Recent research has highlighted the importance of agricultural cooperatives on farm production. Although the consensus from the literature suggests that participating in these organizations significantly affects farm production, there is inconclusive evidence on whether this effect is positive or negative. Moreover, previous studies solely focus on the magnitude of this effect and fail to explain the mechanism behind it. This study contributes to this knowledge gap by estimating the impact of agricultural cooperatives on farm profits. To do this, we apply the causal mediation analysis to explain the potential mechanism behind this relationship. Using a nationally representative survey of farm households from Taiwan in 2013, we find that participating in cooperatives increases farm profits. Furthermore, this effect is more pronounced for producers with higher profits. Concerning the mechanism, we find that the use of food labels accounts for approximately 15 to 28% of the total effect of cooperative participation on farm profits.
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