Efficiency and Financial Capital Constraints in Agricultural Marketing and Processing Co-operatives in Canada

Abstract

This thesis examines the relationship between financial capital and efficiency in Canadian agricultural marketing and processing co-operatives, using a stochastic frontier approach. The effect of financial leverage was examined in terms of different types of debt in order to determine whether the source of debt matters. The findings of the study suggest that the relationship between total debt and efficiency is negative for the fruit and vegetable industry, but statistically insignificant for the dairy industry. When total debt is disaggregated and examined by source, the relationships between debt and production efficiency depends on the source of debt. Member debt and short-term debt were both found to have no statistically significant relationship with production efficiency, whereas co-operatives with more external debt were generally less cost and technically efficient. In addition, larger co-operatives are more technically and cost efficient.