WHAT ARE
COOPERATIVES?
USDA, RBS, CIR 11 Chapter 1 What Are Cooperatives?
A Type of Business Dependent On
•
•
•
•
Who owns the business?
Wh controls
Who
l the
h business?
b i
?
Who uses the business?
Who gets the profits?
USDA, RBS, CIR 11 Chapter 1 What Are Cooperatives?
Individually Owned Business
One Person
• Owns
• Controls
• Operates
• Benefits/profits
USDA, RBS, CIR 11 Chapter 1 What Are Cooperatives?
Partnership
Two or more people
• Own
• Control
• Operate
• Share in risks and
profit
USDA, RBS, CIR 11 Chapter 1 What Are Cooperatives?
Corporations
•
•
•
•
•
•
Multiple owners
Variety of goods and services
Physical facilities
S
State
chartered
h
d
Investors
Profits shared among investors
USDA, RBS, CIR 11 Chapter 1 What Are Cooperatives?
Cooperatives Are a Type of
Corporation
•
•
•
•
•
•
Multiple
M
lti l owners who
h are user members
b
Variety of goods and services
Ph i l facilities
Physical
f ili i
State chartered
Members are investors
Owned and controlled by members who
use its
i services
i
USDA, RBS, CIR 11 Chapter 1 What Are Cooperatives?
Cooperatives
• Are p
primarily
y controlled by
y a board of
directors elected by and from members
• Derive equity from member owners
• Operate for the benefit of member owners
g to members based on use
• Allocate earnings
• Earnings from member business is taxed
once
• Have perpetual existence
USDA, RBS, CIR 11 Chapter 1 What Are Cooperatives?
The Cooperative Form of
Business Is Prevalent
30,000 cooperatives in the United
States
• Serve 350 million people
• There are several types of
cooperatives
p
serving
g manyy sectors
•
USDA, RBS, CIR 11 Chapter 1 What Are Cooperatives?
Types of Cooperatives
• Financial
• Consumer Service
• Business
USDA, RBS, CIR 11 Chapter 1 What Are Cooperatives?
Cooperatives Provide
•
•
•
•
Credit
Transportation
Facilities
Recreational
Equipment
• Food
• Housing
• Health care
• Child care
• Wholesale goods and
li
supplies
• Electricity
• Telephone and electric
services
F
production
d i
• Farm
supplies and service
• Farm
F
marketing
k ti
USDA, RBS, CIR 11 Chapter 1 What Are Cooperatives?
Cooperatives Have Unique
Principles
User - Owner
U - Control
User
C t l
User - Benefit
USDA, RBS, CIR 11 Chapter 1 What Are Cooperatives?
User-Owner Principle
The people who own and finance the
cooperative are those
h
who
h use it.
USDA, RBS, CIR 11 Chapter 1 What Are Cooperatives?
User-Control Principle
The ppeople
p who use the
cooperative are those
who control the
cooperative
p
USDA, RBS, CIR 11 Chapter 1 What Are Cooperatives?
Members Exercise Control By
• Voting at annual and
membership meetings
• Electing Board of Directors
• Making decisions on major
cooperative issues
USDA, RBS, CIR 11 Chapter 1 What Are Cooperatives?
User-Benefit Principle
The cooperative’s sole purpose
is to provide and distribute
benefits to members on the
basis off their use
USDA, RBS, CIR 11 Chapter 1 What Are Cooperatives?
User-Benefits
f
•Bargaining
g
g Power
•Reduced Costs
•Market Access
•Quality
Q
y products
p
and
services
•Community
Strength
•Political Action
•Patronage Refunds
•Economic
Enhancement
•Competitive
Yardstick
USDA, RBS, CIR 11 Chapter 1 What Are Cooperatives?
Cooperative Practices
Implement and Facilitate Basic Principles
• Patronage
P
R
Refunds
f d - distribute earnings to
members based on use
• Limited Return on Equity Capital - members
form cooperatives for service, not for a monetary
return on investment
• Cooperative Cooperation - joint ventures, MAC’s,
networks, alliances, working relationships, etc.
• Cooperative Education - promote the cooperative
way of doing business and educate members,
directors and employees
directors,
USDA, RBS, CIR 11 Chapter 1 What Are Cooperatives?
Cooperative Governance System
Structure
Based on membership
p structure and essentiallyy
defines who the members are and how the
cooperative is organized to serve them.
