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When do Cooperatives Work?. Joan Fulton Department of Agricultural Economics Purdue University. Why Cooperatives Form. Market Failure Benefit from Economies of Size Capture Profits from Another Level Desire to be part of the Food Chain Gain from Coordination. Why Cooperatives Form.

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When do cooperatives work

When do Cooperatives Work?

Joan Fulton

Department of Agricultural Economics

Purdue University


Why cooperatives form
Why Cooperatives Form

  • Market Failure

  • Benefit from Economies of Size

  • Capture Profits from Another Level

  • Desire to be part of the Food Chain

  • Gain from Coordination


Why cooperatives form1
Why Cooperatives Form

  • Overcome Imbalance of Market Power

  • Competitive Yardstick

  • Provide Missing Services

  • Assure Supplies or Markets

  • Benefit from Risk Reduction


Why cooperatives form2
Why Cooperatives Form

  • Intrinsic Value of Ownership

  • Social Issues

  • Rural and Community Development


Challenges
Challenges

  • Growth

    • Is Cooperative Growth Constrained?

  • Financing

    • Lack of Outside Equity

    • Challenges if you allow for Outside Equity

  • Equity Redemption

  • Employees/Management

    • Incentives

    • No opportunities for Stock Options


Challenges1
Challenges

  • Slow Decision Making

  • Inability/Unwillingness to Pay Competitive Salary for Management and Employees

  • Equal vs. Equitable Treatment of Members

  • Mix of Goods and Services to Offer

  • Member Commitment

  • Free Riders


When cooperatives don t work
When Cooperatives Don’t Work

  • Unfavorable Market Conditions

  • Poor Management

  • Inadequate Financing

  • Inefficient Operations

  • Not Progressive

  • Don’t Deliver Value

  • Lack of Member Commitment

  • Free Riders


Keys to cooperative success
Keys to Cooperative Success

  • Economic Need Exists

  • Efficient Operation

    • Organizational

    • Operational

  • Dealing with Equity Redemption

  • Must be as Good as the Competition

    • Competition is Broadly Defined


Keys to cooperative success1
Keys to Cooperative Success

  • Member Commitment and the Free Rider Problem

    • Long Term Delivery Contracts (NGCs)

    • Establish and Maintain a Culture of Strong Member Commitment

    • Establish a “Common Property” not and “Open Access” Environment

    • Members Know and Appreciate Value of Cooperative


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