Gary Halvorson Senior Vice-President Agronomy PLACE CO-OP LOGO HERE Do You Know Your Co-op? Understanding the Power of the Cooperative Business Model Purpose of this presentation is to make sure we all share a common level of knowledge about co-ops and to understanding the structure and workings of the co-op business model. Gary Halvorson Senior Vice-President Agronomy

The A-B-C Of cooperatives A cooperative is a Business that is owned and Controlled by people who use its product and services Here’s the simple way to remember what makes a co-op different: A-B-C A cooperative is A BUSINESS owned and CONTROLLED by those who use its products and services There are variations within different types of cooperatives, particularly co- ops that market non-commodity crops like fruits and nuts. YOUR LOGO HERE

A CO-OP IS BUILT ON THREE PRINCIPLES: Key principles User-Owned: The cooperative is owned by the people who use it User-Controlled: The cooperative is controlled by the people who use it User-Benefits: The benefits generated by the cooperative accrue to its users based on their use A CO-OP IS BUILT ON THREE PRINCIPLES: Here’s a deeper look at those A-B-Cs. It’s all about the user – ownership, control and benefits. YOUR LOGO HERE

Types of Cooperatives Marketing Co-ops: market and process the products their customers produce Supply Co-ops: supply members with the materials needed to operate Service Co-ops: provide specialized services related to the owner’s business Cooperatives typically fall into three categories – marketing, supply and service. All three of these exist in agriculture with some co-ops performing all three functions for their member-owners. YOUR LOGO HERE

Lakeville-Middleboro, Mass. TYPES OF Cooperatives St. Paul, Minn. Largest bank in Farm Credit System New York, N.Y. Global news network Oak Brook, Ill. Hardware store chain Austin, Texas Pub and brewery Inver Grove Heights, MN Energy, grains and foods company Cabot, Vt. Dairy farm and products Lakeville-Middleboro, Mass. Cranberry and grapefruit producer Portland, Ore. Produce retailer Kent, Wash. Outdoor gear and clothing The cooperative business model is far more common than most people realize. Here are just some examples you might encounter without realizing they are co- ops. Here are just a few facts: There are more than 29,000 co-ops in the United States with Americans holding 350 million co-op memberships. U.S. co-ops provide over 850 thousand jobs and create more than $74 billion in annual wages with revenue of nearly $500 billion. The majority of our country's 2 million farmers are members of the nearly 3,000 farmer-owned cooperatives. They provide over 250 thousand jobs and annual wages of over $8 billion. Over 8,300 credit unions provide financial services to nearly 100 million members. More than 900 rural electric co-ops deliver electricity to more than 42 million people in 47 states. This makes up 42% of the nation's electric distribution lines and covers 75% of our country's land mass. Approximately 233 million people are served by insurance companies owned by or closely affiliated with co-ops. About 1.2 million rural Americans in 31 states are served by the 260 telephone cooperatives. YOUR LOGO HERE

FEDERATED COOPERATIVE SYSTEM Individual Owners Local Cooperatives Local Co-op Federated Cooperative Voting, ownership, patronage Products purchased or marketed Cooperative structure also varies. There are three basic models – federated, centralized and a hybrid model. NOTE: Before you move forward, you might want to ask them what they think their own co-op is. Here’s a look at the federated system – essentially a co-op made up of other co-ops which in turn are owned by individuals. Green and yellow arrows show how the ownership and transactions flow from one party to the next. YOUR LOGO HERE

Centralized COOPERATIVE SYSTEM Individual Owners Multiple Branch Locations Local Branch Centralized Cooperative Voting, ownership, patronage Products purchased or marketed Under the centralized structure, there may be multiple locations, but the entire co-op is owned by individuals. YOUR LOGO HERE

hybrid COOPERATIVE SYSTEM Individual Owners Local Co-op Hybrid Local Co-Op Corporately Owned Voting, ownership, patronage Products purchased or marketed Corporate Owned There is also a hybrid model. It’s owned by both member cooperatives and their individual owners and directly by individuals who do business with corporately owned and operated cooperatives. The ownership, voting and patronage for each group varies somewhat. In a moment we’ll look at how the ownership breaks down between local co-ops and individual members. YOUR LOGO HERE

Local Co-op patronage Governed by the cooperative’s Board of Directors Earn patronage by doing business with cooperative Taxes paid by patron on total allocation Subject to individual’s tax bracket Equity payments vary Equity retirement by age of patron Equity retirement by year of purchase Each local board makes its own determination on how to return patronage and redeem equity to its owners, but this would be fairly typical: Decisions governed by the cooperative’s Board of Directors Members earn patronage by doing business with cooperative Taxes paid by patron on total allocation Subject to individual’s tax bracket Equity payments vary Equity retirement by age of patron Equity retirement by year of purchase YOUR LOGO HERE

Member benefits beyond patronage Dependable sources of supply and markets for products Democratic control in procuring and marketing products Market competition on local prices Improved farm management with expert advice Rural economic benefits So that’s a very basic summary of the cooperative business model. Agricultural cooperatives were originally formed so farmers could purchase their supplies at a lower cost, obtain a better price for their crops, and share in the profits from those efforts — and that’s still their mission today. Anybody who buys from a cooperative, or uses its marketing services, can be a member and “own” a part of the co-op. As a member, you benefit from the collective bargaining power of many farmers and ranchers. It’s as easy a A-B-C: A Business you own and Control. YOUR LOGO HERE

VALUEOFTHECO-OP.COM Learn more We encourage you to learn more about the cooperative system as a whole at the two websites shown on the screen. If you see something there that you would like to participate in, please talk to us. YOUR LOGO HERE