Agriculture 101: Cooperatives

Growing up, I remember my dad and other farmers talking about the local co-op. It was usually in reference to selling grain or buying fertilizer, pesticide, or other crop inputs. To me, a co-op was a place. A place where farmers purchased supplies or sold their crops. I thought it was similar to the local tractor dealership or any other physical place where farmers do business. It wasn’t until I was in college that I realized that a co-op was more than a business where farmers purchase supplies or sold crops. It was, in a way, their business.

So, what is a co-op and how do they benefit farmers?  Let’s dive into these and other questions and more.  

What is a co-op?

A cooperative, or co-op, is a user-owned and operated business that operates for the benefit of its users, rather than outside investors. All co-op owners, or members, have a need for the products and services offered. This all means that the users (the farmers) are usually also the owners. The motivation is utilitarian, not necessarily for financial gain. However, the business still needs to be sustainable so that means they still try to ensure a profit is made. That profit is then shared with the owners (the farmers). This can help farmers diversify their income and in turn help sustain their farm business.

What is a farm or agricultural co-op?

Agricultural co-ops help farmer-members market and process their crops and livestock. This means that they help market or sell the grain to an end user like Quaker Oats, General Mills, or any other company that might use it for human food, livestock feed, or an industrial purpose. Co-ops also help farmers secure needed supplies and services. This might mean that they run a store that carries things like fertilizer, pesticides, seeds, or other needed supplies. Some co-ops only provide products and services to farmers like agronomy consultation, technology services, or other services that will benefit the farm. Other co-ops (like Land O’Lakes for example) process and market food brands (like butter) we find at grocery stores.

Earnings of the cooperative business are returned to the farmer-members as dividend payments. The payment that each member receives is based on how much they used the co-op’s services (i.e.: amount of product purchased or sold through the co-op).

These are just a few of more than 3,000 U.S. agricultural cooperatives and their brands.

Are there cooperatives in other industries?

Absolutely. Cooperatives are common in almost all sectors of the economy, including the energy, grocery, housing, finance, and telecommunications industries. Some brands that you may be familiar with include Farmers Electric Co-op (energy), Iowa Food Co-op (grocery), Vintage Cooperatives (housing), Community Choice Credit Union (finance), and Farmers Mutual Co-op Telephone (telecommunications).

Are there different types of co-ops?

Yes. Cooperatives can be grouped into categories based on their primary business function or functions. Types of co-ops include:

  1. Marketing. In marketing cooperatives, members sell, or market, their products together.  This is the most common type of co-op in agriculture.  The co-op negotiates with processors for a better price for their members’ products.  Some marketing co-ops grade, process, merchandise, or distribute members’ products as well. Iowa meat processor, West Liberty Foods, is an example of a marketing cooperative. This farmer-owned co-op processes, markets, and distributes meat products to companies like Subway and Jimmy Johns.
  2. Supply cooperatives provide members with dependable supplies at competitive prices.  Farmers often join supply co-ops to purchase feed, seed, fertilizer, and other necessary farm inputs. By purchasing items in bulk, a co-op is often able to obtain materials at a lower cost than individuals. Bulk purchasing also ensures a consistent supply is available to producers. This is especially important to livestock farmers purchasing feed. 
  3. Consumer co-ops provide access to certain products for their members. Grocery stores that are structured as a co-op are the most common type of consumer co-op.  The most common example of a consumer cooperative is a grocery store that is structured as a co-op rather than an individual business.
  4. Service co-ops provide a specialized service to their members. Common types of service co-ops include finance, utility, insurance, housing, and healthcare. Electric co-ops, such as Prairie Energy Cooperative, provide electrical service to residents and businesses. Farm Credit Service of America, is a financial co-op that specializes in providing loans and other financial services to farmers and rural residents. 
  5. Worker co-ops are owned and self-managed by the people who work for the company. In the U.S. worker cooperatives tend to be primarily in the service and retail sectors.

If you’ve ever purchased Land O’ Lakes butter, you are supporting a farmer-owned cooperative that includes marketing, supply, and service functions. Originally named the Minnesota Cooperative Creameries Association, it was formed in 1921 by 320 dairy farmers as a way to effectively market and distribute its member’s milk across the country. Today, Land O’ Lakes, Inc is still a farmer-owned cooperative, but it includes four businesses with marketing, supply, and service functions. Land O’ Lakes is its food business that processes, markets, and distributes butter, cheese, milk, and other dairy products. Purina Mills is its feed company. WinField United provides seed, crop production products, and agronomy services. Its sustainability and technology business, Truterra, provides services for farmers and food companies to improve sustainability and profitability.

How do co-ops benefit farmers?

There are may ways farmers benefit from co-ops.  Some include:

  • Expanded market opportunities for grain and livestock;
  • Reliable access to and price of quality farm inputs including fertilizer, seed, fertilizer, fuel, and more;
  • Lower overall production cost;
  • Increased farm income;
  • Shared income and risk in the cooperative business.

Most of America’s two million farmers are member-owners in one or more of the almost 3,000 agricultural cooperatives here. That means these farmers are not only in charge of their individual farms, but also have a share in the ownership and a say in the operations of the larger cooperative business.

-Cindy

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