A Brief Introduction to Agricultural Cooperatives Brief Introduction to Agricultural Cooperatives...

EM 8665 • Revised March 2004$4.50

A Brief Introduction to

Agricultural Cooperatives

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OREGON STATE UNIVERSITYEXTENSION SERVICE

Prepared by Larry Burt, Extensioneconomist, Oregon State University.

Contents

Why do something cooperatively? ................................................................................................................. 3

The nature of a cooperative ............................................................................................................................ 4

Key people for success ................................................................................................................................... 4

Avoiding common mistakes ........................................................................................................................... 5

Toward making the cooperative a success ...................................................................................................... 6

Contrasting a cooperative with other forms of business................................................................................. 6

Historical background................................................................................................................................... 10

Common cooperative functions .................................................................................................................... 14

Underlying economic principles that may invite creation of cooperatives .................................................. 16

Prospective strengths and weaknesses of a cooperative business form........................................................ 18

Equity and debt considerations ..................................................................................................................... 23

Legal organization ........................................................................................................................................ 27

Cooperative management characteristics ..................................................................................................... 28

The nature and role of cooperative directors ................................................................................................ 32

Membership responsibilities ......................................................................................................................... 33

Cooperative influences on public policy ...................................................................................................... 34

Relationships and linkages between independent, federated, and centralized cooperatives ........................ 35

Sources for additional information ............................................................................................................... 36

Acknowledgments ........................................................................................................................................ 41

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� The historical background ofcooperatives, with an emphasison the cooperative movement inthe United States, includingimpacts of the Capper-VolsteadAct and recent developments

� Common cooperative functions,including marketing, supply, andservices

� Underlying economic principlesthat invite the creation of coop-eratives—elements of marketimperfection and the potential forincreasing member returnsthrough collective action

� Potential benefits and limitationsof cooperatives

� Equity and debt considerations,including unique equity invest-ment aspects, sources of equity,and equity redemption systems

� Legal organization, with empha-sis on articles of incorporationand bylaws

� Characteristics of cooperativemanagement—its role, functions,and tools

� The nature and role of coopera-tive directors as policymakersand individuals

� Membership responsibilities

� Cooperative influences on publicpolicy

� Relationships and linkagesbetween independent, federated,and centralized cooperatives

At the end of this publication,you will find sources for additionalinformation—local and national

A Brief Introduction to

Agricultural CooperativesL. Burt

This publication is designedto help you learn moreabout agricultural coopera-

tives or to help you think throughthe process of organizing andoperating such a business. Whilethe focus is on creating a newcooperative, many of the ideas maybe of interest to those thinkingabout reorganizing or expanding anexisting agricultural cooperative.Likewise, many of the conceptsapply to any type of cooperativebusiness—agricultural as well asnonagricultural.

As you consider an agriculturalcooperative, keep in mind that notall business concepts fit well into acooperative form of business. It isimportant to explore alternativeforms of business for meeting youreconomic goals. Perhaps a standardcorporation or limited liabilitycompany might be better able tomeet your goals and serve thebusiness needs of potential coop-erative members. After a shortdiscussion about why someonemight want to act cooperatively,this publication provides a verybrief overview of alternative formsof business.

This publication exploresimportant considerations in devel-oping an agricultural cooperative:

� The nature of a cooperative, keyelements for success, andcommon mistakes to avoid

� A comparison with other busi-ness types and a discussion ofcooperatives’ primary operatingprocedures

cooperative organizations as wellas Web sites.

Why do somethingcooperatively?A compelling need might lead youto consider forming an agriculturalcooperative. Perhaps you need toexpand in existing markets ordevelop new markets beyond thebargaining power or supply poten-tial of your business. Or, you mightfeel group effort is needed to securelower-cost inputs or larger

What is acooperative?

➢ It’s owned and financedby its members, whoalso are its customers.

➢ Its purpose is to provideservices to members atthe lowest possiblecost—not to generatethe highest possiblereturn to investors.

➢ It is controlled bymembers, usually on aone-person, one-votebasis.

➢ Profits are distributed tomembers based on howmuch they use thecooperative, not on howmuch they’ve investedin it.

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necessary for cooperative growthand enhanced returns to members.Net income (revenues above totalcosts) usually is returned over timeto members as patronage dividends.Benefits typically are tied to theamount of use, not the amountinvested. Returns to members’equity investment in the coopera-tive usually are limited in order tofocus attention on returns based onuse of the cooperative’s services.

Most cooperatives are controlleddemocratically on a one-member,one-vote basis. However, somecooperatives permit a limitedproportional vote based on theamount of use members make ofthe cooperative’s services.

Key people for successFor a cooperative business to besuccessful, the members, as user-owners, must be active throughtheir patronage, and they must bewilling to make a capital invest-ment in the business and to

a day-to-day basis by professionalswho function under policy set bythe board.

In other significant ways,cooperatives are quite different.Differences stem from the nature ofthe cooperative’s purpose, owner-ship, control, and distribution ofbenefits. The intent of a coopera-tive is to provide its services tomembers at the lowest possiblecost—not to generate the highestpossible return to investors. Yet,sufficient revenue must be gener-ated to meet continuing capitalneeds.

As originally conceived, coop-eratives were to be operated on anonprofit basis. The term “profit”was avoided. Instead, revenuesabove costs were called “savings.”A portion of savings was retainedby the cooperative, and the remain-ing amount was returned to mem-bers as patronage dividends.

Today, most cooperative leadersno longer avoid the word profit.Instead, they speak of profit as

quantities of inputs. Additionalservices or higher quality might bemore readily available with jointefforts. Perhaps you simply need toincrease the net income generatedby your business.

Whatever the need, creating aproducer cooperative requires acautious approach. If done prop-erly, a cooperative can give farmersand ranchers a competitive edge byimproving market returns orreducing operating costs. But, ifdone improperly, it can lead todisappointing financial returns.

The nature ofa cooperativeA cooperative is a special type ofcorporation that is owned andcontrolled by those who use itsservices. In furtherance of theirmutual benefit, members financeand operate the business. Byworking together, members may beable to meet objectives that theycould not meet as individuals.Hence, the financial returns toindividual operations may begreater than they would be withoutcooperative effort.

In many respects, a cooperativeis like any other partnership,corporation, or limited liabilitybusiness. The physical facilities,functions, and business practicesmay be identical. Like any othercorporation under state law, acooperative has articles of incorpo-ration and bylaws that govern itsactions. It has an elected board ofdirectors and usually is managed on

The nature of a cooperative

PatronageUse of a cooperative by its members

EquityMoney directly invested in a cooperative

Net returns or net savings (profits)The amount remaining after a cooperative subtracts itscosts from its income

Patronage dividendsDistribution of net returns to members based on howmuch each member uses (patronizes) the cooperative

Key

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participate in decision-making.They must be interested in theaffairs of the cooperative, presentideas for improved performance,and promote the cooperative’s useby others who could benefit from it.

Success also requires outstandingmanagement. The board of direc-tors, elected by members fromwithin the membership, providesleadership by overseeing thecooperative’s business affairs andestablishing broad policies. Com-munication with the cooperative’sprofessional management and withmembers is critical. Professionalmanagement must be well equippedto supervise and manage employ-ees, capital, and physical resources;routine business activities; planningand goal setting; and implementa-tion of board policy.

The importance of the cooper-ative’s employees should not beoverlooked. Beyond job compe-tence, employees need to under-stand the cooperative’s purposes,objectives, and operating proce-dures. Well-educated and trainedemployees can improve memberrelations; enhance the cooperative’simage with customers, vendors, andregulators; and increase the generalpublic’s understanding of thecooperative.

Avoiding commonmistakesSometimes people believe thatforming a cooperative will auto-matically solve business problemsfaced by individual operations.

In reality, forming a cooperativedoesn’t eliminate the limitationswith which businesses must con-tend. Cooperatives are subject tothe same economic forces, legalrestrictions, and interpersonalrelations as other businesses.

Even when a cooperativerestricts the volume of productdelivered from its members, itcannot control their production.Neither have cooperatives beenvery successful at pooling laborresources, providing machinery, orproduction activities. The inabilityto control production means thatcooperatives can’t fix prices in themarketplace. In most cases, theavailability of substitute productsenables customers to avoid payingartificially high prices. Also,growers frequently can marketoutside the cooperative and, in theshort run, still benefit from pricesfixed by the cooperative.

A cooperative may not be able toobtain market power. Frequently,member-patron ability to generateequity capital is not sufficient toacquire the size and diversificationneeded.

Forming a cooperative generallydoesn’t allow producers to elimi-nate marketing functions needed tomove products to the consumer.However, a cooperative may beable to influence market structure—where and how marketing functionsare performed. Marketing functionsmay be replaced by the cooperative.Hence, cooperative efforts mayimprove inefficient marketingpractices.

Furthermore, cooperativescannot be expected to help mem-bers sell their surplus or poor-quality products. Neither can acooperative be expected to sell thehighest quality or most completeservices at rock-bottom prices.Instead, cooperatives need toprovide “bang-for-the-buck”supplies and services to theirmembers.

While a cooperative is subject tothe same interpersonal problems asany business, additional problemstypically occur, stemming in partfrom the fact that the cooperative isowned by many of those whopatronize it. Differences in businessacumen and objectives may putmembers at odds.

Avoiding common mistakes

Be realistic

➢ Don’t expect a market-ing cooperative to beable to control mem-bers’ production or toraise prices for theirproducts.

➢ A cooperative can’thelp members sellsurplus or poor-qualityproducts.

➢ Pay attention to peopleproblems. Competingobjectives may limit acooperative’s ability tomeet its potential.

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business. That person can helpcommittee members seek members,choose a site, develop facilities,devise legal structures, acquirecapital, finance operations, andenhance communications. Anemphasis on communication canmake members feel informed andinvolved, thus encouraging them toinvest time and money in thecooperative as well as to patronizeit.

A mindset that encourages soundbusiness practices lays the founda-tion for success by developing anappropriate accounting system,preparing operating and capitalimprovement budgets and financialreports, communicating to themembership on a regular basis, andconducting long-range planningefforts.

Continuing education is vital tothe successful operation of acooperative. A democratic, major-ity-rule approach to governancerequires an involved and enlight-ened membership. The cooper-ative’s responsiveness to memberneeds depends on informed

members expressing themselves.Furthermore, members mustrecognize that they have a responsi-bility to participate in financing theoperations of the cooperative and toeducate those outside the coopera-tive environment—other busi-nesses, government personnel, andthe general public.

Contrasting acooperative withother forms ofbusinessIn many respects, a cooperative isthe same as any other businessentity. It is proprietary in the sensethat it is owned by its investors andis operated privately, as opposed tobeing a public institution. It seeksto increase the economic well-being of its owners.

A major difference lies in howcooperatives distribute net income(profits). Cooperatives return netincome to their investors based oninvestor patronage (usage ofcooperative services or purchasevolume). Other businesses tend to

Directors of cooperativesfrequently must choose betweenbuilding the financial strength ofthe cooperative through retainedpatronage refunds and returningsavings to members, who may wantto receive a short-term benefit forinvestment in their own operations.Investing in the cooperative mayhelp it meet its full potential in thelonger run.

Limited objectives of somemembers may restrict the cooper-ative’s volume and opportunities toreduce per-unit costs. Additionally,the democratic process, especiallywhen large numbers are involved,may delay decision-making andrestrict the expansion of businessactivities.

Toward making thecooperative a successFrequently, cooperatives thatenhance members’ competitiveedge exhibit the same key ele-ments. In the beginning, the use ofprofessional advisors (frequently amanager) and committee structuresfor decision-making typically areimportant. Timeliness of decision-making is critically important.Also, keeping members informedand involved becomes an ongoingeffort. Following sound businesspractices, conducting businesslikemeetings, and maintaining a formalboard/management workingrelationship also are important.

An experienced advisor oncooperative organization can be areal asset when forming such a

Toward making the cooperative a success

Keys to success

➢ Professional advisors

➢ Communicating with members

➢ A mindset that encourages sound business practices

➢ Conducting businesslike meetings

➢ Maintaining a formal board/management relationship

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distribute returns on the basis ofinvestment in the business.

There are three basic businessforms: proprietorship, partnership,and corporation. In addition, thereare hybrid forms such as LimitedLiability Companies (LLCs). Most,but not all, cooperatives are legallyformed corporations. A cooperativenot legally formed as a corporationis a partnership.

If you use anything other thanyour own name for a businessconducted in Oregon, you mustregister the business name with theCorporate Division of the OregonSecretary of State’s office. Thatoffice’s excellent Web site can helpwith many aspects of organizingand operating a business (http://www.filinginoregon.com/).

Proprietorshipsand partnershipsProprietorships are businessesowned and controlled by oneentrepreneur (may include aspouse), who provides all equitycapital, makes key managementdecisions, and accepts unlimitedliability (extending to personalassets) for business debts. Inexchange, the entrepreneur receivesall profits (positive or negative) andpays income taxes as an individual.The business ceases to exist whenthe owner leaves or dies.

Many businesses in the UnitedStates are single proprietorships,but they produce a relatively smallpercentage of dollar sales generatedby businesses as a whole. There is

no limit on the size of the business.No legal formalities are needed toform a proprietorship exceptperhaps obtaining local permits orlicenses.

A partnership is similar exceptthat it is operated by two or more“unrelated” persons or businesses.In many cases, people who formpartnerships accept the role ofgeneral partner. They share inmanagement decisions, invest inthe business, and have unlimitedliability for the partnership’s debts.Partners pay taxes as individuals onnet income generated by thepartnership. In most cases, whenone of the general partners leavesor dies, the partnership is dissolved.

