UNDERSTANDING COOPERATIVES

UNIT 3 - The Structure of Cooperatives

Slides for Unit 3

Cooperative Structure Types

• Financial• Geographic area served• Governance or control• Functions performed• Other arrangements

S 3.1

Financial Structures

Cooperatives are incorporated as stock or nonstock organizations.

Stock Cooperatives• Issue one share of common stock (voting) as

evidence of ownership interest.

S 3.2

Financial Structures

Cooperatives are incorporated as stock or nonstock organizations.

Nonstock Cooperatives• Issue membership certificates as written proof of a

right to vote. Many stock and nonstock cooperatives also raise member capital by retaining earnings.

S 3.3

Structures by Geographic Territory Served

Local Cooperatives• Operate in relatively small geographic area,

typically in a radius of 10 to 30 miles.

Super Locals• Operate in two or more counties with several branch

facilities.

Regional Cooperatives• Large mixed, federated, and centralized

cooperatives often serving multi-state areas.

S 3.4

Structures by Geographic Territory Served

Interregional or National Cooperatives• Cover two or more regions, which may serve a

major portion of the U.S.

International Cooperatives• Operating on an international basis with

headquarters in the U.S. or other countries.

S 3.5

Centralized Structure

Cooperative

Member MemberMember

Individuals are members of a cooperative.S 3.6

Federated Structure

Cooperative

LocalCooperative

MemberMember

LocalCooperative

Member Member

Individuals are members of local cooperatives which are members of the federated cooperative.

RBS, USDA S 3.7

Mixed Structure

Cooperative

MemberMember

LocalCooperative

MemberMember

Member

Both cooperatives and individuals are membersS 3.8

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

S 3.9

Marketing Cooperatives

Assist members in maximizing returns from goods they produce

• Handle, process, assemble, and sell• Grade, transport, bargain• Add value (new generation cooperative)• Research-new product development

S 3.10

Purchasing (Supply) 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, distribution chains, research facilities

S 3.11

Rural Service Cooperatives

Provide needed services• Meet many needs• Custom application of purchased supplies,

transport of product, etc.• Provide utilities, credit, insurance, housing,

health care, technology, etc.• Other selected services

S 3.12

Other Structural Arrangements

Subsidiary• A corporation organized, owned, and controlled

either totally, or partially by a parent cooperative

Marketing Agency in Common• Organized by two or more marketing cooperatives

to market products or provide services for member cooperatives

S 3.13

Other Structural Arrangements (continued)

Joint Venture• Association of two or more participants, persons,

partnerships, corporations, or cooperatives to carry out a specific economic operation, enterprise, or venture

Holding Company• A corporate entity with a controlling ownership in

one or more operating companies

S 3.14

Other Structural Arrangements (continued)

Contract Agent

• A county or community cooperative may organize, owning nothing but contracts, and an agent to handle the goods and keep patronage records turned over by the agent.

Private Dealers

• As a franchise, the dealer keeps records. If the franchise makes money, patronage refunds are paid to the dealer’s customers. The dealer is paid a commission on sales.

S 3.15

New Generation Cooperative

A new generation cooperative is a type of marketing cooperative that adds value (e.g., processing) to an agricultural raw product with the purpose of marketing that finished product in order to increase benefits to a finite (closed) membership.

Membership shares can appreciate/depreciate and can be traded. Members shares are closely associated with contracted delivery rights.

S 3.16