ERE32E Co-operative Business

Bridget CarrollCentre for Co-operative Studies, University College Cork, Ireland

Session 3: Co-operative activity by type

This session

Classify co-operatives according to their prime beneficiaries and give examples of the kinds of businesses operated within each category

Co-ops are defined according to the type of user

Traditionally: Producer co-ops Consumer co-ops Worker co-opsNow also: Multi-stakeholder co-ops – may

include/be called social co-ops, development co-ops, solidarity co-ops, community co-ops

Defined according to user… Producer co-ops owned and controlled by

those who produce goods/services Consumer co-ops -owned and controlled by

the people who consume the products and services of the business.

Worker co-ops owned by those who work in the co-op

Producer co-ops

Owned and controlled by independent producers e.g. farmers fishermen taxi-drivers craft

workers/artisans artists

Also known as Agriculture co-ops Farmer co-ops Dairy co-ops Fishermen’s co-ops Forestry co-ops Taxi co-ops Craft co-ops Artists’ co-ops Or into sub-divisions

Aims of Producer Co-ops To serve members’ needs - improve

effectiveness and profitability of members’ individual businesses.

Deal in commodities including dairy, beef/lamb/poultry/bees, fruit & vegetables, grain, cotton and other fibres, coffee, olive oil, wine, tobacco etc. Collect, process and market products

Also services such as: farm supply, fertilizers etc.

World’s top 10 dairy processorsDairy Turnover

Nestlé €18.5m Danone €10.7m Lactalis €9.3m FrieslandCampina €9.3m Fonterra €8.2m Dean Foods €8.1m Dairy Farmers of America €6.9m Arla Foods €6.9m Kraft Foods €5.1m Unilever €4.5m

Rabobank International 2009

Producer co-op presence• France: 40% of food and ag. production• New Zealand: 100% dairy market, 22% GDP• Brazil: 32% of agricultural production• Canada: 35% of world supply maple syrup, 80% dairy

products • Slovenia: 77% potato production• Denmark – a/c for 10% GDP• US - market one third of farm commodities• India – co-ops made it largest milk producer in world• Japan - >90% of rice and fisheries production (supply

and marketing)

▫ Source: www.ica.coop

Agriculture Co-ops in the EU

>50% share in agriculture input supply

>60% share in collection, processing and marketing of agricultural products

Source: COGECA, 2011

Fair trade/developing world

Co-ops playing a central role in fair trade initiatives, examples Divine chocolate – part owned by

Ghanian cocoa producers’ co-op Equal Exchange – US worker co-op which

uses coffee from producer co-ops Other examples you know of?

Why producer co-ops?

Market failure Prices too high or too low Goods/services not available

Causes of market failure Transaction costs Non-appropriability Externalities Information asymmetry

Overcoming Market Failure

The co-op permits: Pooling of resources Joint processing Joint marketing Joint purchase of inputs Provision of various services/technical

assistance Vertical integration in

processing/distribution chain Therefore economies of scale as well as

member control and benefit

Arguments against

Some economists argue that co-ops are not always optimally efficient Members don’t control managers

(principal-agent problems) Higher costs of control in co-op

(transaction costs) “Free riders” Investments can be short-term Accumulated investments below optimum

Benefits of producer co-ops

Access to quality supplies and services at reasonable cost

Increased clout in the marketplace Share in the earnings of the co-op Political action Local economy enhanced and

protected (USDA, 1997).

Public policy roles for producer co-ops

Efficient production of public goods – food

Competition enhancing Preserve jobs and farming Role in rural development

Factors impacting change

Deregulation Globalisation of markets Increased competition Reduced subsidies Need to raise capital Increased power of multiples

Trends in agricultural co-ops Merge/acquisitions, to internationalise

and to advance technology. Significant changes to co-operative

organisational form Main difference is in ownership Range from traditional co-ops to hybrids

(co-ops with subsidiaries) including external shareholders

Also changes in entry, individual equity, voting, control, external participation, professional management, value-added activities

Challenges facing co-ops

To achieve economic survival/success while retaining the characteristics of a co-op

To raise capital but retain control To deal with globalised agri-food system

but provide member benefits Indifference to the co-op model

Strategies External investors Financial instruments Market orientation/expansion - brands Diversification Vertical as well as horizontal integration Degenerating/demutualising Reassessment of objectives/strategies –

large/small Local markets

2. Consumer Co-ops Co-ops owned and controlled by their

customers Members both owners and customers Examples:

Retailing Financial services Utilities Social and health care Leisure services

Consumer co-ops

Emerge in context of: Lack of goods/services or Unsuitable goods/services (e.g. quality or

cost) Consumers at certain disadvantages

relative to retailers/other distributors. Where combined purchasing power

results.