A variation on the partnership isthe limited partnership. In this formof business, there must be at leastone general partner. The limitedpartners have no personal liabilityfor partnership obligations. How-ever, they may vote on matterssuch as general partner changes,admission of new limited partners,dissolution of the partnership,amendments to the partnershipagreement, sale/exchange/encum-brance of partnership property,incurring extraordinary debt, orchange in the purpose of thepartnership’s business. Theirprimary interest is the return ontheir investment. They pay taxes asindividuals on those returns. Whenregistering with the CorporateDivision, the business name of alimited partnership must includethe abbreviation LP at the end ofthe name.

In agriculture, limited partner-ships sometimes are formed tocontrol resources such as land.Sometimes, general partners in thefarming operation may be limitedpartners in the landholdingcompany.

Another variation is the limitedliability partnership, which can beformed for service businesses. Thisform of organization limits partnerliability for partnership debts to theamount of their investment. Otheraspects of the partnership remainthe same. When registering withthe Corporate Division, the busi-ness name of a limited liabilitypartnership must include theabbreviation LLP at the end of thename.

CorporationsA corporation is a legally createdbeing that can own assets, has theright to net income, can signcontracts, can sue and be sued in acourt of law, and is liable for allbusiness debts and obligations ofthe business. If an owner of thecorporation dies or sells equity inthe business, the corporationcontinues to exist—it is perpetual.

Contrasting a cooperative with other forms of business

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There is no minimum size for acorporate form of enterprise.

Articles of incorporation andbylaws must be filed with theSecretary of State. As with othertypes of businesses, recording fees,annual license fees, and annualreports must be filed. If theserequirements are not met, the statewill dissolve the business. TheArticles specify the purpose of thecorporation, the Bylaws identifyoperating rules and officers, and thereports include updated informationabout the corporation, such ascurrent directors, change ofaddress, etc. Shares of stock aregiven in exchange for cash and thevalue of property and servicesprovided by the shareholders(owners) to the corporation. Annualand special meeting minutes mustbe recorded and archived. Theoverall management of a corpora-tion is vested in a board ofdirectors, which is elected by theshareholders.

In general, shareholders are liablefor corporate acts only to the limitof their investments. A corporationhas a life of its own and can bedissolved only by its shareholders orcreditors. The identity of sharehold-ers, managers, and directors makesno difference. Income is “doubletaxed”; the corporation pays taxeson net income, and after-tax incomedistributed to shareholders istaxable to shareholders at theirindividual rates. However, after-taxincome may be retained by thecorporation for investment up tospecified IRS limits.

Corporations offer numerouspossibilities for creating benefitprograms for employees, who alsomay be shareholders. If properlyconstructed, those programs are taxdeductible for the corporation.They frequently include retirementplans, medical insurance programs,group or key-employee insurancecoverage, and housing and mealexpense programs. Estate planningis made easier by the transfer ofshares. Important for many familycorporations, the “original owners”of the corporation typically canmaintain control of the business byhaving bylaws that requireapproval of 51 percent of thecorporation’s stock for fillingboard of director positions and67 percent for questions related todissolution, merger, or sale of thecorporation.

Most cooperatives are distin-guished in the federal tax code assubchapter T corporations. Othercategories include subchapter C(regular corporations), subchapterS (small, also known as tax option,corporations, which transfer allprofits and losses back to share-holders), and nonprofit corpora-tions, which vary in terms of thetax treatment of net income andlosses.

Unlike other corporations,subchapter T corporations arechartered in Oregon (and manyother states) under statutes thatspecifically address the uniquenature of a cooperative form ofbusiness. Any income the coopera-tive earns is taxable to the

cooperative if it is derived fromsources not associated with provid-ing member services.

Limited liabilitycompaniesLimited Liability Companies(LLCs) have become an increas-ingly popular business form foragricultural enterprises. A primaryreason is the flexibility of an LLCwith respect to liability protectionand its tax treatment (income istaxed only once, as with a partner-ship). Increasingly, it is the pre-ferred form of business when accessto income, reduced formality, andprotection from personal liabilityare important. In some cases, LLCsare used to own land, which in turnis leased to the operating business.In many cases, both are controlledby the same operators.

The organization of an LLC isfairly straightforward. The designa-tion LLC must appear after thename of the business. The companymust file a Certificate of Formation(similar to articles for a regularcorporation) with the Secretary ofState and pay applicable fees. Aswith a corporation, annual reportsand renewal fees generally arerequired. An Operating Agreement(similar to a partnership agreement)is required in many states, butusually is not filed with the state.

The LLC has members ratherthan partners or shareholders. Anyperson or entity may be a member.There is no restriction on thenumber of members—one personmay form an LLC. Members share


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in gains and losses as specified inthe Operating Agreement, but aretaxed like partnerships. Ownershipis based on certificates (shares),which may or may not be based oncapital investment. Frequently,certificates are issued for manage-ment expertise, technical skills, etc.Like a corporation, the LLC ownsall of its assets.

Voting rights may be based onownership, a distribution formulafor gains and losses, or an arbitraryrule. There may be managingmembers and nonmanaging mem-bers. The distinction typically is thesame as that between general andlimited partners. Unlike the per-petual nature of a corporation, thelifetime of an LLC may be speci-fied or unlimited. Dissolution afterthe withdrawal of a member can beavoided by a provision in the LLCOperating Agreement.

No members are personallyliable for LLC debts. However, aswith other protected businessforms, there is liability for debtguaranteed by a member or tortliability outside the LLC. Also,members cannot avoid liabilityrelated to taxes, environmentallaws, and negligence or breach of amember’s obligation to the LLC.

Single-member LLCs are taxedlike individual proprietors, includ-ing self-employment tax. If there ismore than one member, an LLC’snet income can be taxed as it wouldfor a regular corporation, or it canbe distributed to members, whothen are taxed as individuals (as ina partnership or subchapter Scorporation). Nonmanagingmembers do not pay self-employ-ment taxes. Estate planning rulesfor partnerships apply to managingmembers; for nonmanaging

members, the limited partnershiprules apply.

Distribution ofeconomic returnsInvestor liability is a key consider-ation affecting business organiza-tion. All owners (members) of acooperative have limited liabilityequal to their equity investment.Losses, debts, and other claims onthe business can be satisfied onlyup to the limit of the equityinvested in the business. Creditorscannot seek additional outsidefunds from the owners to satisfyclaims against the business.

Similar to subchapter S corpora-tions, cooperatives under subchap-ter T pay no income taxes on netreturns from “regular” operations.Only distributions to owners aretaxable at the owner’s individualrate. Cooperatives do pay othertaxes, including those levied onproperty, sales, employment, andfuel.

Economic returns to cooperativemembers are emphasized overreturns to invested capital. Returnto investment in many cases is setat zero. Members usually receivereturns based on their patronage(purchases or use of cooperativefacilities and services). Typically,some net returns or assessments areretained to finance operating andcapital needs of the cooperative.These retained returns are paidback to members at a later date ona patronage basis. While not


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guaranteed, many cooperativesestablish a desired retained returnspayback schedule. Depending onthe cooperative, the schedule mayrange from a few years to morethan 20 years.

For tax management purposes,net returns from regular coopera-tive operations in a particular yearcan be handled in two ways. Part orall of those net returns can beidentified by the cooperative as adividend known as a “qualifiedallocation.” The cooperative mustpay a minimum of 20 percent ofthat dividend to members as cash.The full amount of the dividend,whether received by the member ornot, is treated by the member asincome received in the year thedividend is earned. The 20-percentcash dividend helps members payincome taxes owed on the fullamount of the dividend. The entiredividend is tax deductible from thecooperative’s earnings for that year.Any of the dividend retained in thecooperative and paid to the memberat a later date is completely taxdeductible for the member at thattime since taxes were paid by themember on those monies in theyear the dividend was earned. Inother words, member dividendsthat are qualified allocations andretained by the cooperative don’tpermit the member to defer taxeson those monies until they arereceived.

On the other hand, part or all ofnet returns may be identified by thecooperative as dividends that are“nonqualified allocations.”

Membersexpect toreceive thesedividends ata later dateand payincome taxeson them inthe yearreceived.Meanwhile,the coopera-tive paysincome taxeson theseretaineddividends in the year they areearned. When paid out in lateryears to members, the cooperativetreats these dividends as tax-deductible expenses. The advantageof retaining nonqualified alloca-tions is that income taxes owed bythe cooperative may be offset bytax credits. Those tax credits areusable only if there are incometaxes due by the cooperative. Anadditional benefit is that membersmay find it to their advantage todefer income taxes on this type ofdividend until the year it isreceived.

HistoricalbackgroundThe concept of human cooperationwithin the community is not new.As early as 1752, BenjaminFranklin helped organize the firstformal cooperative in the UnitedStates—the “Philadelphia Contri-butionship for the Insurance of

Homes from Loss of Fire”; itcontinues to operate. But, theorganizational characteristics thatunderlie modern cooperativebusinesses have mostly beendeveloped within the past160 years. Many point to theformation of the Rochdale Societyof Equitable Pioneers, Ltd. in 1844as the first successful cooperativebusiness. It was formed by a groupof tradespeople in England as aconsumer (buyer’s) cooperative.

While not explicitly stated, thecooperative principles observed bythe Rochdale Society were the keyto its success. The memberscontrolled the business by a one-member, one-vote democraticprocess. Membership was open.With respect to ownership, equitywas provided by the patrons, andeach person’s equity was limited asa share of total equity. Limiteddividends were paid on members’equity investment, and income afterall costs were covered was returned

Historical background

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to patrons as a patronage refundbased on the value of the patron’spurchases. All goods and serviceswere exchanged at free marketprices. Other principles thatcontributed to the Society’s successincluded a duty to educate, cashtrading only, no assumption ofunusual risk, political and religiousneutrality, and membership equal-ity between the sexes.

Following the Civil War, agri-cultural cooperatives began to beformed in the United States. Mostwere patterned after the Rochdalesystem. The Grange and latergroups such as CENEX (FarmersUnion Central Exchange, Inc.) andthe National Farmers Union(Farmers Educational and Coopera-tive Union of America) fostered thedevelopment of many cooperatives.But, in the 1890s, antitrust legisla-tion began to put a damper onagricultural cooperatives. Subse-quent court rulings effectivelymade farmer cooperatives illegal.Farmers were prosecuted forcollective action—especially foractivities that involved pricingagreements and terms of trade.

The Capper-Volstead ActIn response to concerns aboutantitrust allegations, Congresspassed the Capper-Volstead Act in1922. It contained two key provi-sions. The first permits farmers tocollectively market their productswithout the threat of antitrustaction. By acting together, agricul-tural producers are permitted tocreate countervailing power when

bargaining with typically fewer,larger buyers. The second provisionof the Act protects the public from“undue price enhancement” causedby monopoly action by a group ofproducers.

As a result of Capper-Volstead,agricultural producers not only mayform associations, but thoseassociations may form agencies. Inorder to reduce competition amongproducers, associations must beoperated for the mutual benefit oftheir members, who must beagricultural producers. In addition,an association must deal in theproducts of its members to agreater degree than the products ofnonmembers. Finally, an associa-tion must conform to at least one ofthe following rules: (1) no memberof an association is allowed morethan one vote because of theamount of stock or membershipcapital owned, or (2) the associa-tion does not pay dividends onstock or membership capital greaterthan 8 percent per year.

While Capper-Volstead provideslimited antitrust exemption, agri-cultural cooperatives can beprosecuted under antitrust laws ifthey are involved in prohibitedbusiness practices. Specifically,they may not engage in “predatory”pricing practices or conspire orcollude with third parties to fixprices, restrict members’ agricul-tural output, coerce competitors orcustomers, combine with otherfirms to “substantially lessencompetition,” or engage in boy-cotts. If an association is found to

be monopolizing or restrainingtrade to the extent that it “undulyenhances prices” of agriculturalproducts, then it may be required to“cease and desist from monopoliza-tion or restraint of trade.”

Recent developmentsSince the 1950s, agriculturalcooperatives have continued todevelop with only a modest amountof government help—broadresearch, education, and advice.While remaining separate, mostagricultural cooperatives andgeneral farm organizations havemaintained friendly and comple-mentary relationships.

Neutrality toward politicalparties is widespread, but agricul-tural cooperatives are increasinglyinvolved in political action toinfluence agricultural policy andthe economic and business environ-ment. Because of an increasinglyglobal economy, many agriculturalcooperatives have organized theirstructure and business strategiesaround an international economicdimension.

Agricultural cooperatives haveincreasingly looked for ways togrow. Growth has come bothinternally and through consolida-tion of smaller cooperatives. Largersize has allowed many cooperativesto expand into value-added agricul-tural activities such as inputmanufacturing and productprocessing.

A 1998 USDA national surveyof cooperatives (see USDA’s RuralBusiness-Cooperative Service Web


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site at http://www.rurdev.usda.gov/rbs/pub/sr576.pdf), found thatabout 3,600 cooperatives across thenation served 3.4 million members.Five years earlier, almost 5,000agricultural cooperatives servedmore than 4 million members.Combined assets totaled about$47 billion in 1998, up from justover $31 billion in the earliersurvey. Net business volume(excluding sales between coopera-tives) generated more than$104 billion, compared to$76 billion 5 years earlier. Memberinvestment in their agriculturalcooperatives totaled almost$20 billion, up from just over$14 billion. By numbers of agricul-tural cooperatives, Minnesotacontinued to lead the way withabout 390, down from about 425.That state also continued to havethe largest total number of coopera-tive members, 330,000 comparedto about 365,000 in the previous

survey. Iowaled the waywith highestnet businessvolume ofalmost$11 billion.Five yearsearlier,Californialed with justover

$8 billion.Closer to

home, indescending order

of importance,agricultural cooperatives headquar-tered in Oregon fall into five majorcategories: supply, marketing,grains and oil seeds, fruit andvegetable processing, and dairyprocessing. In all, there were about40 agricultural cooperativesheadquartered in Oregon in 1998,with a total membership of justunder 22,000. Five years earlier,there were more than 60 agricul-tural cooperatives serving morethan 40,000 members. In the latestsurvey, net business volume for the40 cooperatives amounted to about$2.1 billion. The 60 cooperativessurveyed 5 years earlier did justover $2.4 billion on an annualbasis.

