When do Cooperatives Work?

1. When do Cooperatives Work? Joan Fulton Department of Agricultural Economics Purdue University

2. 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

3. Why Cooperatives Form • Overcome Imbalance of Market Power • Competitive Yardstick • Provide Missing Services • Assure Supplies or Markets • Benefit from Risk Reduction

4. Why Cooperatives Form • Intrinsic Value of Ownership • Social Issues • Rural and Community Development

5. 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

6. 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

7. 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

8. 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

9. 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