ARBA MINCH UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF MANAGEMENT

FACTORS AFFECTING THE PERFORMANCE OF COOPERATIVE

UNION (IN CASE OF GOFA ZONE SAWLA TOWN)

BY

BEHAILU TESFAYE ERSASU

ADVISOR: GETASEW YAREGAL (Asst. Professor)

CO-ADVISOR: DANIEL TEKLE (Asst. Professor)

A Research Proposal Submitted to the Department of Management of Arba

Minch University Sawla Campus Weekend Programs for Partial Fulfillment
of Master of Arts Degree in Business Administration (MBA)

March 2024

Arba Minch
FACTORS AFFECTING THE PERFORMANCE OF
COOPERATIVE UNION (IN THE CASE OF GOFA ZONE SAWLA

TOWN)

BY

BEHAILU TESFAYE ERSASU

ADVISOR: GETASEW YAREGAL (Asst. Professor)

CO-ADVISOR: DANIEL TEKLE (Asst. Professor)

A Research Proposal Submitted to the Department of Management of

Arba Minch University Sawla Campus Weekend Programs for Partial
Fulfillment of Master of Arts Degree in Business Administration (MBA)

March 2024

Arba Minch
DECLARATION

I, Behailu Tesfaye Ersasu, declare that this proposal titled "FACTORS AFFECTING
PERFORMANCE OF COOPERATIVE UNION IN CASE OF GOFA ZONE SAWLA
TOWN" Here submitted to the Department of Management for the partial fulfillment of
the requirements for the Degree of Masters of Business Administration in Management is
my original work and not submitted earlier for a degree either at this college or any other
University and all sources of material the researcher used have been properly
acknowledged.

Name Date Sign

Behailu Tesfaye ______________ _______________

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Advisors Approval Sheet

This is to certify that the research proposal entitled "FACTORS AFFECTING

PERFORMANCE OF COOPERATIVE UNION IN CASE OF GOFA ZONE SAWLA
TOWN" was prepared by MBA student Behailu Tesfaye for his MBA thesis to be
conducted under our supervision. Therefore, we found the proposal satisfied the
minimum MBA thesis proposal requirements and hence recommend the student to submit
his/her proposal to the department for examination.

Getasew Yaregal (Asst. Professor) ___________ ___________

Name of principal Advisor Signature Date

Daniel Tekle (Asst. Professor) ______________ _________________

Name of Co-advisor Signature Date

ii
Examiners Approval Sheet

This is to certify that the MBA Thesis Proposal entitled "FACTORS AFFECTING
PERFORMANCE OF COOPERATIVE UNION IN CASE OF GOFA ZONE SAWLA
TOWN" has been developed. We, the undersigned board of reviewers, made a rigorous
examination of his paper and oral presentation. Therefore, we checked that the student's
work is his original, and we found that the student takes comments and corrections. Thus,
this proposal satisfied the minimum MBA thesis proposal requirements.

---------------------------------- -------------------- ------------------

Chairperson Signature Date

---------------------------------- -------------------- ------------------

Name of Examiner 1 Signature Date

---------------------------------- -------------------- ------------------

Name of Examiner 2 Signature Date

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Abstract

This research proposal seeks to explore the factors that impact the effectiveness of
cooperative unions in Gofa Zone Sawla Town. Cooperative unions are voluntary groups
of individuals who come together to address their common economic, social, and cultural
needs through a collectively owned and democratically controlled enterprise. The main
objective of cooperatives is to improve the economic and social welfare of their members.
However, cooperative performance has encountered numerous challenges in Ethiopia,
particularly in multipurpose agricultural cooperatives (MPACs). Challenges such as low
member engagement, limited management capacity, financial constraints, insufficient
market information, and basic infrastructure inadequacies are among the issues faced by
Ethiopian cooperatives.

The research aims to shed light on the factors that impede the development and continuity
of cooperative unions in Ethiopia, specifically in Sawla Town. A mixed-method approach
incorporating qualitative and quantitative data will be utilized to gather information
through surveys, interviews, and focus group discussions involving cooperative members,
managers, and other stakeholders.

The study will analyze the influence of factors such as management capacity, member
involvement in decision-making, access to finance, market information, and
infrastructure on the performance of cooperative unions in Sawla Town. The results of
this study are anticipated to offer valuable insights for policymakers and practitioners in
the cooperative sector in Ethiopia. The research endeavors to contribute to the existing
body of literature on cooperative performance and sustainability in developing nations.

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DECLARATION............................................................................................................................... i
Advisors Approval Sheet.................................................................................................................. ii
Examiners Approval Sheet .............................................................................................................. iii
Abstract ...................................................................................................................................... iv

Lists of Figures.......................................................................................................................... vii

Lists of Tables ........................................................................................................................... vii

CHAPTER ONE ............................................................................................................................. 1

INTRODUCTION .......................................................................................................................... 1
1.1 Background to the Study ................................................................................................... 1
1.2 Statement of the Problem .............................................................................................. 5

1.3 Basic Research questions ............................................................................................... 7

1.4 Study Objectives ............................................................................................................. 7

1.4.1 General objective .................................................................................................... 7

1.4.2 Specific Objectives of the Study ............................................................................ 7

1.3 Significance of the Study ................................................................................................ 7

1.4 Delimitation..................................................................................................................... 8

1.5 Scope of The study .......................................................................................................... 8

1.6 Organization of the Study .............................................................................................. 9

1.7 Operational Definitions .................................................................................................. 9

CHAPTER TWO.......................................................................................................................... 12
2 LITERATURE REVIEW .................................................................................................... 12
2.1 REVOLUTION OF COOPERATIVES IN ETHIOPIA ........................................... 12

2.1.1 Concepts of cooperatives ...................................................................................... 13

2.1.2 The Concepts of Agricultural Cooperatives ....................................................... 14

2.1.3 The Concept of Cooperative Performance ......................................................... 14

2.1.4 Principles of Cooperatives ................................................................................... 16

2.2 THEORETICAL LITERATURE REVIEW ............................................................. 17

2.2.1 Economic theory of agricultural cooperatives ................................................... 17

2.2.2 Cooperatives as a firm – classical theory............................................................ 18

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 2.2.3 Cooperatives as a coalition .................................................................................. 18

2.2.4 Game theory – ‘prisoner’s dilemma’ .................................................................. 19

2.2.5 New institutional economic theory ...................................................................... 20

2.3 EMPIRICAL LITERATURE REVIEW .................................................................... 22

2.3.1 Dependent variable: performance at cooperative level ..................................... 22

2.3.2 Independent variables .......................................................................................... 23

2.4 CONCEPTUAL FRAMEWORK ............................................................................... 26

CHAPTER THREE ..................................................................................................................... 27

3. RESEARCH METHODOLOGY ........................................................................................ 27
3.1 Description of the study area ....................................................................................... 27

3.2 Research Design and Approach .................................................................................. 28

3.3 Population study ........................................................................................................... 28

3.4 Sample and Sampling Procedure ................................................................................ 29

3.5 Methods (Tools) of Data Collection ............................................................................ 30

3.6 Data Sources and Methods .......................................................................................... 30

3.6.1 Primary Sources ................................................................................................... 31

3.6.1.1 Questionnaires .................................................................................................... 31

3.6.2 Secondary Sources ................................................................................................ 31

3.7 Methods of data Analysis ............................................................................................. 31

3.8 Model Specification/Estimation .................................................................................. 32

4 VALIDITY AND RELIABILITY ....................................................................................... 33

4.1 Validity .......................................................................................................................... 33

4.2 Reliability ...................................................................................................................... 33

5 ETHICAL CONSIDERATIONS ........................................................................................ 33

6 WORK PLAN ....................................................................................................................... 34
7 FINANCIAL REQUIREMENTS........................................................................................ 34
References ..................................................................................................................................... 35

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Lists of Figures

Figure 1; Conceptual Framework of the Study (Source Own Model, 2024).................................. 26

Figure 2; Map of Gofa Zone Administration ................................................................................. 27

Lists of Tables

Table 1 Gofa Zone Cooperatives Data........................................................................................... 28

Table 2 Members of Essipe Dicha Cooperatives Union at District Level ...................................... 29

Table 3; Work Plan ........................................................................................................................ 34

Table 4; Budget Breakdowns ......................................................................................................... 34

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ACRONYMS AND ABBREVIATIONS

ATA - Agricultural Transformation Agency

EPS - Earnings per share

FDRE - Federal Democratic Republic of Ethiopia

FCA - Federal Cooperative Agency

GZPDD - Gofa Zone Plan and Development Department

ICA - International Cooperatives Alliance (ICA)

ILO - International Labor Organization

KRIs - Key result indicators

MLRM - Multiple Linear Regression Model

MOA - Ministry of Agriculture

MoFED - Ministry of Finance and Economic Development

MPACs - Performances of multipurpose agricultural cooperatives

PIs - Performance indicators

RI - Result indicators

ROI - Return on investment

ROA - Return on assets

SPSS - Statistical Package for Social Science

viii
 CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Cooperative unions, often referred to simply as cooperatives, are autonomous

associations of people united voluntarily to meet their common economic, social, and
cultural needs and aspirations through a jointly owned and democratically controlled
enterprise. The primary goal of cooperatives is to enhance the economic and social well-
being of their members.