For both farm marketing andfarm supplies, agricultural coopera-tive dollar volume has approached30 percent of the total agriculturalsector. Cooperative share of salesin many commodity categories issignificant, especially for milk and

grains/oilseeds. For milk at thefirst-handler level, as much as80 percent of sales go throughcooperatives. Grain marketingapproaches 40 percent, while about20 percent of fruit and vegetabledollar sales go through coopera-tives. For livestock, about10 percent of sales typically movethrough cooperative channels.

The number of agriculturalcooperatives has been declining,largely due to mergers and acquisi-tions intended to foster growth. Yet,the interest in cooperation seems tobe increasing. Many agriculturalbusinesses are looking at coopera-tion both as a way to help peoplesocially and to help ensure theeconomic survival of theirbusinesses.

Some observers of currentagricultural cooperative trends referto “value-added” or “new genera-tion” cooperatives. Many coopera-tives are increasingly combiningtraditional cooperative structureswith links to limited liabilitycompanies, partnerships, or regularcorporations. Rather than onlybuying supplies or producing andmarketing commodities, farmer-owned cooperatives are findingways to integrate vertically. Theymay control input availability andcost all the way through the pro-duction and sale of institutional andconsumer food products. State andfederal tax incentives have encour-aged these more complex businessstructures and efforts to integratevertically. In addition, theselinkages can provide sources of


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new capital for cooperative busi-ness growth.

Underlying principlesof cooperationCooperatives are formed to dosomething better than individualscould do for themselves or througha noncooperative form of business.Perhaps the goal is to developmarket power in order to sellproducts at higher prices or enternew markets. Some cooperativesare created to obtain and deliverinputs such as feed, seed, petro-leum, and fertilizer more economi-cally. Others ensure the availabilityof needed services or pool risk.

Acting together, members cantake advantage of economies ofsize or develop bargaining power.In doing so, the cooperativeattempts to fulfill member needs atthe least possible cost. However, inorder to cover all costs and meetcapital needs, the cooperativenecessarily charges competitivemarket prices. The at-cost basisbecomes reality when the coopera-tive returns surplus money (divi-dends) to members at the end of thefiscal year.

The basic principles underlyingmodern cooperatives include:

� The user-owner concept—Thepeople who own and finance thecooperative should be its users.

� The user-control concept—Thecontrollers and users of acooperative are one and thesame.

� The user-benefits concept—Thecooperative’s sole purpose is toprovide and distribute benefits tousers based on the amount oftheir use.

Members benefit both directlyand indirectly from a cooperative.Direct benefits may include a betterassurance of supply sources andaccess to product markets, whichcan directly increase the net incomeof their own businesses. Indirectbenefits may include a greaterinfluence on input and outputmarkets, increased business knowl-edge, and participation in researchand development activities.

By limiting the payments toinvested dollars, cooperatives focuson their primary responsibility—providing needed products andservices to members. Current usersfinance the cooperative in propor-tion to their use of its services. Thatinvestment usually is returned tothe member on a scheduled basis.

Cooperatives primarily acquirecapital in three ways.

� Direct investments may be madeby members. As an example, acondition of membership may bean initial fee, which buys stockin the cooperative.

� Capital is also raised by retain-ing some net income rather thanpaying it out as patronagerefunds. The resulting retainedpatronage returns are propor-tioned to members based on theamount of business (patronage)they have done with the

cooperative during a particularperiod of time, usually a fiscalyear. These retains are paid tomembers over time.

� The third approach to generatingequity is to create capital retainsfrom earnings. Rather thanpaying back earnings to mem-bers, a selected portion is paid asequity capital stock. This stockusually is issued with regard tothe member’s level of patronage.

Some agricultural cooperatives areexperimenting with the sale ofpreferred-type stock, which is soldprimarily to nonmembers. Pre-ferred stock does not confer votingrights. These investors expectdividends to be paid by the coop-erative on a regular basis, and theyrisk no more than the loss of theirinvestment. They pay taxes ondividends at their regular rates.

Broad economic decision-making by a cooperative usually isguided by vote of the members.Many cooperatives maintain ademocratic approach to decision-making: each member has one voteregardless of the amount investedin the cooperative or use of itsservices. Increasingly, however,cooperatives are adopting orconsidering “member control”voting systems, which relate to theamount of patronage each memberconducts with the cooperative.

Most agricultural cooperativesare not completely open for mem-bership. Frequently, membership isrestricted to commercial operators.


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The word “commercial” in thiscontext means a good or serviceproduced for economic gain. Insome cases, membership may berestricted further to accommodateperceived limits on marketavailability.

Common cooperativefunctionsCooperative business organizationscan be found throughout theagricultural sector. They range insize from a few growers working toimprove the marketability of theircommodity to large agribusinessconcerns serving the complexneeds of thousands of members.Frequently, cooperatives areclassified by the type of commodi-ties they handle or the functionsthey perform. Many cooperativescombine functions.

MarketingMarketing cooperatives includebargaining and processing organi-zations. Frequently, marketingcooperatives do some of eachactivity. Their primary role iscentered around moving memberproducts through marketingchannels toward the ultimateconsumer.

Some marketing cooperativesperform limited activities, butothers assume responsibility for allmarketing functions, e.g., receiv-ing, grading, processing, packag-ing, labeling, branding, storing,

transporting, distributing, merchan-dising, etc. Marketing cooperativesare becoming more verticallyintegrated by increasing theirownership and control of facilitiesbeyond the first-buyer level. Insome cases, they own retail outletsthat sell to the ultimate consumer.

Many marketing cooperativeshave major outlets through hotels,restaurants, and institutions. Exportis another growing area. Leadingexports are nuts and nut products,fruits and related preparations,grains and related products, andoilseeds and oilnuts.

While some cooperatives arepurely bargaining organizations(associations), many go beyondprice and terms-of-trade negotia-tion. Most represent their membersat the first-handler level. Those thatare purely bargaining cooperativesare mostly in the fruit and veg-etable industry and do not handleor take title to the product theyrepresent.

SupplyThese types of businesses fre-quently are referred to as purchas-ing cooperatives. They handle awide variety of farm supplies andequipment. Frequently, membersbenefit from a supply cooperative’sability to maintain a steady,dependable supply of products atcompetitive prices—even in timesof shortages. Increasingly, supplycooperatives are adding generalmerchandise lines to increase salesto both members and nonmembers.

Many supply cooperatives havebecome more vertically integrated.In many cases, they manufacturethe supplies that they distribute,especially in the case of feed,fertilizer, and petroleum products.As an example, cooperatives play amajor role in providing petroleumproducts to agricultural businesses.Through regional organizations,cooperatives explore for crude oiland natural gas, but are mostlyfocused on refining and

Common cooperative functions

What do agricultural cooperatives do?

➢ Marketing—ranging from helping members sell their prod-ucts at the first-handler level, to processing, distributing,retailing, and exporting

➢ Supplying high-quality products at reasonable prices tomembers

➢ Providing specialized services such as drying, credit, utilities,insurance, or trucking

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manufacturing petroleum productsand operating wholesale and retaildistribution networks. However,some also conduct research and testnew products.

At the retail level, many coop-eratives provide bulk delivery andapplication services to members, aswell as full-service facilities thatprovide on-farm maintenance,service stations, parts, mainte-nance, and accessories such as tiresand batteries.

ServiceA wide variety of cooperativesprovide services to agriculture,primarily credit, utilities, insurance,and specialty services. In somecases, cooperatives form specialsubsidiaries to perform theseservices for members. Specialtyservices include trucking, storage,drying, grinding, and a host ofother activities.

NonagriculturalA relatively small number ofcooperative memberships are intraditional agricultural marketingand supply cooperatives. Most arein cooperative forms of businessesowned by consumers, employees,nonagricultural businesses, publicinstitutions, and nonprofitorganizations.

A wide variety of consumer-owned cooperatives has beencreated to meet the need of goodsand service users. In many cases

they are small, sometimes unstable,organizations that provide a sourceof high-quality or natural foods,housing, burial services, or daycare. In other cases, at least on thesurface, some cooperatives looklike any large retail business. Theymay be involved in businessactivities as varied as generalmerchandise, medical services,utilities, or banking.

While consumer-owned coop-eratives have remained popular inEurope, the picture in the UnitedStates has been mixed. Periods ofwidespread enthusiasm and successhave been followed by disinterestand failure. Consumer-ownedcooperatives were especiallypopular during the Great Depres-sion, when people were desperateto overcome unemployment,poverty, and the belief thatmonopolists were extracting highprofits by overpricing consumergoods.

Over time, the one type ofconsumer-owned cooperative thathas remained strong and growing isthe credit union. Credit unions andother surviving cooperatives,especially natural food retailcooperatives, typically exhibit fourmajor characteristics:

� A need for the cooperative asexpressed and acted upon by themembers

� Competent managers anddirectors

� Adequate capitalization to meetboth operating and long-terminvestment needs

� Supportive, well-informed, andeducated members

Employee-owned cooperativesin the United States have experi-enced growth in both numbers andsize. Much of the interest in thisform of cooperation has centeredon job preservation, productivityimprovements, capital spreading,encouragement of employees toinvest in the businesses that employthem, and creation of a democraticworkplace. Very favorable tax lawchanges have encouraged employeeparticipation in business ownershipby establishing pension benefitprograms that include employeestock ownership plans. Manyagricultural and nonagriculturalcooperatives are looking at ways todevelop hybrid forms of coopera-tive membership that would givetheir employees an equity stake inthe cooperatives that employ them.

Nonagricultural businesses haveexperienced success in manyefforts to form cooperatives.Through cooperatives, manyfunctions can be performed moreefficiently, e.g., bulk purchasing,development of computerizeddistribution and billing systems,creation of a common identity, andadvertising. Typical cooperativearrangements include one-business,one-vote democratic control anddistribution of net income tomembers on the basis of use.

Common cooperative functions

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Underlyingeconomic principlesthat may invitecreation ofcooperativesMuch of the incentive to form acooperative comes from the desireto overcome a common problemand thereby improve well-being. Inmany cases, the primary goal is toincrease the net income generatedby member businesses. Rationalentrepreneurs frequently seecooperatives as a means to achievethat goal.

Elements of marketimperfectionIf all markets were perfect, therewould be no incentive to form acooperative—or any other particu-lar business type. Cooperativesfrequently are seen as a means ofcountering imperfections in theeconomic system. There are manyreasons for these imperfections.

Economies of size usually areevident as businesses grow toaccommodate a higher volume ofgoods or services at a lower costper unit. For producers, thissituation creates an imbalance inmarket power, as relatively largenumbers of small producers face afew large buyers of their product orsellers of production inputs. Wheninput providers are relatively few innumber, they usually can sell inputsat prices above cost. Likewise, ifthere are relatively few buyers ofan agricultural product, they may

pay less thancompetitiveprices whenthere are largenumbers ofsellers.

Transporta-tion costs mayeffectively deteragriculturalproducers fromlooking outsidetheir local areasfor bettercommodityprices or inputcosts. Animbalance ofmarket power may result, asproducers find themselves withonly one firm to serve their sellingor purchasing needs. This situationinvites low prices and high costsfor producers, typically reducingtheir profitability.

A lack of good market intelli-gence may create market imperfec-tions. Information related tocommodity pricing and terms ofsale may be available only at somecost. For many firms, the cost ofmarket information may be pro-hibitive. False cost/price signalsmay lead to misallocation ofresources that reduces profits.

These examples of marketimperfection are among manysituations that may lead businessesto take action. A business mayextend its activities into otherlevels of the marketing system orbecome larger in the level they

currentlyoccupy. In

some cases, contractsmay help offset the imperfection.Frequently, however, these impedi-ments can be overcome throughcollective action.

Increasing memberreturns throughcollective actionEconomies of size frequently aregenerated through cooperatives. Asthe size of the operation increases,and fixed costs (such as manage-ment charges) are spread over alarger volume of goods and ser-vices, per-unit costs can beexpected to decrease. Efficienciesalso can be generated throughlabor-saving machinery andequipment and through the opera-tion of larger production anddistribution facilities. At somepoint, however, per-unit costs areexpected to increase, as inefficien-cies associated with oversized

Underlying economic principles that may invite creation of cooperatives

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facilities begin to occur. In choos-ing a size of operations, coopera-tives need to consider the optimalsize that will bring the greatestreturn to members.

Forming a cooperative may be away to integrate vertically intohigher or lower levels in themarketing system. Higher returnsmay be obtained by collectivelybuying an existing business such asan input supplier or processor.Sometimes, creating a new busi-ness yields efficiencies. Locationand size of these firms should bebased on cost efficiency.

Cooperatives sometimes areformed to provide services in aquantity and quality not otherwiseavailable. However, it is importantto consider why those services arenot being offered by other entrepre-neurs. Are the services reallyneeded, and will producing themgenerate a satisfactory return to theinvestment made to obtain them?Sometimes the honest answer is no.In other cases, good managers canfind ways, through cooperativeaction, to cost-effectively obtaingoods and services that otherwisewould not be available.

On occasion, cooperatives areformed to better assure a source ofsupplies or market outlets—evenunder adverse market conditions.After all, a cooperative’s firstpriority is to serve its members, notthe highest bidder. When shortagesof supplies occur, noncooperative

Underlying economic principles that may invite creation of cooperatives

Market imperfectionSituations that give one buyer or seller an advantageover another or that cause prices to vary from what theywould be under simple supply and demand. Examplesare when many small buyers must purchase from asingle large supplier, or when transportation difficultiesput producers in a more remote region at a disadvantage.

