What is a Cooperative?
R. W. Sutton, Extension Ag. Economist

A cooperative is a business organization owned and controlled by the users who buy, sell, or obtain services for mutual benefit and who distribute benefits on the basis of use. Thus, an individual or single business can voluntarily own and control, in association with others and on a democratic basis, another business enterprise that will benefit them. And, this benefit is greater than that which they could accomplish singularly.

TYPES OF COOPERATIVES

In the past, most South Carolina cooperative activities have been farm or rural oriented to purchase supplies/needs (such as credit, feed, fertilizer, telephone or electric power) or market focused (such as cotton, grain, greenhouse plants, organic products or livestock.) Other cooperatives include fuel, transportation, processing, service, and insurance. Although farmers and rural residents are the most important co-op user group, cooperative activities encompass much more.

The general public uses cooperatives as follows: consumer groups for food, drugs, doctor services; credit unions; day care centers; mutual insurance companies; electric, telephone, and fuel services; hardware, general health care; housing developments; or any group of like or similar members such as low-income groups. Many different groups use cooperatives to help themselves for a variety of reasons.

REASONS FOR A COOPERATIVE

The broad objectives for forming or using a cooperative is usually similar to any other business. Some primary reasons for a co-op may be:

Many specific goals could be included as the real reason for a co-op, but nearly all refer back to the broad reasons. Some of these specific goals include: increasing user income; expanding markets (possibly not available locally); obtaining economies of scale; assuring a dependable supply source; capturing a market or supply unavailable otherwise; increasing level of competition for user products; furnishing specific community services; providing higher quality products and supplies (possibly not higher/lower prices but competitive); and, increasing control (success) of the users life or individual business.

Almost everyone agrees the first broad economic objective is the most important reason for a co-op or any business. However, a direct monetary advantage is not always evident. For example, rural electric cooperatives were formed because, at the time, no rural power source was available. In many instances, cooperatives provide most or all of the competition to other like business concerns; thus, improving competition often leads to monetary or service advantages for both members and non-users.

Also, many members take great pride in being part of a cooperative effort, according to past research. However, cooperatives cannot normally be maintained by non-monetary objectives. Like any successful business, cooperatives must use all possible good management practices.

HOW TO START A COOPERATIVE

A small group of like-minded people meet together and agree on their mutual need and a possible cooperative plan. Then they may consult with their local county Extension personnel, who probably has had more experience in this field. County Extension personnel also have access to people such as USDA, State Dept. of Agric. and Extension specialists, who will meet with the group, advise, and help plan a study of the proposal. Legal, technical and financial counsel is also important.

A survey or surveys to determine need and feasibility probably will be suggested. When the study is completed, these same advisers and others will help evaluate and determine the prospects for success. Frequently, a visit or tour to similar cooperatives will be helpful and can be arranged. From such a visit the group may get helpful information and advice. If it is determined that a real need exists and that there is a reasonably good chance for the proposed cooperative to succeed, a plan of organization is prepared. Then membership and funds are solicited. Competent legal advice should be obtained for the organization papers and other necessary legal matters.

WHO SUPPLIES THE INITIAL FUNDS?

Those members themselves who need and want the cooperative must provide the initial money for facilities and operating capital. In most cases a uniform membership fee is required of all who wish to join. Sometimes a plan is agreed upon in which interested producers invest in proportion to their expected use. A supplemental plan may also offer investment opportunities to members and others. However, these preferred investments are limited as to returns or interest and generally carry no additional vote or voice.

After the prospective members have raised all the funds possible, then cooperative banks and other credit groups will usually extend financial assistance and supervision if the plan is sound and has a reasonable chance to succeed. These loans often are of three types: (1) facility, (2) operating, and (3) commodity (storage) and are tailored to the cooperative's needs and ability to repay.

The board of elected directors make administrative policy; management carries out these policies and is in charge of all employees and daily operations. Each member receives or pays the same prices; like any other business, a cooperative may base prices on quality, quantity or other characteristics. However, these are predetermined, known and available to every member. Patronage refunds are on the basis of use or volume of business.

Non-members may or may not be treated the same as members, depending on policy and compliance with income tax regulations.

Members have an annual meeting at which a financial report is presented for the preceding operating year or period, management policies are discussed, and vacancies on the board of directors are filled. Patronage refunds are often distributed at this time, according to the directors' best judgement and approval.

Any savings kept for operation or expansion is usually evidenced by credits or certificates which will be redeemed in cash when the association has sufficient funds. This procedure is usually necessary because the need for expanding services exceeds the rate of membership investment, and this is the least painful method of providing the necessary funds. Members moving away or becoming non-eligible may redeem their investment in the association according to the cooperative Marketing Act and the bylaws.

A cooperative form of business is very adaptable and functional for most any situation. Although distinctive in structure, co-op's may be organized in a variety of ways and can be a highly successful business extension of a group of like-minded individuals or businesses.