Introduction to the Cooperative Business

Model

Louis E. Petersen, Jr. Ph.D.

Assistant Director – St. Thomas/St. John District

UVI Administrative and Conference Center – Rm. 142

St. Thomas, USVI
November 14, 2016
Presentation Objectives
• Share Basic Information to Increase Awareness of the
Cooperative Business Model

• Encourage Healthy / Positive Thinking and Dialogue

Regarding the Cooperative Business Model
Sugar Cane Production in Estate Bethlehem,
St. Croix (circa 1950)

3
Vegetable Crop Production in Estate Dorothea,
St. Thomas (1954)

4
Tomatoes Packed and Prepared for Export
From St. Croix (circa 1964)

5
Local Organizational Efforts Among Farmers
• St. Croix Farmers Association (Est. 1984)
• St. Croix Farmers in Action (Est. 1997)
• St. Thomas/St. John Livestock Association (1982)
• We Grow Food, Inc. (Est. 1993)
• Virgin Islands Farmers’ Cooperative (Est. 2006)
• Crucian Beekeeping Network (Est. 2009)
Cooperative Economics has Been Practiced for
Centuries (Informal Partnerships)
• Common Needs and Challenges
• Limited Resources
• Disenfranchisement
Other Factors Influencing Spread of
Cooperative Movement
• Common Needs and Challenges
• Limited Resources
• Disenfranchisement
• Concerns About Profit-Oriented Large Businesses
• Individualism of Capitalism
• Usurious Business Practices
• Long Working Hours at Low Wages
Cooperative Movement in the Caribbean
• Jamaica (1905) - Peoples Cooperative Bank
• Trinidad and Tobago (1940s) - Co-operative Credit
Union League
• Dominica (1951) - Co-operative Credit Union League
• Barbados (1957) Co-operative & Credit Union League,
Ltd.
The Puerto Rico Experience in Cooperative
Development
.

10
 Cooperative Development Throughout
the Caribbean

11
What is a cooperative?

A cooperative is an autonomous association

of persons united voluntarily to meet their
common economic, social, and cultural
needs and aspirations through a jointly and
democratically controlled enterprise.
What is a cooperative?

A cooperative is an organization or business

owned and operated for the benefit of its
members. The earnings and profits are
distributed among its members
(user/owners).
Cooperative Membership?

Cooperative membership can be composed

of individuals or it can be composed of a
group of businesses.
Common Applications of the Cooperative
Business Model
1. Agriculture
2. Retail
3. Arts and Crafts
4. Health Care
5. Financial
6. Restaurant
7. Rural Utilities
8. Housing
General Types of Cooperatives

• Consumer – members by goods and services to

improve purchasing power
• Producer – members produce, process and market
their commodities or crafts
• Worker – members own and democratically govern
businesses
• Hybrid – combination of co-op types
Agricultural Cooperatives / Collectives