People have been helping each other and working together through their traditional form
of cooperative organizations in Ethiopia. They have been organizing themselves in Iqub
and Idir so as to help each other (Bezabh.E 2009). However; modern form of
cooperatives started during the reign of Emperor Haile Selassie I to achieve common
goals of the society (Reerakumaran, G. 2007).

The cooperatives are organized based on members’ interest, free market participation and
free of government intervention in the governance of the cooperatives (Bernard, T.,
Gashaw, Tesfaye, & Solomon, Lema. 2013). Through cooperatives, individual
households and communities can create opportunities for themselves, find a productive
work that not only facilitate their wellbeing and stability but also give them the power to
improve their lives and remain active in civil rights and political aspects (Destahun Haile,
2007). Performances of multipurpose agricultural cooperatives (MPACs) are not
satisfactory and low level of member’s involvement is being informed in many
cooperatives in Ethiopia (Rao. P. M. S and Tesfay Gebrehiwet, 2014). Limited
Managerial capacity, low member’s participation in decision making and controlling their
organizations activities, shortage of finance, inadequate market information and basic
infrastructure are the challenges facing Ethiopian cooperatives (Getnet, Kindie. & Anullo,
Tesfaye, 2012).

The evolution of cooperative theory can be traced back to 1764 with the formation of the
Fenwick Weavers' Society from Scotland (ICA, 2018). According to the International
Cooperatives Alliance (ICA) and several scholars, the key terms to define cooperatives
are voluntarily united and democratically controlled businesses to achieve common

1
social, economic, and cultural needs (Altman, 2010; Riva & Garavaglia, 2016; Zeuli &
Cropp, 2004). Thus, the simplest interpretation to understand a cooperative is to see it as
a jointly member-owned and governed business that serves the aspirations of its members
as well as their social and economic benefits.

Cooperative sustainability issues are a global reality. According to Ryeder(2013),

cooperatives should turn the tide and act as agents of change in the world economic
development arena. According to Chloupková (2002), challenges that face the
cooperative's development are based on: the political and economic system, economic
situation of the globe, state, government, legislation, socioeconomic policies,
technological advancement, skills and knowledge, way of life, demographic dynamics,
cultural values, people's movements, and trade unions. To this end, policy issues were
identified as obstacles to cooperative sustainability, especially where members prioritize
policy compliance for their organization (Kyazze, Nkote, & Wakaisuka-Isingoma, 2017).

In Africa, cooperative performance has faced many problems. In the study conducted by
Nkhoma (2011), on factors affecting the sustainability of agricultural cooperatives in
Malawi, managerial capacities, incentives for starting cooperatives, and poor governance
were observed. According to Ortmann & King (2007), the major difficulties that lead
cooperatives to perform poorly in South Africa have something to do with insufficient
management experience and knowledge, inadequate capital resources, and unfaithfulness
of members because of their ignorance. However, dishonest and illegal behavior; huge
mismanagement and robbery by the people who were supposed to be the custodians of
cooperatives' resources; lack of cooperation among cooperatives; lack of transparency;
not abiding by democratic principles; favoritism in recruiting and firing employees;
interests conflicts in cooperative leaders and managers; disputes; investments without
seeking cooperative member's consent; embezzlement of funds. These issues have
destructive repercussions instead of constructing cooperatives as profitable organizations
(Gicheru, 2015).

In developing countries, sometimes cooperatives do not have their long-term plans but
enjoy depending on government assistance, which in turn has its consequences on
cooperatives' sustainability (Khumalo, 2014). The interference of the government does
not allow cooperatives to turn into profitable businesses and make cooperative members
inactive (Shaw, 2006). In this regard, major obstacles to the progress of cooperatives are

2
the ineffective participation of cooperative members; inappropriate control of government
on cooperatives; the dependence syndrome; and insufficient capital to run cooperative
activities (Wanyama, 2013).

Ethiopians have a long history of working together by practicing cooperative-like

institutions which we call cultural cooperatives. Traditional cooperatives associations
existed in the form of iqub and idir. There were also initiatives for labor resource
mobilization that were to overcome seasonal labor peaks, known as "Jigie", "Wonfel",
senbete, and many others. Cooperative is a special group of people with mutual interest to
solve their individual problems through common efforts and ultimately attaining
economic and social empowerment to the group members and the community. The prime
objective of cooperatives is to solve problems that individuals failed to address
independently. Accordingly, cooperatives are involving in inputs/outputs marketing
activities, credit provision and providing other services to the members (Zerihun, 1998).

The history of formal or Modern types of cooperative development in Ethiopia started in

the Era of Emperor Haile Selassie I between 1950 and 1974. The predominant societies
were producers and service co-operatives. Since this time cooperative policy and law has
undertaken many reforms and cooperatives have come to play a crucial role in economic
and social development.

To facilitate the establishment of modern cooperatives, Cooperative Decree 44/1961 and

Proclamation 241/1966 were issued. It is with the promulgation of this Decree that
cooperative having come to acquire their formal legal status. However, even though
cooperatives acquired their formal legal status since the promulgation of this decree, it
was not until 1978 with the adoption of the Cooperative Proclamation No 138 0f 1978
that their status is realized in line with their objectives.

Aided by the Cooperative Societies Proclamation No. 147/1998, cooperatives started to

see changes for better opportunities as their roles in economic development were
objectively understood. By Cooperative Proclamation No. 147/1998, the legality of
cooperatives had been acknowledged by Federal Democratic Republic of Ethiopia's
(FDRE) Constitution which is the supreme law of the land. Currently the law governing
Cooperative in Ethiopia is new Cooperative Proclamation No.985/2016 that came to
existence in Dec. 2016 after repealing the previous Cooperative Proclamation No
147/1991.

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Cooperatives in Ethiopia are playing an active role in the fields of finance, input and
output marketing, consumer goods, agro-processing, mechanization, and many other
social and economic activities. Despite the difficulties experienced, the cooperative
movement in Ethiopia has registered numerical growth over the past decade both in terms
of membership and capital. However, membership is still much smaller when compared
with the enormous potential.

According to Federal Cooperative Agency (FCA) official report (2021), there are more
than 92,755 cooperatives in Ethiopia with 21,043,370 members. The cooperatives created
employment opportunity for 1,987,379 people in Ethiopia. Also, the agricultural sector
plays a vital role in the life and livelihood of most Ethiopians, where 12 million
smallholder farming households account for an estimated 95 per cent of agricultural
production and 85 per cent of all employment. And in the study area, Gofa Zone, which is
one of the twelves’ Zonal Administration, found in South Ethiopia Region, there are 4585
primary level cooperatives, and they have 57,761 members and 3 Secondary level
cooperatives founded with 115 primary level cooperatives. (Gofa Zone Plan and
development department annual abstract 2022). The total amount of capital for the
Primary level cooperatives is birr 67,613,080 and the secondary level cooperatives have
birr 28,765,328 capital.

Even though, there are hopeful indicators of success in cooperative movement, growth
and in their performance in Ethiopia as well in south Ethiopia region and in the study
area, the sector has faced many challenges that hinder its optimum utilization.
Cooperatives in Ethiopia have limited capacity to provide output-marketing services,
have limited capacity and capability to improve the effectiveness and efficiency of their
input procurement and distribution services. The output marketing infrastructure within
which cooperatives operate is underdeveloped and cooperatives have limited access to
financing investment in improving output marketing (MOA, ATA and FCA, (2012),
Adisu (2011), Belete (2008) and Admasu (1998).

