We analyse factors influencing the technical inefficiency of housewives groups in northern Thailand and test for the productivity effects of vertical strategic alliances. Technical efficiency gains could be reaped by housewives groups joining vertical strategic alliances, with higher efficiency gains at higher levels of alliance. However, no technological gains were evident from group membership of vertical alliances. No evidence of scope economies was found while decreasing returns to scale are reported, suggesting that housewives groups would need to adopt more industrial food processing modes to escape scale diseconomies. Such a move would have ramifications for their financial and social structure.

The purpose of this paper is to examine the policy options with the best prospects to improve the performance and competitiveness of housewives' groups in the cottage food industry in Thailand. The analytical framework is based on an analysis of private and value chain-level net benefits from alternative policy actions and research and training initiatives. Seven candidates for policy implementation with the best prospects for success are examined: industrial policy; improving food quality; branding and labelling; encouraging strategic alliances; increasing the managerial role of members in housewives' groups; educating members of housewives' groups and group leaders; and improving the organisational structure of housewives' groups. A suitable institutional setting is essential for policy success. We describe a chain governor and cooperative research centre for cottage foods that would fit neatly into the existing policy milieu in Thailand. This paper highlights the potential to improve the performance of housewives' groups and stimulate its growth as a key income-generating activity for rural households in developing countries.