What is a Cooperative

During America’s frontier days, friends and neighbors came from miles around to enjoy the fellowship of others while helping families “raise” a barn or build a house. There were also afternoons when ladies gathered in the parlor as quilting bees, each sewing a patch to contribute to the project. Although these were not formal cooperative associations by any means, they were some of our nation’s first cooperative efforts.

What is a cooperative? A cooperative is a business which is financed, owned, and controlled by the people who use it. Cooperatives are made up of individuals who have similar interests, desires, and problems. By working together, they combine their investments and influences. This gives them financial strength, greater independence, and a stronger voice in their own business affairs.

Today’s cooperatives – whether in agriculture, utilities, banking, retailing, insurance, or wholesaling – are organizations in which people of similar needs and interests can work together to help themselves and each other. By doing so, they strengthen themselves economically, they keep profits within their control, and they stimulate free enterprise.

Seven 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”

Kinds of Cooperative Ventures

Today, the life of every American is touched in some way by cooperative enterprises. Approximately 45,000 separate cooperative organizations with more than 90 million members currently operate in this country. Statistics show that of the 45,000 cooperatives, approximately 5,000 are farmer-owned, providing marketing, purchasing, and related services for farmers and producers. Cooperatives market about 25 percent of all agricultural products and provide about 25 percent of all production supplies used on farms each year.

But the statistics tell only part of the story…

Cooperatives are particularly important to rural Americans. Some 30 percent of all irrigated farmland is supplied water by mutual irrigation associations. Fire and insurance coverage on farm buildings in the United States is carried by more than 1,000 farmers’ mutual fire insurance associations.

Sheep and cattle producers – working through 1,200 grazing associations – use certain public lands for grazing livestock. Dairy farmers have organized about 1,100 dairy heard improvement associations. Forty million rural people get their electric power from more than 900 electric cooperatives and their telephone service from about 250 cooperatives.

Sound credit is extended to agricultural cooperatives and to farmers to help finance land, crops, livestock, and equipment, through the cooperative banks comprising the Farm Credit System. In addition, about 1,000 rural credit unions chartered under federal and state statutes provide savings and loan services to thousands of their members.

In fact, if you ate a Sunkist orange for breakfast, began your day with a glass of Welch’s grape juice, enjoyed a box of Sunmaid raisins at lunch, or spread Land O’ Lakes butter on your bread, you consumed foods and beverages produced and marketed by large cooperatives.

Tennessee Cooperatives are no different. Within the state, there are many farm supply, marketing, service, and credit cooperatives. General farm supplies are available through Tennessee Farmers Cooperative and its 73 member Co-ops located across Tennessee. Various types of marketing cooperatives provide marketplaces for fruits and vegetables, milk, grain, and tobacco. Services in the form of electricity, telephones, and artificial insemination are also provided by cooperatives. Credit is available to the farmer through the Bank for Cooperatives and Farm Bureau. Truly, cooperatives touch our lives daily.

The History and Development of Cooperatives

To better understand how cooperatives are organized and why they exist requires a look at some of the cooperative principals of conducting business. Cooperatives as we know them today are relatively new. Yet, cooperative ventures have existed throughout the world in one form or another for centuries. In early times, it didn’t take people long to discover that some jobs are pretty difficult for one person to accomplish alone; working together can be for the mutual benefit of everyone.

The first agricultural cooperative was established in Babylon almost 2,000 years before the birth of Christ. Its objective was similar to the goals of modern agricultural cooperatives – that is, to provide greater flexibility and more independence for member farmers.

The forerunner of our modern cooperatives – the Rochdale Society of Equitable Pioneers – was founded in England in 1844. It started with 28 members, and each member purchased one share of stock worth about $150 in today’s economy. Its membership consisted of craftsmen such as weavers and shoemakers. By working together, they were able to sell their products under one roof and use a part of the earnings to purchase supplies in large quantities at economical prices. Another portion of the earnings was reinvested in the society so it could continue to grow. The remainder of the funds was returned to the individual members in the form of refunds.
It wasn’t until the Civil War and the coming of the Industrial Revolution that American agricultural cooperatives really took root. In the 1920’s, the federal government and various state governments began to step in with laws designed to encourage the growth of agricultural cooperatives. Perhaps the most important law was the Capper-Volstead Act of 1922. It allowed farmers to legally buy and sell their products and is a law under which cooperatives operate today.

Cooperatives are Different from Other Businesses

How is a cooperative different from other business?

First, cooperative memberships are voluntary.

Second, a cooperative has “democratic control.” A cooperative is a true democracy since – in almost all cases – each member has one vote. This allows the members to have final authority in controlling the affairs of the business.

Another principle of cooperatives is that they operate at cost to the benefit of their members. Cooperatives exist to meet the needs of their members for products and services and to meet these needs as economically as possible. They are not in business to make money for investors, as other types of businesses must do. A cooperative generally does not keep the excess money it makes. Usually a cooperative’s excess money – known in business as “profit”, is returned to its members in one form or another. It can be returned through what is called a “patronage refund” or it can be returned through lower rates and fees. A portion of the earnings, however, is often retained in a fund which is reserved for the purchase of new equipment, the construction of new buildings, and acquisition of new property.

Cooperatives and the Future

Cooperatives will become even more important as American agriculture faces new challenges in the year’s ahead. To be a successful farmer in today’s economic and political environment takes advanced knowledge, large amounts of capital, polished managerial skills, and cooperation with others. These factors are more important to farmers today than ever before.

America has progressed over the years from a predominately agricultural country to an industrial nation and now to an information-based society. As a result, farmers have become fewer in number. Through membership and participation in their cooperative associations, however, they have found new markets for their products and services, and they have developed a stronger voice in the affairs of agriculture.

Electric Cooperatives

Like other types of cooperatives, electric co-ops exist to serve members ion providing a service that would otherwise be unavailable to them.

Electric co-ops began to light the countryside in 1935 with the creation of the Rural Electrification Administration (REA) by President Franklin Roosevelt’s executive order. Co-ops were needed because it was not economically feasible for existing power companies to build lines in the sparsely populated corners of rural America. REA has recently been changed to RUS (Rural Utility Service). The new program still provides loans for rural electrification; moreover, the new RUS now gives co-ops the opportunity to help further develop rural communities by obtaining loans for water and sewer development, and also secures loans for businesses to improve job opportunities in rural areas.

Today, there are 22 electric co-ops in Tennessee serving 1.5 million people in about 600,000 homes, farms, industries, and institutions. During the last half-century of operation, Tennessee’s electric cooperatives have taken electricity to rural and small town residents across more than three-quarters of the state’s land area, providing better standards of living for the people of Tennessee.