quate for identification, and a mail address. Four points by which a cooperative may be recognized have been stated: " "1. A cooperative business is set up by a group of individuals to obtain services for themselves at cost-not to obtain profit from rendering services to others. "2. A cooperative business tries to render the greatest possible service to its members. . . . "3. A cooperative distributes any surplus income over the cost of doing business among those who are served by it in proportion to their use of its 'EM 23. GI ROUNDTABLE, WHY COOPS? 38 pp. War Department. Wash ington, D. C. 1944. p. 4. services not in proportion to their investment. "4. A cooperative is controlled by its patron members, each of whom ordinarily is allowed a single vote-not by the owners of its capital stock, if any, in proportion to the number of shares they hold." In summary, the chief aim of farmer cooperatives is to help their members promote their own economic wellbeing by marketing farm products and obtaining needed goods and services effectively. A cooperative buys and sells in order to help its members as producers increase their individual earnings. Cooperatives are part of our American system of private enterprise just the same as individually owned businesses, partnerships, or other business corporations. What Are Its Principles and Practices? CERTAIN principles underlie the cooperative form of business. And these principles are responsible for the practices generally acceptable to this form of business. Knowledge of both principles and practices is basic to understanding farmer cooperatives. The underlying principles that distinguish cooperatives from other types of free enterprise businesses are: 1. Democratic control by members. conservative rate. 3. Service at cost. Savings are distributed or allocated in direct proportion to the patronage of each member. These principles are not arbitrary or accidental. They stem from the inherent nature of cooperative business and give it its distinctive character. They provide the rules of action necessary to accomplish the cooperative purpose. Democratic control by members is one of the main principles of a cooperative. Here delegates vote on a resolution at annual meeting of Mississippi Federated Cooperatives (A. A. L.), Jackson. Capital is necessary in a cooperative to finance buildings, equipment, and day-to-day operations. Democratic Control Democratic control of the business is perhaps the most universally recognized principle of agricultural cooperation. It is fundamental that those who are to benefit from the organization must own and control it. Otherwise the benefits they are seeking may not materialize, or they may go to others. Democratic control may be achieved in different ways. It is usually accomplished by voting on the basis of "one member, one vote." This method of voting has the advantage of making difficult any concentration of power in the hands of a few. The one-member, one-vote idea is widely accepted. In a majority of States at least one statute provides that no member or shareholder of a cooperative shall be entitled to more than one vote. This is the case regardless of the amount of stock owned or the extent to which the owner patronizes the cooperative. When more than one vote per member is allowed, the additional votes may be based on the number of shares of association stock held or on the amount of patronage furnished. Some limitation is usually placed on the maximum number of votes permitted any one member. Restricting the number of voting shares that one member may hold is the most common adaptation. The casting of multiple votes by stockholders is regulated both by State statutes and the practices of the cooperatives. Twenty percent of the total is a common limitation. However, much smaller percentage restrictions, such as 3 or 5, are also used. A fixed number limit, such as 5 or 10 voting shares per member, is fairly common. Patronage voting is sometimes used by farmer cooperatives in exercising member-patron control. This is based on the theory that the economic interests of the member patrons are not equal. In an effort to give members. voting weight proportioned to the extent they use the services of their cooperative, patrons are sometimes allowed to vote according to the amount of their patronage. Limited Returns on Capital Capital invested in a cooperative is only a means to an end. When farmers set up a cooperative, they are not seeking outlets for capital investment. Their business is farming and it usually requires all their available capital. But they have products to sell and need to purchase supplies and services to carry on farming operations. Thus, it is around farm products, farm supplies, and farm services that cooperatives are built. Capital is as necessary in a COoperative organization as in any other business. Members must finance buildings and equipment, and operating funds are necessary for day-to-day activities. However, the main motive is to market farm products and obtain supplies or business services, rather than to make a profitable return on dollars invested. Therefore, payments for capital are usually limited to the "going rate," as are payments for labor, land, and management. Anything remaining after payment of these costs belongs to the members. Such benefits are distributed to them in proportion to their individual use of the association services. Limitation by cooperatives of returns on capital is recognized in both Federal and State laws. These laws merely specify the maximum returns. that may be paid on invested capital. Cooperatives may choose to pay any amount less than the maximum. most State statutes the limit on capital returns is fixed at 8 percent although in a few States it is lower. In Farmer cooperatives must keep pace with mechanization, one of the great forces bringing about a technical revolution in farming. The basic Federal cooperative lawthe Capper-Volstead Act-recognized the principle of limited returns on capital by setting a maximum interest rate of 8 percent if members vote on any basis other than one man, one vote. Also agricultural cooperatives complying with Federal income tax statutes are required to limit dividends on their capital stock. This legislative recognition of the limitation of returns on capital in a cooperative business enterprise provides legal sanction to a business procedure already recognized as sound among cooperatives. Strict adherence to this principle of limited returns has not always been easy. In some instances, early farmer associations drifted into noncooperative hands because control was based on capital with no limit placed on the amount of returns on that capital. Patronage Determines Savings Cooperatives operate on the basis of service at cost. This is usually accomplished either by operating on a pooling basis or by returning savings as patronage refunds. Where the pooling basis is used in marketing cooperatives, savings are returned to members in net sales proceeds remaining after deduction of operating expenses. In the case of other cooperatives, savings to members are distributed, generally at the end of a fiscal year, in accordance