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International Journal of Operations & Production Management
Structural production factors’ impact on the financial performance of agribusiness

cooperatives in Brazil
Fellipe Silva Martins, Wagner Cezar Lucato,
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Agribusiness
Structural production factors’ cooperatives
impact on the financial in Brazil
performance of agribusiness
cooperatives in Brazil
Fellipe Silva Martins Received 21 October 2015
Revised 6 May 2016
Industrial Engineering Graduate School, Universidade Nove de Julho, 23 September 2016
14 March 2017
São Paulo, Brazil and
5 September 2017
Management Graduate School, Universidade Nove de Julho, São Paulo, Brazil, and Accepted 7 October 2017
Wagner Cezar Lucato

Industrial Engineering Graduate School, Universidade Nove de Julho,
São Paulo, Brazil
Abstract
Purpose – Studies on the performance of agribusiness cooperatives in Brazil focus on economic and financial
aspects. The purpose of this paper is to further delve into such studies by investigating which commonly
measurable structural production factors (horizontal, vertical and lateral diversification; operating area; number
of associates; and time in operation) have greater impacts on the financial performance of such cooperatives.
Design/methodology/approach – To achieve such a goal, a survey was conducted with a sampling pool
divided by size (annual net revenues of US$ 50 million or higher), and the questionnaire was employed as a
method of data collection. The sample was concentrated in the southern, south-eastern and mid-western
regions of Brazil; classified by size; and deemed adequate after several adequacy tests.
Findings – The results were analysed using Spearman’s correlation, which showed that there were no
significant correlations between the structural production factors considered in this study and the economic-
financial performance of agricultural cooperatives, which leads to questions about the effectiveness of
employing diversification strategies with a conjoint approach. Nonetheless, it was possible to identify several
relationships not mentioned in the original hypotheses that might be addressed further in future studies.
Research limitations/implications – The data obtained should be interpreted with caution because
heteroscedasticity was detected. Although the cause could not be clearly identified, the presence of
heteroscedasticity could mean that smaller and similar cooperatives present similar variation in their
diversification and production base strategies.
Originality/value – This work sought to generate knowledge regarding operations management, which
was achieved by demonstrating that production diversification in a dynamic and relevant economic sector,
that is, agricultural cooperatives, is limited in terms of financial return when performed in an isolated mode.
Hence, cooperatives’ production managers should take into account the totality of structural production
factors during their planning activities.
Keywords Agribusiness, Cooperatives, Financial performance, Production diversification
Paper type Research paper
1. Introduction
Cooperatives, and particularly agricultural cooperatives, have changed in recent decades
(Chaddad and Iliopoulos, 2013; Hakelius and Hansson, 2016a), as they have developed from
simpler organisational formats and slowly slipped from their primary social objectives
(Nilsson et al., 2012). In exchange, they have turned into dynamic organisations, with
significant economic participation worldwide (Smith and Rothbaum, 2013; Tortia et al., 2013).
Agricultural cooperatives’ structures, internal cultures and institutional logics have modified
International Journal of Operations
The authors are grateful to the Research Backing Fund from UNINOVE – Universidade Nove de Julho, & Production Management
as well as CAPES – Brazilian Scientific Funding Agency for providing the financial support needed to © Emerald Publishing Limited
0144-3577
develop this work. DOI 10.1108/IJOPM-10-2015-0637
IJOPM their relationships, both externally with the market as well as internally with their
memberships (Kyriakopoulos et al., 2004; Valentinov and Ilopoulos, 2013; Benos et al., 2016).
This relationship between senior-level management and its members is paramount, as the
agricultural cooperative is a segment that most benefitted small farmers’ access to larger
markets (Ito et al., 2012; Vandeplas et al., 2013; Moragues-Faus, 2014).
Incidentally, agricultural cooperatives play an additional role in many places, as
governmental strategic mechanisms for economic control and adjustment (Henehan, 1997;
Henry, 2005; Chen et al., 2016). Alternatively, agricultural cooperatives are efficient agents in
bridging the gaps in existing institutional voids, acting as ad hoc regulators (Chakrabarty and
Bass, 2014). Thus, agricultural cooperatives have departed from replacing intermediaries
(Schneiberg et al., 2008) to become coordinating capacity powerhouses for local production
(Sexton, 1986; Kilelu et al., 2016).

Although modifications in their behaviour and development clearly expand cooperative
production and operational ranges due to local restrictive legislation, Brazilian cooperatives
are not allowed to adopt the more flexible forms of arrangement found in Europe and the
USA (Chaddad and Jank, 2006). Additionally, the modern, distinctive separation between
ownership and decision also found in these areas is largely non-existent locally (Chaddad
and Iliopoulos, 2013). This leads to an increased incidence of free riding (Cook, 1995; Borgen,
2004; Cook and Iliopoulos, 2016), as well as portfolio (Tortia et al., 2013; Fulton and
Giannakas, 2013), control (Chaddad and Iliopoulos, 2013; Cechin, Bijman, Pascucci
and Omta, 2013; Bijman et al., 2013) and influence costs problems (Nilsson et al., 2012)
compared to other countries (Kontogeorgos et al., 2016).
Cooperatives in the Brazilian scenario typically handle such issues and related
inefficiencies by adopting alternative compensation strategies for long-term survival
(Martins and Lucato, 2014). One such strategy involves partially abandoning the traditional
goal of replacing intermediaries and selling their production to larger players. Instead,
several examples of local cooperatives, and especially those with larger memberships and
areas in range, focus on achieving full control of their supply chains, from raw materials,
through distribution and towards targeting final customers (Cechin, Bijman, Pascucci and
Omta, 2013; Martins and Lucato, 2014; Karatzas et al., 2017). While cooperatives worldwide
primarily operate in conjunction with food retailers, in what has been called “supermarket
mastery” (Burch et al., 2013; Baines, 2014; Kureski et al., 2015), larger cooperatives in Brazil
aim to have their own supermarket chains – as many cases in this study already have – to
the point of challenging competing investor-owned firms (IOFs) in the same sector (Cechin
et al., 2013a). Hence, this work considers three basic types of diversification: horizontal, or
the cooperative’s diversification of its operations while maintaining its original focus; lateral,
or the cooperative’s decision to diversify its operation beyond its original scope; and
vertical, or the cooperative’s decision to absorb the forward stages of its supply chain,
incorporating additional production stages and assuming the benefits of value aggregation.
Rapidly enlarging cooperatives have simultaneously developed wider produce-purchasing
networks in overlapping areas, which have consequently begun to attract the same farmers,
most of which are already members of competing cooperatives. Thus, cooperatives have
diversified their actions to absorb new members’ productions and, as such, suffer from high
isomorphism (Mendonça and Alves, 2012) and increased complexity in the absorbed
institutional orders (Teixeira and Roglio, 2015). Diversification is also a key strategy that
members use to avoid risk and cope with financial crises (Ritossa and Bulgacov, 2009;
Schneider and Niederle, 2010; Martins and Lucato, 2014; Moreira et al., 2016), which
also increases the incidence of portfolio, control, and influence costs problems, leading
to a double-high diversification phenomenon at both cooperative and member levels.
This increases the competition between IOFs and cooperatives, as well as among cooperatives,
as they all purchase and process the same products.
These two primary strategies (diversification and area-membership expansion) are Agribusiness
common in the Brazilian agribusiness cooperative scenario, although less common in cooperatives
Europe (Hendrikse and Veerman, 2001), and have been the focus of a long discussion in Brazil
in literature. Several works have emerged, including in Brazil, to bridge the gap since
Hendrikse and Van Oijen’s (2002) research, which questioned whether the diversification of
productive activities in cooperatives is efficient and profitable; however, no conclusive
research has surfaced to date. We follow this trail by testing whether horizontal, lateral and
vertical diversification as well as membership and area expansion strategies affect financial
outcomes in larger Brazilian agribusiness cooperatives.
The results demonstrate that diversification strategies do not sensibly affect financial
agricultural cooperative outcomes, but could be interpreted as a tool for organisational
survival. Nevertheless, considering this high degree of diversification, and area and
membership expansion is pandemic in the Brazilian scenario, we discuss why these

