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Business LibreTexts

2.2: Participation in Benefits

  • Page ID
    4253
  • Customers who use the cooperative or mutual are expected to share in the economic benefits derived from their business with it. These benefits may include an overall cost effi-

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    ciency or bargaining power through the vertical extension of a farming operation or household through the cooperative; the opportunity to buy from the closed supply channel or sell to the closed marketing channel; and the benefits of competitive markets arising through the role of the cooperative’s competitive yardstick. Many of these reasons are embedded in business strategies designed to improve a farmer’s income by lowering production and transactions costs to improve market power and lower the variability of annual net farm income. The move to closer supply chains built on market or production contracts has resulted in greater differentiation by cooperatives which are using business strategies to add value to a farmer’s products.

    For most consumers and producers, however, the most tangible economic benefit is the opportunity to share in any distributions of income from the cooperative based on the proportional share of business done as a member of the cooperative. These are commonly referred to as patronage refunds or per unit retains, which is why customers using the cooperative are often called patrons. Doing business on a patronage level with customers implies that the supply or marketing channel is closed because cooperatives are, respectively, supplying products and services to only customers using the cooperative or only marketing the products and services of these users. A cooperative may have customers who may not have a membership in the cooperative because they do not legally qualify (e.g., a government entity) or because they do not wish to have a membership

    A WORKER COOPERATIVE is a business entity owned and controlled by members who are laborers and work in the business. The number of workers is defined and linked with a physical measure such as hours worked. The cooperative may have laborers who are not members, and the CEO is not a member. An upfront equity investment is needed before a worker can become a member, and patronage refunds are based on hours worked. Probably the oldest and most studied worker cooperative is the Mondragón Corporation in Spain, which is a cooperative whose members are other worker cooperatives.

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    (e.g., a customer from another geographic region who makes a purchase at a food cooperative).