What is a cooperative?
A business that is owned and democratically controlled by the people who use its services and whose benefits come from the basis of use
What is Patron?
A member of the cooperative who purchases products or services
What are patronage dividends?
Allocation of net savings distributed to patron in proportion to their use
How are cooperative earnings allocated?
On the basis of business volume
What are some common characteristics of cooperatives?
User owned, user controlled, user benefits
What are the four roles of a participant in a cooperative?
Customer, Patron, Owner and Member
Who determines a cooperative's operating policies such as credit terms, stock retirement, or grain position limits
the board of directors
What group is recognized as providing the first set of cooperative principles?
The Rochdale weavers developed what became the 12 Rochdale principles in 19th century England.
List three of the Rochdale principles that are still considered highly relevant.
Net income distributed in proportion to patronage
One member-one vote
Equity provided by patrons
List the USDA's version of the three contemporary principles
User owned
User controlled
User benefits
How do members benefit from joining a cooperative?
Improved prices
Share in profits as patronage refunds
Access to quality products and services that might otherwise be unavailable
Offset market power
Existence of cooperative makes market more competitive
pooling risk
T or F: Cooperatives are corporations.
TRUE
T or F: Cooperatives are charted under the same state laws as investor owned corporations.
FALSE
List some common functional classifications of agricultural cooperatives
Production
Marketing
Bargaining
Processing or Manufacturing
Supply Cooperatives
Service Cooperatives
List the classifications of cooperatives by ownership
Producer owned
Consumer owned
Worker owned
What is the competitive yardstick role of cooperatives?
The cooperative provides a measure of reasonable prices and helps to maintain a competitive and efficient marketplace
Give an example of how economies of size might influence the creation of a cooperative
Tomato processing in which the farmer's cost through the cooperative is lower than performing the functions on-farm
What is the invisible benefit that cooperatives provide?
maintaining competitive behavior
List the three major anti-trust or anti-trust related laws which impact cooperatives.
Capper-Volstead Act
Sherman Anti-trust Act
Clayton Act
What activities are specifically prohibited under the Sherman Anti-trust Act?
Price fixing, market division, certain boycotts
Who were some of the first targets of antitrust enforcement under the Sherman Anti-trust Act?
Farm and labor organizations
Why was the farm organization exemption under the Clayton Act not entirely useful for cooperatives?
It only exempted non-stock cooperatives (non-profits), and it didn't specifically describe what activities could be conducted.
what law specifically established anti-trust exemptions to agricultural cooperatives?
The Capper-Volstead Act of 1922
What are the organizational restrictions for a cooperative to qualify for Capper-Volstead anti-trust exemption?
operate for mutual benefit of members
must be agricultural producers
only applies to activities involving the marketing of agricultural products. (one vote/one member voting in proportion to business) or Limit dividends to less than 8%
Why do we call Capper-Volstead "Limited" exemption from anti-trust prosecution?
can enhance prices, but not "unduly", the secretary of agriculture also has the right to review the exemption
Who is eligible to be a director of a cooperative?
members of the cooperative
What is the disadvantage of the restriction on director eligibility?
Loss of diversity and balance
what is the statement of operations
shows sales, cost of sales, expenses and profit for a period of time
what is the basic equation for the statement of operations?
Sales-Cost of Sales = Gross Margins-Expenses=Local Net Savings+Patronage Received from Regional Cooperatives= Total Net Savings
What is the basic equation for the balance sheet?
Assets = Liabilities + Patron's Equity
What form of equity is stressed by "New Generation" cooperatives?
Direct investment
According to the most recent data presented in the lecture how many cooperatives are in the U.S.?
Approximately 30,000
According to the most recent data presented in the lecture the total number of memberships in U.S. cooperatives is?
350 million; 1 out of every 4
What is a "Pure Cooperative
All customers and users are also patrons with equity interest and voting members
T or F: There are supply cooperatives associated with Kentucky Fried Chicken, Ace Hardware, Taco Bell, Dairy Queen, Burger King and many other franchises.
True
Three examples of non-agriculture cooperatives
Grocery store
credit union
housing
How much business volume is generated by cooperatives?
$514 Billion
What percentage of the electrical power infrastructure is provided by cooperatives?
44% Line
11% Customers
List three of the Rochdale principles that were eliminated in the traditional cooperative principles and thus considered policies but not fundamental principles.
Religious neutrality
Equality of the sexes in membership
No unusual risk assumption
What are the three contemporary principals?
Net income distributed in proportion to patronage
Voting by members on a democratic or proportional basis
Equity is provided by patrons
List the single International Cooperative Alliance principles combines the three Rochdale principles of "net income distributed in proportion to patronage", "equity provided by patrons" and " limited dividends on equity"?
member economic participation
What document might contain a cooperatives policies?
a policy manual approved by the board of directors
What are the geographic classifications of a cooperative?
Local, Regional, National and International
What are the structural classifications of a cooperative?
Centralized, Federated, Combination
A regional cooperative where the individual member owners own the local cooperative and the local cooperative owns the regional cooperative is called
federated
A regional cooperative with many local branches where the producers are direct members of the regional cooperative is called
centralized
Advantages of a centralized cooperative
operates as one single large firm with multiple branches
has greater bargaining power for purchases and sales
handle products more economically
Advantages of a federated cooperative
the authority and control are closer to the local level, members may feel more involvement and communication may be easier
limits risk if the regional cooperative fails
3 requirements to borrow from CoBank
50% business with members
80% stock owned by producers
Operate on a cooperative basis with respect to control and earning distribution
What are the 3 largest cooperatives in the U.S.?
#1 CHS
#2 Dairy Farmers of America
#3 Land o Lakes
List three common rationales for forming a cooperative.
Offset Market Power
Fill a Void in the Market
Create own brand
How might a cooperative add value through coordination?
Avoid cyclical production
Schedule processing operation to operate at least cost level
Change the production process to meet the customer needs
What is rationale for exempting rural electric cooperatives from regulation under the Oklahoma Corporation Commission?
they are owned by the members who pay rates and distribute profits to the same members they have no incentive to charge an excessive rate
What is the "not even one" requirement under Capper Volstead?
the existence of even one ineligible member eliminated Capper Volstead eligibility
How are voting systems in a cooperative different from voting systems in investor owned firms?
Cooperative systems are based on One member One vote or on the amount of business done with the cooperative; not on the amount of stock owned
In a cooperative on what basis is the residual value of the firm at liquidation distributed?
On the basis of business volume over some selected time period
What is different in the allocation of losses between a cooperative and an investor owned firm?
A cooperative distributes losses on the basis of business volume over some selected time period not on the basis of ownership
List the legal restrictions on allocation and retention of cooperative earnings.
must pay 20% of patronage earnings in cash
What are the major functions of the annual audit?
Prevent deliberate misstatement of fact
Assure records are dependable
Assure that generally accepted accounting principles have been followed
Disclosure is complete
Wheat is the purpose of the balance sheet?
Summarizes the assets, liabilities and owners equity at a point in time
What is the basic purpose of the Statement of Patron Equities?
Summarizes equity all patrons jointly own in the company and outlines the portion of equity that is allocated to the patrons and held as unallocated reserves
What is the basic equation of the statement of patron' equities?
Beginning Equity + Equity Sales to New Members+ (Current Year's Profits-Cash Patronage Paid to Members-Additions to Unallocated Equity)-Equities retired=Ending Equities