Gofa Zone Administration, one of the 12 zones in the southern region of Ethiopia and
its total area is 4551 square kilometers, is no exception, as it relies on cooperative unions
to stimulate local agricultural and economic growth. However, despite their significance,
these cooperative unions face numerous challenges that hinder their performance and
potential contributions. The cooperative movement has been alleged to be an inefficient

4
organization (Abd Rahman & Zakaria, 2018; Xaba, Marwa, & Mathur-Helm, 2019). This
allegation commonly revolves around issues such as weak governance structure, lack of
innovation and entrepreneurship approach, substantial investment and subsidized from
government, inappropriate political activities leading to financial irregularities, as well as
inability to survive in a complex and competitive market (Abd Rahman & Zakaria, 2018;
Altman, 2010; Bancel, Kurimoto, & Draperi, 2015; Dale et al., 2013; Errasti, Bretos, &
Nunez, 2017; Martins & Lucato, 2018; Mubirigi, Shukla, & Mbeche, 2016; Soboh et al.,
2012; Xaba et al., 2019). Therefore, the study aims to investigate the factors affecting the
performance of cooperative unions within the Gofa Zone Administration and propose
strategies for improvement.

1.2 Statement of the Problem

Many scholars have indicated that cooperatives could play a crucial role in various socio-
economic development areas if they operate by the universally accepted cooperative
organizing principles and core values. The reason for the success and failures of
cooperatives corresponds to an exceeding build-up and breaking down of cooperative
identities through the method by those members and staffs grow to carry the identity as
their vision (Hailu, 2007).

According to Teklehaimanot (2013), cooperatives are considered an appropriate tool for

rural and urban development; they are facing critical problems that prevent them from
their positive role. Several of the constraints that affect the cooperatives are low
institutional capacity, inadequate qualified personnel, low entrepreneurship skills, lack of
monetary resources, lack of market information, poor members' participation within in the
different activities like financing the cooperative, patronizing the business activities of the
cooperatives, control and support it. These many-sided issues make the overall activities
of the cooperatives in overall and farmers' cooperative activities very tough.

According to as cited in Nuradin (2015), Etefa (2019), problems deterring the success of
cooperatives within economic development were: backward perspectives, lack of
committed leadership, lack of good governance, lack of capital, and practice of
corruption, lack of data and skill, lack of provision and, weak vertical and horizontal
linkage at intervals and among cooperatives and inappropriate support from government
and different stakeholders.

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Although cooperatives are considered an appropriate tool for rural development, they are
facing critical problems, which prevent them from their positive role. Some of the
constraints of cooperatives are: low institutional capacity, inadequate qualified personnel,
low entrepreneurship skills, shortage of capital to run its operational services because of
the shortage of surplus creation in its operation, and collateral requirement at financial
institutions beyond the capacity of the cooperatives, lack of market information, poor
members' participation in the different activities such as financing the cooperative,
patronizing the business activities of the cooperatives, control and supports it. In addition
to this, even though farmers' cooperatives do provide output marketing services, the
volume is often small, and marketing return often does not sufficiently raise the farmers'
income. Many cooperative members sell outputs at lower prices owing to a lack of market
information, storage, and processing (Bernard et al, 2010).

Additionally, as Meniga( 2019) stated several challenges lack of capital, purposeful

weakness, absence of good governance, lack of cooperation between cooperatives, lack of
coaching, lack of managerial ability, and lack of integrity among the management that
delay cooperatives from maintaining a certain level of accountability. It is vital to develop
the structure, systems, and correct method that can permit cooperatives to make their
strength and convey lasting advantages to their members. Moreover, Deresa, (2017), this
author mentions that several of the challenges they faced were competition from the
private sector and a shortage of the commodity on the supplier side.

According to the study conducted by Alemayehu Bakalo (2022), the study identified the
many factors that affecting the success of multipurpose cooperatives in poverty reduction.
The result of multiple regression analysis clearly shows that even all of three independent
variables i.e. Social Factors (lack of member’s active participation, lack of infrastructures
and unemployment) Economic Factors (availability of fund to finance operations lack of
credit, lack of access to market) and Within Cooperatives Factors (members are not
understanding the function of cooperatives, lack of understanding cooperatives principle,
lack of trust among member and lack of training.

About Gofa Zone Farmers' Cooperative Union, there is no empirical study has been
undertaken that assesses so far, the performance achieved, benefits derived, and the
challenges faced. This study therefore sought to investigate into the factors that influence
the performance of cooperative societies in Gofa Zone Farmers' Cooperative Union and

6
generate viable solutions or recommendations for addressing the problems hindering the
success of existing cooperatives.

1.3 Basic Research questions

This study attempts to address the following pertinent questions:

1. How does the financial, social, and governance performance of Essipe Dicha
cooperative unions in Gofa Zone Administration compare to industry standards?
2. What are the internal factors that significantly impact the performance of cooperative
unions in the study area?
3. What are the key external factors influencing the performance of cooperative unions
in the study area?

1.4 Study Objectives

1.4.1 General objective

The study will investigate and determine factors affecting the performance of the
Farmers' cooperatives union in Gofa Zone.

1.4.2 Specific Objectives of the Study

The specific objectives of the study are:

1. To assess the current financial, social and governance performance of Essipe

Dicha cooperative unions in Gofa Zone Administration.
2. To identify the key internal factors affecting the performance of cooperative
unions in the study area.
3. To identify the key external factors affecting the performance of cooperative
unions in the study area.

1.3 Significance of the Study

The study will investigate factors that affect the performance of farmers' cooperatives
unions in Gofa Zone. The findings of the study will benefit different stakeholders and
unions regarding factors that are currently affecting the performance of farmers'
cooperative societies. The performance of cooperative unions in Gofa Zone
Administration is critical for the region's economic development. These unions are
essential in promoting agricultural productivity, rural livelihoods, and poverty alleviation.
Despite their potential, cooperative unions often grapple with challenges like governance

7
issues, resource constraints, and external market dynamics. To the best of the researcher's
knowledge, no similar study has been done in Gofa Zone. The study contribution will be
a comprehensive assessment with empirical evidence for farmers' cooperatives unions in
the study area. Understanding these factors is imperative to develop effective policies and
strategies for their enhancement.

1.4 Delimitation

As the study will be focusing on Gofa Zone, there is a limitation in that the findings may
not apply in other provinces or may not have comparable results when evaluating the
performance of agricultural cooperatives in other provinces. Regarding stakeholder
perceptions, the study interviews are with agricultural cooperative managers and not with
all members, which may lead to collecting biased information or responses.

1.5 Scope of The study

The research on "Factors Affecting the Performance of Cooperative Union in Case of

Gofa Zonal Administration" will involve specific conceptual, methodological, and
geographical scopes:

Conceptually the study will focuses on understanding the factors that impact the
performance of cooperative unions in the context of Gofa Zonal Administration. It will
involve exploring theories and models related to cooperative governance, management,
economics, and other relevant fields to frame and analyze the factors influencing
cooperative union performance.

Methodologically the study will outline the research design, data collection methods, and
analysis techniques that will be used to investigate the factors affecting the performance
of cooperative unions. It will also involve conducting qualitative and quantitative
research, using surveys, interviews, and focus group discussion methods to gather data
and draw meaningful conclusions.

Geographically the study will be limited to the Gofa Zonal Administration region,
focusing specifically on cooperative unions operating within this area. It will also involve
studying a specific set of cooperative unions, their operations, governance structures,
membership, financial performance, or other relevant aspects within the geographical
boundaries of the Gofa Zonal Administration.

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Overall, the research on "Factors Affecting the Performance of Cooperative Union in
Case of Gofa Zonal Administration" will delve into the conceptual understanding,
methodological approach, and geographical focus of studying the performance
determinants of cooperative unions in the specified region.

1.6 Organization of the Study

The study will be divided into five chapters.

Chapter 1 is the introduction of the study and presents the background of the agricultural
cooperatives, research problem statement and the objectives of the study, including the
study limitations.

Chapter 2 provides the theoretical framework and literature review of studies that
empirically investigated overall factors affecting performance of cooperative unions, and
empirical findings will be discussed.

Chapter 3 focuses on the design of the study refers to the plan and framework that the
researcher develops to answer the research questions or objectives of the study. It outlines
the overall approach and methodologies that will be employed to collect, analyze, and
interpret data in order to address the specific research problem.

Chapter 4 Typically will cover the presentation and analysis of the research findings. It
will also include details on how the research data was gathered, analyzed, and interpreted.
And techniques of data presentation which will be include figures, tables, and other visual
aids to help present the results of the study. Additionally, the chapter will discuss the
implications of the findings and their significance in relation to the research questions or
objectives.

Chapter 5 is the Final Chapter which will comprises of the summary of findings,
recommendations and conclusions of the research findings. It also gives a brief
description of the findings, conclusions and recommendation for further study.

1.7 Operational Definitions

The definition of terms and concepts is cornered with giving contextual meaning for the
terms/variables under investigation some and other close terms.

