Cognitive dissonance, mental frames and the financial value of agricultural co-operatives

The co-operative as an economic and social institution has long been recognized for its contribution to economic development as well as its positive effect on local communities. However, over the last decade or so substantial structural changes in the agricultural sector have undermined some of the most prominent North American co-operatives. In some cases, co-ops asked for bankruptcy protection, others ceased operations while some were transformed to for-profit firms. The present study offers three essays that explore the challenges that co-operatives are facing in terms of their relationship with their members in local markets, the decision-making process of their leaders and the co-ops' role in the modern economy. These first two essays are linked by the fact that they both develop models that are about cognitions. Examining cognition offers some new insights to understanding the process behind the decline of agricultural co-ops. In the first essay the model examines consumers' cognitions, while the model in the second essay examines management's cognitions. The essays differ on the agent's ability to change the perceptions that result from those cognitions. Essay One assumes that consumers' perceptions are partially flexible and thus can change over time with some cost; on the other hand, essay Two assumes that beliefs are inflexible due to the high cost of changing them. Essay One examines the relationship between a co-operative and its membership in a local market using an economic psychological approach. More specifically, the essay presents a modified rational-choice model to investigate how cognitive dissonance can influence members' loyalty. The effect of cognitive dissonance is analyzed in a case where a local co-operative operates alongside with an investor-owned firm (IOF) in a market. The model illustrates how cognitive dissonance can give rise to switching costs for those consumers who wish to switch to the IOF. Analytical results demonstrate the effect of these switching costs on equilibrium market shares and discuss how a drop in the dissonance cost because of managerial decisions by the co-op can result in dramatic drops in its market share. Essay Two illustrates how management's mental frame can be incorporated into an economic model and develops a theoretical underpinning for the link between a strong mental frame and the financial difficulties that a firm might experience. The case of the Saskatchewan Wheat Pool with its Project Horizon plan is proposed as an example of a situation where the established mental frame gave rise to a belief regarding future member support that had a significant influence on the decision-making process of the co-op's CEO. The analysis includes a game theoretic model of a duopoly between a co-operative and an IOF, where mental framing is explicitly incorporated into the primitives of the model. Analytical results illustrate how the CEO's belief regarding member commitment can influence decision-making and therefore affect the market share and profits of the firm. Essay Three uses non-parametric econometric techniques to examine the stock price effect of a co-op's acquisition by a publicly-traded IOF. The potential for this study emerged as a result of the takeover of Dairyworld, a dairy co-op, by Saputo, a publicly-traded private corporation. The study uses the prediction-error approach to estimate Saputo's returns after the acquisition as a deviation from its expected returns. A non-parametric bootstrap technique simulates Saputo's stock returns and examines its behavior around the acquisition date. The empirical results are consistent with a number of hypotheses, including the pro-competitive role that co-operatives are believed to have in the economy. The essay also includes a comprehensive discussion regarding the greater financial value that co-ops have for IOFs

The Transformation Of Valio: A Case Study

Valio, a well-established “national institution” in Finland, had a rich background based on cooperative tradition and extensive regional spread. In the late 1980s and early 1990s, the company had to undergo a process of change and re-organization in order to address the challenges arising from the EU accession. After years of restructuring and changing in its business model, Valio remains a major player in Finland and one of the most well-known brands in the region. The purpose of this case study is to stimulate a critical evaluation of the processes Valio undertook in order to address the coming challenges. The case is especially suited as a starting point for a broader discussion on organizational change and adaptation. Teaching notes are provided with proposals and questions

Organizational Innovation in the Face of Institutional Change: The Case of the Finnish Dairy Sector

Firms in the agri-food industry are embedded in a system of institutions, regulations and policies that shape their economic environment and affect their conduct and performance. Changes in this system can propose new challenges for the firms that need to adequately and efficiently change and adapt to the emerging environment. The following article examines how deep structural changes in the institutional and regulatory setting can be effectively addressed by organizational innovation and what can be the catalysts behind a successful innovation effort. In doing so the analysis examines the case of Valio, the largest Finnish dairy company and its reconstruction effort due to Finland’s EU accession in 1995. After years of restructuring and changing its business model the company remains a major player in Finland and one of the most well-known brands in the region

Cognitive Dissonance and Customer Allegiance in a Mixed Oligopoly

The purpose of this article is to examine the effect of cognitive dissonance in a mixed oligopoly where a local cooperative competes with an investor-owned firm (IOF) for the local market. The article explicitly incorporates individuals' beliefs regarding the quality of the two organizations as a choice variable in the utility function and individuals trade off utility from beliefs against utility resulting from their actions. The proposed model considers a case where managerial decisions or the introduction of new products forces consumers to modify their initial beliefs regarding the (superior) quality of their cooperative. Analytical results demonstrate the changes in equilibrium that result from cognitive dissonance.Consumer/Household Economics,

Organizational Innovation and Institutional Change: The Case of Valio in Finland

Firms in the agri-food industry are embedded in a system of institutions, regulations and policies that shape their economic environment and affect their conduct and performance. Changes in this system can propose new challenges for the firms that need to adequately and efficiently change and adapt to the emerging environment. The following article examines how deep structural changes in the institutional and regulatory setting can be effectively addressed by organizational innovation and what can be the catalysts behind a successful innovation effort. In doing so the analysis examines the case of Valio, the largest Finnish dairy company and its reconstruction effort due to Finland’s EU accession in 1995. After years of restructuring and changing its business model the company remains a major player in Finland and one of the most well-known brands in the region

Mental Frames and Organizational Decision-making: Facing the Challenges of Change

