Exploring Parmer Cooperatives Published bythe AGRICULTURAL COUNCIL OF CALIFORNIA 1225 H Stet Sacramento, CA 95814 ith special tants to: George Benson McDermott, Wil 6 Emery, Chicago, IL ‘Teree Castanias KPMG, LLP, Sacramento, 4 Kim Coontz Conte for Cooperatives, University of California, Davis, Ch Sherman Hanesty Contr for Cooperatives, University of California, Davis, Ch Ed Nishio Coban, Sacrament, Ch. Ron Peterson Hansen, Bridget, Marcus, Vabos & Rudy, San Francis, Ch Karen Spatz United States Department of Agriculture, Rural Development, Davis, C4 Table of Contents ‘rivoduction: Agriculture and You “The American Prvae Bnterpnis System Agricultural Cooperatives in America Extent of Agricultural Cooperatives Classification of Cooperatives Organizing an Agricultural Cooperative Operating an Agricltural Cocperative Gooperative Operating Policies Decision Makers ina Cooperative ans Afeting Agiculsral Cooperatives Cooperatives and Taxes Cooperative ane Agricul Credit Serving Agricultural Cogperaties ‘When Cooperation apples (ther Types of Cooperatives Glossary n B 2g a » 3 33 3B a7 0 a 6 6Introduction Agriculture and You SHE car sei, peope have worked to im- ‘toe the production of food and fer. Mast an- thrpologists believe cilizations acl an ut roth of agriculture, as tis to the land lowed peng o drop their nomadic ways and put down root. Tis stability alloed thewords dies cul- tures to develop. American agriculture has payed an impotant role inthe grow and development of our national ‘concn No othe county pastor presen has fed itspeople as well or ads as much to world food supplies asthe nite States, Because ourfod pro- ction and dsaibuton system i complex and constantly changing, it alas needs skied and talented young people to fil ts many jobs ‘Thesecarers arent jst onthe fa; the con- tinued sucoess of American agriculture requires ocala business and scienticespertise. Infact, tn 2002 when the Future Fanners of America e- porte ts highest membership in 19 yeas i t- tbat much the got to urban highschool, here students aeseiing the cpportnitis offered by this increasingly technical indus. Agriculture isa multi-billion dollar industry in Cabfornia 1 inches farming and ranching; packing and processing; storage and distribution; manufacturing and fam supplies; scientific e- search; advertising and marketing; banking, ac- counting, Jaw, and insurance, and; education ‘There ae countess opportunites, including ca- reer veterinarians, eather, pst control con- sultant plo, broadcasters, marketers salesmen, accountants, engineer, bankers, teachers, and ations, California agriculture directly or in- iinectly supports aver one million jobs and ac- «count for about six percent ofthe state's total fos product California is on ofthe most productive and vse agicultral egionsin tbe word. Thestate’s unmatched producti sduennt only tories, ideal climate, and plentiful vate, but tothe hard work and resourfulness of is zpicultural pro ducers, tat i, farmers and ranches, (The term "prodoes” willbe used in this book o eer to facmers, ranches, and agrcuual preducers in genet) These men and women ave combined ‘capital, cence, efor, and imagination to erete an agricultural indasty without equa Like all industries, California agribusiness must adapttchangingconsurer meas and mest thechllenges of eompetitin, It iscritial that pro- ucers embrace new technologies, new manage- ment techniques, and new busines structures to maintain contol ove thet future Because of is increasingly technical nature, students who are considering. & future i sgibusiness should obtain an appropiate eduea- tion; those studying any field should have at ast abasicundetandng of lat organizational siuc- ‘urea eminolgy Whlethis nok dsb se- ral businesfonns an acts, ts main busison _poclucer ores cooperatives, Cooperatives ae singled out because oftheir special nature and key ol inthe growth and de- ‘elopment of California agriculture, This booklet poids information onthe history, purpose, sinc- ture, governance, and management of cocpera- tes. And cooperation in’ jas for agriculture; youl also leam hor the cooperate scr can ‘nei non-agbusineseiepriss. The American Private Enterprise System myn rar: nome sr is based on freedom. individuals an the bnsinesses they own an decide what to price and sll, or buy and consume, motivated by what each belies wil bring he most benefit, Free