Cooperative FAQs

What do cooperatives do? 

This is a big question to answer! Fundamentally, a cooperative's mission (their "what do we do") is organized by members working to collectively solve an issue in their communities, or bring about access to a product or market. Cooperatives act in the long-term, collective interest of their members, rather than according to the needs or wishes of their stockholders. Of course, there are lots of reasons why a cooperative might organize, but that is generally the underlying driver. 

Can I be a member of a cooperative?

Yes, you can, as long as you meet the membership requirements of a particular cooperative. Cooperatives generally have three basic types of members. Each type has in common that members share in the risk and profit from the cooperative's success. The three types are centralized, federated, or mixed cooperatives. 

Members of centralized cooperatives are individuals or family corporations. Members of federated cooperatives are actually other cooperatives. Member cooperatives own the federated cooperative. Another type of membership is mixed, or a combination of both centralized and federated cooperatives. Membership is composed of both individuals or family corporations, and federated cooperatives.

What are some different types of cooperatives I might encounter? 

Consumer cooperatives are driven by the values, missions, and needs of the consumer, whether that be access to services, or providing goods with certain attributes. By working cooperatively, consumers ("members") can find increased selection and greater availability of goods, as well as lower pricing. There are many consumer cooperatives across industries, including credit unions, utility services, housing, grocery and more. A great example in Missouri are the rural electric cooperatives. Cooperatives purchase electricity from generation and transmission cooperatives, and thereby, provide service at a lower cost to its members. 

Producer cooperatives are driven by the values, missions, and needs of producers. This typically means that cooperatives are working to achieve efficiency in marketing, processing, or packaging the outputs of their members. Members work together cooperatively to market the same or similar types of product, by extension investing in the up and downstream supply chain. For example, Organic Valley is owned by family farmers who produce milk, cheese, and meat, marketing their products throughout the US. 

Mixed or multi-stakeholder cooperatives are a mix of producer and consumer cooperatives. That is, their function is a combination of serving both the needs of consumers and producers. In this type of cooperative, there may be several types of members working in the cooperative, but the long-term goal remains the benefits of all types of members. NEED EXAMPLE

Retailer and wholesaler cooperatives operate according to the needs of their retailers and wholesalers products or services. These types of cooperatives typically form to increase bargaining power, and access to products. Members of these cooperatives are businesses or organizations looking to cooperate together in order to bring more efficiency (and lower prices) to their operations. An example of this type of cooperative is Ace Hardware, or your local farm supply cooperative right here in Missouri like Service and Supply Cooperative. 

I encourage you to continue learning and check out resources here: 

• National Cooperative Business Association (NCBACLUSA)

• National Council of Farmer Cooperatives  (NCFC)

• UW-Madison Center for Cooperatives Types of Co-ops 

What industries do cooperatives operate in? Can you give me some specific examples? 

Cooperatives operate across nearly every industry in the United States! There are thriving cooperatives related to agriculture, utility services, financing and lending, distribution, media, hospitals and health care, food, housing, and more. It’s important to understand that there are other dimensions to consider beyond simply the industry. Each cooperative can be looked at by their purpose and ownership. The cooperative acts in the collective interest of its members to say, market their grain, or purchase supplies at a lower cost than an individual or single business might be able to. The other key dimension is understanding who owns the cooperative: producers, consumers, workers, or retailers. Understanding these factors, in addition to a cooperative’s industry position, helps us really understand the role a cooperative plays in the market. 

Back to understanding the larger industry picture, the National Cooperative Bank releases a list annually of the top 100 cooperatives in America, in terms of economic power and business activity. The top cooperatives in each industry give a sense of the cooperative impact at a local, regional, and national level.  There are also many associations in the United States that support cooperatives and represent their policy/legislative interests. It should be no surprise that in true cooperative fashion, organizations work together in common interest to advocate and grow the cooperative ecosystem. Here are some specific examples from NCB, along with a trade organization that supports this sector:  

  Agriculture  

• Cooperatives: CHS, Inc; Dairy Farmers of America, Land o’Lakes 

• Association: National Council of Farmer Cooperatives (NCFC) 

Food/Grocery

• Cooperatives: Wakefern Food Corp./Shoprite, Asso. Wholesale Grocers, Inc, Associated Food Stores 

• Association: National Grocers Association  

Purchasing

• Cooperatives: Ace Hardware Corp, LBM Advantage 

•  Association: National Cooperative Procurement Partners  

Finance 

• Cooperatives: Navy Federal Credit Union, CoBank, AgriBank, FCB 

• Association: Credit Union National Association  

Utility Services (Energy)

• Cooperatives: Basin Electric Power Cooperative, Oglethorpe Power Corporation, Tri-State G&T Association 

• Association: National Rural Electric Cooperative Association (NRECA)  

Others sectors not represented on the NCB list include:  

Housing  

• National Association of Housing Cooperatives  

Worker  

• US Federation of Worker Cooperatives  

What does it mean for me to "own" a cooperative?

You’ve probably heard the term “member-owner” in the context of cooperatives. This is because  individuals or organizations pay a membership due to purchase a share of the cooperative, thereby being both a member (pays dues) and owner (dues purchase equity). So members own the cooperative, sharing in the profitability and risk of the cooperative. This is partially what makes a cooperative so unique. Member-owners have the ability to vote on important issues, and elect a board of directors. Thus, members govern or own the cooperative.  