1. "Cooperative society" means an autonomous association having legal personality

and democratically controlled by persons united voluntarily to meet their common

9
 economic, social, and cultural needs and other aspirations, which could not
address individually, through an enterprise jointly owned and operated on the
basis cooperative principles;
2. "Primary cooperative society" means a cooperative society established by
individuals having similar interests and objectives with a minimum number of 50
members, provide service or engage in both activities;
3. "Cooperative societies union" means a secondary-level cooperative society
established by two or more primary cooperative societies having similar
objectives to produce, provide service, or engage in both activities that are beyond
the capacity of primary cooperative societies;
4. "Cooperative societies federation" means a tertiary level cooperative society
established by two or more cooperative societies unions having similar objectives
to produce, provide service, or engage in both activities that are beyond the
capacity of cooperative society unions;
5. "Multi-purpose cooperative society" means a society established to engage in
production and service delivery activities for its members;
6. "Saving and credit cooperative society" means a society established to provide
saving, credit, and loan-life-insurance services to its members;
7. "Cooperative's societies working area" means an area stated in the cooperative
society's by-laws and registered by appropriate authorities;
8. "Member" means any individual or a primary cooperative society or a cooperative
societies union or cooperative societies federation who applied and admitted for
membership upon fulfilling the minimum membership requirements that are
determined in the by-laws by considering the nature of the cooperative society;
9. "General Assembly" means a meeting of individual members or their
representatives at primary cooperative society or representatives of primary
cooperative societies, cooperative societies unions, or cooperative societies
federations when it is above primary cooperative society;
10. "Representative" means as prescribed in the by-law of the cooperative society
with regards to representation, an individual in primary cooperative societies,
represented by members to vote in general assembly, or in cooperative unions and
federations elected by the General Assembly of the cooperative society to
represent and vote for in any General Assembly of the cooperative society;

10
11. "Management committee" means a body elected and empowered by the general
assembly with the responsibility to manage the activities of a cooperative society;
12. "Manager" means an officer accountable to the management committee and
operates the day-to-day activities of the cooperative society within the limit of the
powers and responsibilities entrusted to it;
13. "Worker" means an individual who has an employment relationship with the
employer cooperative society to perform day-to-day activities following the
agreement reached in the contract of employment;
14. "Capital" means the amount of asset accumulated after deducting the liability of a
cooperative society, and it includes a share of the members, reserve fund,
donation, inheritance, and funds prescribed by by-laws and investments;
15. "Appropriate authority" means the Federal Cooperative Agency, or an organ
established at regional levels to execute the cooperative societies proclamation,
lead and regulate the cooperative sector;
16. "Region" means any state referred to in Article 47 (1) of the Constitution of the
Federal Democratic Republic of Ethiopia and includes the Addis Ababa City
Administration and Dire Dawa Administration; in this research work, it refers to
the newly established South Ethiopian Reginal State.
17. Organizational structure: A framework that shows the organs required at various
levels of the coop union and the link/relationship between them to realize the
stated goal/mission;
18. Organizational culture: established signs, beliefs, and norms that direct or shape
the behaviors of the people (members, staff, and other stakeholders);
19. Managerial competence: Refers to the situation where managers are equipped with
the necessary managerial skills and motives required for a managerial job such as
communication skills, problem-solving skills, people or teamwork skills,
creativity, and the like considering the context of cooperatives;

11
 CHAPTER TWO

2 LITERATURE REVIEW
2.1 REVOLUTION OF COOPERATIVES IN ETHIOPIA

The people of Ethiopia have a long social history of working together to full-fill their
socioeconomic needs. Many social events still takes place in rural Ethiopia through
collective community efforts and these strong social bonds can be capitalized on when
forming cooperatives. Agricultural cooperatives will help farmers to increase their crop
yields and incomes by pooling their resources in order to support collective service
provision, leading to economic empowerment (MoA and ATA, 2012).

Cooperative history in Ethiopia includes many decades of state-run enterprise,

involuntary membership regulations and centralized fixed prices. The cooperative sector
has changed substantially in the past decade and entered into a period of democratic
governance and free market reform (Aaronson, 2012). Cooperative unions, which were
initially formed in the late 1990s, serve as umbrella organizations for primary-level
cooperatives. There are 160 unions and 40,000 cooperatives, out of which about 10,000
are primary-multipurpose agricultural cooperatives. These cooperatives play an important
role in organizing smallholder farmers, providing inputs and output marketing services.
Ethiopia Growth and Transformation Program envision an increase in the number of
cooperatives in Ethiopia to over 56,000 by 2015 (MoFED, 2010).

There are four tiers of cooperatives, namely primary cooperative, cooperative unions,
cooperative federation and cooperative confederation. In Ethiopia, the apex in many
regional states is the cooperative union. There are also Regional Cooperatives Federations
which focus on major economic and social services that individual unions cannot
effectively accomplish. At bottom level primary cooperatives help farmers to solve a
collective action problem, specifically how to procure inputs most efficiently and market
their outputs on more favorable terms than they could achieve by themselves. According
to Ethiopians’ growth and transformation plan foresees a central role for agricultural
cooperatives to increase the household income of smallholder farmers and highlighted the
development of cooperative as a key path way by which the agricultural sector and the
economy as a whole will be developed (Bezabih, 2011).

12
 2.1.1 Concepts of cooperatives

The International Cooperatives Alliance (ICA, 1995) defines a cooperative, as "an

autonomous association of persons, united voluntarily to meet their common economic
and social needs through jointly owned and democratically controlled
organization/enterprise". In its definition, the International Labor Organization (ILO) also
points out that members accept a fair share of the risks and benefits of their cooperative
undertakings (ICA, 1995).

Cooperatives may be expressed as independent organizations of people brought together

voluntarily, to satisfy their needs; keeping in mind to run and control them democratically
and profitably (Wanyama, 2014). The above explanation clarifies that cooperatives are
not dependent of anyone person or organizations including governments but rather they
are owned and controlled by people who decided to join them. People decide to band
together willingly, and they are allowed to join or leave. They should satisfy their needs
and aspirations according to the wishes of the members; organizations formed without
having to primarily satisfy their own needs are not cooperatives (Birchall, 2003).

The evolution of the cooperative's theory can be traced back to 1764 with the formation
of Fenwick Weavers' Society from Scotland (ICA, 2018). According to International
Cooperatives Alliance (ICA) and several scholars, the key-terms to define cooperatives
are voluntarily united and democratically controlled business to achieve common social,
economic, and cultural needs (Altman, 2010; Riva & Garavaglia, 2016; Zeuli & Cropp,
2004). Thus, the simplest interpretation to understand a cooperative is to see it as a jointly
member-owned and governed business that serves the aspirations of its members as well
as their social and economic.

However, the cooperative movement has been alleged to be inefficient organizations

(Abd Rahman & Zakaria, 2018; Xaba, Marwa, & Mathur-Helm, 2019). This allegation
commonly revolves around issues such as weak governance structure, lack of innovation
and entrepreneurship approach, substantial investment and subsidized from government,
inappropriate political activities leading to financial irregularities, as well as inability to
survive in a complex and competitive market (Abd Rahman & Zakaria, 2018; Altman,
2010; Bancel, Kurimoto, & Draperi, 2015; Dale et al., 2013; Errasti, Bretos, & Nunez,
2017; Martins & Lucato, 2018; Mubirigi, Shukla, & Mbeche, 2016; Soboh et al., 2012;
Xaba et al., 2019).

13
 2.1.2 The Concepts of Agricultural Cooperatives

Agricultural cooperatives are farmers' organizations that are established based on their
interest in solving their common problems and are managed by elected committee
members. Even though cooperatives are autonomous and independent organizations, they
have to be guided by internationally accepted principles and since they are established
under those principles, agricultural cooperatives are expected to be effective in serving
their members in terms of input supply, output marketing, fair distribution of benefits,
credit supply, providing current market information and facilitating innovation diffusion
(Federal Cooperative Agency, 2007).

Moreover, agricultural cooperatives are member-based organizations, i.e. they are owned
and controlled by their members. Ideally, member ownership is defined both in economic
terms (members are shareholders) and in psychological terms (members feel ownership of
the organization). Member control is defined by members holding the decision rights on
both the activities and investments of the agricultural cooperatives, both ownership and
controls are collective in nature.

According to the Federal Cooperative Agency (2020), agricultural cooperatives are

recognized as an important instrument for the socioeconomic improvement of the
community. This importance is recognized in their definition, which considers
cooperatives to be: An association of persons who have voluntarily joined together to a
common end through the formation of a democratically controlled organization, making
equitable contributions to the capital required and accepting a fair share of the risks and
benefits of the undertaking, in which the members actively participate.

