Cooperatives 474

List the three distinguishing principles or characteristics of a co-op that makes it different from a non-cooperative type of business.

1. Creates a benefit that is derived and distinguished on the basis of use. 2. Cooperatives are owned by the members that use it. 3. Cooperatives are controlled democratically by members.

Sources of equity in cooperatives do not include which of the following:

debt

The number of independent, local cooperatives is

declining

A cooperative corporate model is a good choice for business regardless of the industry.

false

A cooperative enterprise is one that belongs to the people who use its services, the control of which rests with the majority of the members.

false

A cooperative is allowed to have an agency in common with non-cooperative firms and still have protection under the Capper-Volstead Act.

false

A major financial benefit of cooperatives is paid to members as dividends on common stock.

false

A marketing cooperative buys supplies that it then markets to its members.

false

Agricultural marketing cooperatives can incorporate under the Capper-Volstead Act.

false

All patronage refunds are always paid in cash.

false

All sources of returns cooperatives generate can be easily measured in dollars.

false

Articles of Incorporation and By-Laws are not required legal documents for a cooperative corporation.

false

As voluntary organizations, such as cooperatives, grow, participation tends to increase

false

Communal colonies founded by Robert Owen were well financed, well managed, and have endured to the present time

false

Cooperative voting is generally done on the basis of stock ownership.

false

Cooperatives are part of the free enterprise system just like proprietorships, partnerships, and investor-owned corporations.

false

Cooperatives have been very successful in controlling production of agricultural commodities as a way to raise prices.

false

Cooperatives typically choose whether to pay patronage refunds as cash before deciding what fraction of the net income should remain as unallocated equity.

false

Deferred patronage refunds are cooperative liabilities.

false

Fixed costs are a good example of marginal costs.

false

A revolving fund or "first in, first out" sequence of returning stock has a disadvantage that some cooperatives have a very long revolving period. A retired farmer has to wait a long time to receive their capital back.

true

A rural electric cooperative is an example of a service cooperative.

true

An audit should be completed at least once a year at the end of the fiscal year

true

An important function of the board of directors is to safeguard member investments in the cooperative.

true

Articles of incorporation essentially represent a contract with the state the cooperative is incorporated in.

true

Cooperative boards of directors oversee (evaluate) the activities of the general manager/CEO.

true

A supply cooperative depends on a favorable marketing mix of ----- and ------ to attract patronage

prices and advertising

What is a good definition of price maintenance?

pricing an item at the greatest price competitive conditions allow

If a cooperative wishes to expand in the future, build a larger building, and buy more equipment, it will probably want to build up some:

reserves

Equity redemption is:

return of equity in cash to members who have invested in the cooperative

Which philosophy of legal thinking makes sense for allowing agricultural marketing cooperatives to have a limited exemption to the Sherman Act?

rule of reason

A cooperative is a form of corporation.

true

A cooperative's management team is composed of the board of directors and the hired manager (CEO).

true

A long-range objective of cooperatives is to improve the net income of the members and, ultimately, their level of living.

true

A major advantage of the percentage method of revolving equity is that new members get back the same percentage as old members. In this way the new members don't have to wait until some future time to receive some of their retained earnings.

true

A manager of a cooperative will execute the planning function differently in a cooperative than in an investor-owned corporation.

true

A pool is intended to equalize returns to the growers far a specific quality and time of delivery.

true

Cooperatives are controlled by their members, who are not usually well informed and skilled with respect to the type of business conducted by their cooperative.

true

Federated cooperatives are generally more adaptable to large geographical areas than co-ops with a centralized structure.

true

Important to the fairness and success of any pooling system is an accurate valuation of product inventory when the pool is closed.

true

In a capitalistic system, such as the U.S., cooperatives can help preserve market competition.

true

In a federated regional cooperative system the members of the federation are local cooperatives.

true

In financing cooperatives the member-owners of the cooperative have a greater responsibility than the owners of noncooperatives.

true

In recent years cooperatives have been paying a substantial share of the patronage refund in cash.