continue to occur despite the apparent lack of results. This highlights a consequential higher
isomorphism between cooperatives, the need for long-term survival by adapting to farmers’
already diversified portfolios, and the ultimate goal to undermine other cooperatives and
competing IOFs in the sector. This paper contributes to the literature by offering insights
into the dynamics of agricultural cooperatives’ strategic actions.
2. Literature review
Most rural cooperatives in Brazil handle scopes of both agriculture and husbandry, along with
other diversified (and frequently unrelated) activities. They are concentrated in the southern
and south-eastern states, where cooperatives are also an extension of immigrant farmers’
communities (Chaddad, 2015). The growth of agribusiness in these areas of Brazil, cooperatives
included, was primarily boosted by a period of heavy governmental investment (Chase, 2003).
Conversely, the Brazilian government departed as the main investor in agribusiness
cooperatives in the 1980s following a series of crises (Garrett et al., 2013; Fajardo, 2016).
However, the importance of agribusiness cooperatives and their integrative role in the local
economy remains unchanged. Data from the Brazilian Cooperatives Organisation
(Organização das Cooperativas Brasileiras, 2015) indicates that over 6,500 cooperatives
currently operate in Brazil, with over ten million members and approximately 300,000
employees. Agribusiness cooperatives are also partially responsible for maintaining the
country’s positive trade balance since the 1990s, with the Brazilian economy’s reorientation
towards commodity exports, along with other IOF agribusinesses. These cooperatives are also
politically active and immensely pressure Brazil’s Congress (Costa, 2012), and especially
considering that at least 50 per cent of all agricultural and husbandry production in Brazil
comes from or goes through cooperatives (Organização das Cooperativas Brasileiras, 2015).
Cooperatives presently face many potential courses of action resulting from their growing
managerial complexity because of this growth process and their current position in a highly
competitive market. This complexity includes the processes of an IOF (Waack and Machado
Filho, 1999; Onofre and Suzuki, 2009), with the difficulties in managing their capital structures
and property forms (Feng et al., 2016). These cooperatives must also handle decision
mechanisms intrinsic to cooperatives (Machado Filho et al., 2009; Chiarello and Eid, 2010).
According to Brazil’s conservative laws, cooperatives typically cannot benefit from more
flexible arrangements that disentangle the relationship between control and decision
(Chaddad and Jank, 2006). In other words, the modern separation between ownership and
decision in most countries’ cooperatives is largely absent in Brazil, where members have
residual and control rights (Chaddad and Iliopoulos, 2013; de Moura Costa et al., 2013).
The Brazilian cooperatives also face difficult trade-offs between the needs of the rapidly
changing markets in which they operate, and the many associates present in slow, internal
decision-making processes; for example, the cooperatives included in this study employ
IJOPM from 600 to 25,000 associates. Cooperatives began as alternatives due to the competition
concentration in the Brazilian market, akin to that proposed by Liang and Hendrikse (2016).
However, highly profitable and wide-reaching cooperatives in Brazil attempt to challenge
the randomising outlet members’ decisions regarding sales to either an IOF or the
cooperative, which induces a newer, sharper duopsony situation. Cechin et al. (2013a) and
Deng and Hendrikse (2017) have also discovered a similar example, involving higher
product quality and reliance, and a stronger relationship between a cooperative and its
members, compared to competing IOFs in the sector.
Thus, from the cooperative’s perspective they absorb and integrate institutional logic
from IOFs (Kherallah and Kirsten, 2002; Valentinov and Iliopoulos, 2013; Cook and
Iliopoulos, 2016). This is especially the case as Brazilian cooperatives tend to have higher
vertical integration and target final costumers, who tend to be indifferent between
cooperative and IOF products. However, those cooperatives still have many shared values
with traditional cooperatives and their institutional logics (Mooney, 2004; Smith et al., 2013).
The farmers’ perspective reveals that they experience problems when diversifying their
portfolios due to budgetary and technological limitations (Chaddad, 2015). Additionally,
local laws exclude any transactions and transfer of property rights; thus, farmers are bound
to the cooperative and ultimately take risks that are not necessarily wanted (Martins and
Lucato, 2014; Pivoto et al., 2015). Consequently, cooperative members diversify their
portfolios to compensate for these risks.
Therefore, a double diversification scenario exists, in that cooperatives are bound by law
and suffer from incentive problems (Cook, 1995). In search of compensation mechanisms,
they may choose strategies linked to scale economies by expanding their membership and
operation areas. However, this has dire results, as they must diversify their portfolios to
accommodate larger areas and membership, and members simultaneously diversify their
own internal portfolios according to their own agendas (Cook and Iliopoulos, 2000;
Cechin et al., 2013b). As legislation bars cooperatives from experimenting with different
organisational arrangements (Cross et al., 2009), this becomes a cyclical, recursive model of
incentive problems.
This constrictive situation is clearly disadvantageous for the local cooperative’s decision-
making processes, relative to its European and US counterparts (Chaddad and Iliopoulos, 2013).
Alternatively, it provides superior terms for comparison between cooperatives, as
Brazilian laws ensures a high level of homogeneity in their decision-making processes,
accounting procedures and disclosure formats. Cook and Iliopoulos (2016) argued that
although cooperatives have always had problems in their internal organisation, including the
mismatch between control and decision, leading to free-riding tendencies and influence
costs problems, agricultural cooperatives defy economic logic as they demonstrate long-term
survival. Despite the many structural factors considered in literature, it is worth
questioning whether the diversification and geographical expansion strategies have the
power to influence cooperatives’ financial performance, or how they affect cooperatives’
long-term strategic choices.
Many studies have followed Hendrikse and Van Oijen’s (2002) research, which indicates
that no clear result exists regarding the financial outcomes of production diversification in
cooperatives, and have attempted to examine whether this is indeed the case (Ferreira and
Braga, 2004; Hendrikse and Smit, 2007; Souza and Braga, 2007; Ritossa and Bulgacov, 2009;
Fritz et al., 2009; Pozzobon, 2011; Buccola, 2014; Tsinopoulos and Mena, 2015).
Understandably, no definitive works exist in this area, as cooperatives are more
generally linked with capital structures, cooperative philosophies and members’
participation than with the business type, activity or sector. This divide complicates the
development of a detailed study that connects these two worlds, diversification and
cooperative principles. Thus, the academy is still tasked with understanding the impact of
production factors, and primarily production diversification and area-membership Agribusiness
management as well as the cooperatives’ strategies for operational performance. cooperatives
We endeavour to analyse cooperatives in Brazil’s agribusiness sector by reviewing the in Brazil
constructs found in literature, then selecting both constructs and variables.
Several databases and keywords (cooperative, agribusiness, agriculture, diversification,
verticalisation, production, strategy, finance, accounting, evaluation, economy and
competitiveness) were used to search for the constructs and variables already employed
in previous studies. Over 1,000 papers were obtained, and it was necessary with such a wide
range of results to narrow down the analysis, and consider only the papers that fit with this
research’s objectives and scope.
As Brazilian law dictates the possible arrangements in cooperative formats, as well as
their juridical roles and accounting obligations, papers had to be narrowed to Brazilian
agribusiness cooperative studies, which account for the large body of Brazilian scientific
papers cited. We selected only agricultural and husbandry cooperative studies that address
productive, financial and accounting variables according to Brazilian standards, primarily
from highly regarded double-blind review journals and, to a lesser extent, from
dissertations. This seemingly disadvantageous situation provides useful insights to not
only the Brazilian agribusiness cooperative scenario, but also foreign situations, as this
allows for a homogenisation of financial and productive parameters, making comparisons
simpler and more generalisable. Table I summarises the final 38 papers; details of the
38-paper selection process are provided in the Methods section.
After analysing the contents of Table I, it is possible to conclude that the authors employ
quite diverse methods to evaluate cooperatives, and they use many different variables to
perform such evaluations. Most of the analyses that consider cooperatives’ financial
performance have used variables sourced from balance sheets and other accounting
information (net sales, investment, liquidity and debt ratios, and working capital, among
others), which provides further financial analysis quite similar to worldwide standards,
although with some caveats.
Financial information aside, only 8 of the 38 selected studies (19 per cent) cite
diversification as an item considered in cooperative evaluations; among these eight studies,
only two directly link diversification to cooperatives’ financial performance (Ferreira, 2002;
Ferreira and Braga, 2004). Nonetheless, these two studies focus on the probability of
production diversification instead of the impact of such diversification strategies on any
financial variables. Thus, the question remains unanswered regarding the relationship
between production diversification, area-membership expansion and financial performance.
Although some studies appear in the sample that address governance, capital structure and
competition, the primary interests that arise are the financial aspects and diversification
along its membership and area ramifications. The first group, or diversification strategies,
addresses how cooperatives valuate, organise and understand horizontal, lateral and vertical
diversification as a part of their operations management. The second group, or the production
base, intends to understand how cooperatives handle the operating area, the membership
base and whether time in operation plays an important role.
Diversification strategies can be traced back to Ansoff (1957), who noted four basic
strategies from which companies could choose, and argued that the adoption of one or more
strategies implied strategic balancing. In addition to prioritising market penetration and
market and product development, Ansoff mentioned diversification as a vital strategic tool.
He divided diversification into three groups: vertical diversification, or verticalisation;
horizontal diversification, namely, within the company’s primary scope; and lateral
diversification, or specifically, outside the firm’s primary purpose.
Prymon (2011) reviewed Ansoff’s concepts and argued that diversification is the only truly
unilateral strategy that companies may choose, as the implementation of any other strategy
IJOPM Publication Main subject Research type Variables
Cruz and Jentzsch Financial aspects Empirical research Liquidity, net operational margin,
(1984) sales, investment, debt. Working
capital, assets
Bialoskorski Economy, growth and Econometric Transaction cost economies. Agency
Neto (1998) capital structure analysis and case theory, agency cost
(dissertation) study
Lazzarini et al. Financial inefficiency Literature review Capital structure, capitalisation,
(1999) investment decisions
Crúzio (1999) Bankruptcy Case study Number of associates and several
decision levels
Menegário (2000) Social-economic evaluation Logit model Assembly participation, net profit and
(dissertation) degree of virtualization

