Family Farm Series Publications:
Marketing for the Small Farmer

Marketing Cooperatives

Mark Gustafson and Curtis Moulton, formerly staff research associates at UC Berkeley

What is a marketing cooperative?

A marketing cooperative is an organization owned and operated by a group of farmers who produce similar products. Farmers join a marketing cooperative to gain more control in marketing their products so they can: increase the price they receive for their products; reduce the costs of marketing their produce and of obtaining agricultural inputs such as seed and fertilizer; and make the market for their goods more secure.

The marketing cooperative (or co-op) accomplishes these objectives by: performing certain functions such as packing, storing, cooling, shipping, promoting, and selling; negotiating for better market terms because of volume and variety offered by their members; and buying production supplies (seeds, fertilizer, containers, etc.) in large volumes at lower prices.

How can a marketing cooperative benefit a small farmer?

By performing some of the marketing functions now done by middlemen, the co-op may be able to earn a profit which can be distributed to farmer-members. The net result may be a higher price to farmers for their produce.

A cooperative which owns transportation equipment may be able to provide lower cost hauling services by using equipment specifically adapted to members' crops and volumes, and by using members for driving and maintenance. Marketing costs can be reduced significantly by a co-op that carefully chooses the services it will provide.

Marketing as a group, small farmers can also gain access to new and larger markets. This can mean higher prices. Small farmers may be able to sell only in a nearby terminal market because their volume is inadequate to ship to more lucrative markets elsewhere. A marketing co-op, however, may have sufficient resources and volume to identify and ship to larger markets where prices can be higher. In this way, the small farmer can benefit from new sales obtained by marketing cooperatively.

Marketing co-ops can use brands and other promotional activities to provide the small farmer with markets that are more secure. Promotional activities can establish a loyalty for co-op products from buyers and consumers who will look for and buy the co-op brand. This will tend to stimulate the movement of co-op products even when the market is oversupplied.

Tax benefits enjoyed by cooperatives offer cost savings that can be passed along to members. Marketing co-ops do not have to pay taxes on the profits they earn. These unpaid taxes are distributed among the member-growers as additional profits.

How is a marketing cooperative established?

First, a group of interested farmers organizes and identifies the needs a cooperative is expected to meet. It is important that the organizers agree to these needs and the specific services a cooperative can provide. The farmers must be able to cooperate with each other in making the decisions which establish and operate the venture.

The next step is to have a preliminary study made. In order to justify a cooperative, there must be sufficient produce grown by the farmers in the area. In addition, the expected benefits to growers from the co-op must justify the investment required. If the preliminary study indicates a likely potential for benefits, then a carefully made financial plan should be completed which will show the amount, timing, and purpose or source of expenses and revenues.

The third step in organizing a co-op is to establish it as a legal business. In California, this means that the co-op must become incorporated under the California Corporation Laws. This process is not difficult, but may require the services of a lawyer. These laws must be followed to gain all the tax benefits to which a cooperative is entitled. The members must also set up and agree upon the operating, governing, and marketing rules which will determine how the co-op will be run.

Other important considerations in establishing a cooperative are: determining the optimum location for any co-op facilities; obtaining the necessary capital for starting the co-op; and acquiring land, equipment, and facilities. The people who manage and sell for the co-op must have the experience and expertise needed to succeed in the competitive world of fresh produce marketing. The number of personnel needed to efficiently operate the co-op will depend on the co-op's size and the services it provides.

These planning and beginning stages are very important in starting a marketing co-op. The small farmer must be very careful not to take unnecessary risks. Therefore, each step taken should be justified by the previous step.

Is a marketing cooperative right for you?

There are many potential benefits to marketing through a cooperative. A marketing cooperative will improve the returns you receive from your present marketing arrangements, however, only if it can do a better job. The co-op must make economic sense in order to succeed and it requires that the participating farmers do their best to ensure that the co-op has a dependable and quality product to market.