Allied Grape Growers, All rights reserved.

An autonomous association of persons who voluntarily cooperate for their mutual and economic benefit. A farm, business, or other organization that is owned and run jointly by its members, who share the profits or benefits.

Allied Grape Growers, All rights reserved. The act authorized various kinds of agricultural producers to form voluntary co-operative associations for purposes of producing, handling and marketing farm products - that is, it exempted such associations from the application of the antitrust laws. The United States Secretary of Agriculture has the authority to prevent such associations from achieving and maintaining monopolies. He may hold hearings, determine facts and issue orders, ultimately subject to review by federal district courts.

Allied Grape Growers, All rights reserved. Agricultural cooperatives are organized to help farmers gain market power by joining together to market their crops, increase their bargaining power by achieving economies of scale, processing their commodity to add value, and/or to purchase supplies and services. Benefits and profits gained from the cooperative are distributed equitably to member- farmers on the basis of use of the cooperative.

Allied Grape Growers, All rights reserved. Processing and/or marketing (bargaining), supply, and service cooperatives are the most common types of agricultural cooperatives in the United States. Processing cooperatives assemble, pack, process, and sell members’ products in both domestic and foreign markets. By joining together, producer members are assured a “home for their product,” and don’t have to be concerned with securing markets individually. Marketing cooperatives sell members’ products (in raw form) into various markets for processing. By joining together, producer members don’t have to be concerned with securing markets individually and can leverage the power associated with volume to effectively market their product or bargain for a collective price.

Allied Grape Growers, All rights reserved. They are democratically controlled by the farmers who own and use the business. Members elect a board of directors that sets the overall operating policies, approves the annual budget, and oversees professional management. Professional management implements policies established by the board and handles day-to-day operations.

Allied Grape Growers, All rights reserved. Cooperatives are user-owned and user-controlled businesses and many of their products have been mainstream items on super-market shelves for more than a century. California has approximately 200 agricultural cooperatives and there are more than 4,000 nationwide.

Allied Grape Growers, All rights reserved. Sun-Maid (Raisins) Blue Diamond (Almonds) Land O’Lakes (Dairy) Welch’s (Grape Juice) Ocean Spray (Fruit Juice – Cranberry)

Allied Grape Growers, All rights reserved. Federal tax law recognizes that cooperatives provide patron benefits instead of profits to investors, and that their residual earnings are passed through to patrons. These earnings typically are taxed once, at the patron level. Federal tax code also grants tax exemptions to certain cooperatives operating in specific sectors, treating them as not-for-profit entities. Mutual utilities, credit unions, mutual insurance companies, farm credit organizations, and some farmer cooperatives are examples of cooperative sectors that receive federal tax-exempt designations.

Allied Grape Growers, All rights reserved. For-profit cooperative corporations are given special treatment with respect to federal taxation. Although they are generally taxed as normal corporations, they can reduce their tax exposure by issuing what are known as “patronage dividends” to patrons of the cooperative. A “patronage dividend” is essentially a refund issued to those who purchase goods or services from a cooperative, and is calculated based upon the amount that each patron spends at the cooperative in a given taxable year. 26 U.S.C. § 1388(a). When filing its federal tax returns, a cooperative may deduct the amount of the patronage dividends that it issues in a particular tax year from its gross income in that year. 26 U.S.C. § 1382(b). As a result, this income is not taxed at the corporate level.

Allied Grape Growers, All rights reserved. “Patronage dividends” are distinct from the more familiar “stock dividends” that a corporation pays to its shareholders in an amount proportional to their respective ownership of the corporation. The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. This creates a double tax. The corporation does not get a tax deduction when it distributes dividends to shareholders. Shareholders cannot deduct any loss of the corporation.

Allied Grape Growers, All rights reserved. Allied Grape Growers is a grape marketing cooperative that believes there is strength, efficiency and benefit in numbers. A marketing cooperative can utilize its size/strength/scope to negotiate grape contracts and maintain grower/vintner relationships.

Allied Grape Growers, All rights reserved. Pool marketing Vineyard Specific marketing (Direct contract) Wine marketing (Bulk wine)

Allied Grape Growers, All rights reserved. We don’t “buy” grapes. We don’t “guarantee” a market for grapes where there is no market. We don’t spend time and resources on grapes that are not signed into membership. We don’t represent interests other than the grower’s or the co-op’s as a whole.

Allied Grape Growers, All rights reserved. The cooperative has title to the grower’s grapes for marketing purposes. The relationship is a mutual commitment between the co-op and the grower that grapes will be contracted through the co-op

Allied Grape Growers, All rights reserved. Obtaining Capital through Investors/Members Cooperatives may suffer from slower cash flow since a member's incentive to contribute depends on how much they use the cooperative's services and products. Lack of Membership and Participation If members do not fully participate and perform their duties, whether it be voting or carrying out daily operations, then the business cannot operate at full capacity. If a lack of participation becomes an ongoing issue for a cooperative, it could risk losing members.

Allied Grape Growers, All rights reserved. Example (assuming $100,000,000 in sales): – $100,000,000 X’s member’s 2% = $2,000,000 in co-op revenue – $100,000,000 X’s winery’s 1% = $1,000,000 in co-op revenue – $250,000 interest earned on equity balance in the bank – Total of $3,250,000 in co-op revenue – Assume $1,250,000 in expenses (employee salaries & benefits, autos, rent, etc.) – $2,000,000 in profit (this amount allocated back to the members) – This $2,000,000 is placed in the equity fund and will be revolved out in the future. – Each year, with Board approval, equity payments (dividends) are paid to co-op members of past years who contributed to the equity fund via their membership – Equity fund is made up of a composite of profit from multiple crop years

Allied Grape Growers, All rights reserved. Full-time, year round field staff – Viticulture consulting – Market updates and information Facilitate & negotiate “other” marketing alternatives Group discounts on products/services Grape sales are administered through one entity, even if there are multiple buyers of the grapes Other financial benefits: – Harvest advances upon request – Deferred payment ability – Quick crop payment (30 days)

Allied Grape Growers, All rights reserved.