This study deals with one of the main arguments for forming agricultural cooperatives, namely to exploit economies of size. The objective is to empirically investigate if economies of size exists in the Swedish cooperative slaughter industry. Economies of size means that average cost decreases when production expands. Decreasing average cost is according to economic theory regarded as a so called market failure. The implication is that the economic efficiency of the market could be improved. In thethesis there is a discussion about the cooperatively organized firms' possibilities to solve this market failure. Considering the structural change that has occurred in the cooperatively organized slaughter industry it seems relevant to investigate economies of size. For example the number of slaughtering plants has decreased from being 54 in 1960 to just 14 today. The cooperatively organized firms dominate the slaughtering with a market share of 77 per cent. This study is unique in that detailed and partly confidential cost data have been used from all 14 cooperative slaughtering plants that are in operation today. The study includes a total of 59 observations covering the period 1989-1995. Data reveals that three components affected the cost of slaughtering during this time period; the size of the plant, a cost reduction over time and the percentage of beef, hogs and other animals that were slaughtered in a given plant. Various specifications of the cost function are estimated from collected data using regression analysis. Two main models are used, a Cobb-Douglas cost model and a multiproduct cost function. Time trends are included in the models to account for the cost reduction that has taken place during the studied period. All the estimated costfunctions show significant economies of size in the range where the Swedish slaughtering plants are producing, i.e. in the range 1 000 to 100 000 metric ton per year. The most pronounced cost reduction seem to appear when the volume increases up to 50 000 metric ton per year. However, it is hard to draw any conclusions for the range above 50 000 metric ton per year due to few observations. The results suggest that there still exist potential cost reductions in the slaughter industry to capture by rationalizing. In the near future, additional slaughtering plants are expected to close down in an industry that is subject to competitive economic pressure. The fact that the largest cooperative Scan Farmek this year has presented a plan to close down two slaughtering plants, situated in Kil and Varberg, confirms the fact that structural adjustment is still taking place.
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