Cooperative Business Offers Community Options
Cooperatives operate in every industry including agriculture, childcare, energy, financial services, food retailing and distribution, health care, insurance, housing, purchasing and shared services, telecommunications, and others.
Cooperative business is a rural tradition that has spread through many urban industry niches, as well. Some of the successful cooperative niches include:
California is home of thriving cooperatives, especially in agriculture and food sectors. The Farmers Markets are just one example of cooperative organization. There's also the Farm Credit Council, Rural Business, Rural Electric Cooperatives and even Rural Telecommunications.
California CooperativesIn California, more than 10 million people belong to cooperatives.
California cooperatives in the top 100 include Unified Western Grocers, California Dairies, Sunkist Growers, WesCorp, Calcot and Blue Diamond Growers.
The money will be used to support groups of California citizens who are working together for mutual benefit. A cooperative is an organization that is owned and controlled by the people who use its goods, services or facilities. It is governed and financed by its user-members. A board of directors, elected by the membership, sets the cooperative's policies and procedures. By pooling resources, members can increase their power to buy, sell, market or bargain as one group, achieving economies of scale and sharing the profits.
"Cooperation" has been practiced throughout human history, but the cooperative as a form of business organization began during the Industrial Revolution.
The UC Center for Cooperatives is working with residents at low-income housing facilities in Tulelake, Goshen, Coachella and Soledad to create childcare cooperatives. The center also recently funded the development of a business plan for Placer and Nevada county grass-fed beef producers who are close to launching the "Sierra Nevada Beef Cooperative." The Center for Cooperatives is promoting the development of energy cooperatives for consumers and agricultural producers. Last month, the center released a video, Made in the USA, illustrating how worker-owned cooperatives can optimize salary potential and work opportunities.
A recent survey by Opinion Research Corporation found that cooperatives differ from investor-owned firms in how they are perceived by the public. Survey results indicated that the public has greater trust in businesses that are owned and democratically governed by the people who use their services. According to the survey, Americans rate co-ops higher than investor-owned corporations on questions of trustworthiness, quality, service, price and commitment to community.
New Generation Cooperative (NGC)New Generation Cooperative (NGC) is a relatively new type of cooperative used primarily in the value-added processing of agricultural commodities.
The NGC is not a specific legal structure. Rather, the term New Generation Cooperative is used to describe how a firm operates. It primarily describes the relationship between the firm and its members and how the firm is financed. Unlike traditional cooperatives, in which start-up expenses are minimal and growth is financed through members’ retained earnings, permanent equity to fund NGC start-up and growth is financed through the sale of delivery rights. These delivery rights represent a member’s right to deliver a specific amount of commodities to the cooperative. Members benefit in proportion to their use, and nearly all NGCs are democratically controlled through one member/one vote.
Six primary characteristics of New Generation Cooperatives
1. Defined membership. Frequently, NGCs are referred to as closed cooperatives. However, defined is a more accurate term. The number of members in an NGC depends upon the proposed capacity of the cooperative’s operations.
2. Delivery rights: a right and an obligation to deliver. Once members contribute equity toward the NGC, they receive the right, and the obligation, to deliver a specific quantity of the commodity each year.
3. Upfront equity required from producers. Adding value to agricultural commodities can be capital-intensive. Before lending money to a project, banks and other lending institutions will require producers to raise part of the project cost. Often, this means producers must raise 50 percent or more of the total project cost. If the project is estimated to cost $1million, for example, producers will need to raise $500,000 or more. Although it may be possible to find private investors to reach the required equity level, producers are often the sole source of equity. As a way to tie members’ use to the total project equity required, the total amount to be raised is broken into smaller units. These units are tied to the amount of product required to be delivered.
4. Delivery rights are transferable and may fluctuate in value. The delivery right is similar to a share of corporate stock because it represents a firm’s permanent equity. As with a share of corporate stock, the value of your delivery right will depend on your firm’s profitability.
5. Marketing agreement entered into between member and cooperative. Upon purchasing delivery rights, members are required to sign a marketing contract outlining the duties of both the members and the cooperative toward each other with respect to the delivery, quality, and quantity of producers’ commodities. These contracts are usually evergreen contracts, meaning they are for specified periods of time (from one to five years).
6. Members and their NGC share three primary legal relationships.
B. Members also purchase delivery rights, which are both a right and an obligation to deliver. The delivery rights are evidenced by legal documentation and are usually transferable upon approval from the board of directors.
C. Finally, members must sign a marketing agreement when purchasing delivery rights and voting stock. The marketing agreement defines the rights and obligations of both the member and cooperative toward each other with respect to the delivery of commodities from the member to the cooperative.
Additional information on cooperatives is available at www.sfc.ucdavis.edu
General information, directory of US West Coast co-ops, and information on planning and running cooperatives, from the University of California at Davis. www.cooperatives.ucdavis.edu
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