• Some act as buying groups to obtain needed supplies for

members.
• Others work to collectively sell the goods their members
have produced.
• Some provide members access specific services that might
otherwise be too expensive to obtain individually.
It’s all about the power of the group!!
Cooperative Principles
 Voluntary and open membership – membership is open to everyone
 Democratic member control – all members have an equal voice in making
policies and electing representatives
 Member economic participation – all profits are controlled
democratically by members and for their benefit
 Autonomy and independence – co-operatives are always independent,
even when they enter into agreements with the Government and other
organizations
 Education, training and information – co-operatives educate and develop
their members as well as their staff
 Co-operation amongst co-operatives – co-operatives work together with
other co-operatives to strengthen the co-operative movement as a whole
 Concern for community – co-operatives also work to improve and
develop the community, both locally and internationally.
Cooperative Values
 Self-help – we help people to help themselves
 Self-responsibility – we take responsibility for, and answer to
our actions
 Democracy – we give our members a say in the way we run
our businesses
 Equality – no matter how much money a member invests in
their share account, they still have one vote
 Equity – we carry out our business in a way that is fair and
unbiased
 Solidarity – we share interests and common purposes with
our members and other co-operatives.
Organizational Structure of the Cooperative
Business Model
1. Manager (hired)
2. Board of Directors
3. Executive Officers
4. General Membership
5. Staff (hired)
Advantages of the Cooperative Business Model
1. Less Taxation. Similar to an LLC, cooperatives that are
incorporated normally are not taxed on surplus earnings
(or patronage dividends) refunded to members.
Therefore, members of a cooperative are only taxed
once on their income from the cooperative and not on
both the individual and the cooperative level.
Taxes and Cooperatives
1. A cooperative operates as a corporation and receives a "pass-
through" designation from the IRS. More specifically, cooperatives
do not pay federal income taxes as a business entity.
2. Exemption authorized by section 521 of the Internal Revenue Code
Advantages of the Cooperative Business Model
2. Funding Opportunities. Depending on the type of
cooperative you own or participate in, there are a
variety of government-sponsored grant programs to
help you start. For example, the USDA Rural
Development program offers grants to those
establishing and operating new and existing rural
development cooperatives.
Advantages of the Cooperative Business Model
3. Reduce Costs and Improve Products and Services. By
leveraging their size, cooperatives can more easily obtain
discounts on supplies and other materials and services.
Suppliers are more likely to give better products and
services because they are working with a customer of
more substantial size. Consequently, the members of the
cooperative can focus on improving products and
services.
Advantages of the Cooperative Business Model
4. Democratic Organization. Democracy is a defining
element of cooperatives. The democratic structure of a
cooperative ensures that it serves its members' needs.
The amount of a member's monetary investment in the
cooperative does not affect the weight of each vote, so
no member-owner can dominate the decision-making
process. The "one member-one vote" philosophy
particularly appeals to smaller investors because they
have as much say in the organization as does a larger
investor.
Potential Benefits of Cooperatives in
USVI
• To address needs too challenging on individual basis
• To reduce business / operational cost
• To reduce importation / production costs
• To increase income/revenue
• To meet production and market demands
• To increase lobbying capacity
• To create employment / Self Empowerment
Disadvantages of the Cooperative Business
Model
1. Obtaining Capital through Investors. Cooperatives
may suffer from slower cash flow since a member's
incentive to contribute depends on how much they use
the cooperative's services and products. While the "one
member-one vote" philosophy is appealing to small
investors, larger investors may choose to invest their
money elsewhere because a larger share investment in
the cooperative does not translate to greater decision-
making power.
Disadvantages of the Cooperative Business
Model
2. Lack of Membership and Participation. If members
do not fully participate and perform their duties,
whether it be voting or carrying out daily operations,
then the business cannot operate at full capacity. If a
lack of participation becomes an ongoing issue for a
cooperative, it could risk losing members.
How to Start a Cooperative
1. A group of potential members must agree on a common need and
a strategy
2. An organizing committee then conducts exploratory meetings,
surveys, and cost and feasibility analyses before every member
agrees with the business plan.
3. File Articles of Incorporation; the articles of incorporation
legitimizes your cooperative.
How to Start a Cooperative (Cont’d)
4. Create Bylaws indicating membership requirements, duties,
responsibilities and other operational procedures that allow your
cooperative to run smoothly.
5. Create a Membership Application to recruit members and legally
verify that they are part of the cooperative, you must create and issue
a membership application.
How to Start a Cooperative (Cont’d)
6. Conduct a Charter Member Meeting and Elect Directors / Executive
Officers

7. Obtain Licenses and Permits

8. Hire Employees if necessary

Are you a member of or
do you presently support
any cooperatives?
Examples of Family and Farmer Owned
Cooperatives
Co-op of family farms founded in 1893 Headquartered in Valencia, California

33
Examples of Family and Farmer Owned
Cooperatives

34
Examples of Family and Farmer Owned
Cooperatives
Est. 1921
HQ – St. Paul, Mn.
Membership: 800

35
Examples of Family and Farmer Owned
Cooperatives
Est. 1956
HQ – Concord, Mass.

Membership: 1,300

Owned by National
Grape Cooperative
Association

36
Other Examples of Cooperatives
Est. 1973
HQ – Oak Brook, Illinois

Largest Hardware retail

Cooperative Store in
the world.

