Taking Back Control: How to Start a Cooperative - Part I of 3 (Strategy and Tactics - PtoP initiative)

Vatic Note: These will go up on the blog, but then retire to the strategy and tactics section of the People to people initiative. So look for them there when done. Its time to start talking about what we creative, resiliant, and adaptable Americans can do to change our future from what appears to be facing us down the road. If we can find the path, we can share it with others across the globe to become free and independant from those hell bent on destroying us and subsequently globalizing us into a fascist system (how do we know its fascist??? The Lisbon treaty that makes it a death penalty to protest). The total incompetence we have seen individually in each of our nations on the handling of our "national" affairs by the proponents of Globalization, is a proven indicator of what we can expect if they do succeed. I can't even imagine the out of control chaos and drama that would result from those least proven able to lead nations, taking control. So, this will be a series on options and recommendations and 'how to do" for each of us to begin using in our own communities. WHAT WE DECIDE TO SET UP DOES NOT HAVE TO BE NEAR AS COMPLICATED AS THIS IS,  simply use this as a model to test out by trial and error what will work for you.   Remember,  we are free people and we can do whatever works for us, regardless of the Powers that be who are constantly in violation of our legally structure governance system.

We are approaching this making certain assumptions about our basic needs as a community and as individuals. The first assumption was that solutions would have to be geared based on "Short term immediate" needs, and then "Long term sustainable" needs. Previously we covered some Short term, which was food storage for a year and long term was getting your county council to build grow domes, and finally recommending that it is prudent to immediately order non GMO Heritage seeds as soon as possible BEFORE THEY ARE BANNED OR DISAPPEAR, for short term use and long term storage. http://www.heirloomseeds.com/  (just a reminder). This time we are going to cover "COOPERATIVES". We are doing this because in the situation we are about to face, no one can do this alone, our greatest chance for success is working as community locally and growing out from there (once we pass new laws making psychopaths at all levels of society be committed to mental health institutions for life with no possibility of release.  Its the only way to ensure the bankers never get back in control.   lol )

(REMEMBER THIS IS SIMPLY A MODEL FOR OUR OWN USE.  EXAMPLE:  CREDIT UNIONS ARE PART OF THE BANKING SYSTEM, SO WE MUST ADOPT A MODEL OUTSIDE THE BANKING SYSTEM, THAT IS WHY THE MODEL IS GOOD TO USE, BUT ADJUST TO MEET THE SPECIFIC CHANGES WE NEED, CREATIVITY AND THINKING OUTSIDE THE BOX)

We must come together to not only survive but to rebuild. So, cooperatives are the way of the future, in every area of our lives including banking, food, water, and medical.... along with other essentials. This is a basic overview to get us started by educating us to what a cooperative is, how it works, and its benefits. Once we complete that we will skip the agricultural section and move into the non ag cooperatives, hopefully for financial and banking since agricultural will not work under the current fiat banking system. WE must restructure our entire economic paradigm in order to succeed in any other area of our lives including agriculture. So come along for the ride. Please print this out and study each as we move through the process. REMEMBER, YOU ARE NOT LOCKED INTO ANY OF THIS. ADAPTING, CHANGING, CREATING ARE ALL VIABLE OPTIONS TO FIT YOUR OWN NEEDS AND THEN SHARE WITH OTHERS THOSE THAT WERE SUCCESSFUL AND THOSE THAT FAILED OR HAD PROBLEMS TO BE OVERCOME. Keep an open mind, this is simply a FOUNDATIONAL piece to begin the process.

How to Start a Cooperative - Part I of 3
http://www.rurdev.usda.gov/rbs/pub/cir7/cir7rpt.htm
by Galen Rapp and Gerald Ely, Rural Development

Preface

Welcome to the dynamic world of cooperation--people working together to solve common problems and seize exciting opportunities. Cooperatives are business entities that people use to provide themselves with goods and services.

This booklet introduces you to the attributes that distinguish a cooperative from other ways to organize and conduct a business. Its purpose is to help you understand what makes a cooperative unique. It contains a great deal of information to absorb. Use it as a reference and refer to it when specific problems arise. Over time, you will learn more about cooperatives and your experience with them should be more rewarding.

The author gratefully acknowledges the cooperation of the National Society of Accountants for Cooperatives (NSAC) in simplifying the preparation of this report. NSAC allowed me to base parts of this publication on material I had written earlier for Welcome to Cooperatives, an NSAC booklet designed to introduce accountants, financial, and tax professionals to cooperatives. This saved me the time and effort of reworking the presentation of some basis concepts that everyone associated with cooperatives should understand. This is consistent with the concept of sharing knowledge freely that should be a cornerstone of cooperative education.