with their use of the services of an association. Because these savings. are determined on the basis of patronage, they are usually called patronage refunds. It is important that authority for the distribution of patronage refunds be based on a mandatory, legally binding obligation, appearing in the association's bylaws, articles of incorporation, marketing agreement or other legal form of contract between association and member. It is also essential that the obligation be in existence before the business transactions occur on which the refunds are based. This allocation may be based on the value or on the number of units of the associations that comprise its membership. Each local association in turn is controlled by its own members, who are the chief beneficiaries from the operation of the federation. Hybrid types frequently develop among federations. In the smaller federations, large growers may be members along with local associations. In the larger federations, smaller federations may be members along with the locals. From a legal standpoint, cooperatives may be classified according to whether they are incorporated or unincorporated, or are set up on the stock or nonstock plan. Legal status may vary without relation to size, area covered, or type of membership. For this publication, farmer cooperatives have been classified into three types on the basis of primary functions performed. These functions are marketing, farm supply, and business services. Agricultural Cooperation-Pioneer to Modern FARMER cooperation in North America dates back to colonial days. Farmers helped each other to clear land, erect buildings, and construct roads. They banded together for mutual protection against Indians and fire. They organized societies in the 1780's to import purebred cattle and later had community drives of livestock to the eastern coastal cities. Early agricultural history often refers to log rollings; husking bees; threshing rings; beef, bull, and stallion rings; cheese rings; and other group activities. The As farmers began to produce more products than they could consume they looked to cooperative techniques for marketing them. Cooperative principles also were used to purchase supplies needed for production. earliest efforts were informal in nature with neighbors pooling orders for a quantity of supplies. Farmers also joined together to provide needed services such as insurance protection against fire and wind. As more and more farmers participated in such buying, marketing, and service activities, they put cooperation on a business basis. Formal cooperative associations incorporated, employed managers, and acquired facilities. The development of agricultural cooperation is a story of the farmer's never-ending efforts to better his lot. For some 150 years he has been learning how to formally cooperate with his neighbor to mutual advantage in performing services related to farming and farm living. Farmers have experienced their share of failures in such efforts. However, from this vast experience sound principles and techniques essential to successful cooperatives have evolved. The history of cooperative marketing and purchasing by farmers in the United States divides itself logically into five periods. Each was molded by leaders emerging from a constantly increasing number of progressive farmers. Current economic conditions, legal concepts, and changes in agriculture influenced each of these periods. The first period, beginning shortly after 1800 and ending about 1870, was one of experimentation; the second from 1870 to about 1890 resulted from Grange stimulation; the third from 1890 to 1920 saw the rapid organization of business cooperatives; the fourth from 1920 to 1933 was characterized as orderly commodity marketing; and the fifth period from 1933 to date (1955) may be described as one emphasizing sound business principles and adapting to modern needs. This last period is marked by growth, diversification, integration, consolidation, and modernization. Some of the highlights of these periods follow. Farmers Experiment With Idea 1810-70 The first period was one of searching for self-help methods and techniques Oldest mutual insurance company, Philadelphia Contributionship for the Insurance of Houses from Loss by Fire, issued this fire mark, one of the first of its kind. farmers might use to solve some of their economic problems. Farmer cooperative business organizations had their beginnings in detached groups scattered through the Northeastern States, the Cotton Belt, the Upper Mississippi Valley, and the Far West. Early efforts at "associated or cooperative dairying" were attempted at Goshen, Conn., about 1810. Several cooperative cheese and butter factories were established in New York and other States by 1860. More than 400 cooperatives in the country were processing dairy products by 1867. Grain and livestock farmers also became interested in cooperative marketing. Wisconsin farmers in 1857 formed the Dane County Farmer's Protective Union and erected a grain elevator at Madison. Some 10 years later, farmers in Illinois organized two grain marketing associations. Old records indicate that farmers in Bureau County, Ill., developed a cooperative hog auction about 1860. Farmer clubs organized in Illinois and Wisconsin in the 1850's attempted to purchase production supplies. A farmers' purchasing association was organized in 1863 at Riverhead, N. Y., to buy fertilizer for its members. The first association for the cooperative marketing of fruit was formed at Hammonton, N. J., in 1867. It expanded in 1884 to include cooperative purchasing. In general the early cooperative business ventures blazed new trails and then disappeared. Very few were still in operation in 1955. In 1865 Michigan passed what is believed to be the first law recognizing the cooperative method for buying and selling. Some years earlier the New York legislature had provided for cooperatively organized mutual insurance companies. Enter the Grange The Grange known officially as "The Order of Patrons of Husbandry" was founded in 1867. Growth was slow at first. Then the Grange discovered that its local units could be implemented to deal with economic problems as well as with social and fraternal ones. Cooperative marketing was the objective in some States, cooperative buying in others, and both marketing and purchasing in still others. Early Granges assembled farmermembers' orders and placed them with dealers who shipped carloads direct to farmers. Price concessions were obtained from suppliers because of these services. In the years 1871-76 more than 20,000 local Granges as well as some 26 State agency systems were established. County Granges in many cases acted as business enterprises for members of the local units. In 1874 the National Grange sent a representative to Europe to gather information about cooperation. As a result the Grange began to sponsor the organization of business cooperatives. An earlier writer on cooperation says "The great contribution of the National Grange was the formulation and distribution in 1875 of a set of rules for the organization of cooperative stores. These rules were based on those of the |