Member interest is aligned with the long-term interest of the cooperative at its core, because it is the members who provide capital, make decisions, oversee operations, and benefit from its success. A decision or action that hurts the cooperatives, hurts the members. Likewise, a decision or action that benefits the cooperative benefits its members. Membership and governance are inextricably linked. Additionally, many cooperatives keep profits locally in their communities. So even those who are not members of the cooperative can benefit from the economic impact of a local cooperative.  For more, check out Dr. Michael Cook’s, Mizzou Extension, full article on member control. 

Who runs a cooperative? 

Asking about who runs the cooperative is really asking about who is making the decisions! We call that governance. The cooperative’s governance structure is one of its most unique characteristics. Members own the cooperative, and are responsible for the decisions of the cooperative (governance). Many major decisions are voted on by the members of the cooperative, relying on the principle of one member = one vote. Members in turn can run for the Board of Directors, or vote in that election. So, generally speaking, the governance structure is composed of members who vote on decisions and elect a board of directors. The directors hire and oversee a CEO/Manager. This individual oversees the operations and daily management of the cooperative, including its hired employees. Thus, the cooperative is accountable, owned, and governed by its members.  

Who gives cooperatives their authority, and are they regulated? 

Federal and state level policies govern pieces related to incorporation, property, taxation, securities, antitrust, and more. These policies differ by state, and cooperatives operating across multiple states register federally.  

 At the state level, Missouri has several relevant pieces of legislation that provide the legal protection and limitations for cooperatives organizing and operating in the state. The Missouri Secretary of State’s Securities Division has specialized statute information related to governance, including non-profit and new generation processing entities, available online. A great national resource compiling cooperative statutes across the U.S. exists as a collaboration between the USDA’s Rural Business Cooperative Service, and the NCBA CLUSA.    

As far as taxation, cooperatives are a unique type of organization and are handled accordingly. They are viewed as “pass-through” organizations for the purposes of taxation, and/or an extension of the farm. Cooperative income allocated to members on the basis of their use ($ or units) in the form of qualified patronage is not taxable to the cooperative, but is taxable to the farmer. Cooperatives decide each year how much of their income is allocated to members as patronage.  Learn more about taxation in Dr. Michael Cook’s article on Missouri Agricultural Cooperative Taxation. 

I've heard of patronage, but what is it exactly?

Patronage refers to the return of excess profits to members/patrons. Profits are taxed once: patronage is not taxable to the cooperative, but it is taxable to the farmer. How the patronage is returned annually to members depends on the type of cooperative and the industry. Remember, members share in the risk and profitability of a cooperative since they are the owners. Rather than shareholders receiving stock dividends, members receive a share of the cooperative success in the form of patronage.   

What kinds of cooperatives would I encounter in Missouri? 

Missouri has a rich and growing cooperative ecosystem! Many cooperatives operate within the agricultural industry, for marketing, farm supplies, or producers. Many others provide electricity or utility service, or serve the community as credit unions. Others still operate in industries related to food, housing, and more. Check out the cooperative database to see what kinds of cooperatives are operating in our state.  

What kinds of policies govern cooperatives here in Missouri?  

There are three main statutes that provide structure regarding member rights, and director and corporate responsibilities. Missouri Chapter 274 and 457 of the Revised Statutes of Missouri provide incorporation directives, while the Missouri Cooperative Associations Act (2011), provides additional legal framework for Missouri’s cooperatives.  For more information, check out Dr. Cook’s excellent piece on the Basics of Missouri Agricultural Cooperatives. You might also check out NCBA CLUSA’s State Cooperative Statute Library.  

I want to start a cooperative. How do I begin? 

There are a wealth of resources available to those thinking about starting a cooperative. This should be a thoughtful process, taking time to really understand a specific need, problem, or opportunity. Once you have an idea developed and are ready to begin meeting with those in your community, there are several great resources to guide you along the way.  

 The USDA’s Rural Development Cooperative Service compiled a short How to Start a Cooperative checklist, and a more lengthy How to Start a Cooperative publication.  

• Missouri Institute of Cooperatives (MIC) 

• Start.coop 

• Farm Credit Administration - the Cooperative Way 

• Cooperative Development Institute: Co-op 101 

When and why did cooperatives start forming? 

During the first part of the twentieth century, markets and supply chains were dominated by large corporations with lots of resources and capital. Smaller or local producers were unable to compete or grow their market share, and found themselves subject to unfair trading/pricing practices. Congress intervened with the Capper-Volstead Act (1922), which gave producers the ability to form associations (cooperatives). These associations allowed smaller producers to work cooperatively on processing, preparing, handling, and marketing their products. Following shortly behind was the Cooperative Marketing Act (1926), which allowed producers to coordinate not just on prices, but other market information through their cooperatives. These two acts brought market power and supply chain control to producers themselves, and provided more equal footing. Cooperatives no longer needed to rely on or compete singularly with larger corporations.  

The cooperative idea quickly soon spread throughout many industries. Electrical cooperatives were formed to electrify rural America in the 1930s, including right here in Missouri.  Cooperatives formed in industries related to housing, food, marketing, and even amongst workers within existing businesses across the United States. There are many examples of cooperatives internationally, which you can learn about through the International Cooperative Allliance.