Chapter 1. A Historical Perspective(1)

In one sense, cooperation is probably as old as civilization. Early people had to learn to work together to meet their common needs, or perish. The Pilgrims who settled at Plymouth, MA, jointly cleared fields abandoned by the Indians, broke up the soil, and planted and cared for their corn. After the harvest, celebrated with the Indians in 1621 with a Thanksgiving feast, the corn was shared equally among the settlers.

Legend suggests that the initial structured cooperative business in the United States was the Philadelphia Contribution-ship for the Insurance of Houses from Loss by Fire, a mutual fire insurance company established in 1752. This association's reputation is likely based on two factors. First, Benjamin Franklin was the organizer. Second, the business has been conducted so efficiently over the years that it is still operating today.

In the early 1800s, cooperative businesses appeared on several fronts. In Britain, cooperatives were formed as a tool to deal with the depressed economic and social conditions related to the struggles with Napoleon and industrialization. In the United States, farmers began to process their milk into cheese on a cooperative basis in diverse places such as Goshen, CT, and Lake Mills, WI.

Writers sometimes trace the origin of cooperatives from the Rochdale Equitable Pioneers' Society, an urban, consumer cooperative organized in England in 1844. It sold consumer goods such as food and clothing to persons unhappy with the merchants in the community.

While neither the first nor most successful early cooperative, the Rochdale Society developed an active outreach program, encouraging and assisting others to form cooperatives. It also prepared a written list of practices and policies that seemed consistent with success of such efforts. This list became one of the first sets of cooperative principles, characteristics that distinguish cooperatives from noncooperative businesses.

Open membership
One member, one vote
Cash trading
Membership education
Political and religious neutrality
No unusual risk assumption
Limitation on the number of shares owned
Limited interest on stock
Goods sold at regular retail prices
Net margins distributed according to patronage

The Grange, founded in 1867, quickly became the major thrust behind agricultural and rural cooperatives in America. In 1874, a Grange representative went to Europe to gather information about cooperatives. In 1875, the Grange published a set of rules for the organization of cooperative stores, based on the Rochdale principles.

Local granges organized stores to serve their rural members. They sold groceries and clothing as well as general farm supplies, hardware and agricultural implements. Granges in the South marketed cotton. Those in Iowa operated grain elevators. In Kentucky, they sponsored warehouses for receiving and handling tobacco. California Granges exported wheat and marketed wool.

As the country recovered from the depression of the 1870s, fewer Granges were organized and many cooperatives went out of business, but the impact of the Grange cooperative movement survives. It demonstrated that the Rochdale type of cooperative, which handled goods at prevailing prices and distributed net savings according to use, offered a sound basis for cooperative efforts in America.

Cooperation flourished during the three decades from 1890 to 1920. As many as 14,000 farmer cooperatives were operating by the end of the period. Cooperative growth was fueled by the wave of other farmer movements and farm organizations sweeping the country, such as the American Society of Equity, National Farmers Union, and the American Farm Bureau Federation. They were engaged in marketing virtually every farm crop and furnishing supplies and services to their producer-members. Many of today's major farmer cooperatives were formed during this period.

The following decades have seen farmer cooperatives develop their own financial institutions through the Farm Credit System. Nonagricultural cooperatives likewise developed the National Cooperative Bank. With help from the Rural Electrification Administration, rural residents used cooperatives to bring electric and telephone services to their towns and farms. The rural electrics formed the National Rural Electric Cooperative Finance Corporation (CFC) as a supplemental source of financing.

Some cooperatives have become larger, partially in response to growing concentration among their competitors and the firms their members must deal with. They have adopted modern management techniques and sophisticated processing, distribution and marketing methods.

Today rural and urban residents use cooperatives to acquire consumer services such as housing, credit and other financial services (through credit unions), groceries, education and telecommunications. Franchisees, governmental units, hardware and grocery stores, florists and numerous other businesses use cooperatives to market their products and secure the supplies they need at competitive prices.

Cooperatives remain a major component of the food and agriculture industry, but now they are available to help people provide services for themselves in virtually all segments of the economy.

Chapter 2. Cooperative Principles and Practices(2)

Cooperative Principles

Various writers over the past century have analyzed and observed the application of cooperative principles. Although slight differences in terminology appear on the various lists, three principles emerge as being widely recognized and practiced.

These principles are more than just good practices, policies or common sense. They distinguish a cooperative from other kinds of business. They are also recognized in state and federal statutes and regulations as criteria for a business to qualify as a cooperative.