true

Interest if paid on stock must be paid before patronage dividends are paid.

true

It is very unlikely that an open membership cooperative could increase prices above those that would exist under reasonably competitive conditions.

true

Members of agricultural marketing cooperatives act together to fix prices for farm output.

true

Most cooperatives do not pay interest on common stock.

true

Nebraska statutes for cooperatives require the 8% limit on returns to ownership to be in the bylaws.

true

One of the advantages of a base capital plan is that the cooperative does not have to be completely refinanced each generation.

true

Opportunities for sale and purchase of cooperative equity among members most often happens in new generation cooperatives.

true

Ownership and control of cooperatives by its members can be a strength, and a weakness, when responding to changes in the market.

true

Pooling can be used in increase returns or reduce risk to individual producers.

true

Pooling requires the individual producer to give up some control over his marketing decision.

true

Pooling works well with a storable product that is harvested over a relatively short period of time and then marketed out of inventory.

true

Strategies exist by which a cooperative could increase prices above those which would exist under reasonably competitive conditions.

true

The "free-rider effect" means that cooperative members may financially support market services that benefit all producers of a certain good, even if they are not members of the cooperative.

true

The chief executive of the cooperative is responsible to oversee the hiring and firing of all employees.

true

The foundation of cooperative management is membership control.

true

The granddaddy of all anti-trust legislation is the Sherman Act.

true

The percentage method of equity retirement means that all members receive a certain proportion of their retained earnings (equity).

true

The two documents that govern the operation of a cooperative association are the articles and the bylaws.

true

The unallocated reserve in a cooperative is the property of the cooperative corporation and is only distributed at time of dissolution.

true

There are many common features between different types of cooperatives.

true

Two basic approaches to equity redemption are systematic programs and special programs

true

Unallocated (or retained) equity can be an attractive option for income distribution strategies for a cooperative.

true

When a member of a cooperative cannot accept decisions made by majority action and they have tried all available means to change decisions, they should leave the cooperative.

true

The board of a cooperative of 1600 members will typically hire how many employees?

1

Name two ways in which managing a cooperative is unique.

1. Managing a cooperative is unique because rather than focusing on shareholders and their investments, management is focused on the members. 2. Because of this difference, cooperatives may make decisions that result in less than maximum potential profits for the coop. This is because their decision making favors things than increase membership satisfaction an loyalty which sets a coop apart from investor-owned businesses.

Allowing member's equity shares to be marketable to other members, or even non-patron investors:

1. boosts the cash poor patron's liquidity position 2. is worthy collateral if credit is sought 3. is an external way for the coop to adjust its base capital plan or equity accounts, by bringing the member together to trade (buy/sell) equities Correct! all of the above

In organizing a cooperative some of the steps include:

1. conducting economic surveys and feasibility studies 2. drafting legal documents

In a federated agricultural cooperative

1. local cooperatives are direct members of the regional 2. the local members elect the local board of directors

Some reasons cooperatives fail

1. members are indifferent, often because they don't understand their responsibilities 2. members have expectations that are unrealistic

Since itemized per item costs on individual items is unknown, selling supplies at market price to cooperative patrons may:

1. result in initial overcharging 2. produce a refund assuming efficient operations

The Rochhdale Pioneers organized the first consumer cooperative in 1844 because

1. they needed a way to supply themselves with food and clothing at reasonable prices and good quality 2. they were unsuccessful in other attempts to improve their social and economic situation

According to Mr. Weber, the first Nebraska agricultural cooperative was incorporated in

1903

Cooperative A decided to retire $20,000 of retained earnings on a percentage basis. If the total retained member equity is $500,000, what percentage can they retire of each members' equity?

4%

What does it mean to be a federated cooperative?

A federated cooperative is a larger co-op where the members are local co-ops, ( It's co-op of co-ops). The smaller local coops each vote as one member.

How does a manager's control function differ from their organizing function?

