Types of Co-ops: the Name Game

Cooperatives can be labeled more than one way, so it can be a little confusing at first. Let us try to clarify some terms for you. Labels may refer to the ownership structure, the product or service the co-op offers, or the activity the group engages in collectively. Just about any co-op can have more than one label.

For example, a group of people forming a co-op to open a grocery store and sell food to co-op members and perhaps other customers is called a "consumer co-op" and also--more commonly--a "food co-op". Both labels are correct. One refers to the co-op's ownership structure (consumers) and the other to what it offers those owners (food).

Here's another example: A group of dairy farmers who sell milk under a cooperatively owned brand name which they own might refer to itself as either a "producer co-op" or a "marketing co-op". If they open their own milk processing plant to make cheese or some other product, they are also a "value-added agricultural co-op. And all of them, if they buy equipment, fertilizer, services or anything else together, are "purchasing co-ops".

To make matters even more interesting, many people in the co-op world connect the label "purchasing co-op" to the model of independent retailer-owned co-ops such as Best Western motels, TrueValue and ACE hardware stores. Or, they may use the term purchasing co-ops for a  municipally owned or other "shared service" cooperative.

And while agricultural producers work very hard, no one ever refers to them as worker co-ops any more than they refer to a group of factory workers who have formed a co-op to produce textiles as producer co-ops.

Given this cautionary note, here are some divisions that are widely accepted.

1. Producer cooperatives
This refers to groups of people engaged in the agricultural arena: farming, fishing, and forestry. The co-op members are landowners or owners of fishing operations. There is a long menu of possible ways these groups may cooperate. They may buy farm inputs, equipment, and insurance, hire managers and sales people, market and advertise together, or operate storage or processing facilities or a distribution network.

2. Worker cooperatives
These businesses are owned by some or all of the workers. Depending on the start-up capital needed, they can offer workers a chance to own their own company with very little financial investment. This can make them an ideal structure for people of modest or low incomes. They are also increasingly popular with small groups of attorneys, designers and engineers, fundraisers, and other professionals.

Many worker co-ops are fairly small and have no separate boards of directors; everyone takes a direct role in policy making and other governance functions. Typical examples are print shops, copy centers and bookstores; small manufacturing, construction and engineering firms; homecare and daycare professionals; restaurants and bakeries, auto repair shops and groups of artists or artisans.

A few worker co-ops attain sizable memberships. Cooperative Home Care Associates in New York City's Bronx has 800 owner-members, mostly women of color (often immigrants) living on low incomes and tending society's homebound elderly, ill and disabled.

Another group often included in this label are 'democratic' ESOPs (employee stock ownership plan), where workplace democracy is a stated goal. It is not uncommon for workers to buy out their company as a democratic ESOP (sharing the risks and rewards of ownership with the former owner and/or other parties) and then begin the transition to a full-fledged worker cooperative.

3. Consumer cooperatives
These businesses are owned and governed by people who want to buy from the co-op. Consumers can create a cooperative to provide pretty much anything they want to buy. Their purchases may include groceries, electricity or telephone service, housing, healthcare, or—under the label of credit unions—financial services. The co-ops can be tiny or immense: a single artists' dwelling or a high rise with hundreds of apartments. A small food-buying club in a rural village or a multi-million dollar supermarket in a bustling city.

The national Rural Electric Cooperative network serves consumer-owners in 45 states. Some cooperatively owned insurance companies like Nationwide serve enormous memberships with significant financial assets.

Most consumer co-ops, even if they are not as complex or heavily regulated as credit unions (described below), elect boards of directors who hire managers to run the daily operations. Both the grocery and the electric industries are tough businesses that require constant professional development. Consumer member-owners may serve on committees, run for a seat on the board, or take another active part in the co-op. But as often as not, their primary involvement in their co-op is in the consumption of its goods or services.

4. Credit unions
Credit unions are actually consumer-owned financial services cooperatives in which every depositor becomes a member-owner. Members may attend the annual meeting and help elect a board of directors that is typically made up of community volunteers, most of them with considerable financial and other relevant areas of expertise. This is quite a difference from big international banking conglomerates with their distant investor-owner millionaires and highly paid directors who have no knowledge of or loyalty to local residents.

Credit unions, as with all co-ops, come is all sizes--from a single facility with a few score members to huge, multi-branch operations that cover lots of territory and employ many local people. Community development credit unions are a special category created by the industry to specifically serve lower income communities.

5. Retail or Purchasing co-ops
Still another type of consumer co-op sometimes given its own category is the retail or purchasing cooperative, sometimes called a shared service cooperative. Many of these co-ops are owned and governed by independent business owners.

Best Western motels, True Value and ACE hardware stores, and Carpet One/CCA Global Partners are independently owned businesses that have formed national and international cooperatives to purchase goods and services at rates that will keep their bottom lines in the black. But there are also many successful smaller operations such as a group of independent business consultants or attorneys who want to buy office supplies, insurance, or other products and services together. Some municipalities and even state governments have joined together to own their own electricity, water or telecommunications utilities as well as to buy business services and so forth cooperatively.

What unites all of these co-ops is that they seek to improve their efficiencies and/or market competitiveness by "bulk buying" a broad range of goods and services.