Economies of sizeReductions in per-unit cost that occur as a businessgrows. Economies of size can occur as a businessspreads fixed costs over a larger volume of goods sold,or by efficiency enhancements such as labor-reducingequipment.

Vertical integrationTaking over upstream or downstream parts of the pro-duction and distribution process. For example, a dairycooperative that represents its members by bargainingfor better prices at the first-handler level could integratevertically by building a cheese manufacturing facility,creating a brand identity, and establishing a retail store.

Risk spreadingOffsetting poor returns in one area by good returns inanother. This becomes easier as a business diversifies.For example, if apple growers experience poor pricesone year, a diversified fruit growers cooperative mightbe able to offset those losses by strong returns in anothercrop.

Market powerA business’s ability to influence prices in its favor.Market power may be based on size or on the ability tocontrol demand by building customer loyalty to a brandname.

Key

ter

ms

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businesses may move product tononagricultural outlets that arewilling and able to pay the highestprice. Continuity of market outletsalso can be better assured byfocusing on the needs of members,not on exiting markets for higherreturns elsewhere.

In an integrated cooperativebusiness, there is great potential forincreased returns through coordina-tion of supply, production, andmarketing activities. Two-waycommunication between marketingand production units can reducecosts and improve product prices.The cooperative can ensure thequantity and quality of productneeded to satisfy market demandsand hence bring greater returns tomembers. Supply operations thencan be tailored to those productionneeds. Typically, the developmentof long-term arrangements forsupply, production, and marketinglinkages encourages more efficientinvestment. Furthermore, transac-tion costs, such as those related tofrequent contract renegotiations,can be minimized or eveneliminated.

Risk spreading may be a realbenefit associated with cooperativebusiness operations. Adversemarket price or other conditionsmay be absorbed (averaged out) bypooling with other product linesthat are not adversely affected.Also, vertical integration can helpmaintain returns by offsettingcountercyclical price movements.As an example, higher prices for asmaller crop may be offset by

Prospective strengths and weaknesses of a cooperative business form

lower earnings from processing dueto the smaller volume of product.Furthermore, diversity in inputsupply operations may allowcyclical problems in one line to beoffset by good returns in others.

It is important, however, not toallow risk-reduction strategies tohide management inefficiencies bymembers or cooperative managers.For example, members should notreceive average pricing for low-quality product that could beimproved through bettermanagement.

Greater market power may bepossible through cooperativeaction. If other firms are obtainingunusually high profits at theexpense of individual businesses,collective action may transfer someof that market power and associ-ated profits to members. Establish-ing a reputable brand name, if donesuccessfully, may help to developcustomer loyalty and transfer somemarket power toward the coopera-tive. Sometimes, cooperatives candevelop sufficient market power tosignificantly alter the terms of tradein favor of members. However, thatlevel of market power usuallyimplies an ability to control thequantity and quality of memberproduction. Forming a cooperative,alone, does not ensure that power.

All of these elements affect thecooperative’s ability to operatecompetitive and efficient systemsfor the benefit of its members. Acooperative form of business canencourage lower per-unit costs forresources, while higher prices for

member commodities can increaserevenue.

Prospective strengthsand weaknesses of acooperative businessformAlthough a well-operated coopera-tive can bring many benefits to itsmembers, it isn’t a cure-all for theireconomic concerns. In starting acooperative, it is important tobalance possible benefits withpotential limitations. In the process,you will develop a more realisticview of how a cooperative mightenhance your individual business.

In many cases, the benefits andlimitations of a cooperative dependon the type of business activityundertaken. In some cases, benefitsare quite measurable in terms ofbottom-line results of memberbusinesses. In others, benefits maybe more indirect and intangible, forexample, impacts on market prices,improvements in quality, and betterservices. Benefits may become lessmeasurable as time passes. In somecases, benefits and limitations maybe unmeasurable in economicterms but subjectively measurablein social terms.

Potential benefitsAs members work collectively toset objectives, arrange financing,and establish operating proceduresand methods for distribution ofbenefits, their individual operationsmay enjoy increased returns.Increased returns can come from a

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number of factors. Higher pricesfor products or lower costs forinputs are common. Frequently,reductions in per-unit handling orprocessing costs may be evident.Quality improvements achievedthrough better operating proceduresmay be important. Or, a coopera-tive may be able to develop a newmarket or brand identification.Frequently, cooperatives have apositive influence on general pricelevels in competitive markets.

Cooperatives may have someflexibility in pricing. As anexample, a cooperative may be ableto reduce input prices when mem-bers face a price–cost squeeze. As aresult, some of the economicbenefits of the cooperative wouldmove from the end of the year tomidseason.

In assessing savings returned tomembers, it is important to con-sider both immediate cash pay-ments (returned at the end of anoperating year) and noncash returnsthat are revolved out as cashpayments in the future. Coopera-tives frequently make substantialpayments to members to returnsavings that were retained forshort- and long-term financing.These revolving funds may repre-sent a substantial portion of thepatronage dividends paid to mem-bers in a given year.

Improved service to better meetthe needs of members frequently isa benefit of cooperative businessoperations—either by improving onexisting services or by providingservices not otherwise available. In

some cases, services are providedfor a minimal return to the coopera-tive in order to meet the objectiveof satisfying member needs. Well-managed cooperatives find other,higher margin services to providean overall blend of returns thatadequately meets the needs ofmembers.

A cooperative can help itsmembers maintain high productquality, which leads to greaterreturns in the marketplace. Throughinformation and advice, coopera-tives can encourage production andmarketing practices that will yieldthe highest net returns. Forexample, field representatives maywork one-on-one with members tomaintain schedules and qualityspecifications. The emphasis on

high quality frequently is rein-forced by basing payment onmembers’ meeting standards suchas grades, harvest scheduling, andcontainer requirements. Efforts tomaintain high standards for productquality and reliability can pay offwhen buyers consistently purchaseproducts at above-average prices—even during times of marketsurplus.

With respect to supply, a coop-erative can sell inputs that providethe greatest yield gains, rather thanthose that provide the largestmargin to the cooperative. In fact,the better cooperatives havesmaller margins on farm supplies,in part because they relay produc-tion information from sources suchas agricultural experiment stations


Potential benefits of agriculturalcooperatives

➢ Reduced per-unit handling or processing costs

➢ Dividends based on how much each member uses thecooperative

➢ Improved service

➢ More marketing power through greater size, brand identifi-cation, quality control, etc.

➢ Assured sources of supply at a reasonable cost

➢ Political influence

➢ Education to help members improve business practices

➢ Support for family farms

➢ Income generated in the local community

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to members, who then can obtainthe greatest use-value from pur-chased inputs. In some cases,cooperatives may have fieldrepresentatives to help in thatprocess.

To offset lower margins for farminput lines, many cooperatives sellother higher margin lines. As anexample, many supply cooperativessell high-volume, high-margin petfood and supplies in their retailoutlets. Members benefit sincemostly nonmembers purchase thoseitems. The higher after-tax netreturns are distributed to membersin the form of patronage dividends.

Assured sources of supply maybe an important motivating factorfor starting a cooperative. Members

need a dependable, reason-ably priced source ofsupply—even duringtimes of extreme short-

ages and rising prices.Cooperatives, in their

orientation toward memberneeds, can accept smallermargins rather than divertingsupplies to higher-marginbuyers.

A good example of coopera-tive devotion to member needscan be seen in the operationsof petroleum and fertilizersupply cooperatives duringsevere shortages in the 1970s.To keep supplies moving totheir members, many coop-eratives confined sales tomember-patrons. Manycooperatives purchased extrapetroleum and expanded

transportation and storagecapacities.

Refining and manufacturingcapacity was increased, and anumber of supply cooperativesformed an international petroleumtrading and purchasing cooperativeto acquire oil. At the same time,cooperatives worked in the politicalarena to obtain priorities forpetroleum products necessary tomeet food and fiber productionneeds. Furthermore, supply coop-eratives took a leadership role inhelping members conserve fuel andfertilizer.

After the petroleum crisisabated, cooperatives were aggres-sive in long-range planning toavoid future crises. Their efforts

were aimed at strengthening thesupply position of their members.As an example, some cooperativesfurther expanded their refiningcapacity in order to increase controlover their fuel sources.

A cooperative entering themarketplace may have a significantimpact on the market’s competitiveenvironment. Product prices mayincrease, or input prices may moveto lower levels. The quality ofservices from businesses in generalmay improve.

Many cooperatives find thatpooling products of a specifiedgrade can open up new marketoutlets. Large-scale buyers, whowouldn’t work with individualmembers, may purchase from acooperative. The cooperative alsomay be better able to meet theneeds of overseas buyers. Bothforeign and domestic buyers maybe interested in value-added foodbrands processed by a cooperative.Many popular brands are in factowned by cooperatives.

The political influence ofindividual businesses can beenhanced by cooperative action. Inmany cases, cooperatives jointogether in state or regional asso-ciations to lobby for legislation andadministrative rules that willenhance member businesses. Muchof the emphasis has been oninfluencing tax legislation.

In addition to helping managersand directors, cooperative educa-tional efforts can have a positiveimpact on member businesspractices. Information on


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marketing, production practices,and farm management can bepresented conveniently by universi-ties and other organizationsthrough cooperatives. In addition toformal education, members canreceive practical business experi-ence through cooperative commit-tee or board activities. All of theseopportunities enhance memberabilities to provide leadership intheir communities.

Cooperative operations may beable to help family farms stay inbusiness. Credit and supply coop-eratives may help family operationsgrow and capture economies of sizewhile remaining independent.Marketing and processing coopera-tives can help ensure markets andthe timing of sales under advanta-geous circumstances. A cooper-ative’s ability to control productflow farther up the marketingsystem can bring greater financialrewards to individual family farmmembers.

Broader benefitsto the communityCooperative business activitiesbenefit more than members. Thecommunity and individual consum-ers also may benefit. These benefitsmay be local or regional in nature.

Much of the additional incomegenerated by members fromcooperative business operationsfinds its way back to local busi-nesses as payment for goods andservices. Cooperative employeesalaries add to that economicactivity. In addition, cooperative

businesses spend money on localgoods and services and pay taxes.In many cases, cooperative person-nel and members participate incommunity events and are involvedin governmental activities.

Consumers benefit in manyways when they patronize coopera-tive businesses. In some cases, theprimary benefit is access to high-quality, reasonably priced goodsand services. In others, consumersgain access to a wider variety ofitems than otherwise would beavailable. Cooperatives tend to beon the leading edge of new productand process development. Theirmore efficient production andmarketing systems may increasethe availability of competitivelypriced products and services.

LimitationsIn many respects, cooperatives aresubject to the same limitations asany business. They face the sameeconomic environment, many ofthe legal restrictions, and similarinterpersonal problems. In addition,

some unique problems relate to theagricultural industry in general andspecifically to cooperativeorganizations.

Many of the pricing problemsfor agricultural products are relatedto the nature of demand for thoseproducts. Frequently, demand isvery price-sensitive to changes involume. Overproduction frequentlytriggers a dramatic drop in marketprices, resulting in a significantdecline in total revenue toproducers.

Cooperatives cannot legallycontrol members’ production toovercome this problem. In somecases, they may be able to controlthe number of acres that membershave under production. In othercases, they may be able to encour-age the formation of a marketingorder under government auspices topromote orderly (controlled)marketing programs that mightoffset adverse market conditions.However, there is little evidencethat market orders are an effectiveprice-enhancing tool.


Limitations of agricultural cooperatives

➢ Inability to raise prices for members’ products

➢ Disagreements among members

➢ Difficulties in building long-term equity when memberswant to receive dividends immediately

➢ Slow decision-making

➢ Unreliable member participation

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Early in the history of coopera-tive development in this country,some enthusiasts argued thatproducers could control prices.That proved to be a myth. Nomatter how large the cooperative,control of production, even amongits members, is not possible. Insome industries, cooperatives havebeen able to influence demand fortheir goods and services throughbetter production techniques,improved handling, and superiorbargaining. But, regardless of itssize, a cooperative can have littleimpact on the overall demand foragricultural output. Consumerssimply have too many options.Furthermore, producers whochoose not to be members of thecooperative can benefit from thecooperative’s favorable marketimpacts without paying any of theassociated costs—the free-ridereffect.

Developing a cooperative is notnecessarily a means of creatingmarket power. There may belimitations on the amount of equitycapital available to expand thebusiness. Thus, reaching the sizeneeded to influence market condi-tions and prices may not be practi-cal. Other problems that frequentlylimit market power include a lackof long-run planning, managementfailures, and inferior visioningskills. Sometimes, new coopera-tives have a favorable influence onprices, margins, and supply for afew years. However, longer termbenefits in that regard may not beapparent.

A cooperative can’t be expectedto eliminate market functions.Instead, it may be able to providemore efficient marketing servicesthat reduce the marketing marginnecessary to move goods andservices through marketing chan-nels. Cooperatives providing theirmembers with the highest qualityservices and supplies may in factincrease marketing margins. Pricescharged by the cooperative mayneed to be higher in order to bestserve the bottom-line interests of itsmembers.

Cooperatives that pool memberlabor, land, and other capital forproduction activities generally havenot been successful in the UnitedStates. Frequently, these types ofcooperatives have been overcomeby minimal net gains, decision-making problems, and disagree-ments over distribution of netreturns. In limited cases, coopera-tives formed to share specializedmachinery and equipment havebeen somewhat successful.

The “people problems”experienced by any business areexacerbated in an organizationcharacterized by user-owners.Misinformation and unrealisticexpectations on the part of mem-bers, directors, and managementcan lead a cooperative to poorperformance or even bankruptcy.Disagreements on objectives,policies, and approaches can leadto intense competition and duplica-tion of services and facilitiesbetween cooperatives and other

types of businesses serving theagricultural community.

