Author: John Park

Arguably, farmer-owned cooperatives are the lifeblood of agriculture in the United States. They help agricultural producers to overcome a lack of market power, guarantee access to markets and services, and improve overall financial well-being from ownership of the supply chain. As long as American agriculture is composed of a relatively large number of small producers of undifferentiated commodities, cooperatives will remain a needed part of the industry. But what, in turn, is the lifeblood of your local cooperative? Members! 

A cooperative is a business that is owned and controlled by the people who use it. More than just customers, these members have responsibilities to their cooperative that relate to use, ownership and control, and finance. The success or failure of a cooperative hangs on proper attention to these responsibilities. 

I. Use

Cooperative members have a responsibility to use their cooperative. Cooperatives strive for greater volume of business to help them achieve profitable economies of scale. A member’s use of their cooperative sounds like the easiest of responsibilities to fulfill. However, many cooperative owners have difficulty with this. I believe the problem is that they haven’t fully adopted the owner mentality. They see their relationship with their cooperative as just another customer opportunity, meaning that when short term price opportunities arise, they quickly abandon the business that they own in favor of a competitor. This then leads many cooperative managers to exclaim, “There is no member loyalty today”.

The lesson? Members need to remember that their ownership of the cooperative represents future profitability, more stable returns, access to needed markets and services, and general protection from powerful buyers and sellers that are not invested in their future. Cooperative managers must also learn – members have no incentive to be loyal if the only benefit you offer them is based on price. Successful cooperatives also pursue excellence in customer service and product quality and will continually educate members on the value of cooperation. 

II. Ownership and Control

Cooperative members have a responsibility to exert the rights of ownership and control over their cooperative. Each member of the cooperative is an owner and should understand their cooperative in all aspects – its structure, bylaws, policies, operations, legal obligations, and financial status. Occasionally, I am approached by an individual with a great idea for a business and who thinks a cooperative business structure would be best. Most of those cases fail to progress when we discuss member-ownership and control. 

Cooperatives are formed by members based on their needs. Members incorporate the business – not management. Members elect directors, define the mission of the cooperative and establish bylaws and policies. Although members hire a general manager to operate the business and manage employees, they are still involved in controlling the business by providing direction, serving on committees, expressing opinions, and voting on significant changes to the cooperative. 

The most successful cooperatives educate members about operations and the ways that the cooperative engages in business. Boards of directors often take a tour of their cooperative’s operations and come away surprised at their increased knowledge that inspires better board decisions. 

III. Finance

Cooperative members have a responsibility to finance the cooperative for the purpose of conducting operations. They are not responsible for financial returns. Profitability remains the responsibility of management. Members are responsible for ensuring the business has the necessary capital to form and operate the business. This is done initially through the purchase of a share of voting stock (which gives the rights of membership). One-time investments may also be used when forming the business or expanding into new services or product lines. Ultimately, the most important means for members to finance their cooperative takes us back to use, or patronage. The greater the patronage, the greater the cost efficiency of the cooperative. It should be noted that members are responsible in sharing losses just as they are in sharing earnings. 

Members make the cooperative successful. Through use, ownership and control, and finance, members are the lifeblood of their local cooperative. 

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Park, John. “Members Are the Key to Cooperative Success.” Southern Ag Today 5(17.5). April 25, 2025. Permalink

The annual evaluation of the general manager is a clear duty of a cooperative board of directors. It’s a very important task. An evaluation of the general manager is an opportunity to revisit the direction and performance of the cooperative. When done correctly, the evaluation process will strengthen ties between board and manager and align management with board objectives. Here are three recommendations for improving the manager evaluations at your cooperative.

1. Evaluate What Matters Most

One challenge of manager evaluation is that potentially, there is a lot to evaluate. Further, some of the manager’s duties might be hard to evaluate or observe. If you choose criteria based on the functions of management, you might develop a list like this:

Planning

• Actively and accurately assesses competitive forces
• Makes timely adjustments to the changing business environment
• Helps to craft a successful strategic approach
• Develops and implements effective timelines and goals
• Budgets for current and future operating needs
• Ensures cooperative resources are available and ready for customer use

Organizing

• Effectively hires and trains high-quality employees
• Assigns resources to their best use
• Delegates managerial duties effectively
• Plans and accommodates organizational growth

Leading

• Motivates employees toward excellence
• Cultivates board relations
• Communicates with members
• Promotes the company vision
• Mentors and grooms future managers

Controlling

• Reports financial results in a clear and timely manner
• Monitors cooperative performance
• Appropriately adjusts budgets throughout the year
• Makes staffing changes when needed
• Conducts employee evaluations and gathers employee feedback

Further, you can consider the manners in which the manager conducts their self. The manager’s personal skills, attributes, and competencies might also be important. Additional criteria might include the following:

Interpersonal

• Communication Skills
• Listening
• Empathy
• Emotional Intelligence
• Working with Others
• LeadershipMentoring
• Friendliness
• Technical
• Industrial Knowledge 
• Marketing
• Equipment Operations
• Software Knowledge

Conceptual

• Abstract Thinking
• Problem Solving
• Adaptability
• Analysis
• Diagnosing Problems
• Forecasting and Predictions
• Decision-making

One solution to organizing all these potential criteria is to consider the stewardships of the manager. Every cooperative manager has responsibilities toward the operations of the cooperative, the board, and the members. To help further, consider if your evaluation criteria are focused on the mission of the cooperative. In doing this, better questions begin to emerge:

Cooperative

1. Recruits, trains, and retains quality employees. 
2. Maintains and protects the functionality of cooperative assets.
3. Demonstrates result-driven use of cooperative funds.
4. Focuses on cooperative mission.

Board

1. Provides frequent and thorough reports of cooperative financial condition.
2. Communicates market opportunities and risks in a timely manner.
3. Interprets market conditions affecting financial performance.
4. Informs board of potential legal threats and conflicts of interest.

Members

1. Actively recruits new membership.
2. Is knowledgeable of individual members and seeks their input.
3. Promotes the mission of the cooperative to members.
4. Is focused on customer service.

2. Include Professional Development

Don’t forget that the manager is also a valuable asset to the cooperative. Your evaluation might include goals for self-improvement of leadership skills or industry knowledge.  The manager might self identify some of these goals as well as other relevant criteria for the cooperative, board, and members. Questions might include:

Manager

1. Mentors employees for future leadership.
2. Exemplifies integrity for the cooperative.
3. Listens to member-owner concerns.
4. Analyzes cooperative performance and suggests needed corrections.

3. Give Evaluation the Time it Deserves

Successful manager evaluation is not an annual event – it is a year-long process. When your board approach to manager evaluation is to invite the manager in to award a bonus, or take them to lunch, or any other solitary event, you are failing to protect the cooperative. Proper evaluation starts immediately following the prior evaluation by establishing the evaluation criteria for the coming year. This is to be agreed upon by board and manager. Monthly board meetings should take time to revisit and assess the evaluation, noting evidence of performance. Executive sessions are useful times to briefly discuss management performance and discuss any needed adjustments to evaluation criteria, or management actions. At the end of the year, the board chair can ask for an evaluation from each board member and the manager.  Doing this will help to elevate the annual evaluation to a constructive process for both cooperative and manager. 

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Park, John. “Evaluating the Cooperative Manager.” Southern Ag Today 5(5.5). January 31, 2025. Permalink

Cooperatives are formed based on some collective economic need, for example, to combat unfair market power, to gain cost efficiency, or to access supply chain services that might not otherwise be available. Despite their ability to overcome these challenges, a traditionally structured cooperative might have difficulty growing and sustaining a profitable business in certain situations.

Cooperatives that are formed to further process commodities into branded food products have added challenges. For example, a cooperative of wheat farmers that would manufacture and market pasta may face sizeable capital requirements and a require a consistent flow of production. A traditional cooperative model with open-ended commitments from its members may not be geared to these needs. Food processing facilities are designed for a specific capacity and may not operate profitably if forced to purchase unneeded inputs in a surplus year or to operate below break-even in a short crop year. Furthermore, lags and disturbances in the distribution of value-added, branded products may alienate wholesalers, retailers, and consumers, resulting in lost sales and reduced access to retail shelf space.

Does this mean that agricultural producers can’t cooperate in these value-added markets? No, there is an alternative. A “new generation cooperative” differs from a traditional cooperative in a few important ways: 

1. Membership is closed
2. Participation is contracted
3. Member equity is tied to investment, not use
4. Ownership is transferrable and can appreciate/depreciate in value

Closed Membership

Membership in the new generation cooperative is determined by purchasing a limited number of shares. Each share allows its holder to deliver a specified amount of their crop to the facility. The number of shares available is determined by the annual production needs of the facility. The sale of all shares covers the equity investment needed for the cooperative. 

Contracted Participation

The purchase of a share in a new generation cooperative provides the right to deliver a specified amount of a commodity, but also the obligation to deliver the commodity. This ensures the cooperative that it will receive the required amount of input. Members who did not grow enough of the commodity to fill their obligation can make up the difference by purchasing the commodity on the open market. 

Member Equity

Because the cooperative requires the purchase of shares to do business with the cooperative, equity is received up front, and not tied to participation from year to year. This gives the cooperative an added degree of security and resilience.

Value of Ownership

In a traditional cooperative, profits are allocated to members based on their use of the cooperative. A portion of that allocation is paid to the member in cash, and the rest is held by the cooperative in the member’s name. These “book credits” represent the member’s equity ownership of the cooperative and will be redeemed at some unspecified time in the future at face value. The equity investment in a new generation cooperative lies in the up-front purchase of shares. These shares are transferrable at market value.