Gimenes and Insolvency forecast Logit model Kanitz model, debt ratio, current
Uribe-Opazo liquidity ratio, ROS, return on assets
(2001a, b)
Hendrikse and Literature on cooperatives Bibliometry –
Van Oijen (2002) unavailable
Bialoskorski Neto Strategies and cooperatives Literature review Number of associates, cooperative
(2002) and empirical fidelity, diversification, risk, merges
research
Bressan et al. Evaluation of financial Multicase study Profitability, return on sales, return on
(2002) strategies in coffee assets, asset rotation
cooperatives
Ferreira (2002) Specialisation and Case study Price, commercialisation, financing,
(dissertation) diversification technical assistance, receiving
Santos (2002) Economic value added DEA Capital structure, capital cost,
operational investment, fixed asset
investment
Ferreira and Diversification and Logit model Diversification, Number of employees,
Braga (2004) competitiveness gross sales, type of cooperative, total
assets
Souza and Economic and institutional Secondary data Operating time and risk (through time)
Bialoskorski Neto evaluation of coffee
(2004) cooperatives
Costa and rating in cooperatives Methodology Social efficiency, social capital, debt,
Bialoskorski Neto proposal self-financing, liquidity, profitability,
(2004) solvency
Rodrigues and Productive structure, intra- Secondary data Rasmussen-Hirschman index and,
Guilhoto (2004) industry relationship production type
Jerônimo et al. Competitive performance Exploratory study Transaction costs, economies and
(2005) bargain power
Bialoskorski Neto Property structure and Exploratory Assets, net sales, number of associates,
and Chaddad finance (USA vs BRA) research owners’ equity and profits
(2005)
Gimenes and Financial analysis Survey Working capital, financial situation
Gimenes (2006) thermometer, financial cycle.
Jerônimo et al. Strategic management Case study Innovation and learning, Management
(2006) difficulties
Fajardo (2006) Agro industrial Secondary data Diversification, verticalisation
development
Bialoskorski Neto Social-economic evaluation Neural networks There are 111 different indices
Table I. et al. (2006) considered in this research
Relevant publications Souza and Braga Concentric diversification Case study Number of associates, social capital,
regarding structural (2007) horizontal diversification
production factors and
performance
evaluation (continued )
Publication Main subject Research type Variables
Agribusiness
cooperatives
Peixe and Protil Efficiency Data envelopment Billing per associate, capital per in Brazil
(2007) analysis (DEA) associate, number of associate, billing
per employee
Bialoskorski Economic performance and Logit model Operating area, number of associates,
Neto (2007) participation assembly participation
Carvalho and Performance evaluation Case study Liquidity, net operational margin,
Bialoskorski Neto indicators sales, investment, debt. Working
(2008) capital, assets
Uliana and Financial performance Economic Value Data envelopment analysis
Gimenes (2008) Added (EVA)
Tondolo and Resources Case study Sustainability and appropriation of
Bitencourt (2008) internal resources

Serigati and Fidelity Empirical research Number of associates, total billing per
Azevedo (2013) associate, operation time and area
Souza et al. Scale efficiency Data envelopment Inputs and products
analysis (DEA)
Pereira et al. Efficiency Data envelopment Total efficiency, general efficiency
(2009) analysis (DEA)
Lopes (2009) Management indicators Multicase study Owners’ equity, liquidity, debt,
(dissertation) profitability, profits, capital, human
resources
Spanevello and Business diversification Secondary data Number of associates, products and
Dal Magro (2009) markets
Simioni et al. Leally and opportunism Survey Price, credit, payment conditions, trust,
(2009) quality, lead-time, technical assistance
Ritossa and Diversification and Survey Operational return, number of
Bulgacov (2009) internationalisation associates, number of employees, types
strategies of products
Khatchatourian Financial analysis QFD, AHP and ROCE, payment capacity, capital
and Treter (2010) fuzzy logic structure
Costa et al. (2012) Property Logit and Tobit Property and control structures
models
Mendonça and De Financial risk analysis Survey Debt, risk aversion, profitability,
Gregon (2011) liquidity, financial reserve, third
part capital
Isidoro et al. Management Accounting Survey Financial indicators, management
(2012) account stages
Gonçalves and Financial restrictions Eigenvectors with Investment, cash flow, debt
Braga (2012) panel data
Serigati and Financial performance Survey Number of associates, number of
Azevedo (2013) employees, Herfindahl-Hirschmann
index Table I.
depends on external and uncontrollable conjunctures. Diversification can assume three possible
directions according to its orientation. Horizontal diversification occurs when the firm diversifies
its production without losing its original focus. Lateral diversification occurs when the company
decides to diversify its operations beyond its original scope. Vertical diversification is observed
when the firm decides to absorb subsequent stages in its supply chain, incorporating additional
production and assimilating the benefits resulting from the value added.
For example, a dairy cooperative operates horizontally when they diversify milk-based
products (from milk to cheese, yoghurts and so on), whereas lateral diversification would
include other products and services (such as handling crops, veterinary supplies, or opening
gas stations or clothing stores – which are common in Brazilian cooperatives). Finally, vertical
diversification can occur both in the original scope and the new lateral additions; it is common
IJOPM in Brazil to observe cooperatives operating their own supermarket chains to target and attract
final customers to their products.
Cooperatives’ vertical integration might play a significant role in cooperatives’ financial
outcomes, as their primary gains can be found within economies of scale, bargaining power
and the cost cuts noted when replacing intermediaries (Sexton, 1986). Donoso et al. (2003)
expanded this concept by positing cooperatives could obtain these advantages by
attempting to control the entire production process, from farming the product to delivering
it to the final consumer. The objectives to adopt lateral and vertical diversification strategies
may also be linked with the goal of obtaining efficiency and market share gains, as well
as the possibility of more effectively using production factors to lower costs (Barni and
Brandt, 1992). Soboh et al. (2009) further indicate that cooperatives’ financial performance
could be linked to the network to which they belong, including verticalization.
Moreover, Mehta (2009) follows Herfindahl’s principles to measure agricultural

