This business model is already big and keeps growing. In fact: “In the United States, cooperatives control about 80 per cent of dairy production. In Brazil, they account for 40 per cent of the country’s agricultural GDP. And in Kenya, cooperatives have cornered 95 per cent of the cotton market.” However, it doesn’t always mean that it accounts for more production being done by the co-ops. In the developed countries, a big chunk of the food market is still in the hands of the corporations, whose economy of scale model and focus on profits, leads to the creation of more waste.
Farmers’ co-ops were created in order to take advantage of the economy of scale model. Many researches have shown that small farmers acting alone weren’t able to take advantage of the opportunities that the market was providing them. On the other hand, small farmers that acted in groups were able to succeeded.
So what are the differences between co-ops and big corporations? Both are organized as corporations, but the IOFs (Investor Owned Firms) of companies are mostly focused on profit-maximization objectives, while the cooperatives are focused on maximizing the benefits generated for their members. Usually the cooperatives are created in situations when IOFs believe that a given cooperation won’t be profitable or when IOFs provide services at disadvantageous conditions to the farmers.
The most common motivation for creating a co-op, is the ability of farmers to pool together their resources and production. As it was mentioned before, it is aligned with the concept of economies of scale. In many situations small farmers can’t afford the needed tools for production. Being a member of a cooperative allow them to “share” 4 things:
- Machinery – it is always expensive and this way farmers can share big machinery amongst each other.
- Marketing – a small farmer would never have means to use marketing as a form of getting clients.
- Manufacturing means – small farmers will are able to easily transport their produce to the markets.
- Credit union – small farmers, especially in developing countries do not have access to credits. By creating co-ops this option can be open to them.
If you want to learn a little bit more about this topic, please watch a short video about it.
by Piotr Wielezynski