Agricultural cooperatives, known as co-ops, are businesses owned and controlled by their farmers and agricultural producers. These organizations exist to foster mutual benefit for the owners and serve multiple purposes. Farmer-owned cooperatives assist their members in marketing and processing agricultural products, as well as in acquiring essential production supplies and services.
In This Section
Types of Cooperatives
There are several different types of cooperatives that exist. Many notable examples include:
Service Cooperatives
Agricultural service cooperatives play a vital role in supporting farmers by providing essential services, expertise, and resources. These operations help them overcome challenges, reduce costs, improve efficiency, and enhance their overall competitiveness in the agricultural sector.
- Storage and Handling which operate storage facilities, warehouses, and grain elevators where members can store and handle their agricultural products safely and efficiently.
- Transportation and Logistics which may offer transportation services. This can be more broadly interpreted to include hauling, shipping, and logistics coordination which ultimately help bring goods to market.
- Marketing and Market Access cooperatives may assist members in marketing and selling their agricultural products. This can be accomplished by providing market information, connecting suppliers with buyers, or collectively marketing products under a shared brand.
- Processing where a cooperative may provide a value add service in the food value chain such as milling, refinement and packaging in order to bring goods to market.
Ultimately, service cooperatives help provide services which a farmer or rancher are unable to accomplish on their own.
Machinery Cooperatives
Agricultural machinery cooperatives help provide access to machinery and equipment to farms and ranches. Due to the significant cost of purchasing equipment, such as combines or specialty equipment, these cooperatives offer farmer members an opportunity to distribute the costs of ownership among a group of members. These cooperatives enable farmers to access expensive machinery and equipment that they may not be able to afford individually. Farmers then collectively own, manage, and share agricultural machinery and equipment.
Key characteristics of a machinery cooperative include:
- Shared Ownership: Members of a machinery cooperative collectively own the machinery and equipment owned by the cooperative. Each member contributes financially to the cooperative’s operation and maintenance costs, typically through membership fees or usage fees.
- Access to Machinery: Machinery cooperatives provide members with access to a diverse fleet of machinery and equipment, allowing them to borrow or rent specific equipment as needed for their farming operations. This ensures that farmers have access to the right tools for the job without having to invest in equipment that may only be needed periodically.
- Efficiency and Utilization: Machinery cooperatives promote efficient use of resources by maximizing the utilization of machinery and equipment. Members can schedule equipment usage according to their needs, reducing idle time and optimizing productivity. This can lead to cost savings and improved efficiency for individual farmers.
- Collaboration and Networking: Machinery cooperatives facilitate collaboration and networking among farmers, allowing them to share knowledge, expertise, and best practices related to machinery operation, maintenance, and management. This fosters a sense of community and mutual support among members.
Machinery cooperatives are also known as equipment cooperatives or machinery rings.
Financial Cooperatives
An agricultural financial cooperative provides financial services specifically tailored to the needs of farmers, ranchers, and other participants in the agricultural sector. These services provide a crucial service for the farmer and local community by offering a range of financial products and services to support agricultural production, investment, and risk management.
Common services include:
- Credit facilities such as loans, lines of credit, and other forms of financing to fund agricultural operations.
- Savings and deposits products that provide farmers with a safe and convenient way to save money and earn interest.
- Insurance products such as crop insurance, livestock insurance, and other risk management products. These help protect against losses caused by adverse weather, pests, diseases, or market fluctuations.
- Financial planning and advisory services which help farmers manage their finances, plan for the future, and make informed decisions.
These cooperatives may also be referred to as an agricultural credit cooperative or rural finance cooperative.
Supply & Marketing Cooperatives
Agricultural supply cooperatives assist farmers and producers to collectively purchase agricultural inputs, equipment, and services needed for farming operations. These cooperatives focus on supplying essential resources and services to their members at competitive prices while also providing support and expertise to improve agricultural productivity and sustainability.
Supply cooperatives provide value to farmers and ranchers by providing:
- Bulk Purchasing and Negotiation. By aggregating the purchasing power of their members, supply coops are usually able to negotiate favorable terms and prices with suppliers. Bulk purchases include buying inputs such as seeds, fertilizers, pesticides and other agricultural supplies in bulk. They can secure discounts and pass on cost savings to their members.
- Access to Quality Inputs. Supply cooperatives can help source agricultural inputs and services that may be otherwise inaccessible or prohibitively expensive for individual farmers. By sourcing inputs from reputable suppliers and providing product recommendations based on local conditions and agronomic practices, cooperatives help farmers make informed decisions and improve farm efficiency.
Supply cooperatives are also sometimes known as a farm supply cooperatives or agricultural input cooperatives.
Purpose
Agricultural cooperatives serve several essential purposes within the farming and rural communities they represent.
The primary reason farmers, businesses and rural communities create cooperatives is to work together and share resources. By combining their resources and impact, these organizations can help provide scale and reduce costs or increase access to products or services the members require.
Sometimes, it’s too expensive for one farmer to make products or do certain jobs alone. Cooperatives let farmers team up, so they can get better results, usually making more money than if they worked alone. This idea is like when people say “two heads are better than one.” Even though bigger cooperatives might seem better, it’s not always the case.