The limited objectives of somemembers can be an impediment.Building long-term financialstrength through retained patronagerefunds may be discouraged bysome members who wantincreased short-run returns forthemselves. Refusing to carry adiversity of goods and services ofinterest to the community at largemay limit the cooperative’s abilityto reduce per-unit costs throughincreased volume.

The democratic nature of acooperative can be a problem whensignificant decisions need to bemade in a timely manner. Decisionsfrequently are delayed by thenecessity to give attention tomember relations in addition tostrict business decisions. Althoughboards of directors may have thepower to make these decisions,they typically are discussed withthe general membership beforedecisions are finalized. With largegroups, this process creates delaysthat can have a serious impact ondecision-making.

If agricultural cooperatives don’thave marketing or purchasingagreements with their members,they are at the mercy of voluntaryparticipation. Members may avoidannual meetings, be fickle in theirpatronage of the cooperative, andresist providing their fair share ofthe capital needed to develop itsfull capacity for service to mem-bers. Thus, major expansions in thecooperative’s services may be


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limited, and improvements, if theyoccur at all, may be delayed.

Equity and debtconsiderationsLike any other business, an agricul-tural cooperative needs funds tomaintain the short-term, intermedi-ate-term, and long-term assetsnecessary for operations. Short-term assets include inventory,

accounts receivable, and cash.Intermediate-term assets includemachinery and equipment, whilelong-term assets include buildingsand land. Funds may come fromtraditional debt instruments throughbanks or from the nationwide FarmCredit System (FCS).

FCS, a producer-owned coopera-tive, provides a wide range offinancial services to U.S. agricul-ture. One unit of the system,

Agricultural Credit Bank (ACB),has the authority of a Farm CreditBank to provide loanable funds ofall kinds to agricultural, aquatic,and public utility cooperatives.Furthermore, ACB is authorized toprovide international bankingservices for farmer-owned coopera-tives. For more information on FCSand its U.S. government regulator,the Farm Credit Administration(FCA), visit FCA’s excellent Website (http://www.fca.gov/FCA-HomePage.htm).

Cooperatives usually obtain andhandle funds from equity sources ina unique manner that fits their user-owner nature. Members make theequity investment in the coopera-tive’s assets. Investment usually ismade in proportion to the benefitsreceived in the past or thoseexpected in the future. By main-taining a strong equity position,members help assure that thecooperative can obtain credit,survive financial adversity, andmake a long-term commitment toproviding needed goods andservices. In addition, a sizableequity investment may encouragelenders to give more favorable ratesand terms for loans to acooperative.

In many respects, the equityinvestment in any business can bethought of as risk capital. It servesas a buffer during hard times whenlosses may be experienced. Thoselosses are subtracted from theequity balances in the business—tothe point of exhaustion.

Equity and debt considerations

Cooperatives and equity

➢ What is equity?Equity is member funds that buy ownership in a coopera-tive. Equity funds have two major purposes. They serve as abuffer when losses occur, and they finance growth.

➢ How do cooperatives get equity?— Members make direct investments, such as through a

membership fee.— A portion of profits may be retained rather than paid out

as patronage refunds.— Members may be assessed a per-unit fee each time they

use the cooperative. This fee is then deducted from themember’s dividends.

➢ How are investors paid back?— Funds can be returned after a set time period (revolving

fund plan).— Members can be paid back based on how much they

have invested and how much they use the cooperative(base capital plan).

— A percentage of each member’s equity can be paid backregardless of when it was invested or how much themember uses the cooperative (percentage-of-all-equitiesplan).

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Unique aspects of equityinvestment in acooperativeThe rate of return on one’s equityinvestment in a cooperative may bedifficult to determine. Appreciationin the investment usually is not afactor, and there typically is noopen market for selling the invest-ment. However, when comparingreturns with alternatives in nonco-operative businesses, membersneed to include intangibles, such asimproved access to markets andmore reliable sources of supply.How have the member’s overallbusiness returns benefited fromcooperative membership?

In most agricultural coopera-tives, only qualified producers arepermitted to make an equityinvestment. That investment,usually represented by commonstock or membership certificates,provides the right to vote oncooperative policies. Unlikeinvestor-owned businesses, coop-erative member voting rights arenot based on the number of equityshares or certificates owned by themember. Although some agricul-tural cooperatives allow for votingweighted by member patronage,most still subscribe to the principleof one vote per member. Someagricultural cooperatives issuepreferred stock to members (as wellas nonmembers). Preferred stockusually provides for an expectedfixed rate of return on the invest-ment, but does not confer votingrights.

Equity balances can be managedmore easily in a cooperative than inother types of business because theboard of directors can control theamount of equity redeemed back tothe membership and the amount ofcurrent net earnings retained forbuilding equity reserves. Someportion of net earnings usually iswithheld as retained patronagedividends or per-unit capitalretains. The unique part of thisconcept is that customers providethe equity capital for the busi-ness—unheard-of in an investor-owned firm.

Most equity in a cooperative istemporary in nature. There usuallyis an implied obligation for thecooperative to redeem it, althoughnot on a fixed schedule. Thus, acooperative’s board of directors isfree to choose the time of equityretains and redemptions so that thefinancial integrity of the coopera-tive will be maintained. Sometimesthe cycle is longer than 20 years.Mandatory obligations to redeemequity typically are not a part ofcooperative operations.

Cooperative equitysourcesThe initial equity funding for anagricultural cooperative usually isobtained through direct investmentfrom its members. Occasionally,well-established cooperatives seekdirect investments from membersto increase equity reserves. Ineither case, these sources usuallyprovide a relatively small amountof capital.

For small, startup cooperatives,the willingness of members toinvest directly can be an importanttest of their interest in forming thecooperative. A lack of interest indirect investment may not bodewell for the cooperative’s ability tomaintain sufficient patronagelevels. However, it may simplyreflect producers who are hard-pressed for cash. In this case, it ismuch easier to retain funds fromnet earnings.

A second technique for raisingequity funds is through retainedpatronage refunds. Under thissystem, portions of net incomeallocated to members are retainedby the cooperative. In essence,members are investing new moniesin the cooperative based on theirlevels of patronage. For mostagricultural cooperatives, thistechnique raises the largest portionof equity. Its popularity stems fromthe easy, systematic nature ofgenerating equity funds from netearnings in the most recent operat-ing period.

Retained patronage refunds areparticularly well suited for supplyand service cooperatives, where itis difficult to determine charges perpurchase unit. In addition, non-member patrons may be encour-aged to become members, sinceretained patronage refunds typi-cally can be used to purchasemembership stock or certificates—eliminating the need for a directcash investment. However, on thedown side, retained patronage


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refunds may make the cooperativeoverly dependent on earnings as asource of capital.

Fluctuations in net income(including losses) create uncer-tainty in the cooperative’s ability togenerate equity investment and toredeem older equity investments.Furthermore, misunderstandingsmay occur if members believe thatpatronage retains are a debt owedto them. In fact, they are equity riskcapital that members invest togenerate future benefits. They canbe lost, or repayment can bedelayed, due to declines in operat-ing results, unwise capital invest-ments, or untimely businessexpansions.

A third technique, often com-bined with retained patronagerefunds, is per-unit capital retains.Member-patron investments arebased on usage of the coopera-tive—not on a portion of netearnings. Some marketing coopera-tives find this technique conve-nient. As an example, a processingcooperative might assess a $1.00retain for each ton delivered to thecooperative for processing. Thatamount is deducted from paymentsmade to the member. This methodis less common than patronageretains.

Cooperatives that favor per-unitcapital retains frequently do sobecause this technique generatesmore stable equity investment(assuming a regular flow of prod-uct) that is independent of thecooperative’s net income.

In addition, per-unitcapital retains have the sameadvantages as patronage retains. Tobe effective, it is important for theboard of directors to choose aretain rate that generates theamount of equity capital needed, toestablish the speed with which it isgenerated, to set the rate of equityredemption, to consider the com-petitive environment of the coop-erative, and to provide for adequatecommunication with the member-ship about the need for a capitalretain and plans for its accumula-tion and redemption.

Many cooperatives downplayper-unit capital retains because theymay reduce cash returned tomembers more dramatically. Theper-unit capital retain system alsosuffers from the same “debt image”as patronage retains; members maybelieve that their equity riskinvestment is a debt owed to themwith interest. Furthermore, per-unitcapital retains may be seen as tooeasy a source of equity since theyare generated regardless of operat-ing performance.

A somewhat controversialtechnique for equity accumulationis known as unallocated equity.This approach builds equityaccounts that are not allocated toindividual members. These fundscome from sources such as nonop-erating interest and rent income,acquisition of business assets atprices below their assessed value,and net income generated fromnonmember (or even member)services that is not required to beallocated.

A distinct advantage of unallo-cated equity accounts is that riskequity of this type may be viewedas more permanent by lenders andmight encourage them to providebetter rates and terms of repay-ment. Also, building these accountsthrough nonmember patronage maybe a more palatable way to accu-mulate equity in the eyes ofmembers.

The danger of this technique,however, relates to the potential forloss of member control over thecooperative’s equity; it is not tied


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directly to member equity accountswith corresponding memberoversight. This dilution of membercontrol may encourage manage-ment to make decisions about thecooperative’s capital investment,thus diminishing the policy role ofthe board of directors. At times,unallocated equity may become alarge percentage of total equity.When membership-allocated equityinterests diminish, member loyaltyto the cooperative may suffer. Anincreasing percentage of nonpat-ronage income may result inpatronage dividends not being tiedclosely to member use of thecooperative.

Equity redemption plans alsoreinforce the idea that equityinvestments by members areintended to be short- to intermedi-ate-term investments. Unlessaffected by declining net income orlosses, equity usually is intended tobe repaid in an orderly manner.

A good cooperative equityredemption plan has many benefits.It reduces conflict among activeand nonactive members regardingthe speed of redemption. It alsomay encourage member patronage.Members more directly see the linkbetween investment and benefits.Consistent redemption of equitycan give the member’s equityinvestment greater value as collat-eral for loans. Perhaps even moreimportant is the fact that consistent,timely redemption forces thecooperative to implement effectivefinancial planning.

The advantages of a goodcooperative equity redemption planmust be balanced with a number ofdisadvantages. The financialposition of the cooperative may beweakened by revolving equity backto members. In the process ofredeeming old equity, currentmembers may see their patronagerefunds reduced—a confrontationbuilder. Also, cooperatives attempt-ing to remain price competitivemay not generate enough revenueto repay equity investments in atimely manner.

The basic types of equityredemption plans include revolvingfund plans, the base capital plan,


Equity redemption plans

➢ Revolving fund plansThese plans involve paying back equity in the order inwhich it was received. The length of time is based on theperiod necessary to accumulate replacement capital and canbe adjusted as needed by the board. Typical payback periodsare about 10 years.

➢ Base capital planThis type of plan combines an assessment of annual capitalneeds and member use of the cooperative’s services. Mem-bers who are underinvested (increasing their patronage) areassessed an additional amount of equity, and members whoare overinvested (decreasing their patronage) start to receiverepayment of their overinvestment.

➢ The percentage-of-all-equities planA few cooperatives use this approach. It involves payingback a set percentage of each member’s equity investmentregardless of issue date.

Equity redemptionsystemsFrom a philosophical viewpoint,cooperative equity redemptionplans need to ensure that membersinvest in the cooperative based onuse. Members who have built upequity over the years through directinvestments, patronage retains, andper-unit capital retains will beoverinvested if they decrease theiruse of the cooperative. Likewise,members who increase their useshould not have their fair share ofthe equity investment subsidized bythose who decrease their patronage.

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the percentage-of-all-equities plan,and the special situation plan.These types frequently are used incombination.

The revolving fund plan paysback equity in the chronologicalorder that it was received. Thelength of time is based on theperiod necessary to accumulatereplacement capital. An averagetime might be 10 years, but shorterperiods such as 7 years might betterreflect the relationship betweeninvestment and use. Paybackperiods may vary, depending on theproduct or service line that gener-ated the invested dollars.

Revolving fund plans arepopular because they are easy tounderstand and administer. Therelationship between investmentand use is strengthened if therevolving time is not too long.Furthermore, poor operating yearsor extraordinary demands forequity investment can be absorbedsimply by extending the revolvingperiod. Yet, to do so invites dissen-sion from members who developunrealistic expectations forredemption on a fixed schedule.

A base capital plan combines anassessment of annual capital needsand relative member use of thecooperative’s services. Thosemembers deemed underinvested areassessed an additional amount ofequity, which either must be paid orcarried at interest to compensatethose members who are overin-vested. Members who are overin-vested start to receive a partial, ifnot full, redemption of their

overinvestment, depending on theproportion of underinvestedmembers who increase their equityinvestment.

The base capital plan approachhas appeal since it focuses on therelationship between memberinvestment and use of the coopera-tive. Level of retained earnings isnot a factor. Thus, the cooperativeis able to directly adjust member-ship equity levels. Its main draw-back is that cash-poor, underin-vested members may not be able torespond quickly to calls for agreater equity investment. Com-pared to simply extending thepayback period in a revolving fundplan, tension is increased within thecooperative—especially when acooperative experiences highmember turnover. Also, basecapital plans are relatively difficultto administer and understand.

Used by a few cooperatives, thepercentage-of-all-equities planinvolves retiring a set percentage ofeach member’s equity investmentregardless of issue date. Thismethod has the effect of rewardingnew members more quickly fortheir patronage. Charging fullmargins for goods and services iseasier because members morequickly see those margins returned.An added plus is that the system iseasy to understand and administer.In addition, it can be adjustedeasily to reflect changes in operat-ing results.

