Provide missing services
A commonly stated reason for existence of cooperatives is that they provide services (input or marketing) that otherwise would not be available. A new cooperative could provide a new service or buy a business that was not serving farmers well. Such reasoning, however, demands careful examination. If a real need exists, the filling of that need should provide a reasonable return for resources devoted to it. The fact that an entrepreneur does not see the opportunity to get such returns may be a signal that the need for the service is not real. To be of benefit, the service provided must have value which justifies resource use regardless of whether the providing organization is a cooperative.
It may be argued that unless there are other reasons for the service or product to be provided by a cooperative, an activity that cannot afford the ordinary investor a normal return would also be a mistake for a cooperative. To argue otherwise is to argue market failure, that the farmers opportunity cost of capital is less than considered normal by other firms, or that being a cooperative confers some advantage, such as lower taxes.
In the early 1970s, sugar beet grower in the Red River Valley of Min-nesota and North Dakota formed a cooperative to acquire a sugar beet processing plant from an IOF corporation. The cooperative's organizers criticized the prior owners for being unwilling to expand, even though farmers wished to increase production of sugar beets because of their excellent return. Beet growers were represented by a bargaining cooperative which had some influence on the returns a vailable to the beet processor. Instead of forming a cooperative, the beet growers might have perhaps alowed the former a higher return in order to induce expansion. However, the cooperative turned out very well for the organizing farmers, in part because sugar prices increased dramatically for other reasons shortly after the conversion to a cooperative.
Provide missing services
A commonly stated reason for existence of cooperatives is that they provide services (input or marketing) that otherwise would not be available. A new cooperative could provide a new service or buy a business that was not serving farmers well. Such reasoning, however, demands careful examination. If a real need exists, the filling of that need should provide a reasonable return for resources devoted to it. The fact that an entrepreneur does not see the opportunity to get such returns may be a signal that the need for the service is not real. To be of benefit, the service provided must have value which justifies resource use regardless of whether the providing organization is a cooperative.
It may be argued that unless there are other reasons for the service or product to be provided by a cooperative, an activity that cannot afford the ordinary investor a normal return would also be a mistake for a cooperative. To argue otherwise is to argue market failure, that the farmers opportunity cost of capital is less than considered normal by other firms, or that being a cooperative confers some advantage, such as lower taxes.
In the early 1970s, sugar beet grower in the Red River Valley of Min-nesota and North Dakota formed a cooperative to acquire a sugar beet processing plant from an IOF corporation. The cooperative's organizers criticized the prior owners for being unwilling to expand, even though farmers wished to increase production of sugar beets because of their excellent return. Beet growers were represented by a bargaining cooperative which had some influence on the returns a vailable to the beet processor. Instead of forming a cooperative, the beet growers might have perhaps alowed the former a higher return in order to induce expansion. However, the cooperative turned out very well for the organizing farmers, in part because sugar prices increased dramatically for other reasons shortly after the conversion to a cooperative.
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