agri 2301 ch1: what is a cooperative?

WHAT IS ACOOPERATIVE?

This presentation:• A Type of Business • Different Sectors Providing Various Services• Cooperative Principles & Practices• Geographical and Governance Structures• Cooperative Functions • Participation Roles• Meeting Member Needs• In Sum• More Information

What is a Cooperative?

TYPE OF BUSINESS STRUCTURE

Lesson 1:

• Who owns the business?

• Who controls the business?

• Who uses the business?

• Who gets the profits?

A Type of Business Dependent On

• Who owns the business?

• Who controls the business?

• Who uses the business?

• Who gets the profits?

A Type of Business Dependent On

Individually Owned Business

One Person

• Owns

• Controls

• Operates

• Benefits/profits

Partnership

Two or more owners

• Own

• Control

• Operate

• Share in risks and profit

Corporations

• Multiple owners• Variety of goods and services• Physical facilities• State chartered• Investors• Profits shared among investors

Cooperatives Are a Type of Corporation

• Multiple owners who are user members• Variety of goods and services• Physical facilities• State chartered• Members are investors• Owned and controlled by members who

use its services

Incorporated Under StateLaws

CHARTER

PURPOSE

BYLAWS

COOPERATIVE FUNDAMENTALS

Lesson 2:

Cooperative FundamentalsCooperatives:• Operate under unique principles and practices• Are primarily controlled by a board of directors

elected by and from members• Derive equity from member owners• Operate for the benefit of member owners• Allocate earnings to members based on use• Earnings’ from member business are taxed once• Have perpetual existence

The Cooperative Form of Business Is Prevalent

• 29,284 cooperatives in the United States • Serve more than 6 million people, employ 2.1

million people• Have revenues of more than $650 billion• There are many types of cooperatives serving

several sectors*Source: Research on the Economic Impact of Cooperatives, University of

Wisconsin Center for Cooperatives, March 2009 (data does not include housing cooperatives).

Cooperative Sectors

• Financial Services

• Commercial Sales & Marketing

• Social and Public Services

• Utilities

• Housing

Cooperatives Provide…• Credit• Transportation• Facilities• Recreational

Equipment• Food• Housing• Health care

• Child care• Wholesale goods and

supplies• Electricity• Telephone and electric

services• Farm production

supplies and service• Farm marketing

COOPERATIVE PRINCIPLESLesson 3:

Cooperatives Have Unique Principles

• User – Owner

• User – Control

• User - Benefit

User-Owner Principle

The people who own and finance the cooperative are those who use it.

User-Owner Principle

Membership

Certificate

STOCK

User-Control Principle

The people who use the cooperative are those who control the cooperative

User-Control Principle

VOTE

Members Exercise Control By

• Voting at annual and membership meetings

• Electing Board of Directors

• Making decisions on major cooperative issues

User-Benefit PrincipleThe cooperative’s sole purpose

is to provide and distribute

benefits to members on the

basis of their use

User-Benefits Principle

Market Access

Bargaining Power

Reduced Costs

Quality products and services

CommunityStrength Economic

Enhancement

Competitive Yardstick

Political Action

Cooperative PracticesSome unique practices make cooperatives different:• Patronage Refunds - distribute earnings to members based on use• Limited Return on Equity Capital - members form cooperatives

for service, not for a monetary return on investment• Cooperative Cooperation - joint ventures, MAC’s, networks,

alliances, working relationships, cooperation with other cooperatives, etc.

• Cooperative Education - promote the cooperative way of doing business and educate members, directors, and employees

Also see the International Co-operative Alliance (ICA) Statement of the Co-operative Identity that provides the definition, values, and 7 principles of cooperatives: http://www.ica.coop/coop/principles.html

COOPERATIVE STRUCTURELesson 4:

Geographical StructuresGeographical characterization defines a cooperative’s size and scope of operations in reference to serving members.

• Local - small region covered, a county or so

• Super local - two or more counties, branches

• Regional - numerous counties, State or more

• National - United States-wide

• International - worldwide

Cooperative Governance System Structures

Based on membership structure and essentially defines who the members are and how the cooperative is organized to serve them.

• Centralized Structure - Individuals are direct members

• Federated Structure- Cooperatives are direct members

• Mixed Structure – Both individuals and cooperatives are direct members

Centralized Structure

Cooperative

Member MemberMember

Federated Structure

Cooperative

LocalCooperative

MemberMember

LocalCooperative

Member Member

Mixed Structure

Cooperative

MemberMember

LocalCooperative

MemberMember

Member

COOPERATIVE FUNCTIONSLesson 5:

Cooperative Functions

Three Core Functions• Marketing - extend control of

members’ products through processing, distribution, and sale

• Purchasing - providing affordable supplies and goods

• Service - provide needed services

Marketing Cooperatives

Assist members in maximizing returns from goods they produce

• Handle, process, and sell

• Grade, transport, bargain

• Add value

• Research-new product development

Marketing CooperativesAssist members to maximize the return they receivefor the goods they produce!

Functions•Transport•Process•Grade

•Add value•Research•Distribute•Bargain

•Sell

MemberProductsAgriculturalForestryAquacultureHorticultureCrafts

Member BenefitsExtend controlof their productsand realize additionalmargins

Purchasing Cooperatives

Allow members to gain access to affordable production supplies and goods

• Purchase in bulk to reduce costs and increase purchasing power

• Provide direct ownership of refineries, plants, retail facilities, research facilities

Purchasing Cooperatives

Used by members to gain access to affordable, quality supplies

Functions•Refineries

•Plants•Feed mills•Warehouse

•Manufacture•Buy in bulk

•Deliver

Members•Producers•Hardware stores•Independent grocery stores•Fast food franchises

Member BenefitsReduced costsVolume discountsQuality controlIncreased access

Service Cooperatives

Provide needed services• Meet many needs

• Custom application of purchased supplies, transport of product, etc.

• Provide utilities, credit, housing, health care, technology, etc.

Service CooperativesUsed by members to gain access to affordable, quality services

Functions•Farm applications

•Credit•Electricity

•Communications•Insurance

•Health care•Schooling•Housing

Members•Producers•Rural residents•Urban residents•Public

Member Benefits•Access to services•Affordable services•Quality •Increased access

USER/PARTICIPATION ROLESLesson 6:

Participation Roles

Cooperatives operate through the roles of principal parties

• Members

• Directors

• Manager

• Employees

Cooperatives

Meet Member Needs by:• Improving bargaining power when dealing with other

businesses

• Reducing costs

• Obtaining products or services otherwise unavailable

• Obtaining market access or broadening market opportunities

• Improving product or service quality

• Increasing income

Organizational Make-Up

Members

Board of Directors

Manager

Employees

What is a Cooperative?In Sum:• People and businesses use cooperatives to serve their

common interests for mutual benefit.• Cooperatives are complex organizations with unique

principles, practices, uses, and structural characteristics.• Cooperatives consist of members, directors,

management, and employees. All have important participation roles to play and responsibilities to fulfill.

For More Information…See:

• Co-ops 101 (Information Report 55)

• What Cooperatives Are and The Role of Members, Directors, Managers, and Employees (Information Report 11)

• Cooperatives in Agribusiness (Information Report 5)

• And other publications and materials found at:

• http://www.rurdev.usda.gov/rbs/pub/NEWPUB.htm

• Cooperative Programs: http://www.rurdev.usda.gov/rbs/coops/csdir.htm