ERE32E Co-operative Business

1. ERE32E Co-operative Business Bridget Carroll Centre for Co-operative Studies, University College Cork, Ireland Session 3: Co-operative activity by type

2. This session • Classify co-operatives according to their prime beneficiaries and give examples of the kinds of businesses operated within each category

3. Co-ops are defined according to the type of user • Traditionally: • Producer co-ops • Consumer co-ops • Worker co-ops Now also: • Multi-stakeholder co-ops – may include/be called social co-ops, development co-ops, solidarity co-ops, community co-ops

4. Defined according to user… • Producer co-ops owned and controlled by those who produce goods/services • Consumer co-ops -owned and controlled by the people who consume the products and services of the business. • Worker co-ops owned by those who work in the co-op

5. Producer co-ops • Owned and controlled by independent producers e.g. • farmers • fishermen • taxi-drivers • craft workers/artisans • artists • Also known as • Agriculture co-ops • Farmer co-ops • Dairy co-ops • Fishermen’s co-ops • Forestry co-ops • Taxi co-ops • Craft co-ops • Artists’ co-ops • Or into sub-divisions

6. Aims of Producer Co-ops • To serve members’ needs - improve effectiveness and profitability of members’ individual businesses. • Deal in commodities including dairy, beef/lamb/poultry/bees, fruit & vegetables, grain, cotton and other fibres, coffee, olive oil, wine, tobacco etc. • Collect, process and market products • Also services such as: farm supply, fertilizers etc.

7. World’s top 10 dairy processors Dairy Turnover • Nestlé €18.5m • Danone €10.7m • Lactalis €9.3m • FrieslandCampina €9.3m • Fonterra €8.2m • Dean Foods €8.1m • Dairy Farmers of America €6.9m • Arla Foods€6.9m • Kraft Foods €5.1m • Unilever €4.5m Rabobank International 2009

8. Producer co-op presence • France: 40% of food and ag. production • New Zealand: 100% dairy market, 22% GDP • Brazil: 32% of agricultural production • Canada: 35% of world supply maple syrup, 80% dairy products • Slovenia: 77% potato production • Denmark – a/c for 10% GDP • US - market one third of farm commodities • India – co-ops made it largest milk producer in world • Japan - >90% of rice and fisheries production (supply and marketing) • Source: www.ica.coop

9. Agriculture Co-ops in the EU • >50% share in agriculture input supply • >60% share in collection, processing and marketing of agricultural products • Source: COGECA, 2011

10. Fair trade/developing world • Co-ops playing a central role in fair trade initiatives, examples • Divine chocolate – part owned by Ghanian cocoa producers’ co-op • Equal Exchange– US worker co-op which uses coffee from producer co-ops • Other examples you know of?

11. Why producer co-ops? • Market failure • Prices too high or too low • Goods/services not available • Causes of market failure • Transaction costs • Non-appropriability • Externalities • Information asymmetry

12. Overcoming Market Failure • The co-op permits: • Pooling of resources • Joint processing • Joint marketing • Joint purchase of inputs • Provision of various services/technical assistance • Vertical integration in processing/distribution chain • Therefore economies of scale as well as member control and benefit

13. Arguments against • Some economists argue that co-ops are not always optimally efficient • Members don’t control managers (principal-agent problems) • Higher costs of control in co-op (transaction costs) • “Free riders” • Investments can be short-term • Accumulated investments below optimum

14. Benefits of producer co-ops • Access to quality supplies and services at reasonable cost • Increased clout in the marketplace • Share in the earnings of the co-op • Political action • Local economy enhanced and protected (USDA, 1997).

15. Public policy roles for producer co-ops • Efficient production of public goods – food • Competition enhancing • Preserve jobs and farming • Role in rural development

16. Factors impacting change • Deregulation • Globalisation of markets • Increased competition • Reduced subsidies • Need to raise capital • Increased power of multiples

17. Trends in agricultural co-ops • Merge/acquisitions, to internationalise and to advance technology. • Significant changes to co-operative organisational form • Main difference is in ownership • Range from traditional co-ops to hybrids (co-ops with subsidiaries) including external shareholders • Also changes in entry, individual equity, voting, control, external participation, professional management, value-added activities

