Cooperatives in the American Economyi ~U~M

Q_, I Agricultural Extension Service Extension Folder 419-Revised 1981 University of Minnesota The Role of Cooperatives in the American EconomYi ~u~M DEC 14-- 1981 by Reynold Dahl, extension economist, marketing In recent years many questions The second kind of business Stockholders (the owners) in have been raised about firm, the partnership, consists of corporations have limited liability. cooperatives and their role in our two or more persons jointly They risk only the amount they economy by those who do not owning and carrying on a business. have invested in stock purchases. understand what cooperatives are Partners generally share in the This is not the case in a or how they operate. Let's look at responsibility of financing, proprietorship or a partnership cooperatives and their role in the managing, and operating the where there are unlimited liabilities. American private enterprise system. business firm. Many law and Many of our largest business firms In exploring cooperatives we accounting firms, for example, are in the United States are regular will seek to discover how they organized as partnerships. corporations. differ from other forms of business Corporations, the third kind of Cooperative corporations are organization in our economy, if business firm, can be broken into like regular corporations in that the they are private enterprises, two types, regular corporations and shareholders have limited liability. whether they pay taxes, the sectors cooperative corporations. They differ from regular of our economy in which corporations in the following three cooperatives are located, their respects, however. importance to the economy, and • Member-patrons exercise control the economic contributions in a more democratic way in a cooperatives make to farmers and cooperative corporation than in a consumers. regular corporation. Regardless of The emphasis here will be on capital invested, cooperative agriculture since cooperatives have members have one vote and helped American family farmers sometimes may vote according achieve the most efficient food to their patronage of the production system in the world. cooperative. Our farmers provide U.S. • Returns (dividends) to stock consumers with a stable, high invested are usually limited to 8 quality, low cost food supply. percent. Cooperatives emphasize Enough is left over for export to returns to patronage rather than make farm exports a major returns to capital invested. contribution to U.S. foreign exchange earnings. • Cooperatives furnish service at cost. Any excess of revenue over expenses at the end of the year Kinds of Businesses in Our is divided among the patrons in Economy proportion to the amount of In the American private enterprise business they have done with economy, we have three principal the cooperative. kinds of business firms; these are individual proprietorships, partnerships, and corporations. Regular corporations are Individual proprietorships are defined as a group of people Cooperatives Are Private owned and operated by a single (stockholders) empowered by law Enterprise individual. They are the most to act as a single person. In effect, Some people see the cooperative numerous type of business firm in a corporation is an artificial being as socialistic and fear that the the United States. Most of our created by law to conduct a creation of cooperatives is a step farms are individual proprietorships, business; the articles of toward a socialistic state. These as are many town and rural stores. incorporation spell out the kind and fears are unfounded; socialism scope of the business. Ownership represents ownership and control of a corporation is divided into of the basic means of production shares that are called stock. Each and distribution by the state for the share carries one vote. benefit of society as a whole. Summary of How Cooperatives Differ from Regular Corporations Cooperatives Regular corporations Control member control each share has one vote Return on capital limited to 8 percent unlimited - - - Distribution of on a patronage basis distribution on basis - - net margin according to use of shares held - - - Economic purpose maximize returns to maximize returns to patrons shareholders Also, socialism implies Cooperatives in Our Supply Cooperatives subordination of the individual to Economy Almost one-fifth of the production the state and places the interest of supplies and equipment used by the general public above private Cooperatives are found in many farmers is purchased through interest. Socialism would eliminate sectors of our economy; they are, cooperatives. Examples of some of competition as the regulative force however, especially valuable to the larger farm supply cooperatives in economic society and would farmers. There are marketing, are: substitute control by the supply, and service cooperatives. government. -CENEX In contrast to the doctrines of Marketing Cooperatives -Midland Cooperatives -Farmland Industries socialism, cooperatives represent Agricultural marketing cooperatives private ownership; they oppose have a considerable impact on the Interregional cooperatives ownership and control of the farm economy. It is estimated that include: means of production by the state. nearly 30 percent of all farm -CF Industries, Inc., The cooperative idea of distributing net earnings according to patronage rests on the principle of productive contribution, which, in turn, fits into the principle of distribution commonly accepted in a private enterprise society. Cooperatives are an integral part of our private enterprise economy just as regular corporations, partnerships, and individual proprietorships are. Cooperatives Pay Taxes Cooperatives are subject to the same taxes imposed on other businesses. These include property, excise, sales, and income taxes. An commodities are marketed through manufactures and distributes essential objective of a cooperative cooperatives. They are particularly fertilizers to its member is to furnish service at cost. Hence, important at the level of first sale regional supply cooperatives a cooperative distributes its net by farmers and at the first level of that now handle almost 40 earnings to patrons in proportion processing of farm commodities. percent of the fertilizer to the amount of business each Examples of large marketing purchased by farmers. does with the cooperative. These cooperatives are given below: -Farmers Export Company distributions are called patronage Dairy exports grain for its member refunds. The cooperative is not -Land O'Lakes, Inc. regional grain marketing required to pay the corporate -Mid-America Dairymen cooperatives. income tax on the net earnings it -Universal Cooperatives, Inc., distributes as patronage refunds. -AMPI (Associated Milk distributes tires, steel Such amounts are income to the Producers, Inc.) products, chemicals, etc., to patron, who in turn pays the tax. Grain its member regional farm Any net earnings not distributed in -GTA (Grain Terminal supply cooperatives. this way are subject to corporate Association) income tax. Livestock and Poultry Service Cooperatives Generally cooperatives retain a -Central Livestock Association Service cooperatives deal in such portion of the patronage refund -Farmers Union Marketing and areas as finance, credit, insurance, instead of paying the entire amount Processing Association and other services. to the patron in cash. The patron -West Central Turkeys, Inc. is notified of the retained refund -North Central Wool Marketing and must pay income tax on the Corp. entire refund. Potatoes Cooperatives are owned by -International Co-op their patron-users who must supply Sugar the necessary owner capital. A -American Crystal Sugar principal way in which patrons Company supply owner capital to their cooperatives is through -Southern Minnesota Beet reinvestment of patronage refunds. Sugar Cooperative Finance and credit farmer. Agriculture is largely a services such as processing and -The Farm Credit perfectly competitive industry packaging. Farm supply Administration consists of the characterized by a large number of cooperatives also must be large in Federal Intermediate Credit small producing units. Though order to refine crude oil and Banks and the affiliated technological change has increased manufacture fertilizer. Farmers' Production Credit Associations size and decreased numbers of cooperatives still are small relative (PCAs), the Federal Land farms, and corporations have to noncooperative firms with which Banks and the affiliated expanded in such areas as poultry, they compete. Federal Land Bank the bulk of our agricultural Associations (FLBAs), and the production still comes from Employment Opportunities Banks for Cooperatives. All individually operated family farms. Many graduates of the College of are cooperative and owned A farmer acting alone lacks Agriculture of the University of by the farmers who use bargaining power both as a buyer Minnesota obtain employment with them. and as a seller. By organizing into cooperatives. The curriculum of -Through these cooperative cooperatives, farmers strengthen Agricultural Business lenders farmers obtain more their bargaining power in the face Administration, which is offered than 30 percent of their of the larger organizations that buy jointly by the College of Agriculture credit needs. their products and provide their and the College of Business Insurance cooperatives supplies. So farmer cooperatives Administration, is particularly well -MSI Insurance improve competition in farm

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