Co-op Retailing Grocery stores/supermarkets Co-op shops – farm inputs, building materials,

DIY Niche areas- health food shops Specialist retailing – e.g. MEC Retention of rural shops/pubs

Co-op retailing Emerged in the UK, late 1880’s Basic foodstuffs initially Long period of staple growth Developed wholesale and manufacturing wings Dividend system key Decline from 1950’s. Resurgent in 2000’s- currently growing market share Retail co-ops have survived and prospered as

conglomerates in a number of countries

UK – largest consumer co-op in world Sweden- 21% market share (groceries) Switzerland – Migros 32% retail market, Coop

Suisse 17% food/consumer goods market Finland- S-group 40% grocery trade

From decentralised co-ops to unified national retailers:

User-owned financial institutions

Emerge in a context of Lack of adequate access to financial

services Poverty Banking mergers and acquisitions Branch closures

Consumer co-ops:Financial services

Financial Co-ops

Main types of co-operative savings and credit institutions Ireland

Credit unions UK and Rest of Europe

Co-operative banks (e.g. Rabobank) Building Societies Insurance

Developing countries Credit unions Savings and Credit Co-operatives (SACCOs)

North America/Australia/New Zealand Credit unions

Often emerged as rural credit institutions

In the EU today: 4,239 co-op banks >175m clients, >50m members 18.8% market share (deposits), 20.1% (lending) Some market leaders:

Rabobank: 38% deposits, Netherlands Credit Mutuel & Credit Agricole: 60% deposits,

France Various: 33% deposits, Austria

European Association of Co-operative Banks- http://www.eurocoopbanks.coop/ International Co-operative Banking Association -http://www.icba.coop/

Co-op Banks

Credit Unions

World Council of Credit Unions (WOCCU)

Member Statistics http://www.woccu.org/ Africa: http://www.accosca.org/

Year Countries Credit Unions

Members

2009 97 49,330 183,916,050

2010

Numbers 504

Members 2.96m

Assets €13.9b

Savings €11.9b

Loans €6.2b

Employees 3,800 est.

Volunteers >20,000 est.

Credit Unions in Ireland (ILCU, 2010)

Main characteristics

Help build up a habit of savings Provide access to affordable loans Reduce the extent of money-lending Provide access to financial services Educate in the wise use of money Provide a means for people to sustain

a living

Fermoy Credit Union http://www.fermoycreditunion.ie/ Consumer co-op established 1956 Common bond: Fermoy town and surrounding

parishes Legal status under Credit Union Act 1997 12,000 members approx. Governance: Voluntary Board (strategy/mission),

paid staff (operations), committee system AGM Member benefits include: financial dividend,

access to financial services, community benefit, ownership, control

Application of co-op principles? Open membership - subject to “common

bond” and legislation/regulation Democratic member control through Annual

General Meeting (AGM) Minimum shareholding, distribution according

to savings Each credit union is independent Education, training and information? Co-operation among co-operatives – through

chapter and league, Concern for community – many examples

E.g. social lending, money advice

Utility co-ops – delivery of public utilities such as housing water electricity telecommunications (e.g. phone) using a co-op model.

Owned by consumer -members Reliable service at affordable costSurplus: to members or reinvested in co-op

Housing Co-ops Not-for-profit co-ops Provide

ownership and/or rental housing the management of housing estates or

apartment blocks, Improve the supply of housing Improve the housing and living conditions of

their members and families.

In the U.S. an estimated 25m people get their power through co-ops

Often in isolated rural areas by-passed by private companies

Purchase wholesale and deliver to members orGenerating and transmitting on national grid or

could be small scale generating and gathering for local use.

