Multicriteria Analysis and Assessment of Financial

Viability of Agribusinesses: The Case of Marketing

Co-operatives and Juice-Producing Companies
George Baourakis
Department of Economics, Management Sciences and Marketing,
Mediterranean Agronomic Institute of Chania, P.O. Box 85,
73 100 Chania. Crete, Greece
Michael Doumpos
Department of Production Engineering and Management, Financial
Engineering Laboratory, Technical University of Crete, University Campus,
73 100 Chania. Crete. Greece
Nikos Katogeras
Department of Economics, f\Aanagement Sciences and f\Aarketing.
Mediterranean Agronomic Institute of Chania, P.O. Box 85, 73 100
Chania, Crete, Greece
Constantin Zopounidis
Department of Production Engineering and Management. Financial
Engineering Laboratory, Technical University of Crete. University Campus,
73 100 Chania, Crete, Greece

ABSTRACT
Our main purpose here is to assess the viability of Greek companies that operate in the field of
agriculiural food-product ion and marketing. More specifically, we present the hasic operational
framework within which the agriculiural organizations of co-operatives operate; we also examine
the main features of the juice market. The analysis concerns the periods 1^93-1^98 (for lhe co-
operatives) and 1994-I99H (for juice-producing firms), and is based upon the linancial character-
istics of 10 agricultural co-operative organi/aiions and 2 investor-owned firms established and
operating on the largest Greek island, Crete, and the 15 largest (in economic and Unancial terms)
juice-producing companies in Greece. The assessment procedure includes data analysis techniques
in combination with a multicriteria analysis method (the PROMETHEE II method). The analysis
results in an overall ranking of the examined firms' performance. This indicates lhe strengths and
weaknesses ofthe firms involved with regard to their financial behavior, thereby contributing to the
identification of the imperfections of the examined firms. ) 20<)2 Wiley Pericxlicals, Inc.

1. INTRODUCTfON
Since 1980, the European food industry has experienced significant and rapid changes
toward a more concentrated and internationalized structure. Some countries and food sec-
Agribusiness, Vol, 18 (4) 543-558 (2002) 2002 Wiley Periodicals. Inc.
Published online in Wiley InterScience (www.intersciBnce.wiley.com). DOI; 10.1002/agr.10031

543
544 BAOURAKIS ET AL.

tors have felt this trend more strongly than others, but no country ur industry sector has
remained unaffected (Bager, 1997). Generally, coping with business risk in agri-business
firms consists primarily of examining price and throughput uncertainty. Eliminating ri.sk
is neither usually feasible, nor wise, as it may eliminate higher profits as well (Zeuli,
1999). Thus, during periods of change, broad discussions, research, academic analysis
and synthesis are necessary for succes.sful renewal of different types of enterprise (Eger-
stonet al.. 1995).
Economists and financial analysts have long been preoccupied by the perfonnance eval-
uation of agricultural enterprises (Getzlogiannis, 1997). A large body of literature exists
in the field of risky decision making in agriculture, both at the theoretical and empirical
level. An overview ofthe application of decision analysis in agriculture is presented by
Dillon (1971), Anderson etal. (1977). and Barry {1984). Within the theoiy of industrial
organization there also exist formal measure.s of performance that are well established
(Ferrier& Porter, 1991, Porter & Scully, 1987; etc). Additionally, from the earliest days,
purely quantitative sciences have played a more crucial role in agricttlturai decisionmak-
ing processes as a field of study than in any other area of applied economics. Operation
Research methods have proved to be among the tnost powerful tools of analysis for re-
source allocation choices at the firm and sector level (Hazell & Norton, 1986), and for the
assessment of financial risks (Zopounidis, 1998).
It is widely accepted that traditional principles and values of co-operatives give rise to
a financial performance that may differ significantly from that of investor-owned firms
(lOFs), (Caves & Peterson, 1986; Staatz, 1984). Nevertheless, the successful market ori-
entation for both, co-ops and IOFs that operate in the agri-food sector, is based on a range
of organizational choices^joint ventures, long-term contracts, and strategic alliances
which increases the interdependence and ensures the ability to produce to specification
(Akridge & Downey, 1995). But, shifts in customer requirements, emerging competitors,
and technical and organizational innovations make markets fluid and complex, compel-
ling agri-business firms to become market oriented (Day, 1994). Therefore, lo anticipate
change and respond to trends and concurring events, organizations should learn to act
faster than their competitors (De Geus, 1998; Senge, 1990).
Based on this scientific direction, in this article an evaluation will be conducted as to
the financial performance of agricultural companies (ACOs) and IOFs. The assessment
will proceed by uEilizing and combining data analysis techniques with multicriteria analy-
sis. The main purpose is to provide the decisionmaker with modern tools that enable bim
to advance in quickly solving a problem where several, often conflicting multiple criteria
must be taken into consideration. Data analysis (principal components analysis) is used
to identify the major financial factors (financial ratios) that describe the financial perfor-
mance of Greek ACOs and juice-producing companies throughout the whole examined
period. Multicriteria analysis is employed in a second stage to provide an aggregate eval-
uation ofthe financial performance ofthe ACOs and the juice-producing companies based
on the financial ratios identified through principal components analysis. The obtained
evaluation is realized through the development ot a decision model that aggregates all
financial ratios to provide an individual score for each ACO/juice-producing firm. This
score constitutes tbe basis for ranking the considered firms from the ones with the highest
financial performance to the ones with the lowest financial perfonnance. Such an eval-
uation provides useful information to the managers of the ACOs and the juice-producing
companies, enabling them to assess the relative financial performance of their firms com-
pared to other firms operating in the same sector. Furthermore, this evaluation is useful to
 MARKETING CO-OPERATIVES AND JUICE-PRODUCING COMPANIES 545

