History

      Cooperative efforts have occurred throughout history.  Since early man cooperated with others to help kill large animals for survival, people have been cooperating to achieve objectives that they could not reach if they acted individually.  Cooperation has occurred throughout the world.  Ancient records show that Babylonians practiced cooperative farming and that the Chinese developed savings and loan associations similar to those in use today.  In North America, clearing land in preparation for the planting of crops, threshing bees, and barn raisings all required cooperative efforts.  In the United States, the first formal cooperative business is assumed to have been established in 1752, almost a quarter-century before the Declaration of Independence was signed.  This cooperative, a mutual insurance company called the Philadelphia Contributionship for the Insurance of Houses from Loss by Fire, was organized by Benjamin Franklin and others, and it is still in operation today (Cobia).

      The cooperative as a modern business structure originated in 19th century Britain.  The Industrial Revolution had a profound effect on the way business was organized and on the working conditions and economic situations of many people.  In response to the depressed economic conditions brought forth by industrialization, some people began to form cooperative businesses to meet their needs.  Among them was a group of 28 workers who were dissatisfied with the merchants in their community.  They formed a consumer cooperative known as the Rochdale Society of Equitable Pioneers in 1844.  They began by opening a cooperative store that sold items such as flour and sugar to members, and the Society quickly grew to include other enterprises.  The founders also established a unique combination of written policies that governed the affairs of the cooperative.  Among these rules were: democratic control of members, payment of limited interest on capital, and net margins distributed to members according to level of patronage.  Based on its success, the Rochdale set of policies soon became a model for other cooperative endeavors, and became known as the general principles that make a cooperative unique from other business structures.

Agricultural Cooperatives

     Agricultural cooperatives are typically classified according to the three major functions they perform: marketing, supply, and service.  Many cooperatives combine all three types of functions in their operations. 

     Marketing cooperatives

     Marketing cooperatives help to sell their members' farm products and maximize the return that they receive for these goods.  Their operations can be quite diversified and complex.  Some marketing cooperatives perform a limited number of functions, while others vertically integrate their operations so that they perform more functions that add value to their members' products as they move from the farm to the consumer.  Some cooperatives even sell products in grocery stores under their own brand name; Land O' Lakes and Ocean Spray are two prominent examples.   Marketing cooperatives can serve their members in many ways, including bargaining for better prices, storing and selling members' grain, and processing farm products into more consumer-ready goods.  In the United States, agricultural cooperatives handle about 30 percent of farmers' total farm marketing volume (Mather et al.).

     Supply cooperatives

     Supply cooperatives (sometimes referred to as purchasing cooperatives) sell farm supplies to their members.  Products include production supplies such as seed, fertilizer, petroleum, chemicals, and farm equipment.  American farmers purchase about 28 percent of their supply needs through cooperatives (Mather et al.).

     Service cooperatives

     Service cooperatives provide various services to their members.  For instance, cooperatives may offer services such as pesticide applications, seed cleaning, and artificial insemination.  Service cooperatives also include organizations such as the Farm Credit System, a network of borrower-owned lending institutions that provide credit and other financial services to farmers, and rural electric cooperatives, which provide electricity to rural areas.

     The first formal farmer cooperative to form in the United States occurred in 1810.  However, agricultural cooperatives were not really perceived as a viable business organizational structure until after the Civil War (Cobia).  Several farm organizations helped to promote cooperative development.  The Grange, a farmer organization established to improve the economic and social position of the nation's farm population (National Grange), began to engage in cooperative marketing and purchasing.  In 1875 it adopted the Rochdale system in carrying out its cooperative activities.  Other farm organizations, including the Farmers Alliance and the Farmers Educational and Cooperative Union of America (known as the National Farmers Union), also began to promote cooperative development (Cobia).  Farmers not affiliated with any farm organization also began to establish cooperatives.  By 1900, at least 1,223 cooperatives were active in the United States (Mather et al.).

     By the early 1900s the United States government began to pass laws that provided a favorable environment for cooperative development.  A commission established in 1908 by President Roosevelt noted that the country lacked adequate credit for the agriculture sector, and their findings helped lead to the passing of the Federal Farm Loan Act in 1916, legislation that led to the creation of the Farm Credit System.  The Capper-Volstead Act of 1922 was crucial for agricultural marketing cooperatives, as it provided limited antitrust immunity for farmers and ranchers who join together in cooperative marketing associations. 

     Government encouragement for agricultural cooperatives was highest during the 1920s and 1930s.  Most state legislatures established agricultural cooperative acts during this time.  America's agricultural sector went through a difficult period as prices collapsed after World War I ended.  As part of the response to the adverse economic conditions, Presidents Harding, Coolidge, and Hoover all strongly endorsed the use of agricultural cooperatives.  The Agricultural Marketing Act of 1929, which included the establishment of a fund for cooperative loans, also helped to strengthen the cooperative movement (Cobia).

     According to the United States Department of Agriculture (USDA), the largest number of agricultural cooperatives occurred during 1929-30.  At that time, the USDA recorded 12,000 farmer cooperatives (Mather et al.).  Although the number of agricultural cooperatives has been decreasing since then, total business volume has been rising.  In its 1997 survey, the USDA reported that 3,791 farmer cooperatives generated a net business volume of $106 billion, equal to the record high set in the previous year.  The net income was near the record high of $2.36 billion reported in 1995 (Richardson et al.).  The number of farmer cooperatives has decreased through various activities including dissolution, mergers or consolidations, and acquisitions as cooperatives, like other businesses, adjust to a changing economic environment (Mather et al.). 

References

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