Adjusting to the strategic, business and economic changes requires efficient decision-making procedures which can in turn be highly affected by the underlying mental frames that the leaders of the organization hold. This article examines the impact of these mental frames on decision-making with respect to a specific attribute of a decision-making process: the belief that a CEO of a co-operative holds regarding member commitment. The analysis develops a simple theoretical model that shows how the co-op CEO’s obsolete mental frame creates distortions on decision making that can have negative effects on co-op’s strategic decisions and its market share. The starting point of the analysis is the case of the Saskatchewan Wheat Pool (SWP) – a Canadian grain handling, agri-food processing and marketing company that had little success in adapting to the changing economic environment of the Canadian agriculture.Industrial Organization,

Learning for Sustainability in Horticultural Production in Arctic Norway

Sustainability learning is gaining popularity as an important field within sustainability research, where farm sustainability can be understood as a learning process. In this study, we seek to reveal the sustainability learning process of farmers, utilizing a framework distinguishing contextual factors (where? and when?), knowledge (what?), motivation (why?), and process (how?). The article presents a participatory inquiry mixed-methods approach, utilizing results from sustainability assessments on five farms with the SMART-farm tool as a unifying starting point for further discussions on sustainability learning in farmers' interviews and stakeholder workshops. Empirically the study is set in the horticultural production in Arctic Norway, where few studies on sustainability have been undertaken. The study shows how both the complexity of the concept of farm sustainability and contextual factors influence the sustainability learning process, for instance by giving rise to a vast number of conflicting issues while working toward farm sustainability. The sustainability learning process is found to be predominantly a social learning process. The theoretic contribution of the study lies in its novel framework that can be used to reveal important aspects of the sustainability learning process, as well as to contribute to the literature on how to proceed from sustainability assessments to implementation. A key finding from the study is that farmers will require continuous assistance in their processes toward farm sustainability, but for this to be possible, knowledge, sources of knowledge, and learning platforms for holistic sustainability need to be established

Case Study Analysis on Agri-Food Value Chain: A Guideline-Based Approach

This study aims to identify the methods and associated indicators that are commonly used in value chain analyses (VCA) and to determine the areas of interest that have been excluded. Value chain analysis generally includes four different dimensions, which are institutional/functional, economic/financial, social, and environmental. This study has two main sources of literature. The first is the guidelines and the other is case studies on value chain analysis. The case study review is limited by the time between 2000 and 2022. The results showed that the researchers mainly focused on the institutional/functional analysis of the value chain, which is the first step of the analysis. Studies were mostly concentrated on the mapping of value chains, which includes the mapping of agents, core activities, and the marketing channels and flows of products. The second important area of interest is economic/financial analysis. Value added analysis is a top research area on the economical side of the value chain (VC). Consumer behavior and financial analysis are also included in the case studies. The research on consumer behavior of the value chain analysis has focused on the preferences, attitudes, and behaviors of the consumers. Financial analysis is another area of interest which generally concentrates on the cost of intermediate inputs, total output value, net present value, internal rate of return, cash flows and cost of fixed assets, and break-even point. The social and environmental sides of the value chain have been studied with less attention. This is much more important for a sustainable food VC

How to successfully change an organization: management perceptions and practices

Organizational development, change and adaptation are complex and challenging tasks that have been widely studied and debated, spanning from general change models and theories on organizational change, to change management theory and strategy literature. Even though issues surrounding organizational change have been extensively studied, the estimated success rates remain particularly low, thus keeping this kind of studies high in the research agenda. This article examines organizational change and adaptation in the context of institutional change. More specifically, the article examines the case of Valio, the biggest Finnish dairy company, and its reorganization and restructuring during the period surrounding Finland’s assessment to the EU in 1995. Valio’s case is particularly interesting since it involves a well-established “national institution”, with rich history and significant economic contribution to the national economy. The purpose of this paper is to explore how Valio’s managers perceived the organizational change efforts surrounding the period of EU accession and what change practices were followed. In doing so, the analysis adopts the comprehensive qualitative case study methodology having a descriptive and explorative approach. This approach involves several in-depth interviews with key Valio executives, stakeholders, and industry insiders. The analysis maps and identifies key themes and processes that characterized the change strategy and allowed for the successful organizational change.How to successfully change an organization: management perceptions and practicespublishedVersio

Circular Regulations (CR) for Bioeconomy Development

The term Circular Regulations (CR) is introduced to describe a broad regulatory framework, designed with a circular understanding of the economy. Central in this discussion is the transition towards bioeconomy, a term that is not always used consistently, and sometimes treated in the same way as circular economy (CE), although these terms are not necessarily equivalent. In this article we endorse a systemic interpretation of CE, where a continuum of approaches, extending from reusing/recycling/upcycling to refuse/rethink/reduce, gradually replace existing linear “end-of-life” concepts. CE is a key prerequisite for the bioeconomy shift, a transition that further builds on CE, where circular design and processes are further augmented with increased resource utilization and intensive applications of innovative science and technology. The prevailing regulatory arrangements in CE, however, remain either fragmented or largely based on pre-existing policies, drafted to address issues of the linear economy, thus presenting several limitations when dealing with the underlying paradigm shift: complex market relationships that go beyond the standard neoclassical model. CR adopts an encompassing approach to regulatory design; it is not meant to be a rigid set of rules, but rather a regulatory framework where institutions, market rules, and business practice explicitly account for environmental and socially responsible activities, while securing an enabling environment for innovation. CR directly reflects on CE, where bioeconomy growth is informed by science, enabled by technology, driven by business, and supported by relevant policies and institutional frameworks. The article presents a conceptual setting towards CR and a practical example for its development.publishedVersio