Cooperative in Business: Role & Examples | What is a Cooperative in Business? - Video & Lesson Transcript | Study.com

Video Transcript

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Cooperatives: Member Ownership

Meet Karen. She runs a natural foods cooperative in her community. A cooperative is an organization of individuals who pursue a common economic goal. Cooperatives are owned and managed by their members who are employees and customers. Karen not only runs the cooperative but is an owner and customer. Her cooperative works with local organic farmers, ranchers and dairies to provide fresh produce, meat and milk products to the cooperative’s customers.

Karen runs the cooperative quite differently than a manager of your typical for-profit business in the United States. The goal of a cooperative is not to earn a profit but to serve the needs of its members. Since the customers and employees are also owners, cooperatives are considered democratic in nature.

Cooperatives focus on shared responsibility and the welfare of all members, rather than the individualism and competitiveness that dominates most private businesses. The name of the business form says it all – the point is to cooperate with each other, not compete.

Types of Cooperatives

You can generally categorize cooperatives by who owns and manages them. A consumer cooperative is a type of cooperative that is owned and controlled by the customers who buy goods or services from it. A producer cooperative is a cooperative owned by workers – the people who actually provide the goods and services. A common example of a producer’s cooperative is a farmer’s cooperative that owns and manages a grain elevator.

Of course, you can also have a hybrid cooperative of a producer and consumer cooperative where both employees and customers own and control the business. Karen owns and works for a hybrid cooperative because it is owned by both employees and the customers.

Let’s look at some other examples of cooperatives you can find in the United States:

Credit unions are a type of cooperative banking institution that provides banking and lending services to its members.
Energy cooperatives, such as electric utility companies, have been formed in rural areas.
Retail cooperatives involve small retailers banding together to be more competitive with large retailers by sharing advertising costs and buying as a group for high volume discounts.
Housing cooperatives own real estate, such as condo projects and apartment buildings.
Agricultural cooperatives are very common. Some well-known agricultural cooperatives include Ocean Spray Cranberries, Inc., Sunkist and Land-O-Lakes.

Role in Economy and Society

Cooperatives often arise because the market fails a particular group of consumers and employees. Sometimes employees will take over a struggling company in hopes of saving it and their jobs. Cooperatives have also been a means of economic development in rural and urban market areas where traditional businesses are not interested in developing.

For example, Karen lives in an urban area that is a food desert, which is an area where it’s difficult for people to find healthy and affordable food. The major grocery store chains don’t see enough profit to service the area, so a group of concerned citizens formed Karen’s cooperative to provide healthy and affordable food.

Lesson Summary

Let’s review what we’ve learned. A cooperative is an organization of people that engage in a business activity to advance a shared goal. A consumer cooperative is owned by the people that purchase its goods and services, while a producer cooperative is owned by the employees that work at the cooperative. Some cooperatives are hybrids where both employees and customers own and control it. Cooperatives are democratically controlled and focus on shared responsibility and mutual welfare, rather than profit, individualism and competition.

Cooperatives are often formed to serve the needs of people when the market has otherwise failed them. Cooperatives provide services in areas where private for-profit businesses don’t see sufficient profit potential. Common examples of cooperatives include agricultural cooperatives, electric cooperatives, retail cooperatives, housing cooperatives and credit unions.