The impact of producer organisations on farm performance : a case study of large farms in Slovakia

This report contributes to the literature by estimating farm-level impacts of PO membership, as well the efficiency of support granted to POs under the EU Rural Development Programme (RDP). We employ the propensity score matching and difference in differences (PSM-DID) approach, using 939 observations of large commercial farms in Slovakia for 2006 and 2015. This study is particularly relevant as it analyses the performance of POs in a new EU Member State (MS) (i.e. Slovakia). In general, the penetration of POs in new MSs is much lower than in old MSs (e.g. OECD 2013; COPA-COGECA 2015). It has been widely argued that long periods under communist regimes in new MSs in Central and Eastern Europe have negatively affected the level of social capital and attitudes towards cooperative behaviour (e.g. Lovell 2001; Paldam and Svendsen 2001; Fidrmuc and Gërxhani 2008; Fałkowski and Ciaian 2016). This report attempts to shed light on whether POs can generate benefits for farmers in the context of a new MS socio-economic environment. It is often argued in the literature that small farms are in a better position to gain from cooperative behaviour, while there is less scope for large farms to engage in such actions (e.g. Chechin et al. 2013; Ma and Abdulai 2016). For example, Chechin et al. (2013) have shown that farm size is negatively correlated with commitment to collective action. Larger farms are likely to benefit less from cooperation with other farmers because they have a higher bargaining position as well as better ability to access input and output markets. Further, large farms are found to be more inclined to exit POs because of their stronger bargaining position, potentially causing a high failure rate of established POs with a high proportion of large members (Ollila 1985; Ollila et al. 2011). This report tries to shed some light in this discussion by providing empirical evidence of the impact of PO membership on large commercial farms in Slovakia. Finally, the report attempts to provide evidence on the effectiveness of the PO support granted under the RDP. This is an important policy question given that the functioning of EU food chains, and in particular the improvement of farmers' positions in the supply chain, is subject to policy intervention in the current CAP, as well being under intensive discussion for the post-2020 CAP reform (EP 2011, 2016; European Commission 2013, 2017). Although the support provided for POs within the CAP has a 5 relatively long history, there is little empirical evidence on its effects on the EU farming sector (Fałkowski and Ciaian 2016). The report is structured as follows. Section 2 provides a brief review of the literature on the impact of POs on farm performance. Section 3 discusses the role of the government and the conceptual challenges of setting up efficient state support for POs. Section 4 describes PO support in Slovakia. Sections 5 and 6 present the estimation approach and data used in the report, respectively. Section 7 describes the estimated results. Finally, Section 8 draws the main conclusions and policy implications.