37
Other Examples of Cooperatives
(Retailer-owned co-op since 1973)

38
Other Examples of Family and Farmer Owned
Cooperatives
.

39
Other Examples of Family and Farmer Owned
Cooperatives
Est. 1910

HQ – Sacramento, Ca.

Serves 3,500 Growers

40
Other Examples of Family and Farmer Owned
Cooperatives
.

41
Other Examples of Family and Farmer Owned
Cooperatives
Est. 1933

HQ – Lake Wales, Fla.

1100 Members

42
Other Examples of Family and Farmer Owned
Cooperatives

43
Other Examples of Family and Farmer Owned
Cooperatives
Est. 1930

HQ – Lakeville-Middleboro,
Mass.

Membership: 700 Growers

44
Other Examples of Family and Farmer Owned
Cooperatives
.

45
Other Examples of Cooperative Enterprises
Est. 1970

HQ – Duluth, Mn.

Certified Organic
Retail Grocery

8000 members

46
Credit Unions
A Credit union is a member-
owned financial cooperative,
democratically controlled by its
members and organized for the
benefit of its members.

47
The Art and Science of Cooperative
Development

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The Cooperative Development Model
(Wisconsin Experience)

49
The Cooperative Development Model
(Wisconsin Experience)

50
The Cooperative Development Model
(Wisconsin Experience)

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The Cooperative Development Model
(Wisconsin Experience)

52
The Cooperative Development Model
(Wisconsin Experience)

53
The Cooperative Development Model
(Wisconsin Experience)

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The Cooperative Development Model
(Wisconsin Experience)