The new generation cooperative provides an alternate business form that might help groups of producers seeking to enter value-adding industries. Interested groups can contact their lawyer, accountant, or cooperative Extension specialist for more information.

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Park , John. “What is a New Generation Cooperative?” Southern Ag Today 4(9.5). March 1, 2024. Permalink

Being elected to the board of directors for your local cooperative can be an intimidating experience. An agricultural cooperative may have some fundamental differences from a farm operation that makes it difficult for new board members to assess and direct. Part of these differences are due to business activities in adjacent parts of the supply chain. Additionally, cooperatives have unique financial and legal issues that use unfamiliar terminology, adding to the confusion. 

Not surprisingly, education is a hallmark principle of cooperation. Many states offer educational programs for cooperative directors through their state agricultural cooperative council. Other resources for education include the farm credit system members and, of course, your state Extension service. Many of these offer traditional programs over 1-3 days, with speakers and workshops covering a variety of topics. Programs such as these continue to be widely available and appreciated. 

However, directors are increasingly requesting alternative educational opportunities with online delivery. On-demand education is often a better fit for modern directors seeking a better balance of time devoted to home, business, and life in general. The pandemic of 2020 taught many boards that a lot of their activities can be effectively conducted online if needed. In response to this, a group of Extension specialists from across the nation established the Cooperative Director Foundations Program. This program provides 15 hours of training across 23 learning modules, targeted to directors of agricultural cooperatives. The course is available from Thinkific, on an online learning platform. 

Directors needing cooperative specific training are encouraged to speak to their state Extension specialist for cooperatives and to check out the Foundations course on the Thinkific website at http://cacdd.thinkific.com.

Further Reading

Boland, Michael A., Kopka, Christopher J., Jacobs, Keri, Berner, Courtney, Briggeman, Brian, Elliott, Matthew, Friend, Diane, Kenkel, Phil, McKee, Greg, Olson, Frayne, Park, John L., Secor, William, Schweiss, Kristi, Scott, Hannah and Worley, Tom, (2022), Extension Programming During a Pandemic: The Cooperative Director Foundations Program, Applied Economics Teaching Resources (AETR), 4, issue 2, number 321906.

https://www.aetrjournal.org/UserFiles/file/AETR_2022_001RR%20V4I2.pdf

It is widely recognized that agricultural cooperatives are founded on seven distinct principles.

1. Voluntary and open membership
2. Democratic member control
3. Members’ economic participation
4. Autonomy and independence
5. Education, training, and information
6. Cooperation among cooperatives
7. Concern for community

Although some cooperatives adjust the first two principles, in general, adherence to these principles allow agricultural producers to collectively own assets of production that they might not otherwise be able to access. Simply put, the cooperative business structure works, and it will always be needed by agricultural producers so long as they participate in markets with very large buyers and sellers or lack the ability to effectively transfer cost increases and risk downstream. 

However, these principles add some complexity to successful management. Occasionally managers and directors feel their cooperative is not meeting their expectations. Their frustrations often originate with the challenges presented by cooperative principles and a misunderstanding of how those principles apply to successful cooperative leadership. Here are a few examples of complexities that might describe your cooperative.

We struggle with member loyalty.

Cooperatives are owned by their customers, so one would expect that cooperative members would naturally be loyal to the business they own. However, cooperative managers often complain that their members are only loyal to price. Cooperatives rely on their members economic participation for profitability, but most feature open and voluntary membership. Just like any other firm, cooperatives must offer their customers a reason to do business, but it must be more than just price. If cooperative members are choosing your competitors, they may need to be educated about the value of the cooperative’s services, the value of shared profits, or the value of the cooperative’s influence on market power.    

We struggle with recruiting directors with the skills we need.

Cooperative directors are elected from among the membership. Members, in turn, are users or customers of the business. The implication of democratic member control is that directors are selected from among a group of relatively similar people with similar skills and backgrounds from within a defined geographic region. Compared to other forms of corporations, a cooperative can’t always recruit directors from other industries or with specific professional backgrounds. On the other hand, a cooperative board has incredible customer insight. 

We struggle with directors who want to control managerial decisions.

Another implication of democratic member control is that cooperative directors are not only customers, but they themselves are managers of their own business ventures. Most likely, the directors of your cooperative are also very successful managers. However, the director role is very different in purpose and function from that of management. At times, cooperative directors might fall back on what they know best (operational management) if they aren’t familiar with the role of the director (setting policy and strategy). In addition, cooperative directors may need education about the industry or business model of their cooperative. For example, a director may be very familiar with cotton production, but not understand retail pricing and inventory control at their cooperative farm store. Or a director may be familiar with grain production, but not understand the economics of milling and bagging feed. 

Education is a key method for helping a struggling cooperative. There are many professionals ready to assist a cooperative board with specific knowledge and education to help them overcome these struggles. Look for help from your local bank, accountant, lawyer, and cooperative extension service.

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