Understanding of cooperative & Lessons learned

1. Understanding of cooperative & Lessons learned Di Linh June 2011

2. Content of the workshop Opening: The project context Part 1: Definition & objective & 7 operational principles Part 2: Distinguishing cooperatives Part 3: Cooperative of producers & organizational structure. Part 4: Responsibility of DB, CB & manager Part 5: Recognition of a cooperative Part 6: Differences between cooperative and stock enterprise Part 7: Differences of cooperative laws between VN & ICA Part 8: Key success factors of a cooperative Part 9: Three economic principles Part 10: Capitalization & Zero Loss policies Part 11: Business strategy of the Lam Vien cooperative Part 12: Lessons learned

3. Contextual introduction

4. Coffee Supply Chain Vietnam

5. Commodity Flow Price Mechanism Farmers Collection & Wholesale Processors Retailers/ Exporters Commodity Flow and Price Mechanism

6. Background of the project of Quality & Sustainability Improvement of Robusta Production & Trade Strengthening the organizational capacity in the Vietnamese coffee sector • improving the way farmers are organized and work together • more efficient supply chain • professionalization • scale up the farmers’ capacities and reach creditworthiness • interesting for both farmers and the international companies that process coffee

7. Proposed Cooperative Model Develop a producers cooperative: bridge the gap between the individual small farmer and the big market Set up according to the requirements of industrial organization: maximize the market revenues for members and minimize cost of production for the members. be efficient and well-organized Necessary: farmer members have to understand the cooperative and to comply with its business policy.

8. Part 1: Definition & Objective & 7 operational regulations of cooperative

9. Definition A cooperative is an autonomous association of persons united voluntarily to meet their common economic, social & cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise. (International Cooperative Alliance (ICA) - 1995)

10. Primary Objective The primary objective of a cooperative is to maximize the benefits , which members derive from their business transactions with the co-operative. (International Cooperative Alliance (ICA)

11. Characters of a cooperative • An enterprise of members • Cooperate on common needs The first objective of cooperative is to satisfy the needs of members via the economic transactions. • Equitable distribution of surplus Members cooperate on the equality to contribute their personal resources to the economic activities of the cooperative. The cooperative financial resources for its activities are established from the members’ contribution . Members are legally responsible within their financial contributions (qualifying shares). However, total assets of cooperative belong to members.

12. Seven operational principles (ICA) The cooperative principles are guidelines by which cooperatives put their values into practice. • Voluntary and Open Membership • Democratic Member Control • Members’ economic Participation • Autonomy and Independence • Education, Training & Information • Cooperation Among Cooperatives • Concern for Community

13. Seven operational principles • Voluntary and Open Membership: Cooperatives are voluntary organizations, open to all persons able to use their services and willing to accept the responsibilities of membership, without gender, social, racial, political, or religious discrimination. • Democratic Member Control: Cooperatives are democratically controlled by their members who actively participate in setting their policies and making decisions. Men and women serving as elected representatives are accountable to membership. In primary cooperatives, members have equal voting rights (one member, one vote). The other cooperatives are also organized in a democratic maner with plural voting rights in accordance with the ratio of transactions of members to the cooperative. (proportionality principle). (ICA)

14. Seven operational principles • Members’ economic Participation: Members contribute equitably to, and democratically control, the capital of their cooperative. At least, part of that capital is usually the common & indivisible property of the cooperative. Members allocate surpluses for some following purposes: development, reservation, benefiting members in proportion to their transactions with the cooperative, and supporting other activities approved by the membership. • Autonomy and Independence: Cooperatives are autonomous, self-help organizations controlled by their members. If they enter into agreements with other organizations, including governments, or raise capital from external sources, they do so on terms that ensure democratic control by their members and maintain their cooperative autonomy. (ICA)

15. Seven operational principles • Education, Training & Information: Cooperatives provide education and training for their members, elected representatives, managers, employees. So they can contribute effectively to the development of their cooperatives. They inform the general public – particularly young people or leaders – about the nature and benefits of co-operation. • Cooperation Among Cooperatives: Cooperatives serve their members most effectively and strengthen the co-operative movement by working together through local, national, regional, and international structures. • Concern for Community: Cooperatives work for the sustainable development of their communities through policies approved by their members. (ICA)