A manager's organizing function is more proactive in looking for ways to set a course for the coop to reach its goals, to begin with. On the other hand, a manager's controlling function is supposed to find ways to correct the missteps of the coop that are identified through monitoring systems.

Which of the five functions of management (Planning, Organizing, Directing, Coordinating, and Controlling) does each of the following most closely relate to (only one for each) a. Integrating the activities of the employees, the use of facilities and materials, and handling the assets of the cooperative, b. Delegation of tasks by the manager whenever it is possible and efficient to do so. c. Establish the cooperative's policies, d. The use of financial statements.

A. Organizing closely relates to handling the assets of the cooperative as well as integrating activities of employees and the use of facilities and materials. B. Directing relates to the delegation of tasks by the manager when efficient and possible. C. Controlling relates to establishing cooperatives policies and making changes when standards are not met. D. Planning relates to the use of financial statements and planning ahead to acheive financial success in the cooperative

Explain the difference between a cooperative corporation's "articles of incorporation" and its "by-laws".

Articles of incorporation are documents that show the business's creation and are filed with the government. Articles of incorporation are more government-enforced and regulated, while by-laws are rules made by the business based on how it wants to govern itself. By-laws are only enforceable within the company and its employees and members.

Which is a definition of marginal revenue?

Change in revenue per unit output

What is the difference between cooperative- (or firm-) level returns and patronage (or member) level returns?

Cooperative level returns are affected by how the coop chooses to distribute its profits. Cooperative level returns are how profits get used to improve the coop and help provide better service to the member. Patronage level returns are usually split between an amount that the member receives annually and another portion that builds up in the member's coop account until around retirement age (cash and revolving equity).

Why may cooperatives be referred to as a non-profit type of organization??Aren't co-ops interested in being profitable?

Cooperatives can be referred to as non-profitable because they strive to offer their goods and services to their members at the best price possible. So while they are still concerned with profit the main objective is to operate so that members get the most benefit they can from the cooperative. This sometimes results in the co-op making business choices that cause less than maximum profit with the intention of putting the member/owners first.

Bylaws

Document describing the allocated governance duties and powers of members, directors, and employees.

You are on the board of directors of a local cooperative that participates in a federated system. A proposal has been made to change the local-regional relationship from a federated system to a centralized system. Name five advantages and/or disadvantages of each type of system that should be considered by the board before making a decision.

Federated Co-op systems 1. better regulate member interest 2. limits the risk of its members 3. Might seem too big to some people 4. You're not a member but your co-op is. 5. Generally, there is less loyalty from users. Centralized Co-op Systems 1. More unity because members likely know each other and management. 2. The co-op has a more homogenous group of members. 3. The smaller size makes it tougher to create economies of scale. 4. Since the users are the members they can vote directly. 5. More centralized business locations.

Sherman Act

First anti-trust law passed. it made illegal any unreasonable restraint of trade, including activities by supply cooperatives

What is the difference between a company trying to maximize profits and trying to maximize quantity of output?

Generally, companies always strive to maximize profits there many ways to do this such as increasing production or reducing expenses. Conversely, trying to maximize the quantity of output doesn't always mean profit is increasing. For example, you could increase output to a point to where each additional unit has a marginal revenue of zero at this point it doesn't make sense to increase output because you don't receive any benefit from the additional production.

Which of the following is not a responsibility of the board of directors in a large agricultural marketing cooperative?

Hiring a new sales manager

In which of the organizational structures of cooperatives (centralized, federated, or mixed) do you feel a member likely is to have most control? Why?

I think members would have the most control in a centralized coop system. Because they have voting control and members hold direct control of overall business making policy.

Which of the following is the first step in starting a cooperative?

Identifying a business problem to solve

Describe the special income tax status of cooperatives relative to other corporations.

In contrast to corporations, cooperative income is not taxed at the corporate level. Fewer taxes often allow cooperatives to offer their goods and services for a lower price because of this. Sometimes the dividends received by members can be deducted on their personal tax returns. Also, patronage dividends are usually deductible for the cooperative.