The User-Benefits Principle

Members unite in a cooperative to get services otherwise not available, to get quality supplies at the right time, to have access to markets or for other mutually beneficial reasons. Acting together gives members the advantage of economies of size and bargaining power. They benefit from having these services avail-able, in proportion to the use they make of them.

Members also benefit by sharing the earnings on business conducted on a cooperative basis. When cooperatives generate margins from efficient operations and add value to products, these earnings are returned to members in proportion to their use of the cooperative. Without the cooperative, these funds would go to other middlemen or processors.

The User-Owner Principle

The people who use a cooperative own it. As they own the assets, the members have the obligation to provide financing in accordance with use to keep the cooperative in business and permit it to grow. Accumulating adequate equity is a major challenge facing many cooperatives. How this task is accomplished is discussed later.

The User-Control Principle

As owners, a cooperative's members control its activities. This control is exercised through voting at annual and other membership meetings, and indirectly through those members elected to the board of directors. Members, in most instances, have one vote regardless of the amount of equity they own or how much they patronize the organization.

In some instances, high-volume users may receive one or more additional votes based on their patronage. Equitable voting is assured, often by limiting the number of additional votes any one member can cast. This protects the democratic control of the membership as a whole.

Only members can vote to elect directors and to approve proposed major legal and structural changes to the organization. The member-users select leaders and have the authority to make sure the cooperative provides the services they want. This keeps the cooperative focused on serving the members, rather than earning profits for outside investors or other objectives.

Related Practices
Certain business practices have developed that implement and facilitate these basic principles. They further differentiate a cooperative from other forms of doing business.

The Patronage Refund System

While cooperatives strive to return earnings to members, this can't be done on a transaction-by-transaction basis. Rather, cooperatives usually charge market prices for supplies and services furnished to members and competitive prices for products delivered for further processing and marketing. Normally, this allows them to generate sufficient income to cover costs and meet continuing needs for operating capital.

After the fiscal year is over, a cooperative computes its earnings on business conducted on a cooperative basis. Those earnings are returned to the patrons--as cash and/or equity allocations--on the basis of how much business each patron did with the cooperative during the year. These distributions are called patronage refunds.

For example, if a cooperative has earnings from business conducted on a cooperative basis of $20,000 for the year, and Ms. Jones does 2 percent of the business with the cooperative, she receives a patronage refund of $400 ($20,000 x .02).

This allows the cooperative to return margins to members on an annual basis, consistent with standard accounting conventions and without regard to how much was earned on each transaction.

Limited Return on Equity Capital

Members form a cooperative to get a service--source of supplies, market for products or performance of specialized functions--not a monetary return on capital investment.

Many cooperatives don't pay any dividends on capital. Others pay a modest return, in line with state and federal statutes that bar substantial payments.

Limiting returns on equity supports the principle of distributing benefits proportional to use. It also discourages outsiders from trying to wrest control of a cooperative from its members and operate it as a profit-generating concern for the benefit of stockholders.

Cooperation Among Cooperatives

Many cooperatives, especially local associations, are too small to gather the resources needed to provide all the services their members want. By working with other cooperatives--through federated cooperatives, joint ventures, marketing agencies in common, and informal networks--they pool personnel and other assets to provide such services and programs on a collaborative basis at lower cost.

This permits members of local cooperatives to participate in owning and managing fertilizer plants, food manufacturing facilities, power plants, national financial institutions, wholesale grocery and hardware distribution programs, and so forth. Benefits flow back through the local cooperatives to the individual members.

These principles and practices have survived and flourished through 150 years of continuous evolution in the business world. They remain the foundation that supports the distinctive cooperative method of doing business.

Chapter 3. Cooperatives in the Community(3)

While cooperatives are often most closely identified with agriculture, they are found working effectively to meet people's needs in all sectors of American life. The National Cooperative Business Association reports that in the United States a network of 47,000 cooperatives directly serve 100 million people -- nearly 40 percent of the population. Here are some examples and facts and figures about cooperatives in your community.

Financial Cooperatives

The largest single segment of the cooperative industry is credit unions. The roughly 12,600 credit unions in the United States have more than $280 billion is assets and almost 65 million members. Building on their base of member savings and consumer loans and home mortgages, credit unions now offer additional services to their members including credit cards, automated teller machines, tax-deferred retirement accounts and certificates of deposit.

Created in 1916, the cooperative Farm Credit System is the nation's oldest and largest financial cooperative. It provides real estate loans, operating loans, home mortgage loans, crop insurance and various other financial services to more than 500,000 farmer, small-town resident and cooperative borrowers. Annually it loans more than $50 billion to its members, 25 percent of all money loaned to U.S. agriculture.

