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COOPERATIVE SOCIETIES
The history of the cooperative movement concerns the origins and history of cooperatives. Although cooperative
arrangements, such as mutual insurance, and principles of cooperation existed long before, the cooperative movement began
with the application of cooperative principles to business organization.

Beginnings
The cooperative movement began in Europe in the 19th century, primarily in Britain and France, although The Shore Porters
Society claims to be one of the world's first cooperatives, being established in Aberdeen in 1498 (although it has
since demutualized to become a private partnership). The industrial revolution and the increasing mechanization of the
economy transformed society and threatened the livelihoods of many workers. The concurrent labour and social
movements and the issues they attempted to address describe the climate at the time.
The first documented consumer cooperative was founded in 1769, in a barely furnished cottage in Fenwick, East Ayrshire,
when local weavers manhandled a sack of oatmeal into John Walker's whitewashed front room and began selling the contents
at a discount, forming the Fenwick Weavers' Society.
In the decades that followed, several cooperatives or cooperative societies formed including Lennoxtown Friendly Victualling
Society, founded in 1812.
By 1830, there were several hundred co-operatives. Some were initially successful, but most cooperatives founded in the early
19th century had failed by 1840. However, Lockhurst Lane Industrial Co-operative Society (founded in 1832 and now Heart of
England Co-operative Society), and Galashiels and Hawick Co-operative Societies (1839 or earlier, merged with The Co-
operative Group) still trade today.
It was not until 1844 when the Rochdale Society of Equitable Pioneers established the ‘Rochdale Principles’ on which they ran
their cooperative, that the basis for development and growth of the modern cooperative movement was established.
Financially, credit unions were invented in Germany in the mid-19th century, first by Franz Hermann Schulze-Delitzsch (1852,
urban), then by Friedrich Wilhelm Raiffeisen (1864, rural). While Schulze-Delitzsch is chronologically earlier, Raiffeisen has
proven more influential over time – see history of credit unions. In Britain, the friendly society, building society, and mutual
savings bank were earlier forms of similar institutions.

Robert Owen
Main article: Robert Owen
Robert Owen (1771–1858) is considered the father of the cooperative movement. A Welshman who made his fortune in the
cotton trade, Owen believed in putting his workers in a good environment with access to education for themselves and their
children. These ideas were put into effect successfully in the cotton mills of New Lanark, Scotland. It was here that the first co-
operative store was opened. Spurred on by the success of this, he had the idea of forming "villages of co-operation" where
workers would drag themselves out of poverty by growing their own food, making their own clothes and ultimately becoming
self-governing. He tried to form such communities in Orbiston in Scotland and in New Harmony, Indiana in the United States of
America, but both communities failed.

William King
Main article: William King (doctor)
Although Owen inspired the co-operative movement, others – such as Dr William King (1786–1865) – took his ideas and made
them more workable and practical. King believed in starting small, and realized that the working classes would need to set up
co-operatives for themselves, so he saw his role as one of instruction. He founded a monthly periodical called The Co-
operator, the first edition of which appeared on 1 May 1828. This gave a mixture of co-operative philosophy and practical advice
about running a shop using cooperative principles. King advised people not to cut themselves off from society, but rather to
form a society within a society, and to start with a shop because, "We must go to a shop every day to buy food and necessaries
- why then should we not go to our own shop?" He proposed sensible rules, such as having a weekly account audit, having 3
trustees, and not having meetings in pubs (to avoid the temptation of drinking profits).

The Rochdale Pioneers

Main article: Rochdale Pioneers
The Rochdale Society of Equitable Pioneers was a group of 10 weavers and 20 others in Rochdale, England, that was formed
in 1844. As the mechanization of the Industrial Revolution was forcing more and more skilled workers into poverty, these
tradesmen decided to band together to open their own store selling food items they could not otherwise afford. With lessons
from prior failed attempts at co-operation in mind, they designed the now famous Rochdale Principles, and over a period of four
months they struggled to pool together one pound sterling per person for a total of 28 pounds of capital. On December 21,
1844, they opened their store with a very meager selection of butter, sugar, flour, oatmeal and a few candles. Within three
months, they expanded their selection to include tea and tobacco, and they were soon known for providing high quality,
unadulterated goods.

The English CWS and Co-operative Group

Main article: The Co-operative Group
The Co-operative Group formed gradually over 140 years from the merger of many independent retail societies, and their
wholesale societies and federations. In 1863, twenty years after the Rochdale Pioneers opened their co-operative, the North of
England Co-operative Society was launched by 300 individual co-ops across Yorkshire and Lancashire. By 1872, it had become
known as the Co-operative Wholesale Society (CWS). Through the 20th century, smaller societies merged with CWS, such as
the Scottish Co-operative Wholesale Society (1973) and the South Suburban Co-operative Society (1984).
By the 1990s, CWS's share of the market had declined considerably and many came to doubt the viability of co-operative
model. CWS sold its factories to Andrew Regan in 1994. Regan returned in 1997 with a £1.2 billion bid for CWS. There were
allegations of "carpet-bagging" - new members who joined simply to make money from the sale - and more seriously fraud and
commercial leaks. After a lengthy battle, Regan's bid was seen off and two senior CWS executives were dismissed and
imprisoned for fraud. Regan was cleared of charges. The episode recharged CWS and its membership base. Tony Blair's Co-
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operative Commission, chaired by John Monks, made major recommendations for the co-operative movement, including the
organisation and marketing of the retail societies. It was in this climate that, in 2000, CWS merged with the UK's second largest
society, Co-operative Retail Services.
Its headquarter complex is situated on the north side of Manchester city centre adjacent to the Manchester Victoria railway
station. The complex is made up of many different buildings with two notable tower blocks of New Century House and the solar
panel-clad CIS tower.
Other independent societies are part owners of the Group. Representatives of the societies that part own the Group are elected
to the Group's national board. The Group manages The Co-operative brand and the Co-operative Retail Trading
Group (CRTG), which sources and promotes goods for food stores. There is a similar purchasing group (CTTG) for co-
operative travel agents.

Co-operatives today
Co-operative communities are now widespread, with one of the largest and most successful examples being the Mondragón
Cooperative Corporation in the Basque country of Spain. Co-operatives were also successful
in Yugoslavia under Tito where Workers' Councils gained a significant role in management.
In many European countries, cooperative institutions have a predominant market share in the
retail banking and insurance businesses.
In the UK, co-operatives formed the Co-operative Party in the early 20th century to represent members of co-ops in Parliament.
The Co-operative Party now has a permanent electoral pact with the Labour Party, and some Labour MPs are Co-operative
Party members. UK co-operatives retain a significant market share in food retail, insurance, banking, funeral services, and the
travel industry in many parts of the country.
Denmark has had a strong cooperative movement.
In Colorado, the Meadowlark Cooperative administers the first and only private free land program in the United States, providing
many services to its members who buy and sell together.
In the United States there are over 29,000 co-operatives employing 2 million people with over $652 billion in annual revenue.

Agricultural cooperative
An agricultural cooperative, also known as a farmers' co-op, is a cooperative where farmers pool their resources in certain
areas of activity.
A broad typology of agricultural cooperatives distinguishes between agricultural service cooperatives, which provide various
services to their individually farming members, and agricultural production cooperatives, where production resources (land,
machinery) are pooled and members farm jointly. Examples of agricultural production cooperatives include collective
farms in former socialist countries, the kibbutzim in Israel, collectively governed community shared agriculture, Longo Mai co-
operatives and Nicaraguan production co-operatives. Worker cooperatives provide an example of production cooperatives
outside agriculture.
The default meaning of agricultural cooperative in English is usually an agricultural service cooperative, which is the numerically
dominant form in the world. There are two primary types of agricultural service cooperatives, supply cooperative and marketing
cooperative. Supply cooperatives supply their members with inputs for agricultural production, including seeds, fertilizers, fuel,
and machinery services. Marketing cooperatives are established by farmers to undertake transformation, packaging,
distribution, and marketing of farm products (both crop and livestock). Farmers also widely rely on credit cooperatives as a
source of financing for both working capital and investments.

Why farmers form cooperatives

Cooperatives as a form of business organization are distinct from the more common investor-owned firms (IOFs). Both are
organized as corporations, but IOFs pursue profit maximization objectives, whereas cooperatives strive to maximize the
benefits they generate for their members (which usually involves zero-profit operation). Agricultural cooperatives are therefore
created in situations where farmers cannot obtain essential services from IOFs (because the provision of these services is
judged to be unprofitable by the IOFs), or when IOFs provide the services at disadvantageous terms to the farmers (i.e., the
services are available, but the profit-motivated prices are too high for the farmers). The former situations are characterized in
economic theory as market failure or missing services motive. The latter drive the creation of cooperatives as a competitive
yardstick or as a means of allowing farmers to build countervailing market power to oppose the IOFs.[1] The concept of
competitive yardstick implies that farmers, faced with unsatisfactory performance by IOFs, may form a cooperative firm whose
purpose is to force the IOFs, through competition, to improve their service to farmers.

Headquarters of Hokuren Federation of Agricultural Cooperatives in Sapporo, Japan

A practical motivation for the creation of agricultural cooperatives is related to the ability of farmers to pool production and/or
resources. In many situations within agriculture, it is simply too expensive for farmers to manufacture products or undertake a
service. Cooperatives provide a method for farmers to join together in an 'association', through which a group of farmers can
acquire a better outcome, typically financial, than by going alone. This approach is aligned to the concept of economies of
scale and can also be related as a form of economic synergy, where "two or more agents working together to produce a result
not obtainable by any of the agents independently". While it may seem reasonable to conclude that larger the cooperative the
better, this is not necessarily true. Cooperatives exist across a broad membership base, with some cooperatives having less
than 20 members while other can have over 10,000.
While the economic benefits are a strong driver in forming cooperatives, it is not the sole consideration. In fact, it is possible for
the economic benefits from a cooperative to be replicated in other organizational forms, such as an IOF. An important strength
of a cooperative for the farmer is that they retain the governance of the association, thereby ensuring they have ultimate
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ownership and control. This ensures that the profit reimbursement (either through the dividend payout or rebate) is shared only
amongst the farmer members, rather than shareholders as in an IOF.
In agriculture, there are broadly three types of cooperatives: a machinery pool, a manufacturing/marketing cooperative, and
a credit union.
 Machinery Pool: A family farm may be too small to justify the purchase of expensive farm machinery, which maybe
only used irregularly, say only during harvest; instead local farmers may get together to form a machinery pool that
purchases the necessary equipment for all the members to use.
 Manufacturing/marketing cooperative: A farm does not always have the means of transportation necessary for
delivering its produce to the market, or else the small volume of its production may put it in an unfavorable negotiating
position with respect to intermediaries and wholesalers; a cooperative will act as an integrator, collecting the output from
members, sometimes undertaking manufacturing, and delivering it in large aggregated quantities downstream through the
marketing channels.
 Credit Union: Farmers, especially in developing countries, can be charged relatively high interest rates by commercial
banks, or even not available for farmers to access. When providing loans, these banks are often mindful of high transaction
costs on small loans, or may be refused credit altogether due to lack of collateral - something very acute in developing
countries. To provide a source of credit, farmers can group together funds that can be loaned out to members.
Alternatively, the credit union can raise loans at better rates from commercial banks due to the cooperative having a larger
associative size than an individual farmer. Often members of a credit union will provide mutual or peer-pressure guarantees
for repayment of loans. In some instances, manufacturing/marketing cooperatives may have credit unions as part of their
broader business. Such an approach allows farmers to have a more direct access to critical farm inputs, such as seeds and
implements. The loans for these inputs are repaid when the farmer sends produce to the manufacturing/marketing
cooperative.

Supply cooperatives
Agricultural supply cooperatives aggregate purchases, storage, and distribution of farm inputs for their members. By taking
advantage of volume discounts and utilizing other economies of scale, supply cooperatives bring down the cost of the inputs
that the members purchase from the cooperative compared with direct purchases from commercial suppliers. Supply
cooperatives provide inputs required for agricultural production including seeds, fertilizers, chemicals, fuel, and farm machinery.
Some supply cooperatives operate machinery pools that provide mechanical field services (e.g., plowing, harvesting) to their
members.

Problems faced by agricultural cooperatives

There are many problems faced by these cooperatives but the five major ones are:
1. Tough competition from MNC's
2. They face a lot of government intervention i.e. the various policies and legislations that affect these
cooperatives
3. Inadequacy of professional and dynamic managers with complete knowledge and understanding
4. Inadequacy of capital
5. The extent of participation by the members and method of empowerment of members should be revised

Origins
The first agricultural cooperatives were created in Europe in the seventeenth century in the Military Frontier, where the wives
and children of the border guards lived together in organized agricultural cooperatives next to a funfair and a public bath.
The first civil agricultural cooperatives were created also in Europe in the second half of the nineteenth century. They spread
later to North America and the other continents. They have become one of the tools of agricultural development in emerging
countries. Farmers also cooperated to form mutual farm insurance societies.
Also related are rural credit unions. They were created in the same periods, with the initial purpose of offering farm loans. Some
became universal banks such as Crédit Agricole or Rabobank.

COOPERATIVE

A cooperative (also co-operative or co-op) is a business organization owned and operated by a group of individuals for their
mutual benefit. A cooperative is defined by the International Cooperative Alliance's Statement on the Cooperative Identity as
"an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and
aspirations through jointly owned and democratically controlled enterprise". A cooperative may also be defined as a business
owned and controlled equally by the people who use its services or by the people who work there. Various aspects regarding
cooperative enterprise are the focus of study in the field of cooperative economics.

Origins
Cooperation dates back as far as human beings have been organizing for mutual benefit. Tribes were organized as cooperative
structures, allocating jobs and resources among each other, only trading with the external communities. In alpine environments,
trade could only be maintained in organized cooperatives to achieve a useful condition of artificial roads such as Viamala in
1473. Pre-industrial Europe is home to the first cooperatives from an industrial context.

Robert Owen (1771 - 1858) was a social reformer and a pioneer of the cooperative movement.
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In 1761, the Fenwick Weavers' Society was formed in Fenwick, East Ayrshire, Scotland to selldiscounted oatmeal to local
workers. Its services expanded to include assistance with savings and loans, emigration and education. In 1810, Welsh social
reformer Robert Owen, from Newtown in mid-Wales, and his partners purchased New Lanark mill from Owen's father-in-
law David Daleand proceeded to introduce better labour standards including discounted retail shops where profits were passed
on to his employees. Owen left New Lanark to pursue other forms of cooperative organization and develop co-op ideas through
writing and lecture. Cooperative communities were set up in Glasgow, Indiana and Hampshire, although ultimately
unsuccessful. In 1828, William King set up a newspaper, The Cooperator, to promote Owen's thinking, having already set up a
co-operative store in Brighton.
The Rochdale Society of Equitable Pioneers, founded in 1844, is usually considered the first successful cooperative enterprise,
used as a model for modern co-ops, following the 'Rochdale Principles'. A group of 28 weavers and other artisans in Rochdale,
England set up the society to open their own store selling food items they could not otherwise afford. Within ten years there
were over 1,000 cooperative societies in the United Kingdom.
Other events such as the founding of a friendly society by the Tolpuddle Martyrs in 1832 were key occasions in the creation of
organized labor and consumer movements.

Social economy
In the final year of the 20th century, cooperatives banded together to establish a number of social enterprise agencies which
have moved to adopt the multi-stakeholder cooperative model. In the last 15 years (1994–2009) the EU and its member
nations, have gradually revised national accounting systems to "make visible" the increasing contribution of social
economy organizations.

Organizational and ideological roots

The roots of the cooperative movement can be traced to multiple influences and extend worldwide. In the Anglo sphere, post-
feudal forms of cooperation between workers and owners, that are expressed today as "profit-sharing" and "surplus sharing"
arrangements, existed as far back as 1795. The key ideological influence on the Anglo sphere branch of the cooperative
movement, however, was a rejection of the charity principles that underpinned welfare reforms when the British
government radically revised its Poor Laws in 1834. As both state and church institutions began to routinely distinguish between
the 'deserving' and 'undeserving' poor, a movement of friendly societies grew throughout the British Empire based on the
principle of mutuality, committed to self-help in the welfare of working people.
Friendly Societies established forums through which one member, one vote was practiced in organisation decision-making. The
principles challenged the idea that a person should be an owner of property before being granted a political voice. Throughout
the second half of the nineteenth century (and then repeatedly every 20 years or so) there has been a surge in the number of
cooperative organisations, both in commercial practice and civil society, operating to advance democracy and universal
suffrage as a political principle. Friendly Societies and consumer cooperatives became the dominant form of organization
amongst working people in Anglo sphere industrial societies prior to the rise of trade unions and industrial factories. Weinbren
reports that by the end of the 19th century, over 80% of British working age men and 90% of Australian working age men were
members of one or more Friendly Society.
From the mid-nineteenth century, mutual organizations embraced these ideas in economic enterprises, firstly amongst trades
people, and later in cooperative stores, educational institutes, financial institutions and industrial enterprises. The common
thread (enacted in different ways, and subject to the constraints of various systems of national law) is the principle that an
enterprise or association should be owned and controlled by the people it serves, and share any surpluses on the basis of each
members' cooperative contribution (as a producer, labourer or consumer) rather than their capacity to invest financial capital.
The cooperative movement has been fueled globally by ideas of economic democracy. Economic democracy is a
socioeconomic philosophy that suggests an expansion of decision-making power from a small minority of corporate
shareholders to a larger majority of public stakeholders. There are many different approaches to thinking about and building
economic democracy. Both Marxism and anarchism, for example, have been influenced by utopian socialism, which was based
on voluntary cooperation, without recognition of class conflict. Anarchists are committed to libertarian socialism and they have
focused on local organization, including locally managed cooperatives, linked through confederations of unions, cooperatives
and communities. Marxists, who as socialists have likewise held and worked for the goal of democratizing productive and
reproductive relationships, often placed a greater strategic emphasis on confronting the larger scales of human organization. As
they viewed the capitalist class to be prohibitively politically, militarily and culturally mobilized in order to maintain an
exploitable working class, they fought in the early 20th century to appropriate from the capitalist class the society's collective
political capacity in the form of the state, either through democratic socialism, or through what came to be known as Leninism.
Though they regard the state as an unnecessarily oppressive institution, Marxists considered appropriating national and
international-scale capitalist institutions and resources (such as the state) to be an important first pillar in creating conditions
favorable to solidaristic economies. With the declining influence of the USSR after the 1960s, socialist strategies pluralized,
though economic democratizes have not as yet established a fundamental challenge to the hegemony of
global neoliberal capitalism.

Meaning
Cooperatives as legal entities
A cooperative is a legal entity owned and democratically controlled by its members. Members often have a close association
with the enterprise as producers or consumers of its products or services, or as its employees.
In some countries, e.g. Finland and Sweden, there are specific forms of incorporation for cooperatives. Cooperatives may take
the form of companies limited by shares or by guarantee, partnerships or unincorporated associations. In the USA, cooperatives
are often organized as non-capital stock corporations under state-specific cooperative laws. However, they may also be
unincorporated associations or business corporations such as limited liability companies or partnerships; such forms are useful
when the members want to allow :
1. some members to have a greater share of the control, or
2. some investors to have a return on their capital that exceeds fixed interest,
neither of which may be allowed under local laws for cooperatives. Cooperatives often share their earnings with the
membership as dividends, which are divided among the members according to their participation in the enterprise, such as
patronage, instead of according to the value of their capital shareholdings (as is done by a joint stock company).
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Identity
Cooperatives are based on the cooperative values of "self-help, self-responsibility, democracy and equality, equity and
solidarity" and the seven cooperative principles:
1. Voluntary and Open Membership
2. Democratic Member Control
3. Member Economic Participation
4. Autonomy and Independence
5. Education, Training and Information
6. Cooperation among Cooperatives
7. Concern for Community
Cooperatives are dedicated to the values of openness, social responsibility and caring for others. Such legal entities have a
range of social characteristics. Membership is open, meaning that anyone who satisfies certain non-discriminatory conditions
may join. Economic benefits are distributed proportionally to each member's level of participation in the cooperative, for instance
by a dividend on sales or purchases, rather than according to capital invested.[14] Cooperatives may be classified as
either worker, consumer, producer, purchasing or housing cooperatives. They are distinguished from other forms of
incorporation in that profit-making or economic stability are balanced by the interests of the community. [14] Co-ops can
sometimes be identified on the Internet through the use of the .coop gTLD. Organizations using .coop domain names must
adhere to the basic co-op values.

Types of cooperative governance

Retailers' cooperative
A retailers' cooperative (known as a secondary or marketing cooperative in some countries) is an organization which
employs economies of scale on behalf of its members to receive discounts from manufacturers and to pool marketing. It is
common for locally owned grocery stores, hardware stores and pharmacies. In this case the members of the cooperative are
businesses rather than individuals.
The Best Western international hotel chain is actually a retailers' cooperative, whose members are hotel operators, although it
refers to itself as a "nonprofit membership association." It gave up on the "cooperative" label after some courts insisted on
enforcing regulatory requirements for franchisors despite its member-controlled status.

