Cooperative Liquidation Under Competitive Stress

Abstract

Competitive environments encourage cooperatives to liquidate by distributing equity to their members, often by raising the transfer prices paid for member raw product. We provide a method of detecting when such liquidation activity begins. In the process, we derive the arbitrage-free price bounds of a broad class of forward contracts typical of seasonal and speciality agricultural markets. The bounds are illustrated for the failed Tri-Valley Growers, once the largest fruit/vegetable cooperative in the USA. We show that Tri-Valley began liquidation years before it was detectable through conventional means. Implications are drawn for the expanding competitive pressures accompanying EU enlargement.

Keywords: agricultural cooperatives, arbitrage price bounds, cooperative finance, EU enlargement

JEL Classification: G12, G33, L11, Q13