2.1.3 The Concept of Cooperative Performance

Performance, which is defined as the 'progress toward achieving pre-determined

objectives' (Bourne et al., 2003: 6), is not an easy concept to grasp, especially in
cooperatives as the relationship between the 'firm' and its objectives is not accurately
defined (Soboh et al., 2009). Since cooperatives are in essence hybrid institutions
characterized by member ownership, member control, and member benefits (Ménard,
2004), the benefits members get depend on the performance at both collective and
member level. As such, members will benefit from the way cooperative's function
(Nilsson, 2001) and the cooperative itself benefits from the member's patronage to the
cooperative (Wollni and Fischer, 2015). These cooperative features complicate the

14
definition and measurement of economic performance of cooperatives. Moreover, as
cooperatives are complex organizations that may serve a variety of purposes and perform
a wide variety of functions, there may be no single objective that is accepted by all
members (Royer, 2014).

According to (Chamaru, 2012), profitability and management efficiency indicators are

mostly used among those net profit, return on assets (ROA), return on investment (ROI),
and earning per share (EPS) are some common examples of the profitability indicators.
Effective use of capital, management stability and efficiency of operations are the other
most popular measurements. Moreover, as (Divandari et al., 2010) identified four types of
performance measures: Key result indicators (KRIs) tell you how you have done in a
perspective or critical success factor; Result indicators (RIs) tell you what you have done;
Performance indicators (PIs) tell you what to do to increase performance dramatically.
However, the problem is whether those are suitable to measure cooperative performance.
Because cooperatives are different up to some extent from this profit printed
organizations. That means, cooperatives almost differ from other business organizations.
They are doing business, but their objectives have some unique differences from other
organizations. They must provide goods and services to its members and thus enable them
to attain improved income and savings, investments, productivity, and purchasing power
and promote among them equitable distribution of net surplus through maximum
utilization of economics of scale, cost-sharing and risk-sharing without, however,
conducting the affairs of the cooperative for eleemosynary or charitable purposes.
Because of that background, they do not have a profit maximization objective (Chamaru,
2012). In addition, He suggested two main indicators to measure cooperative
performances. That is cooperative business performance and cooperative principal
performance. In other words, anyway, they are doing business (without profit
maximization objective), therefore their business performance should be measured to get
an idea about the performance. Moreover, Anderson & Vincze (2000) mentioned that
performance expectations are based on a company's strategic goals, the standards that met
or exceeded by leading marketers. A firm establishes performance criteria consistent with
its mission and objectives. Furthermore, Davis (1997) Cooperative value performance can
be measured through the actions and programs implemented by considering cooperative
values practice in day-to-day operations.

15
Reports regarding the financial difficulties experienced by agricultural cooperatives in
Africa have been much more common recently than news of their successes. Several
financial ratios for cooperatives (revenue growth, return on assets and operating margins)
were calculated which indicated weak performance in the cooperative sector. This creates
doubt about the viability of the cooperative form of business in agriculture, causing
members to question their cooperative's performance and/or become reluctant to proceed
in organizing a future venture under the cooperative structure (Gray and Kraenzle, 2002).

The ability of cooperatives to search for lucrative markets for their members can improve
rural farmers' returns in their productive activities. Participating in networks, cooperatives
can also provide farmers with information that can improve their skills and knowledge,
which may not be accessible to all farmers not participating in the network (Totlund,
2004).

2.1.4 Principles of Cooperatives

Cooperatives across the globe work in accordance with similar main rules, regulations
and values, Principles of cooperatives are anchored on to the first modern cooperative
created in Rochdale, England in 1844. However, a cooperative is sustainable when it fully
implements all 7 cooperative principles, maintains ecosystem and is a viable business
(ICA, 2013).

 Voluntary and Open Membership: - The principle number one means that any
one ready to comply with responsibilities and obligations of membership is
welcome to join the cooperative without any form of discrimination (Birchall, 2003,
ICA, 2013, Wanyama et al., 2014).

 Democratic Member Control: - The number two principle that is democratic

member control implies that members of cooperatives are the ones to democratically
run and control their cooperatives. Cooperative members should take part in policy
setting and decision-making processes. Therefore, elected cooperative leaders
should always be accountable to the cooperative members (ICA, 2013, Wanyama et
al., 2014).

 Member Economic Participation: - Principle number three which is member

economic participation means that cooperative members give the same contribution,

16
 and they are the ones to benefit the fruits borne by their respective cooperatives
(Khumalo, 2014, Wanyama et al., 2014 ).

 Autonomy and Independence: - Principle number four means that if cooperatives

have to go into any form of agreement with other organizations including
governments, they have to seek the approval of their members to make sure that
they still keep their independence and autonomy (ICA, 2013, Wanyama et al.,
2014).

 Education, Training, and Information: - The principle number five means that
cooperatives should keep their members and staff educated, informed and trained
with the aim of making their organization and society at large a success (Wanyama,
et al., 2014).

 Cooperation among Cooperatives: - Principle number six which is cooperation

among cooperatives implies that cooperatives have the responsibility to help each
other and provide quality services. In this regard, they should band together in all
possible tiers and frameworks likely to promote the culture of supporting one
another (Khumalo, 2014).

 Concern for Community: - Principle number seven which is the concern for
community, means that cooperatives should strive for the environmental and socio-
economic well-being of their communities (Wanyama, et al., 2014).

2.2 THEORETICAL LITERATURE REVIEW

2.2.1 Economic theory of agricultural cooperatives

The theoretical literature review looks at the development of school of thoughts or models
of how the cooperatives behave. The theory has evolved from Helmberger and Hoos’s
model of optimization with a single objective by a single agent (Helmberger & Hoos,
1962), to Phillips, who advanced that cooperative members are a group of agents with
identical goals: he argued that a cooperative was an association and not a firm
independent from its owner’s patrons (Phillips, 1953). From contractual point of view of
cooperatives’ constitutions, a fundamental of Zusman’s model was that cooperative’
decision making is found in non-strategic majority rule voting of members (Zusman,
1992).

17
The evolution and the behavior of cooperatives have adopted various forms of
Institutionalization and are not homogenous across different countries. The difference in
the schools of thoughts is underpinned and informed by how a cooperative or a firm is
expected to behave under normal conditions.

2.2.2 Cooperatives as a firm – classical theory

The classical theory of the firm predicts that the behavior of a firm is to maximize profit
subject to available inputs (input constraints), maximizing benefits to members. The
argument is that cooperatives behave in the same way as firms. Helmberger and Hoos
spurred the debate further, holding that there are certain characteristics of a cooperative,
which do not hold the same as those of a firm, citing that the cooperative is usually held
as a non-profit making organisation (Helmberger & Hoos, 1962).

Scholars such as Helmberger and Hoos (1962) and Demsetz (1998) further elaborated that
over and above the profit maximization goal, cooperatives face allocative problems, and
members are treated as entrepreneurs of a firm that specifies optimum rules of behavior
with profit maximization as the norm, this links cost minimization with output
maximization as a fundamental principle (Helmberger & Hoos, 1962; Demsetz, 1988).

In the context of Helmberger and Hoos’s theory of cooperative as a firm, they

acknowledge the difference between investors seeking profits and member patrons of a
cooperative. What holds the theory together towards that of a firm is that in a cooperative,
members select a ‘board’ from within the members, so in both the firm and a
cooperative, allocation of economic resources comes under a ‘single’ authority
(Helmberger & Hoos, 1962). Helmberger and Hoos also state that (i) cooperatives are
management controlled, (ii) goals of the cooperative enterprise are motivated by survival
& cooperative growth, (iii) expertise is required in decision making and cooperatives can
be exposed to bankruptcy as a result of bad decision making, (iv) the cooperative internal
organization performance links dimensions of technical efficiency, level of returns to
members and adaptation to new technologies (Helmberger & Hoos, 1962).

2.2.3 Cooperatives as a coalition

Although not widely explored, the fundamentals of the cooperative as a coalition have
also been advanced as a theory, extending it from the international principles of
cooperation. A mission of working together also drives the existence of the cooperatives,

18
collectively taking decisions and collectively managing the business (Nash, 1951). The
coalition theory is also regarded as the collective action theory. This theory explains the
agricultural cooperatives as “a firm jointly controlled by multiple objective-optimising
member patrons who derive user benefits primarily through transacting with the entity”
(Cook & Burress, 2009:8). The fundamentals are founded on having a common vision
and risk residual being equal amongst all members (Branzei, Dimitrov & Tijs, 2008).

Not much literature or studies have pursued the coalition theory; a deep dive into the
coalition model presents another school of thought, where studies view cooperatives as a
coalition from game theoretic and institutional economics theory. These approaches are
further covered under game theory and new institutional economic theory in the next
sections.

