Farmer Trust in Producer- and Investor-OwnedFirms: Evidence from Missouri Corn andSoybean ProducersHarvey S. James Jr.Department of Agricultural Economics, University of Missouri-Columbia,146 Mumford Hall, Columbia, MO 65211Michael E. SykutaDepartment of Agricultural Economics, University of Missouri-Columbia,135B Mumford Hall, Columbia, MO 65211ABSTRACTThe authors examine whether cooperatives are characterized by greater trust than investor-ownedfirms+ They surveyed 2, 000 Missouri corn and soybean farmers and found that trust and farmerperceptions of honesty and competence are higher in cooperatives than in investor-owned firms andthat trust is a significant factor explaining the choice of farmers to market to cooperatives ratherthan investor-owned firms+ Interestingly, they found that trust is more significant in producers’decisions for marketing soybeans than for corn+ @JEL classifications: Q130, Z130#+ © 2006 WileyPeriodicals, Inc+1. INTRODUCTIONAgricultural producer-owned firms ~POFs!, or cooperatives, occupy a special place in theAmerican economic landscape+ Agriculture is one of few sectors of the U+S+ economy inwhich cooperative firms directly compete on a large scale with investor-owned agribusi-ness firms ~IOFs!+ The U+S + Department of Agriculture ~USDA; 2003! repor ts there were3,229 agricultural cooperatives in the United States in 2001 , with membership totalingmore than 3 million and producing a net income of over $1+35 billion+ As of 1999, agri-cultural cooperatives accounted for 27% percent of total farm marketing ~e+g+, crops, live-stock, and poultry! and 27% of all farm inputs ~e+g+, feed, seed, fertilizer, crop protectants,and petroleum!~Kraenzle, 2001!+Producer-owned firms are owned by and operated for the benefit of their agriculturalproducer members; therefore, POFs have a distinctly different objective and focus thantraditional IOFs+ While POFs provide financial benefits to the producers with whom theydo business, either in the form of cost-based pricing, reduced-price services, or patronagerefunds, IOFs focus on financial returns to ~nonproducer! investors+ Sykuta and Cook~2001! suggest this difference in organizational objectives may create greater trust in therelation between producers and producer-owned agribusinesses than between producersand IOFs+ Shapira ~ 1999! argues that capitalist firms are “low-trust and coercive,” whileAgribusiness, Vol. 22 (1) 135–153 (2006) © 2006 Wiley Periodicals, Inc.Published online in Wiley InterScience (www.interscience.wiley.com). DOI: 10.1002/agr.20069135kibbutzim are “high-trust and democratic+” In related work, Shaffer ~1987! asserts thattrust makes or breaks a cooperative, in par t because the contract between producers andthe organization is more relational in cooperatives than in IOFs and because cooperativesare generally more reluctant than IOFs to impose sanctions on their members+ Similarly,Fulton and Giannakas ~2001! show how member commitment within a cooperative —which could be a manifestation of organizational trust—is affected by cooperative char-acteristics and affects cooperative performance+Notwithstanding the theoretical arguments, there has been little empirical research onthe relationship between cooperative forms of organizations and trust, although work thathas been done has been supportive+ Balbach ~1998! examined differences in contractsbetween U+S+ sugar beet producers and producer-owned and investor-owned refining com-panies, arguing that the more efficient contracts with cooperatives is attributed to thehigher trust producers have with the cooperative than with the IOF+ Shapira ~1999! attrib-uted the decline in cooperative effectiveness to the transition from a high-trust to low-trust culture+ In these studies , trust is implied but not directly measured+ A 2003 survey of2,031 U+S+ adults conducted by Opinion Research Corporation ~Princeton, New Jersey!measured the relative degree of trust in cooperatives and IOFs+ The survey revealed “two-thirds of consumers believe businesses that are owned and governed by their customersand have consumers on their boards of directors are more trustwor thy than those that donot” ~National Cooperative Business Association @NCBA#, 2003, p+ 1!+ However, thissurvey examined consumer attitudes only+ In related research, Chloupkova, Svendsen,and Svendsen ~2003! showed how the institutional environment helps create and destroytrust within cooperatives, but they did not compare how trust in cooperatives compares toIOFs+ Ole Borgen ~2001! showed why trust is important in cooperatives and how coop-eratives can generate trust, but he did not compare trust in cooperatives with that of IOFs+James and Sykuta ~2003! found that agricultural POFs with governance structures moreresembling those of IOFs exhibit lower levels of organizational trust than cooperativeswith more traditional governance structures+The theoretical and empirical literature cited above suggests that cooperatives ought tohave higher trust than investor-owned firms and that trust ought to play a relatively impor-tant role in the producers’ choice of doing business with either a POF or an IOF+ However,these issues have not been examined empirically from the perspective of agricultural pro-ducers interacting with POFs and IOFs+ The purpose of our study is to fill the gap in the empir-ical literature linking trust to cooperative ~producer-owned! and investor-ownedorganizations+ We used data from a survey of 2,000 Missouri farmers of corn and soybeanto examine the relationship between trust and the choice of agricultural organization to whichfarmers marketed their 2002 crop-year harvest+ We asked farmers whether they marketedtheir 2002 crops to cooperatives or investor-owned agribusinesses+ We also asked about thedegree to which they trusted the organizations to which they marketed their crops, the termsof the marketing agreement, and other questions about their farming practices and experi-ences+ We find that producers have a higher trust in POFs than in IOFs when marketing theirsoybean crops, but not when marketing their corn harvests+2. BACKGROUNDTrust is an expectation that one would not be exploited by another ~James, 2002a!+ Thisexpectation is based in part on perceptions of the trustworthiness and competence of theentities in whom trust is placed+ Both trustworthiness and competence are necessary for136 JAMES AND SYKUTAAgribusiness DOI 10.1002/agrtrust+ For instance, Baier