diversification (Oustapadissis et al., 1993; Ariyaratne et al., 2000; Rahman, 2008; Secer,
2008; Singh et al., 2011). Culas and Mahendrarajah (2005) analyse the reasons for higher
diversification amongst agricultural producers, and claim that despite the risk and
uncertainty characteristic of all of production activities, these factors have a much greater
impact on agricultural activities, as the latter depend on uncontrollable variables as climate
and other natural factors. Pope and Prescott (1980) asserted that larger agricultural
properties are more diversified than smaller ones, and concluded that the choices and
reasons surrounding diversification are paramount for a return on investment.
A problem remains, in that cooperatives with commodity-based strategies are limited in
terms of growth; meanwhile, those that seek vertical integration and the absorption of
production processes may have better possibilities to obtain additional gains (Culas and
Mahendrarajah, 2005). Additionally, cooperatives play essential roles in the value-creation
process, as they allow small farmers’ production process to become enriched via
industrialisation (Pereira and Gimenes, 2008). King et al. (2010) and Zylberstajn (2013),
in contrast, mention a possible “de-verticalization” process in the agricultural sector; they
also argue that it is possible to obtain favourable performance in agribusiness without
industrialisation processes.
It is also reasonable to assume that a cooperative’s time in operation influences its
maturity, capital composition and physical structure, among other aspects. Ferreira and
Braga (2004) note that a cooperative’s time in operation correlates with the possibility of
added diversification in its activities, in that the longer a given cooperative’s operation, the
higher its chances of observing the consequences of its diversification strategy.
Several authors also mention the number of members as an essential factor in
comprehending agricultural cooperatives’ performance (Bialoskorski Neto, 2002; Spavanello
and Dal Magro, 2012; Serigati and Azevedo, 2013). It is important to note that while the number
of members is important, it should be used sceptically as a measure, because it may also
influence incentive problems (Fulton, 1999; Nilsson, 1999; Nilsson et al., 2012). Other authors
have evaluated the impact of the number of associates on agricultural cooperatives’ financial
efficiency (Ferreira and Braga, 2004; Peixe and Protil, 2007; Bialoskorski Neto, 2007; Serigati,
2008; Ritossa and Bulgacov, 2009). We controlled for this problem by employing the number of
active associates, or the associates that routinely trade with the cooperative, rather than
contractual membership. Finally, the cooperative operating area is linked to this last construct
(Menegário, 2000; Bialoskorski Neto et al., 2006; Bialoskorski Neto, 2007).
Consequently, the operations management in agricultural cooperatives becomes
increasingly complex, and it is both urgent and critical to understand the financial impact
of implementing said strategies. Knowing which structural production factors generate better
financial performance can help cooperatives deploy more effective and lean production plans
to ensure their survival. Therefore, we intend to identify whether structural factors related to
production diversification and area-membership management have a relevant impact on the Agribusiness
financial performance of the agricultural cooperatives located in Brazil. cooperatives
The following set of hypotheses was tested to achieve this objective and returns verify in Brazil
the reliability of proposed constructs:
H1. The cooperatives’ financial performance will improve when cooperatives are more
horizontally diversified.
laterally diversified.
vertically diversified.
H4. The cooperatives’ financial performance will improve when cooperatives have a
larger operating area.
H5. The cooperatives’ financial performance will improve when cooperatives have more
Members.
H6. The cooperatives’ financial performance will improve when cooperatives have been
in operation for a longer period.
H7. The cooperatives’ financial performance will improve when cooperatives are larger.
We test these hypotheses by developing a survey to consider cooperatives located in the
southern, south-eastern and mid-western regions of Brazil, where the most important
cooperatives are located (Organização das Cooperativas Brasileiras, 2015). The study
included only large cooperatives, with net sales of more than R$50 million.
3. Methods
As aforementioned, this study’s central objective is to evaluate the impact of structural
production factors on the financial performance of agribusiness cooperatives in Brazil.
A literature evaluation was developed to support this paper that considers the
ScienceDirect, Emerald, Scopus, Proquest, Ebsco and Scielo databases, and initially
assumes the following key words and their several combinations: “cooperatives”,
“co-operatives”, “agriculture*”, “husbandry”, “farm*”, “strategy”, “accounting”,
“evaluation”, “economy”, “competitiveness”, “vertical integration”, “horizontal
integration”, “lateral integration”, “vertical diversification”, “horizontal diversification”
and “lateral diversification”. Therefore, 1,022 publications were obtained. These
publications were then scrutinised based on the existence of the key words “Brazil” or
“Brasil” (for the papers in Portuguese). The number was reduced to 115 from the initial total,
from which 52 were found in multiple databases. A content-systematic analysis was
performed on the remaining 63 publications, as per the work of Bardin (1986). An Excel®
spreadsheet was used for the codification and categorisation in this evaluation;
25 publications were excluded because they did not encompass the essential content of
this research. Consequently, 34 papers and 4 dissertations were ultimately considered in the
literature review, as demonstrated earlier in this work. It is relevant to mention that
although the dissertations could be considered not as reliable a source as double-blind,
peer-reviewed papers, the consideration of 4 dissertations compared to 34 journal articles
does not harm this research’s results.
Conversely, financial analysis is the most common way to evaluate cooperatives’ financial
performance. Additionally, each of the works presented in Table I employs a different set of
financial variables to assess performance, and assorted variables for the production base and
diversification strategies. Therefore, it is necessary to define a set of adequate variables to
IJOPM measure each construct. Several authors claim that any financial evaluation should start with
the interpretation of a fundamental triad – liquidity, debt and profitability ratios (Menegário,
2000; Bialoskorski Neto et al., 2006; Bialoskorski Neto, 2007) – along with additional measures,
as suggested by Gitman and Zutter (2014).
However, Carvalho (2008) recommends that financial evaluations of cooperatives
consider their special objectives, as profitability is observed from a particular perspective
(returns are specifically handed back to associates). However, this is impossible to control,
as cooperatives do not disclose such numbers. Carvalho and Bialoskorski Neto’s (2008)
study examined agricultural cooperatives’ finances in Brazil, and concluded that the three
most relevant financial indicators to financially evaluate such firms, of the dozens analysed,
were essentially the same as those previously mentioned: profitability, liquidity and debt.
Therefore, the following financial performance indicators were selected to assess agricultural
cooperatives’ financial performance: net sales billed (NSB), the return on sales (ROS), return
on capital employed (ROCE), current liquidity ratio (LIQ) and the debt ratio (END).
Consequently, one variable was chosen to measure the cooperative size (NSB); two variables
were chosen to gauge direct performance, in terms of how much the firm produced, by using its
structural production factors (ROS and ROCE); and two variables were chosen to measure
liquidity (LIQ) and debt (DEB). Table II details these variables.
After financial indicators were selected, this research’s structural factors were chosen.
It was not possible to locate a common set of variables that were most frequently employed in
the literature; the variables were chosen according to the selected constructs for this work
(the production base and diversification). Therefore, the variables were divided into two
groups: how the agricultural cooperative supplies itself with resources (production factors),
and how it manages such resources to generate value and profits for itself and its associates
(diversification strategies). Table III illustrates the variables chosen according to these criteria.
The “time in operation” variable (TIME) was measured according to the number of years
of effective production operations (Gimenes and Uribe-Opazo, 2001a; Souza and
Bialoskorski Neto, 2004; Serigati, 2008). The “operating area” (AREA) was measured as
the number of production reception points, or warehouses and stores where associates can
trade their produce (Ferreira, 2002). The “number of associates” (NASS) considered the
Variable How to calculate Meaning
Net sales billed (NSB) Net sales billed Measures the size of an agriculture cooperative
Return on sales (ROS) Net profit/net sales billed Measures the efficiency of the process to
transform sales in profits
Return on capital employed Net profit/owners’ equity Measures how the invested capital is returned to
(ROCE) the associates
Current liquidity ratio (LIQ) Current assets/current Measures the capacity of the cooperative to pay
Table II. liabilities its short-term debts
The selected financial Debt ratio (DEB) (Total assets – owners’ Measures the amount of third party capital
variables equity)/total assets
Productive base Time in operation (TIME)