Other examples:Danish wind energy co-opsPhone Co-op, U.K.

Consumer co-ops links

www.eroski.es www.co-op.co.uk www.united.coop www.eastofengland.coop www.midcounties.coop www.creditunion.ie www.nabco.ie

3. Worker/industrial co-ops

Owned and controlled by those who work in them

Emerge to provide jobs but also concerned with the type of working environment

Origins - types Philanthropic business owners converting their

businesses into co-ops (e.g. Scott Bader Commonwealth in the UK)

Takeovers, otherwise known as defensive co-ops or phoenix co-ops.

Alternative collectives or idealistic co-ops are set up by those who may embrace ideals of collective ownership and worker democracy and who share a “commitment to participatory democracy, equality and production for need rather than profit” (Cornforth et al 1988).

Worker/Industrial Co-ops

The European Confederation of Workers’ Co-operatives, Social Co-operatives and Participative Enterprises (CECOP) represents: 37 national and regional federations of co-operatives

in Europe. Mainly in Spain, France and Italy. In turn these federations represent 1.3 million

workers and 83,000 enterprises. Spread across a number of sectors: services (38%),

industry and crafts (33%), construction (14%), social services (13%) and education and culture (2%).

Mondragón, 1950’s

Mondragón 1950’s, Basque region of Spain 7th largest business group in Spain >83,000 employees, 86% of whom are co-

op members*. 44% women. Turnover €14,000 million (MCC, 2010). Industry, co-op bank, co-op university,

supermarkets…. Teams, flat hierarchy within co-ops www.mcc.es

Orkli S. Co-op

http://www.orkli.es Created in 1982, Orkli has 440 members and 550

employees. Produces components for heating and domestic

appliances. Formation was spear-headed by parents wishing to

create employment for young women in the area. The co-op is a spin-off from another co-operative in the

area. The members helped financed the co-op by reinvesting part of their salaries for four years. The support of other co-operative firms in the area was crucial for a number of years.

30 years later, Orkli has sales in excess of €100m.

SUMA

SUMA Wholefoods U.K.’s largest independent wholesaler and distributor of

vegetarian, fair traded, organic and natural foods. > 25 years wholly owned and run by its 120 workers,

each of whom are equally paid. Suma does not see this large number as a problem but

as an asset. “General Meetings” to decide strategy, business plans and major policy decisions are held six times a year.

Participation is not only encouraged but mandatory at these meetings.

Flat hierarchy & considerable job rotation and multi-skilling.

Annual turnover > ₤20m. www.suma.coop

Union Cab – taxi co-op

1979 Madison, Wisconsin >200 member-workers Work on commission basis,

guaranteed a minimum wage 2.5:1 mgt/work pay ratio Healthcare provided Member-run committee system

Worker Co-op Links

www.mcc.es www.suma.coop www.loch-fyne.com www.johnlewispartenership.co.uk www.tullis-russell.co.uk www.scottbader.com www.walescoop.com

Employee Ownership & Business Succession Sites

www.business-succession.coop/ www.jobownership.co.uk www.walescoop.com www.successionlondon.co.uk www.eos.coop

Multi-stakeholder co-ops Co-ops owned by more than one group of

users e.g. customers and workers All groups represented on board Examples:

Eroski Co-op Group = Spain’s leading food retailer (47 hypermarkets, 800 supermarkets & 2023 self services stores)

Health care co-ops Consumer/farmer/fisher co-ops in Iceland Childcare co-ops (social economy co-ops)

Case for/against private providers involved in social careHigh quality, cost effective healthcare, childcare, elder-

care,Examples –

Social care co-ops, ItalyHealth care co-ops in Japan, the US and CanadaChildcare co-ops in Sweden In Ireland a broad range of co-ops that organise

cultural and heritage events such as fairs, shows, festivals and museums, leisure and sports co-ops and tourism co-ops.

These may be not-for-profit.

Homework

Work on your presentation for Friday Co-ops in your country? http://www.coopscanada.coop/en/

orphan/InnovativeCoops http://www.uk.coop/ http://www.coopseurope.coop/

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