Cooperatives in the food industry Types of cooperatives History and status Relative importance Coop problems

What is a cooperative a business voluntarily owned and controlled by its member-patrons and operated for them on a nonprofit or cost basis.

Cooperatives Legal entity that permits group action Set up to serve and benefit those that use them Stockholders are members

Requirements of a coop Ownership and control of the enterprise must be in the hands of those who utilize its services.

Requirements of a coop Business operations shall be conducted so as to approach a cost basis

Requirements of a coop Return on the owner’s invested capital shall be limited.

Coop v. Stockholder owned Cooperative One member - one vote Coop returns go to the users Stockholder owned Stockholders vote by shares owned Firms maximize return to stockholders

Purpose of coops Do what you can’t do alone Act as a competitive yardstick

Purpose of coops Provide products Stabilize expanding markets Allow farmers to move up and down the food chain

Purpose of coops Enhance returns Reduce cost Increased efficiency Improved market coordination Greater bargaining power Reduce cost

What coops cannot do Set price without supply control Eliminate middlemen Ignore customer/member Membership is voluntary

Types of cooperatives Marketing Purchasing Service Processing

Marketing coop Perform marketing functions assembly, grading, packaging 36% of farm receipts in 1995 Milk 100% Grain 41% Fruit and veg 37% Livestock 9%

Purchasing cooperatives Sell inputs to farmers 28% of farm expenditures, 1995 Petroleum 48% Fertilizer 42% Feed 21% Seed 11%

Service cooperatives Common in the 1930-40s Provide what may not otherwise be provided REC Telephones Farm Credit

Processing cooperatives Farmer owned vertical integration Sunkist oranges, Ocean-Spray Sun-Maid raisins, LOL dairy products Farmland meats US Premium Beef Iowa Quality Beef Iowa Premium Pork

Consumer cooperatives Many of the same motivations Cost savings Provide what wouldn’t otherwise exist Control the input Examples Food (organic), housing, daycare

Problems of coops Issues of control Financing Vote by member or volume Leadership Financing Can’t sell more shares

Reasons for coop failure Lack of sufficient capital Less than efficient size adds to cost Inadequate membership support Variability in volume Ineffective management Competitive market for managers

New Age Closed Coop Limited membership Investment and commitment Cash and product Stock appreciates in value Can be sold

Value added processor Members buy shares to raise equity Members required to make or take delivery Paid the current market price Profits paid on a unit basis

New Age cooperatives Value added closed coops Ethanol production Turkey processor Pork production Ethanol and beef Eggs

New Age Closed Coop Advantage over open coop Disadvantage to open coop Stock retains value Dividends not diluted Disadvantage to open coop Must patronize Higher equity requirement