COOPERATIVES, FARMERS'. A cooperative is a group of people getting together and agreeing to sell or buy items in larger amounts than an individual would normally sell or buy. The larger amounts allow for better prices due to volume purchased.
A farmers' cooperative generally must meet four major criteria: members must be agricultural or aquacultural (raising of plants or animals in or near water) producers; no matter how much stock a member owns or how much capital a member has invested, each member has one vote; business can be conducted with nonmembers (such as in a store open to the public), business done with nonmembers cannot exceed the dollar value of business done with members; and the cooperative must divide any patronage benefits among its members. (Different states may have some differences in these requirements.)
The one member, one vote of a cooperative sets it apart from a corporation in which the number of votes depends upon the number of shares owned. A corporation is expected to make money for its investors, while a cooperative is designed to save money for its members.
Farmers' cooperatives have evolved into three main kinds: marketing, purchasing, and service. The cooperative theory of higher volume equals higher prices for selling and lower prices for buying holds true for all three types. Marketing is of commodities that the farmers produce and wish to sell such as grains, fruits and vegetables, and dairy products; purchasing concerns itself with buying products used by the farmers, including fertilizer, chemicals, and seed. Service cooperatives provide various services, for example, a cooperative that sells tires or fertilizer comes to a farm to do on-site repair for tractor tires, or brings to the farm the machinery (and workers) to apply the fertilizer.
The first statistics on cooperatives, compiled in the early 1860s, showed thirty-five cooperative cheese factories in the United States. One of those included a cooperative formed by dairy farmers in 1810 at Goshen, Connecticut. These farmers milked cows, separated the cream from the milk, made cheese and butter, and sold their products. They worked individually or together, as the process dictated, to negotiate better prices. Selling their dairy products was the primary goal of this cooperative.
From 1913 to 1915 the Office of Markets and Rural Organization, a subdivision of the United States Department of Agriculture (USDA), did a nationwide survey of cooperatives. The findings were of 5,424 cooperatives with a business volume (sales and purchases) of approximately$636 million annually. By 1919, when the Bureau of Census did a survey that broke down purchases and sales by cooperatives, it found tremendous increases. Sales alone by 511,383 farmers were about $722 million; purchases made by 329,449 farmers were another $85 million. Surveys over the years have shown continual growth of cooperatives.
Beginning in 1916, the National Milk Producers' Federation pressed Congress to pass legislation to support cooperatives; in 1922, the National Council of Farmer Cooperatives Marketing Association was formed. By 1925 the American Institute of Cooperation, which advocated for education about cooperatives, had been organized. Agricultural colleges and land grant universities, which were affiliated with the USDA, began to pay more attention to cooperatives in education classes, courses of study, and research. Today many of these cooperative groups form the National Council of Farmer Cooperatives (NCFC.)
Afoul of Antitrust?
The question of whether cooperatives infringed on anti-trust laws arose while the cooperatives were establishing themselves. In response, Congress passed the Capper-Volstead Act in 1922; this act gave farmers the right to form cooperatives without violating antitrust statutes. In 1926, Congress passed a law requiring the secretary of agriculture to create a Division of Cooperative Marketing under the USDA's Bureau of Agricultural Economics. This division assisted rural residents in organizing new cooperatives and in improving cooperatives already operating.
A very early co-op was the National Grange, principally founded by Oliver Hudson Kelly of Massachusetts. Sent by President Andrew Johnson to assess the agricultural conditions in the South after the Civil War, Kelly was disturbed by what he saw and heard; he decided that he might be able to help these farmers help themselves. With six other men, Kelly started the National Grange in 1867, with himself as chief recruiter. By 1874, his efforts had garnered 268,368 members (this number is so precise because 1874 was the first year the Grange collected dues). The next year membership jumped to 858,050 as state Granges sprang up throughout the nation. Members' goals included working, buying, and selling together. The theory of the Grange was to eliminate the middleman in conducting business, which would, in turn, lower prices for purchases. Farmers, rallying to improve their financial conditions, embraced this theory. They recruited their neighbors and Grange membership increased markedly in a short time.
However, the National Grange grew too fast and the organization imploded and collapsed. By the mid-1880s membership had fallen to under 100,000. The Grange, however, was not a failure. Because it attempted to eliminate the middleman (who took a large sum for services), and because the Grange considered the railroads to be middlemen, the Grange took on the railroads. Granges were successful in getting many state legislatures to pass laws creating state railroad commissions to oversee and regulate railroads. Lower freight rates were one outcome of these new laws. In the early years of the twenty-first century, the National Grange still had chapters in thirty-seven states.
Cooperatives are strictly regulated by law. A manager runs the day-to-day operation; a board of directors over-sees the cooperative and makes the larger decisions, in consultation with the manager. Members are urged to be involved and may attend an annual meeting of the full membership at which time directors are elected and other major business is discussed.
Cobia, David. Cooperatives in Agriculture. Englewood Cliffs, N.J.: Prentice Hall, 1989.
Keillor, Stephen J. Cooperative Commonwealth: Co-ops in Rural Minnesota, 1859–1939. St. Paul: Minnesota Historical Society, 2000.
Woeste, Victoria Saker. The Farmer's Benevolent Trust: Law and Agricultural Cooperatives in Industrial America, 1865–1945. Chapel Hill: University of North Carolina Press, 1998.