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Cooperative Market Development
Kentucky Center for Agriculture & Rural Development (KCARD) Aleta Botts, KCARD Executive Director Nathan Routt, Business Development Specialist
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KCARD Contact Information
Kentucky Center for Agricultural and Rural Development:
411 Ring Road
Elizabethtown, KY 42701
763-8258
www.kcard.info
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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)
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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)
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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
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Cooperative Business Model
Electric and Telephone Industry and workers Agriculture Finance Education Healthcare Economic Development
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WELCOME TO COBANK
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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
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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
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Kentucky Co-ops: Kentucky Organic Farm & Feed
Established in 2009
Organic Feed Mill Located in Guthrie, KY
18 Members who are Organic Dairy Producers
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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
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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
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Kentucky Co-ops: Central KY Growers Association
Established in 1998, Georgetown, KY
Vegetable marketing cooperative
Cabbage, cucumbers, fall décor, green peppers, pumpkins
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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)
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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
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Cooperative Classifications
Co-ops can be divided according to: A. Groups served
Functions performed
Types of membership D.Financial structure
Legal status
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A. Classified by Groups Served
Agricultural Producers Marketing Supply Feed, seed, fertilizer, petroleum, equipment Service Farm credit system Rural credit unions Dairy Herd Improvement Association (DHIA)
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A. Classified by Groups Served (cont.)
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
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A. Classified by Groups Served (cont.)
Worker Cooperatives
Industrial worker
Agricultural worker
Health Care
Business Cooperatives
Purchasing (Ace Hardware)
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B. Classified by Functions Served
Marketing
Purchasing
Services
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D. By Financial Structure
Stock cooperatives
Non-Stock cooperatives
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E. By Legal Status
Incorporated
Unincorporated
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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
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Comparative Business Structures
Partnerships
Control -Partners
Capital -Partners supplies equity and pay debts
Liability -Joint and several
Earnings -Profits are shared by the partners
Taxes -Profits taxed as partner's income
Life -Continues until partners sell or dissolve
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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
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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.
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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
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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.
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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
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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.
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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
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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
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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
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Closing
Any Questions?
Thanks!