Operating area (AREA)
Number of associates (NASS)
Table III. Diversification strategies Horizontal diversification (DIVH)
Structural production Lateral diversification (DIVL)
factors Vertical diversification (DIVV )
number of people belonging to a given cooperative, and actively engaging in trade with Agribusiness
the cooperative for at least a year; contractual members that irregularly trade with the cooperatives
cooperatives were omitted from the analysis. in Brazil
Horizontal (DIVH) and lateral (DIVL) diversification strategies are generally measured
according to the Herfindahl index, or the Herfindahl-Hirschmann variant. Nevertheless,
cooperatives do not often disclose this information. Hence, this study overcomes this
limitation by considering the total number of different businesses that a certain cooperative
is actively involved with, as a measure of lateral (DIVL) and horizontal (DIVH)
diversification. Further, this study employs a simplification of the product-count method
developed by Wood (1971) and modified by Hendrikse and Van Oijen (2002).
The literature suggests that researchers have not discovered a method to measure
vertical diversification (DIVV ). Thus, this study proposes a novel way to do so, by
dividing the degree of diversification into five levels (ranging from 1 to 5, cumulatively):
Level 1 ¼ the cooperative buys and sells agricultural products; Level 2 ¼ Level 1 + the
cooperative pre-processes and resells; Level 3 ¼ Level 2 + the cooperative manufactures
and sells to wholesalers; Level 4 ¼ Level 3 + the cooperative sells to retailers; Level
5 ¼ the cooperative is fully vertically integrated, from crop production to delivery to the
final consumer.
Table IV summarises the chosen variables and their corresponding relationships with
each of this study’s posited hypotheses.
The hypothesis testing was based on data obtained in the field, and was performed by relying
on statistical procedures; the literature suggests using a survey as the key research method in
such a scenario (Malhotra and Grover, 1998; Forza, 2002). The developed questionnaire had two
main objectives: to obtain as much information as possible about the variables employed, and to
minimise the number of questions to make completing the questionnaire both feasible and
practical. Appendix 1 displays the questionnaire used in this research.
As Forza (2002) recommends, the pre-testing phase was conducted first, with a panel
comprised of six professors and doctoral students, who provided some recommendations to
improve the questionnaire. The revised questionnaire was then presented in a second round
to practitioners (directors and general managers) belonging to three cooperatives within the
population frame. They were chosen based on the ease of data accessibility. Only minor
adjustments were required after this second round of pre-testing that primarily involved the
vertical diversification variable, as some had not been initially considered.
Only large agricultural cooperatives were included, namely, companies with net sales of
more than US$50 million, to avoid including small cooperatives, in which this study’s
investigated variables are irrelevant. This research’s population pool was defined by
obtaining a list of the agricultural cooperatives located in the southern, south-eastern and
mid-western regions from the Brazilian Cooperative Organization. Examinations of the
companies’ websites, financial disclosure documents and/or telephone conversations with
their executives (in many cases, the billing level was considered sensitive information)
enabled the identification of 152 large agricultural cooperatives in the regions of interest.
Variable How to measure Hypotheses
Horizontal diversification (DIVH) Number of business within scope H1

Lateral diversification (DIVL) Number of business outside scope H2
Vertical diversification (DIVV ) Degree of verticalization (1 to 5) H3
Operating area (AREA) Number of receiving points H4
Number of associates (NASS) Total number of associates H5 Table IV.
Operating time (TIME) Number of years of operation H6 Variables and
Size Net sales billed H7 hypotheses
IJOPM The size of the sample to be considered was determined by using a formula for sampling a
finite population, as proposed by Gil (2008):
za=2 2 :P ð1P ÞN
n¼ (1)
e2 :ðN1Þþza=2 2 :P ð1P Þ
where n is the number of cooperatives to be considered, zα/2 the degree of confidence ¼ 1.64
(90 per cent), P the percentage of the phenomenon’s occurrence ¼ 50 per cent, N the
population size ¼ 152, e the maximum sampling error ¼ 10 per cent.
The 50 per cent adopted for the percentage of the phenomenon’s occurrence was a
recommendation from the work of Gil (2008), used when no previous evidence exists for an
estimated behaviour of that variable. The calculation is as follows:
1:642 0:5 ð10:5Þ 152

n¼ ¼ 46:83 (2)
0:12 ð1521Þ þ1:642 0:5 ð10:5Þ
Thus, it was necessary to compile a sample of 46.83 agricultural cooperatives for the above
parameters, with a 90 per cent confidence level and a maximum sampling error of
10 per cent. All 152 cooperatives were sent questionnaires, and while 67 were answered, only
57 were adequately completed, and could thus be used in this study (a 38 per cent return rate).
4. Results
The returned inquiry forms indicated an adequate and relatively homogeneous sample
distribution relative to the size of the cooperatives analysed, as Table V illustrates. It is
relevant to note that 21 per cent of the researched firms have NSB between US$500 million
and US$1.5 billion, which indicates a certain maturity in Brazil’s cooperative sector.
Additionally, 56 per cent of the cooperatives were firms with US$50 to 300 million NSB.
Regarding absolute values, there was an approximately 99-fold variation between the
sample’s smallest (NSB ¼ US$34 million) and largest (NSB ¼ US$3.4 billion) firms. This
finding indicates the wide range of companies included in the selected sample.
The data were deemed reliable as Cronbach’s α, which is the most commonly used
reliability measurement, is 0.656. Field (2009) recommends precautions when using the
traditional 0.7 value as the standard, because this is susceptible to important differences
when considering the number of items in the scales and the field of study. Corrar et al. (2007)
suggested a minimum general value of 0.7 and a minimum value of 0.6 for exploratory
research, which is this work’s objective.
Consequently, the data set considered here can be assumed as reliable according to
Cronbach’s α test, because 0.6 o0.656 o0.7. Additionally, the Kaiser-Meyer-Olkin (KMO)
test measures the sample’s adequacy, and Bartlett’s sphericity test indicates that when a
significant value is obtained ( p o0.001), a factor analysis can be used. As the result for the
KMO test is 0.638, and Bartlett’s sphericity test is χ2 ¼ 73.0 ( p o0.001), both are considered
Size (net sales billed) Number of cooperatives % of total
NSB o US$ 50 million 3 5.5

US$ 50 million ⩽ NSB o US$ 75 million 16 28
Table V. US$ 500 million ⩽ NSB o US$ R$ 1.5 billion 12 21
Valid answers by NSB W US$ 1.5 billion 3 5.5
cooperative size Total 57 100
significant and valid. The latter was performed with only the non-financial variables, as Agribusiness
they did not directly relate to the cooperatives’ diversification strategies. cooperatives
The samples were submitted to an outlier’s analysis through Tukey’s filter criterion in Brazil
(Tukey’s hinges) to minimise potential distortions. After generating potentially atypical
values, it was possible to observe that two cooperatives were considered for at least one
variable, while four cooperatives were considered for two variables. An individual analysis
was performed before eliminating any data to check for measurement errors, mistakes in
transcribing the data for spreadsheets, and calculation errors. The three aspects
were verified and no errors were found; therefore, the aforementioned cooperatives were
eliminated from the sample.
The variables’ normality was also verified through the Shapiro-Wilk test, in which the H0
represents normality, namely, if it is supported, the data are considered to be normally
distributed. The significance of such a test is verified by the p-value: if p o0.05, H0 is

rejected. Table VI presents the results of the Shapiro-Wilk test for the variables considered
in this study.
The presence of outliers did not significantly impact the variable distribution, as no
variable’s behaviour was normalised due to the elimination of outliers. Nonetheless, two
cooperatives were eliminated because these outliers could have adversely affected the
posterior correlation analyses.
Finally, the data were checked for heteroscedasticity, which can cause difficulties in
regression analyses because it invalidates the significance tests for regressions. A simple
test can be performed to verify the presence of heteroscedasticity in the obtained data using
residue plotting, which generates a manual fan type of graph. This phenomenon can also be
verified with the Breusch and Pagan’s test (for normal or normalised variables) or the
White’s test, which can be applied for any type of population (Breusch and Pagan, 1979;
Fahrmeir et al., 2013). This “fanning-out” behaviour can be observed in Figure 1.
It is common in econometric studies to discover data sets with heteroscedasticity, and
especially in transversal evaluations, as is the current research (Woolridge, 2012).
Further, Greene (2011) noted that it is practically impossible to determine which subjacent
conditions are responsible for heteroscedasticity in the data. Greene (2011) and Verbeek
(2004) reported several causes of heteroscedasticity, such as long-term learning and
different strategies throughout the process. Heteroscedasticity in this case is understood
as naturally generated due to the data characteristics (evolution of the cooperatives); as
the sample size was adequate, the atypical values were removed and the data were doubly
verified by searching for eventual transcription mistakes or calculation errors.
The sample’s cooperatives ranged from 16 to 75 years in operation, which may account
All cases Without outliers