Which of the following most closely relates to the planning function served by the cooperative chief executive?

Integrating the activities of the employees

Who sets the share of the cooperative's net income paid to its members as patronage refunds?

It is a duty of the board of directors to choose how net income is allocated, so they decide what funds to put towards patronage refunds.

capper-volstead act

Limited antitrust exemption that allowed farmers to market their output through cooperatives

List one benefit of marketing agreements to the cooperative and one benefit to the member.

Marketing agreements allow the coop the benefit of having more bargaining power when making deals on how the commodities are traded. While the member gains the benefit of increased returns and decreased risk as an individual.

Cooperatives may seek to maximize member welfare using a variety of approaches. These could include which of the following?

Maximizing patronage refunds

Which of the following is a category on the balance sheet unique to cooperatives?

Member equity

What cooperative did Mr. Boesigner and Mr. Reese represent?

Midwest Farmers Cooperative

What is the name of the co-op Mr. Carlholm represented?

Nebraska Valley Cooperative

What is the difference between qualified and non-qualified notices of allocation?

Non-qualified notices of allocation can be used to delay patron's taxes as well as income. This also sometimes helps patrons avoid a negative cash flow from paying toward taxes. On the other hand, a qualified notice of allocation allows a cooperative to deduct its taxable income. To qualify for this deduction the coop needs to pay twenty percent of their patronage as a check or cash.

Name one advantage and one disadvantage to the farmer of marketing a product such as soybeans using a cooperative seasonal pool. Your Answer:

One advantage is that the producer has the chance to get increased returns or less risk from gaining additional bargaining power by dealing as a large volume group of producers under the cooperative. One disadvantage is that it requires the individual producer to give up control over some of his marketing decisions.

Which of the following are Rochdale Principles?

Open membership Promotion of education Concern for community Cooperation among cooperatives Limited returns to ownership

What means of equity retirement do you believe to be best? Why?

Personally I think I look at this from a member/producer's perspective because I think the percentage of all equity method is best because the members get some of their equity while they are young enough to still use it. Other systems take so long it seems less beneficial to the member because of the time value of money.

List the four basic functions of a manager, as described in the text.

Planning, this is described in the text as a way for a cooperative business to chart their future plans or courses of action. Organizing was described as making decisions about how to allocate the cooperative's resources to better help the coop achieve its goals. Directing is making sure the company is still focused on achieving its main goals Controlling, control focuses on corrective actions to take to make sure the coop is still performing up to the standards set to monitor the coops progress.

According to the lectures on microeconomics and cooperatives, which of the following pricing strategies provides maximum output from a monopoly supply/purchasing cooperative?

Produce at the point where price and average total cost are equal

Business plan

Statement of intended operational, market, and strategic approaches to business.

What one early English cooperative has had the greatest influence on modern day cooperatives? What was the cooperative known for?

The Rochdale Society of Equitable pioneers was an early cooperative that made a set of principles that became the foundation for following cooperatives. The co-op is best known for these principles since other new co-ops saw their success and began implementing the same principles into new co-ops.

Which of the following statements concerning cooperative history are true?

The Rochdale Society was successful partially because it was able to build on the experiences of previous, unsuccessful cooperatives.

The _______ Pioneers are recognized as the originators of today's cooperative principles.

The Rochdale pioneers.

Which act is the granddaddy of all anti-trust legislation?

The Sherman act was the first or "granddaddy" of all antitrust legislation. It outlawed monopolies and attempts to monopolize, combinations to monopolize and other non-competitive business practices. This affected farmer coops because it essentially made them illegal.

What is a definition of the "competitive yardstick" function of cooperatives in the market?

The competitive yardstick means that a major reason for cooperation is to maintain competitive and efficient systems to supply inputs and marketing services for farmers. It gives us a measure to judge how other companies are doing, it gives us a sense of what is reasonable for members and non-members.

List the management functions a successful chief executive must perform.