18. Challenges facing co-ops • To achieve economic survival/success while retaining the characteristics of a co-op • To raise capital but retain control • To deal with globalised agri-food system but provide member benefits • Indifference to the co-op model

19. Strategies • External investors • Financial instruments • Market orientation/expansion - brands • Diversification • Vertical as well as horizontal integration • Degenerating/demutualising • Reassessment of objectives/strategies –large/small • Local markets

20. 2. Consumer Co-ops • Co-ops owned and controlled by their customers • Members both owners and customers • Examples: • Retailing • Financial services • Utilities • Social and health care • Leisure services

21. Consumer co-ops • Emerge in context of: • Lack of goods/services or • Unsuitable goods/services (e.g. quality or cost) • Consumers at certain disadvantages relative to retailers/other distributors. • Where combined purchasing power results.

22. Co-op Retailing • Grocery stores/supermarkets • Co-op shops – farm inputs, building materials, DIY • Niche areas- health food shops • Specialist retailing – e.g. MEC • Retention of rural shops/pubs

23. Co-op retailing • Emerged in the UK, late 1880’s • Basic foodstuffs initially • Long period of staple growth • Developed wholesale and manufacturing wings • Dividend system key • Decline from 1950’s. Resurgent in 2000’s - currently growing market share • Retail co-ops have survived and prospered as conglomerates in a number of countries

24. From decentralised co-ops to unified national retailers: • UK – largest consumer co-op in world • Sweden- 21% market share (groceries) • Switzerland – Migros 32% retail market, Coop Suisse 17% food/consumer goods market • Finland- S-group 40% grocery trade

25. Consumer co-ops:Financial services • User-owned financial institutions • Emerge in a context of • Lack of adequate access to financial services • Poverty • Banking mergers and acquisitions • Branch closures

26. Financial Co-ops

27. Main types of co-operative savings and credit institutions • Ireland • Credit unions • UK and Rest of Europe • Co-operative banks (e.g. Rabobank) • Building Societies • Insurance • Developing countries • Credit unions • Savings and Credit Co-operatives (SACCOs) • North America/Australia/New Zealand • Credit unions

28. Co-op Banks • Often emerged as rural credit institutions • In the EU today: • 4,239 co-op banks • >175m clients, >50m members • 18.8% market share (deposits), 20.1% (lending) • Some market leaders: • Rabobank: 38% deposits, Netherlands • Credit Mutuel & Credit Agricole: 60% deposits, France • Various: 33% deposits, Austria • European Association of Co-operative Banks- http://www.eurocoopbanks.coop/ • International Co-operative Banking Association -http://www.icba.coop/

29. Credit Unions • World Council of Credit Unions (WOCCU) • Member Statistics • http://www.woccu.org/ • Africa: http://www.accosca.org/

30. Credit Unions in Ireland (ILCU, 2010)

31. Main characteristics • Help build up a habit of savings • Provide access to affordable loans • Reduce the extent of money-lending • Provide access to financial services • Educate in the wise use of money • Provide a means for people to sustain a living

32. Fermoy Credit Union http://www.fermoycreditunion.ie/ • Consumer co-op established 1956 • Common bond: Fermoy town and surrounding parishes • Legal status under Credit Union Act 1997 • 12,000 members approx. • Governance: Voluntary Board (strategy/mission), paid staff (operations), committee system • AGM • Member benefits include: financial dividend, access to financial services, community benefit, ownership, control

33. Application of co-op principles? • Open membership - subject to “common bond” and legislation/regulation • Democratic member control through Annual General Meeting (AGM) • Minimum shareholding, distribution according to savings • Each credit union is independent • Education, training and information? • Co-operation among co-operatives – through chapter and league, • Concern for community – many examples • E.g. social lending, money advice

34. Consumer co-ops - Utilities • Utility co-ops – delivery of public utilities such as • housing • water • electricity • telecommunications (e.g. phone) using a co-op model. • Owned by consumer -members • Reliable service at affordable cost • Surplus: to members or reinvested in co-op

35. Housing Co-ops • Not-for-profit co-ops • Provide • ownership and/or rental housing • the management of housing estates or apartment blocks, • Improve the supply of housing • Improve the housing and living conditions of their members and families.

