A comparative study of two smallholder dairy cooperatives in Kenya examines the question: what factors are conducive to producing sustainable smallholder cooperatives that can gain entry into the vertical value chain in liberalized post-colonial economies? The relative weight of income advantage; selective individual incentives and, social capital on maintaining member patronage are assessed within variable environmental constraints and opportunities facing different cooperatives. The methodology includes case study observation of the cooperatives during a five-year period, as well as sample surveys of members and non-members that include indicators of dairy income; reasons why farmers elect to join or not join the cooperative; and assessments of the importance of different services provided by the cooperative. The findings show how the relative weight of specific incentives for cooperative membership can vary from one environment to another within the same nation. The most important finding is that maintaining sustainable smallholder cooperatives within an increasingly competitive environment depends on the ability of managers to create business strategies that are compatible with the cooperative’s environmental constraints but, at the same time, incentivize members’ patronage
