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Agricultural Cooperatives 3211. Michael Thomsen, PhD Associate Professor Department of Agricultural Economics University of Arkansas. Objectives. Describe main principles that characterize cooperative organizations Explain the difference between use benefits and ownership benefits
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Agricultural Cooperatives3211 Michael Thomsen, PhD Associate Professor Department of Agricultural Economics University of Arkansas
Objectives • Describe main principles that characterize cooperative organizations • Explain the difference between use benefits and ownership benefits • Distinguish between the roles of “Sapiro type” and “Nourse type” cooperatives • Describe common organizational structures for regional cooperatives • Outline advantages and disadvantages of equity redemption alternatives • Explain organizational challenges inherent in the cooperative model • Identify managerial roles for decision makers in cooperatives
Cooperatives in Agriculture: • 49 % of farm level grain and oilseed marketings • Input Supplies • 44 % of fertilizers • 47 % of petroleum products • 32 % of crop protectants • 21% of feeds
Some Coop. Brands • Land O’ Lakes • Bird’s Eye • Blue Diamond • Ocean Spray • Sunkist • Riceland
Main Cooperative Principles • Voting by member-users on a democratic or proportional basis • User control principle • Equity provided by patrons • User ownership principle • Net income distributed to patrons as patronage refunds on a cost basis • User benefits principle
What is a Cooperative? A cooperative is a user owned, user controlled organization established to provide benefits to users. These benefits are distributed on the basis of use.
How cooperatives can increase returns • Use benefits • Increased returns from your farm assets • Allows you access to goods/services/markets • Ownership benefits (returns from your investment in the cooperative)
Extend Ownership to Other Levels of the Marketing System Input Supplier Support Services Lenders Utilities First handler/Processor
Roles for cooperatives • Aaron Sapiro • Single commodity cooperatives • Long term producer contracts • Dominant market share • Sound merchandising and orderly marketing
Roles for cooperatives • Edwin Nourse • Integral part of existing free market system (compete with investor oriented firms) • Control modest share of the market • Disciplinary role
Competitive Yardstick • Cooperatives compete with IOF’s • Presence of cooperatives discipline the market place • What happens if cooperatives go out of business? • lower prices for farm products • higher prices for farm inputs IOF Cooperative
Capper-Volstead 1922 • Enabled farmers to legally form associations for their mutual benefit • Specified requirements that such associations must meet • Gives cooperatives special status with respect to antitrust laws but does not mean cooperatives are exempt from such laws
Organizational Structure • Independent local associations • Federated associations • Centralized associations • Mixed associations
Cooperative physical flow, products or services Members voting, ownership, patronage refunds
Equity Redemption Alternatives • Revolving fund plan • Base capital plan • Special situations plan
Cooperative Challenges • Increasingly segmented membership base • Equity capital • Member and public relations • Management (broader scope for optimization)
Management Challenges Key difference: owners = customers • must balance “use benefits” with returns on invested capital • broader interpersonal relations skills (cannot separate communications with stock holders and customers) • often manager must maintain a higher degree of visibility