What are Farmer
Cooperatives?*

Cooperatives generally fall into the three major areas as do farmer cooperatives. Below are descriptions of these cooperatives. But it’s important to note that many cooperatives do not fit solely and clearly into one category or the other as many cooperatives will provide many services to its members. The three general areas are: (1) Marketing (2) Supply (3) Service

• Marketing Cooperatives perform a service for farmers following the farm production of an agricultural product. Some marketing cooperatives will also have cooperative marketing agreements. (Please see the appendix for a sample agreement.)
  
• Supply Cooperatives are organized and operated by farmers to supply them withsomething they require in their farming operations.
  
• Service Cooperatives might provide two advantages to farmers that individual farmers might not be able to afford on their own: (1) acquisition and use of equipment; (2) hiring experts who are technically trained. Service co-ops could include transportation, pest management, soil testing, animal testing, artificial insemination, irrigation, etc.

Cooperative
Marketing Agreement

Some marketing cooperatives utilize “Cooperative Marketing Agreements” which is an agreement between the individual farmer member and the cooperative. Basically the farmer member agrees to sell to the co-op, the crops that have been decided upon. In this way the cooperative can project incoming crops and more easily project profit. Please see the sample Cooperative Marketing Agreement in the Appendix. All Marketing Cooperatives should consider implementing Marketing Agreements with their members.

Ownership & Building Equity
in Farmer Cooperatives

When farmer cooperatives are created it is necessary to have some capital to operate. (please refer to “How do Cooperatives Finance Operations?” on page 9). The concept of ownership is comparable to the principle of one-person-one-vote. All co-op members will have equal ownership in the co-op - no member will have more shares than any other member. Co-ops will often have in their bylaws that to be a member, it is necessary to purchase at least one share of common stock. The Board of Directors will determine the monetary value (i.e. $1,000) of the common stock. The money from the shares of members provides investment and reserve capital. Some co-ops also authorize the sale of preferred stock to raise money for investment purposes. The preferred stock carries no vote and is generally limited in the return that can be paid in interest or dividends. This stock can be sold to both members and non-members.

In addition, many cooperatives will require a financial annual membership assessment. These funds can be used to help cover the co-op’s overhead expenses. The annual assessment also helps to build equity for the co-op which can be used, for example, as down payments for co-op loans or for capital expenses.

Cooperatives are also exploring other creative ways of raising finances to support their business activities.

* The research was conducted thanks to a RME-CSREES Cooperative Marketing Grant