Does cooperative membership improve household welfare? Evidence from a panel data analysis of smallholder dairy farmers in Bihar, India

Anjani Kumar, Sunil Saroj, Pramod Kumar Joshi, Hiroyuki Takeshima
food policy

This paper examines the factors that influence dairy farmers’ decisions to become members of milk cooperative societies, and the impact of cooperative membership on milk yield, net returns per liter, and adoption of FSM. The study used farm-level panel data collected from a randomly selected sample of 148 households. Simple comparisons of average milk yield, net returns per liter, and FSM adoption revealed significant differences between members and nonmembers of dairy cooperatives. As these comparisons are merely descriptive and do not account for confounding factors that affect the differences, we employed an ESR model that accounts for both observed and unobserved factors to consider the issue of selection bias. The results revealed that sample selection bias would result if the outcome specifications were estimated without considering the membership decision. The empirical results showed a positive and significant relationship between dairy cooperative membership and milk yield, net returns per liter, and adoption of FSM. In particular, association with a dairy cooperative society tends to increase milk yield by 40 percent, net return by 38 percent, and adoption of FSM by 10 percent. The estimates, differentiated by farm size, revealed that the income gains brought about by dairy cooperative membership were higher for small-scale farmers. This finding suggests that dairy cooperatives can play a significant role in enhancing the household income of smallholder dairy farmers. The study also revealed that dairy cooperatives have the potential to enhance milk yield and net returns and improve farmers' compliance with FSM. Therefore, the government should further strengthen and promote the expansion of dairy cooperatives in India.