From service provider to investment platform? The limits of cooperative upgrading in Vietnam

Abstract

Smallholder farmers in developing countries often face persistent barriers to productive investment arising from fragmented landholdings, limited collateral, and risk-averse decision-making, even where agricultural cooperatives provide valued services. This article examines why locally valued cooperatives struggle to move beyond service provision to mobilise farm investment. Using a mechanism-focused case study in Vietnam, we combine a household survey (n = 52), 15 interviews, financial analysis of irrigation provision, and a review of Vietnam's 2023 Cooperative Law to examine how cooperatives can become trapped in a low-investment equilibrium. While collective irrigation generates measurable cost savings, equality-centred governance, leadership risk aversion, informal land pooling, and subsidy-dependent finance constrain capital formation. More fundamentally, modest and uncertain returns dampen incentives to invest. Governance reform, land pooling, and selective climate-linked finance emerge as conditional pathways rather than straightforward solutions, each involving trade-offs over risk, control, and distribution. Cooperative upgrading is therefore best understood as a constrained and negotiated process rather than a linear transition from service provider to investment platform.