competition results in a natural balance between sup ply and demand, Pro- ducers (creators of “supply” in the eo nomic equation) naturally want to get as much as posible for what they sell, ‘whl jes ho ce- ate “mand” obvi- ously wish to pay as litle asnecessa Com. petition amangpe- ers to attract buyers hepstheprice of ods fron going too high; competition arnong buyers forthe available producs an servcsskeeps prices {rom going to lew ‘The private enterprise stem can sulle rom ‘oerprcton, underprodation, inflation, ees- sion, monopoles, severe unemployment, abusive practices, and other ils. Such problems have on- couraged goverment regulations intended toa llcally maintain onéer and equal opportunity; someoftheseefos have worked, whe oes have backfired. Yet in site of imperfections, the American private enterprise tem has crete the preatest material wealth the word has eve een, BUSINESS ACTIVITIES. Anenormons numberof bsinesatvtiesarre- quired to full che nary unlimited waots and noes of people Thise activites generally fall in ‘one ofthe following categories: (W) Production ofbasie commodities, such as raw agricultural reduc see, tn be, nd rnerals; ( Manufacturing or prooesing of on sumer and inds- tral goods, nla ing cx, compat- ers, elrsions, fur tur end tractors, (6) Marketing, which encompasses ac- tivities such as arading,packag- ing, storing shipping, advertising, mechan dling wboesalng, and setaing, allo which ‘combine to get products tote cosas, or final uses and; (Services, which involve technical, professional ‘or skilled labor such as that of mechani, ‘crop dusters, veterinarians, teachers, law- yes, and surveyors ‘TYPES OF BUSINESS OWNERSHIP {I businesses require “capital,” funds necessary to cover the css of producing & product or pro- viding asec. The ned for capital may includeroutine operating expenses such a salaries and rent, purchasing of inventories, supplies, an rae materials; easing or buying land, buildings and ‘equipment, and; funding business expansion, Capital comes primarily rom imvestment by bus nes’ onners and borings from lending inst tutions and other, Busineses are classifi by their ownership, There are ie basic types ol owners, each with their own characteristics, avantages, and dsed- vantages These pes ae (2) Individually owned businessesnle proprietorship, (2) Parinrships, 3) General business conoration, (@) Limited tabilty companies, and (6) Gooperative business coporations. Individually Owned: Te individually ‘owned busines or sole proprietorship isthe oldest busines form, the most common, an the easiest to establish. The person who owns the bisiness raises the capital, is responsible forthe busines debs pays bls and taxes, and keeps any prot "Theownersesthe operating policies and isespon- sible for management, though he orshe may bite ‘others tomanage or asst in the busines, The ro itsaetaed once, asinome tothe mime. "The primary sources of capital for this ype of ‘sinesarethe individuals personal esoures and ‘whatever amounts he or she is ahle to borrow If the business fails, the owner is personally liable for all unpaid debs. ‘This means that everthing the nvdual ns, ncatng both busines and personal property carbelegall taken for payment of busines debs Fam are oflen owned by individuals. Other individually owned business may incce local ‘estanants, small eon! sons, special clothing stores hairsalons, car mechanics, and gas stators. Historically individually osmed businesses have been the comerstone of the American fee enter prise sjstem, Advantages: The individually cwmed form of busines is very flexble and can be applied to almost any business venture. It fers great opp ‘unity forpersonalntative and ingenuity Thele- al requirements governing is organization and ‘operation ae minimal. Incomes taxed only once, a personal income tothe ower. Disadvantages: is difialtforasinglein- dividual to enter an enterprise that requis large amountsof capital. lenders wil onl loans much, so individually owned businesses often must change ther form if they wish to obtain capital fom outside investors, The business can be very confining because the omer must he inv in all major decons (nvolessigatcant personal financial ris, and there are addtional taxes im- past upon self-employed persons, Partnership: Pactoesships consist of wo oF more people who jointly ow, cnt, and operate a besiness. Management