Types of Cooperatives

From Cultivate.Coop

Cooperatives are owned, controlled and operated for the benefit of their members. Most corporations are controlled based on the number of shares owned, and distribute profits based on investment. But co-ops operate on the basis of one member, one vote, and return dividends based on patronage. Cooperatives take a number of forms.

As you begin to create a cooperative, it is important to reach agreement about what you are trying to do. The form of the cooperative will depend greatly on which problem it is primarily trying to solve. Are you primarily concerned with job losses or lack of access to certain types of goods? Do you suffer from poor prices for your produce, or poor market access?

Cooperatives can be labeled more than one way, so it can be a little confusing at first. Labels may refer to the ownership structure, the product or service the co-op offers, or the activity the group engages in collectively. Just about any co-op can have more than one label.

For example, a group of people forming a co-op to open a grocery store and sell food to co-op members and perhaps other customers is called a "consumer co-op" and also--more commonly--a "food co-op". Both labels are correct. One refers to the co-op's ownership structure (consumers) and the other to what it offers those owners (food).

Here's another example: A group of dairy farmers who sell milk under a cooperatively owned brand name which they own might refer to itself as either a "producer co-op" or a "marketing co-op". If they open their own milk processing plant to make cheese or some other product, they are also a "value-added agricultural co-op". And all of them, if they buy equipment, fertilizer, services or anything else together, are "purchasing co-ops".

To make matters even more interesting, many people in the co-op world connect the label "purchasing co-op" to the model of independent retailer-owned co-ops such as Best Western motels, TrueValue and ACE hardware stores. Or, they may use the term purchasing co-ops for a municipally owned or other "shared service" cooperative.

And while agricultural producers work very hard, no one ever refers to them as worker co-ops any more than they refer to a group of factory workers who have formed a co-op to produce textiles as producer co-ops.

Given this cautionary note, here are some divisions that are widely accepted.

Producer cooperatives

This refers to groups of people engaged in the agricultural arena: farming, fishing, and forestry. The co-op members may be farmers, landowners or owners of fishing operations. There is a long menu of possible ways these groups may cooperate. They may buy farm inputs, equipment, and insurance, hire managers and sales people, market and advertise together, or operate storage or processing facilities or a distribution network.

Worker cooperatives

Main article: Worker Cooperatives

These businesses are owned by some or all of the workers. Depending on the start-up capital needed, they can offer workers a chance to own their own company with very little financial investment. This can make them an ideal structure for people of modest or low incomes. They are also increasingly popular with small groups of attorneys, designers and engineers, fundraisers, and other professionals.

Many worker co-ops are fairly small and have no separate boards of directors; everyone takes a direct role in policy making and other governance functions. Typical examples are print shops, copy centers and bookstores; small manufacturing, construction and engineering firms; homecare and daycare professionals; restaurants and bakeries, auto repair shops and groups of artists or artisans.

A few worker co-ops attain sizable memberships. Cooperative Home Care Associates in New York City's Bronx has 800 owner-members, mostly women of color (often immigrants) living on low incomes and tending homebound elderly, ill and disabled folks.[1]

Another group often included in this label are 'democratic' ESOPs (employee stock ownership plan), where workplace democracy is a stated goal. It is not uncommon for workers to buy out their company as a democratic ESOP (sharing the risks and rewards of ownership with the former owner and/or other parties) and then begin the transition to a full-fledged worker cooperative.

Consumer cooperatives

Main article: Consumer cooperative

These businesses are owned and governed by people who want to buy from the co-op. Consumers can create a cooperative to provide pretty much anything they want to buy. Their purchases may include groceries, electricity or telephone service, housing, healthcare, or—under the label of credit unions—financial services. The co-ops can be tiny or immense: a single artists' dwelling or a high rise with hundreds of apartments. A small food buying club in a rural village or a multi-million dollar supermarket in a bustling city.

