Cooperative Theory, Practice, and Financing: A Dairy Cooperative Case Study

Cooperatives are the aggregates of economic units, such as farms. The cooperative is neither a horizontal integration of its member-farms nor a vertical integration between member-farms and the cooperative, but rather a third mode of organizing coordination. Cooperatives are owned, controlled, financed, and used by members for mutual benefits, with service at cost and proportionality being two basic principles. Farmers organize marketing cooperatives to access markets, exercise countervailing power vis-àvis other market participants, promote competition, and thus enhance market efficiency. Cooperation as practiced by dairy farmers in marketing milk is an enduring business model that is in full accord with the economic theory of what cooperatives are and what cooperatives do. Members supply equity capital needed for the cooperative to carry out its core business of marketing members' milk. Capital financing, in general, is not a contentious issue for dairy cooperatives. For other cooperatives that have difficulties in raising capital from members, the issue is really a reflection of a certain gap between member purposes and cooperative functions. The solution lies in assessing what members want the cooperative to do and how much they are willing to finance it; the cooperative should operate accordingly for members' best interests. Social entrepreneurs have renewed interests in adopting cooperatives as an economic development tool to empower people to work toward their own economic destiny. Over the long term, cooperatives must be self-sustainable in order to be economically viable.