NEW GENERATION COOPERATIVES
R.W. Sutton, Extension Ag. Economist

The popularity of "new generation" cooperatives has recently amplified cooperative development and increased examination of possibilities. The exact meaning of this term may vary slightly from application to application but there are several consistencies between these types of cooperatives.

First, this is a "new" endeavor and is more appealing than to be described as an "old" or "traditional style" cooperative. This "new" qualification may also mean the forming group does not limit its fundamental structure to all of the conventional cooperative rules. Many groups want to be innovative in their development. One possible fundamental change is the use of outside investor stock. Because of the nature of many of these new generation co-ops, there is a large capital requirement for the business. Thus, due to necessity, some groups have turned to outside investors. However, cooperative theorists may argue this is technically not a cooperative. Regardless, success is still measured the same and the users/patrons are satisfied.

Most of these cooperatives also have very specific objectives. Many traditional co-ops are built on broad, all-encompassing goals whereas these new generation entities are focused on one or a few goals and normally have an excellent business plan. Largely because of this, members are highly involved and more obligated to the cooperative.

Member commitment is another important concept. This is usually in the form of a high requirement of member-investor capital (sometimes called delivery rights.) It also means that potential members with limited or low assets find it financially more difficult to join. Past research has shown that new generation members tend to be younger, better educated and control higher assets. In a sense, this is a restrictive barrier to membership. Many new generation co-ops state that their membership is closed; this is often because they have precise long-term marketing plans and volume stability is necessary. In a sense, this violates the first principle of cooperatives. Of the seven principles generally stated in the literature, the first is "Cooperatives are voluntary organizations, open to all persons able to use their services and willing to accept the responsibilities of membership, without discrimination." This is a noble principle, but one that could be in direct conflict with long-term planning, especially in a highly capitalized entity. Does an ongoing business have a primary obligation to the prosperity of the active members?

Each member essentially holds a specific quantity of "delivery rights." They are obligated to delivery this quantity (and quality) each specified period. Due to restricted membership, delivery rights may be traded and this is the mechanism to keep membership active and volume controlled. Therefore, expansion may be tied to the increase in delivery rights and may require additional investment if delivery rights are increased or may necessitate new membership.

Many new generation co-ops have found creative but sound financial methods for members to benefit while building the necessary capital base. This may be some form of backward integration into the member (farm) business with breeding stock or seed varieties. This could well be more than a capital building function. It may be a major part of the marketing plan that is critical to any cooperative. For co-ops, the uniformity of quality, scheduling of production or marketing and coordination is paramount. Generally, a major reason for a new generation co-op is the "value-added" concept. This may or may not be directly related to end-product food or fiber processing. It may be the first few marketing steps for a commodity but it definitely is "value-added." The value-added concept fits well with the general structure of today's agriculture and business and with the present farm programs. It also tends to lend itself well with certain affiliations with other companies.

New generation co-ops may sometimes be called "contract co-ops" although this is not universal. Member commitment is fundamental, whether through contracts or not. Some of these co-ops have publicly denounced contracts and feel the front-end member investment or delivery right concept is sufficient commitment. Contracts may advocate the concept that the member and cooperative are separate and non-trusting. Other cooperatives have absolutely no problem with tightly tied contracts and may even advertise the fact they are a contract co-op.

Most fundamental cooperative principles are still the cornerstone of these new entities. The three major identifying co-op rules are: (1) they embrace the one member one vote concept; (2) the business is owned and controlled by those who use it; and, (3) earnings are based on the members proportion of usage.

Dennis Johnson (St. Paul Bank for Co-ops) did an excellent job of identifying some characteristics of these types of successful cooperatives. They are:

What are some of the specific problems/challenges with new generation entities? The biggest issue might be adjusting to long-term structural changes. Because of the specialization and precision of the objectives, this could become an issue if the co-op needs to make major changes or diversify. It may also complicate certain affiliations such as joint ventures. Some co-ops may find that dealing long-term with the outside capital stock investors could prove complex. Whatever the difficult issues, it appears that most new generation cooperatives have many more advantages than problems.

In summary, new generation co-ops have generally embraced specific important principles of traditional cooperatives and added innovative structural modifications that fit well with today's farm and business trends. It seems that most of these new generation cooperatives will long outlast the first word in their identification.