2.2.4 Game theory – ‘prisoner’s dilemma’

The game theory posits that cooperatives’ members’ choices are not homogenous,
cooperative members can either cooperate partial, fully or not fully at all (Branzei et al.,
2005). The emphasis is on the ‘uncertainty’, as management decisions and interests
may be different to those of ordinary members, this affirms that there are heterogeneous
preferences within a cooperative (Ritzberger, 2002). Game theory deals with the
fundamentals of group choice, and when members of the group are partially conflicting,
or there are different agents at play with different objectives, at the end of each game
there could be various outcomes (Staatz, 1985).

This is emphasised by Branzei et al. (2005), who argued that there could be levels of the
game, from fuzzy to multichoice games, where players’ cooperation or non-cooperation
may vary at different levels (Branzei et al., 2005) and this frequency-dependent selection
is the structural problem of ‘cooperation’, the act of cooperation itself ultimately lies
with who the individual a co-operator interacts with (Doebeli & Hauert, 2005). A
compromise can also be reached: the voting members rule assumes that all members vote
unanimously, with no independent view, preference is then determined by the ‘median’
member (Staatz, 1985).

The ‘prisoner’s dilemma’ is inherent in game theory as each player is satisfied to get
close to (utility) to other players’ responses or strategy, and as the number of repetitions
increases, the better the cooperation (Nash, 1985). Utility, equilibrium utility and pay off,

19
at the end of the game the ultimate pay off becomes the incentive at which the individual
cooperates: although members can benefit from cooperating with each other, they have an
incentive to benefit more from exploiting the cooperation of others (Doebelli & Hauert,
2005). However there are collective gains in the cooperative game, but it is important that
members must bargain with themselves to ascertain what the net benefit is for all
members (Nash, 1985).

2.2.5 New institutional economic theory

It is argued that by the 1980s a new approach emerged where decision making was
becoming more prominent and property rights theory emerged, which is the theory of new
institutional economics (Cook & Chaddad, 2004). This theory highlights that contracting,
agency and property rights allocation are what defines the behaviour of the firm or
cooperative. The theory argues that a structure of contracting plays a crucial role in the
activities of trading parties. Sykuta and Cook (2001) argue that contracting, agency and
property rights allocation suggest that cooperative contractors may be able to design
contracts that enhance economic efficiency. However, it should be noted that property
rights are not clearly defined under the new institutional economics theory (Sykuta &
Cook, 2001).

This theory is further augmented by Ortmann and King (2007) in that the transaction
costs analysis, agency theory and property rights analysis collectively focus on
institutions and institutional constraints rather than profit maximisation. This new
institutional economics is summed up by agency theory, transaction cost economics and
property rights theory as determinants in the behaviour of a firm/cooperative (Cook et al.,
2004; Ortmann & King, 2007).

A similarity in the different theories is that there is a common objective for which the
member groups work together, with the benefits and risks of the firm being shared
amongst the members (Cook & Burress, 2009). Another similarity between the theories is
that there is a constant need to maximise profits for shareholders, with the allocation
problem being applicable to different theories.

Soboh, Oude Lansink, Giesen and van Dijk (2009) elaborated on the theory of
agricultural cooperatives, linking them to behavioural patterns, as different countries may
adopt different institutionalizations. They argued that cooperatives are not easily defined,

20
as they do not have a standard ownership structure. Soboh et al. (2009) assumed
cooperatives as ‘firms’ and categorised them into the following:

Independent enterprises: this theory assumes a cooperative is a firm which is independent

with a single objective. In this theory the single objective is to maximise benefits for the
members, where the optimal prices and quantities are determined by setting the
cooperative’s marginal cost equal to the marginal revenue, therefore profit becomes the
main performance indicator.

Vertical integration: this is related to integration of autonomous firms, where the focus is
to conduct optimal marketing programs for members. This is also viewed as the extension
of the farm in a form of vertical integration, where producers mutually join together in a
vertically integrated entity to secure the output flow in the downstream stage of the
supply chain and to achieve optimal return for the farmer-member (Soboh et al., 2009).
The authors acknowledged the theory as having been firstly analysed by Emelia off
(1942).

Coalition of firms: as a coalition, it is assumed that cooperatives have multiple objectives

which could overlap with the vertical integration and enterprise as an independent firm,
however the functions and benefits are of a coalition. The theory applies ‘joint’
benefits and ‘joint’ risk sharing to achieve economies of size by minimizing costs and
maximizing growth opportunities. The ‘coalition’ of firms participate as a compromise
set of decisions is reached. In a nutshell, the economic behavior of a cooperative as a
coalition’ assumes that its participants maximize their own profits subject to the existence
of the cooperative (Soboh et al., 2009). In this regard failure to agree on net benefits
among players prevents the coalition from forming (Staatz, 1993).

With the various theories presented above, there appears to be different characteristics in
the construct and behavior of cooperatives; from input constraints whilst maximizing
profits (theory of a firm), joint decision making- joint risk bearers (coalition theory),
agency problem, transaction costs and institutional arrangements being fundamental
(NIE), cooperative members objectives not homogenous, may differ or cooperate at
different levels, also may exploit cooperation levels to individual benefit (game theory).
The common thread though remains to be that of a benefit of member. What remains
constant in both the classical theory and the neo-classical theory is the profit

21
maximization objective, which has interplay between maximizing output and minimizing
inputs (Demsetz, 1988; Cook, Chaddad & Illiopoulos, 2004).

This study will adopt the theory of a firm, as input constraints and profit maximization
remain an objective for South African cooperatives (also linked to the second study
objective, to analyze if the cooperatives are profitable and sustainable).

2.3 EMPIRICAL LITERATURE REVIEW

2.3.1 Dependent variable: performance at cooperative level

The boundaries of the cooperative as a ‘firm’ are not well-defined. Also the
organizational forms are highly diverse, which makes a comparative analysis of the
performance of cooperatives particularly challenging (Soboh et al., 2009). Moreover,
cooperatives have a dual purpose of maximizing profit at both member and cooperative
levels (Feng and Hendrikse, 2012; Soboh et al., 2009). As such, multiple objectives arise
that may be different for the cooperative compared to its members (Soboh et al., 2009).
Yet, it is reasonable to assume that most cooperatives need to operate in such a way that
their economic performance is at least sufficiently high enough for it to keep afloat from
one year to another.

Commonly used measures of economic performance in empirical studies include

profitability or return on assets and growth in sales (Dess and Robinson Jr, 1984; Soboh
et al., 2009). Other performance indicators that appear in the literature include financial
ratios (Benos et al., 2018), efficiency indicators (Ariyaratne et al., 2000; Guzmán et al.,
2009; Hailu et al., 2005; Sexton et al., 1989; Sueyoshi et al., 1998), overall organizational
performance (Alho, 2015; Benos et al., 2016; Galdeano-Gómez et al., 2006; Tana et al.,
2017), overall satisfaction with cooperative (Arcas-Lario, 2014; Bhuyan, 2007;
Figueiredo and Franco, 2018; Liebrand and Ling, 2014), and social capital (Feng et al.,
2016; Hansen et al., 2002; Susanty et al., 2017). In this study, we consider two
performance indicators: (1) total sales measured by total income generated from core
operational activities; and (2) gross profit calculated by subtracting costs from revenue
after the cooperative is audited. This is in line with other studies; e.g. Liang et al. (2015)
studied agricultural cooperatives in China using sales and sales per member as
performance measures. Similarly, Boyd et al. (2007) and Grashuis and Cook (2016) used
profitability as a cooperatives’ performance indicator.

22
We acknowledge the limitations of these measures of performance as they are mainly
operational indicators and may only be partial indicators of the cooperatives’
effectiveness in achieving long-term targets or strategies. The measures used may also
fail to provide a unified and representative assessment of the overall performance of
cooperatives (Salmi and Martikainen, 1994) and may not necessarily be the best
indicators (Grashuis and Cook, 2016). Yet, they may allow showing the variability in
performance, which was pointed out in earlier studies, but only addressed by few authors
so far (Bernard et al., 2008b; Spielman and Bernard, 2008).

2.3.2 Independent variables

Several authors discuss factors that may affect the performance of cooperative societies.
According to Mahazril et al. (2012), cooperatives'‟ strategic planning and participation
from their members are the identified factors that contribute to their overall achievement
and performance of cooperatives.

Moreover, Cooperative performance is influenced by various factors that contribute to the

success and effectiveness of cooperative organizations. Several key factors include:

1. Shared Vision and Goals:

A clear, common vision and shared goals among cooperative members are crucial for
alignment and collective efforts. When all members understand and work towards a
common purpose, it fosters cooperation and enhances performance (Birchall, 2017).

