This thesis is directed at the performance evaluation of therncooperatives sub sector - both at the macro and micro levels- as well asrnthe study of the problems of development of the cooperate vies with arnview of making recommendations which may enhance the development of thernagricultural sector in general and the cooperative sector in particular .rnResults indicate that the performance of the cooperative subrnsector at the macro level have been less than satisfactory . While therncooperative farms are becoming more and more resource intensive, productivernVities of the main factor s of production, l and labor are declining .rnThis imply a need to counteract against factors which cause the decline .rnThe climatic condition is one nbviou5 cause. The need to counteractrnthe drought condition on the one hand, and the availability huge ,rnlabor or, the other then suggests labor investment towards therndevelopment of irrigated agriculture. Macro level studies also indicatedrnpoor performance of the cooperative sector compiled with the individualrnand state farms in terms of yield . From the view point of maximizingrnreturns from l and to the society, this suggests retaining land underrnprivate holdings than placing them under cooperatives , which in turn mayrnimply a slow rate of growth of t hat sub sector .rnThe performance evaluation of the cooperatives at the micro levelrnwas specifically directed at looking in to their allocate efficiency.rnTowards that end this study was conducted on 26 agricultural producers'rncooperatives in Arsi Region . These cooperatives were classified intorngroups on the bas is of techno logical factors. Representative farmsrnwere derived from each group and Linear Programming mode l s were developedrnfor each of the representative farms . comparison of the acuternwith the optima pattern indicated sub-optimality their croppingrnpattern,. In all cases results suggested a reallocation of land away fromrnthe two basic products of the region. great and barley to other crops .rnThe optimal pattern which was obtained from the computer analysisrndiffered from one typical farm to another - a situation which suggestrna differentiated l and use policy.rnas far as resource use is concerned, l and, in the optimal solutionrnwas found to be a limiting factor, in all the cooperatives, whosernmarginal value product increases with a decrease in land - labor ratiornsuggesting a need for an appropriate land holding and land allocationrnpolicy for each of the cooperatives with takes resource availability ofrnthe cooperatives into account. Our study also showed underutilization ofrnplowing labor and ox power. still, however, during this operationalrnofrnperiod cooperatives utilize hired tractors. Underutilization/labor andrnOx power, on the one hdnd, and the use of harder tractors on the otherrnthen implies a need to ovoid hired tractors, which, in turn suggest arnneed to look into the governments' policy of hiring stat ions. ThernOptimal solution also showed that weeding, harvesting and/or threshingrnlabor are Limiting for same cooperatives. in these cooperatives,rnHowever, there exists abundant unutilized family labor. This thenrnsuggest a need to draw policy which will ensure the flow of f familyrnlabor into the operations of the cooper actives. in most of thernsocialistic countries this problem .was resolved by introducing familyrncontract systemrnThe study also indicated a number. of problems which hamper therndevelopment of cooperatives. one important problems is the input - outrnput pricing system which creates disincentive on the cooperatives tornincrease their products . This problem is mainly the result of thernMarketing policy of the government which restrict s the cooperatives salernof their produce to the AMC a problem whose solution call for thernIntroduction of competition the in the of inputs and the. Sale of rnoutput. other problems in clued the problem of declining income of rnMembers which cannot cover their expenditure, problems of forced memberrnand absence of democracy in the decision milking process, the solutionsrnof which respectively require untying labor from,1I unnecessary operationsrnof the cooperatives, so that it may create additional income, by introducingrnthe family contract system, establishing the cooperatives in accordancernwith the principle of voluntarism and enhancing members' participation inrnthe decision making process.