Worker cooperative
A worker cooperative or producer cooperative is a cooperative that is owned and democratically controlled by its "worker-
owners". There are no outside owners in a "pure" workers' cooperative, only the workers own shares of the business, though
hybrid forms exist in which consumers, community members or capitalist investors also own some shares. In practice, control
by worker-owners may be exercised through individual, collective or majority ownership by the workforce, or the retention of
individual, collective or majority voting rights (exercised on a one-member one-vote basis). A worker cooperative, therefore, has
the characteristic that the majority of its workforce owns shares, and the majority of shares are owned by the
workforce. Membership is not always compulsory for employees, but generally only employees can become members either
directly (as shareholders) or indirectly through membership of a trust that owns the company.
The impact of political ideology on practice constrains the development of cooperatives in different countries. In India, there is a
form of workers' cooperative which insists on compulsory membership for all employees and compulsory employment for all
members. That is the form of the Indian Coffee Houses. This system was advocated by the Indian communist leader A. K.
Gopalan. In places like the UK, common ownership (indivisible collective ownership) was popular in the 1970s. Cooperative
Societies only became legal in Britain after the passing of Slaney's Act in 1852. In 1865 there were 651 registered societies with
a total membership of well over 200,000. There are now more than 400 worker cooperatives in the UK, Suma Whole foods
being the largest example with a turnover of £24 million.
Spanish law permits owner-members to register as self-employed enabling worker-owners to establish regulatory regimes that
support cooperative working, but which differs considerably from cooperatives that are subject to Anglo-American systems of
law that require the cooperative (employer) to view (and treat) its worker-members as salaried workers (employees). The
implications of this are far-reaching, as this requires cooperatives to establish authority driven statutory disciplinary and
grievance procedures (rather than democratic mediation schemes), impacting on the ability of leaders to enact democratic
forms of management and counter the authority structures embedded in the dominant system of private enterprise centred
around the entrepreneur.

Volunteer cooperative
A volunteer cooperative is a cooperative that is run by and for a network of volunteers, for the benefit of a defined membership
or the general public, to achieve some goal. Depending on the structure, it may be a collective or mutual organization, which is
operated according to the principles of cooperative governance. The most basic form of volunteer-run cooperative is a voluntary
association. A lodge or social club may be organized on this basis. A volunteer-run co-op is distinguished from a worker
cooperative in that the latter is by definition employee-owned, whereas the volunteer cooperative is typically a non-stock
corporation, volunteer-run consumer co-op or service organization, in which workers and beneficiaries jointly participate in
management decisions and receive discounts on the basis of sweat equity.

Social cooperative
A particularly successful form of multi-stakeholder cooperative is the Italian "social cooperative", of which some 7,000 exist.
"Type A" social cooperatives bring together providers and beneficiaries of a social service as members. "Type B" social
cooperatives bring together permanent workers and previously unemployed people who wish to integrate into the labour
market. They are legally defined as follows:
 no more than 80% of profits may be distributed, interest is limited to the bond rate and dissolution is altruistic (assets
may not be distributed)
 the cooperative has legal personality and limited liability
 the objective is the general benefit of the community and the social integration of citizens
 those of type B integrate disadvantaged people into the labour market. The categories of disadvantage they target may
include physical and mental disability, drug and alcohol addiction, developmental disorders and problems with the law.
They do not include other factors of disadvantage such as unemployment, race, sexual orientation or abuse.
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 type A cooperatives provide health, social or educational services

 various categories of stakeholder may become members, including paid employees, beneficiaries, volunteers (up to
50% of members), financial investors and public institutions. In type B cooperatives at least 30% of the members must be
from the disadvantaged target groups
 voting is one person one vote
A good estimate of the current size of the social cooperative sector in Italy is given by updating the official Istituto Nazionale di
Statistica (Istat) figures from the end of 2001 by an annual growth rate of 10% (assumed by the Direzione Generale per gli Ente
Cooperativi). This gives totals of 7,100 social cooperatives, with 267,000 members, 223,000 paid employees, 31,000 volunteers
and 24,000 disadvantaged people undergoing integration. Combined turnover is around 5 billion euro. The cooperatives break
into three types: 59% type A (social and health services), 33% type B (work integration) and 8% mixed. The average size is 30
workers.

The volunteer board of a retail consumers' cooperative, such as the formerOxford, Swindon & Gloucester Co-op, is held to account at an Annual General Meeting of
members

Consumers' cooperative
A consumers' cooperative is a business owned by its customers. Employees can also generally become members. Members
vote on major decisions and elect the board of directors from amongst their own number. The first of these was set up in 1844
in the North-West of England by 28 weavers who wanted to sell food at a lower price than the local shops. A well known
example in the United States is the REI (Recreational Equipment Incorporated) co-op, and in Canada: Mountain Equipment Co-
op.
With its 414,383 employees, 7,736,210 members and a turnover of €50Bn per year growing at a steady rate of 4.41%, Leg
coop of Italy is arguably the world's biggest federation of cooperatives.
The world's largest consumers' cooperative is the Co-operative Group in the United Kingdom, which offers a variety of retail and
financial services. The UK also has a number of autonomous consumers' cooperative societies, such as the East of England
Co-operative Society and Mid-counties Co-operative. In fact, the Co-operative Group is something of a hybrid, having both
corporate members (mostly other consumers' cooperatives, as a result of its origins as a wholesale society), and individual retail
consumer members.
Japan has a very large and well-developed consumer cooperative movement with over 14 million members; retail co-ops alone
had a combined turnover of 2.519 trillion Yen (21.184 billion US dollars [market exchange rates as of 15 November 2005]) in
2003/4.
Migros is the largest supermarket chain in Switzerland and has around 2 million of the country's 7.2 million population as
members. Switzerland's second-biggest supermarket chain, Coop is also a cooperative. In 2001, it merged with 11 cooperative
federations which had been its main suppliers for over 100 years. As of 2005, Coop operates 1,437 shops and employs almost
45,000 people. According to Bio Suisse, the Swiss organic producers' association, Coop accounts for half of all the organic food
sold in Switzerland.
Euro Coop is the European Community of Consumer Cooperatives.

BUSINESS AND EMPLOYMENT COOPERATIVE

Business and employment cooperatives (BECs) are a subset of worker cooperatives that represent a new approach to
providing support to the creation of new businesses.
Like other business creation support schemes, BECs enable budding entrepreneurs to experiment with their business idea
while benefiting from a secure income. The innovation BECs introduce is that once the business is established the entrepreneur
is not forced to leave and set up independently, but can stay and become a full member of the cooperative. The micro-
enterprises then combine to form one multi-activity enterprise whose members provide a mutually supportive environment for
each other.
BECs thus provide budding business people with an easy transition from inactivity to self-employment, but in a collective
framework. They open up new horizons for people who have ambition but who lack the skills or confidence needed to set off
entirely on their own – or who simply want to carry on an independent economic activity but within a supportive group context.

New generation cooperative

New generation cooperatives (NGCs) are an adaptation of traditional cooperative structures to modern, capital intensive
industries. They are sometimes described as a hybrid between traditional co-ops and limited liability companies. They were first
developed in California and spread and flourished in the US Mid-West in the 1990s. They are now common in Canada where
they operate primarily in agriculture and food services, where their primary purpose is to add value to primary products. For
example producing ethanol from corn, pasta from durum wheat, or gourmet cheese from goat’s milk.

Types of cooperatives
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Housing cooperative

Co-op City in New York is the largest cooperative housing development in the world with 55,000 people.
A housing cooperative is a legal mechanism for ownership of housing where residents either own shares (share capital co-op)
reflecting their equity in the cooperative's real estate, or have membership and occupancy rights in a not-for-profit cooperative
(non-share capital co-op), and they underwrite their housing through paying subscriptions or rent.
Housing cooperatives come in three basic equity structures :
 In Market-rate housing cooperatives, members may sell their shares in the cooperative whenever they like for
whatever price the market will bear, much like any other residential property. Market-rate co-ops are very common in New
York City.
 Limited equity housing cooperatives, which are often used by affordable housing developers, allow members to own
some equity in their home, but limit the sale price of their membership share to that which they paid.
 Group equity or Zero equity housing cooperatives do not allow members to own equity in their residences and often
have rental agreements well below market rates.
Main article: Building cooperative
Members of a building cooperative (in Britain known as a self-build housing cooperative) pool resources to build housing,
normally using a high proportion of their own labour. When the building is finished, each member is the sole owner of a
homestead, and the cooperative may be dissolved.
This collective effort was at the origin of many of Britain's building societies, which however developed into
"permanent" mutual savings and loan organisations, a term which persisted in some of their names (such as the former Leeds
Permanent). Nowadays such self-building may be financed using a step-by-step mortgage which is released in stages as the
building is completed.
The term may also refer to worker cooperatives in the building trade.

Utility cooperative
A utility cooperative is a type of consumers' cooperative that is tasked with the delivery of a public utility such
as electricity, water or telecommunications services to its members. Profits are either reinvested into infrastructure or distributed
to members in the form of "patronage" or "capital credits", which essentially dividends are paid on a member's investment into
the cooperative. In the United States, many cooperatives were formed to provide rural electrical and telephone service as part
of the New Deal.
In the case of electricity, cooperatives are generally either generation and transmission (G&T) co-ops that create and send
power via the transmission grid or local distribution co-ops that gather electricity from a variety of sources and send it along to
homes and businesses.
In Tanzania, it has been proven that the cooperative method is helpful in water distribution. When the people are involved with
their own water, they care more because the quality of their work has a direct effect on the quality of their water.

Agricultural cooperative
Grain elevators are used by agricultural cooperatives in the storage and shipping of grains.

Agricultural cooperatives or farmers' cooperatives are cooperatives where farmers pool their
resources for mutual economic benefit. Agricultural cooperatives are broadly divided into
agricultural service cooperatives, which provide various services to their individual farming
members, and agricultural production cooperatives, where production resources such as land or
machinery are pooled and members farm jointly. Agricultural production cooperatives are relatively rare in the world, and known
examples are limited to collective farms in former socialist countries and the kibbutzim in Israel.
Agricultural supply cooperatives aggregate purchases, storage, and distribution of farm inputs for their members. By taking
advantage of volume discounts and utilizing other economies of scale, supply cooperatives bring down members' costs. Supply
cooperatives may provide seeds, fertilizers, chemicals, fuel, and farm machinery. Some supply cooperatives also operate
machinery pools that provide mechanical field services (e.g., plowing, harvesting) to their members.
Agricultural marketing cooperatives provide the services involved in moving a product from the point of production to the point of
consumption. Agricultural marketing includes a series of inter-connected activities involving planning production, growing
and harvesting, grading, packing, transport, storage, food processing, distribution and sale. Agricultural marketing cooperatives
are often formed to promote specific commodities.

Credit unions and cooperative banking

The Co-operative Bank's head office in Manchester. The statue in front is of Robert Owen, a pioneer in the cooperative movement.

Credit unions are cooperative financial institutions that are owned and controlled by their members. Credit
unions provide the same financial services as banks but are considered not-for-profit organizations and
adhere to cooperative principles.
Credit unions originated in mid-19th century Germany through the efforts of pioneers Franz Hermann
Schulze-Delitzsch and Friedrich Wilhelm Raiffeisen. The concept of financial cooperatives crossed the Atlantic at the turn of the
20th century, when the caisse populaire movement was started by Alphonse Desjardins in Quebec, Canada. In 1900, from his
home in Lévis, he opened North America's first credit union, marking the beginning of the Movement Desjardins. Eight years
 8

later, Desjardins provided guidance for the first credit union in the United States, where there are now about 7,950 active status
federally insured credit unions, with almost 90 million members and more than $679 billion on deposit.
While they have not taken root so deeply as in Ireland, credit unions are also established in the UK. The largest are work-
based, but many are now offering services in the wider community. The Association of British Credit Unions Ltd (ABCUL)
represents the majority of British Credit Unions. British Building Societies developed into general-purpose savings & banking
institutions with "one member, one vote" ownership and can be seen as a form of financial cooperative (although nine 'de-
mutualised' into conventionally owned banks in the 1980s & 1990s). The UK Co-operative Group includes both
an insurance provider CIS and the Co-operative Bank, both noted for promoting ethical investment.
Other important European banking cooperatives include the Crédit Agricole in France, Migros and Coop Bank in Switzerland
and the Raiffeisen system in many Central and Eastern European countries. The Netherlands, Spain, Italy and various
European countries also have strong cooperative banks. They play an important part in mortgage credit and professional (i.e.
farming) credit.
Cooperative banking networks, which were nationalized in Eastern Europe, work now as real cooperative institutions. A
remarkable development has taken place in Poland, where the SKOK (Spóldzielcze Kasy Oszczednosciowo-Kredytowe)
network has grown to serve over 1 million members via 13,000 branches, and is larger than the country’s largest conventional
bank.
In Scandinavia, there is a clear distinction between mutual savings banks (Sparbank) and true credit unions (Andelsbank).
The oldest cooperative banks in Europe, based on the ideas of Friedrich Raiffeisen, are joined together in the 'Urgenossen'.

Federal or secondary cooperatives

In some cases, cooperative societies find it advantageous to form cooperative federations in which all of the members are
themselves cooperatives. Historically, these have predominantly come in the form of cooperative wholesale societies, and
cooperative unions. Cooperative federations are a means through which cooperative societies can fulfill the sixth Rochdale
Principle, cooperation among cooperatives, with the ICA noting that "Cooperatives serve their members most effectively and
strengthen the cooperative movement by working together through local, national, regional and international structures."

Cooperative wholesale society

According to cooperative economist Charles Gide, the aim of a cooperative wholesale society is to arrange “bulk purchases,
and, if possible, organize production.”[36] The best historical example of this was the English CWS and the Scottish CWS, which
were the forerunners to the modern Co-operative Group.

Cooperative Union
A second common form of cooperative federation is a cooperative union, whose objective (according to Gide) is “to develop the
spirit of solidarity among societies and... in a word, to exercise the functions of a government whose authority, it is needless to
say, is purely moral.”[36] Co-operatives UK and the International Cooperative Alliance are examples of such arrangements.

Cooperative party
In some countries with a strong cooperative sector, such as the UK, cooperatives may find it advantageous to form a
parliamentary political party to represent their interests. The British Cooperative Party and the Canadian Cooperative
Commonwealth Federation are prime examples of such arrangements.
The British cooperative movement formed the Cooperative Party in the early 20th century to represent members of consumers'
cooperatives in Parliament. The Cooperative Party now has a permanent electoral pact with the Labour Party, and has 29
members of parliament who were elected at the 2005 general election as Labour Cooperative MPs. UK cooperatives retain a
significant market share in food retail, insurance, banking, funeral services, and the travel industry in many parts of the country.

Retailers' cooperative
A retailers' cooperative is a type of cooperative which employs economies of scale on behalf of its retailer members.
Retailers' cooperatives use their purchasing power to acquire discounts from manufacturers and often
share marketing expenses. It is common for locally owned grocery stores, hardware stores and pharmacies to participate in
retailers' cooperatives. Consumers' cooperatives, sometimes referred to as retail cooperatives, should be distinguished
from retailers' cooperatives.

Worker cooperative
A worker cooperative is a cooperative owned and democratically managed by its worker-owners. This control may be
exercised in a number of ways. A cooperative enterprise may mean a firm where every worker-owner participates in decision
making in a democratic fashion, or it may refer to one in which managers and administration is elected by every worker-owner,
and finally it can refer to a situation in which managers are considered, and treated as, workers of the firm. In traditional forms
of worker cooperative, all shares are held by the workforce with no outside or consumer owners, and each member has one
voting share. In practice, control by worker-owners may be exercised through individual, collective or majority ownership by the
workforce, or the retention of individual, collective or majority voting rights (exercised on a one-member one-vote basis). A
worker cooperative, therefore, has the characteristic that the majority of its workforce own shares, and the majority of shares
are owned by the workforce.

Definition of worker cooperative

Many definitions exist as to what qualifies as a workers' cooperative. CICOPA, the International Organisation of Industrial,
Artisanal and Service Producers’ Cooperatives, gives an 8-page definition in their World Declaration on Workers' Cooperatives,
which was approved by the International Co-operative Alliance General Assembly in September 2005. Below is the section on
the basic characteristics of workers' cooperatives:
1. They have the objective of creating and maintaining sustainable jobs and generating wealth, to improve the
quality of life of the worker-members, dignify human work, allow workers’ democratic self-management and promote
community and local development.
2. The free and voluntary membership of their members, in order to contribute with their personal work and
economic resources, is conditioned by the existence of workplaces.
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3. As a general rule, work shall be carried out by the members. This implies that the majority of the workers in a
given worker cooperative enterprise are members and vice versa.
4. The worker-members’ relation with their cooperative shall be considered as different to that of conventional
wage-based labour and to that of autonomous individual work.
5. Their internal regulation is formally defined by regimes that are democratically agreed upon and accepted by
the worker-members.
6. They shall be autonomous and independent, before the State and third parties, in their labour relations and
management, and in the usage and management of the means of production.
Workers' cooperatives also follow the Rochdale Principles and values, which are a set of core principles for the operation of
cooperatives. They were first set out by the Rochdale Society of Equitable Pioneers in Rochdale, England, in 1844 and have
formed the basis for the principles on which co-operatives around the world operate to this day.
Even though there is no universally accepted definition of a workers' cooperative, they can be considered to be businesses that
make a product, or offer a service, to sell for profit where the workers are members or worker-owners. Worker-owners work in
the business, govern it and manage it. Unlike with conventional firms, ownership and decision-making power of a worker
cooperative should be vested solely with the worker-owners and ultimate authority rests with the worker-owners as a whole.
Worker-owners control the resources of the cooperative and the work process, such as wages or hours of work.
As mentioned above, the majority – if not all - of the workers in a given worker cooperative enterprise are worker-owners,
although some casual or wage workers may be employed with whom profits and decision making are not necessarily shared
equally. Workers also often undergo a trial or screening period (such as three or six months) before being allowed to have full
voting rights.
Ideally, participation is based on one vote per worker-owner, regardless of the amount of shares or equity owned by each
worker-owner. Voting rights are not tied to investment or patronage in the workers' co-operative, and only worker-owners can
vote on decisions that affect them. In practice, worker co-operatives have to accommodate a range of interests to survive and
have experimented with different voice and voting arrangements to accommodate the interests of trade unions, local
authorities, those who have invested proportionately more labour, or through attempts to mix individual and collective forms of
worker ownership and control.
As noted by theorists and practitioners alike, the importance of capital should be subordinated to labour in workers'
cooperatives.
"Labor is the hiring factor, therefore the voting and property rights are assigned to the people who do the work and not to
capital, even though the worker-members supply capital through membership fees and retained earnings...Any profit or loss
after normal operating expenses is assigned to members on the basis of their labor contribution."
Nevertheless, recent developments in the co-operative movement have started to shift thinking more clearly towards multi-
stakeholder perspectives. This has resulted in repeated attempts to develop model rules that differentiate control rights from
investment and profit-sharing rights. Workers' co-operatives have often been seen as an alternative or "third way" to the
domination of labour by either capital or the state.
In short, workers' co-operatives are organized to serve the needs of worker-owners by generating benefits (which may or may
not be profits) for the worker owners rather than external investors. This worker-driven orientation makes them fundamentally
different from other corporations. Additional cooperative structural characteristics and guiding principles further distinguish them
from other business models. For example, worker-owners may not believe that profit maximisation is the best, or only, goal for
their co-operative or they may follow the Rochdale Principles.
Profits (or losses) earned by the worker's cooperative are shared by worker owners. Salaries generally have a low ratio
difference which ideally should be "guided by principles of proportionality, external solidarity and internal solidarity" (such as a
two to one ratio between lowest and highest earner), and often are equal for all workers. Salaries can be calculated according
to skill, seniority or time worked and can be raised or lowered in good times or bad to ensure job security.

Internal structure
Worker cooperatives have a wide variety of internal structures. Worker control can be exercised directly or indirectly by worker-
owners. If exercised indirectly, members of representative decision-making bodies (e.g. a Board of Directors) must be elected
by the worker-owners (who in turn hire the management) and be subject to removal by the worker-owners. This is a hierarchical
structure similar to that of a conventional business, with a board of directors and various grades of manager, with the difference
being that the board of directors is elected.
If exercised directly, all members meet regularly to make - and vote on - decisions on how the co-operative is run. Direct
workers' cooperatives sometimes use consensus decision-making to make decisions.[11] Direct worker control ensures a
formally flat management structure instead of a hierarchical one. This structure is influenced by activist collectives and civic
organizations, with all members allowed and expected to play a managerial role. Such structures may be associated with more
radical political aims such as anarchism, libertarian socialism and participatory economics.[12][13]
Some workers' cooperatives also practice job rotation or balanced job complexes to overcome inequalities of power as well as
to give workers a wider range of experiences and exposure to the different jobs in a work place so that they are better able to
make decisions about the whole workplace. The Mondragon Bookstore & Coffeehouse is a good example of a workplace that
does this.

