Business Models for Marketing Agricultural Products

Lots of Names Corporation LLC Cooperative Association

Comes Down to Choices What will it do? Who will control or own it? How will decisions be made? How do the profits or surplus earnings get distributed? How will it pay taxes?

LLC vs. Cooperative Both allow control by producer owners Both allow for profits to be passed through without being taxed. Both offer members reduced risk or liability shield. Both have to cover their costs.

Features of LLCs Owned by members – based on investment. Profits are distributed in proportion to their investment. Voting is proportional to level of investment. Can be managed by members or by a professional management team.

Features of Co-ops Democratic – one member one vote Benefits proportional to use - not investment Operate at cost – surplus earnings to members Voluntary and open membership Typically co-ops raise capital more slowly.

Retained Earnings Keep part of the surplus – slow growth Sales price = $6.00 Cost of sales (tax, labor, supplies) =$1.50 Fixed Costs = $ 2.50 Surplus = $2.00 Paid in cash - $1.50 Kept in retained earnings - $.50

Retained earnings $50,000 to cover expansion Retain $.50 per dozen Need 100,000 dozen to raise the funds Five years at current production level

New Generation Model Capital is raised up front by selling shares that are linked to right to deliver. –Member with more money to invest has to have more production to process. Retained earnings are usually lower Still not possible to raise money from outside investors. -Interest payments are capped. -Governance normally remains one vote per member. -Benefits accrue in proportion to use rather than investment.

Comparison Current Each member invests the same amount Each member can deliver as much as they can produce One vote per person Raise money through retained earnings New Generation Members buy access to production capacity Specific mutual obligations – co-op will buy and member will deliver One vote per member Raise money by selling access to processing capacity

How NGC would raise $50K Sell $50K worth of stock to members. Determine the amount of deliveries that will be linked to each share. Can/will members be willing to spend this much money to buy shares of production capacity? Not like an LLC where you can sell shares to investors who do not produce.

Issues Can selling production shares raise enough money? Will members be willing to pay for capacity? Is the co-op’s processing capacity limited? Does the co-op have markets? – Can it cover its costs??

Advantages of Cooperatives Co-ops are part of a community of likeminded businesses, Co-ops can be an effective grassroots organization Co-ops receive a favorable treatment by government,

Disadvantages of Co-ops Coops depend on their member/owners to generate business Cooperation may not come easily to your group It is harder to raise capital Co-op can be distracted from its basic business

Places to look for more information National Coop Organizations National Cooperative Business Associationhttp:// Cooperative Development Institutehttp:// Cooperative Development Serviceshttp:// Cooperative Development Funds Cooperative Development Fundhttps:// Blooming Prairie Foundationhttp://

Andrew Crow Alaska Cooperative Development Program Tel: