Why form a cooperative?
Cooperatives were formed to gain access to goods/services
otherwise not easily accessible. Rural Electric Cooperatives
were started by farmers in the 1930s to obtain electric services
when private utility companies refused to serve rural areas.
Cooperative Insurance Societies were formed in America in
the late 1700s, enabling working people to obtain fire insurance
at prices they could afford. Credit Unions, or financial cooperatives,
were organized in the early 1900s to provide access for working
people to saving accounts and credit. Agricultural Marketing
Cooperatives (milk, cattle and hogs) were organized in the
early 1800s to improve access to farmers.
The same idea exists even today. Below, are some other reasons
why cooperatives are formed:
- Achieving economy of size
- Increasing bargaining power
- Sharing costs of new technology
- Adding value to agricultural products
- Gaining access to new markets
- Reducing risks associated with new enterprises
- Obtaining new services
- Purchasing in bulk to achieve lower prices
- Providing credit under reasonable terms.
Benefits to the community: In addition to the direct
benefits they provide to members, co-ops strengthen the communities
in which they operate. Many co-ops provide jobs and pay local
taxes because they operate in specific geographical regions.
The co-op’s financial benefits to members, including
patronage refunds, provide an economic boost
to the community as well.
refunds: In a cooperative, the net earnings
at the end of the fiscal year are distributed to the co-op’s
member. These distributed earnings are called patronage
refunds. It is paid based on the amount of business the
member did with the cooperative that year. Because there
are many types of cooperatives, there are many processes
for paying patronage.