reponstbiites, voting rights, and profit distabutons are usually deter mined by a formal parineship agreement. Management esponsiilitiesand decisions are ether by mutual agreement or majonty vote, though votes cast by senior partners often carry more weight. Profits orks re distributed in pro Potion to each partner sar of capital invested othe wrkeach has done, Eamings ae taxed once personal inoome tothe partes, ‘The partes provide the business capital from their own resouroes or borrow it under loans for which they are personally responsible Ifthe busi- res fas and ts assets arent enc to pay its des, general partners are personaly able forthe full amountofpartership debs thesame as ov ers ofindivdually owned businesses Pl personal Ubi usually acu rgaress ofan inital partners ownership percentage. However, some partnerships have “limited parines" wo ge up any oie in managing the busines in exchange foralimiton their pesonal ibility This is sop- posed to general partners,” who have a sayin busines decisions but have fl personal ibility for busines debs Many business are organized as paresis, Examples may include farming operations, doc- tors’ fice, law and accountng ims, and eal estate practices, ‘Advantages: Pacinersips allow people to «combine thei capital andl operat atusiness ‘entre ey may not be abl to do alone Income is teed onc, as pesonal name ofthe omer. Disadvantages: Partnerships requir eee tie teamwork and compatibility, which is ofen ceases than doe, Lone partner leaves orcs, the parinership must be reorganize. General pat rer assume personal liability for busines liabil- ties Financial resoures are generally limited 10 the combine personal and rei esours of the parnen, General Business Corporation: & s:0- eral business corporations organize forte pus se of making profit forts ome, investors ho are commonly refered to as “stole corporation saleal entity separate from ts o»n- er, wth many ofthe same rights and hlgations as anatural pzson Lite a penon, a compraion can on propery, boro raey, ener into con- tracts, and is responsible or its own debs Stockholders usually ave as may oes as thei shares of vtingstoc, which represents thee proportionate ership ofthe busines, Voting per may be ture over to anther person by signing proxy that gantsthe other persona thority o use thelr oes. ‘corporations antles oFincoporation isa legal document that describes the kin of business itmay condet. Theat isthe ennporaion’s legal name official ads, and its eights and prveges san ineorporaad busines. ‘Abcanoldredorsiseletedly thesiockbol- 8 to set roa business gals and pois. The board of cretor must follow the specific duties, purposes, and rights allowed bythe antics fit corporation andthe laws ofthe stat in which the company is legally organi, “incorporated.” ‘The board typically hires a lead management executive, most commonly with the tle of che executive officer president, or general manager ‘This persons responsibeforimplementingbosnd policy managing the company’ dally cpeations; ad hiring the otbermanages and personnel nec- essay to operate the business, The cio execntive office often delegates much of his or ber author ity to others buts responsible forthe resus. Se- ior managers may be members ofthe ban of rectors, which may ao include professional di- rectors wih no ownership i, or emplorment by the comoration, portion af corporation’ profits maybe cis tribute to stockholders as vided" an atnount of money paid per share of common stk as de cided bythe board of directors Profs that are not istbuted ae kop inthe coporation fr gro, asset replacement, § emergency reserves, and other business M0s*™melor ae companies IIa coporstion operate as general fat able 1S business ceeds tothe ete corporations, their stockholders relatively few or numbering in the inillions. of allits ase. How ee the stools cannotlose more than ‘the amourt they have ines in stock and cannot be held per sonaly sponsible the debis and obligations of the oxmpoation, Coe porate earnings are ose rie, once as income to the enfporation and agin when tha inenme is stb t the stockholders as dividends, Nether thestockhkdes norte detors have an oligation to we the corporation’ prods or sees ‘Most major companies erat as general is ‘ness comporations, Their stockoldesimayberela- tively fev or number in the milion Examples of ‘general business ompoations include larg fnan-