How Are Cooperatives Organized?

Cooperatives are sometimes small and sometimes big. They range from informal, unincorporated associations with few members to large corporations which count their members in the tens of thousands. Most of them nowadays are incorporated.

A cooperative can be incorporated with or without issuing stock to its members. If it does not issue stock, it is called a membership corporation. Any eligible person can become a member, with voting rights, simply by haying a membership fee. Sometimes even that is not necessary. This type of organization, which is becoming increasingly popular in the cooperative movement, does not appear at all among commercial corporations.

When the cooperative issues stock, it is known as a capital-stock corporation, and the ownership of a share of voting stock is necessary to full membership. In this sense, capital-stock cooperatives are very much like ordinary commercial corporations.

Most cooperatives are still of the capital-stock variety, but the swing is toward membership co-ops. The laws of most states make it easy to organize these latter.

Cooperatives can also be broadly classified in another way: They are either direct membership or federated organizations.

Direct Membership Associations

The simplest type of cooperative is the local association, whose membership is made up of individual persons. Most local cooperative elevators, livestock shipping associations, cooperative creameries, cooperative cotton gins, local farm supply or consumers’ purchasing associations, and mutual farm-insurance or irrigation companies are direct membership associations.

Co-ops of this kind sometimes serve wide areas—parts of states, whole states, or even several states. Because of the difficulty of assembling the members in one place, more than ordinary control is delegated to the central management in these co-ops. Hence they are called “centralized associations.” A good illustration of a large centralized marketing and purchasing association is the Washington Cooperative Egg and Poultry Association, with headquarters in Seattle. This cooperative achieves membership control through a system of voting by which the members in various districts select their representatives on the board of directors.

Federated Associations

The members of a federated cooperative are not individuals but are other co-ops. Individuals exert their control through their membership in a local association which is in turn a member of the federated organization.

The best-known of the federated marketing cooperative, is the long-established California Fruit Growers Exchange. During the 1942–43 marketing year, this organization handled 85,054 cars of fresh citrus fruit, or 75 per cent of the California and Arizona output. Each citrus grower is a member of a local cooperative citrus packing house. This house is a member of one of twenty-five district distributing exchanges, and they in turn are members of the California Fruit Growers Exchange (selling, advertising, and financing). The citrus growers control the local packing house associations. These help control the district federated marketing exchanges. And they help control the California Fruit Growers Exchange.

In this way, management over a wide area is centralized, but at the same time members keep control. All savings from the central exchange and the district exchanges flow back to the individual members of the local cooperative packing houses.

Purchasing cooperatives also use the federated type of organization. A good illustration is the Consumers Cooperative Association of Kansas City, Missouri, which is owned and controlled by some 800 retail cooperative associations located largely in Kansas, Oklahoma, Missouri, Iowa, Nebraska, South Dakota, and Colorado. This cooperative owns refineries, pipe lines, and oil-producing corporations. It produces, transports, refines, and distributes gasoline, oil, and other petroleum products from the oil well to the consumer.

Commercial business firms use the federating principle, too, by forming retailer-owned cooperatives. These associations differ from cooperatives described above in an important way: The members are privately owned retail establishments. Over 100,000 grocers are federated in this manner. Similar retailer cooperatives are also serving drug, hardware, and other types of stores.

National Federations

The federating method does not stop with regional associations. Some are national in scope. For instance, twenty of the livestock commission associations are banded together in the National Livestock Producers Association of Chicago for credit, research, legal, transportation, public relations, and educational service.

The fifteen-year-old National Council of Farmer Cooperatives of Washington, D. C., now federates for nonoperating purposes 79 regional farm marketing and purchasing cooperatives, representing 4,500 separately incorporated local associations serving 2.300,000 farmer patrons.

Several national purchasing associations federate regional purchasing cooperatives. An example is the National Cooperatives, Inc., Chicago, which serves some 17 regional purchasing and consumers’ associations—2 of them are located in Canada—as an overhead buying, manufacturing, and service agency.