This study note explains the co-operative business model, a structure owned and controlled by its members rather than by external investors.

What you need to know

• How a co-operative differs from other business structures
• The three main types of co-operative: consumer, worker, and producer
• The benefits of operating as a co-operative
• The drawbacks and challenges faced by co-operatives

Key Term Definitions

Co-operative: A business or organisation that is owned and run jointly by its members, who share the profits and benefits.

Member: A person who is a part-owner of the co-operative. Depending on the type, this could be a customer, an employee, or a producer.

Consumer Co-operative: A co-operative that is owned by its customers.

Worker Co-operative: A co-operative that is owned and controlled by its employees.

Producer Co-operative: A co-operative where producers (e.g., farmers) group together to process and market their products.

\What is a Co-operative?

Unlike a public limited company (plc) which is owned by external shareholders, a co-operative is a business owned and controlled by the people who use it – its members. The primary goal of a co-operative is to provide benefits for these members, not to maximise profit for investors.

They are run democratically, with a key principle of "one member, one vote," regardless of how much each member has invested.

The Three Main Types of Co-operative

1. Consumer Co-operatives

These are co-operatives owned by their customers. Their purpose is to provide high-quality goods and services to their members at a fair price. Members often receive a share of the profits, known as a 'dividend' or 'divi', based on how much they spend.

Example: The Co-operative Group in the UK. When you shop at a Co-op food store, you can become a member, earn rewards, and have a say in how the business is run.

2. Worker Co-operatives

These are co-operatives owned and controlled by their employees. Their purpose is to provide secure employment, a good working environment, and a fair share of the profits for the employees. The workers are involved in the key decisions of the business, and profits are shared amongst them.

Example: Suma Wholefoods, a large UK wholesaler of vegetarian foods, is owned and run by its employees, who all receive the same wage.

3. Producer Co-operatives

These are co-operatives where independent producers, most commonly farmers, group together. Their purpose is to help members process, market, and distribute their products more efficiently, giving them greater bargaining power with large buyers. Individual producers pool their resources, and the co-operative then handles the large-scale processing and branding, achieving economies of scale.

Example: Arla Foods, the dairy company behind brands like Lurpak and Cravendale, is a co-operative owned by thousands of dairy farmers.

Benefits and Drawbacks of the Co-operative Model

Benefits

Stronger Member Loyalty: As members are also owners, they have a vested interest in the success of the business, which can lead to higher loyalty.

Focus on Ethics: Co-operatives often have a stronger focus on ethical practices and supporting their local community than profit-maximising plcs.

Increased Motivation: In a worker co-operative, employees are also owners, which can lead to higher motivation, productivity, and lower staff turnover.

Drawbacks

Slower Decision-Making: The democratic process of consulting with members can be much slower than in a plc where a CEO can make a quick, executive decision.

Difficulty Raising Finance: Co-operatives can find it harder to raise large amounts of capital for expansion as they cannot issue shares on the stock market to the general public.

Potential for Conflict: When all members have an equal say, there can be disagreements about the direction of the business.

Summary

• A co-operative is a business owned and run by its members for their mutual benefit.
• The main types are consumer, worker, and producer co-operatives.
• They are often more ethical and democratic than other business types.
• However, they can face challenges with slow decision-making and raising finance.