ERE32E Co-operative Business

1. ERE32E Co-operative Business Bridget Carroll Centre for Co-operative Studies, University College Cork, Ireland Session 3: Co-operative activity by type

2. Co-ops are defined according to the type of user • Traditionally: • Consumer co-ops • Producer* co-ops • Worker co-ops Now also: • Multi-stakeholder co-ops – may include • “Social co-ops” (development co-ops, solidarity co-ops, community co-ops)

3. Language Alert! • Producer in Czech Republic = worker. • But in English language literature producer = producer of commodities (e.g. a farmer). • Producer co-op = e.g. agriculture co-ops.

4. Defined according to user… • Producer co-ops owned and controlled by those who produce* goods/services • Consumer co-ops -owned and controlled by the people who consume the products and services of the business. • Worker co-ops owned by those who work in the co-op • And so on…

5. Producer co-ops • Owned and controlled by independent producers e.g. • farmers • fishermen • taxi-drivers • craft workers/artisans • artists • Also known as • Agriculture co-ops • Farmer co-ops • Dairy co-ops • Fishermen’s co-ops • Forestry co-ops • Taxi co-ops • Craft co-ops • Artists’ co-ops • Or into sub-divisions

6. Aims of Producer Co-ops • To serve members’ needs - improve effectiveness and profitability of members’ individual businesses. • Deal in commodities including dairy, beef/lamb/poultry/bees, fruit & vegetables, grain, cotton and other fibres, coffee, olive oil, wine, tobacco etc. • Collect, process and market products • Also services such as: farm supply, fertilizers etc.

7. World’s top 10 dairy processors Dairy Turnover • Nestlé €18.5m • Danone €10.7m • Lactalis €9.3m • FrieslandCampina €9.3m • Fonterra €8.2m • Dean Foods €8.1m • Dairy Farmers of America €6.9m • Arla Foods€6.9m • Kraft Foods €5.1m • Unilever €4.5m Rabobank International 2009

8. Producer/agriculture Co-ops In USA • 28% of farmers' products in the US are marketed through over 3,000 farmer-owned co-operatives (e.g. Ocean Spray) • 3 million farm co-op members • 70% of land mass served by electrical co-ops. Annual profits > $1billion per year. Providing power etc., >37 million people

9. Agriculture co-ops In New Zealand • 20% of the country’s GDP is produced by co-operative businesses • 100% milk production In Holland • 83% of agri-production

10. Agriculture co-ops In Canada >80% of dairy products by co-ops In India • Rapid growth of milk co-ops in last 20 years made India largest milk producing country in the world. • 57,000 dairy co-ops with 6 million members

11. Agriculture co-ops In Japan • >90% of rice and fisheries production (supply and marketing) In Sweden • 60% forestry

12. Fair trade/developing world • Co-ops playing a central role in Fair Trade initiatives, examples • Divine chocolate – part owned by Ghanian cocoa producers’ co-op • Equal Exchange – US worker co-op which uses coffee from producer co-ops

13. Collapse of communism led to • Led to land reforms & • Reinstatement of family farms & • Growing need for farmers to associate for their mutual benefit • Farmers have since set up marketing associations to market their produce. • Legacy of bad use of word “co-op” • Sometimes prefer term “farmer associations” • EU supports producer associations

14. Aim of Producer Co-ops • To improve effectiveness and profitability of members’ individual businesses. • Correcting market failure • Joint processing/marketing/purchase of inputs • Provision of various services/technical assistance • Risk management, security/stability

15. Why producer co-ops? • Market failure • Prices too high or too low • Goods/services not available • Market failing to perform • Causes of market failure • Scale, above cost pricing • Absence of accurate market information

16. Why producer co-ops? • Market failure • Prices too high or too low • Goods/services not available • Causes of market failure • Scale • Absence of accurate market information • (Ref: O’Donoghoe, 2010)

17. Overcoming Market Failure • The co-op permits: • Pooling of resources • Joint processing • Joint marketing • Joint purchase of inputs • Provision of various services/technical assistance • Vertical integration in processing/distribution chain

18. Why producer co-ops? (continued) • Efficient production of public goods – food • Competition enhancing • Preserves jobs and farming • Rural development

19. Arguments against • Some economists argue that co-ops are not always optimally efficient • Members don’t control managers • Higher costs of control in co-op • “Free riders” • Investments can be short-term • Accumulated investments below optimum

20. Trends in agricultural co-ops • Significant changes to co-operative organisational form • Main difference is in ownership • Also changes in entry, individual equity, voting, control, external participation, professional management, value-added activities • Continuum from traditional co-ops to hybrids (co-ops with subsidiaries) including external shareholders.