55
The Cuban Experience

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The Cuban Experience

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The Cuban Experience

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The Cuban Experience

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The Cuban Experience

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The Cuban Experience

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The Cuban Experience

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The Cuban Experience

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The Cuban Experience

64
The Cuban Experience

65
The Cuban Experience

66
The Cuban Experience
(Value Added/Food Preservation)

67
The Virgin Islands Experience in Cooperative
Development
.

68
The Virgin Islands Experience in Cooperative
Development
(poultry Producers)

69
The Virgin Islands Experience in Cooperative
Development
(Beekeepers)

70
The Virgin Islands Experience in Cooperative
Development
(Beekeepers)

71
Role of Government in Cooperative
Development
• Legislative Structure / Legal Framework
• Taxation and other Financial Incentives
• On-going Oversight
• On-going Educational Programs
Virgin Islands Code Regarding
Cooperatives
TITLE SEVEN Agriculture
Chapter 13. Farming and Fishing
Subchapter I. Farmer's, Fishermen and Consumers
Assistance
7 V.I.C. § 192 (2016)
§ 192. Definitions
For the purposes of this chapter, the term:
(a) "A person engaged in agriculture" means any
individual, partnership, firm, cooperative or corporation
engaged in any business listed in this section, whose
income is wholly or partially derived from fishing or the
production of food, including but not limited to:
Virgin Islands Code Regarding Cooperatives
TITLE SEVEN Agriculture
Chapter 1. Development of Sustainable Agriculture
Subchapter I. Sustainable Agriculture
7 V.I.C. § 2 (2016)
§ 2. Definitions
In this chapter, unless the context clearly indicates otherwise, the following words, terms, and phrases have the
following meanings:
(a) "Agricultural products" means fruits, vegetables, herbs, honey, forage, ornamentals, aquaculture, (fish),
trees, poultry, eggs, meat, and dairy products.
(b) "Commissioner" means the Commissioner of the Department of Agriculture or the Commissioner's
designee.
(c) "Crop" means the cultivated plants or agricultural produce, such as grain, vegetables, or fruit, considered as
a group; the total yield of the produce in a particular season or place.
(d) "Department" means the Department of Agriculture.
(e) "Farm" means any development of land for the commercial production of plants, fruits, vegetables, herbs,
honey, forage, ornamentals, aquaculture, trees, poultry, eggs, meat, and dairy products.
(f) "Farmer or agriculturist" means any individual, partnership, firm, cooperative or corporation in the Virgin
Islands engaged in any business whose income is wholly or partially derived from the production and sale of
food.
Virgin Islands Code Regarding
Cooperatives
TITLE SEVEN Agriculture
Chapter 1. Development of Sustainable Agriculture
Subchapter II. Administration, Fiscal Duties and Powers
7 V.I.C. § 9 (2016)
§ 9. Administration
The Commissioner shall:
(a) Identify, preserve, advise for the purchase and manage all public agricultural resources and agricultural-zoned lands in the
territory for the development of a sustainable agriculture industry;
(b) Encourage and assist the people of the Virgin Islands in raising, handling, grading, packing, shipping, processing and marketing
of agriculture products;
(c) Ensure compliance with regulations as they pertain to the operation of all public farms;
(d) Secure and maintain statistical records of the production and harvest of various crops and livestock, and make the records
available annually thirty days after the end of the fiscal year to the President of the Legislature for dissemination among the
members of the legislature; to the Bureau of Economic Research and to the public via electronic and print media;
(e) Advice and assist farmers, in conjunction with the University of the Virgin Island and other relevant vocational entities in the
territory, in the development and use of farm equipment and agricultural techniques;
(f) Administer, coordinate and enforce the provisions of this chapter, in cooperation with other appropriate departments of the
Territorial and Federal Governments;
(g) Appoint, subject to the provisions of this chapter, such environmental enforcement officers, research staff, grant writers and
other such personnel as are necessary for the proper and effective administration and enforcement of the provisions of this chapter;
(h) Work with the University of the Virgin Islands and other government agencies in the marketing, promotion, research, technical
services and agricultural training programs, for the development of new agriculturist and the development of a labor force;
(i) In conjunction with the University of the Virgin Islands and the Department of Labor, develop a farm certification program in
crop farming and livestock rearing;
(j) Assist the farming industry in the establishment of farming cooperatives; and
Agencies involved in the cooperative movement
in Puerto Rico
• COOPERATIVE DEVELOPMENT COMMISSION OF PUERTO RICO

• CORPORATION FOR THE SUPERVISION AND COOPERATIVE

INSURANCE OF PUERTO RICO

• INVESTMENT AND COOPERATIVE DEVELOPMENT FUND

Keys to Successful Cooperative Development
• Maintain Focus
• Keep Members Informed and Involved
• Build Strong Member Leadership
• Conduct Business-like Meetings
• Follow Sound Business Practices
• Maintain Honest, Open Communication
• Invest in Member, Board and Staff Education
• Forge Links with Other Cooperatives
Reasons for Failure of Cooperatives
• Lack of clear common goals and interests
• Lack of capital resources
• Inadequate training / Education
• Poor management, leadership, governance
• Lack of government support
• Lack of participation/communication by members
• Lack of trust among members
• Lack of succession planning
Presentation Summary
• Definition/Description of Cooperatives
• Cooperative Principles and Values
• Benefits of Cooperatives
• Organizational Structure
• Types and Examples of Cooperatives
• Role of Government
• Reasons for Failure of Cooperatives
• Keys to Cooperative Success
• Steps to Starting a Cooperative
Reviving the Virgin Islands Agricultural Industry
Through Cooperative Development
Additional Resources
• USDA Rural Development – Rural Business Cooperative
Service
• Cooperative Development Institute
• Cooperation Works
• UVI Small Business Development Center
• Federation of Southern Cooperatives
• National Council of Farmers’ Cooperatives
• CDCOOP de Puerto Rico
• cultivate.coop
• www.cooptools.ca
Office Contact Information

Louis E. Petersen, Jr. Ph.D.

SARE State Coordinator
Assistant Director – St. Thomas/St. John District
UVI Cooperative Extension Service

(340) 693-1083 Tel.

[email protected]
Thank You For
Your
Cooperation!!!