policymakers in identifing problems in tbeoperationof the ACOs atid the juice-producing

cotnpanies and proceed with the necessary policy measures to address these probletns.
We've organized this article into four sections. Section 2 briefly presents a market
outlook for the ACOs and the juice-producing companies in Greece, respectively. Sec-
tion 3, provides a description of the methodological framework that is used in the analy-
sis of the financial viability of the examined firms. The fourth section elaborates upon tlie
results obtained and relevant conclusions and recommendations are drawn.

2. MARKETING CO-OPERATIVE AND JUICE-PRODUCING

COMPANIES IN GREECE: CURRENT SITUATION
The etnpirical domain of this study is the agri-food sector. In view of the serious chal-
lenges of feeding a world-population that reached 6.1 billion in mid-2000 and is likely to
approach 9.3 billion in 2050 (DESA, 2000), it has quickly become relevant to pay atten-
tion to tnarketing-management and financial issues in this sector. To enhance the focus of
this research within the broad agri-food sector, attention has been aimed at the ACOs and
the juice-producing companies in Greece. In this section, the nature and current market
outlook within which the examined firms operate will be examined.

2.1. ACOs in GREECE

During the 20th century, the co-op movement flourished around the world despite some
setbacks and many continuing challenges. Almost every country in the world possesses
co-op organizations (van Dijk, 1997). ACOs are the main carriers of the economic inter-
ests of people who live and work in the rural areas of Greece. Through co-ops, farmers
aim to achieve the advantages of the big economic units (Kyriakopoulos, 1997). The
annual reports of the co-operative activities published by the Agricultural Bank of Greece
(ABG, 1971-1990) show tbat cooperative membership reached almost 10% of the total
fann population, or about 25% ot the total labor force, which is almost 800,000 farmers.
Moreover, these reports provide evidence that the co-ops' structure, throughout the pe-
riod 1971-1990, can be characterized by a small average-size (120 members) and a large
number (7000) of local co-ops (1st degree co-ops), which were operating at a village
level and at the time, were focused on the supply of farm inputs and limited processing.
These organizations merged form 132 agricultural unions (2nd degree co-ops) that oper-
ate on a regional basis and account for almost half of the aggregate co-operative market-
ing activities. The co-operative structure also includes 10 central unions (3rd degree
co-ops) that mainly specialize in the marketing of specific products (i.e., olive oil, wine,
citrus-fruits, etc) and operate at a national level.
Greek accession to the European Union (EU) had an impact on the growth of market-
ing co-operative activities; the annual increase in shares was significant for the marketing
co-operatives (Oustapassidis et al., 1995). According to the results of a recent study
(Baourakis et al., 2000) the relative numbers for the Greek agricultural industry com-
pared with 14 other countries of the EU, are not only indicative but also worrying. Tbe
number of fanners working in agriculture is 3'times that of those working in the same
sector in the EU. In addition, the membership ofthe local co-ops in Greece is equal to the
average number of European market states' co-ops. However, tbe phenomenon of break-
ing these co-ops into smaller units has led to the situation in which Greek co-ops are up
546 BAOURAKIS ET AL.

to 3-times (6,920) more than the EU average (2,300) while their tumover (0.8 billion
EUROs) is I8-tinies less than the EU average (14.2 billion EUROs).