History of worker cooperatives

Historically, worker cooperatives rose to prominence during the industrial revolution as part of the labour movement. As
employment moved to industrial areas and job sectors declined, workers began organizing and controlling businesses for
themselves. Workers cooperative were originally sparked by "critical reaction to industrial capitalism and the excesses of the
industrial revolution." (Adams et al. 1993: 11) The formation of some workers cooperatives, such as those of the Knights of
Labor in 19th century America, were designed to "cope with the evils of unbridled capitalism and the insecurities of wage labor".
Most early worker co-ops did not adhere to clear cooperative structures or ideologies. Starting in the 1830s, worker
cooperatives were formed by hat makers, bakers, and garment workers.
In the United States there is no coherent legislation regarding worker cooperatives nationally, much less Federal laws, so most
worker cooperatives make use of traditional consumer cooperative law and try to fine-tune it for their purposes. In some cases
the members (workers) of the cooperative in fact "own" the enterprise by buying a share that represents a fraction of the market
value of the cooperative.
When the current cooperative movement resurfaced in the 1960s it developed mostly on a new system of "collective ownership"
where par value shares were issued as symbolic of egalitarian voting rights. Typically, a member may only own one share to
 10

maintain the egalitarian ethos. Once brought in as a member, after a period of time on probation usually so the new candidate
can be evaluated, he or she was given power to manage the coop, without "ownership" in the traditional sense. In the UK this
system is known as common ownership.
Some of these early cooperatives still exist and most new worker cooperatives follow their lead and develop a relationship to
capital that is more radical than the previous system of equity share ownership.
In Britain this type of cooperative was traditionally known as a producer cooperative, and, while it was overshadowed by the
consumer and agricultural types, made up a small section of its own within the national apex body, the Cooperative Union. The
'new wave' of worker cooperatives that took off in Britain in the mid-1970s joined the Industrial Common Ownership
Movement (ICOM) as a separate federation. Buoyed up by the alternative and ecological movements and by the political drive
to create jobs, the sector peaked at around 2,000 enterprises. However the growth rate slowed, the sector contracted, and in
2001 ICOM merged with the Co-operative Union (which was the federal body for consumer cooperatives) to create Co-
operatives UK, thus reunifying the cooperative sector.
In 2008 Co-operatives UK launched The Worker Co-operative Code of Governance. An attempt to implement the ICA approved
World Declaration.
Political philosophy of workers' cooperatives
The advocacy of workplace democracy, especially with the fullest expression of worker self-management, such as within
workers' cooperatives, is rooted within several intellectual or political traditions:
 The alleviation of alienation in the workplace, especially in regard to Marxist thought
 The encouragement of Participatory or direct democracy
 Radical but popular-democratic strategies for the overthrow of capitalism, for example, several strains
of anarchist thought.
 Autonomy and self control, especially within anarchist thought.
 Cooperating with other Worker Cooperatives
Workers' cooperatives are also central to ideas of Autonomism, Distributism, Mutualism, Syndicalism, Participatory
economics, Guild socialism, Libertarian socialism as well as others.

An economic model: The labor-managed firm

Economists have modeled the worker cooperative as a firm in which labor hires capital, rather than capital hiring labor as in a
conventional firm. The classic theoretical contributions of such a “labor managed firm” (LMF) model are due to Benjamin Ward
and Jaroslav Vanek.
In the neoclassical version, the objective of the LMF is to maximize not total profit, but rather income per worker. But such a
scenario implies “perverse” behavior, such as laying off workers when output price rises so as to divide increased profits among
fewer members. Evidence supporting such behavior is lacking however; a review of the empirical economics literature is found
in Bonin, Jones, and Putterman But alternative behavioral models have been proposed. Peter Law examined LMFs that value
employment as well as income. Nobel Laureate Amartya Sen examined pay according to work and according to need. Nobel
Laureate James Meade examined behavior of an “inegalitarian” LMF.
Generally, the evidence indicates that worker cooperatives have higher productivity than conventional companies although this
difference may be modest in size. Economists have explained clustering of worker coops through leagues or “supporting
structures” Regions where large clusters of worker cooperatives are found supported by leagues include Mondragón, in the
Basque Region of Spain, home of Mondragón Cooperative Corporation and in Italy, particularly Emilia-Romagna. Leagues
provide various kinds of scale economies to make coops viable. But as leagues need coops to start them the result is a chicken
or egg problem that helps explain why few coops get started.
India
Indians own the largest worker cooperative in the world: Indian Coffee Houses. The Indian Coffee Houses in India were started
by the Coffee Board in early 1940s, during British rule. In the mid 1950s the Board closed down the Coffee Houses, due to a
policy change. The thrown-out workers then took over the branches, under the leadership of A. K. Gopalan and renamed the
network as Indian Coffee House. This history is recorded in Coffee Housinte Katha, a book in Malayalam, the mother tongue of
A. K. Gopalan. The author of the book is Nadakkal Parameswaran Pillai one of the leaders of the ICH movement. Another very
large network of worker coops is Kerala Dinesh Beedi, originally started by exploited beedi rollers.

Comparison with other work organizations

There are significant differences between ends and means between firms where capital controls labour, or firms where the state
controls both labour and capital. Worker-ownership has been described as "a Third Way (centrism)." These distinctions are
easily seen when measured by essential elements of commerce: purpose, organization, ownership, control, sources of capital,
distribution of profits, dividends, operational practices, and tax treatment. The following chart compares the commercial
elements of capitalism, socialism, and cooperative worker-ownership. It is based on US rules and regulations.

Commercial
Corporations State-Owned Enterprises Worker Cooperatives
Criteria
a) To earn profit for owner, to increase a) To provide goods and services a) To maximize net and real worth of all
Purpose
value of shares. for citizens. owners.
a) Organized and controlled by a) Organized and controlled by a) Organized and controlled by worker-
Organization
investors state members
b) Incorporated under relevant b) Chartered by relevant level of b) Incorporated under relevant incorporation
incorporation laws - varies by country government laws - varies by country
c) Except for closely held companies c) Only worker-members may own stock,
c) No stock
anyone may buy stock one share per member
d) Stock may be traded in the public
d) n/a d) No public sale of stock
market
Ownership a) Stockholders a) State a) Worker members
Control a) By Investors a) By state a) By worker members
b) Policies set by stockholders or b) Policy set by government b) Policy set by directors elected by worker-
 11

members, or by assembly of worker-

board of directors. planners.
members
c) Voting on basis of shares held c) n/a c) One person, one vote
d) Proxy voting permitted d) n/a d) Proxy votes seldom allowed
a) Investors, banks, pension funds, a) By members or lenders who have no
Sources of Capital a) The state
the public equity or vote
b) From profitable subsidiaries or by b) From net earnings, a portion of which are
retaining all or part of the profits set aside for reinvestment
a) To members after funds are set aside for
Distribution of Net a) To stockholders on the basis of
a) To the State reserves and allocated to a collective
Margin number of shares owned
account
a) No limit, amount set by owner or a) Limited to an interest-like percentage set
CapitalDividends a) n/a
Board of Directors by policy
a) Owners or managers order a) Managers order production
a) Workers set production schedules either
production schedules and set wages schedules and set wages and
Operating Practices through elected boards and appointed
and hours, sometimes with union hours, sometimes with union
managers or directly through assemblies
participation participation
b) Working conditions determined by labour
b) Working conditions determined
b) Working conditions determined by law and assembly of worker-members, or
by labour law and collective
labour law and collective bargaining. internal dialogue between members and
bargaining.
managers.
a) Special tax treatment in some
Tax Treatment a) Subject to normal corporate taxes a) n/a
jurisdictions

Consumer cooperative
Consumer cooperatives are enterprises owned by consumers and managed democratically which aim at fulfilling the needs
and aspirations of their members. They operate within the market system, independently of the state, as a form of mutual aid,
oriented toward service rather than pecuniary profit. Consumers' cooperatives often take the form of retail outlets owned and
operated by their consumers, such as food co-ops. However, there are many types of consumers' cooperatives, operating in
areas such as health care, insurance, housing, utilities and personal finance (including credit unions).
In some countries, consumers' cooperatives are known as cooperative retail societies or retail co-ops, though they should
not be confused with retailers' cooperatives, whose members are retailers rather than consumers.
Consumers' cooperatives may, in turn, form cooperative federations. These may come in the form of cooperative wholesale
societies, through which consumers' cooperatives collectively purchase goods at wholesale prices and, in some cases, own
factories. Alternatively, they may be members of cooperative unions.
Consumer cooperation has been a focus of study in the field of cooperative economics.

Governance and Operation

Consumer cooperatives utilize the cooperative principle of Democratic member control, or one member/one vote. Most
consumer cooperatives have a board of directors elected by and from the membership. The board is usually responsible for
hiring management and ensuring that the cooperative meets its goals, both financial and otherwise. Democratic functions, such
as petitioning or recall of board members, may be codified in the bylaws or organizing document of the cooperative. Most
consumer cooperatives hold regular membership meetings (often once a year). As mutually owned businesses, each member
of a society has a shareholding equal to the sum they paid in when they joined.
Large consumers' co-ops are run much like any other business and require workers, managers, clerks, products, and
customers to keep the doors open and the business running. In smaller businesses the consumer/owners are often workers as
well. Consumers' cooperatives can differ greatly in start up and also in how the co-op is run but to be true to the consumers'
cooperative form of business the enterprise should follow the Rochdale Principles.
Finance and approach to capital accumulation
The customers or consumers of the goods and/or services the cooperative provides are often also the individuals who have
provided the capital required to launch or purchase that enterprise.
The major difference between consumers' cooperatives and other forms of business is that the purpose of a consumers'
cooperative association is to provide quality goods and services at the lowest cost to the consumer/owners rather than to sell
goods and services at the highest price above cost that the consumer is willing to pay. In practice consumers' cooperatives
price goods and services at competitive market rates.
Where a for-profit enterprise will treat the difference between cost (including labor etc.) and selling price as financial gain for
investors, the consumer owned enterprise may retain this to accumulate capital in common ownership, distribute it to meet the
consumer's social objectives, or refund this sum to the consumer/owner as an over-payment. (Accumulated capital may be held
as reserves, or invested in growth as working capital or the purchase of capital assets such as plant and buildings.)
While some claim that surplus payment returns to consumer/owner patrons should be taxed the same as dividends paid to
corporate stock holders, others argue that consumer cooperatives do not return a profit by traditional definition, and similar tax
standards do not apply.
Problems
Since consumer cooperatives are run democratically, they are subject to the same problems typical of
democratic government. Such difficulties can be mitigated by frequently providing member/owners with
reliable educational materials regarding current business conditions.
Pursuit of social goals through consumer co-operatives
January 1947 Co-op Magazine back cover designed as a promotional poster
 12

Many advocates of the formation of consumer cooperatives - from a variety of political perspectives - have seen them as
integral to the achievement of wider social goals.
Thus, the founding document of the Rochdale Pioneers, who established one of the earliest consumer cooperatives in England
in 1844, expressed a vision that went far beyond the simple shop with which they began:
"That as soon as practicable, this society shall proceed to arrange the powers of production, distribution, education,
and government, or in other words to establish a self-supporting home-colony of united interests, or assist other
societies in establishing such colonies."
Cooperative Federalists, a term coined in the writings of Beatrice Webb, were advocates for the formation of federations of
consumer cooperatives as means of achieving social reform. They anticipated such a development as bringing a broad set
of benefits including economic democracy and justice, transparency, greater product purity, and financial benefits for
consumers.
The Neo-Capitalist economic doctrine seeks to transfer the provision of almost all government provided public goods and
the conversion of any large privately owned monopolies into consumer cooperatives

CFA has long believed that cooperatives are a vital element in the American economy. Consumer cooperatives are
businesses which belong to the people who use them. America’s first successful co-op was formed by Benjamin Franklin to
provide insurance for homes. Today, more than 100 million Americans participate in cooperatives. Cooperatives are successful
because they provide valuable services and save consumers money. Since the primary goal of cooperatives is to meet needs,
not generate profits, they can serve their members at low cost. Cooperatives often provide services to their communities that
are not readily available from for-profit businesses. In other cases, cooperatives enhance the level of competition in the
marketplace by providing consumers with an alternative source of products and services. The central principle of consumer
cooperatives is member control and participation. These member/owners meet periodically to establish policy and elect
directors. Directors, in turn, hire managers to administer the cooperative on a day-to-day basis. Members control the business
and provide capital for a strong and efficient operation. And, members receive all net savings left after money is set aside for
operations and improvements. Consumer cooperatives provide most important products or services a person might need.
Here are examples of some types of consumer cooperatives:
Credit Unions: More than 9,000 credit unions supply financial services for over 86 million consumers nationwide. Using up-to-
date technology, they offer a wide range of services at prices that are usually lower than those of for-profit institutions. For
example, credit unions usually charge fewer and lower fees, and lower loan rates, than do competitors. Because credit unions
serve the broad middle class, they can meet the needs of an increasing number of underserved communities, including youth,
seniors and minorities. As many banks abandon low-income communities, a growing number of credit unions are finding ways
to serve low and moderate income households.

Utility Cooperatives: Cooperatives provide electricity and telephone services to more than 30 million people. Cooperatives
also offer state of the art television and telecommunications services at competitive prices.

Electric Cooperatives were formed by citizens in communities where the investor-owned power companies would not provide
service. Today, these cooperatives continue to find ways to provide better service at competitive prices. And, with increased
opportunities for consumers to choose their electric supplier, new energy cooperatives can provide consumers with the means
to come together and find options for more competitively priced power for their homes.

Telephone Cooperatives provide rural Americans with telecommunications services comparable to those available to urban
residents, and at reasonable cost. Through digital switching and transmission facilities, they offer enhanced services, such as
customer calling features, Internet access, and other advanced services. Many cooperatives also provide cable TV, direct
broadcast satellite TV, and various forms of wireless communications services.

Housing Cooperatives: Over one million families are provided with pleasing and affordable places to live through housing
cooperatives. Owned and controlled by residents, cooperative housing often provides significant savings over physically
comparable rental or single-family housing.

Because families who own their own homes have a greater stake in their neighborhoods, private economic development
organizations and local governments are encouraging the development of housing cooperatives. Housing cooperatives are an
effective way to provide home ownership for low-income Americans.

Food Cooperatives: Over three million Americans stretch their food dollars through membership in nearly 5,000 food
cooperatives. Food cooperatives have been pioneers in unit pricing, nutritional labeling and the sale of bulk and natural foods.
Price comparison surveys done by CBS This Morning and Mothers and Others for a Live-able Planet have found significant
savings through food cooperatives.

Nursery School and Child Care Cooperatives: Nursery school and child care cooperatives provide quality care for half a
million families. The cooperative structure gives parents a real voice in their child’s education. In cooperative nursery schools
and child care centers, parents determine policy, participate as aides in the classroom and serve on committees for such things
as raising funds, purchasing supplies and maintaining equipment. This parental involvement cuts expenses so that the savings
can be passed on to members.

Health Care Cooperatives: Cooperative health maintenance organizations (HMOs) provide comprehensive health care for
more than one million Americans coast to coast. Because they have been able to provide high quality care at the lowest cost
 13

while satisfying the needs of their customers, these health care providers play an important role in our country’s health care
system. Other consumer cooperatives provide services such as mutual insurance, buying clubs, television satellites, and funeral
arrangements. Cooperatives on college campuses offer book, food and housing services for student members. Many of these
and other cooperatives are locally owned and managed by members in communities across the country.

Other Consumer Cooperatives provide services such as mutual insurance, buying clubs, television satellites, and funeral
arrangements. Cooperatives on college campuses offer book, food and housing services for student members. Many of these
and other cooperatives are locally owned and managed by members in communities across the country.

Business and employment co-operative

Business and employment co-operatives (BECs) represent a new approach to providing support to the creation of new
businesses. The first BEC was started in France in 1996, since then a further 55 such enterprises operating in 100 locations
across the country have sprung up. The idea has also been adopted in Belgium, Sweden, Quebec, Morocco and Madagascar.
Like other business creation support schemes, BECs enable budding entrepreneurs to experiment with their business
idea while benefiting from a secure income. The innovation BECs introduce is that once the business is established the
entrepreneur is not forced to leave and set up independently, but can stay and become a full member of the co-operative. The
micro-enterprises thus combine to form one multi-activity enterprise whose members provide a mutually supportive environment
for each other.
A BEC thus provides budding business people with an easy transition from inactivity to self-employment, but in a collective
framework. Intending entrepreneurs pass through three stages:
 First, they remain technically unemployed but develop their business idea under the wing of the BEC;
 Next, if it looks like being a success, they become a ‘salaried entrepreneur’ with the security of a part-time employment
contract;
 Finally they become a self-sufficient business, sharing in the ownership and management of the co-operative.

BECs allow a small business person to achieve control over their working life, but with the support of a group of people who are
facing the same problems and want to pool their enthusiasm and expertise. They help to overcome one of the most
discouraging features of becoming self-employed – isolation. They thus lower the bar for becoming an entrepreneur, and open
up new horizons for people who have ambition but who lack the skills or confidence needed to set off entirely on their own – or
who simply want to carry on an in dependent economic activity but within a supportive group context.
BEC clients are in all sorts of activities from cookery, industrial cleaning, furniture restoration and organic horticulture to violin
making, jewellery, translation and web design. At the end of 2005, the 90 sites in the BEC network numbered 2,618 supported
entrepreneurs plus 1,138 salaried entrepreneurs (including 60 member entrepreneurs), with a combined turnover of €16.5
million in 2005. Two-thirds of entrepreneurs start off as unemployed, two-thirds are aged between 30 and 50 and 53% are
women.

BUSINESS AND EMPLOYMENT CO-OPERATIVES – A THREE-PHASE CAREER

Stage 1 – Supported entrepreneur

Initially, the 'candidate business' works up their idea while remaining legally unemployed. They continue to
receive unemployment benefit while developing a marketable product or service, testing the market and establishing a client
base. The BEC handles the business administration and accounting.
Stage 2 - Salaried entrepreneur
The entrepreneur agrees to a part-time employment contract with the BEC, and in return pays over 10% of sales. They continue
to build up the business and receive training, administrative support, and social insurance coverage. The salary grows as the
business grows.
Stage 3 - Member entrepreneur
When the business is self-supporting, the entrepreneur can choose to join the BEC as a full voting member, and take part in
its management, continuing to pay an administration charge of 10% of sales. Optionally, the business can spin off as a totally
independent entity.

Policy relevance
Business and employment co-operatives have aroused interest in various areas of policy-making:
 One of these is economic development in rural areas, as BECs are a good way to support the so-called SOHO-SOLOs,
professionals who migrate to the countryside to carry on their business at a distance – and in so doing bring valuable skills,
economic activity and social life back to depopulated areas.
 Another is the regularization of informal work.
 A third is demography, and concern about how to raise the activity rate to counter the effect of an ageing population.
BECs can help excluded groups such as ex-offenders to restart their working careers, and allow older people to work part-
time.

WHAT ARE NEW GENERATION COOPERATIVES?

New generation cooperatives are designed to enable producers to profit from the production and marketing of value-added
products made from their raw commodities. Like all cooperatives, a new generation cooperative is a distinct type of
organization which is collectively owned and democratically controlled by its members. It satisfies their common economic
needs and ambitions while respecting the seven principles of cooperatives. New generation cooperatives are an option for use
in agriculture, forestry, fishing and other industries that are supplied by producers. Formed to enable members to process raw
 14

commodities, members should not only receive market prices for their produce upon delivery; they should also gain the
opportunity to profit from the processing and marketing of the value-added products produced by their new generation
cooperative.
The distinction from the traditional cooperative arises from the evolution of people banding together to obtain goods and
services at cost or to provide marketing services for their raw commodity production, to producers banding together to
strengthen their economic position by vertically integrating everything from purchasing their production inputs to marketing
processed goods into retail markets. These evolutionary cooperatives have expanded upon the seven basic principles of co-
operation as approved by the International Co-operative Alliance, while still meeting the intention of the principles. These
principles and their application by new generation cooperatives follow. Membership is open to anyone who can supply the raw
commodity. However, the number of members is limited by the capacity of the cooperative to process the raw commodity and
market the processed products and by-products within one of its operating cycles. Democratic control is still one member one
vote; however, The Cooperatives Act of Manitoba allows for holders of investment shares to hold separate shareholders’
meetings and to elect a representative to the board of directors. Member economic participation is based upon patronage.
Equity requirements and profit sharing are tied directly to patronage. To encourage investment, The Cooperatives Act of
Manitoba allows investment shareholders to receive more than the traditional token return on capital provided, up to a maximum
set out by the Articles of Incorporation. Autonomy and independence are often the driving force behind these cooperatives. In
many cases, developing a new generation cooperative is the only way to get out from under the control of a monopoly or
oligopoly. Education, training and information about cooperatives in general, and the benefits of the new generation model are
essential to the success of these cooperatives. It is only by having committed informed members that a new generation
cooperative can succeed. Cooperation among cooperatives is respected by these cooperatives, and alliances with production,
service and marketing cooperatives may enhance their profitability. Concern for community was behind some of the original
new generation cooperatives. The leaders saw them as one way to retain their children and grandchildren in the community by
stopping the exporting of jobs necessary to retain these children. By building value-added processing plants in their community
to process local production, the jobs and opportunities for additional economic spin-offs would give the next generation the
choice of careers in their home community. The new generation cooperative model is well suited to assist in community
development.

