This paper presents a theory of rent-seeking within farmer cooperatives in which inequality of asset ownership affects relative control rights of different groups of members. The two key assumptions are constraints on lumpsum transfers from poorer members and disproportionate control rights wielded by wealthier members. Transfer of rents to the latter are achieved by depressing prices paid for inputs supplied by members and diverting resulting retained earnings. The theory predicts that increased heterogeneity of landholdings in the local area causes increased inefficiency, by inducing a lower input price and lower level of installed crushing capacity. Predictions concerning input price, capacity levels and participation rates of different classes of farmers are confirmed by data from nearly one hundred sugar cooperatives in the Indian state of Maharashtra over the period 1971-93.