2.2. Juice-Producing Companies in Greece

A significant part of ACO production (fruit and vegetables) is supplied to the Greek juice
industry. According to a recent study conducted by the Hellenic Foundation of Economic
& Indu.strial Research (lOBE, 1996) there are many companies producing fruit juices in
Greece. Most of them are small in economic size and work on behalf of larger companies.
The juices produced are almost the same, with some exceptions, which is why companies
seek to enhance their differentiation through advertisetnents, price policy and/or even
packaging.
The juice market is divided into two main categories: long-life juices (which hold 70%
of the market) and pasteurized or short-life juices (which make up 30% of the tnarket).
An increasing demand for natural juices and nectar has been observed in the Greek mar-
ket, thereby causing a decline in the demand for condensed and concentrated juices. The
bigge.st producerin economic and financial termsof fruit juices in Greece is the Hel-
lenic Bottling Company S.A. This company produces a large variety of natural fruit juices
and has the trademarks Amita and 3E. The main competitors of the Hellenic Bottling
Company S.A in the Greek market are Delta S.A. and EVGA S.A. These companies mainly
concentrate on the production and marketing of dairy products. The fact that they are
major competitors with highly diversified products means that they tend to follow each
other's activities. At the same time, they have very strong brand names and therefore hold
high market shares in the Greek fruit-juice market.
Despite the total prodttction of citruses, in 1997-1998 the imported quantities of cit-
ruses amounted to 1,227,000 Mt due to the high consumption of fresh fruit inside the
country (NSSG, 1997-1998). Meanwhile, during the same period the total exports to EU
countries almost doubled (from 2,596 Mt to 6,121 Mt) due to a smaller orange crop in
Brazil and Florida, which suffered a respective 23% and 25% reduction in crop produc-
tion due to unfavorable weather conditions. As a result, their prices increased, an event
that helped the export of the Greek product at a profitable price (lOBE, 1996). This fact
stimulated Greek juice-producing companies to have a broader, mainly European, market
orientation. For the time being, the main markets for the Greek juice-producing compa-
nies are the domestic and Central and Eastern European countries.
Therefore, the Greek juice industry seems to be unfamiliar with the concepts of export
structures or business holdings. Only by encountering other external forces does it reach
market-oriented, profitable levels. Psallas (1996), points out that the high competition
and the business risk in the juice and soft-drink industry witbin and beyond Greek bor-
ders is easily identified. It is based on the introduction of a series of new products, coor-
dination of marketing channels, and intensive advertising. Within the next few years, it is
expected that this competition will becotne more intensive.

3. METHODOLOGICAL FRAMEWORK
Eor the purposes of our investigation, the sample includes different business fortns (co-op
organizations and lOEs). Tbe source of the empirical research is the ACOs established
in Crete (the largest Greek island) and Greek juice-producing companies. The common
characteristic of the two groups is, tnainly, that they both belong to the same industrial
 MARKETING CO-OPERATIVES AND JUICE-PRODUCING COMPANIES 547

sector and produce similar products. The sample selection was also made based on the
idea that the application of the methodology suggested in the current work, can be ap-
plied to different business fortns that function more or less in the same economic and
business environment and face almost the same levels of financial risk and market
uncertainty.
For juice-producing companies which were examined in the same category as well as
the IOFs examined in the group of ACOs, appropriate financial information was gathered
for the period 1993-1998 and 1994-1998, respectively from the database of ICAP Hel-
las. ICAP Hellas is a Greek company that provides integral financial information and
business consulting. Additionally, to gain a general idea ofthe examined ACO activities,
the financial data/structure, and the way that they were organized, personal interviews
were conducted with their accounting managers and staff.
Concerning ACOs, tbe case of the island of Crete was selected. Crete is located on the
southern border of Europe. The Cretan ACOs constitute a significant part of the agricul-
tural movetnent in Greece. According to recent .statistical data (NSSG. 1997-1998) the
agricultural unions in Crete comprise a high sbare of the co-op movement in Greece.
They comprise almost 10% of the total number of agricultural unions of co-op members
in Greece. These members belong to 624 first-degree co-ops, which are formed from 16
agricultural unions of co-ops and a central union (Central Agricultural Union of Chania).
Also, Crete possesses the second highest percentage of people (almost 85%) who are
involved in the co-ops of Greece. The main products that are produced by these unions
include olive oil, oranges, and vegetables.
By conducting personal interviews with the managers of Cretan ACOs it was discov-
ered that most ACOs were established many decades ago. Therefore, they have a history
based on old-fashioned co-op values and principles. Therefore, the administrations of the
central unions, agricultural unions, and local co-ops u.sually face problems in adapting to
new situations and to the rapidly changing demands of modern business.
On the other hand, the choice for examining the juice-producing companies was based
mainly on the existing trends in this sector. Currently, the main features of the market
include: (a) market and policy adjustments to eliminate excess capacity (high availability
of differentiated produce in EU food markets; production quotas), (b) different product
assortments which are required to attain success in a market which has changed from a
seller's market to a buyer's market, and (c) the emergence of the internal market in Eu-
rope which induces many merger activities and which has resulted in a few large, multi-
national private corporations.
More specifically, the sample selection was made by taking the following specific cri-
teria into account; these are described below:

I. Concerning the case of tbe ACOs, the selected ones were the unions of co-ops lo-
cated in the capital areas of the Cretan prefectures (Heraklion, Chania, and Re-
thymnon), some other unions selected from all over Crete (lerapetra, Apokorona,
and Sfakia, Kolimvari, and Kissamos) according to their financial and economic
size, and also two first-degree co-ops (Koutsoura and Archanes) which have pro-
vided an interesting entrepreneurship profile over the last 5 years. Finally, two
investor-owned firms (IOFs). VIOCHYM and AVEA, are examined. Both firms are
located in the prefecture of Chania, are totally market-oriented and operate in their
own respective markets (VIOCHYM in the juice market and AVEA in the olive oil
market).
548 BAOURAKIS ET AL.

2. On the other hand, in relation to juice-producing companies, it was not possible to

include all producers (for example, co-ops which are not obliged to publish infor-
mation, highly diversified firms whose main activity is not the one under exami-
nation in this study, and very small-sized firms) due to information obstacles. All
the selected firms are of similar size in terms of total assets.

