What is a cooperative food distributor?
The cooperative food distribution movement began in the 1890's and has been instrumental in enabling the early "Mom and Pop" grocery stores to develop into a competitive and viable part of the nation's food distribution system. In fact, over 35% of the food sold at retail in this country is through independent retailers and at least 25% of the food is distributed through a company that operates on a cooperative basis.
A cooperative food distributor consists of a group of independent retail grocers who have pooled their resources to insure a reliable supply of products for their retail stores at the lowest possible price. The retailers jointly own the distribution center. This is why a cooperative is commonly referred to as "retailer-owned" organization. The key principle which distinguishes cooperatives from other organizations is that they operate on an equitable basis, by treating all classes of patrons fairly and not discriminating in favor of any one class. As a result of this principle cooperatives follow a one-person one-vote rule. That is, unlike other corporations that give stockholders the right to one vote for every share of stock they own, member stockholders who own large blocks of stock are entitled to only one vote on any matter that requires a stockholder vote. Because of this rule the federal government grants cooperatives special rights under the internal revenue code. The rule suggests that in effect the member is really doing business with himself. Under these special provisions cooperatives can pass net earnings from business conducted with their members back to the member at the member corporation's tax rate. Ordinary business corporations are required to pay tax on their earnings and the shareholders must pay a second tax when dividends are distributed to them.
Other distinguishing features between a cooperative structure and a regular business corporation are that the cooperative company has generally accepted the obligation to pay net proceeds to members, the board of directors is composed of member retailers, and the focus is a single economic purpose or goal which is the reduction of cost brought about by several patrons pooling resources to do jointly what could not be accomplished separately, i.e. operating more efficiently with reduced cost and with increased bargaining or buying power. These characteristics should make any cooperative extremely responsive to the needs and demands of its customers/owners.
In a typical corporation, equity development is dependent on the sale of stock through a broker in addition to retained earnings or that share of the after tax profits that are retained by the corporation. Equity development in a cooperative is dependent on the size of the membership, and profitability of the cooperative as well as the rules for member stock requirement and patronage distribution. If the cooperative's equity is limited, growth and profitability suffer. Cooperative by-laws and operating policies must perfectly balance the needs of the members against the need of the cooperative. This is a difficult tight rope to walk for any board of directors and management team, however, it is particularly tough for board members that must themselves comply with the rules they establish. The number one cause of cooperative failure is lack of working capital brought about by declining membership and failure to build retained earnings. A cooperative organization loses equity whenever a customer leaves the organization. All distributors suffer from the loss of revenue when a customer purchases from another distributor. In a cooperative environment, a customer not only takes revenue to another distributor, but also takes his equity investment in the cooperative
The requirement to remain profitable is just as important to a cooperative as a regular corporation. Cooperative's stockholders expect a return on their investment as well as become accustomed to patronage distributions. Equity development comes as a result of the reinvestment of patronage rebate as well as that portion of the cooperative's earning that the board chooses to place into retained earnings. The portion of the overcharge that is retained, as well as all profit from business done through channels that are not a stockholder, as well as normal capital gains is taxable to the cooperative on a similar basis as a normal corporation.
Seven Cooperative Principles
Guidelines for the Operation of a Cooperative
1. Voluntary and Open Membership Cooperatives are voluntary organizations, open to all entities that are able to use its services and willing to accept the responsibilities of membership, without gender, social, racial, political or religious discrimination.
2. Democratic Member Control Cooperatives are democratic organizations controlled by their members - one member, one vote - who actively participate in setting policies and making decisions.
3. Member's Economic Participation Members contribute equally to, and democratically control, the capital of the cooperative. This benefits members in proportion to the transactions with the cooperative.
4. Autonomy and Independence Cooperatives are autonomous, self-help organizations controlled by the members. If the co-op enters into agreements with other organizations or raises capital from external sources, it is done so on terms that ensure democratic control by the members and maintains the cooperative autonomy.
5. Education, Training and Information Cooperatives provide education and training from members, elected representatives, managers and employees so they can contribute effectively to the development of their cooperatives. Members also inform the general public about the nature and benefits of cooperatives.
6. Cooperation Among Cooperatives. Cooperatives serve their members most effectively and strengthen the cooperative movement by working together through local, national, regional and international structures.
7. Concern for Community While focusing on member needs, cooperatives work for the sustainable development of communities through policies accepted by the members.
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