Forty farms, one price: The mill that grinds Lena's flour buys its wheat from forty farms in the valley. Each farm is small and each farmer sells alone, so the mill names the price and the farmer takes it.
Valley Grain: Last spring the forty farmers set up Valley Grain. Each put in $500, they pooled their wheat, and now they sell it to the mill as one seller. They own a shared store and a lorry, and each farmer has one vote at the meeting.
Valley Grain is a cooperative: a business owned and run by the people it exists to serve.
A cooperative is a business owned by its members, run for its members, and controlled by them on the rule of one member, one vote. The members share a common interest: all forty farmers need a fair price for wheat. The business exists to serve that interest, not to pay a return to outside investors.
| Valley Grain (a cooperative) | Lena's Bakery Ltd (a company, from 1.2.3) | |
|---|---|---|
| Who owns it | The members: forty farmers, one stake each | The shareholders: Lena and Marco, in proportion to the shares they hold |
| Who decides | One member, one vote, whatever they put in | One share, one vote, so the biggest shareholder has the biggest say |
| Why it exists | To serve the members: a fair price, shared equipment | To make a profit for the shareholders |
| Where the surplus goes | Shared among the members, unless kept to finance the business | Paid to shareholders as dividends, or kept as retained profit |
| If it fails | Members lose only what they put in (limited liability) | Shareholders lose only what they put in (limited liability) |
| If an owner leaves | It carries on: it has a legal existence of its own | It carries on: the company is a legal person separate from its owners |
The features to know
- Owned by its members, who share a common interest.
- Run democratically: one member, one vote, with a board of directors the members elect.
- Open membership: usually open to anyone who shares that interest.
- A legal existence separate from its members, so members have limited liability and it does not end when a member dies or leaves.
- Members before profit: its priority is to serve the members, not to make a profit.
- Surplus shared: any surplus is shared among the members, except when it is needed to finance the business.
Why is a cooperative counted as a for-profit social enterprise? Because it does both things at once. Valley Grain trades, sells wheat and can end the year with a surplus, so it is a business that makes money. But the money and the votes belong to the people it serves, not to outside shareholders, and serving them is the point. A cooperative that makes a surplus is not a charity that has gone wrong. It is doing its job.
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Every cooperative has the same shape: owned by its members, one vote each, surplus shared. What changes from one to the next is who the members are and what they need from it. There are three kinds.
Producer cooperative
- The members make or grow something and sell it together.
- Valley Grain: forty wheat farmers pooling their crop to get a better price from the mill.
- Real world: Arla, the dairy cooperative owned by the farmers whose milk it sells.
Worker cooperative
- The members are the people who work there. They own the business and share its surplus.
- If Lena sold the bakery to her three bakers and they ran it with one vote each, it would be one.
- Real world: Mondragon in Spain, a group of firms owned by the tens of thousands who work in them.
Consumer cooperative
- The members are the customers. They own the shop they buy from.
- Lena's regulars could set one up: a shop that buys flour and oil in bulk and sells to members at cost.
- Real world: the Co-op supermarkets in the UK, owned by the millions of shoppers who are members.
How to tell them apart: Ask one question: what do the members get out of it?
A better price for what they grow or make: producer. A job and a share of the surplus: worker. Cheaper or better goods to buy: consumer.
In every kind the members are the people the cooperative serves, and that is what makes it a cooperative. A supermarket serves its shoppers too, but its shoppers do not own it, do not vote on how it is run, and do not share what it earns.
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Valley Grain's second year. Selling as one seller, the farmers got twelve percent more for their wheat than the year before.
Then the harvest came in wet, and the meeting to decide whether to buy a $200,000 grain dryer took three evenings and a vote of twenty-two to eighteen.
What the members gain
- Motivation. The owners are the people bringing the crop in. Every farmer is working for a business that is theirs, and the surplus comes back to them.
- Fairness. One vote each. The farmer with a hundred hectares cannot outvote the farmer with ten, and the surplus is shared by what each delivered.
- Shared power. Forty farms selling as one get a price no single farm could. Buying seed and fuel together gets a discount no single farm could.
What they give up
- Speed. A company with one main owner buys the dryer in an afternoon. Forty members with a vote each took three evenings.
- Large sums. A company can sell more shares to outsiders to raise money. A cooperative has no outside shareholders, so the money comes from the members' small stakes, from surplus it keeps, or from a loan.
- Agreement. Some members want the surplus paid out this year; others want it spent on a dryer for the next ten. A company's shareholders all want the same thing: profit.
The dryer: Twenty-two farmers voted for the dryer, eighteen against. The eighteen would rather have had their share of the surplus in the bank before winter. Valley Grain kept that year's surplus and borrowed the rest. No payout for anyone, three long meetings, and a dryer that belongs to all forty.
What a company would have done: A company would have decided faster and could have raised the money by selling shares. It would also have paid the farmers whatever the mill was paying before.
The trade is clear once you see it. A cooperative gives its members a fair say, a fair share, and the strength of acting together. It pays for that with slower decisions, less access to money, and the risk that forty people who all want a fair price for wheat do not all want the same thing done with the surplus.
How this comes up: A short knowledge question on the paper with a case: state two features of a cooperative, for two marks.
Two marks, two features: It has come up in several recent sittings, usually as the first part of a question about a business in the case. Two marks means two features. Nothing needs describing.
The two-mark pattern
- Name the first feature. Owned and run by its members.
- Name the second feature. One member, one vote.
- Stop. No description and no example. The marks are for the two features, nothing else.
The trap: an answer that is not a feature: 'It is a social enterprise' scores nothing: many cooperatives trade for a surplus, and a label is not a feature. 'Owned by its employees' scores nothing on its own: only a worker cooperative is, and the feature is ownership by members.
One feature said twice: Watch for two versions of one feature too. 'Owned by its members' and 'run for its members' are the same point twice, and earn one mark, not two.
State two features of a cooperative.
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