A number of ratios have been found to be useful indicators of financial performance

and risk-bearing ability of the firms and co-ops under exatnination. These ratios could be
grouped into three categories (Courtis, 1978): profitability, solvency, and managerial per-
formance. These ratios are pre.sented in Table 1.
The evaluation of the financial performance and viability of the selected firms and
co-ops has been carried out using the PROMETHEE II mullicriteria method (Preference
Ranking Organization Method of Enrichment Evaluations; Brans & Vinckc, 1985). This
method provides the decisiontnaker with problem-solving tools in situations where sev-
eral, often confiicting multiple criteria must be taken into consideration. The PROMETHEE
il method is known to be one of the most efficient and simplest multicriteria methodol-
ogies. It is based on the outranking relations concept that was originated and developed
by Bertrand Roy (1968). Roy defined the outranking relation as a binary relation, S, be-
tween alternatives ;/and/? in a given set of alternatives,^, such that /S/J((/outranks 6) if
there are enough arguments to decide that a is at least as good as h, while there is no
essential reason to refute that statement.
The construction of the outranking relation through the PROMETHEE II method in-
volves the consideration ofthe performance ofthe alternative.s in a set of evaluation cri-
teria. Each criterion is given a weight,/^, depending on its importance. The weight increases
with the itnportance of the criterion. The criteria's weights constitute the basis for the
assessment of the degree of preference for alternative a over alternative h. This degree is
represented in the preference index 7r((/,/j):

>=l

TABLE 1. Financial Ratios Used in the Evaluation of ACOs

and Juice-Producing Companies
Codification Financial ratios
NI/NW Net income/Net worth
EBIT/TA Earning before interest and taxes/Total assets
GP/SALES Gross protlt/Sales
Nl/SALES Net income/Sales
TL/TA Total liabilities/Total assets
CA/CL Current assets/Current liabilities
QA/CL Quick assets/Current liabilities
LTD/(LTD+NW) Long-term debt/(Long-term debt+Net worth)
IN V X 360/S ALES Inventory X36O/.Sales
ARCX360/SALES Accounts receivablesX360/Sales
CLX36(VCS Current liabilitiesX360/Cost of sales
 MARKETING CO-OPERATIVES AND JUICE-PRODUCING COMPANIES 549

The preference index for each pair of alternatives {a,h) ranges between 0 and 1. The
higher it is (closer to 1) the higher the strength of the preference for a over h. Hjid) is an
increasing function ofthe difference, d, between the performances of alternatives a and h
on criterion /. Hj(d) is a kind of preference intensity {Vincke, 1992). The //, function can
be of different forms, depending upon the judgtnent policy of the decisionmaker. Gener-
ally, six forms ofthe H function are comtnonly used (see Table 2).
For the purposes of this study the Gaussian form of the Hj was used for all financial
ratios. The use of the Gaussian form requires only the specification of the parameter cr.
This function is a generalization of the other five forms, while the fact that it does not
have discontinuities contributes to the stability and the robustness of tbe obtained results
(Brans etal., 1986).

TABLE 2. Forms of the Preference Function (Source; Brans et al., 1986)

Graphical form of
generalized criteria Parameters
I. Usual criterion

II. Quasi-criterion

III. Criterion with linear preference

IV. Level criterion

-a

V. Criterion with linear preference & indifference area q.p

VI. Gaussian criterion

550 BAOURAKIS ET AL.

The results of the comparisons made for all pairs of alternatives (a.b) are organized
in a graph (value outranking graph). The nodes of the graph represent the altematives
under consideration (firms, co-ps, etc.), while the arcs between nodes a and h represent
the preference of altemative a over alternative h (if the direction of the arc is a^b) or the
opposite (if the direction of the arc is a<b). Each arc is associated with a flow repre-
senting the preference index 7r(, b). The sum of all flows leaving a node u is called the
leaving flow of the node, denoted by (p^i,a). The leaving flow provides a measure of
the outranking character of alternative a over all the other alternatives. In a similar way,
the sum of all Hows entering node a is called the entering flow of the node, denoted by
^"(fl). The entering flow measures the outranked character of alternative compiu-ed to
all the other alternatives. The difference between the leaving and the entering flow [ip{a) =
(p'^(a)- v'(rt)] provides the net flow for node (alternative) a which constitutes the over-
all evaluation measure of the performance of alternative a. On the basis of their net flows
the altematives are ranked from the best (altematives witb bigh positive net flows) to the
worst (alternatives with low net flows).
By using the methodology described above, the PROMETHEE II contributes signifi-
cantly toward making an integrated and rational evaluation and assessment of the perfor-
mance and viability of the ACOs and juice-producing companies exatnitied in this study
by specifying the impact of all those factors (financial ratios) on them.

