Research

about
Cooperatives
Submitted by:
Kaye Sebastian
Alexa Ingalla
Khrissia Bernabe
Estelle Infantado
Franzel Evangelista
Jimbo Manalastas

Submitted to:
Mrs. Flordeliza Reyes
What is a cooperative?
A ‘cooperative’ can be defined as a member-controlled association for
producing goods and services in which the participating members, individual
farmers or households, share the risks and profits of a jointly established and
owned economic enterprise.
Usually a cooperative is established by farmers in response to unfavourable
market conditions, which is a shared problem. This could be a problem related to
the marketing of produce resulting in low farmgate prices, to the supply of good-
quality and reasonably priced farm inputs, such as seed and fertiliser, or to the
supply of sufficient and cheap credit.
By establishing a cooperative enterprise, farmers hope to rectify this
problem, increase their farm income and strengthen the economic position of
their farm. The cooperative enterprise is jointly owned and used by the farmers.
These actively participate in the provision of resources for the cooperative
(labour, capital and produce) and in decision-making (rules, regulations and
management). The members of the cooperative share in the produced benefits
and risks.
According to the Cooperative Code of the Philippines, “a cooperative is a
duly registered association of persons, with a common bond of interest, who
have voluntarily joined together to achieve a lawful common social or economic
end, making equitable contributions to the capital required and accepting a fair
share of the risks and benefits of the undertaking in accordance with universally
accepted cooperative principles.”
From this, we can see that a cooperative is an association of individuals
who share a common goal. Membership in a cooperative shall be voluntary and
available to all individuals regardless of their social, political, racial or religious
backgrounds and beliefs

Objectives
According to the same Code, the primary objective of a cooperative is to
provide goods and services to its members and enable them to attain increased
income and savings. A cooperative may be formed by at least 15 persons for any
of the following purposes:
 To encourage thrift and savings mobilization among the members
 To generate funds and extend credit to the members for productive and
provident purposes
 To encourage among members systematic production and marketing
 To provide goods and services and other requirements to the members
 To develop expertise and skills among its members
 To acquire lands and provide housing benefits for the members
 To insure against losses of the members
 To promote and advance the economic, social, and educational status of the
members.

Other characteristics of a cooperative include the following:

 It can sue and be sued under its own name.
 It has the right of succession.
 Members of a cooperative are subject to limited liability.
 It shall exist for a period not exceeding 50 years from the date of formation.
The cooperative term may be extended for periods not exceeding 50 years.
 A cooperative has its set of board of directors.
 Income of a cooperative (called net surplus) belongs to its members.

Characteristics
Cooperative organisations have a number of characteristics in common:
 open and on voluntary basis
 democratic control by members
 equitable member contribution to capital
 autonomy and independence
 provision of education, training and information
 cooperation with similar organisations
 the development of community concern
 These have been defined as such at the ICA Congress of International
Cooperative Alliance in Manchester, held in 1995. Starting a cooperative 10
Cooperatives are voluntary organisations open to all persons who are able to use
their services and are willing to accept the responsibilities of the membership,
without social, gender, racial or religious discrimination. Cooperatives are free
to define ‘persons’ in any legal way they choose. Primary cooperatives usually
choose only to admit individual persons. Cooperatives at other than the primary
level are often owned by other cooperatives and organized in federations.

What is needed to form a cooperative?

Starting the cooperative
One of the conditions for starting an agricultural cooperative is that there be
a group of motivated farmers who want to come up with an economic initiative
to resolve a joint problem. Unlike an investororiented firm, cooperatives are not
looking for a business opportunity that will provide the highest return on
investment, but they seek a joint economic undertaking that supports their farm
activities and could generate additional farm income. The economic motivation
to form the cooperative, however, should be based on the same considerations as
starting any other new business.