21. Challenges facing agriculture co-ops • To achieve economic survival/success while retaining the characteristics of a co-op • To raise capital but retain control • To deal with globalised agri-food system but provide member benefits • Indifference to the co-op model

22. Strategies • External investors • Market orientation/expansion - brands • Diversification • Vertical as well as horizontal integration • Degenerating/demutualising • Reassessment of objectives/strategies –large/small • Local markets • Financial instruments

23. 2. Consumer Co-ops • Co-ops owned and controlled by their customers • Members both owners and customers • Examples: • Retailing – supermarkets • Financial services - credit unions • Housing co-ops and other utilities • Energy co-ops • Health care co-ops

24. Consumer co-ops • Emerge in context of: • Lack of goods/services or • Unsuitable goods/services (e.g. quality or cost) • Consumers at certain disadvantages relative to retailers/other distributors. • Where combined purchasing power results.

25. Co-op retailing In the UK • Consumer co-ops have sales of more than £8 billion. Fair Trade retailer; stance against pesticide In New Zealand • Co-op ‘foodstuffs’ = 60% share of retail food trade (NZ$ 3.8 billion)

26. Co-op retailing In Switzerland • The 2 major food retailers are co-ops: Co-op Suisse & Migros. Migros has 2.9 million members (50% of Swiss households) In Finland • 35% of food retailing

27. Co-op retailing In Norway • Independent co-ops = 25% market share of food retailing. Combine to purchase and market In Kuwait • Co-ops = 80% of retail trade

28. Co-operative banking • User-owned financial institutions fastest growing sector world-wide • 60,000 credit co-operatives, 150 million members • Try to offer above average service/rates • Emerge in a context of • Lack of adequate access to financial services • Poverty • Banking mergers and acquisitions • Branch closures

29. Main types of co-operative savings and credit institutions • Ireland • Credit unions • UK and Rest of Europe • Financial co-operatives • Co-operative banks (e.g. Rabobank) • Building Societies • Developing countries • Credit unions • Savings and Credit Co-operatives (SACCOs) • North America/Australia/New Zealand • Credit unions

30. Main characteristics • Help build up a habit of savings • Provide access to affordable loans • Reduce the extent of money-lending • Provide access to banking services • Educate in the wise use of money • Provide a means for people to sustain a living

31. Ireland - Credit Unions • First credit union, 1956 • Credit Unions affiliated to ILCU: • 530 credit unions with 3 million members • €12 billion savings, €6 billion loans • 3,800 employees • Wide range re. size, staff etc. • Aim: Service to members (provision of financial services, low interest rates, no hidden fees, pay a dividend, access to loans etc.).

32. Credit unions - how do they work? • Each credit union is wholly independent. May be affiliated to national trade/representative organisation. • Either geographical community or industrial “common bond” • Elected board of directors through AGM. A number of statutory officers. • Most cu’s have paid staff and management (operational management). • Committees run by volunteers made up of members. The main committees are: • Supervisory committee • Credit and credit control committees • Range of other committees (investment, strategic planning, planning and development, agriculture etc.)

33. Application of co-op principles? • Open membership - subject to “common bond” and legislation/regulation • Democratic member control through Annual General Meeting (AGM) • Minimum shareholding, distribution according to savings • Each credit union is independent • Education, training and information? • Co-operation among co-operatives – through chapter and league, • Concern for community – many examples • E.g. social lending, money advice

34. Housing Co-ops • Not-for-profit co-ops • Provide • ownership and/or rental housing • the management of housing estates or apartment blocks, • Improve the supply of housing • Improve the housing and living conditions of their members and families.

