Cooperatives 3111

1. Cooperatives3111 Ronald Rainey, Ph.D. Extension Economist

2. Cooperatives • Cooperative: definitions, principles, structure, and benefits • Steps to the development of a cooperative organization

3. Cooperative A state chartered business, organized and operated as a corporation. It is owned and democratically controlled by the people (members) who use its services and whose benefits are derived and distributed equitably on the basis of use.

4. Capper-Volstead Act of 1922 Federal legislation allowing farmers to “act together”. It provides: • It must be operated for the mutual benefit of its members. • It must not deal in the products of nonmembers in an amount greater than it handles for members.

5. Capper-Volstead Act (cont’d) • No member of an association is allowed more than one vote because of ownership. • The association does not pay dividends on stock or membership capital in excess of 8 percent per year.

7. Cooperative Principles • Service at cost • Financial obligation and benefits proportional to use • Limited return on equity capital • Democratic control • Educating it’s members through meetings, training, etc.

8. Service at Cost • Acting together gives the advantage of economies of size and bargaining power • Cooperative attempts to fulfill member needs at lowest possible cost • It is necessary to charge competitive market prices to cover costs and meet operating capital requirements • Operations are reduced to at cost basis at end of year when surpluses are returned to members

9. Financial Obligation and Benefits Proportional to Use • Members gain direct and indirect benefits • Direct benefits are an assured source of supply and markets for products • Indirect benefits include policing markets leadership development, business knowledge, and social recognition • The amount of benefits received depends on the members level of participation

10. Limited Return on Equity Capital • The primary purpose of cooperatives is to get a needed service, not monetary return • Limiting payment for operating capital supports the principle of distributing benefits proportional to use • The basic idea is that users finance the cooperative in proportion to use

11. Democratic Control • Voting is one method cooperative members use to exercise control • In most cases, Member-Owners have one vote regardless of their investment • Proportional voting is based on the size of the patronage the member does with the cooperative. Examples are: dollar volume, acreage, units marketed, etc.

12. Member Education • Leadership Development • Cooperative Organizational and Management Skills • Economic and Community Development Training • Production techniques/practices • Training for the cooperative board of directors, management and members

13. Cooperative’s Purpose • The primary purpose for a cooperative’s existence is to provide services for it’s members. An underlying rational is to increase income, but this goal is attained through the specific services provided by the business model • Members are the cooperative’s foundation and the organization serves the members “planned economic need”

14. Cooperative Members • Members are the primary users AND the owners of the business • Members elect a board of directors who set policies and run the business • Members benefit in two ways from the cooperative’s existence: 1) utilize the cooperative’s services 2) earnings are allocated proportional to use (patronage refund)

15. Cooperative Statistics • Currently there are more than 48,000 coops serving over 120 million Americans • Two out of every five people (40%) in the U.S. belong to a cooperative • Roughly 30% of farmers products are marketed through cooperatives • There are more than 3,000 agricultural cooperatives in operation in U.S. • 2000 net business volume of agricultural cooperatives was $99.7 billion

16. Arkansas Cooperatives • In 2001 there were 53 agricultural related cooperatives within the state of Arkansas • 11 of the cooperatives were primarily involved in marketing • 42 of the cooperatives were involved in farm supply and service

17. Cooperative Classification • Geographic Territory Served (local, regional, and national) • Governance System (centralized, federated, and mixed) • Functions (marketing, purchasing, and service)

18. Types of Cooperative • MARKETING: enable members to realize additional services (and profits) through processing, distribution, and sale of products • PURCHASING: allow members to gain access to volume discounts and quality control for production supplies • SERVICE: developed to serve specific member (farmer) needs including credit, health insurance, electricity, etc.

19. Marketing Services • Negotiating prices and terms of sale with buyers • Assemble production into larger quantities for sale to further processors, wholesalers or retailers • Add further value to member production by processing or manufacturing member products into other higher valued products

20. Marketing Cooperatives • Riceland Foods • Producers Rice Mill • Land O’ Lakes

21. Purchasing Services • Reduce member costs and strengthen their purchasing power through bulk purchases • Reduce costs through direct ownership of facilities and equipment that members utilize

22. Purchasing Cooperatives • Arkansas Electric Cooperative Corp. • Feed, seed, farm equipment, fertilizer companies, etc.

23. Services • Provides specific, specialized services for members • Services include insurance, financing, education, etc.

24. Service Cooperatives • Farm Credit Services • Wilbur D. Mills Educational Services Cooperative (15 regional educational cooperatives in the state) • Credit Unions

25. Benefits of Cooperatives • Access to quality supplies and services at reasonable cost • Increased clout (bargaining power) in the marketplace • Share in the earnings, gain access to larger markets • Political action • Local economy enhanced and protected

26. Steps to Developing a Cooperative Business

27. Steps to Developing a Cooperative • Determine if there is an economic need. • Initial exploratory meeting • Select a steering committee • Examine if the cooperative structure is a viable solution. • Member survey • Feasibility analysis • Marketing research

28. Steps to Developing a Cooperative • Determine the level of potential member interest and commitment. • Second exploratory meeting • Member capital, business volume, etc. • Begin planning to evaluate the feasibility of the cooperative. • Prepare a business plan • Draft legal papers, bylaws and incorporate.

29. Steps to Developing a Cooperative • Formally organize the cooperative. • Third exploratory meeting • Members finalize bylaws and articles of incorporation. Once membership has finalized the papers, file the papers with the Secretary of State’s Office • Hold First Annual Meeting. • Approve the bylaws • Elect the Board of Directors

30. Resources • Rural Business and Cooperative Services (RBCS) www.rurdev.usda.gov/rbs • Agricultural Marketing Resource Center (AgMRC) www.agmrc.org • USDA Rural Development – Tim Smith Little Rock, Arkansas Ph: (501) 301-3280 or Tim.smith@ar.usda.gov • U of A Cooperative Extension Service – Ronald RaineyLittle Rock, Arkansas: www.uaex.edu Ph:501-671-2175 or rrainey@uaex.edu