Cooperative business principles

As we have seen above, a cooperative is a member-controlled enterprise,
which is organised differently and has a different objective than the common
type of investor-oriented firm. Like any other enterprise, however, the
cooperative must be operated and managed on the basis of sound economic
principles. This is essential to enable the cooperative to compete in the market
and to be sustainable in the long run.

Three business principles apply to cooperatives (Rabobank, 2000):

cost price, proportionality and self-financing.

Cost price principle

The cooperative delivers goods and services to its members at cost price.
This means, for instance, a supply cooperative delivers supplies to
 farmers at cost price plus a so-called ‘mark up’ to cover operational
costs of the cooperative and a net surplus. The net surplus is used to
cover unforeseen costs and risks, to build up financial reserves and to
pay bonuses or interest to the members. Only part of the net surplus
should be considered as ‘profit’. The profit is often kept as a reserve
fund for future investments or used as so-called appropriation profit to
replace borrowed capital by the cooperative’s own capital. This is
important since many new cooperatives in developing countries have
difficulty in finding sufficient capital of their own.

Proportionality principle
The cooperative allocates the proceeds and costs of all transactions and
members’ rights and duties, including liabilities and voting rights
according to the economic principle of proportionality. Various
interpretations of this principle are used. It is important that a solution be
selected that is based on practical considerations – it should not only be
a matter of principle. Voting rights are sometimes based on the ‘one
man-one vote’ principle, especially in banking and insurances
cooperatives. In many agricultural cooperatives, however,
proportionality is based on each member’s turnover or use made of the
cooperative. For agricultural and rural development it is extremely
important that both smallholders and large farmers in a region can
participate on a fair and proportional basis. The ‘one man-one vote
principle’ can be an obstacle for large farmers to join, since they bear
relatively more risk but have no greater say. With full participation of
both large and small farmers representing different farm sizes and stages
of agricultural development in a region, the smallholders easily benefit
from the advantages of being a member of a strong cooperative
organisation. Such a broad-based cooperative will also increase the
chances of finding sufficient funding and achieving good governance.

Self-financing principle
Risk-bearing capital will have to be exclusively provided by the
members of the cooperative. The cooperative cannot attract venture
capital from outside investors, because this would create a conflict of
 interest with the members. This means that the cooperative will have to
reserve sufficient net financial surplus (appropriation profit) for
solvency and continuity and growth of the firm in accordance with
sound financial planning.

Mobilising capital is often difficult for cooperatives, but this becomes

easier with the more assets (land, buildings, capital) the cooperative
owns. A cooperative with sufficient institutional and member capital can
safely borrow funds from banks or other sources.

Types and levels of cooperatives

There are many types of cooperatives; they can be oriented toward
services, marketing or financing, or toward workers’ or consumers’ interests.
Many cooperatives have a single purpose, such as input supply, marketing or
production of a single (often newly introduced) crop for which no agricultural
support is available. Other cooperatives have developed into multi-purpose
enterprises that offer a wide variety of services to their members such as a broad
supply of farm inputs, agroprocessing and storage facilities, marketing and credit
supply.

In this manual we will restrict ourselves to primary agricultural

cooperatives, organized at local or regional level. Typical fields of interest of
agricultural cooperatives are the following:
 input supply: purchase of seeds, fertiliser, machinery, artificial
insemination, etc.
 collecting and processing of farm products: cooling, sorting and grading,
storage, ginning, dairy production and other agroprocessing activities
marketing of products
 finance: banking, credit supply and insurance

Misuse of cooperative principles

Unfortunately, the principles of cooperative organization have often been
misused by governments, politicians or ideology-based groups. Heavy state
interference in cooperative organisations has for many years prevented the
development of healthy and sustainable producers’ organisations in many
countries in Asia and Africa. This has often negatively affected the economic
position of farmers and has created an historical burden of non-viable or weak
agricultural institutions in many countries. In some other cases, cooperatives
were successful at first, but were misused by politicians mainly to control the
resources for their own benefits and at the expense of the members.