A major disadvantage, however,is that the system makes it moredifficult to establish a balance

between member equity investmentand use. It also is difficult toimplement if patronage and mem-bership roles change frequently.

Special situations includemember death or retirement,member bankruptcy or terminationof agricultural business activities,relocation of the member from thecooperative’s trade area, resigna-tion of membership, and applica-tion of the member’s equity touncollectible accounts receivable.Special situations frequently getpriority for equity payback.

Legal organizationSince there is no federal incorpora-tion law, cooperatives are incorpo-rated under state law. Every statehas cooperative incorporationstatutes. In Oregon, incorporationis done under Oregon RevisedStatute Chapter 62—Cooperatives(ORS 62). This section of the lawwas updated significantly in 1995.Modest changes were made insubsequent legislative sessions andare included in the 2001 edition,which is available on the Web(http://www.leg.state.or.us/ors/062.html). The law covers topicssuch as the purpose for whichcooperatives may be organized,formation and amending of articlesof incorporation, and the creationand substantive provisions ofbylaws.

Anyone wanting to form acooperative in Oregon shouldconsult ORS 62 and an attorneywell versed in cooperative law. The

Legal organization

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basicdocumentsthat areprepared by theincorporators are the articles ofincorporation and the bylaws. InOregon and many other states,these documents are approved byand filed in the CorporationDivision of the Secretary of State’sOffice.

Articles of incorporation areintended to describe the organiza-tion and its basic structures.Normally included are the cooper-ative’s name, purposes, powers andlimitations, place of business,numbers and terms of the initial setof directors, membership qualifica-tions and rights, and capital stockstructure. After approval forincorporation in Oregon, theCorporate Division issues a certifi-cate if desired by the cooperative.That certificate includes a verifica-tion of the cooperative’s name as itis registered in Oregon and con-firms that the cooperative is dulyincorporated in the state of Oregon.Each cooperative incorporated inOregon must report annually to theCorporate Division to verify thename and address of the

corporation,names and addresses

of the president andsecretary, primary business activ-ity, federal employer identificationnumber, and any other informationrequired under the rules of theCorporate Division.

The bylaws of the cooperativeare a detailed listing of its structureand internal operations. Theyspecify details such as membershipqualifications and the rules forsuspension or termination ofmembership, regular and specialmeetings and associated votingrights, capital structure, rules fordistribution of net savings and theuse of capital retains and revolvingcapital accounts, and rules foramending the bylaws or dissolvingthe corporation. Also included inthe bylaws is a listing of directorand officer qualifications, duties,and rules for election. The duties ofthe manager usually are identifiedin some detail.

In addition to the powers andrestrictions under articles ofincorporation and bylaws, manycooperatives that market membercommodities have marketingcontracts with their members.

Under these agreements, membersmay be required to deliver speci-fied quantities and qualities ofproducts to the cooperative, whichhas the power to act as an agent forthe member in handling andmarketing the products. Themembers provide associated capitalas specified by the board of direc-tors and pay penalties for com-modities that don’t meet specifica-tions. The cooperative in turnagrees to properly account for allproceeds from sales and for allmonies retained for investments.

Cooperatives, like other busi-nesses, are required to stayinformed about changes in appli-cable laws. State laws related tocontracts, the Uniform CommercialCode, banking and insurance,workers compensation, unemploy-ment insurance, securities, andtaxation are among those that mustbe monitored. In addition, numer-ous federal laws and regulationsmust be followed.

CooperativemanagementcharacteristicsThe nature of cooperative manage-ment has changed over the years. Ithas evolved from a typical one-person operation where the man-ager did everything, includingwaiting on customers, keeping thebooks, and maintaining the facili-ties. Today, even small coopera-tives often invest in a professionalmanagement team that typically iswell educated and proficient in

Cooperative management characteristics

29

directing the day-to-day affairs ofthe cooperative.

Much of this emphasis on ahigh-quality management team isbased on the experiences of coop-eratives that have failed due toinept management. Overextensionof credit, unsound collectionpractices, speculation in handlingmember commodities, poor-qualityproducts and services, overexpan-sion of facilities, inadequatefinancial planning (includingoverly generous pooling of returnsto members), and dominance by asingle manager are but a fewexamples. Avoiding commonmanagement mistakes is critical fora cooperative’s survival—espe-cially a startup business.

The role of managementGood cooperative managementinvolves the successful combina-tion of ideas, processes, materials,

facilities, financial resources, andpeople to produce products andservices that meet the needs ofmember-owners. It focuses notonly on day-to-day operations butalso on formulating and executingpolicies, encouraging efficiency,ensuring high-quality service, andmaintaining the financial strengthof the cooperative. Managementalso must take steps to keep thebusiness focused on increasing thecooperative nature of its exist-ence—member control, servingfirst the needs of members, and afair distribution of returns to user-members.

While many of the decision-making techniques are the same asthose used in other businesses, agood cooperative manager mustadjust measures of success. Low-margin services may be providedbecause they are in the best inter-ests of owner-patrons.

In oversupply situations, marketingcooperatives may continue toreceive commodities from theirfarmer-members and do the bestthey can to sell them; other busi-nesses would not.

Managers frequently spend asignificant amount of time dealingwith issues related to equitabletreatment of the cooperative’sowner-patrons. When a cooperativedeals with a complex array ofservices, commodities, and value-added activities, the issue ofpatronage returns can be compli-cated. Furthermore, assigningresponsibility for member financ-ing of the cooperative throughpatronage retains can createconflict.

Cooperative managers typicallyfind themselves in constant contactwith their owner-members. Themembers created the cooperative toprovide needed products andservices, and they frequently areinvolved in critiquing the perfor-mance of the business they own—almost every time they come intocontact with the cooperative.Managers find themselves in directcommunications with their mem-bers on a regular basis—not just atthe annual meeting.

A patron-owned business thatincorporates principles of demo-cratic control presents uniquepersonal challenges to a manager.Gone are the prospects of gainingcontrol of the business throughsuperior performance, politicalmaneuvering, or outright


The people

➢ Professional managementDirects the day-to-day affairs of the business, includingpersonnel, facilities, equipment, and accounting.

➢ Board of directorsSets policies such as credit, pricing, purchasing, marketing,and services. Manages relations with members, professionalmanagement, employees, and the public.

➢ Member-owner-usersPatronize (use) the cooperative, elect directors, and provideinput on policy issues.

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ownership. Instead, a cooperativemanager must be resigned to beingan employee, take action to involvethe majority of members in impor-tant decisions, and yield to thedemocratic control of membership.

Resource managementMany agricultural cooperativemanagers report that the mostimportant key to their success isdealing effectively with employ-ees—exhibiting superior leadershipskills. Important factors include theselection of personnel, training,empowerment, and evaluation.Good supervisors are able to planfor the work load, delegate author-ity and related responsibility, setperformance standards and reviewjob performance, establish griev-ance procedures, and provideleadership.

Management should strive toprovide motivation and create acorresponding rewards system.Each employee’s compensation andbenefits package should provide anincentive to do everything possibleto benefit the cooperative and itspatron-owners. Critical in thisregard are the establishment ofgoals for employees, inspiring andrecognizing good performance,developing a sense of missionthrough teamwork and a highdegree of esprit de corps, creatingan environment where employeesare encouraged to be innovative,and maintaining two-way commu-nication between supervisors andother employees.

Also, with regard to people,successful cooperative managersmust focus much time and attentionon relations with members, govern-ment agencies, and the generalpublic. Two-way communicationbetween management and membersmust be encouraged. By doing so,the cooperative can keep itsmembership active and encouragenew members to join, share infor-mation on product and servicequality and financial requirements,and update its policies and operat-ing procedures. Reaching out togovernment agencies and thegeneral public is critical to keepinga focus on the cooperative’sobjectives, accomplishments,benefits, and limitations, whilebuilding public acceptance andunderstanding of its mission.

Capital resource management isa constant concern of agriculturalcooperative managers. This issuegoes beyond the day-to-day man-agement of cash, receivables,inventories, equipment, facilities,and payables to include invest-ments in other cooperatives andobtaining favorable long-runfinancing. It also involves creatingsystems to encourage member-patron investments; maintain afinancial position acceptable tolenders, suppliers, and buyers; andensure financial practices consis-tent with sound business andcooperative principles.

Like any other business, equip-ment and facilities can represent asignificant portion of acooperative’s assets. Thus, good

managers focus considerableattention on maintaining, upgrad-ing, and replacing these assets toensure maximum efficiency. Inaddition, safety, health, and envi-ronmental concerns are becomingincreasingly important.

Management functionsand toolsCooperative management typicallyfocuses on the functions commonto any type of business. Planninginvolves establishing policies andprocedures that are consistent withthe cooperative’s mission. Onceplans are developed, all availablepeople, capital, and physicalresources must be organizedeffectively to accomplish the plan.Through means of explanation andteaching, the resources of thecooperative then are directed to theday-to-day activities necessary tofulfill the plan.

Along the way, managementmust ensure that different unitswithin the organization are coordi-nated so that the cooperative movessmoothly and without internalconflict toward meeting its goals.Periodically, management mustcheck results against standards andtake remedial action where war-ranted to eliminate unwantedevents or improve operatingefficiency.

These functions usually areaccomplished by tools such asaccounting systems; controlreports; security and safety mea-sures; training and evaluation


31

programs; personnel incentivepackages; communications systemssuch as membership and employeepublications, periodic and annualreports, member and employeemeetings, and reports by educa-tional and government agencies;and long-run planning effortsaimed at encouraging growth inservices, facilities, and capital.

A proper accounting systemincludes financial statements suchas balance sheets, profit and lossstatements, enterprise accounts, andmember equity and patronageaccounts; proforma budgeting andcash flow management systems;and both internal and external auditsystems to prevent errors or otherleakages (e.g., employee, member,or nonmember theft). This systemcan help management evaluateactual versus expected results andfacilitate planning and control.Control reports frequently includeaccounts receivable and inventoryassessments, financial ratios, andinformation on operating results.

Security and safety measuresrefer to programs such as insurancefor employees and assets; monitor-ing employees who handle assetssuch as cash; protecting againstinventory, equipment, and facilitytheft and vandalism; programs toprotect the safety and welfare ofemployees, patrons, and the generalpublic; and strict adherence toenvironmental protection standards.

Management’s rolein strategic planningAlong with boards of directors andemployees, management typicallyplays an important role in develop-ing a cooperative’s strategic plan—its definition of mission and theenvironment in which it operates,the setting of objectives andstrategies to reach them, and thecreation of feedback systems thattell leadership whether these stepshave been identified and imple-mented correctly. Continuousplanning can help cooperativesposition themselves in an

ever-changing agricultural businessenvironment, but it requires timeand money. Furthermore, it can beused as a technique to becomeproactive rather than reactive incharting a path for the cooper-ative’s future. However, strategicplanning requires the commitmentof everyone in the organization—managers, directors, employees,and member-owners.

To be effective, six elementsmust be present in a strategic plan:

� A mission statement

� An assessment of the currentcondition and outlook for thefuture

� A statement of objectives andgoals

� A strategy to meet those objec-tives and goals

� A means of implementing thestrategy

� A feedback mechanism

When implemented successfully,the planning process greatlyinfluences both the short-run andlong-run character of the coopera-tive. It provides a means of system-atically identifying and examiningissues, problems, opportunities, andalternative courses of action. Bycreating a strategic thinkingatmosphere, more effective deci-sions can be made, giving theorganization a competitive edge inthe marketplace.

A key element is the missionstatement, which clearly states thepurpose of the cooperative’s


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existence by defining the directionit will take and the boundarieswithin which planning will takeplace. A critical step in developinga mission statement is an assess-ment of the current operatingenvironment and the likely futureenvironment. The entire coopera-tive business is assessed as accu-rately and objectively as possiblevis-à-vis its external environmentand the strategic issues it faces.Then, compatible objectives areestablished, along with benchmarksfor measuring both short-run andlong-run results.

Next, strategies are developed toidentify an exact set of actions thatwill guide the cooperative withinits carefully analyzed resourceconstraints toward its goals.Implementation of the strategiesimplies marshalling all availableresources. Finally, the feedbackprocess measures how well thestrategic plan was implemented andprovides insights into how the

planning process can be changed inthe future to better improve theposition of the cooperative.

The nature and roleof cooperativedirectorsA board of directors providesleadership and guides the businessaffairs of a cooperative. It has acentral role in strategic planning.Directors typically are members ofthe cooperative and are elected atthe annual membership meeting.The cooperative’s bylaws specifydirector eligibility, method ofselection, term of office, and boardorganization.

Board membership brings greatresponsibility. Those selected needto be able to participate in theboard’s role of listening andcommunicating with both manage-ment and member-owners. As anadvisory body to both managementand membership, the boardmembers must be able to provide

sound recommendations andguidance.

The role of the board asa policymaking bodyDirectors and managers playunique roles in an agriculturalcooperative. Directors typicallyfocus more on the longer term andon policy issues, e.g., board/manager functions and relation-ships; member, employee, andpublic relations; organizationalconcerns; and operational policiesrelated to credit, pricing, purchas-ing, marketing, and servicesprovided to the membership.Problems typically arise whendirectors slip too far into the day-to-day management role. Instead,directors need to represent thegeneral membership in developinggoals and objectives, which man-agement then implements throughits control of daily operations.

A major function of the board isto stay in touch with the generalmembership so that memberconcerns can be taken into accountduring decision-making. Further-more, policies established by theboard of directors must be commu-nicated to the membership. Particu-larly important is communicationabout the board’s decision ondistribution of year-end earnings toowner-patrons. When some portionof earnings is retained as operatingor equity investment, the decisionmust be explained carefully.

Protection of the membership’sfinancial assets is another

The nature and role of cooperative directors

Six steps to strategic planning

➢ Develop a mission statement.

➢ Assess the cooperative’s operating environment.

