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Cooperatives 3111. Ronald Rainey, Ph.D. Extension Economist. Cooperatives. Cooperative: definitions, principles, structure, and benefits Steps to the development of a cooperative organization. Cooperative.

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cooperatives 3111

Ronald Rainey, Ph.D.

Extension Economist

  • Cooperative: definitions, principles, structure, and benefits
  • Steps to the development of a cooperative organization

A state chartered business, organized and operated as a corporation. It is owned and democratically controlled by the people (members) who use its services and whose benefits are derived and distributed equitably on the basis of use.

capper volstead act of 1922
Capper-Volstead Act of 1922

Federal legislation allowing farmers to “act together”. It provides:

  • It must be operated for the mutual benefit of its members.
  • It must not deal in the products of nonmembers in an amount greater than it handles for members.
capper volstead act cont d
Capper-Volstead Act (cont’d)
  • No member of an association is allowed more than one vote because of ownership.
  • The association does not pay dividends on stock or membership capital in excess of 8 percent per year.
cooperative principles
Cooperative Principles
  • Service at cost
  • Financial obligation and benefits proportional to use
  • Limited return on equity capital
  • Democratic control
  • Educating it’s members through meetings, training, etc.
service at cost
Service at Cost
  • Acting together gives the advantage of economies of size and bargaining power
  • Cooperative attempts to fulfill member needs at lowest possible cost
  • It is necessary to charge competitive market prices to cover costs and meet operating capital requirements
  • Operations are reduced to at cost basis at end of year when surpluses are returned to members
financial obligation and benefits proportional to use
Financial Obligation and Benefits Proportional to Use
  • Members gain direct and indirect benefits
  • Direct benefits are an assured source of supply and markets for products
  • Indirect benefits include policing markets leadership development, business knowledge, and social recognition
  • The amount of benefits received depends on the members level of participation
limited return on equity capital
Limited Return on Equity Capital
  • The primary purpose of cooperatives is to get a needed service, not monetary return
  • Limiting payment for operating capital supports the principle of distributing benefits proportional to use
  • The basic idea is that users finance the cooperative in proportion to use
democratic control
Democratic Control
  • Voting is one method cooperative members use to exercise control
  • In most cases, Member-Owners have one vote regardless of their investment
  • Proportional voting is based on the size of the patronage the member does with the cooperative. Examples are: dollar volume, acreage, units marketed, etc.
member education
Member Education
  • Leadership Development
  • Cooperative Organizational and Management Skills
  • Economic and Community Development Training
  • Production techniques/practices
  • Training for the cooperative board of directors, management and members
cooperative s purpose
Cooperative’s Purpose
  • The primary purpose for a cooperative’s existence is to provide services for it’s members. An underlying rational is to increase income, but this goal is attained through the specific services provided by the business model
  • Members are the cooperative’s foundation and the organization serves the members “planned economic need”
cooperative members
Cooperative Members
  • Members are the primary users AND the owners of the business
  • Members elect a board of directors who set policies and run the business
  • Members benefit in two ways from the cooperative’s existence: 1) utilize the cooperative’s services 2) earnings are allocated proportional to use (patronage refund)
cooperative statistics
Cooperative Statistics
  • Currently there are more than 48,000 coops serving over 120 million Americans
  • Two out of every five people (40%) in the U.S. belong to a cooperative
  • Roughly 30% of farmers products are marketed through cooperatives
  • There are more than 3,000 agricultural cooperatives in operation in U.S.
  • 2000 net business volume of agricultural cooperatives was $99.7 billion
arkansas cooperatives
Arkansas Cooperatives
  • In 2001 there were 53 agricultural related cooperatives within the state of Arkansas
  • 11 of the cooperatives were primarily involved in marketing
  • 42 of the cooperatives were involved in farm supply and service
cooperative classification
Cooperative Classification
  • Geographic Territory Served (local, regional, and national)
  • Governance System (centralized, federated, and mixed)
  • Functions (marketing, purchasing, and service)
types of cooperative
Types of Cooperative
  • MARKETING: enable members to realize additional services (and profits) through processing, distribution, and sale of products
  • PURCHASING: allow members to gain access to volume discounts and quality control for production supplies
  • SERVICE: developed to serve specific member (farmer) needs including credit, health insurance, electricity, etc.
marketing services
Marketing Services
  • Negotiating prices and terms of sale with buyers
  • Assemble production into larger quantities for sale to further processors, wholesalers or retailers
  • Add further value to member production by processing or manufacturing member products into other higher valued products
marketing cooperatives
Marketing Cooperatives
  • Riceland Foods
  • Producers Rice Mill
  • Land O’ Lakes
purchasing services
Purchasing Services
  • Reduce member costs and strengthen their purchasing power through bulk purchases
  • Reduce costs through direct ownership of facilities and equipment that members utilize
purchasing cooperatives
Purchasing Cooperatives
  • Arkansas Electric Cooperative Corp.
  • Feed, seed, farm equipment, fertilizer companies, etc.
  • Provides specific, specialized services for members
  • Services include insurance, financing, education, etc.
service cooperatives
Service Cooperatives
  • Farm Credit Services
  • Wilbur D. Mills Educational Services Cooperative (15 regional educational cooperatives in the state)
  • Credit Unions
benefits of cooperatives
Benefits of Cooperatives
  • Access to quality supplies and services at reasonable cost
  • Increased clout (bargaining power) in the marketplace
  • Share in the earnings, gain access to larger markets
  • Political action
  • Local economy enhanced and protected
steps to developing a cooperative
Steps to Developing a Cooperative
  • Determine if there is an economic need.
    • Initial exploratory meeting
    • Select a steering committee
  • Examine if the cooperative structure is a viable solution.
    • Member survey
    • Feasibility analysis
    • Marketing research
steps to developing a cooperative1
Steps to Developing a Cooperative
  • Determine the level of potential member interest and commitment.
    • Second exploratory meeting
    • Member capital, business volume, etc.
  • Begin planning to evaluate the feasibility of the cooperative.
    • Prepare a business plan
    • Draft legal papers, bylaws and incorporate.
steps to developing a cooperative2
Steps to Developing a Cooperative
  • Formally organize the cooperative.
    • Third exploratory meeting
    • Members finalize bylaws and articles of incorporation. Once membership has finalized the papers, file the papers with the Secretary of State’s Office
  • Hold First Annual Meeting.
    • Approve the bylaws
    • Elect the Board of Directors
  • Rural Business and Cooperative Services (RBCS)
  • Agricultural Marketing Resource Center (AgMRC)

  • USDA Rural Development – Tim Smith Little Rock, Arkansas

Ph: (501) 301-3280 or

  • U of A Cooperative Extension Service – Ronald RaineyLittle Rock, Arkansas:

Ph:501-671-2175 or