Another category of state-owned cooperatives or collectives was exemplified,

and is still remembered all too well, in the former socialist states in Central and
Eastern Europe as well as the former Soviet republics. This model has also been
applied in a number of African countries; see the case described in the text box
below.

We want to stress here that cooperative principles do not lead on their own to
this type of misuse. The latter type of cooperative was merely created solely for
political reasons and in strictly state-regulated agricultural systems.

Origins
Cooperation dates back as far as human beings have been organizing for
mutual benefit. Tribes were organized as cooperative structures, allocating jobs
and resources among each other, only trading with the external communities. In
alpine environments, trade could only be maintained in organized cooperatives
to achieve a useful condition of artificial roads such as Viamalan 1472. Pre-
industrial Europe is home to the first cooperatives from an industrial context.

Social Economy
Cooperatives traditionally combine social benefit interests with capitalistic
property-right interests. Cooperatives achieve a mix of social and capital
purposes by democratically governing distribution questions by and between
equal by not controlling members. Democratic oversight of decisions to
equitably distribute assets and other benefits means capital ownership is
arranged in a way for social benefit inside the organization. External societal
benefit is also encouraged by incorporating the operating-principle of
cooperation between co-operatives. In the final year of the 20th century,
cooperatives banded together to establish a number of social enterprise agencies
which have moved to adopt the multi-stakeholder cooperative model.

Organizational and Identical Roots

The roots of the cooperative movement can be traced to multiple influences
and extend worldwide. In the English speaking world, post-feudal forms of
cooperation between workers and owners that are expressed today as "profit-
sharing" and "surplus sharing" arrangements, existed as far back as 1795. The
key ideological influence on the Anglosphere branch of the cooperative
movement, however, was a rejection of the charity principles that underpinned
welfare reforms when the British government radically revised its Poor Laws in
1834.
As both state and church institutions began to routinely distinguish between
the 'deserving' and 'undeserving' poor, a movement of friendly societies grew
throughout the British Empire based on the principle of mutuality, committed to
self-help in the welfare of working people.

Economic Stability
“Cooperatives tend to have a longer life than other types of enterprise, and
thus a higher level of entrepreneurial sustainability". This resilience has been
attributed to how cooperatives share risks and rewards between members, how
they harness the ideas of many and how members have a tangible ownership
stake in the business. Additionally, "cooperative banks build up counter-cyclical
buffers that function well in case of a crisis"

How to deal with non-cooperative group member?

Having an employee or colleague in your small business who is
uncooperative or unwilling to commit to teamwork can be a frustration. It can
also lead to resentment among other staffers and reduce morale. Left un-
checked, non-cooperative group members can hamper workplace productivity,
alienate clients and cost your business revenue and profits.
Confront the Offender
A non-cooperative group member could be in the dark about the way her
performance and attitude is hurting her colleagues. Talk to the employee
in private and address your concerns. Describe specific examples of
non-cooperation and explain the resulting negative impact. Approach
this initial meeting in a non-confrontational manner and focus strictly on
facts. Give the offender time to respond to your criticisms and offer an
explanation for her behavior.

Help Set Goals

If the non-cooperative group member appears to be unaware of her poor
behavior, and expresses a desire to improve, help her establish specific
goals for becoming a participating and contributing member of the team.
This might involve creating measurable objectives such as cutting down
on the number of complaints issued by associates by being more
cooperative. It might also include helping her improve communication
with colleagues by demonstrating the proper way to discuss differences,
interact, and negotiate. Follow up at regularly-scheduled intervals to
assess progress.

Issue a Warning
If the non-cooperative group member is defensive or denies any
behavioral problem, issue a formal warning with specific directives and
consequences. Develop a written plan for actions that need to change --
such as loud or abusive language -- and a timeline for gauging progress.
If the employee is open to conflict mediation with colleagues, arrange
for this to take place. If the issues seem to stem from a lack of training
or ability, reconsider other areas of the company where the employee
might be better able to utilize her skills, or offer job training to help her
improve her performance levels.