➢ Establish objectives, with benchmarks for measuring results.

➢ Identify specific actions that will move the cooperativetoward its goals.

➢ Combine all resources to implement the strategies.

➢ Obtain feedback to lead to improvements.

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important function of the board.The membership places trust in theboard to invest those assets wiselyfor increased benefits to members.In addition, the board has theresponsibility to distribute thosebenefits equitably to a typicallydiverse membership.

Perhaps the single most impor-tant task of the board is to hire thegeneral manager and review his orher performance on at least anannual basis. Beyond having agood business sense, the managermust have excellent leadershipqualities, possess attitudes andgoals that are compatible with theboard’s views, and understand theunique nature of a cooperativebusiness. A written job description,achievable business objectives, andclear performance criteria arenecessary for an effective review.

Regular self-evaluation needs tobe done by the board. Much of thatreview may be fairly objective. Didthe cooperative meet its dollargoals? Were board meetings heldwhen planned? Was the businessplan implemented? Was the man-ager evaluated on schedule? Inaddition, more subjective evalua-tion is needed and frequently callsfor a collective opinion from thedirectors. Such questions mightinclude: Is there a good workingrelationship between the board andthe manager? Were board meetingsconducted in a harmonious man-ner? Were the needs of membersput above the needs of the direc-tors? Is there a good relationship

between the cooperative and thegeneral community?

Directors as individualsElecting a board member is one ofthe most important functions of acooperative member. Board mem-bers can have a direct impact on thesuccess of the cooperative and inturn on the profitability of themember’s own business. Above all,a prospective director needs to be astrong supporter and patron of thecooperative and must understandits unique role in business. Gettingalong well with people is animportant characteristic. So too isregular participation in cooperativemeetings.

Since a board member makesbusiness decisions for the coopera-tive, he or she must be able to thinkthrough business problems inde-pendently and to communicateeffectively. The prospective boardmember needs to be aware ofcurrent events that might affect thecooperative. Leadership qualitiesand an orientation toward further-ing the needs of membership alsoare important. Directors must bereceptive to new ideas that mayenhance the benefits or lessen thelimitations of cooperative member-ship. A reputation for integrity,honesty, and respect for the law iscritical.

Board membership typicallyrequires a significant amount oftime away from the director’s ownbusiness. Directors need to be ableto do more than just attend formal

meetings. Much time may be spentin communicating with members,preparing for meetings, represent-ing the cooperative at publicfunctions, and communicating withlegislators and regulators.

MembershipresponsibilitiesMembership in an agriculturalcooperative brings many responsi-bilities. As a democraticallycontrolled organization, memberparticipation and voting at member-ship meetings is important. Equallyso is member patronage of thecooperative.

Distinctive featuresThose who belong to a cooperativebusiness frequently are referred toas owner-member-patrons. Theytypically are agricultural producerswho own the cooperative, which isin business to serve producer-members, who are expected topatronize (buy/use) its services.Many cooperatives require theirmembers to patronize the coopera-tive in order to vote.

By design, the return on memberinvestment is kept low to keep thefocus on the benefits derived frommembership. In turn, the focus ison increased returns to members’private business operations. Formany members, a cooperativereally is an extension of their ownbusiness that serves certain pur-chasing or marketing needs.

Essentially, members formcooperatives to provide services to

Membership responsibilities

34

themselves on a nonprofitbasis. Monetary gains arereturned to them in proportion totheir patronage. Members mustrealize that some net returns maybe retained by the cooperative tofinance its operations or increaseits equity base. This money isreturned to members over time asnew retains become available.

RequirementsTo be successful, a cooperative’smembers must actively partici-pate in overseeing its organiza-tion, sound management, andoperation. Members need to maketheir wishes known. By doing so,their cooperative can better meettheir needs.

Members need to understandthe nature of their cooperative—its purpose for existence, objec-tives, benefits and limitations,operating structures, finances, andlong-run planning processes.They need to be familiar with thecooperative’s articles of incorpo-ration and bylaws, the legallimitations on their operations anddirectors, and requirements formember participation and qualitycontrol.

Members must understand thelong-range planning process fortargeting future services,

facilities, and capitalneeds so that they can

help the cooperativestay ahead of mem-bership needs for new

technology and otherresources. They also need

to be familiar with the cooper-ative’s legal papers so they canvote intelligently on changes andact responsibly in helping meet theorganization’s contractualobligations.

A broad role in the managementof the cooperative is important forevery member. In that regard, it isthe responsibility of members tostay informed about the coopera-tive. They then can elect excellentpeople from among their own ranksto represent them in most manage-ment affairs. Members must takethe time and effort to understandand evaluate board actions, whileavoiding undue pressure on boardmembers. However, directors needmembers to encourage and chal-lenge them so that needed servicescan be provided by the cooperative.

Members must patronize theircooperative enough to ensure it anadequate amount of business. Thebond between members and theircooperative is critical to a cooper-ative’s success. This link impliesloyalty to the cooperative and itsobjectives and goals. In turn, thecooperative influences the growth,development, and business envi-ronment for the member’s personalenterprise and community.

Member involvement in thecooperative’s business affairs gives

it competitive vitality and helps itstay in tune with the needs of itsmembers. Thus, members developa sense of ownership and responsi-bility for the cooperative’s success.Yet, it is clear that maintenance ofloyalty to a cooperative requires theorganization not only to havecompetitive products, prices, andservice, but also to exhibit honestyand provide timely, accurateinformation.

Many cooperatives rely on theirmembers to find new members toreplace those who leave farming ormove away. In many cases, newmembers are needed to improve thefinancial strength or increase thedollar volume of the cooperative.Members frequently are able toencourage their nonmemberneighbors to patronize the coopera-tive and perhaps later becomemembers. When recommendingothers for membership in a process-ing or marketing cooperative,members must be especially carefulto recommend only producers whocan meet standards for high qualityand consistent volume.

Cooperativeinfluenceson public policyBoth elected and appointed offi-cials regularly make policy deci-sions that affect agriculturalcooperatives. The more progressivecooperatives have developedprograms to influence that deci-sion-making. By involving direc-tors, managers, other employees,

Cooperative influences on public policy

35

and members, cooperatives poten-tially can have a positive impact onthe policy environment in whichthey operate.

Once a cooperative completes itslong-run business plan, meeting theobjectives in that plan can beenhanced by crafting a complemen-tary public policy program. It isbetter in this regard to be proactivethan reactive in order not to missopportunities to positively influ-ence government decision-making.

Basic to a cooperative’s publicpolicy program is a written set ofpolicy resolutions. These resolu-tions are designed to anticipateproblems and opportunities. Thepolicies can provide guidance tocooperative leaders as they attemptto influence decisions by govern-mental agencies and legislativebodies.

While some of these policyresolutions may originate withdirectors, management, or otheradvisors, it is important for mem-bership to have a say over policystatements and to be able to enactchanges or reject resolutions. Manyagricultural cooperatives havefound a resolutions committeemade up of elected members to bea good way to sort through ideasfor resolutions.

Through education and commu-nication efforts, members can beencouraged to support favorableinitiatives at the “grassroots” level.Direct contact between cooperativemembers and policymakers can bea very effective way to influencelegislation and administrative rules.

This contact may occur at coopera-tive functions or through one-on-one contacts outside the coopera-tive environment. Financial supportfor election campaigns of officialswho identify with positions impor-tant to the cooperative also can beuseful. Direct contact betweencooperative leaders and legislatorsand their administrative staffs canbe just as helpful.

Cooperative leadership may findit helpful to build coalitions withtrade associations and other indus-tries that share common concerns.In doing so, cooperative leaderscan strive for a patient, long-termapproach that will build credibilitywith policymakers and lead them tosolicit advice from cooperativemembers, directors, managers, andother leaders.

Relationships andlinkages betweenindependent,federated, andcentralizedcooperativesA cooperative’s need for growthmay go beyond its internal abilitiesto increase volume and services.Strategic alliances may be neces-sary. Strategic alliances are moti-vated by many economic reasons.Motives may include capturingeconomies of size, gaining marketstability, or stabilizing seasonalpatterns. Or, an alliance maysimply be a cheaper, faster, and lessrisky way to acquire new

geographic territory, add newservices, or expand facilities. Asmarkets grow and economies ofsize increase, consolidation ofoperations may eliminate overlap-ping overhead costs, redundantadvertising, or unnecessaryfacilities and record keeping.

Small, independent coopera-tives may form joint ventures withone another that allow them tocombine resources for certainbusiness objectives while continu-ing to exist as separate businessentities. They maintain individualbusiness identities while jointlybenefiting from expanded ser-vices, increased efficiency, andbetter control of operating costsand margins. In many cases, jointventures eliminate some of thenegatives of mergers. They do soby avoiding the difficulties andhostilities related to closingduplicate facilities, changing poorpractices and policies, laying offexcess employees, and disruptingcommunity identities.

Federated cooperatives areformed by individual cooperatives.The member cooperatives main-tain their identity as individualbusinesses while holding member-ship in the federated cooperative.On occasion, individuals areallowed to be members of feder-ated cooperatives. By creatingsuch an entity, cooperatives maybe better able to provide servicesto their members than they couldwith their individual resources.

Federated cooperatives aredesigned to do such things as

Relationships and linkages between independent, federated, and centralized cooperatives

36

facilitate joint marketing efforts orprovide supplies or specializedservices. Common federatedbusiness activities include thecreation of marketing-in-commonagencies and purchasing agenciesfor more economical acquisition ofsupplies.

Centralized cooperatives haveindividuals as members andmaintain satellite facilities instrategic areas to serve thosemembers. They frequently areformed by consolidations ofpreviously independent coopera-tives into a newly created coopera-tive. Motivations for such a changeinclude situations where the names,images, geographical locations,product lines, or philosophicalorientations of the original coop-eratives are not compatible. Form-ing a new cooperative can create aneutral environment by eliminatingformer legal entities, names, andoperating structures. With a freshstart, the new cooperative canadopt the strengths of the oldcooperatives and eliminate per-ceived weaknesses. The downside,however, may be higher legalexpenses. Furthermore, the newcooperative may not be able toretain the favorable identitiesassociated with the formercooperatives.

Successful completion ofconsolidations can be difficult. Akey element for success is one-on-one discussions between theagricultural members of eachcooperative and between theirboards of directors. As people

becomeacquainted,they candeveloptrustingrelationshipsand openpaths forleadership. Inthe processof thosediscussions, all positions, opinions,and concerns need to be made clearamong the participants.

If any problems are identified,there needs to be a sense thateveryone is working objectivelytoward solutions. The focus needsto be on the future and on jointproblem solving. A positive “we”environment needs to be estab-lished. Strategic planning is criticalso that potential deadlocks can beavoided and issues and choices canbe negotiated. The ultimate goalshould be to form a strong, unified,and efficient cooperative that isprogressive in its efforts to incorpo-rate sound planning, negotiation,and problem solving. The newcooperative will be more likely tohave the resources and strength toprovide greater benefits to all of itsmembers.

Sources foradditionalinformationContinuing education and trainingare important for those associatedwith an agricultural cooperative.Such activities can improve the

ability of directors, managers, andother employees to successfullycontrol, finance, and operate acooperative. In many smalleragricultural cooperatives, themanager may take responsibilityfor educational and training pro-grams—regular newsletters,employee and member meetings, oreven one-on-one contact withmembers and directors. Througheducation, even nonmembers canbe encouraged to seek the benefitsof cooperative principles andpractices.

Selected organizationsThe Agricultural CooperativeCouncil of Oregon (ACCO) is atrade association of about 25 stateand regional agricultural coopera-tives that do business in Oregon.ACCO focuses on supportingeducational programming related toagricultural cooperatives and alsosupports lobbying efforts onlegislative issues of broad interestto its members. An annual meetingusually centers on educationaltopics of interest to agriculturalcooperative managers, directors,and members.

Sources for additional information

37

Also, ACCO strongly supportsthe annual Cooperative LeadershipSeminar, which is conducted by theExecutive Institute for NorthwestCooperatives. The seminar isdesigned in part to educate agricul-tural cooperative directors andmanagers in areas such as thechanging business environment,decision-making responsibilities,financial analysis and control, andimproved communications andworking relationships in an agricul-tural cooperative environment.ACCO is a member of the NationalCouncil of Farmer Cooperatives.

A contact for ACCO is Mr. JohnH. McCulley, Executive Secretary,ACCO, P.O. Box 2042, Salem OR97308-2042. Phone: 503-370-7019.Fax: 503-587-8063. E-mail:[email protected]

The National Council ofFarmer Cooperatives (NCFC) is anational association of cooperativebusinesses owned and controlledby farmers—food and fiber market-ing, agricultural credit, and agricul-tural supply cooperatives. Itsprimary goals include the promo-tion of farmer cooperatives, liaisonwith governmental agencies, andserving as a communications linkwith agricultural cooperativesabout emerging issues of interest.An additional goal is to serve as aforum to promote needed educa-tional programs for cooperativedirectors, managers, and members;legislators and regulators; and thegeneral public.

NCFC can be contacted at 50 FStreet NW, Suite 900, Washington,DC 20001. Phone: 202-626-8700.Fax: 202-626-8722. Web site:http://www.ncfc.org/.

A number of educational pro-grams are identified andpublications are accessible athttp://www.ncfc.org/resources/

For more than 80 years, the U.S.Department of Agriculture (USDA)has sought to help agriculturalcooperatives develop and prosperthrough the educational efforts ofunits such as the AgriculturalCooperative Service. In an effort toimprove its service, USDA recentlyreorganized. The new RuralBusiness-Cooperative Service has

a cooperative development special-ist in each state.