• Centralized Structure - Individuals are
direct members
• Federated Structure- Cooperatives are direct
members
• Mixed Structure - Individuals and
cooperatives both are direct members
USDA, RBS, CIR 11 Chapter 1 What Are Cooperatives?
Geographical
g p
Structure ((revised))
Geographical characterization defines a
cooperative’s
p
size and scope
p of operations
p
in
reference to serving members.
• Local – Centralized co-op covering less than one state or
equivalent
i l t area if multi-state.
lti t t
• Super local – Large local centralized co-op with at least 200
employees or $200 million in sales.
• Regional – Centralized, federated or mixed co-op covering
one of more states.
• Interregional – Federated regional co-op owned and
controlled by two or more regional co-ops.
• National – Co-op covering all of one country.
• International – Co-op covering two or more countries.
USDA, RBS, CIR 11 Chapter 1 What Are Cooperatives?
Centralized Structure
Cooperative
Member
Member
USDA, RBS, CIR 11 Chapter 1 What Are Cooperatives?
Member
Federated Structure
Cooperative
Local Co-op
p
Member
Member
Local Co-op
p
Member
USDA, RBS, CIR 11 Chapter 1 What Are Cooperatives?
Member
Mixed Structure
Cooperative
Local Co-op
Member
Member
Member
Member
USDA, RBS, CIR 11 Chapter 1 What Are Cooperatives?
Member
Cooperative Functions
Three Core Functions
• M
Marketing
k ti - extend
t d control
t l off
members’ products through
processing distrib
processing,
distribution,
tion and sale
• Purchasing - providing
affordable
ff d bl supplies
li andd goods
d
• Service - provide needed services
USDA, RBS, CIR 11 Chapter 1 What Are Cooperatives?
Marketing Cooperatives
Cooperati es
Assist members in maximizing
returns from goods they produce
•
•
•
•
Handle, process, and sell
Grade, transport, bargain
Add value
Research-new product development
USDA, RBS, CIR 11 Chapter 1 What Are Cooperatives?
Marketing Cooperatives
Assist members to maximize the return they receive
for the ggoods theyy produce!
p
Member
Products
•Agricultural
•Forestry
•Aquaculture
•Horticulture
•Crafts
Functions
•Transport
Transport
•Process
•Grade
•Add value
•Research
•Distribute
•Bargain
•Sell
USDA, RBS, CIR 11 Chapter 1 What Are Cooperatives?
Member Benefits
Extend control
of their pproducts
and realize
additional
margins
Purchasing Cooperatives
Allow members
All
b to
t gain
i access to
t
affordable production supplies and
goods
• Purchase in bulk to reduce costs and
increase purchasing power
• Provide
P id di
directt ownership
hi off refineries,
fi i
plants, retail facilities, research facilities
USDA, RBS, CIR 11 Chapter 1 What Are Cooperatives?
Purchasing Cooperatives
Used by members to gain access to affordable, quality supplies
Members
•Producers
•Hardware
stores
•Independent
ggrocery
y
stores
•Fast food
franchises
Functions
•Refineries
•Plants
•Feed mills
•Warehouse
•Manufacture
•Buy in
i bulk
b lk
•Deliver
USDA, RBS, CIR 11 Chapter 1 What Are Cooperatives?
Member Benefits
•Reduced costs
•Volume
l
discounts
di
•Quality control
•Increased access
Service Cooperatives
P id needed
Provide
d d services
i
• Meet many needs
• Custom application of purchased supplies,
p of pproduct,, etc.
transport
• Provide utilities, credit, housing, health
care technology,
care,
technology etc.
etc
USDA, RBS, CIR 11 Chapter 1 What Are Cooperatives?
Service Cooperatives
Used by members to gain access to affordable, quality services
Members
•Producers
•Rural
residents
id
•Urban
residents
•Public
Functions
•Farm
Farm applications
•Credit
•Electricity
•Communications
•Insurance
•Health care
•Schooling
•Housing
USDA, RBS, CIR 11 Chapter 1 What Are Cooperatives?
Member Benefits
•Access to services
•Affordable
Affordable services
•Quality
•Increased access
Participation Roles
Cooperatives operate through
the roles of principal parties
•
•
•
•
Members
Directors
Manager
Employees
USDA, RBS, CIR 11 Chapter 1 What Are Cooperatives?
Organizational
g
Make-Up
p
Members
Board
B
d off
Directors
Manager
Employees
USDA, RBS, CIR 11 Chapter 1 What Are Cooperatives?