The development and analysis of a cooperative decision model for product pricing and financial structure

John Jay VanSickle

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: The cooperative association has become an integral part of the agricultural marketing system. The individual problems of the short-run production and pricing decision and the long-run financial structure decision have been analyzed, but no connection between the two decisions has been specified. No objective has been defined for the two decisions which is consistent between the two;The objectives of this study are: (1) define the decision nexus of the cooperative association; (2) analyze and empirically estimate by regression analysis an empirical specification of the short-run production and pricing sub-model to a data set obtained from a 1979 survey of Iowa Farmer Cooperatives; and (3) specify and interpret the economic implications of a model developed to analyze the long-run financial structure decision;Defining the decision nexus establishes a link between the short-run production and pricing decision and the long-run financial structure decision. The objective of the cooperative association was assumed to be the same in both decisions. The objective adopted was the maximization of the total collective profits of the member patrons;In the short-run production and pricing decision, the variables of most interest were the prices the cooperative pays or receives for products traded with it's patrons. Data from a survey of sixty-eight Iowa cooperatives was used to estimate pricing equations for anhydrous ammonia, a 40 percent hog ration, corn, and soybeans;A general model of the long-run financial structure decision was defined where the level of membership and the amount of capital employed were variable. The Kuhn-Tucker conditions were derived for the general model and their economic implications were discussed. The results of the model were compared to the results derived from other models which used alternative objectives. It was found that the cooperative should employ less debt in the model developed here when compared to the results of the other models.

Date: 1980-01-01
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