4. RESULTS AND DISCUSSION

In the first step of the evaluation of the financial performance and viability of the con-
sidered ACOs and juice-ptoducing companies, a multivariate statistical analysis was con-
ducted, namelyprincipal components analysis. Principal components analysis is applied
to select a limited set of financial ratios that best describe the financial performance of
the sample throughout the considered time period. Principal components analysis was
applied sepatately in each year (1993-1998 for the co-ops and 1994-1998 for the fruit
juice companies) to find the most important financial ratios for every examined 1-year
period of this study. In each year, 3-4 principal components corresponding to eigen-
values higher than 1 were extracted. In all cases the cumulative percentage of the
total variance explained by the extracted components is at least 70% (Table 3). In
most cases (Table 4) the first principal components (those that explain most of the vari-
ance) involve the profitability and the solvency (including liquidity), thereby highlight-
ing the significance of these two factors in characterizing the financial status of the
considered firms.
The component loadings of each ratio were used for the selection of the most signifi-
cant financial ratios. In particular, the most frequently appearing ratios were those that
were finally selected lor further investigation during the assessment ofthe performance
and viability of the considered ACOs and juice-producing companies. The summarized
outcomes of this analysis are presented in Tables 5 atid 6. The.se tables present the ratios
that were found to have the higher loadings in the principal components developed for
each year (the corresponding ratios are marked with "+''). Ratios with high loadings are
the ones with higher explanatory power with regard to the financial characteristics ofthe
considered ACOs and juice-producing companies. The last column of both tables illus-
trates the frequency of each ratio selected as a significant explanatory factor according to
the results ofthe principal components analysis. On the basis of this frequency, a limited
set of financial ratios is selected to perform the evaluation of the ACOs and the juice-
 MARKETING CO-OPERATIVES AND JUICE-PRODUCING COMPANIES 551

TABLE 3. Variance Explained by Each Principal Component (% of Total Variance)

ACOs and IOFs

p. 2 til! 3rd 4"* Cumulative
Component Component Component Component variance
1993 34.44 20.91 17.62 72.97
1994 42.72 25.95 10.39 9.10 88.16
1995 40.32 28.82 13.03 82.17
1996 40.76 23.87 13.25 9..'>4 87.42
1997 43.46 24.54 13.44 81.44
1998 39.61 25.23 15A0 80.24
Juice-producing companies
1994 36.28 25.59 14.67 76.543
1995 51.03 16.68 11.59 79.305
1996 35.04 25.12 16.44 9.67 86.276
1997 41.75 19.32 14.41 10.44 85.916
1998 37.89 18.41 12.84 11.27 80.411

TABLE 4. Principal Components Interpretation

ACOs and IOFs
4.I'
Years Component Component Component Component
1993 Profitability Credit policy Liquidity
1994 Solvency Profitability Inventory management Gross profit
Credit policy Long-term financing margin
1995 Solvency Gross profit margin Profitability
Credit policy Inventory management Long-term financing
1996 Profitability Liquidity Credit policy Profitability
Total debt capacity Long-term
financing
1997 Liquidity Profitability Inventory management
Long-term financing
1998 Solvency Profitability Gross profit margin
Inventory management
Juice-producing companies
1994 Solvency Profitability Long-term financing
1995 Solvency Profitability Profitability
1996 Profitability Liquidity Total debt capacity Inventory
Long-term financing management
1997 Profitability Liquidity Total debt capacity Inventory
Long-term financing management
1998 Long-term Liquidity Profitability Inventory
financing management
552 BAOURAKIS ET AL.

TABLE 5. Significant Financial Ratios Selected Through Principal Components Analysis

for ACOs and 2 IOFs
1993 1994 1995 1996 1997 1998 Frequency
NI/NW -I- + ^. 3
EBIT/TA + + + 3
GP/SALES + + + 3
NI/SALES + + 2
TL/TA + -^ 2
CA/Cl + + + 3
QA/CL + +2
LTI)/(LTD +NW} + + ^ 3
lNVx360/.SALES + + 4- 3
AfiCxJ60/SALES + + -I- 3
CLX 360/CS -I- ]

producing cotnpanies (the selected ralios appear iti italics). In partictilar, the ratios se-
lected for the evaluation of the cooperatives' financial performance are the profitability
ratios: NI/NW, EBIT/RA, GP/SALES; the solvency ratios: CA/CL, LTD/(LTD + NW);
and the managerial performance ratios: INV X 360/SALES, ARC X 360/SALES. Sitn-
ilarly, for the evaluation of the financial performance of the juice-producing companies,
the selected ratios include the profitability ratios: EBIT/TA, NI/SALES; the solvency
ratios TL/TA, LTD/(LTD + NW); and the managerial performance ratios: INV X 360/
SALES. ARC X 360/SALES. CL X 360/CS. Overall, it is worth noting that the results
shown in Tables 5 and 6 indicate the higher stability ofthe principal components analysis
results in the case of the juice-producing companies. This is due to the fact that these
cotnpanies operate in a much more stable corporate environment, and are of a larger size.
Furthermore, some of them have developed significant activities abroad. On the other
hand, ACOs are much more vulnerable to unexpected events, such as price changes, weather
conditions, public funding changes, etc., and consequently, their financial characteristics
are more unstable from year to year. It is also important to note that the linancial ratios