Distinct Features
The continuing evolution of cooperatives to meet the changing economics in agriculture, fishing, forestry and other industries,
has resulted in the creation of a new generation of cooperatives that differs from the traditional cooperative in four areas:
1. The focus is on the value-added processing or manufacturing of raw commodities delivered to the cooperative by its
members and the marketing of the resulting products.
2. A significant equity investment is required by each member, with the total initial equity contribution being a major portion of
the gross project costs.
3. A two-way contract between the member and the cooperative requires each member to deliver, and the cooperative to
accept, an agreed-upon amount of the raw commodity for each delivery right (special investment share under Manitoba
legislation) owned by the member.
4. Membership is limited to the number of special investment shares (delivery rights) required to be sold by the cooperative to
its members in order to meet its processing capacity.
It is primarily the financial structure and membership requirements that distinguish new generation cooperatives from the more
traditional cooperatives. Typically, higher equity investments are required by members in order to establish a processing plant.
The number of members is also limited to those who purchase delivery rights, as well as by the processing capacity of the plant.
Members feel a greater degree of personal ownership and a stronger commitment to the cooperative because of the unique
structure of new generation cooperatives.

DEVELOPING A NEW GENERATION COOPERATIVE

Identify the opportunity

Every new business venture begins with an idea. It could be a new product or service, or a variation on an existing one. Often,
the process to start a new generation cooperative begins with a group realizing they face a common challenge. The perceived
opportunity or mutual need requires the strength provided by acting together to improve the chances of success. Determine the
project need Once the need for a new generation cooperative is determined, a meeting with potential members and community
leaders starts the process. The community leaders can present the idea and its benefits to potential members, usually the
producers of the raw commodity. It is necessary to obtain feedback from all interested parties to determine interest. Following
the meeting, a survey of the people in attendance, plus others identified as potential members or investors will help quantify
interest. The survey should be designed to provide information to measure the concept, evaluate the volume of business that
may exist, and determine if people are willing to contribute financially to the project.

Do a feasibility study

If the interest to proceed is sufficient, a steering committee comprised of a combination of community leaders and producers
can oversee the preparation of a feasibility study. An industry expert independent of the cooperative should do the study. The
study should have local input regarding availability of resources within the immediate trading area. These resources include the
number of existing and potential producers, the amount presently produced as well as the potential production, size and the
available skills within the local labour force, and availability of transportation services to supply the raw product and to ship the
processed products and by products. The results of the feasibility study will demonstrate the project’s potential for success.
However, the study only determines that the project is feasible, it is not a guarantee of success. It will provide information
needed to make a sound decision on whether to proceed with the venture, and how best to go about it. When the feasibility
study has been completed, reviewed and amended by the steering committee, and indications are that the project is feasible
and viable, the steering committee can then present it to the potential members of and investors in the cooperative. At this point
the potential membership is in a position to consider how to proceed.

Ingredients for success

 15

Although there are many ways to develop a new generation cooperative, there are certain steps and processes adopted by
many successful developers of cooperatives. If the decision is made to proceed with the venture, the key areas to address are
the organizational structure and the business plan. For the most part, cooperatives require assistance from experienced
outside resources, such as lawyers, accountants, community leaders and industry experts. They have the knowledge and
experience to develop reasonable and appropriate organizational structures and sound business and financial plans.
Incorporation of a new generation cooperative When enough potential members, to achieve the volumes of business outlined in
the feasibility study, are prepared to provide start-up equity, it is time to proceed with the incorporation of the new generation
cooperative. The decision to proceed should be made by those people who have either invested funds towards the project, or
are prepared to sign commitment letters to assure that the next stage will have enough financial support to cover costs incurred
in the incorporation process, the development of a business plan and an equity campaign.

In Manitoba, incorporation requirements include the following minimum standards:

 three individuals or two corporations willing to act as incorporators
 three individuals willing to act as first directors
 approval of the proposed name at the Office of the Registrar of Cooperatives
 completion of a name reservation at the Companies Office
 completion of Articles of Incorporation

The approved Name Reservation from the Companies Office, Articles of Incorporation, and if required, the Offering Statement,
must be submitted to the Registrar of Cooperatives together with the required fees.

An Offering Statement is required when:

a) The amount of the membership requirement exceeds $1,000 in membership shares and/or loans
b) special investment shares (delivery rights) are being issued c) investment shares are being issued to members only.

The Offering Statement must be filed with the Registrar of Cooperatives. A request for exemption from filing an Offering
Statement can be made to the Registrar. An exemption may be granted; however, the use of a disclosure document may be
required in lieu thereof. A disclosure document is a less formal document that discloses the risks and conditions associated with
the purchase of shares in the new generation cooperative. It is also used as the marketing and information package given to
potential shareholders. A prospectus must be filed with the Securities Commission when investment shares are being sold to
the public. The Securities Commission has rules and regulations regarding situations where an exemption may be granted or
use of a disclosure document is permitted. In Manitoba, the incorporation process may be expedited by restricting the share
capital option to simply issuing membership shares and/or loans for less than a total of $ 1,000 per member and collecting a
membership fee. This leaves the details for the investment shares and special investment shares until after the business plan is
completed and approved by the members. At this point, the required securities filings and the filing of Articles of Amendment
can be done to reflect the decisions made on the capital structure. The funds received from the membership shares and fees
are used to cover the costs of applying for funding for assistance in developing the new generation cooperative, preparation of
the business plan, research and development costs, the costs associated with attracting producers into membership, and
maintaining contact with the membership as the project proceeds.

After incorporation
Once the incorporation process is complete, the incorporators are usually the first directors and the only members until new
members are approved by the board. At the first meeting of members and potential members, held as soon as possible after
incorporation, voting members elect directors, approve bylaws, and set out financial requirements of membership. The bylaws
must be submitted to the Registrar of Cooperatives within 30 days of this meeting. Potential members should be encouraged to
join before the meeting in order to have the right to vote at the meeting. This is also the time to sell membership shares and
collect membership fees to provide the new generation cooperative with some working capital until the business plan is brought
to the membership for approval.

The business plan

A business plan is a document providing a complete description of the operations of the proposed new generation cooperative.
The plan must include financial projections for capital costs, inventories, receivables, banking arrangements for lines of credit,
working capital loans to cover receivables and inventories, mortgages on the capital assets, the amount of share capital
required, sales volumes, production costs, operating expenses, break-even volumes, marketing opportunities, commitments
and all other pertinent information about the venture, including details about the competency of the proposed management
team. It must also address all issues relevant to the project. The share capital requirements must set targets for each category -
the membership shares, the special investment shares or delivery rights, and investment shares where this option is being
considered. Once the board of directors approves the business plan, and a decision is made to proceed based on the
probability that the project will be a success as outlined by the business plan, a members meeting is necessary. The business
plan would be presented to the membership by the board of directors with the support of the consultants responsible for its
preparation. The members require the information in the business plan to enable them to decide if they are willing to risk
investing equity in the project. The support of the membership is essential. Once the membership approves the business plan,
the Articles of Incorporation can be amended to include the proposed share structure and the Offering Statement and/or
Prospectus can be filed with the appropriate authorities (or requests can be made for exemptions to the filing requirements).
The board is then in a position to make presentations to the individuals or organizations for financing. It is important that the
presentations explain:
 why investments in the new generation cooperative should be made;
 the seriousness of the proponents of the project; and
 The ability of the board and management to launch and develop the project successfully.

Prepare for business launch

Once the business plan has been approved, leaders should be identified (for consistency) to run the membership and equity
drive. When members have committed to deliver the volumes of raw product, and have purchased the special investment
 16

shares required by the business plan, the new generation cooperative is ready to launch the project. A members meeting
should be held to confirm that the equity and delivery targets have been achieved and to obtain approval of the membership to
continue the project. This will involve hiring management, acquiring or building facilities, hiring and training staff and
commencing of business operations. In the event that there is any significant deviation from the business plan, the members
should be consulted before further commitments are made.

Housing Co-ops
For many Canadians, housing co-operatives are more than a roof over their heads. Housing co-ops provide homes that are
secure, affordable and filled with a sense of community in a world that is becoming more impersonal. Housing co-ops are an
alternative to other types of accommodation because they are controlled by their residents not by an outside landlord. The co-
ops operate on a non-profit basis. Residents are members who have a voice and a vote in decisions about their housing. Co-
ops offer affordable housing because they are homes that can never be resold. About a quarter of a million Canadians live in
some 2,176 housing co-ops found in every one of Canada’s provinces and territories. These co-ops represent approximately
128,238 households and have book value assets of over $5.7 billion. They are found in downtown, suburban, and village
settings in every form imaginable: new apartment buildings, townhouses, in-fills, single-family dwellings, and converted lofts. In
a housing co-op, members have the right to make decisions that affect their homes. Co-ops members control the governance of
their co-operative, electing a board of directors from among their peers or serving on the board themselves. They vote on the
co-op’s annual budget, which sets the monthly housing charges and determines how much the co-op will spend on property
upkeep and other maintenance issues. They create a community in the co-op by welcoming new members, organizing social
events, and publishing a newsletter. Some co-op households in Canada pay a monthly charge geared to their income.
Government funds cover the difference between this payment and the co-op’s full charge, based on certain eligibility
requirements. Yet housing co-ops still cost less to operate than other types of housing. Co-ops cost 19 per cent less to operate
than municipal or private non-profit housing and 71 per cent less than public housing (owned by the federal or provincial
governments), according to a 1992 Canada Mortgage and Housing Corporation study of federal co-operative housing
programs. Most housing co-operatives are members of the Co-operative Housing Federation of Canada, a national apex
organization which works with government on behalf of housing co-operatives and their members, co-ordinates group buying
among co-operatives, and offers training and organizational development assistance to housing co-ops across the country.
Housing co-ops offer more security at a lower cost than renting. It doesn’t matter who you are: if you want to live in a co-op and
you are ready to accept the terms of membership, you are welcome. In fact, many housing co-operatives have built accessible
units specifically to serve people with disabilities. And you can live there for as long as you like if you keep to the by-laws that
you and your co-op neighbors have put in place.

Agricultural Co-ops
Revitalizing Our Rural Communities
One hundred years ago most Canadians lived and worked on farms. They needed fair marketing organizations that would not
cheat them out of the profits of their work and they needed fairly priced farm inputs. Co-operatives provided the solution. Co-
operatives are continually evolving to meet the changing needs of people and communities. There are over 1,300 agricultural
co-ops in Canada employing over 3,500 people. In 2002, agriculture co-ops reported combined revenues of $14 billion.
Marketing co-ops accounted for 80 per cent of revenues, particularly dairy, and grains and oilseeds. Farm supply co-operatives
reported revenues of $4.3 billion, up 12.1 per cent from 2000. Total membership in agricultural co-ops as 389,677 with 67 per
cent of that reported by farm supply co-ops. Farm supply co-ops, including Co-op Atlantic, Federated Co-operatives Limited and
GROWMARK, Inc, supply farm inputs, such as fertilizers and chemicals, feed and seed. Agricultural product marketing co-ops
exist in all provinces and provide significant economic benefits to the member-farmers they serve. Collectively their volume of
business in 2003 was $9.6 billion. Co-operatives market 22 per cent of all western grains and oilseeds, about 39 per cent of
milk products, and 57 per cent of all poultry and eggs produced in Canada.
Examples of marketing co-ops:
In the dairy sector during 2000, co-operatives accounted for 59 per cent of the market share; Atlantic Canada’s dairy co-
operatives, led by Scotsburn Co-op Limited and Farmers’ Co-op Dairy Limited, accounted for $443 million in revenues. In 2002,
Ontario’s Gay Lea Foods Cooperative Limited reached record sales of $272.6 million. Co-operatives in Ontario and in the four
western provinces provide selling services for replacement and finished cattle. Coopérative Fédérée de Québec and several of
its member co-ops process about 25 per cent of all meat in that province. Co-op Fédérée controls half of the retail poultry
market and 65 per cent of the slaughtering market in Quebec. ACA Co-operative Association Limited has a leading role in
poultry processing in Nova Scotia. Co-operatives linked with the BC Tree Fruit Marketing Board account for the largest fruit and
vegetable co-op Marketing effort in Canada. Norfolk Fruit Growers in Ontario and Scotian Gold in Nova Scotia also have
substantial market shares in their regions.
Vineland Growers Co-operative has the distinction of being the longest continually run farm co-operative in Ontario. With
facilities located throughout the Niagara Peninsula’s fertile fruit belt, it provides service to more than 300 members. In recent
years, agricultural co-operatives have started to market non-traditional farm commodities, such as organic dairy, as well as new
types of services related to the production and marketing of new types of fibre products alpaca, llama, hemp, and alfalfa
pellets. There are also a number of newly incorporated co-operatives that focus on value-added agriculture, such as the
development of biofuel production facilities. The co-operative business model is a good vehicle for this type of industry as the
primary producers who will supply the feedstocks can benefit from on-going ownership, and rural communities also gain from
the spin-offs and local economic development. With all the changes that have occurred in the agricultural marketplace over the
past 20 years, many farmers have decided they need to be closer to the consumer. To do this they are forming new generation
co-ops. These co-ops share many of the key attributes of traditional co-operatives including democratic control based on one
vote per member, distribution of earnings based on use of service or sales to the coop, and a board of directors elected by the
membership. Yet new generation co-ops also have attributes that distinguish them from traditional co-ops including: a
commitment to process commodities into higher-value products, thereby providing a greater return to producers, a tied contract,
setting out producer delivery rights and obligations, a membership limited to those who purchase delivery rights, and higher
levels of equity investment by individual members. The major changes facing agriculture and rural communities can be grouped
into three broad categories: market specifications, environmental and food safety requirements, and service access issues. For
more information on how farmers are dealing with these changes, refer to Producer Adaptation to the New Agriculture:
Application of the Co-operative Model to Changes in Market Specifications, Regulation and Service Access
 17

(www.coopscanada.coop/pdf/Resources/speechpresentations/producerAdaptationversion2ENG.pdf). This presentation

examines the ways in which co-operatives can be used as a mechanism to deal with the changes underway in the three areas
of major change identified above.

Consumer Co-ops:
In a world dominated by “big box” stores and mammoth retail chains, co-operatives offer an alternative for consumers. Retail
co-ops provide services in food, clothing, agricultural supplies, petroleum products, hardware, lumber, and many other
consumer products and services. These co-ops obtain many of their products from wholesale co-op distributors. Retail co-ops
vary in size and sophistication from small buying clubs, in which a few families pool grocery orders and buy from wholesale
outlets, to large multi-store organizations. Whatever their size, consumer co-ops benefit their members. These benefits include
equity and patronage dividends, personalized service, quality products, and community support. The surplus earnings or
“savings” generated by each retail co-op belongs to the members and can be repaid in cash or allocated to members’ equity
accounts. Federated Co-operatives Limited (FCL) provides central
marketing services including manufacturing, wholesaling and distribution, as well as administrative services to its member
owners − 280 retail co-operatives located throughout Western Canada. These retail co-operatives and their branches operate in
more than 500 communities, providing a variety of products and services to more than 1,200,000 individual co-op members.
Together, FCL and its member retail co-operatives are united as the Co-operative Retailing System (CRS), providing
employment for more than 18,000 people. FCL is Canada’s largest non-financial co-operataive and in 2005, sales reached $4.8
billion. Over the last 10 years, FCL retail co-operatives paid a combined total of more than $1.8 billion in patronage dividends to
members in cash. That represents a lot of money going back into Canadian communities. Being responsive to co-op members
is also good business. For example, Calgary Co-operative Limited, a member-owner of FCL and owned itself by the people of
Calgary and vicinity, has a nearly 40 per cent share of its local market. Another Western Canada co-op retailer UFA Co-
operatives Limited. UFA has 35 farm supply stores throughout Alberta and over 120 petroleum outlets in Alberta, British
Columbia and Saskatchewan. In 2005, the co-op had revenue in excess of $1.4 billion. Co-op Atlantic is the second largest co-
op wholesaler in Canada. Co-op Atlantic provides its member co-ops with a wide variety of services, including merchandising,
distribution, marketing, financial management, property management, and technological and human resource development
services. Its 135 member co-ops, located throughout Atlantic Canada and the Magdalen Islands, serve over 200,000 member
families. In 2006, Co-op Atlantic posted over $500 million in consolidated sales.
GROWMARK, Inc is a regional co-operative that provides agriculture-related products and services to farmers and rural
residents in the Midwest and Northeastern United States and Ontario through local FS member co-operatives and by
GROWMARK subsidiaries. FS branded and related products and services include crop inputs, energy products, grain handling,
feed and animal health products, as well as consumer related products such as lawn and garden care, work wear, pet care
supplies, and hardware. From its Ontario headquarters in Kitchener, GROWMARK supplies and serves 21 local agricultural co-
ops, which in turn represent close to 35,500 members, 1,500 employees, and close to 90,000 customers. One of the most
unique retail systems is found in Canada’s North. Arctic Co-operatives Limited (ACL) provides leadership and expertise to 33
member co-operatives in the Northwest Territories and Nunavut. These diverse co-op businesses provide their communities
with services such as general retailing, hotels, petroleum delivery, taxi and cartage services, commercial and residential rental
units, airline ticket agencies, and cable television services. ACL serves its members by providing systems for collective
purchasing and distribution, marketing of northern crafts and tourism, training and education, operational and technical support,
and management advice and support. Arctic Co-operatives works side-by-side with the Arctic Co-operative Development Fund
to support new co-op development. Specialization in the retail co-op sector is growing, both in terms of operations and
consumer targets. Natural health foods (bulk) co-ops are selling their products in both retail and wholesale markets. Student
supply co-ops have gained a strong foothold, especially in Quebec where nearly 85 are active and represent sales of $134.6
million with more than 454,000 members. Since the 1970s, Mountain Equipment Co-op (MEC) has been providing a full line of
products and services for self-propelled wilderness-oriented activities, such as hiking, mountaineering and kayaking, at the
lowest reasonable price and in an informative, helpful, and environmentally responsible manner. MEC has over two million
members and in 2006 had annual sales and services totaling $225 million.

Worker Co-ops
With the shortage of stable and satisfying jobs, and the determination of educated and informed people to have more control
over their employment and, consequently, their lives and communities, worker co-operatives are becoming more prominent.
Worker co-operatives have their roots in the 19th century as a response to excesses in industrial capitalism and less-thanideal
working conditions. They aim to improve the lives of working people and increase democracy in the workplace through worker
ownership and control. The main purpose of worker co-ops is to provide employment for their members. Each member pays a
membership fee or purchases a membership share. The co-operative’s assets are collectively owned and surplus earnings are
allocated to the workers according to policies established by the co-op, often in proportion to hours worked by members and
with limited return on shares. In a worker co-op, each member has one vote, no matter how many shares he or she has
purchased; all members have an equal say in the way the business is run and in the decisions affecting their everyday work
lives. Members combine their skills, interests, and experiences to achieve mutual goals, such as creating jobs for themselves,
providing a community service, or increasing democracy in the workplace. Because they develop the policies that determine the
co-op’s daily and long-term operation, trust, communication, and co-operation are vital elements in the co-op’s success. There
is no limit to the type of business that can be established as a worker co-op. In Canada there are close to 330 worker co-ops in
sectors as diverse as forestry, fishing, travel, retail, manufacturing, information technology, publishing, entertainment, and home
care. These co-ops have a total membership in excess of 13,000 with revenues of $553 million and assets of $343 million.
Worker co-ops employ almost 9,498 people with 94 per cent working on a full-time basis. When the owner of the Quebec pie-
making company Au Royaume de la Tarte retired in 1998, he offered his employees an opportunity to buy the business
collectively. Liking their jobs and working conditions, the employees decided to purchase the firm and create a worker co-
operative. Within three years, sales had more than doubled and the number of employees had grown from 25 to 38. The
worker-members say they are happy with their jobs, which let them develop their business sense by taking part in the
management of the business while at the same time exercising control over the direction in which the co-operative is headed. In
recent years, new types of worker co-operatives have emerged. The worker/ shareholder co-operative shares many of the
same features as a worker co-op but in this model, employees form a co-operative to buy shares in an existing business. This
enables them to have a voice at the board of directors table. Another type of co-op that is gaining popularity is the multi-
stakeholder co-operative. Membership is made up of different classes of members such workers, consumers, producers,
investors and/or other possible stakeholders. Almost non-existent a decade ago, more than 184 multi-stakeholder co-operatives
 18

were incorporated in Quebec by 2003. Many provide home care services to seniors and people with health problems. Worker
co-ops in Canada are represented nationally by the Canadian Worker Co-operative Federation (CWCF). This group was
founded in 1991 to provide a voice for worker co-ops on the national stage and to encourage communication among individual
worker co-ops. Another mandate of the organization is to encourage the development of more worker co-ops. With financial
assistance from Human Resources Development Canada, CWCF owns and manages Tenacity Works, a worker co-op
development fund designed to create new and expand existing worker-owned co-operatives in all regions of Canada. The fund
and resources available through the Co-operative Development Initiative work in conjunction with the Worker Co-op
Development Network, which provides the development capacity for worker co-ops.

