===== PAGE 1 =====
## 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

(270) 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

<div style="text-align: center;"><img src="imgs/img_in_chart_box_0_420_194_1599.jpg" alt="Image" width="6%" /></div>


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

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## WELCOME TO COBANK

Week, That's All We Ask

On Shop

About Blue Diam

Almonds Are Healthy

Grower Services

<div style="text-align: center;"><img src="imgs/img_in_image_box_9_187_1333_2242.jpg" alt="Image" width="44%" /></div>


Hot News

Trade Relations

Consumer Products

Foodservice Products

Industrial Products

CHS

COOPERATIVES

<div style="text-align: center;"><img src="imgs/img_in_image_box_1314_3_2995_610.jpg" alt="Image" width="56%" /></div>


Ocean Spray

UNIVERSITY OF KENTUCKY

FEDERAL CREDIT UNION

1080 Export Street, Lexington, KY 40504

Office(859)257-2678 Fax: (859)257-2700

ACE

Best Western

LAND OLAKES

## SOUTHERN STATES

Touchstone Energy®

Farmland

<div style="text-align: center;"><img src="imgs/img_in_image_box_1442_624_2961_2250.jpg" alt="Image" width="50%" /></div>


S GOLD KIST

Sunkist GOLD KIST

GOLD KIST FARMS®

===== PAGE 8 =====
## 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

<div style="text-align: center;"><img src="imgs/img_in_image_box_927_1249_2076_2110.jpg" alt="Image" width="38%" /></div>


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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

<div style="text-align: center;"><img src="imgs/img_in_image_box_377_1243_1378_1999.jpg" alt="Image" width="33%" /></div>


<div style="text-align: center;"><img src="imgs/img_in_image_box_1598_1220_2627_1992.jpg" alt="Image" width="34%" /></div>


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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

<div style="text-align: center;"><img src="imgs/img_in_image_box_601_1150_2321_1984.jpg" alt="Image" width="57%" /></div>


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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

<div style="text-align: center;"><img src="imgs/img_in_image_box_476_1173_1473_1922.jpg" alt="Image" width="33%" /></div>


<div style="text-align: center;"><img src="imgs/img_in_image_box_1698_1174_2682_1913.jpg" alt="Image" width="32%" /></div>


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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

<div style="text-align: center;"><img src="imgs/img_in_image_box_976_1433_2088_2106.jpg" alt="Image" width="37%" /></div>


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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

<div style="text-align: center;"><img src="imgs/img_in_image_box_301_1242_1327_2015.jpg" alt="Image" width="34%" /></div>


<div style="text-align: center;"><img src="imgs/img_in_image_box_1546_1248_2665_2041.jpg" alt="Image" width="37%" /></div>


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<div style="text-align: center;"><img src="imgs/img_in_image_box_0_41_196_1583.jpg" alt="Image" width="6%" /></div>


## 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

<div style="text-align: center;"><img src="imgs/img_in_chart_box_0_465_198_1606.jpg" alt="Image" width="6%" /></div>


Voluntary and Open Membership

Democratic Member Control

Member Economic Participation

Autonomy and Independence

Education, Training, and Information

Cooperation among Cooperatives

Concern for Community

===== PAGE 16 =====
## 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

===== PAGE 17 =====
### A. Classified by Groups Served

<div style="text-align: center;"><img src="imgs/img_in_chart_box_0_550_195_1618.jpg" alt="Image" width="6%" /></div>


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.)

<div style="text-align: center;"><img src="imgs/img_in_image_box_0_527_199_1610.jpg" alt="Image" width="6%" /></div>


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

===== PAGE 19 =====
#### A. Classified by Groups Served (cont.)

3. Worker Cooperatives

Industrial worker

Agricultural worker

Health Care

4. Business Cooperatives

Purchasing (Ace Hardware)

===== PAGE 20 =====
### 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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<div style="text-align: center;"><img src="imgs/img_in_image_box_0_96_199_1560.jpg" alt="Image" width="6%" /></div>


## 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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<div style="text-align: center;"><img src="imgs/img_in_image_box_0_86_199_1592.jpg" alt="Image" width="6%" /></div>


## Comparative Business Structures


<table border=1 style='margin: auto; word-wrap: break-word;'><tr><td colspan="2">Partnerships</td></tr><tr><td style='text-align: center; word-wrap: break-word;'>Control -</td><td style='text-align: center; word-wrap: break-word;'>Partners</td></tr><tr><td style='text-align: center; word-wrap: break-word;'>Capital -</td><td style='text-align: center; word-wrap: break-word;'>Partners supplies equity and pay debts</td></tr><tr><td style='text-align: center; word-wrap: break-word;'>Liability -</td><td style='text-align: center; word-wrap: break-word;'>Joint and several</td></tr><tr><td style='text-align: center; word-wrap: break-word;'>Earnings -</td><td style='text-align: center; word-wrap: break-word;'>Profits are shared by the partners</td></tr><tr><td style='text-align: center; word-wrap: break-word;'>Taxes -</td><td style='text-align: center; word-wrap: break-word;'>Profits taxed as partner&#x27;s income</td></tr><tr><td style='text-align: center; word-wrap: break-word;'>Life -</td><td style='text-align: center; word-wrap: break-word;'>Continues until partners sell or dissolve</td></tr></table>

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<div style="text-align: center;"><img src="imgs/img_in_image_box_0_72_199_1598.jpg" alt="Image" width="6%" /></div>


## 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

<div style="text-align: center;"><img src="imgs/img_in_image_box_2289_1971_2819_2218.jpg" alt="Image" width="17%" /></div>


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<div style="text-align: center;"><img src="imgs/img_in_image_box_1_0_200_1801.jpg" alt="Image" width="6%" /></div>


## 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.

===== PAGE 27 =====
<div style="text-align: center;"><img src="imgs/img_in_image_box_0_69_197_1561.jpg" alt="Image" width="6%" /></div>


## 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

===== PAGE 28 =====
<div style="text-align: center;"><img src="imgs/img_in_image_box_0_69_199_1595.jpg" alt="Image" width="6%" /></div>


## 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.

<div style="text-align: center;"><img src="imgs/img_in_image_box_2288_1971_2820_2218.jpg" alt="Image" width="17%" /></div>


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<div style="text-align: center;"><img src="imgs/img_in_image_box_0_31_197_1583.jpg" alt="Image" width="6%" /></div>


## 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



===== PAGE 30 =====
## 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.

===== PAGE 31 =====
## Cooperative Development Process

<div style="text-align: center;"><img src="imgs/img_in_chart_box_0_489_201_1642.jpg" alt="Image" width="6%" /></div>


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

<div style="text-align: center;"><img src="imgs/img_in_image_box_2286_1964_2824_2222.jpg" alt="Image" width="17%" /></div>


===== PAGE 32 =====
## General Guidelines for Success

<div style="text-align: center;"><img src="imgs/img_in_chart_box_0_491_201_1612.jpg" alt="Image" width="6%" /></div>


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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<div style="text-align: center;"><img src="imgs/img_in_chart_box_0_20_198_1605.jpg" alt="Image" width="6%" /></div>


## 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



===== PAGE 34 =====
Closing

Any Questions?

Thanks!