Innovation in Cooperatives

Innovation in Cooperatives

Target Grade Level / Age Range:

8th Grade

Estimated Time:

45 minutes

Purpose:

Students will understand how cooperatives have played an important part in innovation in driving the market economy.

Materials:

  • Flip chart
  • Markers
  • Computer
  • Projector
  • Screen

Essential Files (maps, charts, pictures, or documents)

Vocabulary  

  • Corporation – a company recognized by law as a single body with its own powers and liabilities.
  • Cooperative – business operated collectively, owned jointly by all of its members or workers who share all profits equally.
  • Credit union – a type of financial cooperative.
  • Patronage refund – a cooperative members allocation, usually in cash and equity.

Background – Agricultural Connections 

There is no universally accepted definition of a cooperative. In general, a cooperative is a business owned and democratically controlled by the people who use its services and whose benefits are derived and distributed equitably on the basis of use. The user-owners are called members. They benefit in two ways from the cooperative, in proportion to the use they make of it. First, the more they use the cooperative, the more service they receive. Second, earnings are allocated to members based on the amount of business they do with the cooperative.

In many ways, cooperatives resemble other businesses. They have similar physical facilities, perform similar functions and must follow sound business practices. They are usually incorporated under state law by filing articles of incorporation, granting them the right to do business. The organizers draw up bylaws and other necessary legal papers. Members elect a board of directors. The board sets policy and hires a manager to run the day-to-day operations.

But in some ways, cooperatives are distinctly different from other businesses. These differences are found in the cooperative’s purpose, its ownership and control, and how benefits are distributed. They are reflected in cooperative principles that explain the unique aspects of doing business on a cooperative basis. (Frederick, D. Co-ops 101: An Introduction to Cooperatives, 2005). 

Interest Approach – Engagement 

Pass out copies or display the digital version of the Historical Perspective excerpt from Co-ops 101. As a class, read the excerpt aloud assigning each paragraph/page/section to a different student. After reading it, discuss early cooperatives in the United States that process milk into cheese. Discuss the principles and characteristics: 
  • Open membership
  • One member, one vote
  • Cash trading
  • Membership education
  • Political and religious neutrality
  • No unusual risk assumption
  • Limitation on the number of shares owned
  • Limited interest on stock
  • Goods sold at regular retail prices
  • Net margins distributed according to patronage
Discuss what crops early cooperatives focused on. (Cotton in the south, grain in Iowa, tobacco in Kentucky, wheat and wool in California.)

Procedures

  1. Explain to students that there are four primary categories of cooperatives. As the teacher presents the information from the PowerPoint, ask students to capture important details in their notebooks. 
    1. Financial Cooperatives
      1. Credit Unions
      2. Farm Credit Systems
      3. CoBank
      4. National Rural Utilities Cooperative Finance Corporation
      5. National Cooperative Bank
    2. Consumer Service Cooperatives
      1. Cooperative housing
      2. Medical Care
      3. Child Care
    3. Business Cooperatives
      1. Grocery
      2. Restaurant supplies
      3. Hardware suppliers
      4. Outdoor goods and services (REI)
      5. Lodging (Best Western)
      6. Insurance
      7. Hospital supply
    4. Farmer Cooperatives
      1. Marketing (process and sell agricultural commodities)
      2. Farm Supply (provide chemicals, feed, fertilizer, fuel, seeds, and other inputs)
      3. Farm Service (feed mills, precision agriculture, trucking, contract spraying, harvesting, artificial insemination, soil testing)
      4. Electric Cooperatives
      5. National Rural Telecommunications Cooperative
  2. In a market economy production and prices are determined by unrestricted competition between businesses. Explain to students you are now going to discuss the benefits that cooperatives offer in this system. Write each of the following sections of information on a large flip chart page and post them around the room. Give each student a marker and ask them to walk around the room and add one question to at least two different flip charts. The question can reflect something they don’t understand or something they want to learn more about. Allow 5-8 minutes for this activity. 
    1. a. Access to supplies and services at a reasonable cost
      1. Volume discounts, potential for savings
      2. User-owners save money not having to buy from elsewhere
      3. Hire experts or manufacture supplies to solve local problems
    2. Increased clout in the marketplace
      1. More strength collective strength than individuals
      2. Limited liability (less risk) for marketing agricultural products
      3. Members can share information and better negotiate with buyers
      4. Promote industry research, reduce regulatory burdens, develop markets
    3. Share in earnings
      1. Earnings are allocated to members based on the amount of business each member did with the cooperative.
      2. Member allocation, called a patronage refund, is cash and a share in equity in the cooperative. 
      3. Tax benefits as both cash and refunds can be deducted from taxable income
    4. Political action
      1. Allows members or organize for effective political action
      2. Members can meet with legislators and have more influence because they are speaking on behalf of an entire group
    5. Local economy enhanced and protected
      1. Generate jobs and salaries for local residents.
      2. Cooperatives pay taxes that help schools, hospitals, and other public services.
      3. No one person can negatively impact because it is owned by many.
  3. Bring the students back together and take the flip chart pages, one at a time, to the front of the room. Read each question aloud. If another student can explain the answer allow for that. If not, the teacher can provide an explanation to the question.
  4. To wrap up, ask the students to write a paragraph answering the following questions: Would you like to be a member of a cooperative? Why or why not? What type of cooperative might you become a member of? 

Did you know? (Ag facts)

  • There are more than 3,000 U.S. agricultural cooperatives.
  • There are more than 47,000 cooperatives in the U.S. that directly serve 100 million people. 

Extension Activities 

Suggested Companion Resources 

Sources/Credits

Author(s) 

Will Fett

Organization Affiliation 

Iowa Agriculture Literacy Foundation

Agriculture Literacy Outcomes

  • T4.6-8.a. Compare and contrast historical and current food processing and systems
  • T4.6-8.e. Explain how and why agricultural innovation influenced modern economic systems  
  • T4.6-8.d. Discuss how technology has changed over time to help farmers/ranchers provide more food to more people
  • T4.6-8.h. Identify specific technologies that have reduced labor in agriculture 
  • T5.6-8.a. Consider the economic value of agriculture in America 
  • T5.6-8.b. Distinguish between careers in production (farmers and ranchers) with those that directly involve consumers (business and nutrition)
  • T5.6-8.c. Explain how agricultural production and trade led to the development of industrialized societies 
  • T5.6-8.h. Identify farm ownership in relation to processor ownership (e.g., cooperatives, corporations, vertical integration)

Iowa Core Standards

  • Social Studies 
    • SS.8.16. Analyze the role of innovation and entrepreneurship in institutions throughout early American history in a market economy.