2. Effective Leadership and Governance:

Strong leadership and efficient governance structures are vital for decision-making,
conflict resolution, and setting strategic directions. Good governance ensures
transparency, accountability, and fair representation of members (Nilsson, 2018).
Cooperative initiator and leadership are of paramount importance as to causing the
cooperative to succeed or fail. To this end, a visionary, innovative, communicative,
hardworking, business and open-minded cooperative initiator, or leader plays an
especially important part to make the cooperative succeed (Garnevska, Liu, & Shadbolt
2011).

3. Member Participation and Engagement:

Actively engaged and involved members contribute to the cooperative's success.

Encouraging participation through regular meetings, feedback mechanisms, and

23
involvement in decision-making processes strengthens cooperative performance
(Gajewska & Gołębiewski, 2020).

4. Financial Stability and Management:

Sound fiscal management practices and stability are essential for the sustainability and
growth of cooperatives. Effective financial planning, budgeting, and risk management
strategies are crucial (Finger & Schmid, 2017).

5. Cooperation among Members:

Collaboration, trust, and mutual support among cooperative members enhance

performance. Strong social ties and cooperation facilitate knowledge sharing, resource
pooling, and innovation (Nilsson, 2018).

6. Adaptability and Innovation:

Cooperatives need to adapt to changing market dynamics and innovate to remain

competitive. Embracing technological advancements and fostering a culture of innovation
can significantly impact performance (Gajewska & Gołębiewski, 2020).

7. External Environment and Supportive Policies:

External factors such as government policies, market conditions, and regulatory

frameworks influence cooperative performance. Supportive policies that recognize and
promote cooperative initiatives positively impact their success (Birchall, 2017).

8. Education and Training:

Continuous education and training programs for members and staff are essential for
building capacity, improving skills, and enhancing the overall performance of
cooperatives (Finger & Schmid, 2017).

The cooperatives demand among other things marketing skills to be able function well
(Hammond & Luiz, 2016). To this end, cooperatives may fail, because of members who
are disengaged for the mere fact that they are not educated rather than motivated.
Therefore, educated people are very instrumental in making cooperatives successful
(Birchall, 2011).

9. Professional Employee

As cooperatives expand and diversify their business activities, the need to employ
professionals to make strategic, tactical, and operational decisions increases (Cook, 1994;

24
Hueth and Marcoul, 2009). The presence of professional employees makes cooperatives
more viable and efficient and enables them to better serve the needs of their members
(Adrian Jr and Green, 2001). The availability of infrastructure facilities, such as office
and storage areas may contribute to the functioning of the cooperatives (Karami and
Rezaei- Moghaddam, 2005).

10. Business Relationship

Business links with other cooperatives operating at the same organization level (e.g.
among primary cooperatives) could help cooperatives to increase turnover and boost their
competitive market position. Bengtsson and Kock (1999) argue that business
relationships with other firms enable a company to gain access to products and other
resources of importance for its business.

11. Involvement of Government

Involvement of government is a crucial determinant that leads to success or failure of

cooperatives (Hammond & Luiz, 2016). In the western world, cooperatives are
independent of government, and they govern themselves according to the needs of their
members (Johnson 15 &Shaw, 2014). Across less developed countries, it is the other way
round, because cooperatives were developed by States which do not prioritize cooperative
members' needs but rather put states interests first (Hammond & Luiz, 2016). This way of
doing things by states in the third world has caused failure of cooperatives in these
countries (Johnson & Shaw, 2014). Governments' part should be to ensure that political,
legal and administrative platforms are in place to help cooperatives develop (Hammond &
Luiz, 2016). Government entities should also help cooperatives to be awarded tenders and
other business opportunities (Vladimirov, Simeonova-Ganeva, & Ganev, 2013).
Therefore, cooperation with different partners can be crucial just in case there is no
interference in cooperative businesses (Hammond & Luiz, 2016).

External support from the government and donors in the form of a revolving fund, farm
machinery, and equipment can have a direct impact on the performance of cooperatives,
particularly at the start of the cooperative (Rankin et al., 2007). In contrast, Karami and
Rezaei-Moghaddam (2005) argue that too much external support would make them
dependent on their financial sustainability endeavors.

25
 2.4 CONCEPTUAL FRAMEWORK

The conceptual framework for the study on factors influencing performance of

Cooperatives Union is as shown in figure 1.The factors considered in the study includes
Marketing factors, Involvement of Government and Supportive policies factors, Effective
Leadership and Governance factors, Membership participation and Engagement factors
and Financial Stability and Management factors. These are the independent variables.
Performance of Cooperative Union is the dependent variable

Effective
Leadership and
Governance

Membership
Financial Stability
participation and
& Management
Engagement
Factors

Figure 1; Conceptual Framework of the Study (Source Own Model, 2024)

26
 CHAPTER THREE

3. RESEARCH METHODOLOGY
3.1 Description of the study area

The study will be conducted in the Gofa Zone Administration. Gofa Zone is one of the 12
zones in the southern region of Ethiopia and its total area is 4551 square kilometers. The
geographical location of the zone is 5˚54'N - 6˚44'N latitude and 36˚ 20'E - 37˚20'E
longitude. It is bordered by Southwest Ethiopia People's Region in the north, South Omo
Zone and Gamo Zone in the south, Southwest Ethiopia People's Region and Gamo Zone
in the east, South Omo Zone and Basketo Zone in the west.

The capital of the zone is Sawla, which is 526 kilometers from Addis Ababa. Based on
the 2007 census and annual population growth rate, GZPDD (2022) estimated the total
human population of the Gofa Zone to be 1,106,733. Out of this, 839,495 (75.85%)
people live in rural areas and are engaged in agriculture (GZPDD annual abstract 2022).
The rest of the people 267,238 (24.15%) are organized and work in business and small
and micro sectors. There are two ethnic groups in the zone, the Gofa and the Oyda. The
climate of the zone is divided into three, highland 20.92%, plateau 31.12%, and lowland
47.96%. The landscape consists of plains, hills, and mountain ranges. The climate and
topography of the zone are incredibly attractive and suitable for agriculture, investment,
tourism sub-economy, and livelihood. The topography of the zone has an average height
of 1976 meters above sea level, and the highest mountain in the zone is Mount Damota
with a height of 3439 meters located in Melo Koza district.

Figure 2; Map of Gofa Zone Administration

27
 3.2 Research Design and Approach

The study will use a descriptive research design. This method was appropriate to describe
the existing situation under study. It enables the researcher to investigate the problem.
The study will also employ a mixed-methods approach, combining both qualitative and
quantitative research methods. Mixed methods research is the type of research in which a
researcher combines elements of qualitative and quantitative research approaches
(Creswell & Plano, 2018; Johnson et al. 2007). In addition to this, the researcher will
employ explanatory research design to show the effect of independent variables on
dependent variables and also to show the relationship between independent and
dependent variables.

Table 1 Gofa Zone Cooperatives Data

Unions (Secondary
Primary Level Cooperatives Level Coop)
S.No Districts No. of Members

Unions

Memb
No. of
Primary Capital Capital

ers
Cooperatives

1 Bulki Town Administration 8 797 7,732,305.00

2 Uba Debretsehay Woreda 40 5921 7,833,931.47
3 Oyda Woreda 63 7773 2,773,975.00
4 76 13778 5,975,918.80 1
Zala Woreda 34 2,775,692.71
5 Geze Gofa Woreda 50 5780 3,861,065.15
6 Sawla Town Administration 53 2614 14,319,431.00 1 56 18,029,572.44
7 Demba Gofa Woreda 113 10844 9,599,844.00
8 Melo Koza Woreda 34 2895 5,882,353.47 1 25 7,960,062.85
9 Melo Gada Woreda 13 610 818,401.70
10 Laha Town 4 251 3,596,750.00
11 Beto Town 4 187 1,222,973.00
Total 458 51012 63,616,948.59 3 115 28,765,328

Source: Gofa Zone Plan and Development Department Annual Abstract 2023

3.3 Population study

The population targeted in this study is all registered cooperative unions and their
members in the Gofa Zone. Table 1 shows that the number of registered cooperative
unions in the Gofa zone is 3 and their members are 115 Primary level cooperatives.

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 However, for the purpose of the study, the researcher selected Essipe Dicha Farmers'
Cooperative Union which has 56 primary cooperative members.

3.4 Sample and Sampling Procedure

Sampling according to Kombo (2013) is a process of selecting several individuals or

objects from a population such that the selected group contains elements representative of
the characteristics found in the entire group.

In this study, I will employee stratified sampling methods to select various categories of
respondents. Because as presented on Table 2, the member of primary cooperative
societies of Essipe Dicha Cooperative union are from different district level of Gofa Zone
Administration. So, the base for stratification will be at the district level. Orodho (2012)
has opined that in stratified sampling the population is first sub-divided into mutually
exclusive segments called strata, based on categories of one or a combination of
variables. In this case, the researcher will use the executive bodies and employees of the
cooperative society for the research purpose.