The national Rural Electric Cooperative network serves consumer-owners in 45 states. Some cooperatively owned insurance companies like Nationwide serve enormous memberships with significant financial assets.[2]

Most consumer co-ops, even if they are not as complex or heavily regulated as credit unions (described below), elect boards of directors who hire managers to run the daily operations. Both the grocery and the electric industries are tough businesses that require constant professional development. Consumer member-owners may serve on committees, run for a seat on the board, or take another active part in the co-op. But as often as not, their primary involvement in their co-op is in the consumption of its goods or services.

Credit unions

Main article: Credit union

Credit unions are actually consumer-owned financial services cooperatives in which every depositor becomes a member-owner. Members may attend the annual meeting and help elect a board of directors that is typically made up of community volunteers, most of them with considerable financial and other relevant areas of expertise. This is quite a difference from big international banking conglomerates with their distant investor-owner millionaires and highly paid directors who have no knowledge of or loyalty to local residents.

Credit unions, as with all co-ops, come is all sizes--from a single facility with a few score members to huge, multi-branch operations that cover lots of territory and employ many local people. Community development credit unions are a special category created by the industry to specifically serve lower income communities.

Retail or Purchasing co-ops

Still another type of consumer co-op sometimes given its own category is the retail or purchasing cooperative, sometimes called a shared service cooperative. Many of these co-ops are owned and governed by independent business owners.

Best Western motels, True Value and ACE hardware stores, and Carpet One/CCA Global Partners are independently owned businesses that have formed national and international cooperatives to purchase goods and services at rates that will keep their bottom lines in the black. But there are also many successful smaller operations such as a group of independent business consultants or attorneys who want to buy office supplies, insurance, or other products and services together. Some municipalities and even state governments have joined together to own their own electricity, water or telecommunications utilities as well as to buy business services and so forth cooperatively.

What unites all of these co-ops is that they seek to improve their efficiencies and/or market competitiveness by "bulk buying" a broad range of goods and services.

Housing Cooperatives

Housing cooperatives are owned by the residents, which makes them a type of consumer cooperative. This can range from a single house to apartment complexes with thousands of units. It also includes co-housing projects, in which dozens of homes are cooperatively owned. Condominiums are a relative of co-ops, although with condos each member owns their own unit; in a cooperative, each member owns a share of the co-op that owns all of the property. A special type of housing co-op is a resident-owned community of manufactured homes, in which residents own their homes and own a share in the co-op that owns the land and runs the park.

Complex Cases and Multi-Stakeholder Cooperatives

Main Article: Multi-stakeholder cooperatives

In some cases, it may be desirable to create a hybrid among these types of co-ops. These are called “multi-stakeholder” cooperatives, and often create specific roles and rights for the various types of members. For example, this may take the form of a producer/consumer or consumer/worker hybrid co-op. In these scenarios, the membership fees might differ for the two groups. This recognizes that there will likely be fewer producer members, and that they potentially have more to gain and therefore more incentive to invest, and you might also have a certain number of board seats reserved for each (i.e. on a board of seven, there are three “at large” members, two members elected by the producers, and two elected by the consumers).

These types of co-ops are more complex, and may experience tension among the various types of members. After all, one of the benefits of cooperation is that people can work together to meet their shared interests. On the other hand, a cooperative may experience tension between its producer members’ desire for high prices for their goods, and their consumer members’ desire for low prices.

Hybrid Worker and Consumer Owned Cooperatives

An emerging model, primarily in grocer co-ops, are consumer and worker owned cooperatives. In these cooperatives, both the workers and consumers equally own and manage the co-op, elect individuals to the board of directors, and so on. Eroski is a worker-consumer hybrid grocer co-op in Spain (part of the Mondragon system), and their Board of Directors is divided up into two sections - the worker section and the consumer section that oversee topics relevant to their constituency, but who also work together on issues important to the overall cooperative. Worker and consumer owners elect an equal amount of representatives to the co-op's board.

In the United States, the Weaver Street Market in North Carolina is a worker and consumer owned cooperative with three grocery stores and one restaurant.[3]

Social Cooperatives

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This page originally adapted from the Cooperative Development Institute's website [1] as well as the Northwest Cooperative Development Center's website [2].