One element of the Farm Credit System is CoBank, ACB and the St. Paul Bank for Cooperatives. They provide about 80 percent of the money farmer cooperatives borrow each year. They have about $11 billion in outstanding loans to farmer and rural utility cooperatives and water and waste disposal systems. CoBank has become an important financier of exports of U.S. farm products as it broadens its role of making credit available to enhance farm and rural income.

Since 1969, the National Rural Utilities Cooperative Finance Corporation (CFC) has been a valuable source of financing for rural electric and telephone cooperatives. With $5.7 billion in assets and almost $13 billion in loan commitments, CFC supplements funding provided by USDA's Rural Utilities Service and provides business services to its borrowers.

In a short period of time, the National Cooperative Bank (NCB) has become an important financial institution for America's housing, business and consumer cooperatives. Chartered by Congress in 1978 and private since 1982, NCB has originated more than $2.4 billion in loans to nearly 1,000 cooperatives throughout the country. NCB has become a leader in providing development funding for new, non-agricultural cooperatives and in devising methods of attracting outside capital to leverage its investments.

Consumer Service Cooperatives

America has about 1 million units of cooperative housing, nearly 600,000 of them in New York City. New units are being developed in many other areas including senior citizen communities, trailer parks, low-income complexes, and student housing near college campuses.

Millions of Americans receive basic medical care through cooperatively organized health care providers. Health maintenance organizations (HMO's) serve more than 1 million people coast-to-coast and will likely be an increasingly important part of the health care system in the years ahead. In several major cities--Seattle, Minneapolis, Memphis, Sacramento, Salt Lake City and Detroit--companies have formed cooperative health alliances to purchase health care for their employees.

Child care cooperatives are meeting the needs of families where the parent(s) are employed and want affordable, supportive care for their young children while working. These centers can be organized by parents on their own, by a single employer, or by a consortium of businesses providing a single center for the group. More than 50,000 families use cooperative day care centers daily.

Business Cooperatives

More than 15,000 independent grocery stores rely on cooperative grocery wholesalers for identity, brand names, and buying power they need to compete with the chains and the discounters. Members also receive training and financing. Several cooperative grocery wholesalers are multi-billion dollar firms rivaling the largest farmer cooperatives in sales and assets.

Restaurant supply purchasing cooperatives save money and provide quality products for franchisees of such noted fast-food chains as KFC (Kentucky Fried Chicken), Dunkin' Donuts, Arby's, Taco Bell, Burger King, Popeye's and Church's. Besides their bottom line impact, purchasing cooperatives also offer another, less tangible benefit; they help to build trust among franchisers and franchisees, particularly on pricing issues.

Cooperatively owned hardware wholesalers supply virtually all of the independent hardware stores in the United States. As huge warehouse chains spread across the nation, the independents are relying more and more on Cotter and Company (True Value), Ace Hardware and other cooperatives for products, promotions and education to remain viable businesses.

Cooperatives are leaders in other major industries including outdoor goods and services (Recreational Equipment Inc.), lodging (Best Western), carpeting (Carpet One), insurance, natural foods, hospital and pharmacy supply, and collegiate bookstores.

Farmer Cooperatives(4)

In the agricultural sector, USDA's Cooperative Services' survey of farmer cooperatives for calendar year 1995 reported 4,006 cooperatives in operation. Of these associations, 2,074 primarily marketed farm products; 1,458 handled primarily farm production supplies; and 474 provided services related to marketing or purchasing activities.

Marketing cooperatives handle, process and sell cotton, dairy products, fruits and vegetables, grains and oilseeds, livestock and poultry, nuts, rice, sugar and other agricultural commodities. Farm supply cooperatives provide farm chemicals, feed, fertilizer, petroleum products, seed and other input items to producers. Farm service cooperatives operate cotton gins, provide trucking and artificial insemination services and store and dry products.

In 1995, farmer cooperatives had more than 3.7 million members (many farmers belong to more than one cooperative) and a total gross business volume of $112.2 billion. Total net earnings (considering losses) were $2.36 billion. Combined assets of the group totaled $40.3 billion and liabilities were $23.6 billion, leaving member equity of $16.7 billion.

Another important cooperative activity in rural areas is furnishing electric power. Nearly 1,000 rural electric cooperatives operate more than half of the electrical lines in America, providing electricity to more than 25 million people in 46 States. Sixty of these are called generation and transmission cooperatives (G&Ts) because they generate and transmit electricity to meet the power needs of the other cooperatives that distribute electricity to the people.

