A Dual Signal Approach to Cooperative Performance Measurement. Rethinking Prices and Profits in the European Dairy Industry

Abstract

The discussion paper suggests a novel procedure for measuring performance in dairy marketing cooperatives. Conventionally, performance in these cooperatives is evaluated through a single measure; i.e. the price of raw milk. This «single signal» measurement procedure is reasonable in a situation where the level of capitalization of the cooperative is ignorable. But this condition does not hold true in current European dairy markets. We suggest an alternative performance measurement procedure, the core idea of which is to separate milk content from dairy product value. This enables a distinction between monetary returns to milk from monetary returns to invested capital. This «dual signal»- approach represents a more transparent picture of dairy cooperative performance, provides members with purer on-farm (production) and in-cooperative investment incentives and equips them with performance data that enable them to exercise better control over their cooperative.