16. Part 2: Distinguishing cooperatives

17. 1. Distinguishing cooperatives on the basis of economic relations Based on the economic relations between the members and their cooperative, there are 3 basic types of cooperatives • Cooperatives of consumers (cooperative supermarkets, electricity, cable, water supply..) • Cooperatives of producers (agricultural products, agricultural product processing...) • Cooperatives of workers (handicrafts, forestry, labor cooperatives…)

18. Differences between producers’, workers’ and consumers’cooperatives The differences between these three types of cooperative enterprises can be illustrated using the example of a coffee processing plant. The management goals of the plant will be differ greatly depending on whether it is owned by a coffee producers’cooperative, a consumers’ cooperative or a workers’ cooperative.

19. Distinguishing cooperatives on the basis of economic relations Cooperative of producers If this enterprise is collectively owned by coffee producers, it will seek through its management to: • pay the highest possible price for coffee supplied by its members. • minimize its production costs at low as possible. • and maximize the selling price of its products to consumers, if market conditions allow.

20. Distinguishing cooperatives on the basis of economic relations Cooperative of consumers If on the other hand the same enterprise is collectively owned by members who buy coffee products through a consumers’ cooperative, it will seek through its management to: • sell to its members at the lowest possible price. • therefore, once again, minimize its production costs. • and minimize its supply costs by buying coffee from producers as cheaply as possible.

21. Distinguishing cooperatives on the basis of economic relations Cooperative of workers Finally, if this enterprise is collectively owned by its workers, it will seek through its management to: • give its members the highest possible wages and the best working conditions, • maximize the selling price of coffee products to consumers (subject to market conditions), • and minimize the costs of its suppliers from coffee producers by paying them the smallest possible amount for coffee.

22. 2. Distinguishing cooperatives on the basis of their governance & management methods This last typology allows a distinction to be drawn between the three major ways to experience and participate in cooperative democracy. There are accordingly three ways to govern and manage a cooperative: • Cooperative operation of the first type: a cooperative governed AND managed on a voluntary basis by representatives of the supplier or consumer user-members. • Cooperative operation of the second type: a cooperative governed voluntarily by elected representatives of the supplier or consumer user-members, BUT managed by employees. • Cooperative operation of the third type: governed AND managed by elected representatives of the worker member-users.

23. Distinguishing cooperatives on the basis of their governance & management methods Coopertive of the first type

24. Distinguishing cooperatives on the basis of their governance & management methods Coopertive of the second type

25. Distinguishing cooperatives on the basis of their governance & management methods Coopertive of the third type

26. Part 3: Cooperative of producers & organization structure

27. COOPERATIVE STRUCTURE GOVERNANCE MANAGEMENT Hire Board of directors Manager Control Board Elect Hire Members Staff Serve Voluntary Remunerated

28. COOPERATIVE OF PRODUCERS The cooperative is established by supplier members or consumer members. The cooperative is governed by representatives elected from members, but managed by employees. This is the most common type, operating with a permanent work force.

29. COOPERATIVE OF PRODUCERS These cooperatives operate with 4 types of persons making up a character of quadrilateral cooperatives, evented Henri Desroches, allows us to identify the issues affecting the relations between these four groups: • Members: naturally, who are the cooperative’s joint owners. Members expect to maximize their interests by the economic transactions with their cooperative. • Director Board: elected officers, who look after the interests of members. • Senior manager (or CEO): whose mandate is to manage the cooperative in the best interests of the members. • Employees: who provide services to the membership.

30. Example: Cooperative of Robusta coffee producers If this enterprise is collectively owned by coffee producer members, it will seek, through its management, to: • Provide technical support & inputs services to members at the lowest possible prices to help them lower their coffee production costs. • Assist members to sell coffee at the fair price & safest to ensure the application of zero-loss policy. • Minimize the operation costs. Sell coffee at highest prices as possible to increase the margin for the coopertive. • Total margin (profit) of the cooperative belongs to members.

