Role of agricultural cooperatives in poverty reduction in Nepal : an empirical analysis

Abstract

Cooperatives refer to producer-owned and controlled organizations that improve farmers' livelihoods by correcting market failure. Policy makers consider cooperatives as an appropriate development approach for poverty alleviation of poor farmers for developing economies; therefore, the government of Nepal has been investing economic resources in this sector, prioritizing it as part of a strategy for poverty reduction. The number of coopertives have been increased substantially since 2007 and almost half of the coopertives are involved in agricultural sector. This dissertation research examines poor farmers' access to agricultural cooperatives and the impact of membership on their crop income in Nepal. This study is based on a household survey of 573 rural farm families and Key Informant Interviews of 37 managers of agricultural cooperatives. In order to make the inferences on access and income gain, probit regression, matching, ordinary least square and two-stage least squares techniqpropriate identification strategies for a cross-sectional data. This study predicts cooperative membership with household characteristics (including demographic and geographic information) and village characteristics. In addition, some of our models use village location dummies rather than village characteristics. The analysis identifies some key determinants that influence cooperative membership. Those determinants are the ethnicity of a family, the ethnicity of a neighborhood, smallholder land size, distance to agricultural cooperatives, distance to the nearest local market, and distance to a motorable road. For the second research question, our estimates imply that cooperative membership may significantly impact family net crop income but not the rotal family income. Indeed, currently, agricultural cooperatives appear to be focused on financial services like savings and credit activities but are less concerned with agricultural production, and engage in almost no marketing activities. In addition to analyses based on our sample, this study weights the sample to adjust our survey to reflect population estimates; however, there were no important changes in the direction or significance of the variables in weighted specifications compared to unweighted sample specifications. Finally, we conclude it will take some years for members to understand the cooperative guidelines thoroughly and the potential of the cooperative approach to improve economic conditions. Also, there should be a serious attempt from the government to develop the agricultural infrastructure and industry, and to execute a cooperative policy to reduce smallholders' poverty. Keywords: collective action, cooperatives, poverty reduction, net farm income