Political power and risk sharing in an intermediary-led cooperative: Theory and empirical observations from China

This article examines the impact of balance of political power between farmer and intermediary members on profit and risk sharing within intermediary-led agricultural cooperatives in China. The article develops a theoretical model that demonstrates how an intermediary-led cooperative, featuring a two-stage operation with on-farm production by farmer members and value-added processing by the cooperative, allocates profits and manages risks through a sharing rule that includes procurement prices and patronage refund ratios. The results indicate that as farmers gain political influence, their profit share increases, but they also assume more risk, leading to constrained supply and reinforced cooperative monopoly power. Empirical observations from a survey of cooperatives in China, where local officials and elites commonly act as intermediaries, support the model’s findings. Elite-led cooperatives, where intermediaries hold more power, are less likely to provide patronage refunds and more likely to engage in risky, value-added businesses compared to official-led cooperatives, where farmershave stronger representation. Our findings offer insights into the sustainable growth of cooperatives in developing countries.