics. The results will provide evidence-based recommendations for policy makers to optimize the development of the cooperative model.