Statistics Df Sig. Statistics Df Sig.
ROL 0.633 57 o0.001 0.738 53 o0.001

ROS 0.882 57 o0.001 0.860 53 o0.001
ROCE 0.936 57 0.005 0.925 53 0.003
ILC 0.652 57 o0.001 0.643 53 o0.001
END 0.976 57 0.318 0.974 53 0.254
TEMP 0.950 57 0.019 0.959 53 0.068
AREA 0.763 57 o0.001 0.858 53 o0.001
NCOOP 0.573 57 o0.001 0.815 53 o0.001
DIVH 0.930 57 0.003 0,925 53 0.002 Table VI.
DIVL 0.918 57 0.001 0.930 53 0.004 The Shapiro-Wilk
DIVV 0.799 57 o0.001 0.802 53 o0.001 normality test
IJOPM Scatterplot
Dependent Variable: ROL
Regression Standardized Residual
2
Figure 1. –2
Residue plotting for
the NSB variable –2 0 2 4
Regression Standardized Predicted Value
for such variability in the data generating heteroscedasticity – specifically, they have had
sufficient time to develop different strategies and courses of action that have led to
different results. Analyses of these results should consider the data’s heteroscedasticity,
and especially in the limitations relative to their generalisation. Finally, these tests and
considerations enable the conclusion that the data adequately represents the population
from which it is extracted.
Several methodologies can be used to analyse the impact of the variables chosen for the
agricultural cooperatives’ financial performance. Financial analysis based on econometric
models, both Logit and Tobit (Menegário, 2000; Gimenes and Uribe-Opazo, 2001a;
Ferreira and Braga, 2004; Bialoskorski Neto, 2007; Costa, 2010), and data envelopment
analysis (Peixe and Protil, 2007; Souza, 2008; Pereira et al., 2009) can be used, among others.
These techniques are adequate for the developed research’s objectives, but the regression
models in the presence of heteroscedasticity lose their power, and their reliability to forecast
values becomes highly doubted. Therefore, it was necessary to choose a correlation method
suitable for the obtained data set.
Spearman’s correlation was chosen as a correlation method, as it can test the data’s
monotonicity in addition to its correlation (Lira, 2004; Lira and Chaves Neto, 2006). Regarding
the interpretation of the obtained correlations, Woolridge (2012) states that correlations are
generally lower in econometric studies due to the strong influence of unmeasured factors
(spurious correlation), and that the occurrence of an intermediate or low correlation (0.3 to 0.6)
does not mean that the factors in question are irrelevant. All possible correlations were
obtained after eliminating atypical values. Initially, the correlations were analysed that related
to the proposed hypotheses; however, some other interesting correlations were also obtained,
which were unanticipated in the original hypotheses.
The hypotheses assumed that, regarding the variables related to production
diversification, cooperatives would have better financial performances as their horizontal
(H1), lateral (H2) and vertical (H3) diversifications grew. Table VII illustrates the respective
correlations.
The diversification strategies, and especially the vertical diversification, revealed a
moderate impact on the cooperatives’ net sales. None of the diversification strategies
indicated a significant impact on the other financial performance indicators, namely, they
Variables DIVH DIVL DIVV
Agribusiness
cooperatives
NSB Correlation coefficient 0.336** 0.349** 0.436** in Brazil
Sig. (unil.) 0.005 0.004 0.000
N 53 53 53
ROS Correlation coefficient 0.145 0.036 0.119
Sig. (unil.) 0.141 0.396 0.189
N 53 53 53
ROCE Correlation coefficient 0.061 −0.012 −0.003
Sig. (unil.) 0.325 0.465 0.492
N 53 53 53
LIQ Correlation coefficient 0.008 0.013 0.160
Sig. (unil.) 0.477 0.460 0.117
N 53 53 53
DEB Correlation coefficient 0.062 0.043 −0.176
Sig. (unil.) 0.323 0.375 0.096 Table VII.
N 53 53 53 Diversification
Notes: **Significant at 0.05 and 0.001, respectively (unilateral) variables
affected the cooperatives’ global performance, but not the return on investment, liquidity
and debt ratios. Hence, H1-H3 were rejected, as the data obtained did not reveal a significant
correlation between the three diversification strategies and the cooperatives’
financial performance.
The hypotheses proposed for the production base group were as follows: the cooperative will
have a better financial performance when it has a larger operating area (H4), more associates
(H5 ) and has operated for a longer period (H6 ). Table VIII notes the obtained correlations.
Table VIII demonstrates that a positive correlation exists among the operating area and the
number of associates and the NSB. H4-H6 can be rejected based on the aforementioned results;
specifically, the research did not find sufficiently strong evidence to establish a relationship
between the operating area, number of associates and the time in operation, and Brazilian
agricultural cooperatives’ financial performance.
Finally, it was suggested that the cooperative would perform better if it had higher net
sales (H7 ). Table IX illustrates the respective correlations.
Variables TIME AREA NASS
NSB Correlation coefficient −0.060 0.593** 0.497**

Sig. (unil.) 0.330 0.000 0.000
N 53 53 53
ROS Correlation coefficient −0.090 0.150 −0.013
Sig. (unil.) 0.252 0.133 0.462
N 55 55 55
ROCE Correlation coefficient −0.085 0.089 0.073
Sig. (unil.) 0.265 0.254 0.294
N 53 53 53
LIQ Correlation coefficient 0.066 0.076 −0.112
Sig. (unil.) 0.313 0.288 0.204
N 53 53 53
DEB Correlation coefficient −0.044 −0.008 0.152
Sig. (unil.) 0.373 0.477 0.130 Table VIII.
N 53 53 53 Production base
Notes: **Significant at 0.05 and 0.001, respectively, (unilateral) variables
IJOPM Variables NSB ROS ROCE LIQ DEB
NSB
Correlation coefficient 1.000 0.286* 0.160 0.143 −0.055
Sig. (unil.) – 0.016 0.118 0.143 0.343
N 53 53 53 53 53
ROS
Correlation coefficient 0.286* 1.000 0.790** 0.544** −0.446**
Sig. (unil.) 0.016 – 0.000 0.000 0.000
N 53 53 53 53 53
ROCE
Correlation coefficient 0.160 0.790** 1.000 0.229* 0.001

