Producer Cooperatives

Producer cooperatives are owned by people who produce the same type of goods. By pooling member products, a co-op can negotiate better prices and provide access to larger markets. These co-ops often operate shared facilities for processing or distribution. Many varieties of agricultural cooperatives fall into this category, which also includes forestry and artisan co-ops.

Agriculture Cooperatives

Cooperatives play a significant role in the agriculture sector due to the advantages of economy of scale and collective price negotiations. There are several different types of cooperatives that provide services to farmers, ranchers, and other cooperatives.

Marketing cooperatives handle, process and market virtually every commodity grown and produced in the United States. They bargain to help their farmer members obtain reasonable prices for the commodities they produce. They also provide a larger, more diverse line of products to fill larger orders and become more attractive to larger customers.

Farm supply cooperatives are engaged in the manufacture, sale and/or distribution of farm supplies and inputs, as well as energy-related products, including ethanol and biodiesel. This increases access to needed products and services and also reduces their cost to members.

Credit cooperatives include the banks and associations of the cooperative Farm Credit System that provide farmers and their cooperatives with a competitive source of credit and other financial services, including export financing.

Examples of marketing cooperatives are the Allegheny Grass Fed Cooperative, the Central PA Produce Cooperative in Pennsylvania, and the Chesapeake Flower Exchange in Maryland.

Forestry Cooperatives

In the United States, examples of forest owner co-ops date back to the early 20th century. In the late 1990s and early 2000s, there was a renewed interest by forest owners in cooperatives not only in the Upper Midwest but also in the Northeast, Northwest, and parts of the South.

Forestry cooperatives provide a range of services to members, including land stewardship education, development of woodland management plans, sustainable harvesting, processing, and marketing, among others. These organizations strive to provide their members with a return equal to or greater than what they would get from a traditional timber buyer, while at the same time maintaining or improving the ecological and aesthetic condition of their woods.

Examples are the Keystone Tree Crops Cooperative established in Pennsylvania.

Artist Cooperatives

Arts and crafts cooperatives are used by artists and craftspeople to market their product to maximize sales income. Cooperatives also can be a cost-effective means to obtain studio space, gallery space, retail space, or other specialized supplies or services needed by artists and craftspeople to carry out their work. These cooperatives account for a very small portion of the economic activity generated by the arts and culture sector.

Examples are the PA Flax Project and Philly Natural Dye Co-op in Pennsylvania.

How Are Producer Cooperatives Formed?

At least two members are required for a cooperative corporation or a CAA, but these typically are formed by five founding members, who usually gather and meet to organize and make decisions along the way toward formation. This group, commonly called a steering committee, is usually elected as the founding board of directors. The general steps are to 1) determine the economic need for a co-op, 2) develop leadership and plan the work of formation, 3) assess and confirm the market and potential membership, 4) assess the operational and market feasibility, 5) finalize business planning and the legal documents for incorporation, and then 6) file incorporation and kick off operations. After filing, an organizational meeting is held to elect the board of directors, who then elect officers and ratify the co-op’s bylaws. As operations get underway, it is also important to monitor progress and confirm, add, or revise bylaws and policies.

How Producer Cooperatives Are Structured and Governed

Producer cooperatives are typically structured as a member-owned corporation with member rights to choose leadership but also delegate enough authority to its leadership group (usually a board of directors) to ensure members are informed but the burden of governance and management is not an undue diversion of effort from members’ core business.

In Pennsylvania there is a special type of legal entity that agricultural producers may elect to assume in their formation: the Cooperative Agricultural Association (CAA). Under this form, members buy a share to give them ownership and voting rights. Members may also form the cooperative to require a financial equity stake beyond the initial share, but voting rights remain one vote per member. Net profits are distributed to members as the leadership sees fit, usually on the basis of a members’ patronage – the amount of members’ individual production contributed. Patronage dividends, or patronage rebates, are determined also based on the financial needs of the cooperative’s operations.

Producer cooperatives may be formed under standard domestic c-corporation structure (either for-profit or non-profit) or limited liability companies. Because of the special accommodations the IRS gives to agricultural cooperatives under the 1922 Capper-Volstead Act, the cooperative agricultural association (where available, as in PA) or cooperative corporations are most advantageous.