Seven principles of cooperatives

At the congress of the International Cooperative Alliance in Manchester in 1995, seven principles of cooperatives were agreed
by which Cooperatives put their values into practice:

1st principle: voluntary and open membership

Cooperatives are voluntary organizations open to all persons able to use their services and willing to accept the responsibilities
of membership, without gender, social, racial political. or religious discrimination.
2nd principle: democratic member control
Cooperatives are democratic organizations controlled by their members, who actively participate in setting their policies and
making decisions. Men and women serving as elected representatives are accountable to the membership. In primary
cooperatives embers have equal voting rights (one member one vote), and cooperatives at other levels are also organized in a
democratic manner.
3rd principle: member economic participation
Members contribute equitably to, and democratically control, the capital of their cooperative. They usually receive limited
compensation, if any, on capital subscribed as a condition of membership. Members allocate surpluses for any of the following
purposes: developing their cooperative enterprise, possibly by setting up reserves, part of which at least would be indivisible;
benefiting members in proportion to their transactions with the cooperative and supporting other activities approved by the
membership.
4th principle: autonomy and independence
Cooperatives are autonomous, self-help organizations controlled by their members. If they enter into agreements with other
organizations, including governments, or raise capital from external sources, they do so on terms that ensure democratic
control by their members and maintain their cooperative autonomy. Module 1 Page 6
5th principle: education, training and information
Cooperatives provide education and training for their members, elected representatives, managers, and employees so that
they can contribute effectively to the development of their cooperatives. They inform the general public -particularly young
people and opinion leaders-about the nature and benefits of co-operation.
6th principle: co-operation among cooperatives
Cooperatives serve their members most effectively and strengthen the cooperative movement by working together through
local, national, regional. and international structures.
7th principle: concern for community
Cooperatives work for the sustainable development of their communities through policies approved by their members.
Conditions needed to create a cooperative.

Cooperative organizations are based on several fundamental conditions:

• existing problems and constraints cannot be solved individually. A group of motivated persons who share common problems
is needed.
• there is no alternative to cooperative self-help - e.g. help cannot easily be provided from family, a social institution, or the
state.
• the advantages of membership (access to goods, inputs, loans, services, markets, etc.) outweigh the duties of membership
(e.g. Contribution of resources such as money, time, land, equipment etc.).
• at least one person amongst the group has leadership ability and takes the initiative to represent the group. It is essential for
successful work that s/he be reliable and has charisma.
• there are no legal or political restrictions on groups being able to elect their own leaders; market their own goods; earn profits
and to make their own decisions about distributing surplus, etc.

Essential conditions for continued success of cooperative organizations

There are a number of conditions which are essential if a cooperative is to continue to be successful after the initial enthusiasm
of starting up.
• the cooperative needs to produce visible and tangible (economic and social) benefits for members, outweighing the costs
involved in cooperation. Cooperatives can only develop as autonomous self-help organizations when they are able and allowed
to operate as business institutions geared to succeed in market competition.
• the cooperative has motivated, experienced and dynamic managers who are able to plan and implement business policies.
They must be able to provide the services and goods required by the members, taking into account the interests and needs of
members as well as the entrepreneurial goals of the cooperative enterprise.
• the structure and management of the organisation correspond to the capabilities of its members. If members’ competence
and motivation is low, the promotion of complicated and complex cooperative organizations does not make sense.
• members participate as both users and owners.
Cooperatives are participative self-help organizations in that the members are also co-owners and have both the rights and
obligations of participating in goal-setting, decision making and control or evaluation processes of their cooperative. Members
decide upon the services to be provided and benefit from what is produced or obtained by the cooperative. There should be
incentives for them to contribute their own resources (capital, labour, produce) to the development of the cooperative. A major
 19

reason for the failure of cooperatives is the lack of participation of members. It is extremely important that members act as both
users and owners in the development of cooperative organizations through participation at three levels:
• participation in provision of resources (input participation) e.g. contribution of capital, labour, delivery of produce,
• participation in the decision-making processes of the cooperative organisation as a member in the general assembly, section
meetings, work groups, committees or as an elected leader on the board, and
• participation in the produced benefits (output participation), by sharing the surplus earned during the year by the cooperative
enterprise, in the form of a patronage refund, interest on share capital, or the use of joint facilities and services. Cooperatives,
as with any business organisation, also need to be flexible and able to change with the circumstances. At present, cooperative
organizations all over the world are facing the task of transforming and adjusting themselves to a new economic and political
environment, market oriented conditions and increasing member demands. This means a need to learn new production
methods, new methods of organisation and management, and in particular, ways to help maintain or increase, member
loyalty and commitment. This can be achieved through increased participation, communication and information provided the
organization’s core activities are efficient in meeting members needs.

Potential advantages of cooperative organizations

Farmers and rural household can either produce inputs themselves or buy them. Cooperatives are one way individuals buy
inputs and services. To be attractive, therefore they must offer advantages over the alternatives. Cooperative organizations
will have advantages over their competitors when they can either provide the same services/activities at lower costs through:
• economies of scale (e.g. bulk purchase)
• reducing transaction costs e.g. for information, implementation, control and exchange of services and goods,
• reducing uncertainty concerning e.g. prices and availability of inputs,
• avoiding linked markets, i.e. where for example the purchasing of inputs or the marketing of produce are linked to the
provision of loan facilities. Or,
• they can offer new services / access to external resources / services not otherwise available.
Since members are not only clients, but also owners of the cooperative organizations they also participate in forming and
steering their own organisation which means they can help ensure it meets their needs and share its profits or distributed
earnings. Non-members do not have this advantage. Some cooperative organizations consider it legitimate to allow non-
members to make use of cooperative services where for example this allows for greater economies of scale or helps to attract
new members. Non-members, however, do not have a say in the running of the cooperative. The role of government and
external assistance in promoting cooperative organizations In many cases, governments have provided too many regulations
and controls on the activities of cooperatives for them to be able to function effectively. Ideally, they should act only to create
the general framework conditions needed so that cooperative autonomy, self-financing and self-reliance is strengthened and
not undermined. This means ensuring that legally, groups are allowed to elect their own leaders; to market their own goods; to
earn profits and to make their own decisions about distributing surplus and to carry out numerous other business activities in the
members’ interests. Government’s should not otherwise intervene in the internal organisation or operations of a cooperative,
and should leave all attempts to improve efficiency and to comply with cooperative principles and values to the members
themselves. It should be clearly understood that cooperative organizations should not act in any sense as agencies of
government, and should not play a role as a governmental agency, or as an entity charged with special responsibilities by a
government. The potential which cooperatives have for achieving desirable economic and social conditions must be
understood as the potential they have for reaching the objectives of and for satisfying the needs and interests of their own
members rather than directly influencing society in general.

Development of cooperatives from other self help organizations

There have been many attempts by government to promote the development of indigenous self help organizations into formal
cooperatives. Such a process however, seems most effective when it results from efforts of members themselves. They can at
best be assisted, either informally, by members of established cooperative organizations, or, more formally, by facilitators or
cooperative promoters from representative organizations of cooperatives, or NGOs. Government intervention to precipitate or
control such a process in most cases has proven counter-productive.
The groups should consider in particular the following points making suggestions where possible or listing questions which need
to be answered. State any assumptions made which would need to be checked.

❐ Objective and activities of the Cooperative

❐ Facilities needed by the cooperative
❐ Membership
❐ Management of the Cooperative
❐ Finance - equity capital and joint liability

Forming and organising a marketing cooperative In considering whether or not to form a cooperative, a number of issues need
to be discussed. Before going into detailed plans, members need to be clear what they expect to achieve through the
cooperative. i.e. what is the purpose and is this the best way to achieve such a goal? An objective of a marketing cooperative
for example might be to assist the interested farm households in marketing their produce on a sustainable basis, thus providing
increased income and improved living conditions. The cooperative would then need to design, plan organise and implement all
activities related to this objective.
For example:

• market surveys and studies to explore what kind, quality and quantity of produce customers want;
• arranging contracts with the customers;
• providing training to members to improve and maintain the quality of their produce;
• assisting farmers in improving and increasing their agricultural production; collect the goods at the farm gate, or being ready to
receive the products delivered by the farmers themselves;
• controlling products with regard to quantity and quality.
• preparing the produce for delivery to the customers. i.e. processing, packing, storage and delivery.
Main steps and activities in forming a cooperative (Adapted from DGRV 1990:35)
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Step 1: Hold an initial discussion meeting

An informal meeting of those interested in forming a cooperative first needs to be held to discuss the following (non-exhaustive)
list of points:

i Interests of members and prospective members

• what is the purpose of the cooperative business? what will be its scope?
• what are the common interests of members in forming a cooperative?
• what are the needs and interests of members for supply, processing and marketing?
• what will be the activities of the cooperative?
• what will be the advantages of becoming a member?

ii Regulations
• what permission is needed to set up and run a cooperative business?
• what will any permits cost?
• are there favourable conditions which will favour the cooperative development process, e.g. government assistance
programs, favourable credit conditions etc?
• what internal regulations (‘statutes’ or ‘by-laws’) need to be agreed by the founding members in order to get a clear
understanding of the cooperative group and its activities?
Contact the local authorities to review the law and statutes regarding cooperatives in the area. Model statutes may be available
which could guide this process.

iii Finance
• are members able to contribute their own resources to the cooperative (cooperative shares)?
• how many members will join, and with how many shares (paid up)?
• how much working capital is needed? how much will be available? (cash money, liabilities)?
• are the member households able to, and interested in, providing their produce in the needed quantity and quality on a
sustained basis?
A plan needs be prepared stating the finances required and where it will come from to finance the planned activities.

iv Facilities
• which facilities are needed: offices, storage rooms? Will they be rented or constructed with own means?
• what equipment is needed: transport facilities, office equipment, storage facilities, packaging and handling equipment?
• what staff are needed (office clerks, accountants, technical training staff, labourers to receive the products, pack and deliver
them etc.)?

v Marketing
• how can customers needs be identified?
• what are the possible outlets for sale of members produce?
• can long term contracts be made with such suppliers and customers?
• who are the competitors in the region?

vi Management
• who will run the activities of the marketing cooperative?
• how will they be chosen?
• are the persons elected trustworthy and honest?
• do they have conflicting interests while performing other activities of their own?
• do they have the knowledge, skills and experience needed?

Step 2: Prepare the cooperative statutes/by-laws

The results of the discussions on the above points need to be written into cooperative statutes or by laws which are the
interpretation of the cooperative law for that particular cooperative. Statutes regulate not only the existence of a cooperative,
but also the direct relationship between the cooperative society and its members. They are the internal legislation of the
cooperative. When a cooperative is in its formative stages, the founder members have the task of fulfilling all the conditions
which are necessary if the cooperative is to have a sound foundation. Cooperative movements, governments or other
institutions often make available a set of model statutes as a guide to help the founder members to formulate statutes for their
specific cooperative. However model statutes are intended as guidelines only, the fact that they exist, does not mean that they
should be imposed on the founder members. New cooperatives often accept model statutes without discussing their contents
section by section which means that members do not understand the meaning of the statutes or whether they are needed for
their particular cooperative. If statutes are not properly discussed, it may happen that a few members create and impose their
own rules and run the cooperatives according to their own style and for their own benefit. This is likely to result in members
being unhappy with the results and apathetic about their involvement in the cooperative. The founder members will need to
formulate the statutes of the cooperative themselves. Outside resource persons may be needed at this stage particularly
someone familiar with the process and the legal requirements. It may be more practical for a sub group to be formed to gather
the information needed & draft the statutes, for discussion by all the founder members.

Contents of the cooperative statutes/by-laws

The statutes are most important basis for the legal relations between the member and the cooperative and consequently should
be as detailed as possible. Cooperatives are free, within the limits of the cooperative law, to make statutes regarding all
matters necessary for the functioning of the cooperative organisation and for achieving its objectives. Some cooperatives
include the relevant aspects of cooperative law within the statutes even though these are already prescribed by the cooperative
 21

law. Since cooperative members often have easier access to the statutes than to the law, in this way they are able to obtain all
necessary legal information from one document.

The statutes should be divided into following main headings:

Firm(name) & Location of business(residence) A cooperative must be recognisable by its name. The economic function should
also be evident in the name, e.g. marketing, purchasing, production, multi-purpose, integrated agricultural cooperative etc.
It’s location should also be part of the name. e.g. ‘Arango district agricultural marketing cooperative’. Apart from the legal
requirements in relation to the name it is advisable to choose a reasonably short name which is easy to remember, to
pronounce and also to identify the cooperative with. A name should also be able to survive changes which may take place as
the cooperative develops, e.g. an expansion of activities and business.

The Objective

A cooperative unites people who have at least one common interest which is usually articulated as a problem which the
members would like to solve. In defining the objective, it is important that the members consider what the root problems are
first before deciding how to solve them. (e.g. low incomes rather than lack of markets for a particular crop). The cooperative
can only carry out activities which work towards the objectives for which it was formed. The cooperative therefore needs to look
at all its intended activities when defining its objectives. These activities or functions of the cooperative can be identified once
the nature of all the problems of its members has been defined and the necessary measures for solving these agreed. For
example, a marketing cooperative should not only market the products of its members, but also show the members new or
better methods of improving the quality of their products. The objectives of the cooperative should include a general statement
as to the purpose of the cooperative, e.g. “to market the farm produce of its members”. A specific statement would then detail
the goals of the society, through which the cooperative can fulfil its purpose.
For example
• investigating the markets to determine what products of what quality and quantity customers want.
• building and maintaining storage facilities;
• maintaining a system for collecting the produce from the farms;
• processing and packaging the produce before sale as needed;
• marketing the produce to gain the best price possible, and
• advising the members on how to improve their produce and grow different products to suit the market.

Membership

Cooperatives are only as strong as their members make them. Members need to be aware of their dual role, as both owners
and customers of the cooperative. Members need to understand the rules governing operations of a cooperative if they are to
play these two roles successfully. Matters related to membership must, therefore, be regulated with utmost care. Membership
should be linked to pre-requisites and if these become no longer valid at some point, there needs to be provision for
membership to be cancelled. For example, members must be farmers and exercise their profession and business. This
provision is of importance as cancellation of membership by the cooperative is not otherwise possible (though members
themselves may cancel their membership). A period of notice should be foreseen (e.g. three months to one year) for
membership to be cancelled. Membership can be inherited, if the heir fulfils the requirements laid down in the statutes. While
a member in principle has the right to use the services of the cooperative, the cooperative itself cannot force the member to use
the services if no provision is made for this in the statutes. To qualify for registration, a cooperative needs to have a certain
number of members which has to be set out in the statutes. In many countries, the number is ten though this varies from
country to country. The cooperative should not feel, however, that just because it has the minimum required membership, it
should begin operations. In many cases, the minimum number may be too few to function effectively as a business. The main
points that should be included in the statutes concerning membership are:

• acquisition of membership - who can become a member

• termination of membership - when can a membership be ended
• transfer of member’s share capital
• death of a member
• exclusion of a member
• arrangements between member and cooperative
• rights of the members
• obligations of the members

In some cases, it may be decided that non-members will also be allowed to make use of some or all of the services of the
cooperative. If so, this should also be written into the statutes but as an additional character only as opposed to the main
purpose of the cooperative.

Organs of the cooperative

i The General Meeting of members

The general meeting of members is the supreme organ of the cooperative. This means that the general meeting makes all
basic decisions regarding the structure and operation of the cooperative and any decisions made at a general meeting override
decisions made in any other forum. However, in the early stages of cooperative activities, especially, members may not be in
a position to participate effectively in the decision-making process for example, because:

• members may not be able to understand the complexity of the issues which call for a decision;
• the organisation of the meeting may make effective decision making difficult (e.g. too many people);
• one group may dominate the meeting preventing effective discussions;
• the cooperative has grown so big that the management keeps all the information to itself, reducing the importance of the role
of the members in decision-making In order to ensure that members participate actively in meetings and are able to make
 22

effective and informed contributions, it is suggested that the cooperative organises discussion seminars prior to the general
meeting. At these seminars members could be informed in detail and discuss the issues on which decisions need to be made
at the general meeting. Such “seminars” should be
an integral part of the statutes. The cooperative should assess which issues need prior discussions in this way. In such a
seminar it would also be possible to invite “resource persons” such as bank officials and local decision-makers, who are in a
position to analyse issues from all sides. Thus, members can be informed extensively but left to form their own opinion. These
seminars could be held together with the meeting. However, the seminar must have an official end and the meeting a formal
beginning.

The statute may contain the following provisions for the general meeting:
• pursuance of membership rights
• period of time and location of the meeting
• convocation and agenda
• chairmanship of the meeting
• subjects for decision-making
• majority requirements
• discharge of committee members
• voting and elections
• right to demand information
• records, minutes

In smaller cooperative organisations it is usual for all members to have equal voting rights “one member - one vote”, at the
general meeting (despite the possibility that some members may own more shares than others). It may be useful to allow
members to transfer their voting rights to another member, relative etc. if they are unable to vote personally.

ii The Management Board

The management board (management committee or board of directors) is responsible for running the cooperative. It should
consist of at least two members who can be asked to act on behalf of the cooperative either jointly or individually. It is advisable
to act jointly to guarantee the control of the management. The statutes should spell out whether the board can act and take
decisions only on the explicit authority and approval of and by the members, or whether the board can act more independently,
thus acting on behalf of the members without having to consult them on every issue. The management board may carry out its
activities as their main work, as a part time job, or as an honorary occupation depending on the size of the cooperative and
amount of work involved. In many cooperatives the functions can be carried out on a part-time basis with perhaps one or two
paid clerks to assist the board. As the business and needs of the members expand, however, more and more time will be
needed and it may become necessary to employ a full time manager. It must also be decided for which period the board is
elected (usually between two years and five years). The following aspects of the management committee of the cooperative
organisation may be defined in the by-laws:

• who is responsible for the management of the cooperative organisation

• who represents the cooperative organisation
• what are the tasks and obligations of the management committee
• who reports to the control board.
• what is the composition, duties, obligations and service regulations of the management committee?
• which decisions need the approval of the control board?
• when should the management committee participate in meetings of the control board?

iii The Control Board

While the management board (also called Supervisory Board) is responsible for running the cooperative, the purpose of the
control board is to exercise the members’ control over the decisions made by the Management Board. The functions of the
control board also, should be laid down in the statutes. The control board should consist of at least three members elected by
the general meeting. Some restrictions on who is eligible may be written in to the statutes. e.g. minimum or maximum age, a
certain level of education or professional experience etc. The following provisions may be included in the by-laws/statutes:

• duties and obligations of the control board

• joint meetings of the management committee and the control board, matters which need the approval of the control board
• composition and election procedures
• constitution and decision-making

Equity capital and joint liability

Equity capital (ownership capital) must be determined in the statutes. The amount of the business share must be calculated to
guarantee the smooth running of the cooperative business. It may be written into the statutes that the equity capital can be paid
in instalments rather than all at one time. A minimum sum (or percentage) should, however, be fixed. The statutes should also
make provisions for any statutory reserves required by law, and any other reserves (voluntary reserve fund) thought necessary.
The joint liability beyond equity should at least be as high as share equity which increases the credit worthiness of the
cooperative. Distribution of any net surplus needs to be decided by the general meeting. Surplus should be distributed
according to the transactions with the cooperative and may be according to the paid-up shares of the members. Members’
participation in the financing of the cooperative should not however be restricted to share contributions and payments into the
reserve. Members can be induced to make larger contributions towards the financing of the cooperative where it is seen to be
to their benefit, for example, by paying them a form of dividend on members’ money which exceed the statutory requirements.
The statutes should clearly define:
• which members’ money form a part of the cooperative’s self-financing;
• how any extra money is to be treated, e.g. as form of borrowed capital (loans from the members) on which an interest must
be paid, or as deposits etc., and
• how to calculate the value of non-peculiar contributions -such as labour- from the members. Borrowed funds form another
source of cooperative’s financing. The statutes need to clarify
 23

matters such as:

• any extra liability which may be imposed on the members when the cooperative borrows money externally;
• who gives the authority to borrow and to whom this authority should be granted;
• the purpose of such borrowed funds and
• which sources of funds are acceptable.

Proceedings and regulations

Cooperative law only contains general regulations for the functioning of the cooperative. In order to avoid misinterpretations,
the statutes should make provisions for details such as invitations, calling and chairing of meetings, the establishment of sub-
committees and rules for voting. This will help the members and the organs to protect their obligations and rights. Record
books and record keeping should be mentioned in the statutes when it comes to setting formalities as regards:
• which books should be made available to those entrusted with the supervision and any other supervising body
• which books the general membership has access to, and
• which bodies or persons can make entries into the books or make alterations
Other provisions may include accountancy regulations such as the dates of the financial year, annual balance sheet and
situation report, loss coverage etc. The liquidation, merger, dissolution and splitting of cooperative organisations need to be
regulated as well. Finally, recommendations for dealing with violations and grievances should be made.

Step 3: Hold a conference to establish the marketing cooperative

When all the above points have been thoroughly discussed and understood by those wishing to form a cooperative, an
establishing conference needs to be arranged to agree to or amend the statues and legally establish the cooperative. After this
has taken place the leaders of the cooperative should apply for the registration certificate with the appropriate authority.

What is an Agricultural Cooperative?