Telecommunications services to rural areas are also provided by cooperatives. Telephone cooperatives serve 1.2 million people in 31 States. The National Rural Telecommunications Cooperative, owned by almost 800 rural electric and telephone systems, makes satellite television available to rural areas not served by cable companies. Cooperatives may be the on-ramp for rural residents wishing to travel the information highway.

Chapter 4. Benefits of Cooperation (5)

People buy stock in a non-cooperative business to make money on their investment. The more of the company you own, the more benefits (stock appreciation and dividends) you will realize if the business succeeds.

The benefits of being a cooperative member differ in two ways. First, the advantages are more numerous. Second, they are distributed on the basis of how much use you make of the cooperative, rather than your equity stake. Here are some benefits of cooperative membership and how they relate to use.

1. Access to quality supplies and services at reasonable cost. By banding together and purchasing business supplies and services as a group, individuals offset the market power advantage of firms providing those supplies. You can gain access to volume discounts and negotiate from a position of greater strength for better delivery terms, credit terms, and other arrangements. Suppliers will be more willing to discuss customizing products and services to meet your specifications if the purchasing group provides them sufficient volume to justify the extra time and expense.

The larger the group purchasing supplies and services through the cooperative, the greater the potential for savings. And the more each individual member uses the supply operation, the more he or she may save over doing business elsewhere.

Another option for cooperative members is to manufacture their own supplies and hire experts directly to provide essential services. This gives members even more reliable sources of supply and greater control over the types of products available, the cost, and the quality of the services received.

2. Increased clout in the marketplace. Marketing on a cooperative basis, like purchasing supplies and services, permits members to combine their strength while maintaining their status as independent business people. They can lower distribution costs, conduct joint product promotion, and develop the ability to deliver their products in the amounts and types that will attract better offers from purchasers.

A special Federal law, the Capper-Volstead Act, provides a limited exemption from antitrust liability for marketing agricultural products on a cooperative basis. Under this law, farmers can agree on the prices they will accept for their products and other terms of sale.

Through cooperative marketing, members can share information and negotiate with buyers from a position of greater strength and security. They can also develop processing facilities by themselves or as part of a joint venture with other cooperative or non-cooperative firms.

A cooperative can also serve as a vehicle for people selling goods and services to work with their customers to promote industry research, reduce regulatory burdens, and develop markets for their products. The cooperative can help create a "win-win" situation for the entire industry, a business environment where both producers and buyers have more income.

3. Share in the earnings. Some people talk about non-cooperative firms operating "for profit" while cooperatives operate "at cost." This isn't totally accurate. Most cooperatives generate earnings. They differ from non-cooperative firms in how they allocate and distribute their earnings.

A non-cooperative firm retains its earnings for its own account, or perhaps pays part of them out to shareholders as dividends, based on the amount of stock each investor owns. In a cooperative, earnings are usually allocated among the members on the basis of the amount of business each did with the cooperative during the year. Remember the example of a cooperative that has net earnings of $20,000 during the year and conducts 2 percent of its business with Ms. Jones. She is allocated $400 of those earnings ($20,000 x .02).

Typically, Ms. Jones would receive her allocation, called a patronage refund, partly in cash and the remainder as an addition to her equity account in the cooperative. Permitting their cooperative to accumulate retained patronage refunds is a relatively easy and painless way for members to help finance activities and growth. Also, if certain rules in the Internal Revenue Code are followed, the cooperative may deduct both the cash payouts and the retained patronage refunds from its taxable income. This makes cooperative earnings particularly valuable.

4. Political action. Growers, small business owners, and other rural residents have to realize that no one gives you a favorable law or regulatory ruling just because you think you deserve it. You have to build your case and argue your point convincingly.

A cooperative gives people a means to organize for effective political action. They can meet to develop priorities and strategies. They can send representatives to meet with legislators and regulators. These persons will have more influence because they will be speaking for many, not just for themselves.

They can also form coalitions with other groups having similar views on issues. The larger the voice calling for a specific action, the more likely that the system will respond with the policy you desire.

5. Local economy enhanced and protected. Having its businesses owned and controlled on a cooperative basis helps your entire community. Cooperatives generate jobs and salaries for local residents. They pay taxes that help finance schools, hospitals, and other community services.

When a business is a cooperative, your town is less likely to lose those jobs and taxes. A business owned by one person, or a subsidiary of a big company, can easily be moved to another community. When many local people share the ownership of a cooperative, no individual or company can take it from your area or simply close it. Only the membership as a whole can make such decisions.
(To be continued)

Please watch for parts 2 and 3 of this subseries on cooperatives.  

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