Cooperatives Regulatory Contribution

ZambiaTruckPerhaps the real contribution the cooperative system can make is as a regulator of the private sector, if there is a real need to regulate them in an economically suppressed economy which already limits charges private business can charge. By offering an alternative, cooperatives can have a regulator role and do so considerably more cost effectively than government regulating agencies. This can also effectively be done with a limited minority market share.

If one accepts that cooperatives are managed more like public sector organizations such as parastatals than private companies, a good example of the regulating influence of public organizations is the comparison of a private trader competing with ADMARC, the mammoth parastatal that dominated agriculture support in Malawi, and continues to be emphasized for government sponsored development projects long after it was supposedly privatized. This private trader was able to operate just within the buying and selling rates quoted by ADMARC. Buying at 0.01 Kwacha above and selling at 0.01 Kwacha below ADMARC’s rates he could profitable move commodities from the extreme ends of the country to his base outside Blantyre. He was effectively being regulated by ADMARC. The question remains had ADMARC’s cost structure, reflecting their inflated overhead costs, allowed him to increase his profit margins above what they would have been in open competition with other private traders. Another question, how much was ADMARC’s overhead responsible for it being cheaper to import soybean oil from Argentina than collect and process locally produced groundnut oil?

Thus while cooperatives may have a regulator impact on private traders, they also could inadvertently allow private traders to increase their profit margins to coincide with the cooperative’s overhead costs, at the expense of both the farmers and consumers alike.

Last Revised: 29 march 2010

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