In general terms, a cooperative is a group of individuals who have come together to pool resources for a specific purpose. An
agricultural cooperative, or farmers' co-op, does what all other cooperatives do, but it does so in a way that is specific to
farmers. This may include pooling resources to buy seed, sell grain, store grain, or even help with marketing efforts. Often, an
agricultural cooperative is involved in all of these matters.
To understand the usefulness of an agricultural cooperative, consider grain elevators. These are often used for storing or drying
grain, but most small farmers do not have the resources or time to purchase and build one of these structures on their own.
Therefore, they belong to an agricultural cooperative. The money they put in with their membership, which is used to build an
elevator and store the grain for all the members.
When it comes time to buy seed, farmers may also use a local agricultural cooperative. In this case, the cooperative serves as a
discount retailer. It buys seed in bulk, and then sells that seed to farmers as needed. The cooperative is a non-profit
organization, and therefore does not need to charge any more than what the seed costs, along with a small up charge for
administrative duties and facility upkeep.
When it comes time to sell the product the seed produces, agricultural cooperatives can also be a big benefit. The site may
serve as the central location for farmers delivering their grains and beans. Once at the agricultural cooperative's location, the
organization will then distribute the grain and beans based on contracts that have already been bought on the commodities
market. Distribution may be done by truck, rail, or barge, depending on the location.
While these essential farming services are important, agricultural cooperatives often do even more for the membership. For
example, some cooperatives offer gasoline and diesel fuel where farmers can go to not only fill up their farm machinery, but
also their personal vehicles. Due to the fact that the cooperative is a non-profit organization, it may at times offer better deals
than farmers could find at a traditional gas station.
Marketing may be done by an agricultural cooperative as well. Members are allowed to sell through a cooperatively owned
brand name, and thus gain greater product recognition. While most such efforts are local, on occasion, such efforts are so
successful that they result in product brands that receive national recognition, and which many consumers mistakenly assume
are owned by major corporations.

CHAPTER – 1
INTRODUCTION
Background of Study
Small farmers numerically abound in Punjab’s Agriculture. According to 1980 Agricultural Census of Pakistan, out of 2.54 million
farms, 71 per cent were small having operational area less than 12.5 acres. While managing Limited resource base, they are
hardly in a position to adopt modern technology which needs investment of additional funds. Unless they are able to apply
modern technology, they cannot make optimum use of their resources, In such a situation agricultural credit is one of the most
effective means by which their invest able fund could enhanced.
There are two main sources of agricultural credit: Institutional and non-institutional. The non-institutional sources are neither
sufficient nor reliable to meet credit needs of farmer making it necessary for the Government to operate in this field and extend
credit to farmers through its agencies. The Government agencies which provide credit to farmers are (i) the Revenue
Department: (ii) the agricultural Development Bank of Pakistan; (iii) commercial Banks; and (iv) the federal bank for
Cooperatives.
In 1979, the Government introduced interest-free credit programme. Subsequently, it was replaced by mark-up free credit for
small farmers. The share of mark-up free loans in total agricultural loans going to small farmers in Pakistan was 01 per cent in
1984-85 (Govt. of Pakistan, 1985 and 1986). The revenue Department did not involve itself in this activity as it was
loaning basically at the time of famine and distress. The Agricultural Development Bank Pakistan also did not extend any
interest-free loan to farmers as it is heavily involved in development loans, whereas the needs of small and marginal farmers
differ from the objectives of development loans. The small farmers primarily need funds to meet their production requirements,
and commercial banks and cooperatives are the only sources of mark-up free production credit for them.
The commercial banks came in the field for agricultural credit in 1972-73. During the first two years of their operation, their
contribution rose from zero to 31 per cent in total agricultural credit
 24

in Pakistan (ibid). Moreover, their share in 1984-85 was 45 per cent (ibid)
Cooperative societies are concentrated in Punjab (e.g.) in 1984-45, 92 per cent of total agricultural cooperative societies were in
Punjab. Punjab’s share in cooperative agricultural credit disbursement in the country was 93 per cent. The amount of such
loans disbursed in Punjab was Rs.1495.92 Million in 1984 –85, (ibid) details are five in Annexure.
The mark-up free credit disbursed by commercial Banks has already been examined by the Punjab Economic Research
Institute. The study (Khan and Sarwar, 1986) discovered that almost all the credit disbursed by commercial banks to agriculture
was mark-up free, and in it, the share of `genuine loans’ was only 23 percent. Although commercial banks’ mark-up free credit
was meant for small farmers, but the small farmers could acquire only 40 per cent of it. The rest was pre-empted by different
influential persons in the rural areas.
In the light of the findings about commercial banks, as mentioned above, it was considered worthwhile to examine whether the
mark-up free cooperative agricultural credit was reaching the small farmers – the target group. Since the Punjab was the main
recipient of this credit, the present study was done in this province. The Punjab Economic Research Institute undertook this
study with due deference to the directive of the Planning and Development Department, Government of Punjab, to find out as to
whom the benefits of the cooperative loans accrued, i.e. whether these loans actually benefited the loanees and achieved the
purpose for which these were granted. The Institute had also received a request from the Cooperatives Department,
Government of the Punjab to conduct a study on interest free credit through Agricultural Cooperative Credit Societies in the
Punjab.

Objectives of the Study

The specific objectives for the study are outlined as follow:
to estimate the proportion of cooperative loans reaching the small farmers in Punjab
to identify the shortcomings, if any, in the flow of cooperative credit to the small farmers
to see the impact of cooperative loans on the fertilizer use levels of the small farmers
to evaluate the impact of cooperative loans on the crop yields of the loanees
to suggest policy measures to improve the system of cooperative loans in Punjab
Since this study is going to see the flow of cooperative credit, it seems appropriate to explain here the procedure of getting a
society registered and obtaining a loan. Thus the next section gives information in this regard.

Procedure for Establishing Primary Cooperative Credit Society

At present, the function of agricultural credit disbursement is being done mainly by primary ‘cooperative thrift and credit
societies’ which are established on single village basis. The procedure for setting up new cooperative credit societies is
explained step by step as below:-

Step-1
Most important step in establishing a new agricultural credit cooperative society is ‘cooperation among farmers’. Once at least
10 farm households are ready to join together to solve their Economic (related to agricultural production) problems on self-help
basis they can form an agricultural credit cooperative society.

Step-2
When at least 10 farm households are ready to join together to form on agricultural cooperative society and to buy shares of the
society worth at least Rs.1000 and are also willing to pay membership fee, they can fill application form for the registration of
the society and apply to the Circle Registrar. The application from is in Urdu and explains in detail the purposes and functions of
the society.

Step-3
Before the application is considered for registration of the society, the Sub-Inspector or Inspector of Cooperatives of the area
visits the village and calls meeting of the members of the groups intending to form a society. This meeting is held at some
common place so that other households from the village could also participate. In this meeting he collects information about the
members and the accuracy of the entries regarding their farm size.

Step-4
After the Sub-Inspector’s or Inspector’s report either the Assistant Registrar of the area or the concerned Circle Registrar
registers the society. The society then affiliates itself with the Provincial Cooperative Bank for the purpose of obtaining loans.

Procedures for obtaining Cooperative Credit

The amount of credit given to a society by the Provincial Cooperative Bank (PCB) determined by adding up MCL’s of its
individual members. Whereas the limit of a member mainly depends on its crop-input needs, the maximum is Rs.10,000 for a
farm of 12.5 acres for two crop seasons in a year. Crop input needs of members differed by season so do their MCL’s. Thus
MCL’s of cooperative members and of societies are fixed in each season. Once the MCL of a society is fixed, it can apply for a
loan up to its MCL from the concerned branch of PCB. Theoretically, the procedure is so simplified that the representative of the
society can get its loan sanctioned within a short time. The loan to a society is given in kind, generally in the form of chemical
fertilizers. After getting delivery of fertilizer, the society is supposed to distribute the fertilizer among its members.

Organization of Study
The study is organized into 7 chapters. Chapter 2, which follows the introduction, examines the cooperative movement in
Pakistan in historical perspective. Chapter 3 explains the methodology followed for data collection for this study, and briefly
introduces methods of data analysis applied in this study. Chapter 4 presents a profile of sample agricultural cooperative credit
societies, and Chapter 5 examines the flow of cooperative credit to agriculture. Chapter 6 deals with the economic impact of the
credit, specially on the sue of fertilizer and crop yields. In Chapter 7 a summary of the major findings and policy
recommendations of the study has been given.
 25

CHAPTER-2
Cooperative Movement in Pakistan Historical Perspective

British Period
The cooperative movement was started in British India with the coming into force of the Cooperative Credit Societies Act, 1904.
The main objective of this Act was to help small farmers by providing them agricultural credit at low rates of interest on self-help
basis. But this could not meet the credit needs of the small farmers. Therefore, in 1912, an All India Cooperative societies Act
was passed to facilities the organization of secondary level societies in the form of federations of primary societies in order to
provide financial and administrative support to primary units. The scope of the cooperative movement was also widened
through the Act which
also provided for their involvement in activities other than credit.
Later on two committees – one headed by Sir Edward Maclagan in 1914 and the other in 1945 headed by R.G. Saraiya – were
appointed to review the position and to suggest a development plan for the movement. The communities respectively
recommended for “patient and persistent education of member’s. The movement progressed quite steadily in British India.
During the Second World War it was used to distribute food grains and other consumer goods.

Post-Partition Developments
Although, after the partition many of its management staff migrated to India, the movement came forward and helped the nation
in its difficult time. The cooperative movement branched out into diverse fields of commercial activities such as processing of
agricultural produce, procurement and distribution of food grains and consumer goods and financing of wholesale and retail
trade. But in 1953-54, due to inefficiency in commercial operations and complaints about willful mismanagement, the
Government directed that the movement be withdrawn from the Commercial field and assigned its traditional task of helping the
farmer in agricultural production and marketing. In pursuance of this policy, the Punjab Government appointed a Cooperative
Inquiry Committee in 1952 to review the position of the Cooperative movement. The committee recommended among other
things that the Central Cooperative Bank should gradually withdraw from commercial loaning to individuals and should also
exclusive individuals form their membership.
Since the managing committees of the central banks were dominated by traders, who did not understand the purpose of the
Government directive for the cooperative movement to withdraw from commercial activities, it took more than a decade to
prevent the central banks from giving loans to individuals for trading.
During the late 50’s one unit was created, and as a result the cooperative movements in all the four provinces were united.
Previously, the structure of the movement was different in Sindh Compared with the Punjab and NWFP, and in Baluchistan it
was almost non-existent. Thus the Registrar of One Unit of West Pakistan had to face different sets of laws and regulations. In
1959, the Government of Pakistan appointed a Credit Inquiry Commission, which was headed by Mr. Abdul Qadir, the Governor
of the State Bank of Pakistan. One of the recommendations of the Commission was to vest more powers with the Registrar of
Cooperative Societies, and to make the cooperative system simple by merging Central Cooperative Banks into a Provincial
Cooperative Bank.
Most recommendations of the Commission were implemented, and Cooperatives were given bigger role in helping the farming
community. Also, the status of the Registrar was raised as recommended by the Commission. Thus, after this the cooperative
movement had not only to channel credit to the farmer, but also to organize the distribution of agricultural inputs such as
fertilizer, seed and pesticides and arrange for the marketing of agricultural produce. In order to help the movement ‘in its
extensive and more technical role, the Cooperative Development Board was established in 1962 with the purpose of creating
the required capacity for development planning and project preparation on the one hand, and of promoting self-management
within the movement. The Board was quite successful in implementing several development schemes for agricultural credit
supply, marketing and processing.
The Government constituted another committee in 1963 to examine the working of the cooperative movement and to suggest
plans for its reorganization and improvement. The committee suggested to change primary cooperative societies into
Cooperative Development Societies, whose are of operation was more than a village. The function of these societies was not
only to effect disbursement of credit, but they were also supposed to provide banking facilities to their members. Additionally,
they could also undertake development work like installation of tube wells and building of officers, god owns, etc. The
committee also favoured the idea of secondary associations at tehsil level.
In 1966, the Cooperative Board was abolished. The programmes run by the Board were either abolished or transferred to
private businessmen. Moreover, the ordinances issued by the Government in this per gave more powers to the Registrar to
recover over dues as arrears of land revenue. Still another ordinance declared the members of Managing Committee to be
public servants as defined in the Pakistan Panel Code and they were covered by the anti-corruption laws. As a result of these
ordinances, the autonomy of the movement was curtailed and the control of the bureaucracy increased The Cooperative
Societies Reforms Order, 1972, was issued on 15th March, 1972. The main points of the Order were:

1. No individual would be a member of a Central Banks.

2. No person would be a member of the Managing Committee of a Cooperative Bank for more than two
consecutive terms.
3. No trader would be a member of an agricultural credit or marketing society.

In 1976, the Federal Bank of Cooperative (FBC) was established with a share capital of Rs.200 million. The shareholders of this
bank were: Federal Government, four provisions of Pakistan and the State Bank of Pakistan. The main purpose of this bank
was “to provide credit facilities to the Provincial Cooperative Banks (PCB’s) and regulate their operations”.
After its establishment, the FBC provided increasing amounts to PCB’s and they in turn extended loan able funds to cooperative
societies. A crash programme was also introduced to achieve faster growth in cooperative credit. Later on, the Government
decided to provide mark-up free loans to small farmers through cooperatives in 1978-79. Initially, the maximum amount of mark-
up free loan was fixed equal to Rs.6,000 which was raised to rS.10,000 for a small farmer having farm size up to 12.50 acres.
Moreover, FBC introduced various changes in the system of cooperative credit disbursement as a result of which the system
was simplified. In pursuance of these policies, agricultural cooperative credit increase from Rs.95.43 million in 1976-77 to Rs.
1,610.19 million in 1984-85. The number of agricultural credit societies and their membership also increased. Similarly, the
Punjab Province also experienced a fast growth in agricultural cooperative credit. The amount of this credit in Punjab was
Rs.85.94 million in 1976-77 which rose to Rs.1,495.92 million in 1984-85
 26

COOPERATIVE MOVEMENT

The history of the Co-operative Movement in a & N Islands dates back to the year 1926 with the framing of Coop. Societies
Rules under the Cooperative Societies Act 1912 since promulgated by the A & N Island Coop. Societies Regulation, 1973 and
Rules 1974. The first Cooperative Society under the name “Rangachang Cooperative Land Syndicated Ltd.,” was organized
and registered with the local inhabitants of the Rangachang, South Andaman in the year 1946. The movement gained
momentum only in the post independence period with the implementation of the colonization scheme of the Govt. of India
rehabilitating of refugees of the east Bengal in various part of the A & N Islands. Over the years, the movement reached a level
of 969 Coop. Societies in different sectors with membership of 73185 with a Share Capital of Rs.346.57 lakhs of which 103
Cooperative societies were organized and registered during the year 2002-2003. The Cooperative movement also plays a pre-
dominant role in the development of tribal communities of A & N Islands. The tribals viz. Nicobarese, Andamanese, and Onges
life style and economic stay fully is dependent on the plantation produce like coconut and arecanut. The produces are being
marketed through the Cooperative Societies organized by the tribals in their areas. Altogether 67 Cooperative Societies are
functioning in the Nicobar district. The other tibals viz. Sentinalees, Jarawas, and Shompens are yet to be brought under the
Cooperative fold. The sector wise growth of cooperative movement in the territory of A & N islands is as under:

Market Intervention Scheme

The market intervention scheme has been introduced as per the directions of the Govt. of India for the benefit of the agricultural
farmers. EHL have subsequently been appointed as agents for procurement of arecanut from this UT. During the said period
852733 Kgs. of arecanut were procured and the government accepted 204857 kgs. of arecanut purchased. For the current year
the work of procurement arecanut has been allotted to ANIFPDC Ltd. The scheme was in existence from 1-8-2002 to 31-10-
2002.

Introduction Of A New Scheme

The department of Cooperation has come up with a new scheme exclusively for the benefit of the farmers of the Copra,
Arecanut and other plantation produce taking into the consideration the fact that even if GOI withdraws the MIS, funding of a
local scheme will be possible in order to protect, safe guard the interest of the growers of agriculture plantation produce. The
new scheme viz “Assistance to cooperative Societies for implementation of 5th PSS, MIS and improvement/diversification of
plantation produce “has a total allocation Rs.9.91 crores (5 years period) & Rs.1.09 crores has been envisaged for 2002- 03
alone.

Further under the scheme the proposal to provide 50 Copra driers to various co-operatives organized by the growers against
which 45 Co-operative Societies have benefited.

Safeguarding Vegetable Growers

The department has taken initiative to safeguard the interest of the vegetable growers and 7 retail outlays for vegetable have
been opened at various places. These were allotted to vegetable growers of Neil, Havelock Diglipur, & Hut Bay Islands. The
department has already undertaken the construction works of wholesale vegetable Market at phoenix Bay to provide
warehousing facilities to the vegetable cooperative societies at an estimated cost of Rs.78.05 lakhs, and the work has already
been completed and has been allotted on hire to 8 cooperative societies.

Unemployment Problem

With a view to provide employment opportunities, the educated unemployed youths were motivated to form Coop. Societies to
undertake Govt contract works, supply of stationeries, and transportation of goods, tourism sector. At present, 243 Coop.
Societies have been formed by the educated unemployment youth of which 28 Coop. Societies have been registered during
2002-2003 and 6 in 2003-2004.

Cooperatives and Development: Lessons from the Punjab Experience

INTRODUCTION

Traditionally, cooperatives have been expected to serve a broad set of socio-political and economic objectives ranging from
self-help and grass-root participation to welfare and distribution, including economies of scale and social control over resource
allocation and mobilisation. However, these various objectives are not mutually consistent. There exists substantial trade-off in
the realization of many of these goals. It is therefore necessary to weigh their relative importance in the felt needs and priorities
of a particular community at any given point of time if performance of cooperatives is to be evaluated in an appropriate context.
An attempt to fulfill a range of these conflicting objectives simultaneously has eventually led to a broad based disenchantment
with the cooperative movement. This paper highlights two sets of issues with respect to cooperative development. First, it
discusses the concept of cooperation and illustrates that the contradictions in the ideology and practice are more significant in
explaining the limitations of cooperatives to serve as an instrument of development. Second, the paper points out that in the
absence of various external and internal prerequisites, especially due to the lack of their recognition, cooperatives tend to be
inefficient relative to other forms of traditional institutions even after receiving subsidies and other types of assistance, thus
neither achieving efficiency nor development. By analyzing the area of agricultural credit, in which cooperatives have
traditionally been most active in the Punjab, this paper illustrates various dilemmas and contradictions and the preconditions
necessary for credit cooperatives to reach the rural poor effectively. Finally, the paper points out the implications of the past
experience for the future role of cooperatives in Punjab.

Conceptual Framework
 27

The basic principles underlying modern cooperatives developed in Britain and Western Europe during the 19th century.
Different conceptions that emerged in the process of evolution of cooperative thinking can be broadly placed in two major
categories: the pragmatic and the idealistic. In the first category may be placed the conception that the primary aim of
cooperatives is to help improve economic conditions of those who stand to lose if they individually face powerful interests and
privileged competitors. Thus cooperation is not an instrument to transform capitalist system and replace it by some contrasting
alternative. Instead, its distinctive institutional form is designed to mitigate inequalities and harshness of capitalistic system
altering the distribution of its benefits in the process of making it more workable. The idealistic ideologists however conceived of
cooperatives as an instrument to effect the transformation of the capitalist system. They held that cooperatives were
fundamentally non-capitalistic and could co-exist with capitalism only at the risk of becoming capitalistic themselves.1. The
pragmatists perceive cooperatives as entirely voluntary organizations formulated with a view to deriving economic benefits for
its members through a common enterprise on the basis of two important criteria: mutual cooperation and self-help. According to
this concept, benefits arising from undertaking a cooperative enterprise are to be distributed in proportion to the contributions
made by individual members. Exponents of this view conclude that unlike, European cooperatives, those in developing
countries are frequently expected to cope with far too many constraints, and this is one of the main reasons why cooperatives
often remain ineffective in benefiting their members. The broader concept of cooperation, on the other hand, acknowledges the
inter-action between economic and socio-political power and, therefore, recognizes the frequent need either for structural
change or for political mobilisation for cooperatives to be able to benefit their members, especially the poor.

EVOLUTION OF COOPERATIVES IN PUNJAB

Debt-peonage and chronic credit shortage were among the chief causes of low agricultural incomes and productivity in the
Indian sub-continent, in the latter half of the last century. The British administration in the sub-continent set up various
commissions of inquiry. Among recommendations made by these commissions was the proposal that the government enter the
business of credit supply through the introduction of cooperative credit societies. As a result, a cooperative credit societies Act
was passed in 1904 and was supplemented by another Act in 1912. These two acts have remained a model for cooperative
legislation not only in pre-partition, but also in the post independence, Punjab.

Cooperatives and Development

Cooperative movement in the Punjab is largely derived from the ideas and value judgments that brought forth the movement in
the sub-continent in 1904. The progress of cooperatives in United Punjab may be judged by analyzing performance of societies
in terms of their growth and coverage granted to rural population. The total number of primary societies in the united Punjab
increased from 699 (with 693 as agricultural and only 6 as non-agricultural societies) in 1910 to 23476 in 1938 (with 19057 as
agricultural and 4419 as non-agricultural societies). Thus, about 81 percent of primary societies in 1938 were agricultural and
only 19 percent were urban societies, indicating that cooperatives remained primarily agriculture oriented up to the end of the
third decade of the present century. This position, however slightly changed in subsequent years. Thus out of a total of 27054
primary societies in 1945, some 77 percent were classified as agricultural and 23 percent as non-agricultural societies.
Nevertheless, amongst the primary agricultural societies, the cooperatives generally remained confined to the sphere of credit.
Thus out of 26873 primary agricultural societies in 1945 as many as 17603 (about 66 percent) were agricultural credit societies.
On the other hand, cooperatives in Punjab covered only 15 percent of the rural population in 1936-1937. Even in subsequent
years this position did not change considerably. Thus in 1945, a little under 19 percent of the rural population came under the
fold of this institution in Punjab.
The creation of Pakistan in 1947 in general and division of Punjab in particular affected the institution of cooperatives. The
number, membership and working capital of cooperatives was suddenly cut short and the institution was worst hit at all its
levels. The initial setbacks were overcome soon and cooperatives, under government patronage, were entrusted to funnel
credit, improved seed, chemical fertilizers and other inputs to the farm sector. In that respect, cooperatives in Punjab have
virtually acted as an instrument of the governments’ agricultural policy during the past fifty years.

