# Presentation: 658185

## Cooperatives: What They Are and the Role of Members, Directors, Managers, and Employees

**United States Department of Agriculture**
- Rural Business - Cooperative Service
- RBS Cooperative Information Report 11
- http://www.rurdev.usda.gov/rbs/index.html

- USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?

## WHAT ARECOOPERATIVES?

- USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?

## 
Who owns the business?
Who controls the business?
Who uses the business?
Who gets the profits?

*Who owns the business?*
*Who controls the business?*
*Who uses the business?*
*Who gets the profits?*

- A Type of Business Dependent On

- USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?

## Individually Owned Business

*One Person*
- Owns
- Controls
- Operates
- Benefits/profits

- USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?

## Partnership

*Two or more people*
- Own
- Control
- Operate
- Share in risks and profit

- USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?

## Corporations

- Multiple owners
- Variety of goods and services
- Physical facilities
- State chartered
- Investors
- Profits shared among investors

- USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?

## Cooperatives Are a Type of Corporation

- Multiple owners who are user members
- Variety of goods and services
- Physical facilities
- State chartered
- Members are investors
- Owned and controlled by members who use its services

- USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?

## Cooperatives

- Are primarily controlled by a board of directors elected by and from members
- Derive equity from member owners
- Operate for the benefit of member owners
- Allocate earnings to members based on use
- Earnings from member business is taxed once
- Have perpetual existence

- USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?

## The Cooperative Form of Business Is Prevalent

-  *47,000 cooperatives in the United States *
*Serve 100 million people, 40 percent of the population*
*There are several types of cooperatives serving many sectors*

- USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?

## Types of Cooperatives

- Financial
- Consumer Service
- Business

- USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?

## Cooperatives Provide

- Credit
- Transportation
- Facilities
- Recreational Equipment
- Food
- Housing
- Health care

- Child care
- Wholesale goods and supplies
- Electricity
- Telephone and electric services
- Farm production supplies and service
- Farm marketing

- USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?

## Cooperatives Have Unique Principles

***User - Owner***
***User - Control***
***User - Benefit***

- USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?

## User-Owner Principle

*The people who own and finance the cooperative are those who use it.*

- USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?

## User-Control Principle

*The people who use the*
*cooperative are those*
*who control the cooperative*

- USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?

## Members Exercise Control By

**Voting at annual and membership meetings**
**Electing Board of Directors**
**Making decisions on major cooperative issues**

- USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?

## User-Benefit Principle

*The cooperative’s sole purpose*
*is to provide and distribute*
*benefits to members on the *
*basis of their use*

- USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?

## User-Benefits

**Market Access**

**Bargaining Power**

**Reduced Costs**

**Quality products and services**

**Community**
**Strength**

**Economic**
**Enhancement**

**Competitive**
** ****Yardstick**

**Political Action**

- USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?

## Cooperative Practices

*Implement and Facilitate Basic Principles*
- _Patronage Refunds_ - distribute earnings to members based on use
- _Limited Return on Equity Capital_ - members form cooperatives for service, not for a monetary return on investment
- _Cooperative Cooperation_ - joint ventures, MAC’s, networks, alliances, working relationships, etc.
- _Cooperative Education_ - promote the cooperative way of doing business and educate members, directors, and employees

- USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?

## Geographical Structure

**Geographical characterization defines a cooperative’s size and scope of operations in reference to serving members**.
- _Local_ - small region covered, a county or so
- _Super local_ - two or more counties, branches
- _Regional_ - numerous counties, State or more
- _National_ - United States-wide
- _International_ - worldwide

- USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?

## Cooperative Governance System Structure

**Based on membership structure and ****essentially defines who the members are and how the cooperative is organized to serve them. **
- _Centralized Structure_ - Individuals are direct members
- _Federated Structure_- Cooperatives are direct members
- _Mixed Structure_ - Individuals and cooperatives both are direct members

- USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?

##   Centralized Structure

**Cooperative**

**Member**

**Member**

**Member**

- USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?

##   Federated Structure

**Cooperative**

**Local**
**Cooperative**

**Member**

**Member**

**Local**
**Cooperative**

**Member**

**Member**

- USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?

##   Mixed Structure

**Cooperative**

**Member**

**Member**

**Local**
**Cooperative**

**Member**

**Member**

**Member**

- USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?

## Cooperative Functions

*Three Core Functions*
- _Marketing_ - extend control of members’ products through processing, distribution, and sale
- _Purchasing_ - providing affordable supplies and goods
- _Service_ - provide needed services

- USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?

## Marketing Cooperatives

*Assist members in maximizing returns from goods they produce*
- Handle, process, and sell
- Grade, transport, bargain
- Add value
- Research-new product development

- USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?

## Marketing Cooperatives

- Assist members to maximize the return they receive
- for the goods they produce!

**Functions**
- Transport
- Process
- Grade
- Add value
- Research
- Distribute
- Bargain
- Sell

**Member**
**Products**
- Agricultural
- Forestry
- Aquaculture
- Horticulture
- Crafts

**Member Benefits**
- Extend control
- of their products
- and realize
- additional
- margins

- USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?

## Purchasing Cooperatives

*Allow members to gain access to affordable production supplies and goods*
- Purchase in bulk to reduce costs and increase purchasing power
- Provide direct ownership of refineries, plants, retail facilities, research facilities

- USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?

## Purchasing Cooperatives

- Used by members to gain access to affordable, quality supplies

**Functions**
- Refineries
- Plants
- Feed mills
- Warehouse
- Manufacture
- Buy in bulk
- Deliver

**Members**
- Producers
- Hardware stores
- Independent grocery stores
- Fast food franchises

**Member Benefits**
- Reduced costs
- Volume discounts
- Quality control
- Increased access

- USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?

## Service Cooperatives

*Provide needed services*
- Meet many needs
- Custom application of purchased supplies, transport of product, etc.
- Provide utilities, credit, housing, health care, technology, etc.

- USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?

## Service Cooperatives

- Used by members to gain access to affordable, quality services

**Functions**
- Farm applications
- Credit
- Electricity
- Communications
- Insurance
- Health care
- Schooling
- Housing

**Members**
- Producers
- Rural residents
- Urban residents
- Public

**Member Benefits**
- Access to services
- Affordable services
- Quality
- Increased access

- USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?

## Participation Roles

*Cooperatives operate through the roles of principal parties*
- Members
- Directors
- Manager
- Employees

- USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?

## Organizational Make-Up

**Members**

**Board of Directors**

**Manager**

**Employees**

- USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?