Monday, March 8, 2010


Cooperatives have had impact around the world. I taught the principle in high school all of my career. Each year we would have a competition between FFA Chapters to see which students had learned the most about their cooperative study.

There are four very basic ways of operating a business:



company or corporation


The cooperative as a modern business structure originated in 19th century Britain. The Industrial Revolution had a profound effect on the way business was organized and on the working conditions and economic situations of many people. In response to the depressed economic conditions brought forth by industrialization, some people began to form cooperative businesses to meet their needs. Among them was a group of 28 workers who were dissatisfied with the merchants in their community.

They formed a consumer cooperative known as the Rochdale Society of Equitable Pioneers in 1844. They began by opening a cooperative store that sold items such as flour and sugar to members, and the Society quickly grew to include other enterprises. The founders also established a unique combination of written policies that governed the affairs of the cooperative. Among these rules were: democratic control of members, payment of limited interest on capital, and net margins distributed to members according to level of patronage. Based on its success, the Rochdale set of policies soon became a model for other cooperative endeavors, and became known as the general principles that make a cooperative unique from other business structures.

Co-ops as farmers call them here quickly became established in America. I don't know where the first was but I know our family did business with supply cooperatives. The Capper Volstead Act was important in the formation of agricultural cooperatives today.

Now as a farmer I do business with a supply co-op and they bid on my grain as a marketing cooperative. One complaint of modern co-ops is they have gotten huge to stay in business and some farmers think it is due to their inefficieny.

Here is a list of possible reasons for success or failure.

Why Cooperatives Fail
poor selection of directors, especially those who fail to support their cooperative

members who join but never use their cooperative and bypass it for a small gain elsewhere

members who use cooperatives but fail to take responsibility. Each member must be ready to accept responsibility when asked, or as the need arises. Every member should have an equal opportunity to be president of the cooperative.

members who never ask questions and who let a few persons make policy
members who don't attend annual meetings and directors who fail to attend board meetings
lack of consistent membership education about the problems cooperatives face and the challenges they must meet

not supporting the cooperative with enough money (risk capital) to get the job done
low-cost management - it's the most expensive item for a cooperative. High-priced management is usually the least expensive item.

not closely watching the formation of cliques and special interest groups within the cooperative
concealing facts about a cooperative. All facts, both good and bad, should be placed on - not under - the table.

errors in financial policy, such as over-extension of credit, too little capital, poor accounting records, lack of a financially sound, systematic program for reimbursement of equity
errors in educational and social work. This begins by failing to teach cooperative ideals to members unfamiliar with how cooperatives function, neglecting general educational programs, failure to develop member loyalty or countering the development of factions within the association.

management errors, such as inadequate inventory, poor location, improper equipment, neglected appearance of physical facilities, employee dishonesty, ineffective management, incompetent directors, nepotism, poorly conducted meetings, admittance of disloyal and dissatisfied members.

Why Cooperatives Thrive
providing only the goods and services members use

financed by the members. The greater the financing (risk capital) supplied by the members, the more efficient the cooperative.

using all major fixed assets at the 75 percent level, or more

members who do the majority of their business with the cooperative

low administrative and overhead costs

more individualized and specialized services, particularly in the marketing area

maintaining an open line of communication with members. Individual members will then become more influential

selecting and developing a quality management team.

placing more emphasis on electing business-oriented directors

developing and implementing a systematic method of cooperative education for members, employees, directors and paid management

aggressively positioning for changes in operations, markets and member needs.

It looks to me like the cooperative principle has a better chance with strong local control. I think that may have left a long time ago.



  1. As you know, a handful of us touched on this subject on Ralph Goff's blog, "Mindless Ramblings", the other day. I'm glad you did this post, I found it interesting, since co-ops are a thing of the past in my area anymore.

  2. Or the co-op eventually turns into a bureaucracy which on exists to promote itself.
    Or instead of a lot of small and medium sized farmers and a few big farmers banding together to increase their buying and selling power you have a few small farmers dominated by a few huge farms that have more money than the co-op and they use the co-op as an extension of their operating loan...
    Our sort of local co-op was buying wheat from a neighbor. I was planting and found morning glory seeds in the kind of shriveled wheat. I called the neighbor to politely ask what was up as his wheat is always perfect. I think I asked him if Wilco was buying wheat somewhere else. They were... and it was crap. A buying decision was made in the bureaucracy which saved pennies for the company but cost individual members dollars.

  3. So would you deal with this co-op situation you describe or not? Sometimes there are little option.