Agricultural cooperatives serve multiple purposes that are essential for the economic viability, sustainability, and resilience of farming communities. By facilitating market access, enhancing economic efficiency, managing risk, providing essential resources and services, adding value to agricultural products, and supporting community development, cooperatives play a crucial role in empowering farmers, improving livelihoods, and building vibrant rural economies.
Market Access and Bargaining Power
One of the primary purposes of agricultural cooperatives is to provide farmers with improved market access and bargaining power. By pooling their resources and products, farmers can collectively negotiate better prices for their goods, access larger markets, and compete more effectively with larger agricultural corporations. This is particularly important for small-scale farmers who may struggle to access markets on their own.
Economic Efficiency
Agricultural cooperatives help improve economic efficiency in farming by reducing costs through economies of scale. By working together, farmers can share resources such as machinery, storage facilities, and transportation, leading to cost savings for individual members. Additionally, cooperatives can provide access to bulk purchasing discounts on inputs like seeds, fertilizers, and equipment, further enhancing economic efficiency.
Risk Management
Cooperatives often play a crucial role in helping farmers manage risk, particularly in volatile agricultural markets. By diversifying markets and product offerings, cooperatives can help spread risk across a broader base, reducing the impact of market fluctuations on individual farmers. Additionally, cooperatives may offer risk management tools such as forward contracts, insurance products, or price hedging strategies to help farmers mitigate risks associated with weather, price volatility, or other factors.
Access to Resources and Services
Agricultural cooperatives provide members with access to essential resources and services that may be otherwise unavailable or prohibitively expensive for individual farmers. This includes access to credit and financial services, agricultural inputs such as seeds and fertilizers, technical assistance and training, transportation and logistics support, and marketing and distribution networks. By pooling resources and expertise, cooperatives can provide these services more efficiently and affordably to their members.
Value-Added Processing and Marketing
Many agricultural cooperatives engage in value-added processing and marketing activities, such as food processing, packaging, branding, and distribution. By adding value to raw agricultural products, cooperatives can capture a larger share of the final consumer price, increasing profitability for their members. Additionally, value-added processing can help farmers differentiate their products in the marketplace, meet consumer demand for specialty or niche products, and create new revenue streams.
Community Development
Agricultural cooperatives often play a vital role in supporting rural communities by providing employment opportunities, contributing to local economies, and fostering social cohesion. By keeping agricultural production and processing activities within the community, cooperatives help maintain rural livelihoods, preserve agricultural traditions, and strengthen local economies. Additionally, cooperatives may engage in community development initiatives, such as education programs, infrastructure improvements, or environmental stewardship projects, to enhance the overall well-being of the communities they serve.
Business Model
A cooperative is a business model where farmers, ranchers and agribusiness with similar needs or interests come together to form a jointly and pool resources for the betterment of all parties. These entities that come together are usually known as members and act as the owners of the cooperative. Cooperatives can be small, with just a few members, or large, with thousands of members.
Cooperatives are often organized as corporations, however, one distinguishing characteristic is that cooperatives generally do not seek to attain a profit. Rather, these organizations are meant to provide a product or services to the members.
Key Characteristics of a Cooperative Typically Include:
Member Ownership. Members of a cooperative collectively own the business. This membership is usually attained by purchasing shares in the cooperative. Typically, each member has an equal say in decision-making, regardless of their level of investment.
Democratic Control. Cooperative members participate in the governance of the business through a democratic process. This often involves voting on major decisions, electing a board of directors, and having a voice in setting policies and priorities.
Shared Benefits. Profits generated by the cooperative are distributed among members based on their level of participation or patronage. Alternatively, profits may be reinvested in the cooperative to fund growth, improve services, or provide member benefits.
Voluntary and Open Membership. Cooperatives are typically open to anyone who shares the common goals or needs of the cooperative, and membership is voluntary. However, members are expected to actively participate and contribute to the success of the cooperative.
Examples
Agricultural Cooperatives are far more common than most people realize. Take a look at a few of the example below and you will realize that cooperatives are a common and important aspect of our day-to-day lives.
Land O’Lakes: Based in the United States, Land O’Lakes is one of the largest agricultural cooperatives in the world. It is owned by thousands of farmers and operates in the dairy industry, providing services such as milk marketing, production supplies, and agricultural technology.
Dairy Farmers of America is the largest dairy cooperative in the world. DFA is owned and governed by its dairy farmer members. Farmers join DFA by purchasing shares in the cooperative, which entitles them to become members and participate in the cooperative’s decision-making processes.
The U.S. Farm Credit System (FCS), while not legally established as a cooperative, operates very similarly to a cooperative. Associations within the the Farm Credit System are owned by its borrower-members, who are primarily farmers, ranchers, and agricultural cooperatives.
Each borrower-member holds shares of stock in their local Farm Credit institution, entitling them to certain rights and benefits, such as voting for the board of directors.
Further Reading
Co-ops: A Key Part of Rural America. United States Department of Agriculture. https://www.usda.gov/topics/rural/co-ops-key-part-fabric-rural-america
The Cooperative Way. Farm Credit Administration. https://www.fca.gov/bank-oversight/the-cooperative-way#:~:text=Congress%20set%20up%20the%20Farm,to%20agriculture%20and%20rural%20America.