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USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?
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
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USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?
WHAT ARECOOPERATIVES?
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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?
A Type of Business Dependent On
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USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?
Individually Owned Business
One Person
• Owns
• Controls
• Operates
• Benefits/profits
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USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?
Partnership
Two or more people
• Own
• Control
• Operate
• Share in risks and profit
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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
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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
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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
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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
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USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?
Types of Cooperatives
• Financial
• Consumer Service
• Business
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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
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USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?
Cooperatives Have Unique Principles
User - Owner
User - Control
User - Benefit
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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.
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USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?
User-Control Principle
The people who use the
cooperative are those
who control the cooperative
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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
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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
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USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?
User-Benefits
Market Access
Bargaining Power
Reduced Costs
Quality products and services
CommunityStrength
EconomicEnhancement
Competitive Yardstick
Political Action
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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
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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
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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
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USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?
Centralized Structure
Cooperative
Member MemberMember
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USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?
Federated Structure
Cooperative
LocalCooperative
MemberMember
LocalCooperative
Member Member
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USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?
Mixed Structure
Cooperative
MemberMember
LocalCooperative
MemberMember
Member
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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
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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
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USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?
Marketing CooperativesAssist members to maximize the return they receivefor the goods they produce!
Functions•Transport•Process•Grade
•Add value•Research•Distribute•Bargain
•Sell
MemberProductsAgriculturalForestryAquacultureHorticultureCrafts
Member BenefitsExtend controlof their productsand realize additionalmargins
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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
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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 BenefitsReduced costsVolume discountsQuality controlIncreased access
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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.
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USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?
Service CooperativesUsed 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
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USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?
Participation Roles
Cooperatives operate through the roles of principal parties
• Members
• Directors
• Manager
• Employees
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USDA, RBS, CIR 11 Chapter 1 - What Are Cooperatives?
Organizational Make-Up
Members
Board of Directors
Manager
Employees