Table 2 Members of Essipe Dicha Cooperatives Union at District Level

S.No Names of Number of Members of the Primary Cooperatives Sample Size

Districts Primary From Each
Cooperative Male Female Total House hold Stratum
Societies
1 Sawla Town 1 57 50 107 60 =4
2 Demba Gofa 17 1790 525 2324 1461 91
3 Zala District 13 2495 1449 3944 3386 155
4 Oyda district 5 400 182 582 337 23
5 Uba D/tsehay 6 1005 375 1380 793 54
6 Geze Gofa 5 601 192 793 771 31
7 Melo koza 8 451 89 540 401 21
8 Beto Town 1 13 114 127 119 5
Total 56 6812 2976 9797 7328 384
Source; Essipe Dicha Cooperatives Union (2023)

( )

Where, n= Sample size

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N= Population

e= Margin of error design

The total number for members of the primary cooperative societies = 9797 which will be
population (N) of the study.

( )

3.5 Methods (Tools) of Data Collection

Since the study uses a descriptive research design and employ a mixed-methods
approach, combining both qualitative and quantitative research methods to study the
factors affecting the performance of cooperative union in the Gofa Zone's Sawla Town,
the researcher will use Survey Questionnaires and Conducting structured interviews with
key stakeholders such as managers, employees, and members of the cooperative union
about their perspectives on performance factors for Primary data purposes. Secondary
data will be gathered from reviewing internal documents, reports, and financial records of
the cooperative union which will provide valuable quantitative data to support the
descriptive analysis.

The source of the survey questionnaires will be developed by the researcher based on a
review of existing literature and theories related to cooperative unions and performance
factors. Since the research design is descriptive, the survey questionnaires are likely to be
standardized. Given the nature of the study and the target population (members of
cooperative unions in Gofa Zone), the researcher will choose to administer the
questionnaires in person to ensure a higher response rate and to clarify any questions that
participants may have.

3.6 Data Sources and Methods

For the purpose of primary data collection, researcher wills to employee structured
questionnaires and interview schedule in such a manner that they will bring out maximum
information about factors that affect the performance of Cooperative union in Gofa Zone.
These data for the questionnaire will be collected mostly from members of the
cooperatives, then committee members and recruited staffs.

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 3.6.1 Primary Sources

For primary data collection, the study will employee semi-structured questionnaires, and
case studies which will involve various data collection methods such as interviews,
observations, and document analysis to provide detailed insights into the factors affecting
the performance of cooperative unions in Gofa Zone Administration.

These data for the questionnaire were collected mostly from members of the cooperatives,
then committee members and recruited staffs; found in 56 primary cooperative members
of Essipe Dicha Cooperative Union located in six woredas and two city administrations:
Ten key informants from different backgrounds and personalities were also identified for
the study.

3.6.1.1 Questionnaires

Questionnaires will be used to collect primary data from the sampled unit which
comprises of three hundred eighty four (384) cooperative members and recruited staffs.
The questionnaire contained a combination of close ended and open ended questions. The
open ended questions encouraged respondents to provide detailed answer to the questions
and at the same time helped the researcher to get more information regarding factors
affecting the performance of Essipe Dicha Cooperative Union. The survey questionnaire
in this study will contained a five-scale points rating from (1) strongly disagree to
strongly agree (5). These continuous scales are the scales that are used to weigh the
objects/measurement on the instrument. Five enumerators will be employed to collect
primary data.

3.6.2 Secondary Sources

For the study Secondary data will be collected from both published and unpublished
materials includes Essipe Dicha Cooperative union annual reports, reviewed literature,
research papers, circulars, and policy papers to provide additional information where
appropriate.

3.7 Methods of data Analysis

The method the researcher will be uses quantitative analysis, such as percentage,
tabulation representation, and description method to analyze the data. The collected data
to be organized, analyzed, interpreted, and discussed using a Statistical Package for
Social Science (SPSS) version 26. All collected quantitative data will be analyzed using

31
descriptive statistics like frequency, percentage, mean and standard deviation. Whereas,
inferential statistics (Pearson correlation and multiple linear regression) Pearson
correlation will be apply to observe the relationship between independent and dependent
variables. Multiple linear regressions will also apply to show the effect of independent
variables on the dependent variables.

3.8 Model Specification/Estimation

The general model that will be used in this work will be the Multiple Linear Regression
Model (MLRM) to estimate the factors affecting the performance of Essipe Dicha
Cooperative union in the study area. Therefore, I will use the multiple regression models
in which the dependent variable depends on two or more explanatory variables (Gujarat,
2006). The multiple regression models will be formulated for this study.

Yi = β0 + β1X1 + β2X2 + β3X3 + β4X4 + β5X5+ Ui

Where:

Y = Dependent variable – Performance of Cooperative Union

β0 = Constant term

X1 = Marketing Factors, X2 = Involvement of Government and Supportive Policies

factors, X3 = Effective Leadership and Governance factors, X4 = Membership
Participation and Engagement factors, and X5= Financial Stability and Management
factors are independent variables,

Ui = Disturbance or error term

β1, β2, β3, β4 and β5 = Coefficient of independent variables

Accordingly, this statistical technique will be used to explain the following relationships.
Regress growth (as dependent variable) on the selected linear combination of the
independent variables using multiple regressions (Marketing Factors, Involvement of
Government and Supportive Policies factors, Effective Leadership and Governance
factors, Membership Participation and Engagement factors, and Financial Stability and
Management factors).

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4 VALIDITY AND RELIABILITY
4.1 Validity

Validity refers to the extent to which the measurement measures what is intended to
measure. The instrument was designed by taking into consideration the basic questions
and consistent with the objective of the study. Kothari (2004) says validity is the most
critical criterion and indicates the degree to which an instrument measures what it is
supposed to measure. It also determines whether the researcher truly measures what is
intended to be measured or how truthful the research results are. The Advisor's
recommendation and the opinions of other experts from the area of interest will be
considered during the design of the research tool before it will be used in the survey.

4.2 Reliability
It is another important test of sound measurement. A measuring instrument is reliable if it
provides consistent results (Kothari 2004). Before distributing the questionnaire to all
respondents, 20 questionnaires will be translated into Amharic for a pilot test to make
sure the questions are clear and reliable. And the reliability estimate of the tool will be
analyzed using Cronbach’s alpha method.

5 ETHICAL CONSIDERATIONS

The Researcher will consider some ethical issues. The respondent has the right to respond
or not, the respondent has the right to participate or not, the researcher will inform to
respondents of the purpose of the questioner and the study considers the confidentiality of
the response by not asking to state name. While conducting the study, emerging ethical
issues are considered.

Respondents are informed of their full right to fill in the questions or to withdraw from
the study at any time without any unfavorable consequences, and they are not harmed
because of their participation or non-participation. The confidentiality of respondents will
be protected, and respondents' identities are not disclosed.

Finally, the study will be done in an open-minded manner and attitudes will be expressed
as they are. Nothing will be modified or changed. Hence information going to be
collected is present as it is, and all the literature gathered for the purpose of this study was
appreciated in the reference list.

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 6 WORK PLAN
Table 3; Work Plan

Activities Dec Jan Feb Mar Apr May Jun July Aug
1 Reviewing important literature √
2 Writing the proposal √ √ √
3 Revising the proposal based on given √ √
comment
4 Submitting final proposal √ √
7 Collecting data √ √
8 Coding data √
9 Data analysis and interpretation √
10 Writing the thesis √
11 Submitting the first draft of the thesis √
12 Revising the thesis based on given comment √ √
13 Finalizing and submitting the thesis √
14 Thesis defense √
15 Submission of final draft thesis based on the √
examiners comment

7 FINANCIAL REQUIREMENTS
Table 4; Budget Breakdowns
No Item Quantity Unit cost Total Cost Remark
in Birr in Birr
1 Per Diem for the research work 30 days 477 23,850 To collect all
To collect data from respondents for 5 data collectors relevant data
per diem for 10 days

2 Secretary services 400 10 4000 To collect all

Typing and Printing Schedules and Questionnaires relevant data
Making Photo copies of Printout 400 5 2,000
Typing and Printing research report first draft 100 10 1,000

3 Stationary Requirement 2 35 70 To collect all

Rewritable CD’s relevant data
Flash Disc 1 600 600
For Binding research paper 4 250 1,000
4 Transportation ----- -------- 8,000 To collect all
Trips for data collection and taxi expense within the relevant data
Gofa Zone Adminstration
Grand total 40,520

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