36. Energy Co-ops In the U.S. an estimated 25m people get their power through co-ops • Often in isolated rural areas by-passed by private companies • Purchase wholesale and deliver to members or • Generating and transmitting on national grid or could be small scale generating and gathering for local use. • Other examples: • Danish wind energy co-ops • Phone Co-op, U.K.

37. Consumer co-ops links • www.eroski.es • www.co-op.co.uk • www.united.coop • www.eastofengland.coop • www.midcounties.coop • www.creditunion.ie • www.nabco.ie

38. 3. Worker/industrial co-ops • Owned and controlled by those who work in them • Emerge to provide jobs but also concerned with the type of working environment

39. Origins - types • Philanthropic business owners converting their businesses into co-ops (e.g. Scott Bader Commonwealth in the UK) • Takeovers, otherwise known as defensive co-ops or phoenix co-ops. • Alternative collectives or idealistic co-ops are set up by those who may embrace ideals of collective ownership and worker democracy and who share a “commitment to participatory democracy, equality and production for need rather than profit” (Cornforth et al 1988).

40. Worker/Industrial Co-ops • The European Confederation of Workers’ Co-operatives, Social Co-operatives and Participative Enterprises (CECOP) represents: • 37 national and regional federations of co-operatives in Europe. • Mainly in Spain, France and Italy. • In turn these federations represent 1.3 million workers and 83,000 enterprises. • Spread across a number of sectors: services (38%), industry and crafts (33%), construction (14%), social services (13%) and education and culture (2%).

41. Mondragón, 1950’s

42. Mondragón • 1950’s, Basque region of Spain • 7th largest business group in Spain • >83,000 employees, 86% of whom are co-op members*. 44% women. • Turnover €14,000 million (MCC, 2010). • Industry, co-op bank, co-op university, supermarkets…. • Teams, flat hierarchy within co-ops • www.mcc.es

43. Orkli S. Co-op • http://www.orkli.es • Created in 1982, Orkli has 440 members and 550 employees. • Produces components for heating and domestic appliances. • Formation was spear-headed by parents wishing to create employment for young women in the area. • The co-op is a spin-off from another co-operative in the area. The members helped financed the co-op by reinvesting part of their salaries for four years. The support of other co-operative firms in the area was crucial for a number of years. • 30 years later, Orkli has sales in excess of €100m.

44. SUMA

45. SUMA Wholefoods • U.K.’s largest independent wholesaler and distributor of vegetarian, fair traded, organic and natural foods. • > 25 years wholly owned and run by its 120 workers, each of whom are equally paid. • Suma does not see this large number as a problem but as an asset. “General Meetings” to decide strategy, business plans and major policy decisions are held six times a year. • Participation is not only encouraged but mandatory at these meetings. • Flat hierarchy & considerable job rotation and multi-skilling. • Annual turnover > ₤20m. • www.suma.coop

46. Union Cab – taxi co-op • 1979 Madison, Wisconsin • >200 member-workers • Work on commission basis, guaranteed a minimum wage • 2.5:1 mgt/work pay ratio • Healthcare provided • Member-run committee system

47. Worker Co-op Links • www.mcc.es • www.suma.coop • www.loch-fyne.com • www.johnlewispartenership.co.uk • www.tullis-russell.co.uk • www.scottbader.com • www.walescoop.com

48. Employee Ownership & Business Succession Sites • www.business-succession.coop/ • www.jobownership.co.uk • www.walescoop.com • www.successionlondon.co.uk • www.eos.coop

49. Multi-stakeholder co-ops • Co-ops owned by more than one group of users e.g. customers and workers • All groups represented on board • Examples: • Eroski Co-op Group = Spain’s leading food retailer (47 hypermarkets, 800 supermarkets & 2023 self services stores) • Health care co-ops • Consumer/farmer/fisher co-ops in Iceland • Childcare co-ops (social economy co-ops)

50. Health & social services& leisure services • Case for/against private providers involved in social care • High quality, cost effective healthcare, childcare, elder-care, • Examples – • Social care co-ops, Italy • Health care co-ops in Japan, the US and Canada • Childcare co-ops in Sweden • In Ireland a broad range of co-ops that organise cultural and heritage events such as fairs, shows, festivals and museums, leisure and sports co-ops and tourism co-ops. • These may be not-for-profit.