Agricultural Cooperatives

I The “Why” of Agricultural Cooperatives.- 1 Marketing and Structure—How Related to Group Action.- Marketing and Economic Activity.- Views of Marketing.- The Marketing Umbrella.- Role of the Marketing System.- Economic Bases for Group Action.- Structure—Competition.- Competition.- Monopoly.- The Range of Competition.- Industrial Organization Model.- References.- Questions.- 2 Structure of Agricultural Input and Output Industries.- The Industry.- Market Shares—Concentration Ratios.- Suppliers of Inputs to Agriculture.- Concentration Ratios.- Buyers of Agricultural Output.- References.- Questions.- 3 The Structure of Agriculture.- The Structure of Agriculture.- Forms of Business Organization in Agriculture.- Input Substitution—Greater Specialization.- Where Is Agriculture Positioned on the Scale?.- Today’s Agriculture.- Product Specification.- Structure as It Leads to Policy.- The Family Farm Concept.- Agriculture Disadvantaged Structurally.- Access to Markets.- Role of Government and the Public Interest.- References.- Questions.- 4 The Basic Foundation of U.S. Antitrust Policy.- History’s Contribution to Our Understanding of Policy.- The Basic Foundation of U.S. Antitrust Posture.- The Sherman Act of 1890.- The Legal Background.- Relevance of These Events.- Implications of Events.- The Sherman Act Comes Forth.- Where Was Agriculture in This Debate?.- Authorship Incidental.- Basic Provisions of the Sherman Antitrust Act.- Underlying Tone—Toward Competition.- Labor and Agriculture.- References.- Questions.- 5 The Aftermath of the Sherman Act and on the Road to Agriculture’s Magna Carta.- What Was Expected?.- What Happened?.- Impact on Cooperatives.- Dangerous to Engage in Conjecture.- Was Agriculture Exempt from the Act?.- The Federal Trade Commission (FTC, 1914).- The Clayton Act—1914.- An Improvement, But Not Adequate.- The Capper-Volstead Act.- Agriculture’s Magna Carta.- The Act’s Significance.- A Slow, Tedious Route, But We Finally Arrived.- Our Antitrust Basics.- References.- Questions.- II The “How” of Agricultural Cooperatives.- 6 Capper-Volstead Corporations and Other Types of Business—Cooperative Principles.- The Rochdale Principles.- Are These Bona Fide Principles—Are They Applicable Today?.- The Principles Weighed.- Open Membership.- One Person-One Vote.- Cash Trading.- Membership Education.- Political and Religious Neutrality.- No Unusual Risk Assumption.- Limited Returns on Stock.- Goods Sold at Regular Retail Prices.- Number of Shares of Stock Owned Is Limited.- Net Margins Distributed According to Patronage.- Principles or Practices?.- So—What Is a Cooperative?.- Business Forms.- Investor-Oriented Corporations.- The Cooperative Corporation.- The Two Contrasted.- References.- Questions.- 7 Economic Feasibility of a Cooperative.- Looking for Solutions.- Similar to Other Businesses.- Differences.- The Groundwork.- First Meeting of Potential Members.- Work of the Survey Committee.- Need for the Cooperative.- Members.- Management.- Facilities.- Costs.- Member Investment—Capital Plan.- Initial Capital.- Debt Capital.- Internal Financing.- Reserve Funds.- Other Items in the Report.- The Second Meeting.- Organizing Committee.- Organization Papers.- Articles of Incorporation.- Bylaws.- Marketing Agreement.- Membership Certificate.- Articles of Incorporation Filed.- First Meeting.- Board of Directors Meet.- References.- Questions.- 8 Cooperative Management Trio—Members, Directors, and Manager.- Further into the How of Agricultural Cooperatives.- The Management Trio, Team, or Triumvirate.- Member-Owner Role.- Members’ Management Role.- Why Cooperatives Fail.- The Role of the Board of Directors.- Selection and Election of Board Members.- Board of Directors’ Responsibilities.- Selecting and Hiring a Manager.- Policies and Programs.- Program Evaluation.- The Manager Is Involved Also.- Evaluation of Performance.- Selecting Qualified Directors.- Directors Act as Agents of Members.- Number of Directors and Their Terms.- Committees.- Length of Term for Directors.- Associate Boards of Directors.- The Cooperative Manager.- The Manager’s Strategic Position.- Manager’s Duties and Responsibilities.- The Functions.- Organizing for Action.- Directing Resources.- Controlling—Evaluating.- Duties and Responsibilities Vary.- Selecting a Manager.- Member Loyalty.- Special Relationships Must Be Kept in Mind.- References.- Questions.- 9 Financing Agricultural Cooperatives.- All Business Enterprises Must Have Resources.- Capital Requirements.- The Remaining Capital Needs.- Especially Tailored Sources of Borrowed Funds.- Back to Operating Our Cooperative.- The Balance Sheet.- The Operating Statement.- What Is Meant by Operating at Cost?.- Continued Financing.- References.- Questions.- 10 Cooperative Financing—Internal Sources of Capital.- Major Sources of Equity Capital.- Type of Net Worth Structure Needed.- Cooperative’s Needs for Capital.- Glossary of Terms.- Sources of Equity Capital.- Cooperative Principles Involved.- Initial Capital—Members’ Responsibility.- Methods of Equity Capital Accumulation.- Retained Patronage Refunds.- Cash Refunds.- Capital Retains.- Base Capital Plan.- Always Remember.- References.- Questions.- 11 Cooperative Financing—External Sources of Capital.- External Sources of Capital.- The Investing Public.- Banks for Cooperatives.- The Farm Credit Act of 1933.- Country Life Commission.- Farm Credit Administration.- The Farm Credit Act of 1971.- How These Banks Work.