United States Geographic Territory Served Department of exist in nearly Cooperatives can differ in structure, Agriculture every sector and are depending on the size of the area served: local, super local, regional, interregional Rural organized in a variety of ways. or national, and international, Development Like other in our Local cooperatives operate in a relative- Administration ly small geographic area, typically within a economy, they range in size from radius of 10 to 30 miles. Individuals are with only a few the members of these local cooperatives. Services Super local cooperatives operate over member-owners to massive and two or more counties, with several October 1994 complex organizations with thou- branch facilities. A regional cooperative usually serves developed by sands.of member-owners. The an area comprising a number of counties, Tamm y M, Meyer way a cooperative is organized an entire State, or a number of States. Cooperative Interregional or national cooperatives determines how it is operated, are organized, owned, and controlled by Specialist managed, and controlled by its regional cooperatives, usually to provide specific services. They may serve a major members, and the types of bene- portion or virtually all of the United States. fits offered. International cooperatives operate on an international basis, with headquarters in the United States or other countries.

Cooperative structure can be classified Governance or Control into five types as follows: geographic, Structures governance, functions, financial, and Based on membership structure, cooper- other arrangements. Each will be defined atives can be classified as centralized, and discussed in this circular. federated, or mixed. A local cooperative is a centralized cooperative - individual producers make up the membership. A centralized region- al may serve members in a large geographical area, such as a major por- tion of all of an entire State or all or parts of several States. A centralized regional has one central office, one board of direc- tors, and a manager (chief executive offi- cer) who supervises the entire operations, which may be conducted through several or many branch offices. 1 ...... A federated cooperative is a coopera- Marketing Based on member- tive of cooperatives. The members of a The need to meet consumer demands ship structure, federated cooperative are local coopera- and expand markets for products tives, operated by a manager hired by and presents an increasing problem for farm- cooperatives can be responsible to local boards of directors. ers acting independently. Few farmers produce in quantities needed to deal classified as central- Each local association in a federated coop- erative is a separate business entity that directly with large wholesalers or - ized, federated, or owns a membership share entitling it to ers. The marketing cooperatives as quan- mixed. voting rights in the affairs of the regional. tity assemblers provide an increasing The federated cooperative has its own variety of off-farm processing and mar- ...... hired and staff, and a board keting services for about one-fourth of all of directors elected by and representing products that farmers produce. the local associations. Marketing cooperatives help farmers A mixed cooperative is a combination produce and process quality products to of the two -their members may be market specification. Cooperative market- individual producers as well as local ing includes the operation of grain eleva- cooperatives. tors, milk plants, wool pools, cotton gins, livestock markets, vegetable markets, and Functions Performed fruit packing plants. Some marketing Cooperatives may perform one or more cooperatives include the coordination of of these functions for members: processing, canning, drying, blending, + marketing products, concentrating, extracting, freezing, or Centralized + purchasing supplies, and consumer packaging of animal and ani- + providing services. mal products, such as dairy, fish, meat, and poultry and the same for fruit, nut, and vegetable products, and many other products in integrated organizations. Marketing cooperatives enable farmer- members to extend control of their prod- ucts as long as the cooperative retains mpJ@ physical or legal title to a handled through processing, distribution, Federated and sale. Some marketing cooperatives also can be called bargaining associations, which may not handle the actual product but rather act as the selling agent on behalf of the member. COOPERATIVE Purchasing Farmers first turned to cooperatives as economic tools to gain advantage of quality and quantity of farm production Mixed supplies such as feed, fuel, fertilizer, and seed. These early efforts often became . . . . businesses having full-time managers vices related to handling farm supplies and warehouses to handle other produc- are recommending and applying fertilizer, The cooperative can lime, or pesticides; animal feed process- tion supplies and services such as farm be most effective by chemicals, animal health products, fenc- ing; and crop harvesting. General service ing, building supplies, construction con- cooperatives provide a number of spe- serving its members tracting, automotive accessories, etc. cialized services assisting farmers in their needs. Most cooperatives have affiliated with business such as credit, electricity, and ...... other cooperatives, often through region- telephone service. al and interregional cooperatives. These efforts reduce farmer costs and strength- Financial en purchasing power through owning Cooperatives are incorporated as either large-scale facilities such as petroleum stock or nonstock organizations. The type refineries; phosphate, potash, and nitro- of capital structure is specified in the arti- gen plants; feed mills; cles of . research farms; and laboratories. If the association is a capital stock One of a purchasing cooperative’s , members receive stock cer- objectives is to reduce production costs tificates as evidence of their ownership for members through quantity purchas- interest. More than one type of stock may ing, manufacturing, and distributing, be issued, but usually no more than two procuring quality products, and providing types are necessary. Most stock coopera- related services as needed. Distribution tives issue one share of to producer members is a major per member to show membership. Pre- at the local level because added services ferred stock is issued to show additional are needed. Another objective is to pro- capital contributions. (Common stock is vide a dependable supply of quality prod- usually the voting stock; ucts for members. is generally nonvoting.) Many cooperatives now perform both If the association is a nonstock organi- marketing and purchasing functions, zation, it issues some kind of certificate to although they started as single-function show capital contributions of members. organizations. Two types are usually used - a member- ship certificate as written proof of the Service right to vote and capital certificates in a Agricultural service cooperatives provide manner similar to the way stock coopera- services related to the production and tives use preferred stock. marketing of farm , or they may provide general services. Other Structural Related service cooperatives offer Arrangements unlimited possibilities and are used in ever-widening circles to solve mutual problems and provide specialized A organized, owned, and services that affect the location, form, or controlled either totally or partially by a quality of farm products or supplies for parent cooperative. Its purpose is to members. Services may be part of the assume certain duties and functions of operation, or they may be performed by the parent cooperative. separate cooperatives. Examples of ser- Marketing Agency-in-Common Agent Organized by two or more marketing A county or community cooperative may cooperatives to market products or pro- organize, owning nothing but vide services for member cooperatives. It and paying only the money to hire an does not physically handle products, and agent to handle the goods and keep it generally does not take title to them. Its patronage records. The cooperative then sole responsibility is to arrange for the pays patronage refunds on the basis of sale of its members’ products. the agent’s records.

