business models for marketing agricultural products
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Business Models for Marketing Agricultural Products. Lots of Names. Corporation LLC Cooperative Association. Comes Down to Choices. What will it do? Who will control or own it? How will decisions be made? How do the profits or surplus earnings get distributed?

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lots of names
Lots of Names
  • Corporation
  • LLC
  • Cooperative
  • Association
comes down to choices
Comes Down to Choices
  • What will it do?
  • Who will control or own it?
  • How will decisions be made?
  • How do the profits or surplus earnings get distributed?
  • How will it pay taxes?
llc vs cooperative
LLC vs. Cooperative
  • Both allow control by producer owners
  • Both allow for profits to be passed through without being taxed.
  • Both offer members reduced risk or liability shield.
  • Both have to cover their costs.
  • Both have to cover their costs.
features of llcs
Features of LLCs
  • Owned by members – based on investment.
  • Profits are distributed in proportion to their investment.
  • Voting is proportional to level of investment.
  • Can be managed by members or by a professional management team.
features of co ops
Features of Co-ops
  • Democratic – one member one vote
  • Benefits proportional to use - not investment
  • Operate at cost – surplus earnings to members
  • Voluntary and open membership
  • Typically co-ops raise capital more slowly.
retained earnings
Retained Earnings
  • Keep part of the surplus – slow growth

Sales price = $6.00

Cost of sales (tax, labor, supplies) =$1.50

Fixed Costs = $ 2.50

Surplus = $2.00

  • Paid in cash - $1.50
  • Kept in retained earnings - $.50
retained earnings1
Retained earnings

$50,000 to cover expansion

Retain $.50 per dozen

Need 100,000 dozen to raise the funds

Five years at current production level

new generation model
New Generation Model
  • Capital is raised up front by selling shares that are linked to right to deliver.
    • Member with more money to invest has to have more production to process.
  • Retained earnings are usually lower
  • Still not possible to raise money from outside investors.
    • Interest payments are capped.
    • Governance normally remains one vote per member.
    • Benefits accrue in proportion to use rather than investment.
comparison
Current

Each member invests the same amount

Each member can deliver as much as they can produce

One vote per person

Raise money through retained earnings

New Generation

Members buy access to production capacity

Specific mutual obligations – co-op will buy and member will deliver

One vote per member

Raise money by selling access to processing capacity

Comparison
how ngc would raise 50k
How NGC would raise $50K
  • Sell $50K worth of stock to members.
  • Determine the amount of deliveries that will be linked to each share.

Can/will members be willing to spend this much money to buy shares of production capacity?

Not like an LLC where you can sell shares to investors who do not produce.

issues
Issues
  • Can selling production shares raise enough money?
  • Will members be willing to pay for capacity?
  • Is the co-op’s processing capacity limited?
  • Does the co-op have markets? – Can it cover its costs??
advantages of cooperatives
Advantages of Cooperatives
  • Co-ops are part of a community of likeminded businesses,
  • Co-ops can be an effective grassroots organization
  • Co-ops receive a favorable treatment by government,
disadvantages of co ops
Disadvantages of Co-ops
  • Coops depend on their member/owners to generate business
  • Cooperation may not come easily to your group
  • It is harder to raise capital
  • Co-op can be distracted from its basic business
places to look for more information
Places to look for more information

National Coop Organizations

  • http://www.ncba.org/ National Cooperative Business Association
  • http://www.cdi.coop/ Cooperative Development Institute
  • http://www.cdsus.coop/ Cooperative Development Services

Cooperative Development Funds

  • https://www.cdf.coop/mission.html Cooperative Development Fund
  • http://www.bloomingprairie.org/index.html Blooming Prairie Foundation
slide16
Andrew Crow Alaska Cooperative Development Program Tel: 907-786-5447email: [email protected]://ced.uaa.alaska.edu/acdp/index.html
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