A cooperative is a business that is owned by and operated for the benefits of the individuals who use its services. These individuals are member-owners of the cooperative. A board of directors is elected by the membership to direct the cooperative, including setting policy and hiring a general manager to run the day-to-day operations. Agricultural cooperatives can provide a variety of services to their farming and ranching members including processing and marketing commodities, providing farm supplies and inputs including crop nutrients, crop protection products and energy-related products and offering a competitive source of credit and other financial services.
How do cooperatives differ from other types of businesses?
The primary difference in cooperatives and other businesses is that the main objective of the cooperative is to benefit it member-users by providing cost-efficient, quality services and returning profits. Other types of businesses exist solely to make a profit for investor-owners.
What is the benefit of being a cooperative member?
Through their cooperatives, members are able to strengthen their bargaining power, allowing them to compete globally in a way they would not be able to as an individual producer. Agricultural cooperatives help farmers and ranchers withstand the volatility of the commodity marketplace by pooling together the buying power of hundreds or thousands of individual producers. In addition, the profits are returned to the cooperative members in the form of patronage, helping to boost their income, provide additional operating capital and reducing the effective cost of goods and services necessary for their farming operations.
What is patronage?
Profits and earnings generated by the cooperative are distributed back to the membership based on the members’ use of the cooperative. Those earnings are returned to the patrons as either cash or equity (cooperative stock). These distributions are called patronage.