Joint Venture Private Dealers An association of two or more The dealer, as a franchise, keeps records. participants, persons, , cor- If the franchiser cooperative makes porations, or cooperatives to carry on a money and pays patronage refunds, specific economic operation, enterprise, these go to the dealer’s customers and or venture. The identities of these partici- the dealer is paid a commission on sales. pants remain separate from their owner- ship or participation in the venture. Conclusion Cooperatives are classified as a way to Holding easily identify the nature of the business. A corporate entity with a controlling own- The classifications do not mean that one ership in one or more operating compa- type may necessarily be better or worse nies. The degree of ownership can vary than another. It simply means that there widely, as long as the are distinguishing differences among the can exercise control through the operat- types, and shows the wide variety of ing company’s . Usually cooperatives and the differences in their the holding company generates no rev- operations, management, control, etc. enues from operations; income is limited What is important for cooperative mem- to returns from investments in the operat- bers to understand about cooperative ing . structure and their own organization is: + what type of cooperative it is; + how it is structured; and + how the cooperative, whatever classifi- cation it might be, can be most effec- tively used by its members for serving their needs and achieving objectives.

This circular is one in s continuing series that provides training information and presentations for education resource persons who may or may not be familiar with the cooperative form of business. This series provides the basic background material they need, in s form that csn be readily adapted, with limited preparation time, to s lecture or other presentation. For s complete listing of the series, write to RDA-Cooperative Services, U. S. Department of Agriculture, Education and Member Rela- tions Program Area, Ag Box 3253, Washington, DC 20250-3253.

The United States Department of Agriculture (USDA) prohibits discrimination in its programs on the basis of rsce, color, national origin, sex, religion, age, disability, political beliefs and marital or familial status. (Not all prohibited bases apply to sll programs.) Persons with disabilities who require alternative means for communication of program information (braille, large print, audiotape, etc.) should contact the USDA Office of Communications at (202) 720-5881 (voice) or (202) 720-7808 (TDD). To file s complaint, write the Secretary of Agriculture, U.S. Department of Agriculture, Washington, D.C., 20250, or call (202) 720-7327 (voice1 or (202) 720-1127 (TDD). USDA is sn equal employment opportunity employer.

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