Business Composition and Profitability inRegional Agricultural Cooperatives in Korea

Abstract

This paper examined the pattern of profitability and its determinants across Regional Agricultural Cooperative Societies (RACs) in Jeonbuk and Jeonnam provinces, and Gwangju City. The study used data pertaining to 280 societies for the year 2004. The relation between banking and non-banking business levels was explored first by examining the determinants of deposits and then mutual finance. Then, determinants of gross profits were ascertained using multiple regression framework. Banking business was the main source of profit of RACs followed by non-banking business. Around 10% of the RACs incurred losses on current year’s business, though 7% could offset the losses with non-business profits. The proportion of RACs incurring losses declined compared to the year 2000. Total banking business was over 6 times the non-banking business. Deposits levels were significantly enhanced by increase in member base i.e. quasi members, members. Members contributed to 66 per cent of deposits in rural areas. Quasi members had a share of 77 per cent in urban areas. Non-banking levels of business and deposits had complementary relation. Mutual finance, representing banking business, in turn, was the first ranking determinant of gross profits per society, other determinants being members, quasi members and mart business. Ruralurban differences were prominently noticed.