DEVELOPMENT OF COOPERATIVES IN PAKISTAN PUNJAB

Organizational and Operational Features of Cooperatives

There is a two tier cooperative structure in the Punjab. At the base or operational level in the villages are established primary
societies. These societies, in turn are affiliated to the Punjab Cooperative Bank, organized at the provincial level. For
borrowings, the Punjab Cooperative Bank mainly depends on the Federal Bank for Cooperatives. The bulk of the loans
provided by the Federal Bank for Cooperatives to the Punjab Cooperative Bank are advanced for financing seasonal
agricultural operations. The advances by the Punjab Cooperative Bank to the credit societies increased considerably between
1970 and 1997. The total advances made by the Punjab Cooperative Bank to the primary agricultural societies increased from
Rs 165.13 million in 1970 to Rs 4117.39 million in 1997, with some 55 percent recovery of loans from societies during the year
1997. The loans to the Punjab Cooperative Bank, for onward disbursement to the primary societies are released by the Federal
Bank for Cooperatives on the approval of the State Bank of Pakistan and also on the guarantee provided by the Government of
the Punjab. The Punjab Cooperative Bank, expected to operate on commercial lines, has not been successful in mobilising
savings especially from the rural areas, making it difficult to supplement its own resources and with no savings of its own, it is
left with a very limited role as a development bank.
The Federal Bank for Cooperatives was established in 1976 at the national level with the object of providing financial assistance
to the provincial Cooperative Banks in all the four provinces of Pakistan. In addition, the Federal Bank for Cooperatives is
entrusted the task of assisting the federal and the provincial Governments in formulating schemes for the development and
revitalization of the movement, undertake research on problems of rural credit and other matters having a bearing on the
development of the cooperatives and assist the provincial Cooperative Banks in preparing their seasonal development lending
programmes and undertaking appraisals as well as feasibility studies of projects covered by such programmes. However, in
practice, the Federal Bank has served merely as a channel of credit catering for the credit requirements of the Punjab
Cooperative Bank, as also of the other provincial Cooperative Banks. The Bank except providing loans to provincial banks, has
generally failed in realising other objectives.
Primary cooperative societies have been established at the base level of the cooperative movement in the Punjab. These
societies are concentrated in rural areas and within those in the field of agricultural credit. The growth of primary societies both
agricultural and non-agricultural for the years 1980 through 1997 is given in Table 2. Total number of primary societies in the
 28

Punjab rose from 41533 in 1980 (with 23515 as agricultural credit and 18018 as non-agricultural credit cum urban cooperatives)
to 48097 in 1997 (with 35381 as agricultural credit and 12776 as non-agricultural credit cum urban cooperatives). Thus about
73 percent of primary societies in the Punjab in 1997 were agricultural credit and only 27 percent were non-agricultural credit
cum urban societies, indicating that the institution of cooperatives in the Punjab remained centred in the sphere of credit. It is
against this background that the experience of agricultural credit societies in the Punjab is now studied in detail through an
examination of the following aspects.

(a) The relative importance of credit Cooperatives among institutional sources of finance.
(b) The absolute importance of cooperative credit in relation to the total credit needs of farmers.
(c) The extent of local participation in, and support for agricultural credit societies, and
(d) The welfare effects of cooperative credit distribution.

The relative importance of cooperative credit among institutional sources of finance can be judged from the data presented in
Table 3. The share of cooperative credit in total institutional credit was significant during the years 1950 through 1966. This was
mainly attributed to the policy of the Government in the country which showed interest in developing and expanding the role of
the cooperative credit movement. Nevertheless, the provision of cooperative credit was not sufficient. The Agricultural
Development Bank of Pakistan was thus established in 1961; with that the total supply of credit in the farm sector increased,
from Rs. 75.12 million in 1960 to Rs 130.49 million in 1966 or by some 174 percent. Again in 1971, all commercial Banks
entered the business of rural finance. These measures enhanced the supply of farm credit, and the share of cooperative credit
among the institutional sources of finance
declined from around 60 percent in 1966 to about 8 percent in 1975. As against this, first the share of credit provided by the
Agricultural Development Bank increased, followed by that of the commercial Banks (after 1971-72); only after 1975 did the
share of cooperative credit amongst the institutional sources increased once again, however share of cooperative credit
amongst institutional credit ranged between 21 and 30 percent during the years 1985-97.
The measures taken by the government in the late 1970s and in subsequent years resulted in increased provision of
cooperative credit to the farm sector. Nevertheless, this does not imply that those who needed credit did really get it. The
incentive of providing interest free loans from late 1970s until mid 1980s (later however, cooperatives advanced loans at
concessional lending rates i.e. at a markup of 14–16 percent per annum) to members of societies was a good step, but
unfortunately it was misused partly because it was operated through incompetent functionaries of the cooperative department,
and partly through political pressure. Consequently, the advantages that were visualized at the time of conceiving these
schemes were frustrated4.
The estimated total credit needs of farmers in the Punjab have never been fully met from the available supply of institutional
credit. This argument obtains support from the findings of the Rural Credit Survey (1985). The survey recorded that 27 percent
of all the rural households including the farm and non-farm households had some recourse to institutional credit. For the farm
households this proportion was 30 percent for under 0.5 hectare category, whereas it was 44 percent for the 60 hectares and
above category. On a provincial basis, the survey revealed that 34 percent of the under 0.5 hectare farmers’ category in the
Punjab had recourse to institutional credit, as against 65 percent of the total farm households in the Punjab.5 This shows that
access to credit was generally higher amongst large sized farm holdings. These findings support the earlier view that insufficient
credit was available from institutional sources and that farmers depended more on non-institutional sources to fulfill their credit
needs. Data on the working of agricultural credit societies in the Punjab are presented in Table 4. The number of credit societies
increased at the rate of approximately 1 percent a year during 1960 through 1975. There was a significant increase in the
formation of credit societies after 1975, as the number of societies increased from 12658 in 1975 to 23515 in 1980, showing an
increase of 86 percent over the said period. This trend continued in the subsequent period. As such, the number of credit
societies increased from 23515 in 1980 by about 50 percent in 1997. Thus the experience of the late 1970s is atypical and
needs explanation. The Government of the Punjab introduced the interest-free lending
policy in 1978, and used cooperatives as a vehicle to funnel interest-free credit into the farm sector. Many more credit societies
in the Punjab were established under the directive of the Government. New societies were generally formed by the
departmental officials without any regard to the principles of cooperation. Many societies were established overnight just to
impress the superiors up the line with the successful implementation of the Government directive. As such, a policy of
expansion rather than consolidation was pursued by the department from 1977 through 1980.6 The provision of interest free
credit through cooperatives was abandoned by the government during mid 1980s and emphasis was once again laid on
consolidation rather than expansion of agricultural credit cooperatives during late 1980s through 1997.
The sudden increase in number of credit societies in the Punjab did not lead to the provision of sufficient credit to the
subsistence farmers. Interest free loans provided by these societies were generally misutilised or misdirected to non-productive
uses.
The Government of the Punjab made many attempts to establish large-sized viable primary units at the base level of
cooperatives, but these attempts generally met little success. The underlying trend shown by the data reveal that societies
generally remained small-sized. There are two reasons for such a pattern. First, the credit
societies did not provide sufficient credit; the farming population found it unattractive to join cooperatives. Second, the attempts
made by the department to promote the institution of cooperatives were too insignificant to persuade prospective members in
rural areas to join the societies. The Rural Credit Survey of Pakistan (1975) concluded that only 4 percent of the rural
households in Pakistan were enrolled in the movement.7 The Rural Credit Survey of 1985 revealed that only 1 percent of
households in the smallest sized farm category reported cooperative membership but this proportion increased to 13 percent in
the largest size of farm category of 60 hectares and above.
The cooperative societies, according to the survey are common in the Punjab, yet only 6 percent of the total farm households
reported membership.8 These statistics would imply that the institution of cooperatives in the Punjab was largely centred within
bigger farm households who controlled the management of societies and imposed restrictions on the entry of new members
(with small holdings), primarily to make use of Cooperatives provisions to themselves.9
Despite the increase in the number of societies, many Cooperatives in the Punjab were regarded as economically non-viable.
The Report of the National Commission on Agriculture (1988) recorded that out of 45,000 agricultural Cooperatives in Pakistan,
as much as 50 percent were dormant, and of the remaining, probably only 5 percent were
genuine, viable and active undertakings.10 According to a study conducted by the Centre for Administrative Research and
Development studies in the Punjab, out of 34543 societies as many as 50 percent were found to be inactive undertakings in
1984.11 One way of gauging the spread of cooperative idea, to measure the extent to which farmers began to participate in the
cooperatives, is to examine the quantum and composition of working capital available to societies. Total working capital
 29

available to credit societies increased from Rs 46.51 million in 1960 to Rs 143.76 million in 1975. However, there came about a
manifold increase in the working capital available to the credit societies after 1975. The working capital in societies was largely
derived from the borrowings (that is loans and deposits held) rather than the share capital and reserve funds. It may be noted
that during the period 1947 through 1975, the percentage share of borrowed funds (loans and deposits held) of societies ranged
between 42 and 61 percent. Credit societies borrowed between 83 and 89 percent during the years 1980 through 1997. Another
way of assessing the performance of credit societies was to evaluate their lending business. Total loans advanced by societies
increased from Rs 11.44 million in 1954 to Rs 79.88 million in 1975. Thereafter there was a quantum jump in loans advanced by
societies, which increased from Rs 979.99 million in 1980 to Rs 3725.44 million in 1997. Moreover, cooperative credit, as
already noted, as a share of total institutional lending increased from 8 percent in 1975 to some 26 percent in 1997.
Relevant statistics on the lending business of societies are presented in Table 4. It may be seen that the ratio of repayment of
loans advanced was not at all bad especially during 1954–65. It tended to stay fairly high. However, between 1970–75, the ratio
dropped to less than 0.4; in contrast during 1975-80 ratio of repayment exceeded from
less than 0.4 to a little above 0.8. The overall average repayment to loan ratio for 1954– 97 stayed at roughly 0.85. And this was
not at all that bad. The higher recovery of loans by societies was (among other factors) attributed to strict adherence by the
department to the administrative discipline of societies. Many defaulting members in societies were claimed to be expelled and
their debts recovered as arrears of land revenue. Contrary to this argument critics12 suggest that funds meant for disbursement
of loans for improved seed, chemical fertilizers and pesticides were actually diverted towards short-term interest bearing
investments. And, through smart forgery new loans created in fictitious names were adjusted against the ‘old’ loans. Further,
through this practice members in societies, besides making big illegal earnings,
were able to show high recovery rates. The data on the number of loan beneficiaries of the credit societies for the period, 1947
through 1997 were not available from departmental sources on regular basis. If it was assumed that member farmers in a
society actually received the maximum loan amount prescribed, then the number of loan beneficiaries could only have been
between 4 and 15 percent of the total membership during the years 1954–75. Between 1990 and 1997 the situation became
rather worst, as only about 2.5 percent of the total membership could have been provided with the maximum prescribed amount
of loan-able funds from the societies. Of course, this assumption is too simplistic but it does place the amounts loaned in proper
perspective. The membership of societies increased throughout 1954–97 and it is logical to expect that the members in fact
received loans of a lesser share of the maximum credit limit. The proponents of the institution of cooperation contend that a
cooperative is not supposed to be a commercial business venture or a profit making enterprise. Its objectives are largely
distributional (e.g. providing welfare to its members by ensuring provision of subsidized loans). Of course, concessional lending
cannot be profitable in a commercial sense. Past experience suggests that concessional lending to members was a disincentive
insofar as optimal productive use of cooperative credit was concerned. The large farmers and politically strong farming groups
in Punjab were reported to have credit to cultivators was advanced on the basis of maximum credit limit (MCL). The maximum
credit limit prescribed for the farmers for the irrigated and non-irrigated areas was fixed at Rs 1000 and Rs 600 respectively.
The credit limit has had no relevance to either the needs of the farmer or to his repayment capacity. Similarly the MCL of a
society was fixed by the central cooperative banks irrespective of the need of the credit society. It was after 1978 that MCL for a
member farmer of credit societies was set at Rs 6000 per annum for the purchase of improved farm inputs. Since 1984 loans to
a member in a society are advanced on per acre basis. The maximum credit limit (MCL) has been fixed Rs 5000 per acre with a
markup of 14–16 percent.

Cooperatives and Development

Dominated Cooperatives and annexed government funds for their own purposes.14 It was revealed in one study that 86 percent
of the committee members (as well as the large farmers) in societies were loan defaulters as against 37 percent ordinary
members. 15 An important task which the Department of Cooperation in the Punjab is expected to undertake is the regular audit
and inspection of Cooperatives. Field studies16 undertaken in the Punjab have established that a large number of societies
remain un-audited. And this in part is attributed to the shortage of trained and experienced staff in the department. Moreover,
the management committee members themselves are often incompetent and often unable to record correct entries. This
practice has often made it more difficult to undertake the audit task effectively.17 As a result the cooperatives have been made
entirely dependent on the cooperative field staff, and have not been able to grow as an autonomous ‘self-help’ institution.18

Effectiveness of Cooperatives as a Tool of Development

The reports of the official Government inquiries and appraisals by independent researchers19 indicate that Cooperatives have
not achieved the development goals set for them by economic planners. Even though cooperatives are sponsored by the
government, their activities have little effect on the existing patterns and trends of economic activity and their performance has
little relevance to the wider context of social and economic change and the general development strategy. It was recognised
that, without Governmental financial support and consequently some degree of Government control, cooperatives would have
not become properly established.20 This dependency on the Government for the establishment and support of Cooperatives
has created a dilemma for the self-reliance of societies. The Cooperatives are so dependent on state assistance that it is
unlikely that they would survive without Government support and replace the traditional dependency system (e.g. paternal
system) by self-reliance and community initiative, achieved through cooperative action.

Overtime the Government has remained liberal in providing subsidized agricultural credit, the primary societies nevertheless
often have had at their disposal only limited supplies of credit because of their failure to follow prescribed conditions, their
inability to generate enough capital of their own or to recover loans. The evidence has established that much of the credit
advanced by Cooperatives was not used for productive purposes. Even productivity considerations in Cooperatives have posed
a dilemma. While some cooperative members (generally members of the management and other better-off farmers in societies)
took undue advantage of cooperative credit and other services, the others were not able to do so—the result—a gulf between
the better-off and the ordinary members to the access of cooperative services—leading to greater economic inequalities; a
practice contrary to the cooperative ideals. The evidence has proved that there was unequal distribution of the benefits of rural
Cooperatives within rural communities. Those who were already in more fortunate positions took advantage of the cooperative
services; the disadvantaged of the community benefited less or not at all. Thus the Cooperatives were not effective in bringing
about structural change in the communities. The impact of the community structure upon the Cooperatives was stronger than
the impact of the cooperative upon the community structure.
 30

CONCLUSIONS AND LESSONS

It is by no means a straightforward matter to identify causes of inadequacies of institutional performance when social, political
and economic considerations are woven together. The fact that the institution in question is not the product of purely local
forces but has instead been transplanted from quite different time and place adds a further dimension to the complexity. Failure
could be attributed to rejection of the cultural transplant due to incompatibility, or to its association with the colonial past.
Alternatively, it could be due to the absence of necessary preconditions linked to opportunities for development and their
perception by participants. But equally it could be attributed to government manipulation of the institution, to serve a particular
and conceivably ill-suited objectives given the circumstances prevailing in agricultural input and output markets in the 20th
century Punjab. Either the credit system itself needs to be changed or else the objectives should be changed so as to reduce
emphasis on social goals of redistribution or relief of mass poverty and leave these goals to other kinds of programmes.
Cooperatives will not prove successful in the communities where class and caste structures are inegalitarian; cooperatives, in
effect, become the preserve of the middle and upper class and their effectiveness in the community remains slight. As such
cooperatives will bring success only when these are introduced into communities which have more flexible socio-economic
structures. This would seem to be a principal pre-requisite for institutional change to occur and cooperatives to be enabled to
create a cohesive group oriented to local socio-economic improvements. To be effective, however, cooperatives also need to
have strong links with outside agencies, such as the secondary and apex cooperatives, and the Department of Cooperation. In
spite of the risks of being interpreted as imposing an alien structure on local communities, there is still a necessity for the
government to play an active role in promoting the idea of cooperation. Unless the outside agencies ensure the training of the
local leaders, assist the cooperators in adopting new technology, provide sufficient credit and other requisites, audit cooperative
accounts regularly and discipline those responsible for defaults and irregularities, there is no point in expecting any success
from any type of cooperative. A radical alternative to the reform of the existing cooperative institutions would be a policy seeking
to evolve wholly new kinds of local organisation—‘units of rural action’ that could more effectively stimulate peasant participation
and in particular more effectively involve the poorer members of the local community. This will however, need profound social
economic and structural transformation of the rural society. To sum up, there is a pressing need for a serious review of
cooperative policy.
Empirical research has established that cooperatives failure has been less a demonstration of the irrelevance of cooperative
principles to the pursuit of development, and more a clear indication that the annexation of the cooperative concept to serve
misguided and insensitive government policies creates organisations which are cooperatives in name only. Such a review
should consider possible specific adjustments to cooperative methods and procedures to meet some of the individual problems
already identified.

HOUSING CO-OPERATIVES IN PAKISTAN

History
Co-operatives were introduced, in what is today the Pakistan Republic, by the adoption of the Co- operative Credit Societies Act
of 1904 whose aim was to finance Indian small farmers. The promotion of co-operation was done exclusively by the government
in the sub-continent, since there was no other civil organization dedicated to the cause. The act authorised provincial
governments to appoint the Registrars of Co-operative Societies and allowed for only registered co-operatives to provide credit
could be registered. The act was changed with the Co-operative Societies Act 1912 permitting the registration of co-operatives
having other objects than only providing financing. Under the Government of India Act of 1919, co-operatives were transferred
to the provinces giving them the power to make any appropriate laws to administer and develop co-operatives.
The Maclagan Committee Report on Co-operation published in 1915 provided substantial and constructive proposals for co-
operative development. This report played a vital role in the governmental and civil thinking. Various provinces established
Committees of Enquiry which ultimately promoted the co-operative movement and the passing of Co-operative Acts in several
provinces. When Pakistan was created in August 1947, housing was a major problem for millions of people. Independence had
created a large influx of migration into the new state. As the state was unable to provide adequate housing for its population,
squatter settlements soon appeared and were largely tolerated by government. Industrialisation and urbanization accentuated
the situation. Refugees and rural migration contributed to the growing number of urban poor. In the Pre-Partition days, housing
co-operatives had had a modest start. In the province of Sindh there were 46 housing co-operatives located in Karachi (22),
Hyderabad (23) and Sukkur (1). In 1949, the Karachi Co-operative Housing Societies Union was founded as a central co-
operative organisation by 24 primary housing co-operatives. Co-operators took the responsibility of developing much needed
housing by using the township approach as there was no governmental agency equipped at that time to face the challenge. To
support these initiatives, the state leased out 1,400 acres of land to the union for township development. Other housing co-
operatives such as the Pakistan Employees Co-operative Housing Society Limited also received land from the state. The
housing co-operatives in the province of Sindh have played a vital role in solving the ever increasing housing problems in the
province, with particular emphasis in Karachi, the largest city in Pakistan. At this time, housing co-operatives can be found in
every part of Karachi. In the province of Punjab, housing was the responsibility of the government through Urban and Housing
Development and several trust organizations (LIT, RIT, etc.) until the 1970s at which time, commercial and cooperative
developers started to do business. However, in the mid 1990s a scandal involving housing cooperatives that deprived
thousands of people of the money they had invested in housing co-operatives forced the Punjab government, through the
National Accountability Bureau, to reimburse the swindled members. A ban imposed by the Chief Minister in 1997, stop the
registration of new co-operatives. Even though co-operatives were introduced in the province of Baluchistan in 1950, no
substantive development of cooperatives was made until 1955 when a small amount of financial assistance was provided with
the Aid Program. The co-operative movement gained some momentum during the 1960s, the result of financial assistance from
the government. Co- operative Banks were established providing loans to agricultural and non-agricultural co- operatives.
Housing co-operatives have also developed in the North West Frontier Province as indicated in the statistics section below. In
the Capital Territory of Islamabad, there are different types of co- operatives but unfortunately there is no indication of the
number of housing co-operatives.
After the creation of Pakistan, a series of laws, mostly in the form of Governor’s Ordinances and
later in the form of Regulations of Presidential ordinances, were promulgated with the aim to ensure the security of public funds
and properties owned by the co-operatives.