The directors hire the chief executive then the chief executive is responsible for all other hirings. The chief executive is expected to organize the human capital and assets of the cooperative. As well as observing coop performance in reaching its goals, and gives incentives to motivate cooperative employees as well as the membership. The chief executive also helps by gathering the resources needed to help the coop achieve its strategic plan.

What was the importance of the industrial revolution to the beginning of the cooperative movement?

The industrial revolution made jobs more repetitive and standardized so less skill and training was needed. No longer requiring skilled workers made people a commodity that could be easily replaced. This made co-ops stand out because of the value they placed on members and employees. People realized co-ops were run with social objectives in mind and further improved the popularity of cooperatives.

What is the industry with the largest number of cooperatives in the United States?

The industry with the most co-ops is retail trade containing 16% of all worker co-ops in the US.

What is the cooperative with the largest business volume in the United States

The largest Agricultural co-op in the US is CHS Inc. in Minnesota. Yes CHS also

Equity capital may be redeemed to patron-owners in several different ways. They include revolving fund, percentage-of-equities, modified revolving fund (base capital) and patron age. Select one and describe how it works.

The revolving fund system retires equities on a first in first out basis so that the earlier equity that is put in first would get retired before any member equity that followed it. In Nebraska, it takes on average 17 years to get your equity back.

Discuss the Rochdale principles (strength and weakness). Are they relevant to modern-day cooperatives? Why or why not? Which of the principles have become accepted as "hard-core" co-op principles?

The strengths of the Rochdale principles include putting members first. Democratic control, open membership, promotion of education and distribution of surpluses all enhance member loyalty and make them more likely to do business with a co-op. As for the principles weaknesses, before these principles, many forms of coops had failed so people were hesitant to deal with co-ops. These principles are still relevant to modern co-ops because the principles still have the same positive effect on member loyalty and how the co-op is operated overall. These standards still set cooperatives apart from other businesses. The principles that have been accepted as hardcore are the idea of creating member benefit that increases as use increases, this is often done through dividends or services offered. As well as the principles of member ownership in a co-op and democratic control of the co-op.

Supply cooperatives can transfer the most benefits to members when they are local monopolies. Features of local monopolies include which of the following?

They are the only seller in the market

Farmers in a rather isolated area are interested in -forming a cooperative to replace a recently closed -farm machinery dealership. Outline the steps you would recommend to these -farmers and what factors should they consider to make sure they make a profit maximizing decision.

They have already outlined their business problem of needing a farm machinery dealer. Now they need to agree on a need for a solution (new coop dealership). Eventually, hold meetings assess the availability of inputs, feasibility, and a central business proposition. Next, they need to develop enough trust among members to gain financing. Then they need to develop a steering committee. This step consists of selecting advisors, arranging financing, conducting feasibility studies and developing business plans. Finally, they would present the results to potential membership.They have already outlined their business problem of needing a farm machinery dealer. Now they need to agree on a need for a solution (new coop dealership). Eventually, hold meetings assess the availability of inputs, feasibility, and a central business proposition. Next, they need to develop enough trust among members to gain financing. Then they need to develop a steering committee. This step consists of selecting advisors, arranging financing, conducting feasibility studies and developing business plans. Finally, they would present the results to potential membership.

One of the first steps in organizing a cooperative is to have an organizing committee. The major items of information that this committee should assemble or obtain are:

This committee should obtain information on how to arrange financing, conduct feasibility studies and, develop a business plan. As well as the availability of inputs, the strength of demand, government policy, and a central business proposition.

Name three legal documents that would normally be prepared in the early organizational stages of a cooperative.

Three documents prepared early in the organization of a cooperative would be the articles of incorporation, the by-laws of the cooperative as well as any applications, contracts or securities required for operation.

Identify the the features of centralized cooperatives, how members interact with these, and their advantages and disadvantages.

To become a member of a centralized co-op a patron makes an equity investment in the co-op. Co-ops are businesses run by a board of directors but decisions are made based on democratic voting. Usually, each member gets a vote regardless of the amount of business they do with the co-op. As a member, some benefits are that you now have some influence over how the co-op is run usually based on a voting system. Members also receive dividends, better prices, and access to services as benefits. The disadvantages of joining a co-op include the cost of the initial investment, as well as feeling obligated to do business with them even if other places offer lower prices.

