processing products for the consumer or 

industrial markets.

Marketing cooperatives enable producers to 1) correct market failure where prices 

are too low or buyers have left the market; 

2) provide a service not available otherwise; 3) gain market power (negotiating 

power) against much larger buyers; 4) 

spread risks and costs; and 5) have 

enough volume to operate a processing 

plant efficiently or enough to meet the 

demands of buyers.

Marketing cooperatives are found in 

every region of the United States and handle most types of farm product. The importance of these cooperatives to particular 

commodity sectors varies. Cooperatives 

account for 86 percent of total farm value 

of all milk marketed in the United States; 41 

percent of the cotton; 40 percent of the 

grains and oilseeds; and 20 percent of the 

farm value of all fruits and vegetables.

Agricultural bargaining cooperatives are 

a special type of marketing cooperative. 

They negotiate with buyers, usually processors, on behalf of their producer-members 

for price and other terms such as quality 

and timing of delivery. Representing large 

volumes of products gives bargaining 

associations more market power and 

allows them to be more effective in negotiations than individual producers. These 

cooperatives usually do not own the farm 

commodity and usually do not physically 

handle the product. Farmers sell directly to 

processors at the price negotiated by the 

cooperative. Bargaining cooperatives are 

most common in processing fruits, vegetables, specialty crops, dairy, and sugar 

beets.

A marketing cooperative is a business 

organization owned by farmers to collectively sell their products. It allows producers to accomplish collectively functions 

they couldn’t achieve on their own. Most 

agricultural producers have relatively little 

power or influence with large agribusinesses or food companies that purchase their 

commodities. Joining with other producers 

in a cooperative can give them greater 

power in the marketplace. In addition, 

cooperatives can give producers more 

control over their products as they make 

their way to consumers by allowing them to 

bypass one or more middlemen in the 

market channel. Farmers capture more of 

the returns that would otherwise go to others.

What Co-ops Do

Agricultural marketing cooperatives perform many functions. They may assemble 

the products of a number of producers into 

larger lots to facilitate more efficient handling and more competitive sales, and then 

grade and ship these lots to market. Some 

marketing cooperatives perform first-stage 

processing such as ginning cotton or hulling nuts while others vertically integrate by 

1

Understanding Cooperatives:

Agricultural Marketing 

Cooperatives

Cooperative Information Report 45, Section 15

Marketing cooperatives are found in 

every region of the United States 

and handle most types of farm 

product.

United States

Department of

Agriculture

Rural Development

Rural Business

and Cooperative

Service

May 1998

Reprinted

January 2000

to the

consumer

Ag 

Marketing 

Co-ops
How Co-ops Are Organized

Marketing cooperatives may be classified 

according to how they are organized, 

which is usually based on membership 

affiliation, control, and often, area covered. 

There are three main types of organizational structure: centralized, federated, and 

mixed.

In centralized cooperatives, membership 

is made up of individual producers. Control 

and product volume flow from producers 

directly to the cooperative. Patronage 

refunds flow from the cooperative back to 

the producer. These cooperatives usually 

serve a local area or community. Their 

functions are often limited to the first few 

steps in marketing, such as assembly and 

grading. A few centralized cooperatives are 

larger, operate in several States, and provide more complex functions, such as food 

manufacturing. Most cooperatives are centralized.

Federated cooperatives have local, centralized cooperatives as members, which in 

turn are owned by local producers. Federated cooperatives are often quite large and 

cover wide geographic areas. Control rests 

with the local cooperatives that make up 

the federation. 

The federation sometimes acts only as a 

sales agent for its members. In some 

cases, cooperatives provide the more 

complex manufacturing functions.

Finally, a small number of cooperatives 

have structures which combine centralized 

and federated features and have as members both individual producers and local 

cooperatives. These are usually large organizations structured to fit unique situations 

in their particular industry.

2

How Co-ops Operate

Although a few cooperative auctions 

and commission agents exist, most cooperatives have traditionally acquired and 

marketed commodities in one of two ways 

— buy/sell or pooling.

Buy/Sell. This method is the way most 

noncooperative agribusinesses operate. 

The producer is paid cash at the time of 

delivery to the cooperative. The cooperative resells the product after grading, sorting, packing, or performing other types of 

value-enhancing activities. After the cooperative resells the product, any profits are 

returned to producers based on the 

amount of business they have done with 

the cooperative.

One problem with buy/sell is that it 

reduces the flexibility of the cooperative in 

making marketing decisions because it 

does not know far enough in advance how 

much product will be available. Thus, it 

may be difficult to respond to buyers in the 

market.

This problem is greatly reduced by the 

use of marketing agreements or forward 

cash contracts which allow the producer to 

contract with the cooperative for future 

delivery. The cooperative can better plan a 

marketing strategy knowing how much 

product will be available. These contracts 

can take several different forms and have 

different terms concerning pricing and 

delivery. All contracts obligate the producer 

to deliver an agreed amount of product to 

the cooperative.

The buy/sell method of marketing pays 

producers for their product at time of delivery rather than later when marketed. Noncooperative firms also use this method to 

Bargaining cooperatives are most common 

in processing fruits, 

vegetables, specialty 

crops, dairy, and sugar 

beets. 
acquire and market products, but cooperatives offer their members an assured market and distribute back to the members 

any earnings from operations.

Pooling. Cooperatives also use “Pooling” 

in marketing. The production of members 

is “pooled” or marketed together (it may or 

may not involve the physical mixing of 

product). All marketing decisions are made 

by a pool manager. After deducting operating costs from the pool proceeds, the average net price is paid to the members. 

