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What is a Cooperative?

During America’s frontier days, friends and neighbors came from  miles around to enjoy the fellowship of others while they helped a  family “raise” a barn or build a house. There were also afternoons when  ladies gathered in the parlor at 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 influence. 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 own control. And they stimulate free  enterprise, while helping to protect the family farm.

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 many  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 hard for  one person to tackle 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.  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 that 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 organize legally to 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

Cooperative 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.

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