Why does vertical integration work?
Vertical integration in the pasta industry by farmers allows the accumulation of profits at whatever level they may be occurring, whether its in the production of durum, the milling process, the manufacturing process or the distribution process. In the example of the new generation cooperative used above, the net return per bushel to new generation cooperative members fell only 10 cents from 1997 to 1998 even though the price per bushel paid to non-members in the United States fell $1.91. That 10 cent drop may have been due to the increased competition and price reductions in the sale of pasta. Discipline required to achieve success — While this good news is simple, achieving these results are complex. Vertical integration through a new generation cooperative requires several disciplines that many farmers find difficult. Equity investment — The first discipline is an equity investment proportional to the patronage of the cooperative. The farmer must purchase one equity share for ever
