The cooperative is a business model that has proved to be successful not just in the United States. According to the International Cooperative Alliance (ICA), over 12 percent of the global population or over a billion people belong to three million cooperatives worldwide that provide jobs to 10 percent of the global workforce or 280 million people.
The ICA defines a cooperative as a business owned by its members who also run it and have full control over it. Every member has one vote no matter how much capital they contribute. The sharing of profits, however, is according to each member’s contribution.
According to the American Historical Association, cooperatives in the U.S. must pay property taxes if they own buildings. Farmers’ cooperatives, however, are exempt from paying federal taxes. The Internal Revenue Service (IRS) allows other cooperatives to deduct from their taxable earnings. All profits returned to their members, basically rendering them tax-free.
How Cooperatives Work
There are many ways to finance a cooperative. One is for members to pool their savings. They can also charge membership fees or build a revolving fund that comes from charges for every service members avail of. If these are not enough, they can borrow through bank loans or government loans paid from the cooperative’s profits before these are distributed to members. Through a cooperative, members can purchase necessary technologies and equipment that they cannot afford independently. A cooperative also has a better standing for loan approval.
Through a cooperative, members can purchase their needed materials wholesale, lowering their costs. If their processes require several steps requiring various types of machinery, they can invest together instead of outsourcing. This will further bring down costs.
For instance, if all the bakers in a community form a cooperative, they can buy all their raw materials in bulk. This includes flour, sugar, and eggs, among others. They can decide to build a poultry farm to lower the cost of their eggs. If there is an oversupply, they can sell the extra eggs and profit from that, as well.
They can invest in a technologically advanced central kitchen with industrial-sized equipment such as continuous mixers, extruders, ovens, and refrigerators. These can make baking faster and on a larger scale. They can increase their production to serve a wider market.
Instead of purchasing packaging materials, they can invest in an industrial die-cutting machine with technology that includes creating their own boxes. They can then purchase cardboard in bulk. If the machine has idle times, they can spin off into selling packaging to other food businesses. This will be another source of income.
Cooperatives in the Pandemic
In some areas of the world, farmers were hit hard by the pandemic not because their crops were affected by pests, drought, or storms but simply because there was no way of bringing these to the market quickly. With traditional routes of transportation halted, many farmers witnessed their produce going to rot.
Moving forward, these farmers can band together into cooperatives and learn how to process their produce into products that have a long shelf life. For instance, with the popularity of Korean food, farmers producing various types of cabbage, leeks, and radish can learn how to make kimchi and package these.
Farmers who produce fruit can learn how to make and package dried fruit and various types of fruit preserves and marmalade and fruit juice concentrates. They can tap training sources from the government or universities. They can avail of loans for the technology and equipment they need. The resulting products will be easier to market because they are no longer as fragile and last longer.
Cooperatives can also link up with other cooperatives. For instance, farmer cooperatives that process their crops can supply urban food cooperatives. Food cooperatives are like supermarkets owned by members. They buy food in bulk so they can lower costs. They sell to members at market prices to make a profit. The profit is later distributed back to members in cash or in stubs that they can use to purchase more food.
The Cooperative Cycle
The cooperative makes the business model work for individuals who do not have a large capital. If enough of them band together, they can scale up a business and profit more than if they worked separately.
Cooperatives working with other cooperatives can build a cycle that provides everyone with all their needs, with the profits going back to the people who create the products or services. There are cooperatives in almost every field, not just food. There are cooperatives in public utilities such as electricity and other utilities, financial services like credit unions, housing, healthcare, education, and even insurance. Imagine a world dominated by private cooperatives, and it will be a better world for everyone.