TABLE 6. Significant Financial Ratios Selected Through Principal Components Analysis

for the Juice-Producing Companies
1994 1995 1996 1997 1998 Frequency
NI/NW + + 2
EBIT/TA -h + + 3
GP/SALES + +2
NI/SALES -I- + + + 4
TL/TA 4 + -t- + + 5
CA/CL + +2
QA/CL + + 2
LTD/(LTD-hNW) + -I- +3
INVx36()/SALES + + + 3
ARCX360/SAI.ES + + + 3
CLx 360/CS + + f + 4
 MARKETING CO-OPERATIVES AND JUICE-PRODUCING COMPANIES 553

selected on the basis of this procedure cover all aspects of Ihc financial performance of a
corporate entity as defined by Courtis (1978), including profitability, solvency, and man-
agerial performance.
Taking into consideration the limited number of ratios, which were derived from the
above procedure, an assessment ptocedure through the PROMETHEE II method was also
carried out. As previously mentioned, this application requires the determination ofthe
appropriate evaluation criteria (the financial ratios which were selected through the prin-
cipal components analysis) and also the shape of the //, function for each selected eval-
uation criteriony. The shape of Hj function that was selected for every financial ratioy. is
Ihe Gaussian form (Gaussian criterion) defined as follows: Hj{d) ^ I - exp(t/VSo"'),
where d is the difference among the performance level of co-ops and juice-producing
companies u and b for the financial ratio gj [d = gj{a) gjih)], and (T is the standard
deviation of the ratio gj.
Because there was no financial specialist involved in the study to determine the weights
of the selected financial ratios, different scenarios were examined to discern the signifi-
cance of the selected ratios tested. The seven scenarios that were investigated covered
representative examples ofthe weighting schemes that one could apply in considering the
significance of profitability, solvency, and managerial performance during the corporate
assessment process. These scenarios are presented in Table 7, and take into consideration
the categorization ofthe selected financial ratios following the scheme described above.
For eaeh weighting scenario, a different evaluation of the considered ACOs and juice-
producing companies is obtained using the PROMETHEE II method. In particular, for
each scenario the ACOs and Juice-producing companies are rank-ordered from the ones
with the highest financial performance (o the ones with the lowest financial performance.
The ranking is determined on the basis ofthe net fiows obtained through the PROMETHEE
II method (high net flow corresponds to high financial performance and vice versa). Table 8
illustrates the average ranking of the ACOs obtained for each year of the analysis along
all seven weighting scenarios (smaller values for the ranking indicate better firms). To
measure the similarities ofthe results obtained for each scenario the Kendall's coefficient
of concordance (Kendall's W) is used. The possible values for the Kendall's VVfall in the
interval 0 to I. If the Kendall's Wis I, then this means that the rankings for each weight-
ing scenario are exactly the same. As it is presented in Table 8, in ull years the Kendall's
W is very high (in all cases above 0.9^significant at the 1% level). This indicates that the
results obtained from PROMETHEE I! are quite robust for different weight scenarios,
thus increasing the confidence in the results that are obtained frotn this analysis. The
Kendall's W h also employed to measure the similarities between the rankings through-

TABLE 7. Weighting Scenarios for the Application of the PROMETHF.E 11 Method

Profitability Solvency Managerial performance
Scenario 1 50.0% 33.3% 16.7%
Scenario 2 16.7% 33.3% 50.0%
Scenario 3 16.7% 50.0% 33.3%
Scenario 4 50.0% 16.7% 33.3%
Scenario 5 33.3% 50.0% 16.7%
Scenario 6 33.3% 16.7% 50.0%
Scenario 7 33.3% 33.3% 33.3%
Y: Within each category of financial ratios the corresponding ralios are considered of eqtial importance.
554 BAOURAKIS ET AL.

TABLE 8. Average Ranking of ACOs and Two IOFs for the Years 1993-1998 Considering
All Senarics
Average
1993 1994 1995 1996 1997 1998 ranking
HKRAKLION 11.42 10.00 5.85 10.00 8.57 8.42 10"'
VIOCHYM 7.71 4.28 3.42 4.14 2.71 1.00 4 I'll
AVEA 8.85 9.14 11.28 10.28 12.00 3.14 II"'
KOUTSOURAS Co-op 2.71 1.00 1.42 2.14 2.28 4.00 p,
CHANIA 1.42 2.42 2.85 1.42 3.42 *
KOLIMVARI 6.00 7.85 7.28 6.42 7.28 7.14
KISSAMOU 3.85 7.42 6.85 10.00 10.28 10.00 8"'
APOKORONAS & SFAKIA 5.14 2.57 3.14 3.14 3r.1
1.57 3.28
PEZA 3.14 11.00 10.00 9.85 10.14 11.00 12'''
lERAPETRA 8.42 6.57 10.00 Till
7.28 5.28 6.00
RETHYMNON 8.42 4.85 8.00 5.00 6.57 3.85 5'"
ARXANES Co-op 10.85 10.85 7.57 8.28 7.85 8.28
Kendatr.tW 0.918 0.920 0.943 0.944 0.903 0.915
NoU'.s: *Diita not
The lasl column (average ranking) refers to the whole time period.