35. Consumer co-ops links • www.eroski.es • www.co-op.co.uk • www.united.coop • www.eastofengland.coop • www.midcounties.coop • www.creditunion.ie • www.nabco.ie • www.woccu.coop

36. 3. Worker/industrial co-ops • Owned and controlled by those who work in them • Emerge to provide jobs but also concerned with the type of working environment • Have emerged as a result of closures, of philantropists, as an alternative and due to pragmatics.

37. Origins - types • Philanthropic business owners converting their businesses into co-ops (e.g. Scott Bader Commonwealth in the UK) • Takeovers, otherwise known as defensive co-ops or phoenix co-ops. • Alternative collectives or idealistic co-ops are set up by those who may embrace ideals of collective ownership and worker democracy and who share a “commitment to participatory democracy, equality and production for need rather than profit” (Cornforth et al 1988).

38. Worker/Industrial Co-ops • The European Confederation of Workers’ Co-operatives, Social Co-operatives and Participative Enterprises (CECOP) represents: • 37 national and regional federations of co-operatives in Europe. • Mainly in Spain, France and Italy. • In turn these federations represent 1.3 million workers and 83,000 enterprises. • Spread across a number of sectors: services (38%), industry and crafts (33%), construction (14%), social services (13%) and education and culture (2%).

39. Mondragón • 1950’s, Basque region of Spain • 7th largest business group in Spain • >83,000 employees, 80% of whom are co-op members. 42% women. • Sales totalled €13,390 million (MCC, 2006). • Industry, co-op bank, co-op university, supermarkets…. • Teams, flat hierarchy within co-ops • www.mcc.es

40. Orkli S. Co-op • http://www.orkli.es • Created in 1982, Orkli has 440 members and 550 employees. • Produces components for heating and domestic appliances. • Formation was spear-headed by parents wishing to create employment for young women in the area. • The co-op is a spin-off from another co-operative in the area. The members helped financed the co-op by reinvesting part of their salaries for four years. The support of other co-operative firms in the area was crucial for a number of years. • 30 years later, Orkli has sales in excess of €100m.

41. SUMA Wholefoods • U.K.’s largest independent wholesaler and distributor of vegetarian, fair traded, organic and natural foods. • > 25 years wholly owned and run by its 120 workers, each of whom are equally paid. • Suma does not see this large number as a problem but as an asset. “General Meetings” to decide strategy, business plans and major policy decisions are held six times a year. • Participation is not only encouraged but mandatory at these meetings. • Flat hierarchy & considerable job rotation and multi-skilling. • Annual turnover > ₤20m. • www.suma.coop

42. Employee Ownership & Business Succession Sites • www.business-succession.coop/ • www.jobownership.co.uk • www.walescoop.com • www.successionlondon.co.uk • www.eos.coop

43. Worker Co-op Links • www.mcc.es • www.suma.coop • www.loch-fyne.com • www.johnlewispartenership.co.uk • www.tullis-russell.co.uk • www.scottbader.com • www.walescoop.com

44. 4. Multi-stakeholder co-ops • Co-ops owned by more than one group of users e.g. customers and workers • All groups represented on board • Examples: • Eroski Co-op Group = Spain’s leading food retailer (47 hypermarkets, 800 supermarkets & 2023 self services stores) • Health care co-ops • Consumer/farmer/fisher co-ops in Iceland • Childcare co-ops (social economy co-ops)

45. Example: Community Co-ops in Ireland • Owned by people living in the community • Islands and Gaeltacht areas (Ireland) • Play a particularly crucial role in service provision and advisory support on the islands around Ireland. • Co-ordinate/facilitate community development activities • Emerge due to lack of services • Recent projects in renewable energy • Multi-stakeholder co-ops

46. Distribution of surplus • In a co-op = according to use • Depends on type of co-op • Proportionate to supply of a commodity • Proportionate to savings/work hours/purchases/ • Refund on interest on loans proportionate to loans

47. Homework • Work on your presentation for Friday • http://www.coopscanada.coop/en/orphan/InnovativeCoops • http://www.uk.coop/ • http://www.coopseurope.coop/spip.php?article838

48. Some co-ops • Van City • Mondragon • SUMA • Fermoy Credit Union • Edinburgh Bicycle Co-op • Co-operative Home Care Associates • The Co-op Group • Dublin Food Co-op • Equal Exchange