Some pools pay adjustments for quality 

and others for transportation. Pooling is a 

way to share risk, expenses, and revenue 

with other producers.

A producer will usually receive an 

“advance payment” upon delivering the 

product to the pool. As the product is marketed, the costs of operating the pool are 

deducted and “progress payments” are 

made to pool members. A final “equalization payment” reflects both the remaining 

proceeds from the pool and any differences in the quality of product delivered by 

individual producers. In this way, producers receive an average price for their commodities, which is often higher than prices 

they would have received using the buy/

sell method.

Producers also benefit from the risk 

being spread among all members of the 

pool and from the ability to use the marketing expertise of the cooperative. The cooperative is more effective in the market as a 

result of having a known volume and quality of product to market; and it therefore 

can experience some degree of market 

power.

3

Variations

Many variations allow marketing cooperatives to meet specific goals or respond to 

specific situations. 

Marketing Agencies-in-Common (MACs). 

This a strategic alliance among marketing 

cooperatives—similar to federated cooperatives—which join to market under a common agreement. MACs serve as marketing 

agents for their members to achieve economies of size in marketing like or complementary products. Member cooperatives 

retain operational independence in other 

areas. MACs also share large costs associated with developing brand names and provide a way to acquire and sell nonmember 

product to expand product lines. MACs can 

operate in domestic or export markets. The 

agency will usually have exclusive rights to 

sell members’ products in some or all markets.

Export Trading Companies (ETCs). An ETC 

is a marketing agency-in-common formed 

specifically for the joint exporting of products. Cooperatives, investor-owned companies, commodity associations, and others 

can be part of an ETC. Under the Export 

Trading Company Act of 1982, ETCs can 

apply for an export certificate of review 

(COR) which provides limited antitrust 

immunity. While cooperatives currently have 

limited antitrust immunity under the CapperVolstead Act, the COR provides a measure 

of protection when noncooperative firms 

are included in the ETC. Since 1983, 45 

agricultural marketing cooperatives have 

received antitrust preclearance to jointly 

export their products in 13 ETCs. 

Cooperatives have used ETCs to 

increase their negotiating strength (and 

Pooling is a way to share 

risk, expenses, and revenue with other producers.

to the

consumer

Food Store

Food Store

Food Store

Middle man

Food Store Chain

Producer 

Control
This circular is one of a continuing series that provides training information and presentations for education 

resource persons who may or may not be familiar with the cooperative form of business. This series provides the 

basic background material they need and in a form that can be readily adapted, with limited preparation time, to a 

lecture or other presentation.

The U.S. Department of Agriculture (USDA) prohibits discrimination in all of its programs and activities on the basis 

of race, color, national origin, age, disability, and where applicable, sex, marital status, familial status, parental 

status, religion, sexual orientation, political beliefs, genetic information, reprisal, or because all or part of an individual's income is derived from any public assistance program. (Not all prohibited bases apply to all programs.) 

Persons with disabilities who require alternative means for communication of program information (Braille, large 

print, audiotape, etc.) should contact USDA's TARGET Center at (202) 720-2600 (voice and TDD).

To file a complaint of discrimination, write to USDA, Assistant Secretary for Civil Rights, Office of the Assistant Secretary for Civil Rights, 1400 Independence Avenue, S.W., Stop 9410, Washington, DC 20250-9410, or call toll-free 

at (866) 632-9992 (English) or (800) 877-8339 (TDD) or (866) 377-8642 (English Federal-relay) or (800) 845-6136 

(Spanish Federal-relay). USDA is an equal opportunity provider and employer. 

stock and delivery rights in a new or existing new-generation cooperative. Over time, 

delivery rights may increase in value. However, producers normally have the right to 

sell their membership and delivery rights to 

other qualified producers and capture the 

increase in value. 

In many traditional cooperatives, membership is open to anyone 

wanting to sell product and usually requires 

little or no up-front investment. Examples of 

new-generation cooperatives include Dakota Growers Pasta Company, North American Bison Company, and American Crystal 

Sugar Company.

For more information about marketing 

cooperatives, contact:

Rural Business-Cooperative Service

Stop 3254

Washington, DC 20250–3254

Phone (202) 720–3350

FAX (202) 690–2750, 

Attention: CDD

http://www.rurdev.usda.gov/

cooperatives.html

their market power) with foreign buyers, 

improve profit margins by bypassing intermediaries, facilitate foreign market development by spreading the cost among 

members, and manage the risks associated with international trade. 

New-Generation Cooperatives. These are 

cooperatives with special ownership and 

operational features designed to allow producers to capture a greater share of the 

returns from the value-added activities. 

Keeping these value-added activities local 

also aids the rural economy by generating 

jobs.

The special ownership and operation-al 

characteristics of new-generation cooperatives are significantly different from those of 

more traditionally structured marketing 

cooperatives. First, new-generation cooperatives typically sell stock that have delivery rights and obligations for a specific 

quantity of product. These delivery rights 

result in the cooperative’s membership 

being open only to those who purchase the 

stock.

Second, producers often must make a 

substantial, up-front investment to purchase 

4

MACs serve as marketing agents for their 

members to achieve 

economies of size in 

marketing like or complementary products. 

To see this and 

other USDA cooperative publications online, visit: 

http://www.rurdev.

usda.gov/rbs/pub/

cooprpts.htm 

To order hard copies, e-mail: 

coopinfo@wdc.

usda.gov

or telephone:

1-800-670-6553.