out the years. In the case of the ACO.s this is 0.732, which is significant al the 1% level
indiciiting that the evaluations obtained in each year are quite similar.
The results from the above table reveal that the best firm, ranked first, throughout the
years and for all scenarios is the agricultural co-op of Koutsouras. This result is quite
interesting because the Koutsouras co-op is much smaller in financial lerms in compar-
ison with the majority ofthe examined businesses in this category. The agricultural co-op
of Koutsouras is involved in the prodtiction and marketing of greenhouse products. Its
operations are mainly aimed at the production, distribution, and trade of the members"
products in both domestic and foreign (Western European) markets. In other words, this
co-op presents an integrated dynamic and flexible business scheme, while at the same
time it succeeds in keeping its overhead costs at low levels.
Also, the behavior of VIOCHYM Co., which is one of the two examined IOF'sin this
category, i.s quite interesting. It seems to have improved its ranking position every year
throughout the examined period. This is due to some changes that this firm implemented
in its strategy. It applied a strategy plan by adopting new production methods. Also, ii
made an attempt to reorganize its management, which apparently turned out to be a success.
Finally, except for the Union of Agricultural Co-ops of Cbania, which is ranked sec-
ond, the rest ofthe unions which are located in the capital area of each Cretan prefecture
are ranked in much lower positions. These results indicate their tow degree of entrepre-
neurship, flexibility, and financial and managerial performance during the examined period.
The corresponding results obtained by examining the juice-producing companies, are
summarized in Table 9, Similarly in the case of ACOs, the Kendall's W for the rankings
obtained along different weighting scenarios in each year is {in all cases) quite high (higher
than 0.8). The Kendall's IV for all years is 0.686 (significant at the 1% level), which is
lower than the corresponding Kendall's W identified in the case of the ACOs (0.732). This
is due to some significant differences in the evaluations that some small juice-producing
 MARKETING CO-OPERATIVES AND JUICE-PRODUCING COMPANIES 555

TABLE 9. Average Rankings of the Juice-Producing Companies for the Years i 994-1998
Considering AH Scenarios
Average
1994 1995 1996 1997 1998 ranking
FRUIT HELLAS 7.50 7.70 14.71 15.00 14.10
GERBERPRIDE 12.29 12.86 13.29 13.14 13.20 14'"
PEPSICO 9.40 !l.7i 9.43 11.00 n.7o
SMITH KLINE BEECHAM 10.29 tO.43 10.71 14.40 15'^
AINOS lONIOU 2.40 15.00 12.86 10.57 4.00 11"'
ASTIR 9.00 3.70 4.86 3.40 2.70 4rih
VELK 5.00 7.20 3.43 2.70 4.50
GRANINl 5.70 9.40 7.29 6.40 8.70
3E L50 LOO 1.29 9.40 3.40
10.29 9.70 6.7! 2.80 7.00 aih
DEL MONTE
ELCHYM 2.10 2.40 1.71 LOO 1.00 p.
BONO INTERNATIONAL 7.40 5.70 7.43 6.10 6.70 5">
FLORINA 8.10 5.70 8.57 8.50 10.20
PSIGIAAGIAS 10.00 3.40 5.(X) 7.40 10.00 7.b
VIOCHYM 14.43 14.00 13.00 11.57 8.00 IT*'
Kendall's W 0.845 0.939 0.917 0.872 0.924
Nore: The lasl column (average ranking) refers to the whole lime period.

companies receive each year (e.g., Ainos Ioniou, Del Monte, Psigia Agias). This indicates
that smaller juice-producing firms are in vulnerable financial condition.
Thf high concentration ratio of the Greek juice market indicates that there are only a lew
company leaders in the market, despite the considerable number of firms. This is a char-
acteristic of an oligopolistic market, whichbestdescribes the juice market in Greece. The
first three companies according to average ranking considering all years and scenarios are
ELCHYM, 3E, and VELK. ELCHYM. ranked first, works on behalf of 3E, which is a big
company with many subsidiaries abroad (3E is ranked second). Some of these subsidiaries
are profitable, while others are not. Furthermore, 3E has the biggest variety of products at
competitive prices. VELK which is ranked third in the niulticriteria analysis, also worked
for 3E S.A. The other companies were small and simply followed the leaders.

5. CONCLUSIONS & RECOMMENDATIONS

We have examined empirically the financial performance of cooperative firms and IOFs
that operate in the Greek agro-food sector. Our goal was to verify the strengths and weak-
nesses of the firms involved with regard to their financial behavior.
The above-mentioned developments in the rapidly changing market environment are
not uniquely Greek or European. Now, despite the high quality standards of Greek prod-
ucts, Greek agricultural firms are faced with high tluctuations in demand, low-selling
prices, and total absence of recognizable brand names. Furthermore, the absence of com-
petitive market strategies (i.e., product differentiation, market segmentation, specializa-
tion, and diversification) prevents increases in profit margins and expansions in demand.
Moreover, within the restructuring of the European foodstuff and drinks market, Greek
agri businesses should be able to plan and materialize their development plans. These
556 BAOURAKIS ET AL.

