1. Cooperative Business Structures Dr. Gary Brester
Dept. of Agricultural Economics and Economics
Montana State University
AGBE 445
Bozeman, MT 1
Brester: The Future of Montana Agriculture
Brester: Cattle CycleBrester: The Future of Montana Agriculture 1

2. OUTLINE 1. Firm Ownership Structures User/Owner Firms
Scope of Cooperatives
Economic Rationale
Issues Facing Cooperatives

3. Firm Ownership Structures
Firms are owned by people
Some people own firms for investment purposes
Some people own firms for personal reasons
Of course, some firms are owned by other firms
Firms may be publically-owned
Other firms are privately held
And, some firms are owned by those who also use the services of the firm

4. OUTLINE 1. Firm Ownership Structures User/Owner Firms
Scope of Cooperatives
Economic Rationale
Issues Facing Cooperatives

5. Rochdale Principles
Set of ideals (seven) for cooperative businesses established in Rochdale UK, 1844
Summary of general principles:
User-Owned
Goal is proportional to use
User-Controlled
Board of Directors consists of users/members
Not proportional in general
User-Benefits
Profits distributed to users based on proportionality of use
Lower (higher) prices for services (goods)

6. User/Owner Firms Fraternal Organizations Serve a communal objective
Devote net earnings exclusively to a cause such as a charity, religious organization, or educational group
Must have a fraternal purpose

7. User/Owner Firms Fraternal Organizations (continued)
Operate under a lodge system
Parent organization
Subordinate lodges or branches
Examples include
Thrivent Financial
Knights of Columbus
Sons of Norway

8. User/Owner Firms Mutual Companies Designed to meet needs of members
Need to be profitable for continued sustainability
May have additional purposes beyond profit maximization
Do not usually obtain capital from members through direct investment
Do not have external shareholders

9. User/Owner Firms Mutual Companies (continued)
Services that are unique to a group
For example, the insurance needs of rural communities
Examples
Mountain West Farm Bureau Mutual Insurance Company
Liberty Mutual

10. Cooperatives Rural Electric/Telephone Cooperatives
Financial Cooperatives
Open Cooperatives
Closed (New Generation) Cooperatives
Non-Traditional Cooperative Structures

11. Cooperatives 1. Rural Electric/Telephone Cooperatives
Public utility cooperatives that developed infrastructure especially in rural areas
Rural electric cooperatives established by the New Deal
Telephone cooperatives established in 1951
Profits are re-invested or distributed as patronage

12. Cooperatives 2. Financial Cooperatives
Cooperatives developed to provide financial services to members
Often developed to meet specific needs of their members
Usually serve a specific group
Montana Educators Credit Union
Northwest Farm Credit Services

13. Cooperatives 3. Open Cooperatives
Members/owners result from business patronage
Member investment is not required
Profits are allocated to members based on patronage
A variety of mechanisms are used to return equity to members
Corporate income taxes can be avoided if profits are distributed in a specified manner
Example: Town & Country Supply

14. Cooperatives 4. Closed (New Generation) Cooperatives
Members/owners are based on equity investments
Share investments provide a right and an obligation to participate
Profits are distributed through patronage returns
Working capital is often accumulated through unit retains
Shares can be traded to other users
Share values change
Example: Western Sugar Cooperative

15. Cooperatives 5. Non-Traditional Cooperative Structures
Cooperatives have become creative in finding ways to acquire equity capital from non-members
Preferred stock represents non-voting rights to profits
Limited Liability Corporations have been bundled (blurred?) in co-ownership arrangements
Joint ventures provide another alternative
Example: Wyoming Sugar Co. LLC

16. OUTLINE 1. Firm Ownership Structures User/Owner Firms
Scope of Cooperatives
Economic Rationale
Issues Facing Cooperatives

17. Scope and Scale

18. Scope and Scale National Rural Electric Cooperatives
911 Electric utilities
$97 Billion in assets
$34 Billion in sales revenue
Montana Rural Electric Cooperatives
24 Electric utility companies
155,650 member/owners
3 billion kWh per year
22% of Montana total electricity

19. Scope and Scale
Montana Oil Refining Capacities

20. OUTLINE 1. Firm Ownership Structures User/Owner Firms
Scope of Cooperatives
Economic Rationale of Cooperatives
Issues Facing Cooperatives

21. Cooperative Rationale
Competitive yardstick
Market access
Pooling risk
Participation in value creation
Investments in upstream and downstream business activity
Reduce transactions costs
Improve quality

22. OUTLINE 1. Firm Ownership Structures User/Owner Firms
Scope of Cooperatives
Economic Rationale
Issues Facing Cooperatives

23. Cooperative Issues Capital acquisition Equity management
Corporate/Personal income taxes
Strategic business management
Director recruitment and development
Management development
Cooperative education
Public education
Student education
Employee education

24. QUESTIONS Price Outlook: Brester
Brester: The Future of Montana Agriculture
Brester: Cattle CycleBrester: The Future of Montana Agriculture 24