Using Cooperatives to Create Rural Development

1. Using Cooperatives to Create Rural Development UWCC Brown Bag Seminar September 25, 2003 Kim Zeuli UWCC

2. “Cooperatives are a valuable tool for rural community development.”

3. Why? • Economic impacts: • Job creation • Investor returns • Provision of goods and services • Correction of market failure • Social impacts • Self-help vehicle

4. Are they really a tool? • In rural areas, we mostly see unintentional or passive community development. • Vast majority of co-ops are agriculture. • Do cooperatives ever act as the driving force behind rural community development; i.e., intentionally focus on development?

5. Why would they? • There is a need. • Vanishing Main Street stores • Increasing non-farming population • Decreasing acceptance of manufacturing plants • Rural development is still the ugly step-child of farm policy

6. Existing studies • The relationship between cooperatives and communities is a neglected research issue. • Most studies focus on impacts of agricultural cooperatives. • Non-agricultural cooperatives treated mostly anecdotally (especially in the US). • A few unique cases (Mondragon, Evangeline, etc.) treated largely as unique cases.

7. Theory • Fulton and Ketilson (1992) provide some theory to explain cooperative behavior in communities. • Wilkinson and Quarter (1996) describe theory of co-op/community development process. • Classic paradigm: cooperatives are either unifunctional or multifunctional

8. Methodology • Objectives: (a) identify non-ag. cooperatives that play an intentional role in rural development; and (b) identify challenges/factors for success. • Team: • Myself • David Freshwater, University of Kentucky • Ron Shaffer, UW—Madison • David Barkley, Clemson University • Deb Markley, Policy Research Group, N. Carolina

9. Methodology • Conducted case studies of 14 cooperative organizations across the US in 2001-2002. • Site visits • Interviews with co-op managers, board members, and key community individuals. • Case study criteria: • Location (different regions in US) • Innovation (non-agricultural, non-service sector) • Success

10. Results—Framework Two cooperative entry points into community development: • Unintentional • Business related • Structure related • Intentional • Extrinsic • Planned and Reactive Investments • Inherent • Community cooperatives

11. Extrinsic Community Development Flathead Electric Cooperative, Montana (Evergreen Rail Industrial Park) Pee Dee Electric Cooperative, South Carolina (Pee Dee Electricom) Central Iowa Power Cooperative, Iowa (Iowa Capital Corporation) Rural Electric Cooperative, Oklahoma (Country Living Homes)

12. Flathead and Pee Dee • Co-ops interested in developing industrial parks for business recruitment. • Created subsidiary development corporations. • Given permission by city/county governments because of their strong ties to community, “pure” motives. • Partner with university/community colleges for business recruitment.

13. Central Iowa Power • Operates a comprehensive economic development program: recruitment, land development and construction. • Partnered with another power co-op and state government to create venture capital firm (ICC). • Bought out partners because of conflicting objectives.

14. Central Iowa Power • Manages ICC to maximize internal rate of return, not to maximize development. • Uses returns to cover losses at parent co-op. • Management of ICC would like to use returns for growth, so conflict with co-op.

15. Rural Electric • Created housing construction company (CLH) to increase business attraction (affordable housing in short supply). • Initially developed CLH with 7 other co-ops, but abandoned group effort. • Other co-ops were driven by membership concerns regarding the investment (their capital). • Also changed focus to high-end, custom homes (more profitable market). Successful.

16. Extrinsic—Reactive Investments • Northern Electric Cooperative, Montana • Purchased Granrud’s Lefse Shack in 1997 • No other local buyer • 27 jobs • Profitable

17. Inherent Community Development • The North Coast Co-op, California • A full service grocery store with strong community commitment • Farmers • Community residents • Rural Wisconsin Health Cooperative • Provides services to member hospitals and promotes rural health care at state and national level.

18. Community Cooperatives • Garrett Rural Information Cooperative, Maryland • Internet service provider created by local community college for students and to attract “virtual” employees from DC area • Struggles with member commitment and advances in technology (capital).

19. Community Cooperatives • Foodworks Culinary Center, California • A kitchen incubator created by community economic development corporation to capture comparative advantage • Failed as co-op.

20. Findings • Community support is key • Co-op may have advantages • If entering a competitive area, may not • Not necessarily automatic • Finding support within cooperative can be difficult • Conservative decisions about handling member equity • Diverse memberships may not share support • Members may want return from investment (especially if not community residents)

21. Findings • Community cooperatives are great examples of self-help community development. • Top down initiatives hard to sustain. • Individual interests tend to overwhelm community interest. • Need to be innovative and adaptive • Can be constrained by co-op structure • Need knowledge about business taking over (unless leaving it alone).

22. Conclusion • Co-op model still unknown; new opportunities for growth in rural areas. • Many practical reasons why co-ops may not pursue community development objectives • Relationship between cooperatives and communities is complex—interdependencies.