Sig. (unil.) 0.118 0.000 – 0.043 0.498
N 53 53 53 53 53
LIQ
Correlation coefficient 0.143 0.544** 0.229* 1.000 −0.646**
Sig. (unil.) 0.143 0.000 0.043 – 0.000
N 53 53 53 53 53
DEB
Correlation coefficient −0.055 −0.446** 0.001 −0.646** 1.000
Sig. (unil.) 0.343 0.000 0.498 0.000 –
Table IX. N 53 53 53 53 53
Financial variables Notes: *,**Significant at 0.05 and 0.001, respectively (unilateral)
The results indicate that a correlation exists between the net sales level and profitability,
which may indicate that the ROS tends to increase as the cooperative grows. Nevertheless,
it was not possible to discover a relationship between the analysed companies’ size and the
other financial performance indicators; hence, H7 was rejected.
Although not present in the original hypotheses, we have also attempted to gather
correlations between the non-financial variables (area-membership and diversification variables),
according to Table X.
The following section will discuss these results, as well as the other correlation tables
and their implications.
5. Discussion
The diversification strategies, and especially vertical diversification, demonstrated a
moderate impact on the cooperatives’ net sales. However, none of the diversification
strategies significantly impacted the other financial performance indicators, which would
mean that they affect the cooperatives’ global performance, but not the return on
investment, liquidity and debt ratios. This finding suggests that cooperatives tend to
incorporate further levels in their supply chain (from raw material purchases to sales to the
final consumer), which generates additional revenues but does not necessarily improve
financial performance.
One possible explanation is that actively absorbing additional levels may lead to both
cutting costs and eliminating intermediaries. Alternatively, this tends to increase costs
related to the structure, logistics and implementation of necessary processing plants, as well
as increased transaction costs. As Brazil is a large country, newly implemented processing
plants directly involve substantial transportation costs; specifically, unplanned costs related
to new coordination mechanisms may arise while reducing costs with intermediates.
Variables TIME AREA NASS DIVH DIVL DIVV
Agribusiness
cooperatives
TIME Correlation coefficient 1.000 −0.154 −0.054 0.124 0.164 0.187 in Brazil
Sig. (unil.) – 0.126 0.346 0.179 0.111 0.081
N 53 53 53 53 53 53
AREA Correlation coefficient −0.154 1.000 0.571** 0.342** 0.278* 0.373**
Sig. (unil.) 0.126 – 0.000 0.005 0.018 0.002
N 53 53 53 53 53 53
NASS Correlation coefficient −0.054 0.571** 1.000 0.111 0.335** 0.330**
Sig. (unil.) 0.346 0.000 – 0.206 0.005 0.006
N 53 53 53 53 53 53
DIVH Correlation coefficient 0.124 0.342** 0.111 1.000 0.432** 0.286*
Sig. (unil.) 0.179 0.005 0.206 – 0.000 0.015
N 53 53 53 53 53 53
DIVL Correlation coefficient 0.164 0.278* 0.335** 0.432** 1.000 0.498**
Sig. (unil.) 0.111 0.018 0.005 0.000 – 0.000
N 53 53 53 53 53 53
DIVV Correlation coefficient 0.187 0.373** 0.330** 0.286* 0.498** 1.000
Sig. (unil.) 0.081 0.002 0.006 0.015 0.000 – Table X.
N 53 53 53 53 53 53 Non-financial
Notes: *,**Significant at 0.05 and 0.001, respectively (unilateral) variables
Lateral diversification may involve a few alternative explanations. Most larger cooperatives
have produce-receiving warehouses in the same areas, which may lead to competition
between cooperatives and other agribusiness IOFs. This may compel them to expand lateral
trading with associates to maintain ties to the cooperative, or to attract new associates. This
may also be one reason for vertical diversification, to keep industrial plants active during
most of the year. A second reason is that other products may be added to the main
production scope to satisfy members’ need to trade the results of their own diversified
production; this functions as a trade-off mechanism between the risks of the cooperative and
those perceived by members (Hernández-Espallardo et al., 2013).
Cooperatives in Brazil also differ from their European counterparts, and more closely
approximate US cooperatives in terms of both scope and diversification (Hendrikse and
Veerman, 2001). Cooperatives in Brazil are complex behemoths in term of diversification and
its related decision-making processes. Thus, a different explanation is provided by a
possible scenario in which cooperative boards deflect members from decisions by framing
the business as more complex than it really is. This dually improves flexibility and speed
in the decision-making processes while justifying their continuing role as cooperative
leaders; this also presents a possible example of agency theory for further study
(Ortmann and King, 2007; Hakelius and Hansson, 2016b). These findings resonate with the
statements of Ferreira and Braga (2004) and Martins and Lucato (2014), who provide several
reasons for diversification that include risk management, economic difficulties and the
necessity to place members’ products in the marketplace.
We have also discovered a positive correlation between both the operating area and the
number of associates with the NSB. This should be expected because the larger
the cooperative, either in terms of territorial coverage or its number of associates, the
higher its billing should be. This could be an example of economies of scale in play, but the
operating area and number of associates do not significantly correlate with the other
variables that measure financial performance, which makes this concept questionable.
It is noteworthy that the time in operation presents an especially low correlation
with net sales, even considering the context and type of data analysis performed.
This finding contradicts existing theories (Khatchatourian and Treter, 2010; Mendonça
IJOPM and De Gregon, 2011), which state that older cooperatives have more opportunities to
exploit former government loans to enhance their growth, and therefore, to present
superior financial performance.
Additionally, evidence exists for some aspects that were unanticipated in the original
hypotheses. A strong correlation was noted between ROS and ROCE, which was anticipated
because the net profit (surplus) was present in the numerators of both ratios in both cases.
The high correlations between ROS and the liquidity and debt ratios were not as evident;
these relationships could stem from the agricultural cooperatives’ competent financial
management, which could explain higher profits, better liquidity and lower debt; in this
case, the correlation was negative. Nonetheless, the present research’s results did not allow
for definitive conclusions regarding such considerations. Future research could potentially
deepen and strengthen this investigation.
The same approach could be expanded by examining the correlations among

non-financial variables, as Table X illustrates. Initially, it is possible to clearly note that the
relationship between the time in operation and the diversification variables is essentially
irrelevant. This low correlation could signify that an accumulation of processes, expertise
and process improvements (the bases for diversification) does not necessarily relate to the
cooperative’s time in operation, as proposed in the literature (Ferreira and Braga, 2007;
Bialoskorski Neto, 2002, 2007). Conversely, a considerable correlation exists between the
operating area and the other items (with the exception of the time in operation), and
especially for the number of associates. These relationships should have been expected;
however, it is not possible to establish causality. For example, does a larger operating area
generate more associates, or vice versa? Hence, it is possible to conclude that despite the lack
of high correlations, having a production base to support the cooperative is essential for its
financial sustainability.
Similarly, vertical diversification has relevant correlations with the other two
expansion strategies (lateral and horizontal diversification), in addition to the number of
associates and the operating area. The correlation between vertical and lateral
diversification suggests that the operational diversification process in an agricultural
cooperative occurs in two stages – horizontal diversification initially occurs, followed by a
combination of lateral and vertical diversification, which future studies could further
explore. Vertical diversification, in summary, seemingly uses the investment base in
horizontal and lateral diversification as leverage for its implementation, which future
researchers could further investigate.
Finally, we list the lessons and discussions one may gather from the results obtained in
this study. Most are not the focus of this work, and should be interpreted as alternative
explanations as to why the hypotheses could not be confirmed. Several future studies could
be beneficial to address the following questions and aspects:
• Time: extant theory insists that throughout an agribusiness cooperative’s history,
it may acquire and maintain physical structures, expertise and an area of operation
and considerable set of associates, with whom it can frequently trade. However, as
time is not as relevant in places with unstable, frequently changing institutional
logics, long-term planning will typically and frequently reoccur. Whereas time in
operation may be a valid variable in places with much smaller or non-existent
institutional voids, these Brazilian cooperatives have rules that reset every few
decades. Further, the difference is much narrower in the probability of success
between older, stabilised cooperatives and new entrants. The data gathered
suggest that time is only partially valid in Brazil, in terms of the area and
membership acquired. However, time plays only a residually important role in
establishing networks, and time is not highly relevant to cooperatives’ financial
development and status.
• Diversification: we did not discover any relationship between the diversification Agribusiness
strategies and financial outcomes, which can have several explanations. cooperatives
First, cooperatives may engage in diversification not to obtain better financial in Brazil
performance, but to distribute their operational risks in several auto-sufficient and
auto-contained businesses (compartmentalising their operations, akin to the zaibatsu
and chaebol expansion systems). Second, another strategy may involve deterring
associates from escaping the cooperative and simultaneously attracting new associates
by opening new product trades, and especially considering the entry of new competing
actors in the same area. Third, as cooperatives compete with IOFs in the same
sector, this could also be a way to fully employ their industrial capacities. Fourth, this
diversification scenario could also be explained by the agency theory, in which
cooperatives diversify their activities to become more complex. This, therefore, creates
a cycle of demand for more “professionalised” management, which justifies the

