Rebuilt HTML — PaddleOCR-VL (Baidu)

Cooperative Market Development

Kentucky Center for Agriculture & Rural Development (KCARD) Aleta Botts, KCARD Executive Director Nathan Routt, Business Development Specialist

KCARD Contact Information

Kentucky Center for Agricultural and Rural Development:

411 Ring Road

• Elizabethtown, KY 42701
• 763-8258
• www.kcard.info

What is a Cooperative?

Simple Definitions:

“An enterprise or organization owned by and operated for the benefit of those using its services” (Merriam-Webster Dictionary)

“A cooperative is a business owned and controlled by the people that it services.” (Larry Snell, former Ex. Director, KCARD)

Co-ops Today by the Numbers

More than 400,000 cooperatives in the US

Serve more than 130.5 million members

Nation's 100 largest co-ops, representing agriculture, finance, housing, energy, and hardware sectors reported over $226 billion in sales in 2012

(Source: National Cooperative Bank)

Cooperative Business Model

What sets it apart?

Empowerment through democratic control and ownership

Operate for benefit of members, governed by members

“Not for Profit” advantage

Patronage and Dividends

Cooperative Business Model

Electric and Telephone Industry and workers Agriculture Finance Education Healthcare Economic Development

WELCOME TO COBANK

Kentucky Co-ops: Hopkinsville Elevator

Established in 1968 with 180 members

5 locations with over 2300 members from surrounding 34 counties

Agri-Chem, HEC Crop Insurance, and Commonwealth Agri-Energy

Kentucky Co-ops: Lexington Farmers Market

Established in 1975

75+ members

Members pay annual dues, booth space rental per marketing day, gate fees per marketing day

Multiple locations

Kentucky Co-ops: Kentucky Organic Farm & Feed

Established in 2009

Organic Feed Mill Located in Guthrie, KY

18 Members who are Organic Dairy Producers

Kentucky Co-ops: Campbell County Beef Association

Established in 2010

Freezer Beef Marketing Cooperative located in Highland Heights, KY

Offer individual cuts up to full beef

Kentucky Co-ops: Marshall County Co-op

Established in 1946 as the Marshall County Soil Improvement Association

Farm supply cooperative that targets needs of small farmers and home owners

Major expansion in 2008

Kentucky Co-ops: Central KY Growers Association

Established in 1998, Georgetown, KY

Vegetable marketing cooperative

Cabbage, cucumbers, fall décor, green peppers, pumpkins

Economic Principles of Cooperatives

User-Owned: The people who own and finance the co-op are those who use it

User-Controlled: The people who use the co-op control it via “One Member-One Vote” on major organization decisions and electing board of directors

User-Benefited: The sole purpose of the cooperative is to provide and distribute benefits to members on the basis of their use of the services of the cooperative. (Operation (Service) at Cost, Patronage Refunds, Improved Pricing, Market Access to Goods and Services otherwise not available)

Cooperative Principles

Voluntary and Open Membership

Democratic Member Control

Member Economic Participation

Autonomy and Independence

Education, Training, and Information

Cooperation among Cooperatives

Concern for Community

Cooperative Classifications

Co-ops can be divided according to: A. Groups served

• B.Functions performed
• C.Types of membership D.Financial structure
• E.Legal status

A. Classified by Groups Served

1. Agricultural Producers Marketing Supply Feed, seed, fertilizer, petroleum, equipment Service Farm credit system Rural credit unions Dairy Herd Improvement Association (DHIA)

A. Classified by Groups Served (cont.)

2. 2. Consumer Cooperatives Consumer goods co-ops (food co-ops Credit Unions 12% of US population are members Housing co-ops Mutual insurance co-ops Farm Bureau

A. Classified by Groups Served (cont.)

3. Worker Cooperatives
4. Industrial worker
5. Agricultural worker
6. Health Care
4. Business Cooperatives
5. Purchasing (Ace Hardware)

B. Classified by Functions Served

Marketing

Purchasing

Services

D. By Financial Structure

Stock cooperatives

Non-Stock cooperatives

E. By Legal Status

Incorporated

Unincorporated

Comparative Business Structures

Individually Owned Businesses

Control - Owner

Capital - Owner supplies equity & pays debts

Liability - Personal Liability

Earnings - Profits belong to the owner

Taxes - Profits taxed as owner's income

Life - Continues until owner sells or closes

Comparative Business Structures

Comparative Business Structures

Business Corporations (Subchapter C & S)

Control - Stockholders elect board.

Capital - Investors purchase equity stock. Corporation pays debts.

Liability - Limited liability

Earnings - Profits are distributed to stock-holders based on equity contrib.

Taxes - Earnings taxed as corporate income and as stockholder dividend income.

Life - Perpetual existence

Comparative Business Structures

Limited Liability Company

Control - LLC Members elect Board.

Capital - Members provide equity.

Liability - Liability is limited to their investment.

Earnings - Profits are shared by members.

Taxes - Taxed as partnership.

Life - Perpetual existence or continues until members sell or dissolve.

Business Corporations

Subchapter C: unlimited # of owners, unlimited classes of stock, ownership easily transferred, double taxation

Subchapter S: single (pass through) taxation, limited to 100 owners, single class of stock, individuals and US citizens only, no retained earnings

LLC: single taxation, “corporate formalities” (annual meetings, minutes, bylaws) are not required, very flexible—can be co-op like

Non-profit: provides a legal entity separate from its members (good tool for handling funds), on dissolution assets return to community, 501 (c)3 can accept tax deductible donations

Comparative Business Structures

Cooperative

Control - Members elect board.

Capital - Members provide equity.

Liability - Liability is limited to their investment.

Earnings - Profits are shared by members based on patronage; limited by law (8% in KY)

Taxes - Income taxed either as corporate income or as member income.

Life - Perpetual existence.

Cooperative Benefits

Cooperatives exist to meet their members needs. Focus is on service not investment.

Cooperatives are owned and controlled by their members. Increased local control keeps the co-op in the community.

Earnings return to members. Co-ops keep money in the community. Benefits reflected with: patronage refunds, better prices, services otherwise unavailable, access to markets, and assures sources of supplied

Benefits reflected with: patronage refunds, better prices, services otherwise unavailable, access to markets, and assures sources of supplied

Disadvantages of Cooperatives

Access to capital

Cost of member and public education

Investment in democratic process

Limit in scope of operations

Co-ops are only as good as their members ask them to be.

Cooperative Development Process

Create Steering Committee Pre-feasibility Analysis Feasibility Study Business Plan Secure Financing Incorporate Elect Board of Directors Organizational Structure Facility and Equipment Start Operations

General Guidelines for Success

Use advisors and committees effectively

Keep members informed and involved

Maintain good board/manager relations

Conduct businesslike meetings

Follow sound business practices

Base decisions on market research rather than opinions

Invest in member education

How to Avoid Pitfalls

Strong member leadership and commitment

Focus

Comprehensive business plan

Experienced advisors

Realistic goals and assumptions

Competent management

Risks identified and minimized

Sufficient capital

Honest, open communications

Invest in member, board, and staff education Realistic market entry strategy

Realistic market entry strategy

Closing

Any Questions?

Thanks!