The paper investigates the initial phase of the cooperative organisation of agricultural processing firms in Denmark. It argues that the variations observed can be explained within the framework of the theory of industrial organisation. The focus is on the success of cooperative creameries. In 1903, twenty years after the first establishments, the owners of about 80 per cent of all Danish milch cows supplied their product to a cooperative. The success of cooperatives within other fields of production was smaller by comparison. The point is that dairying cooperatives, given the existing technology of gathering information and of preserving and transporting a perishable product, were ideally suited to overcome the problems of potential lock-in and of asymmetric information.

We consider the successful early emergence of cooperative creameries in Denmark in the late nineteenth century within the framework of the 'new institutional economics' presented by Williamson (2000). Previous work has focused on the social cohesion of the Danes, but we demonstrate that this was not sufficient for the success. The Danish legal system, which we compare to that of other countries, was also of crucial importance, along with the way in which rules were monitored and enforced. Of particular importance was the Danish cooperatives' use of contracts, which we explore with evidence from a variety of primary and secondary sources.

he grain invasion of the late nineteenth century has attracted a lot of attention from economic historians and political scientists, who have emphasized the distributional consequences of this episode, and the political reactions which it provoked. There is also a substantial literature on Denmark's agricultural transformation during this period, which came as a direct response to growing imports of cheap overseas grain. In particular, the success of the late nineteenth-century Danish dairy industry has been noted by a diverse range of scholars and commentators, including Charles Kindleberger, Horace Plunkett, and H. Rider Haggard. 2 Denmark switched from being a grain exporter to a grain-importing producer of animal products, such as bacon, eggs, and above all butter. Butter exports accounted on average for over 40 per cent of the value of total Danish goods exports between 1895 and 1909, as compared with a share of bacon exports averaging between 18 and 22 per cent over the same period. 3 Denmark's dairy industry grabbed over a third of the rapidly expanding British butter-import market, establishing a reputation for consistent quality that was reflected in high prices in the market place, which in turn translated into high milk prices for the farmers who supplied Denmark's cooperative creameries. For example, average Danish export prices were 13 per cent higher than average Irish export prices between 1905 and 1914. 4

Why did the establishment of cooperative creameries in late nineteenth century Ireland fail to halt the relative decline of her dairy industry compared to other emerging producers? This paper compares the Irish experience with that of the market leader, Denmark, and shows how each adopted the cooperative organizational form, but highlights that an important difference was institutional: specifically regarding the enforcement of vertically binding contracts. We argue that this failure, combined with a strong proprietary sector which was opposed to cooperation, reinforced the already difficult conditions for dairying in Ireland due to poor social capital.

We consider the relative contributions of changing technology and institutions for economic growth through the investigation of a natural experiment in history: the almost simultaneous introduction of the automatic cream separator and the cooperative ownership form in the Danish dairy industry from around 1880. Using a new database of statistics from creameries and the tool of stochastic frontier analysis, we find that both institutions and technology were important for the success of the Danish dairy industry and, by implication, the growth and early development of the Danish economy. Keywords