Context
 31

Housing remains under the jurisdiction of the provinces. Registration of housing co-operatives is done through the Registrars
and the Provincial Co-operative Housing Authorities have the authority to oversee and take control when co-ops fail to comply
with their own by-laws. There are four provinces and two territories in Pakistan: the provinces of Baluchistan (Quetta), Punjab
Lahore), Sindh (Karachi) and North West Frontier (Peshawar) and the Islamabad Capital Territory and the Federally
Administered Tribal Areas.
Pakistan is the seventh most populous countries in the world; and fifth in Asia. The urban population in Asia is growing at an
annual rate of 3%. The housing conditions in Pakistan are, for the most part: overcrowded, inadequate sewerage, pollution,
poor building construction leaving inadequate protection from weather extremities, and no security of tenure.
In 2008, the yearly estimated housing demand was 570,000 units. Actual supply was 300,000 units leaving a shortfall of
270,000 units every year. The consequences of this situation is that almost half of the total urban population now lives in
squatters or informal settlements as it was already indicated in the National Housing Policy 2001. These slums and squatter
settlements also called katchi abadis can be divided in two types: “settlements established through unorganized invasions of
state lands” that happened at the time of partition for which most have been regulated in the 1960s and “informal subdivisions of
state land (ISD)”. Furthermore, these ISDs are subdivided in two categories: the notified hatchi abadis that have been
earmarked for regulation and can obtain a 99-year lease and the development of infrastructure and the non- notified katchi
abadis also referred to as slums that will not be regularised because the state either wants the land back for development or
deems the land to be ecologically unsafe.
Katchi Abadi Departments were implemented in the provinces of Sindh and Punjab to regularise
the phenomenon of informal settlements but have not achieved much success. In Karachi alone, 650 katchi abadis are listed.
Moreover, according to UNESCAP, the United Nations Economic and Social Commission for Asia and the Pacific, nearly
180,000 households in different parts of Pakistan are facing evictions due to several government projects, such as roads and
highways. The problem is too big to be solved by the government alone. A concerted effort must be made involving legislative
reforms and providing adequate support to housing co-operatives. Measures that have been identified include: legislative
reforms to provide security of tenure by conferring title to people living in slums and informal settlements and conferring
ownership rights to women; reasonable building costs through market regulations; financial assistance through grants;
mortgages facilities and financial mechanisms such as micro-credit in place to help low- income families; adequate
environmental measures to ensure a healthy and safe place to live such as roads, water, sewage, drainage, electricity.
As indicated, housing co-operatives have played a vital role in many parts of the country and their work has brought better living
conditions to thousands of people. As an example, 5,853 acres (Karachi Development Authority Scheme # 33) have been
allocated to 130 housing co- operatives and societies. At completion, the land will provide homes to 3 million people in addition
to commercial facilities. Other similar projects are currently taking place in other cities of the Sindh province, such as Hyderabad
and Sukkur, as well as in other provinces.
But despite real and considerable progress, the co-op housing movement is confronted by serious challenges to be able to
effectively improve the quality of life of Pakistanis, challenges that come as much as from inside the movement than from the
difficult socioeconomic conditions facing the country.
The rapid population growth makes any development plan obsolete very soon after its completion forcing organisations and the
state to remain constantly vigilant to the situation. New development approaches are not always well received and changing the
mentality can be a lengthy process, particularly in rural areas. This can create serious setbacks for any new undertaking. The
lack of money remains a real barrier to development. The lack of funding is expressed in two ways: no capital and a real
difficulty of mobilizing savings which will imply a change in attitudes more amenable to saving. The scarcity of urban land
creates serious difficulties and vertical development results which must be promoted and supported by the state. Finally, the
current political instability disturbs the affairs of co-operative organisations adding to the difficulty for their development.
In addition to these difficult socioeconomic conditions, the co-op housing movement is confronted by serious internal problems.
Some leaders have indicated that the following weaknesses have slowed down the progress of the co-op movement in the
country: the absence of strong leadership, the inability to maintain standards of business efficiency, illiteracy, the lack of
education facilities, including management and accounting education. These deficiencies have enabled some housing co-
operators more concerned with self interest to sully the name of housing co-operatives in Pakistan, along with other examples
of badly administered housing co-operatives and illegal acts from unscrupulous board members. Good ethics and management
practices are essential to see the housing co-operative movement grow.

The Co-op Housing Movement

There is no national organisation of housing co-operatives in Pakistan and the scope of co-operatives vary widely from province
to province. However, housing co-operatives do get together in some occasions. It should be noted that each province and
territory have co-operative departments with the responsibility to promote as well as to monitor any type of co-operative
development. A pioneer of the co-operative housing movement in Pakistan and a member of ICA, The Karachi Cooperative
Housing Societies Union Ltd (KCHSU) is a major player in the province of Sindh whose mandate includes:
>>To acquire land from the government and other agencies on lease and to sub-lease to members;
>>To develop the land such as site design, building of roads, water sewage lines, electric lines etc.
>>To provide and maintain sanitary and other services and levy charges on the member societies and individual plot owners
until the land is transferred back to the local authority;
>>To design and/or construct necessary facilities such as school, stores, etc.
Today, the Union has 1,200 housing co-operative members. So far, the Union has developed land for 4,800 residential units, 84
public amenities, and 750 commercial amenities. 2,500 houses and 8 schools have been built. KCHSU does work in kachi
abadi by financing housing co-ops to build houses. The Union went into a very difficult period where its resources were
dilapidated and the democratic functioning was corrupted. After 3 years of hard work (2004-2007), under the supervision of the
Registrar Co-operative Societies and the support of its members, the Union is back working with the same principles of its
founders.

Statistics
As of July 2009, there are 2,608 housing co-operatives in Pakistan with close to 1.9 million of
members. These housing co-operatives have built close to 13 million of houses and/or units.

Co-operative Society
So far you have learnt about sole proprietorship, partnership and joint stock company as different forms of business
organisation. You must have noticed that besides many differences among them in respect of their formation, operation, capital
 32

contribution as well as liabilities, one common similarity is that they all engage in business activities to earn profit. Without profit
it is impossible for them to survive and grow. But there are certain organisations which undertake business activities with the
prime objective of providing service to the members. Although some amount of profit is essential to survive in the market, their
main intention is not to generate profit and grow. They pool available resources from the members, utilise the same in the best
possible manner and the benefits are shared by the members. Let us know more about them. After studying this lesson, you will
be able to:

explain the meaning of co-operative society;

state the characteristics of a co-operative society;
describe the procedure of formation of a co-operative society;
identify different types of co-operative societies;
discuss the advantages and disadvantages of a co-operative society; and
assess the suitability of co–operative society form of business organisation.

Meaning of Co-operative Society

Let us take one example. Suppose a poor villager has two cows and gets ten litres of milk. After consumption by his family
everyday he finds a surplus of five liters of milk. What can he do with the surplus? He may want to sell the milk but may not find
a customer in the village. Somebody may tell him to sell the milk in the nearby town or city. Again he finds it difficult, as he does
not have money to go to the town to sell milk. What should he do? He is faced with a problem. Do you have any solution for
him? One day that poor villager met a learner of NIOS who had earlier read this lesson. The learner told him, you see, you are
not the only person facing this problem. There are many others in your village and also in the nearby village who face a similar
problem. Why don’t you all sit together and find a solution to your common problem? In the morning you can collect the surplus
milk at a common place and send somebody to the nearby town to sell it. Again in the evening, you can sit together and
distribute the money according to your contribution of milk. Of course first you have to deduct all the expenses from the sale
proceeds. That villager agreed to what the learner said. He told everybody about this new idea and formed a group of milk
producers in his village. By selling the milk in the nearby town they were all able to earn money. After that they did not face any
problem of finding a market for the surplus milk. This process continued for a long time. One day somebody suggested that
instead of selling only milk why not produce other milk products like ghee, butter, cheese, milk powder etc. and sell them in the
market at a better price? All of them agreed and did the same. They produced quality milk products and found a very good
market for their products not only in the nearby town but in the entire country. Just think it over. A poor villager, who was not
able to sell five litres of milk in his village, is now selling milk and milk products throughout the nation. He is now enjoying a
good life. How did it happen? Who made it possible? This is the reward of a joint effort or cooperation. The term co-operation is
derived from the Latin word co-operari, where the word co means ‘with’ and operari means ‘to work’. Thus, co-operation means
working together. So those who want to work together with some common economic objective can form a society which is
termed as “co-operative society”. It is a voluntary association of persons who work together to promote their economic interest.
It works on the principle of self-help as well as mutual help. The main objective is to provide support to the members. Nobody
joins a cooperative society to earn profit. People come forward as a group, pool their individual resources, utilize them in the
best possible manner, and derive some common benefit out of it.
In the above example, all producers of milk of a village joined hands, collected the surplus milk at a common place and sold
milk and milk products in the market. This was possible because of their joint effort. Individually it would not have been possible
either to sell or produce any milk product in that village. They had formed a co-operative society for this purpose.
In a similar way, the consumers of a particular locality can join hands to provide goods of their daily need and thus, form a co-
operative society. Now they can buy goods directly from the producers and sell those to members at a cheaper price. Why is
the price cheaper? Because they buy goods directly from the producer and thereby the middlemen’s profit is eliminated. Do you
think it would have been possible on the part of a single consumer to buy goods directly from the producers? Of course, not. In
the same way people can form other types of co-operative societies as well. Let us know about them.

Types of Co-operative Societies

Although all types of cooperative societies work on the same principle, they differ with regard to the nature of activities they
perform. Followings are different types of cooperative societies that exist in our country.
Consumers’ Co-operative Society: These societies are formed to protect the interest of general consumers by making
consumer goods available at a reasonable price. They buy goods directly from the producers or manufacturers and thereby
eliminate the middlemen in the process of distribution. Kendriya Bhandar, Apna Bazar and Sahkari Bhandar are examples of
consumers’ co-operative society.
Producers’ Co-operative Society: These societies are formed to protect the interest of small producers by making available
items of their need for production like raw materials, tools and equipments, machinery, etc. Handloom societies like APPCO,
Bayanika, Haryana Handloom, etc., are examples of producers’ co-operative society.
Co-operative Marketing Society: These societies are formed by small producers and manufacturers who find it difficult to sell
their products individually. The society collects the products from the individual members and takes the responsibility of selling
those products in the market. Gujarat Co-operative Milk Marketing Federation that sells AMUL milk products is an example of
marketing co-operative society.
Co-operative Credit Society: These societies are formed to provide financial support to the members. The society accepts
deposits from members and grants them loans at reasonable rates of interest in times of need. Village Service Co-operative
Society and Urban Cooperative Banks are examples of co-operative credit society.
Co-operative Farming Society: These societies are formed by small farmers to work jointly and thereby enjoy the benefits of
large-scale farming. Lift-irrigation cooperative societies and Pani-panchayats are some of the examples of co-operative farming
society.
Housing Co-operative Society: These societies are formed to provide residential houses to members. They purchase land,
develop it and construct houses or flats and allot the same to members. Some societies also provide loans at low rate of
interest to members to construct their own houses. The Employees’ Housing Societies and Metropolitan Housing Co-operative
Society are examples of housing co-operative society.

Fill in the blanks with suitable word(s) in the following statements:

(i) A co-operative society works on the principle of self-help as well as _______.
(ii) Through housing co-operative societies members may get _______ at low rates of
 33

interest to construct their own houses.

(iii) Small producers who find it difficult to sell their products individually may form____________ co-operative society to sell
their produce.
(iv) Consumers’ co-operative societies help to eliminate ________ in the process of distribution of goods.
(v) Pani-panchayats and lift-irrigation co-operative societies are example of _____ cooperative society.

Characteristics of Co-operative Society

A co-operative society is a special type of business organisation different from other forms of organsation you have learnt
earlier. Let us discuss its characteristics.
Open membership: The membership of a Co-operative Society is open to all those who have a common interest. A minimum
of ten members are required to form a cooperative society. The Co–operative societies Act does not specify the maximum
number of members for any co-operative society. However, after the formation of the society, the member may specify the
maximum number of members.
Voluntary Association: Members join the co-operative society voluntarily, that is, by choice. A member can join the society as
and when he likes, continue for as long as he likes, and leave the society at will.
State control: To protect the interest of members, co-operative societies are placed under state control through registration.
While getting registered, a society has to submit details about the members and the business it is to undertake. It has to
maintain books of accounts, which are to be audited by government auditors.
Sources of Finance: In a co-operative society capital is contributed by all the members. However, it can easily raise loans and
secure grants from government after its registration.
Democratic Management: Co-operative societies are managed on democratic lines. The society is managed by a group
known as “Board of Directors”. The members of the board of directors are the elected representatives of the society. Each
member has a single vote, irrespective of the number of shares held. For example, in a village credit society the small farmer
having one share has equal voting right as that of a landlord having 20 shares.
Service motive: Co-operatives are not formed to maximize profit like other forms of business organisation. The main purpose
of a Co-operative Society is to provide service to its members. For example, in a Consumer Co-operative Store, goods are sold
to its members at a reasonable price by retaining a small margin of profit. It also provides better quality goods to its members
and the general public.
Separate Legal Entity: A Co-operative Society is registered under the Co-operative Societies Act. After registration a society
becomes a separate legal entity, with limited liability of its members. Death, insolvency or lunacy of a member does not affect
the existence of a society. It can enter into agreements with others and can purchase or sell properties in its own name.
Distribution of Surplus: Every co-operative society in addition to providing services to its members, also generates some
profit while conducting business. Profits are not earned at the cost of its members. Profit generated is distributed to its members
not on the basis of the shares held by the members (like the company form of business), but on the basis of members’
participation in the business of the society. For example, in a consumer co-operative store only a small part of the profit is
distributed to members as dividend on their shares; a major part of the profit is paid as purchase bonus to members on the
basis of goods purchased by each member from the society.
Self-help through mutual cooperation: Co-operative Societies thrive on the principle of mutual help. They are the
organisations of financially weaker sections of society. Co-operative Societies convert the weakness of members into strength
by adopting the principle of self-help through mutual co-operation. It is only by working jointly on the principle of “Each for all
and all for each”, the members can fight exploitation and secure a place in society.

Fill in the blanks with suitable word (s) relating to co-operative societies.

A co-operative society is a _____ association of individuals who come together to achieve common _____ objectives.
(ii) Their motive is to provide ____ to the members.
(iii) They have a separate ____ from the members.
(iv) The books of accounts of the society are audited by __________ auditors.
(v) Profit is shared amongst members on the basis of member’s ____________ in the business of the society.

Formation of a Co-operative Society

A Co-operative Society can be formed as per the provisions of the Co-operative Societies Act, 1912. At least ten persons
having the capacity to enter into a contract with common economic objectives, like farming, weaving, consuming, etc. can form
a Co-operative Society. A joint application along with the bye-laws of the society containing the details about the society and its
members, has to be submitted to the Registrar of Co-operative Societies of the concerned state. After scrutiny of the application
and the bye–laws, the registrar issues a Certificate of Registration.

Application with the signature of all members

Name, address and aims and objectives of the society;
Names, addresses and occupations of members;
Mode of admitting new members;
Share capital and its division.

Advantages of Co-operative Society

A Co-operative form of business organisation has the following advantages:

Easy Formation: Formation of a co-operative society is very easy compared to a joint stock company. Any ten adults can
voluntarily form an association and get it registered with the Registrar of Co-operative Societies.
Open Membership: Persons having common interest can form a co-operative society. Any competent person can become a
member at any time he/she likes and can leave the society at will.
Democratic Control: A co-operative society is controlled in a democratic manner. The members cast their vote to elect their
representatives to form a committee that looks after the day-to-day administration. This committee is accountable to all the
members of the society.
Limited Liability: The liability of members of a co-operative society is limited to the extent of capital contributed by them. Unlike
sole proprietors and partners the personal properties of members of the co-operative societies are free from any kind of risk
because of business liabilities.
 34

Elimination of Middlemen’s Profit: Through co-operatives the members or consumers control their own supplies and thus,
middlemen’s profit is eliminated.
State Assistance: Both Central and State governments provide all kinds of help to the societies. Such help may be provided in
the form of capital contribution, loans at low rates of interest, exemption in tax, subsidies in repayment of loans, etc.
Stable Life: A co-operative society has a fairly stable life and it continues to exist for a long period of time. Its existence is not
affected by the death, insolvency, lunacy or resignation of any of its members.

In text Questions
State whether the following statements about co-operative societies are true or false:
Any competent person can become a member of a society, at anytime.
The liability of the members is unlimited.
The government encourages and supports the formation of co-operative societies by providing subsidies and exemptions.
It can exist for long due to a legal entity separate from its members.
The society is managed by one person only.

Limitations of Co–operative Society

Besides the above advantages, the co-operative form of business organisation also suffers from various limitations. Let us learn
these limitations.
Limited Capital: The amount of capital that a cooperative society can raise from its member is very limited because the
membership is generally confined to a particular section of the society. Again due to low rate of return the members do not
invest more capital. Government’s assistance is often inadequate for most of the co-operative societies.
Problems in Management: Generally it is seen that co-operative societies do not function efficiently due to lack of managerial
talent. The members or their elected representatives are not experienced enough to manage the society. Again, because of
limited capital they are not able to get the benefits of professional management.

Lack of Motivation: Every co-operative society is formed to render service to its members rather than to earn profit. This does
not provide enough motivation to the members to put in their best effort and manage the society efficiently.
Lack of Co-operation: The co-operative societies are formed with the idea of mutual co-operation. But it is often seen that
there is a lot of friction between the members because of personality differences, ego clash, etc. The selfish attitude of
members may sometimes bring an end to the society.
Dependence on Government: The inadequacy of capital and various other limitations make cooperative societies dependant
on the government for support and patronage in terms of grants, loans subsidies, etc. Due to this, the government sometimes
directly interferes in the management of the society and also audits their annual accounts.
Let us now sum up–
Advantages
•Easy formation
•Open membership
•Democratic Control
•Limited Liability
•Elimination of Middleman’s Profit
•State Assistance
•Stable Life

Disadvantages
•Limited Capital
•Problems in Management
•Lack of Motivation
•Lack of Cooperation
•Dependence on Government
•Business Studies

Suitability of Co-operative Societies

You have learnt that the main objective of co-operative form of business organisation is to provide service rather than to earn
profit. The co-operative society is the only alternative to protect the weaker sections of the society and to promote the economic
interest of the people. In certain situations when it is not possible to achieve the target by individual effort, collective effort in the
form of a co-operative society is preferred. Housing co-operatives, Marketing co-operatives, etc., are formed to achieve the
common economic objectives of the members. Generally co-operative society is suitable for small and medium size business
operation. However, large scale co-operative societies like IFFCO, KRIBHCO etc. are also found in India.

In text Questions
Fill in the blanks with suitable word (s) :
(i) The co-operative society suffers due to limited capacity of members to contribute _________.
(ii) Co-operative Societies are formed to provide service rather than maximizing _______.
(iii) Professional managers do not prefer to work in co-operative societies because they do not get adequate ______ .
(iv) Large co-operative societies like KRIBHCO and IFFCO serve the whole ______.
(v)There may be rigidity in cooperative societies due to excessive control and regulation by _______.

What You Have Learnt

A co-operative society is a voluntary association of individuals having common needs who join hands for the achievement of
common economic interest. Its aim is to serve the interest of the poorer sections of society through mutual help. Membership of
co-operative societies is voluntary and open to all. It is democratically managed and it has a separate legal existence. The main
motive is to provide service to the members. It works on the principle of self help through mutual cooperation of members. A co-
operative society can be formed under the Co-operative Societies Act, 1912, with a minimum of ten members. For registration,
an application along with bye-laws of the society has to be submitted to the Registrar of Co-operative Societies.
Co-operative societies may be classified as follows:
 35

1) Consumers’ co-operative society - formed to eliminate the role of middlemen and supply high quality goods and services at
reasonable price to consumers.
2) Producers’ co-operative society - formed to help producers to procure raw material, tools, equipment etc.
3) Co-operative marketing society - formed to ensure a favorable market for small producers to sell the output and get a good
return on sale.
4) Co-operative credit society - formed to provide financial help to members through loans at low interest rates. They encourage
saving habit among members.
5) Co-operative Society- Co-operative farming society - formed to achieve economies of large scale farming and maximization
of agricultural output.
6)Housing co-operative society- formed to provide residential houses to members by constructing them or providing loans to
members to construct their own houses.!

Co-operative societies are easy to form and have a stable life. Membership is open to all and members have limited liability.
There is democratic management based on ‘one-man, one vote’. The societies have stable life and they enjoy government
patronage!
They suffer from insufficient capital, problems in management and conflict among members. There is lack of motivation in
members due to absence of direct reward for individual effort. Excessive government regulation and control may also pose
problems for them. Co-operative societies are suitable in protecting exploitation of weaker sections of society and promoting
their economic interest. It is ideal where service motive, and not profit, is the priority.

Terminal Exercise
1.What is the meaning of ‘Co-operative society'?
2.What are the activities undertaken by a housing co-operative society?
3.What is meant by democratic management of co-operative societies?
4.Give two examples each of consumers’ co-operative societies and producers’ cooperative societies.
5.What is meant by marketing co-operative society?
6.What information and documents have to be submitted to the Registrar at the time of
registration of a co-operative society?
State the functions of co-operative credit societies. State the types of co-operative credit societies, giving one example each.
7.Give the difference between ‘Producers co-operative society’ and ‘Marketing cooperative society’.
8.What are the causes of conflict and lack of motivation among members of a cooperative society?

Activity For You

Is there any co-operative society in your locality? If yes, then visit the office and find out:
(a) What is the purpose of the society?
(b) Who are the members of the society?
(c) What are the activities of the society?
(d) Does the society face any problems in its operations?