Agriculture Reference
In-Depth Information
Cooperatives are a very important part of the agribusiness industry. Approximately
one-third of all grain and nearly 80 percent of milk is marketed through cooperatives. From
an input supply standpoint, nearly one-half of farmer purchases of petroleum, 40 percent of
fertilizer purchases, one-third of farm chemicals and nearly 20 percent of livestock feed is
purchased through a cooperative. Cooperatives provide almost one-third of all agricultural
credit. Because of the importance of agricultural cooperatives, the discussion below
goes into a bit more depth about cooperatives than the other business forms covered in this
chapter.
Characteristics of food and agricultural cooperatives
Cooperatives resemble other forms of business in some ways. They must follow sound busi-
ness practices and may perform similar functions. Cooperatives have facilities to maintain,
employees to hire, advertising to develop, and so forth. There are bylaws, policies, and
activities that must be performed to carry out the business at hand. Ultimately, cooperatives
must generate a return (member benefi ts plus direct fi nancial returns) on the investment of
their members, which justifi es continued membership in the cooperative.
But, in some ways, cooperatives are distinctly different from other businesses. The own-
ership structure, the way they are controlled, their purpose and how benefi ts are shared or
distributed are unique to cooperatives and how they operate. Three specifi c features deline-
ate cooperatives from non-cooperative businesses:
•
Member owned, member controlled
•
Operation at cost
•
Limited returns on capital
Member owned, member controlled
A fundamental principle undergirding cooperatives is that they must be owned and control-
led by the people who conduct business with them. It is imperative that cooperatives main-
tain their orientation toward servicing those who patronize them. And there is no better
way to ensure this than to require that active patron-members—who are also owners of the
business — control the cooperative.
Originally, and even today in most cooperatives, this requirement meant one vote
for each active patron-member regardless of how much business that member transacts
with the cooperative or how much stock the individual member may have accumulated.
Democratic control has gained almost universal acceptance as a basic cooperative
principle.
Member control of cooperatives is executed through a
board of directors
, which is
selected in open elections from the ranks of active members. The board takes on the
responsibilities of sensing and representing the best interests of all members, setting
overall policy, hiring and directing top management, and monitoring the cooperative's
performance in achieving its objectives. However, some highly critical decisions involving
such issues as mergers or large investments may be taken directly to the membership
for a vote. This contrasts with a non-cooperative business, where the owners, whose number
of votes is determined individually by the amount of stock they own, elect the directors.
Consequently, most board members are stockholders with relatively large ownership
interests.