continuity of the board in place. This individual aspect merits a new, deeper and
qualitative study. Finally, although the tension between exploration and exploitation
strategies could provide a rationale beyond diversification strategies, this was not a
focus of this study.
• Area and number of associates: what the extant literature observes regarding the
economy scales is at least partially true; aside from diversification strategies,
a cooperative’s survival is guaranteed as long as it can benefit from a larger area and a
considerable set of active associates. If a cooperative can hold a geographical area and
maintain a certain “exclusivity” over the farmers in the area, it may keep its industrial
plants fully functional. If a new, different entrant appears, existing cooperatives may
employ a new set of strategies may be employed to counter new entrant’s presence,
protect their interests and safeguard their production. Further studies should also
study such strategies.
• Performance measurement: Cooperatives and traditional firms are inherently
different, and especially if their internal workings are considered. However, they are
typically handled as different types of the same firm. Most literature that addresses
agribusiness cooperatives’ performance is based on the same traditionally employed
financial measures. However, if they differ and have different organisational
objectives, one may question whether the set of traditionally employed variables
should remain the same, or expand or change. Moreover, as cooperatives thrive to
move from mere farmers’ associations to industrial complexes, they begin to obey
rules that were not made for cooperatives – namely, markets treat cooperative and
non-cooperative firms as equals, whereas the decision-making processes and
managerial problems can highly differ, altering their potential financial outcomes.
Further studies on agricultural cooperatives’ performance could delve into their
organisational needs and goals and, after careful consideration, could attempt to
develop new constructs and variables.
6. Practical implications
Cooperative managers must understand the dynamics of their markets before proposing
diversification and area-membership expansion strategies.
More complex operations will require more professionalised decision-making guidance,
and cooperative members are likely to be omitted from the process. This may have two main
consequences: either they trust the cooperative and assume the added risk of depending on
technical strategies that they did not choose (Hernández-Espallardo et al., 2013; Revilla and
Knoppen, 2015) – which may help the cooperative regain some flexibility and rapidity in the
IJOPM decision-making process – or they might challenge its leadership and long-term plans and
eventually leave the cooperative ranks (Nilsson et al., 2012).
Regarding endurance, a lack of top-down decisions being blindly followed by the
production base (farmers) could potentially exist in the Brazilian scenario. Whereas IOFs
tend to adhere to short-term predictions and seek profits inside this timeline, cooperatives
may demonstrate a new level of resilience; this internal conservativeness could be linked to
traditional cooperatives’ comparative advantage (Birchall, 2013) and commitment to the
cooperative relationship (Cechin, Bijman, Pascucci and Omta, 2013).
Financially, the diversification of the production portfolio must be interpreted as a
long-term survival tool, and not a short-term solution for crises. The data gathered here
point to diversification as a means to keep members inside the cooperative, attract new
members and undermine the influence of competing cooperatives and IOFs in the same
sector and area. However, we cannot affirm that investing in horizontally, laterally or
vertically diversified portfolios offers more than lower levels of risk, the compartmentalising
of business units and the general effects of economies of scale. It could be potentially
dangerous to bet on diversification strategies if one must answer to a board or members
regarding a return on such investments in the near horizon. We may argue that the only
scenario in which diversification works well is only if a high degree of coordination occurs
between farmers and the cooperative in production planning. However, this would hardly be
observable, as risk perceptions widely differ from the top (the cooperative’s board) to the
base (the cooperative’s members).
Cooperatives have, thus, two potential main courses of action in the Brazilian scenario
regarding area, although other strategies may be equally successful, considering their
strengths: to either choose a smaller area and work diligently on coordination and focus on
diminishing the overall diversification of both the cooperative and its member portfolios; or
to choose an offensive strategy involving a highly diversified position to cover more ground
and improve overall production.
7. Conclusion and limitations

This work aims to investigate the impacts of the production base and diversification strategies
on agro-industrial cooperatives’ financial performance in a sample comprising firms from
Brazil’s south, south-eastern and mid-western regions. Statistical tests relative to the sample
used in this research demonstrated that the sample is significant in terms of both quantity and
suitability, which ensured the reliability of the data supporting the subsequent analyses.
The results were unexpected to some extent, as it was not possible to establish
significant correlations between each factor and the cooperatives’ financial performance.
This contradicts extant literature and answers the long-standing question of whether it is
worthwhile to diversify portfolios in cooperatives. This finding questions the validity and
actual necessity of such firms’ heavy investment in diversification strategies, as these
investments apparently do not have a favourable financial impact on their operations.
Further, the correlation analysis performed on all the considered variables enabled the
identification of some relationships that were not anticipated at the beginning of the study.
For instance, the influence of the operating area demonstrated several interesting
correlations with the diversification strategies and the number of associates. Conversely,
and defying both common sense and previous findings in literature, cooperatives that were
in longer operation did not indicate superior financial performance or significant
correlations with any other structural factors. Vertical diversification significantly
correlated with other diversification strategies. This finding could suggest that the
diversification process in agricultural cooperatives occurs in two steps: first horizontally,
then vertically and laterally. Nonetheless, these additional hypotheses were not this work’s
central focus, which is why further studies should further explore them.
The data obtained should be interpreted with caution, as heteroscedasticity was Agribusiness
detected. Although the cause could not be clearly identified, the presence of cooperatives
heteroscedasticity could mean that smaller and similar cooperatives present similar in Brazil
variations in their diversification and production base strategies. However, it is no longer
possible to observe the same homogeneity as cooperatives grow, which makes comparisons
among cooperatives more difficult. Hence, future studies should employ larger samples for
more in-depth analyses. Such studies should aim to better understand the data’s behaviour
and verify the possibility of eliminating the heteroscedasticity effect. This objective could be
achieved by introducing other variables and using additional statistical tools capable of
considering such effects. It is also possible to question the presence of other variables in the
spurious relationships among the variables considered, which could also be further
investigated in the future.
As a secondary objective, this work sought to generate knowledge regarding operations

management, which was achieved by demonstrating that production diversification in a
dynamic and relevant economic sector – namely, agricultural cooperatives – is limited in
terms of financial returns when performed in isolation. Hence, cooperatives’ production
managers should consider the totality of structural production factors during their planning
activities. Additionally, cooperatives’ production management is multifaceted; in many
cases, they manage the entire supply chain, from crop production to delivery to final
consumers, and use incredibly complex organisational arrangements. Thus, they deserve
additional, in-depth evaluations to improve their operational performances. More
practically, this work contributes to operations management by providing practitioners in
this field with relevant information about the production base and diversification strategies,
and their minimal impact on companies’ financial performances.
This research also has some limitations that should be considered, both when
interpreting these conclusions and in developing future studies. For instance, only
agricultural cooperatives in Brazil’s southern, south-eastern and mid-western regions were
considered in this data set. Different results could have been obtained with the inclusion of
other types of cooperatives and/or regions. Another limitation involves the variable types
used in this research, as many other compelling structural and financial factors could have
been considered; however, as these variables typically concern sensitive information in the
investigated cooperatives, their disclosure would require another approach for data
collection. Additionally, two aspects were omitted that consider current data collection
possibilities, as well as the sensitive nature of membership information: members’
diversification (the Herfindahl index) and the correlation between members’ and
cooperatives’ degrees of diversification. Future studies could perform additional, more
comprehensive analyses to overcome these aforementioned limitations, thereby generating
stronger and more generalisable conclusions.
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IJOPM Appendix 1. Summary of the questionnaire used to obtain research data
Corresponding author
Wagner Cezar Lucato can be contacted at: wlucato@uni9.pro.br
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International Journal of Operations & Production Management

Structural production factors’ impact on the financial performance of agribusiness

Production Management, https://doi.org/10.1108/IJOPM-10-2015-0637

*Related content and download information correct at time of download.

Wagner Cezar Lucato

(Sexton, 1986; Kilelu et al., 2016).

membership expansion is pandemic in the Brazilian scenario, we discuss why these

(dissertation) degree of virtualization

Bitencourt (2008) internal resources

Moreover, Mehta (2009) follows Herfindahl’s principles to measure agricultural

Variable How to calculate Meaning

Productive base Time in operation (TIME)

Variable How to measure Hypotheses

Horizontal diversification (DIVH) Number of business within scope H1

1:642 0:5 ð10:5Þ 152

Size (net sales billed) Number of cooperatives % of total

NSB o US$ 50 million 3 5.5

distributed. The significance of such a test is verified by the p-value: if p o0.05, H0 is

All cases Without outliers

ROL 0.633 57 o0.001 0.738 53 o0.001

Regression Standardized Residual

Variables TIME AREA NASS

NSB Correlation coefficient −0.060 0.593** 0.497**

Correlation coefficient 0.160 0.790** 1.000 0.229* 0.001

The same approach could be expanded by examining the correlations among

a cycle of demand for more “professionalised” management, which justifies the

7. Conclusion and limitations

As a secondary objective, this work sought to generate knowledge regarding operations

Journal of Agricultural Economics, Vol. 77 No. 5, pp. 1153-1159.

Rio Grande do Sul”, Custos e Agronegócio, Vol. 7 No. 2, pp. 79-94.

agropecuárias no Paraná em 1980 e 1985”, RER, Vol. 42 No. 2, pp. 243-266.

Vol. 15, pp. 27-41.

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NSB Correlation coefficient −0.060 0.593 0.497