31. Part 4: Responsibilities of DB, CB & manager

32. Statutes / Bylaws The Statutes are the “Civil Law” of the cooperative; The Statutes determine and fine-tune the respective responsibilities and duties of the cooperative organs. The Statutes are determined and changed exclusively by the General Meeting through a qualified majority; By-laws are auxiliary stipulations, determined by the General Meeting and subject to change by normal majority. 32

33. Responsibilities General Meeting Determines “will and goals” of the members; Determines Statutes/Articles of Association, and by-laws; Determines basic decisions, like supply contract, financial regulations with members, etc. Appoints, dismisses Board of Directors and Supervisory Board; Approves annual report and discharges Board of Directors and Supervisory Board Does not interfere with day-to-day operations; Makes binding decisions at its own right, without regression to the members-farmers; General Meeting is based on COMMUNICATION AND CONSENSUS building. 33

34. Responsibilities Board of Directors Look after the interests of members; Represents the cooperative in law and business matters; Is the policy preparing body of the cooperative; Is responsible to the General Meeting and Control Board; Appoints/dismisses and discharges the professional manager. 34

35. RESPONSIBILITIES OF DIRECTOR BOARD Legally represents The Members The cooperative Answerable to General meeting Monitors cooperative activities Manages Democratic process DIRECTOR BOARD Strategic targets Goods & services policies Executes & decides on Human resources policies CEO hiring

36. Responsibilities of Control Board Controls the Board of Directors’ financial performance and policy; can call in external professional auditor, legal and other experts; Controls the Board of Directors with regard to statutory /association matters; Advises the Board of Directors, on request or by own initiative. 36

37. Responsibilities of manager The manager is responsible to professionally administer & manage daily works of cooperative. Prepare the coop policies and business strategy, and implement the approved strategies via the authorization of DB; Be assigned & dismissed by the DB; Represent for the cooperative as per the authorizational levels; To be invited to participate in DB meetings, but is not entitled to vote. 37

38. Rights of members • Member has the right to attend the cooperative general meeting & any other meeting invited by DB. • Member has the right to use the cooperative services. Voting right is single voting or proportional voting (belonged to the cooperative statutes) • Member can be voluntary or appointed candidate of DB election. • Member has the right to receive “surplus distribution” from the business results, as per the proportion of business transaction with the cooperative & the rate decided by DB.

39. Responsibilities of members • Participate in the general meeting, or other meetings organized by the cooperative. • Priorly use the cooperative services in household production activities. E.g. I am a member of producing & trading coffee, I have responsibility to sell my coffee to the cooperative, not sell to private collectors. • Once to be elected in the DB, member needs to carry out obligations honestly and responsibly. • To study the laws, policies & related information, in order to understand better about the cooperative activities. • Commit & ensure to implement the economic principles of cooperative. The most importance is the zero-loss and capitalization policies.

40. Part 5: Recognition of a Cooperative

41. Cooperative recognition Three main points distinguish cooperatives from companies: • Method of participating in ownership; • Method of participating in authority; • Method of participating in business results.

42. Method of participating in authority • The method of participating in the decision-making authoritiy of a cooperative is described by the rule of equal voting or proportionally plural voting. • Participation by the member in decision-making authority is also expressed through election of a board of directors which administers the cooperative on behalf of the members and in that regard exercises the powers conferred on it by statute.

43. Method of participating in ownership • The member participates in ownership of the cooperative by subscribing for a minimum number of qualifying shares defined in the cooperative’s articles and by-laws. • These shares are registered and may not be transferred except in accordance with the terms and conditions prescribed in the cooperative’s by-laws. • Participation in the ownership of a cooperative confers a right to use the services provided by the cooperative. This participation in ownership is defined by the concept of the user-owner member and is the principal characteristic of the cooperative.

44. Method of particpating in business results • The operating surpluses at the end of fiscal year are considered as owning to the members as a “surplus” generated by the purchase or selling prices of the goods or services transacted between the members and their cooperative. • The surplus belongs to members and can be redistributed to them.

45. Part 6: Differences between cooperative & stock enterprise

46. Participation in Ownership

47. Particpation in Authority

48. Participation in Business Results

49. MAIN DIFFERENT POINTS BETWEENCOOPERATIVE & JOINT-STOCK ENTERPRISE

50. Different Objective