Vertical linkages between agricultural cooperatives and other firms include

Writing and signing contracts with downstream partners

( tax status of coop vs other corp) Does this status affect how much income tax a cooperative pays and how much income tax a cooperative member pays.

Yes, this reduces the amount of income tax a cooperative pays compared to a corporation because they can avoid the double taxation that corporations are subject to. And as a member with dividends usually being deductible that reduces the amount of income tax you would otherwise have to pay.

A cooperative is

a business owned and controlled by the member-owners

A key feature of neoclassical microeconomics is that it models the

allows modeling of effects of decisions made on the margin

Which group in an agricultural marketing cooperative is principally responsible for deciding how much equity to retain and use?

board of directors

The ____________ Act was enacted in 1922 and has provided the legal basis for the existence of agricultural marketing cooperatives in the U.S.

capper-volstead act

Cash at delivery means

cooperatives pay a cash price for and take title to products delivered by patrons

From the perspective of antitrust law, Section 2 of the Capper-Volstead Act has two unique features: 1. The Secretary of Agriculture regulates the enforcement of the law; and 2. Section 2 contains the term "cooperative."

false

In a federated cooperative system the members of the federation are individuals, not independent private businesses.

false

In revolving member equity, most cooperatives use the LIFO method, "last in-first out."

false

It makes sense to start a cooperative in a market that is already perfectly competitive.

false

Most cooperatives do not pay dividends on common stock.

false

Non-members may sometimes vote during the business meetings of Nebraska cooperatives.

false

One of the advantages of organizing as a cooperative is that cooperatives are better able to raise funds from the public than standard investor owned corporations.

false

Patronage refunds can be paid to members and to non-members.

false

Rural electric cooperatives would find it difficult to operate successfully if it were not for the Capper-Volstead Act.

false

Since cooperatives are people organizations, there is no need for two-way communication between members and management.

false

Specialized equity redemption programs redeem equity through a recurring process that keeps member equity investment in the hands of active members.

false

The Secretary of Agriculture has prosecuted many agricultural farm supply cooperatives for unduly enhancing prices.

false

The amount of patronage refunds cooperatives pay to their members depends on the value of stock the member has in the cooperative.

false

The common stock for major U.S. regional agricultural cooperatives are traded on the New York Stock Exchange.

false

The minimum cash portion of a non-qualified allocation of patronage income is 20 percent.

false

The only difference in managing a cooperative and a similar non-cooperative is the fact that cooperatives allow voting by mail ballot on certain issues affecting the business.

false

The only option a cooperative has when distributing income is to pay 20 percent of the income as cash

false

The upper limit a cooperative can pay its membership as patronage dividends is 8 percent.

false

Trends that have affected agriculture in general (e.g. technological change, globalization) have had no effect on agricultural cooperatives.

false

Clayton Act

first anti-trust law passed that made an attempt to make legal joint marketing activities by farmers.

The criterion for maximizing profits in a cooperative firm operating under imperfect competition is

marginal revenue = marginal cost

Firms (cooperatives or not) maximize profits when which of the following conditions are met?

marginal revenue= marginal cost

What was the name of the WESTCO director who visited the class?

mark buskirk

debt is

money borrowed from a lender

When we speak of a cooperative as being a not-for-profit organization, we mean that the intent is to operate the cooperative so that the service will be available to the users at the lowest possible cost consistent with sound business practices.

true

they were unsuccessful in other attempts to improve their social and economic situation

true

Which role of membership have the courts focused on as grounds to challenge a cooperative's ability to qualify for the Capper-Volstead exemption?

voting

When starting a cooperative, the first and most important thing to consider is:

what the need is

A key financial metric (or ratio) that Mr. Carlholm mentioned as being linked to the co-op's loan covenants was

working capital