Agricultural cooperative membership and welfare of maize farmers in Ethiopia: Insights from panel data analysis

Abstract

The emergence of agricultural cooperatives is widely viewed as a potential institutional arrangement that can help achieve rural poverty reduction by improving farmers’ welfare in developing countries. However, empirical evidence on the effect of cooperative membership on welfare and rural poverty in sub‐Saharan Africa remains limited. This paper examines the effect of cooperative membership on the welfare and poverty levels of maize‐farming households, using a comprehensive three‐wave panel dataset from three major maize‐producing regions in Ethiopia. The welfare effect of cooperative membership was estimated using a correlated random‐effects regression with a control function to account for unobservable heterogeneity and the endogeneity of cooperative membership. The findings show that cooperative membership significantly increased maize yield and enhanced the welfare of maize farmers by improving household income, subsequently leading to reductions in the prevalence of income poverty and the poverty gap. Further analysis reveals that while cooperative membership is pro‐poor in terms of its effect on maize yield, its effect on income and poverty tends to favour wealthier members with greater assets and extended landholdings. In this light, supporting poor and marginalized farmers with the resources needed would help improve the welfare gains from cooperative membership, thereby ensuring a more inclusive approach to poverty reduction.