Work With Other Group Members

While the non-cooperative group member is working on improving her
skills, help other employees find ways to support their colleague in her
 efforts. To leave the issue unresolved could result in resentment from
employees who feel over-burdened in assuming the work
responsibilities of their underperforming colleague. Your employees
will appreciate the fact that you are addressing the issue and looking for
solutions.

Terminate the Member

If all efforts to engage the non-cooperative employee fail, you should
consider terminating her employment. Make sure you document your
efforts to assist the employee in improving her performance so you
create a substantiated case for termination. In conducting your
termination, reiterate your attempts to rectify the problem and point out
the employee’s continual failure to comply with your requests.

ADVANTAGE & DISADVANTAGES IN A COOPERATIVE

SOCIETY
Advantages

1. Easy Formation: 
Compared to the formation of a company, formation of a cooperative
society is easy. Any ten adult persons can voluntarily form themselves
into an association and get it registered with the Registrar of Co-
operatives. Formation of a cooperative society also does not involve
long and complicated legal formalities. 

2. Limited Liability: 
Like company form of ownership, the liability of members is limited to
the extent of their capital in the cooperative societies. 

3. Perpetual Existence:
A cooperative society has a separate legal entity. Hence, the death,
insolvency, retirement, lunacy, etc., of the members do not affect the
perpetual existence of a cooperative society. 
4. Social Service: 
The basic philosophy of cooperatives is self-help and mutual help. Thus,
cooperatives foster fellow feeling among their members and inculcate
moral values in them for a better living. 

5. Open Membership: 
The membership of cooperative societies is open to all irrespective of
caste, colour, creed and economic status. There is no limit on maximum
members. 

6. Tax Advantage: 
Unlike other three forms of business ownership, a cooperative society is
exempted from income-tax and surcharge on its earnings up to a certain
limit. Besides, it is also exempted from stamp duty and registration fee. 

7. State Assistance:
Government has adopted cooperatives as an effective instrument of
socio-economic change. Hence, the Government offers a number of
grants, loans and financial assistance to the cooperative societies – to
make their working more effective. 

8. Democratic Management: 
The management of cooperative society is entrusted to the managing
committee duly elected by the members on the basis of ‘one-member
one -vote’ irrespective of the number of shares held by them. The proxy
is not allowed in cooperative societies. Thus, the management in
cooperatives is democratic.

Disadvantages
In spite of its numerous advantages, the cooperative also has some
disadvantages which must be seriously considered before opting for this form of
business ownership. 

1. Lack of Secrecy: 
A cooperative society has to submit its annual reports and accounts with
the Registrar of Cooperative Societies. Hence, it becomes quite difficult
for it to maintain secrecy of its business affairs. 
2. Lack of Business Acumen: 
The member of cooperative societies generally lack business acumen.
When such members become the members of the Board of Directors, the
affairs of the society are expectedly not conducted efficiently. These also
cannot employ the professional managers because it is neither
compatible with their avowed ends nor the limited resources allow for
the same. 

3. Lack of Interest: 
The paid office-bearers of cooperative societies do not take interest in
the functioning of societies due to the absence of profit motive. Business
success requires sustained efforts over a period of time which, however,
does not exist in many cooperatives. As a result, the cooperatives
become inactive and come to a grinding halt. 

4. Corruption: 
In a way, lack of profit motive breeds fraud and corruption in
management. This is reflected in misappropriations of funds by the
officials for their personal gains. 

5. Lack of Mutual Interest: 

The success of a cooperative society depends upon its members’ utmost
trust to each other. However, all members are not found imbued with a
spirit of co-operation. Absence of such spirit breeds mutual rivalries
among the members. Influential members tend to dominate in the
society’s affairs.