- Types of Loans and Repayment Schedules.- Sources of Loan Funds.- Other Services Provided.- Who Can Borrow from Banks for Cooperatives?.- Steps in Applying for a Loan.- Farm Credit System Faces Hardships.- What Happened?.- Meaning for the Farm Credit System.- What Should Be Done?.- The Aid Bill Creates a New Institution.- Administrative Changes.- Other Provisions.- Implications.- References.- Questions.- 12 Equity Redemption Plans Used by Cooperatives.- Objectives of Equity Redemption Plans.- The Revolving Fund Plan.- How a Revolving Fund Works.- Pros and Cons of Revolving Fund Plans.- The Base Capital Plan.- Length of Base Period in Base Capital Plan.- Unit for Calculating Equity.- Other Decision Areas.- Advantages and Disadvantages of Base Capital Plans.- Percentage of All Equities Plan of Equity Redemption.- A Special Plan for Equity Redemption.- References.- Questions.- 13 Cooperatives—Taxation and The Law.- Taxes Paid.- What Is Involved in the Argument?.- How Did All This Evolve and What’s the Rationale?.- Subchapter T of the Revenue Act of 1962.- Per Unit Retains Exclusion.- Patron Tax Treatment.- Section 521.- Who Is a Producer and What Is Meant by Substantially All?.- Current Patrons.- Equality of Treatment Between Members and Nonmembers.- Tax Example—Section 521 Cooperative.- Taxing Income to the Patron.- Taxing Income to Private Corporations and Stockholders.- Agricultural Cooperatives—A Special Class.- The Challenge.- References.- Questions.- 14 Cooperatives and Federal Commodity Marketing Orders.- The Roots of the Present System of Federal Marketing Orders.- Conditions Faced by Agriculture.- What Did Agriculture Try to Do?.- Fruit and Vegetable Growers.- The Dairy Subsector.- Some Relevant Concepts.- Administered Prices.- Orderly Marketing.- Agricultural Adjustment.- The Public Interest.- Federal Commodity Marketing Orders.- Authority.- How Does a Federal Marketing Order Come into Being?.- The Hearing Process.- The Next Steps.- Terminating an Order.- Who Is Under an Order?.- How Many Federal Marketing Orders Are There?.- Commodities Eligible for Coverage by Federal Marketing Orders.- What They Do—Their Major Provisions.- Quality Control.- Quantity Controls.- Market Support Activities.- Market Order Administration.- Federal Marketing Orders for Milk.- How Different from Fruit and Vegetable Orders.- Price Determination.- Milk Order Administration.- What Milk Orders Do—Their Major Provisions.- How Are Orders Amended or Changed?.- Who Pays the Cost of Running an Order?.- What Is the Track Record of Orders to Date?.- Information and Involvement.- Income Distribution Effects.- Size of Farm.- The Ultimate Performance Criterion.- References.- Questions.- 15 Cooperatives and Commodity Market Pools.- What Is a Market Pool?.- How Pooling Differs from Other Marketing Methods.- Kinds of Pools.- Why Use Pooling?.- Better Price and Terms of Trade.- Spreading Price Risk.- Specialized Selling Effort.- Orderliness and Stability.- Quality Control.- Market Specifications.- Selling Versus Marketing.- Lower Transaction Costs.- Learning from Involvement.- Implications for Cooperatives.- Are There Some Cons About Pooling?.- Involvement.- Loss of Flexibility.- Pool Size and Quality.- Full Payment Delayed.- Pooling Is Hard to Understand.- Change in Concept of Selling.- Equity Capital Needed by Cooperatives.- Pooling Agreements.- The Producer-Member Makes a Commitment.- The Cooperative Makes a Commitment.- How Long Does an Agreement Last?.- How Are Payments to Producer-Members Made?.- How Is the Pool Financed?.- Who Is in the Pool?.- Other Provisions in the Agreement.- Pooling in Keeping With Cooperative Philosophy.- References.- Questions.- 16 Member Education, Communications, and Cooperative Leadership Development.- Proxy for Measurement of Adequacy in These Areas.- Proxies.- Member Involvement.- The Duty to Educate.- Education for All.- What Happens If Cooperatives Don’t Educate?.- The Process of Education and Communicating.- What Should Be Communicated?.- Information to Be Communicated.- Cooperative Information.- How Does a Cooperative Communicate and Educate?.- Who Communicates?.- Communicate Everything?.- Policy and Programs in Communications.- Outside the Cooperative.- The General Public.- Political Action Committees.- Young Cooperative Members.- Young Leadership—A Special Effort by One Cooperative.- Evaluation.- Meaning and Implications.- References.- Questions.- 17 Cooperative Performance—Its Goals and Measurement.- Performance—Criteria.- Our Analytical Framework.- Elements of the Framework.- Performance.- Four Standards Suggested.- Conduct.- Boxes Not Discrete.- Evaluation.- Proxies for Measuring Efficiency.- Pricing Efficiency.- Social Efficiency.- Progressivity.- Equity.- Member Satisfaction.- Measures to Use.- Evaluation—Performance Measuring Against Objectives.- Benefits from Systematic Evaluation.- Systematic Procedure Important.- References.- Questions.- 18 Agricultural Cooperatives—Looking Ahead—Issues and Challenges.- “Special” Consideration.- Special Questions.- Industry Structure.- Issues and Challenges Relating to Cooperatives.- The Public Interest.- Operational Issues—Internal to the Cooperative.- Constant Education.- Planning.- What Is Long-Run Planning?.- Evaluation.- Legal Foundations.- To Merge, Consolidate, Federate, or Integrate?.- Joint Ventures.- Undue Price Enhancement.- Finance, Accounting, and Equity Redemption.- Research.- Cut Ties with Basic Cooperative Principles.- Federal Income Taxation.- References.- Questions.