In part, this new agency isintended to help farmers determinethe feasibility of a proposedagricultural cooperative venture,organize potential members tolaunch the corporation, and developand implement a business plan. Italso can help new cooperativesdevelop and complete producersurveys, conduct research andtransmit findings about problemsand issues, evaluate and determinethe best business structure for thecooperative, and obtain informationon financing available through thefederal government’s guaranteedloan programs.


Who can help?

➢ Agricultural Cooperative Council of Oregon (ACCO)John H. McCulley, Executive SecretaryP.O. Box 2042, Salem, OR 97308-2042Phone: 503-370-7019; Fax: 503-587-8063E-mail: [email protected]

➢ The National Council of Farmer Cooperatives (NCFC)50 F Street NW, Suite 900, Washington, DC 20001Phone: 202-626-8700; Fax: 202-626-8722; Web site:http://www.ncfc.org/

➢ U.S. Department of Agriculture (USDA)Robert K. Haase, Cooperative Development SpecialistCooperative Services Program, Rural Business-CooperativeService, 625 SW Salmon Ave., Suite 5, Redmond, OR 97756Phone: 541-923-4358, ext. 124; E-mail: [email protected] site: http://www.rurdev.usda.gov/rbs/index.html

38

For most of the past century,USDA’s cooperative assistance hasbeen concentrated on agriculturalcooperatives. While agriculturalmarketing and supply cooperativesremain a primary focus of USDA’sefforts, Rural Business-CooperativeService plans to gradually expandthe cooperative program to includeassistance to all types of ruralcooperatives.

The Cooperative Servicesprogram of Rural Business-Coop-erative Service not only providestechnical assistance, but alsoconducts cooperative-relatedresearch and produces informationto promote public understanding ofcooperatives. They have an excel-lent series of circulars and bulletinsonline (http://www.rurdev.usda.gov/rbs/pub/cooprpts.htm). For ageneral overview of all of theservices of the Rural Business–Cooperative Service, visit theirWeb site (http://www.rurdev.usda.gov/rbs/index.html).

Those interested in rural coop-erative development in Oregon canobtain one-on-one assistance fromthe Rural Business–CooperativeService by contacting Mr. RobertK. Haase, Cooperative Develop-ment Specialist, CooperativeServices Program, Rural Business–Cooperative Service, 625 SWSalmon Ave., Suite 5, Redmond,OR 97756. Phone: 541-923-4358,ext. 124. E-mail:[email protected]


For further reading

Abrahamsen, Martin A., et al.Cooperative Principles andLegal Foundations (U.S. Depart-ment of Agriculture, AgriculturalCooperative Service. FarmerCooperatives in the UnitedStates, Cooperative InformationReport 1, Section 1, July 1990).

Barton, David G. What Is a Coop-erative? Cooperatives in Agri-culture (Prentice-Hall, Inc.,1989).

Borst, Alan. Network MovementPresents Challenges, Opportuni-ties for Farmer Cooperatives.Farmer Cooperatives,Volume 61, Number 10 (January1995).

Bowne, Shirlee. Officers’ Respon-sibilities Hinge on Loyalty, Care.Farmer Cooperatives, Volume59, Number 12 (March 1993).

Buccola, Steven. Cooperatives. InEncyclopedia of AgriculturalScience, C.J. Arntzen, ed.(Academic Press–Harcourt,Brace & Jovanovich, San Diego,1994).

Buccola, Steven. Summary Lecturegiven at the symposium on TheCooperative Experience inAgriculture: InternationalComparisons (Ma’aleHachamisha, Israel, April 1992).

Campbell, Dan. The Long Haul—As Distance Increases BetweenFarms So Does Need for Coop-erative Alliances. Farmer

Cooperatives, Volume 61,Number 8 (November 1994).

Campbell, Dan. Patriotic Duty:Farmer-Panelists Say Co-opLoyalty Won’t OvercomeInferior Service. Farmer Coop-eratives, Volume 60, Number 4(July 1993).

Chesnick, David S. AnalyzingFiscal Strength of Local Co-opsRequires Looking Beyond FiscalStatements. Farmer Coopera-tives, Volume 61, Number 8(November 1994).

Cobia, David W. and Thomas A.Brewer. Equity and Debt.Cooperatives in Agriculture(Prentice-Hall, Inc., 1989).

Cobia, David W., Gene Ingalsbe,and Jeffrey S. Royer. EquityRedemption. Cooperatives inAgriculture (Prentice-Hall, Inc.,1989).

Cropp, Robert and Gene Ingalsbe.Structure and Scope ofAgricultural Cooperatives.Cooperatives in Agriculture(Prentice-Hall, Inc., 1989).

Deiter, Ron E. and Roger G.Ginder. Directors and Manag-ers. Cooperatives in Agriculture(Prentice-Hall, Inc., 1989).

Duft, Ken D. Agribusiness Coop-eratives in the 21st Century(Agribusiness Management,Cooperative Extension, Wash-ington State University, Pull-man, June 1993).

39Sources for additional information

Dunn, John R., et al. PositioningFarmer Cooperatives for theFuture—A Report to Congress(U.S. Department of Agriculture,Agricultural CooperativeService, October 1987).

Farm Credit Administration. 1995Annual Report on the FinancialCondition and Performance ofthe Farm Credit System (June1996).

Franklin, Don. Director Directives.Farmer Cooperatives, Volume61, Number 3 (June 1994).

Frederick, Donald A. Are YourBylaws Current and Correct?Financial Planning Provisions.Farmer Cooperatives, Vol-ume 61, Number 12 (March1995).

Frederick, Donald A. Are YourBylaws Current and Correct?Members’ Capital. FarmerCooperatives, Volume 61,Number 11 (February 1995).

Frederick, Donald A. Are YourBylaws Current and Correct?Directors and Officers. FarmerCooperatives, Volume 61,Number 9 (December 1994).

Frederick, Donald A. Are YourBylaws Current and Correct?Membership Meetings. FarmerCooperatives, Volume 61,Number 8 (November 1994).

Frederick, Donald A. Are YourBylaws Current and Correct?Background MembershipProvision. Farmer Cooperatives,Volume 61, Number 6 (October1994).

Frederick, Donald A. Are YourArticles of Incorporation Currentand Correct? FarmerCooperatives, Volume 61,Number 5 (September 1994).

Frederick, Donald A. CooperativeInvolvement in Public Policy(U.S. Department of Agriculture,Agricultural CooperativeService, Cooperative Informa-tion Report 42, May 1993).

Frederick, Donald A. KeepingCooperative Membership RollsCurrent (U.S. Department ofAgriculture, Agricultural Coop-erative Service, CooperativeServices Division. CooperativeInformation Report 37, October1991).

Frederick, Donald A. Sample LegalDocuments for Cooperatives(U.S. Department of Agriculture,Agricultural CooperativeService. Cooperative Informa-tion Report 40, May 1990).

Frederick, Donald A. and GeneIngalsbe. What Are PatronageRefunds? (U.S. Department ofAgriculture, Agricultural Coop-erative Service. CooperativeInformation Report 9, May1990).

Frederick, Donald A. Tax Treat-ment of Cooperatives(U.S. Department of Agriculture,Agricultural CooperativeService. Cooperative Informa-tion Report 23, January 1990).

Frederick, Donald A. ManagingCooperative Antitrust Risk(U.S. Department of Agriculture,

Agricultural CooperativeService. Cooperative Informa-tion Report 38, May 1989).

Ginder, Roger G. and Ron E.Deiter. Managerial Skills,Functions and Participants.Cooperatives in Agriculture(Prentice-Hall, Inc., 1989).

Goff, James L. and Gene Ingalsbe.Is a Co-op in Your Future?(U.S. Department of Agriculture,Agricultural CooperativeService. Cooperative Informa-tion Report 10, April 1987).

Hoyt, Ann. Cooperatives in OtherIndustries. Cooperatives inAgriculture (Prentice-Hall, Inc.,1989).

Ingalsbe, Gene. Cooperatives inAgribusiness (U.S. Departmentof Agriculture, AgriculturalCooperative Service. Coopera-tive Information Report 5,September 1993).

Ingalsbe, Gene. Cooperative Facts(U.S. Department of Agriculture,Agricultural CooperativeService. Cooperative Informa-tion Report 2, July 1990).

Ingalsbe, Gene and James L. Goff.How To Start a Cooperative(U.S. Department of Agriculture,Agricultural CooperativeService. Cooperative Informa-tion Report 7, 1990).

Ingalsbe, Gene and Frank Groves.Historical Development. Coop-eratives in Agriculture (Prentice-Hall, Inc., 1989).

40

Kirkman, C.H., Jr. CooperativeMember Responsibilities andControl (U.S. Department ofAgriculture, Agricultural Coop-erative Service. FarmerCooperatives in the UnitedStates, Cooperative InformationReport 1, Section 7, January1990).

Kirkman, C.H., Jr. Measuring Co-op Directors (U.S. Departmentof Agriculture, AgriculturalCooperative Service. Coopera-tive Information Report 15,January 1988).

Kirkman, C.H., Jr. GuidelinesCo-op Employees Need(U.S. Department of Agriculture,Agricultural CooperativeService. Cooperative Informa-tion Report 18, August 1986).

Kirkman, C.H., Jr. CooperativeEducation and Training(U.S. Department of Agriculture,Agricultural CooperativeService. Farmer Cooperatives inthe United States, CooperativeInformation Report 1, Section10, March 1983).

Kraenzle, Charles A. Co-opsIncrease Share of 1991 FarmMarketings and ProductionSupplies. Farmer Cooperatives,Volume 60, Number 2 (May1993).

Krueckeberg, Harry F., JoanFulton, and Jodi Raim. GaugingCustomer Reaction to a Coop-erative Marketing Agreement.Farmer Cooperatives, Volume62, Number 4 (July 1995).

Liebrand, Carolyn Betts andThomas Gray. What Do Mem-bers Think?: Mail Surveys HelpDistinguish Vocal Few fromSilent Majority. FarmerCooperatives, Volume 60,Number 10 (January 1994).

Martin, George. Should Volume bea Serious Factor in How Coop-eratives Treat Their FarmerCustomers? Farmer Coopera-tives, Volume 57, Number 4(July 1990).

Mather, J. Warren, Gene Ingalsbe,and David Volkin. CooperativeManagement (U.S. Departmentof Agriculture, AgriculturalCooperative Service. FarmerCooperatives in the UnitedStates Cooperative InformationReport 1, Section 8, July 1990).

Mather, J. Warren and Homer J.Preston. Cooperative Benefitsand Limitations (U.S. Depart-ment of Agriculture, AgriculturalCooperative Service. FarmerCooperatives in the UnitedStates Cooperative InformationReport 1, Section 3, May 1990).

Meyer, Tammy M. UnderstandingCooperatives: CooperativeBusiness Principles (U.S.Department of Agriculture,Rural Development Administra-tion, Cooperative Services.Cooperative Information Report45, Section 2, August 1994).

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Development Administration,Cooperative Services. Coopera-tive Information Report 45,Section 1, July 1994).

Namken, Jerry C. Planning forSuccess—Avoid “BusinessSuicide” with a Strategic PlanFor the Future. Farmer Coop-eratives, Volume 61, Number 9(December 1994).

Pacific Sea Grant Advisory Pro-gram. Fisheries CooperativeSymposium Proceedings(University of Washington,Seattle, February 1975).

Parsons, Carol. Making Dust—New Alliances Explore theFrontiers of Cooperation.Farmer Cooperatives, Volume62, Number 3 (June 1995).

Rapp, Galen. State USDA/RECDOffices Gear Up to OfferCooperative DevelopmentService. Farmer Cooperatives,Volume 62, Number 5 (August1995).

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Rapp, Galen. Sample Policies forCooperatives (U.S. Departmentof Agriculture, AgriculturalCooperative Service. Coopera-tive Information Report 39, May1990).

Rathbone, Robert C. CooperativeFinancing and Taxation(U.S. Department of Agriculture,Agricultural Cooperative


41

Service, Farmer Cooperatives inthe U.S. Cooperative Informa-tion Report 1, Section 9, Sep-tember 1991).

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U.S. Department of Agriculture,Agricultural CooperativeService. Organizations ServingCooperatives. Farmer Coopera-tives in the United States.Cooperative InformationReport 1, Section 5 (July 1990).

Vilstrup, Richard H., David W.Cobia, and Robert Cropp.Adjustments by Existing Coop-eratives. Cooperatives inAgriculture (Prentice-Hall, Inc.,1989).

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Vogelsang, Donald L., et al.Cooperative Organization andStructure (U.S. Department ofAgriculture, Agricultural Coop-erative Service. Farmer Coop-eratives in the United States.Cooperative Information Report1, Section 6, September 1988).

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AcknowledgmentsSpecial thanks to a number ofExtension clientele and AREc 372Agricultural Cooperatives studentswho provided helpful commentsand ideas for revising this publica-tion.


© 2004 Oregon State University

The Oregon State University Extension Service educates Oregonians by delivering research-based, objective information to help them solveproblems, develop leadership, and manage resources wisely.

Extension’s agriculture program provides education, training, and technical assistance to people with agriculturally related needs and interests.Major program emphases include food and fiber production, farm business management, marketing and processing of agricultural products,resource use and conservation, and environmental preservation and improvement.

This publication was produced and distributed in furtherance of the Acts of Congress of May 8 and June 30, 1914. Extension work is acooperative program of Oregon State University, the U.S. Department of Agriculture, and Oregon counties.

Oregon State University Extension Service offers educational programs, activities, and materials—without regard to race, color, religion, sex,sexual orientation, national origin, age, marital status, disability, and disabled veteran or Vietnam-era veteran status—as required by Title VIof the Civil Rights Act of 1964, Title IX of the Education Amendments of 1972, and Section 504 of the Rehabilitation Act of 1973. OregonState University Extension Service is an Equal Opportunity Employer.

Published March 1997. Revised March 2004.

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