should include strategic decisionmaking processes, aimed at strengthening their domestic

role, as well as expansion into new markets. The financial behavior of the examined ACOs
and juice-producing companies is not the result of a reduction in true unitary factor costs,
but rather a spin-off result of their upgraded bargaining power as this occurs concomi-
tantly with size increases.
However, empirical evidence states that agribusiness cooperative firms have the op-
portunity to take advantage of .several new contingent claim contracts in the capital mar-
ket to mitigate risk (Zeuli, 1999). The current developments in the agribusines.s sector
along a worldwide scale have increased the demand for funds by agribusinesses operating
within national borders. Hendrikse and Veerman (1997), noticed that agribusinesses try
to prevent a situation where the strength of their bargaining position decreases in favor of
multinationals and concentrated retailers. However, they have problems adopting the same
policy as multinational corporations because financial funds are mostly acquired by re-
tained earnings. This way of financing expansions is viable in slowly growing markets,
but it is difficult to deal with a surge In market size to the extent of European integration.
Van Dijk and Poppe (1992) indicate that the acquisition of external funds like bank debt
and outside equity seems inevitable. External funds may be acquired by issuing equity,
using debt, or by some hybrid source of funds.
In agreement with past research results, we believe, additionally, that toward securing
their financial health and competitiveness, agribusiness firms should restructure their op-
eration in such a way as to achieve, on a strategic level, flexible decisionmaking mech-
anisms with effective financial management. This was suggested, more specifically, for
the firms of the Greek agro-food stuff sector.
The constantly developing tools of operational research present a great potential for
supporting such decisionmaking. Through this article we aim to set off an informational
circle regarding the state-of-the-art financial methodological tools offered by the research-
and-application field of operational research. Such methodological attempts help to en-
able the contemporary manager as well as the potential investor in modern farm operations
to achieve effective and timely use of operational research outcomes.
Throughout the present analysis, financial data within a specific time period were used.
However, there is a wider range of other factors that influence the financial viability and
performance of firms. Factors like the relationships with upstream/downstream agents,
market power, intensity of competition, etc., should be placed in the future research agenda
with the aim to enrich quantitative techniques in economics. Here we make a first attempt
to provide evidence that the multicriteria decision aid methodology adopted and utilized
in the above research work, constitutes a major scientific tool that can offer much towards
this aim. Future research should be oriented toward the design of financial instruments
that will maintain the special agribusiness character and will eliminate the inefficiencies
associated with their organizational nature.

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George Baourakis (B.S.. 1981: M.Ed. 19HS: M.A.. 1985: Ph.D., }99^} is the acadenm- and re-
sean-h coonimau>r of Ihe Departmeni of Economics. Monasemeni ScU'nces and Marketing of MAlCh.
He has a wide range of research experience and has participated and/or coordinated a large num-
ber of EU, national, and international re.search projects concerned mainly wiih marketing, con-
sumer behavior, new product design and developmem. and risk management. His main interest is
the theoretical and methodological a.spects of change in the marketing environment with special
attention to consumer behavior attiuuies and beliefs. He can be contacted bv e-mail at
baouraki @maich. gr.
Michael Doumpus ts an adjtmct professor at the Fitiancial Engineering Laboratory of the Depart-
ment of Production Engineering and Management the Techtucal University of Crete. He completed
all his studies at the Technical University of Crete with a B.S. in production engineering and man-
agement (1905). M.S. in production engineering and management (1997). and Ph.D. in operations
research atui financial management (2000). His research interests include multicriteria decision
aid. financial managemettt. operations research, decision support systems, artiftcial intelligence
techniques {expert systems, wugh sets, neural networks}, and multivariate statistical classification
techniques. He can be contacted by e-mail at dmichael@ergasya.tuc.gr.
Nikos Kalogeras iH.S.. 1996: M.S.. 1998: M.A.. 2001) is a doctoral .student at Wageningen Uni-
versity. Department of Marketing and Consumer Behavior .specializing in food marketing. He has
participated in many research projects at the national. EU. and international level directed at
management-marketing. e.xport marketing sttategies. food tnarketing, and agribusiness manage-
ment. He can be contacted by e-mail at kalogeras@maich.gr.
Constantin Znpounidis is a professor of financial managemetu and operations research at the
Financial Engineering Laboratory of the Department of Production Engineering and Management
of the Technical University of Crete. He received his B.A. in bu.siness administration from the Uni-
versity of Macedonia {ThessaUmiki:. 1981). his D.E.A. in fmancia! management from the Unixer-
site de Paris-Daitphine f PARIS IX: 1982). and his Doctorat dETAT in decision sciences from the
Universitt' de Paris-Dauphine (PARIS IX: 1986). His research interests include ftnancial decision-
making (venture capital investment, bankruptcy ti.sk models, country ri.sk evaluation, portfolio se-
lection and management, ftnancial analysis, financial planning, credit .scoring, mergers and
aapvsitions). multicriteria decision aid (new concepts and methods, development of .software, real
world applications), and multictiteria tntelligetit decision support systems (development and im-
plementation in a real world context). He can he contacted by phone at + 30 821-037236, 069551.
by fax at -h 30 821-069410. 037236, or by e-tnail at kostas@ergasya.tuc.gr.