Agricultural cooperatives are organized to help farmers gain market power by joining together to market their crops, increase their bargaining power by achieving economies of scale, processing their commodity to add value, and/or to purchase supplies and services. Benefits and profits gained from the cooperative are distributed equitably to member-farmers on the basis of use of the cooperative.
Cooperatives are user-owned and user-controlled businesses and many of their products have been mainstream items on super-market shelves for more than a century. California has approximately 200 agricultural cooperatives and there are more than 4,000 nationwide.
Marketing, supply, and service cooperatives are the most common types of agricultural cooperatives in the United States. Marketing cooperatives assemble, pack, process, and sell members’ products in both domestic and foreign markets. By joining together, producer members are assured a “home for their product,” and don’t have to be concerned with securing markets individually.
Supply cooperatives purchase products and services for their members. By making large-scale purchases of fuel, seed, fertilizers, and pest control products, members are able to obtain the best price on products. Service cooperatives provide members with specialized services, such as dairy herd management and horticultural advice, which are often not economical for an individual farmer to obtain.
The following characteristics distinguish Agricultural Cooperatives from other types of businesses:
- They are owned by farmer-members.
- They are democratically controlled by the farmers who own and use the business. Members elect a board of directors that sets the overall operating policies, approves the annual budget, and oversees professional management. Professional management implements policies established by the board and handles day-to-day operations.
- The economic benefits are distributed to members on the basis of the member’s use of the cooperative (e.g. if more product, more economic gain).
- They are designed to provide benefits to producer-members as users, not as investors. Cooperative members as co-owners members share in business operating costs, expansion and unforeseen emergencies.