Cooperatives are participatory organizations in that customers participate in ownership, control, and benefits. As such, a cooperative is a closed marketing channel. Each of these participatory roles carries responsibilities. Membership in a cooperative has implications for benefits and responsibilities, use of the cooperative, and the transactions undertaken with it. Thus, cooperatives are uniquely structured to: 1) distribute benefits such as patronage in proportion to use, 2) align their business strategy on their customers who are selected to the board of directors to control the cooperative, and 3) make decisions based on the long-term goals of their members who own the cooperative.
The cooperative business model exists in many industries around the world. Cooperatives have unique common bonds that underlie their formation and often have an economic and social purpose. Principles of cooperation are embedded in state incorporation statutes that underlie the charter of a cooperative, which includes its articles of incorporation and bylaws, which are based on historical use. The benefits of participating with a cooperative and its social purpose are likely the easiest to explain relative to the benefits of participating in ownership. Thus, constant education is needed with members who are customers. Cooperatives were formed because there were economic reasons why it was easier to vertically integrate forward or backwards for all of the cooperative’s members. There are many reasons why cooperatives form but, in a broad sense, the cooperative is able to obtain volume discounts and pass those discounts back to members, or to obtain volume premiums and market members’ products throughout the marketing year to obtain better prices for larger volumes of similar quality. The concept of a marketing year is crucial in understanding the operations of agricultural cooperatives.