AGRI 2301 Ch1: What is a Cooperative?
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Transcript of 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