1. Gary Halvorson Senior Vice-President Agronomy
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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

2. 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.
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3. 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.
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4. 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.
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5. 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.
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6. 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.
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7. 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.
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8. 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.
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9. 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
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10. 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.
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11. 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.
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