Cooperatives Provide Necessary Market for Iowa Producers
February 22, 2017
By Keri Jacobs, Extension Economist - Iowa State University Extension & Outreach
The oldest active cooperative elevator in the United States sits in Marcus, a small town with just over 1,000 residents in northwest Iowa. Formed in 1887, the cooperative’s goal was to provide farmers a place to competitively sell their grain. At the time, elevators were mostly privately owned, with operators able to pay low prices to producers for harvested grain while making fantastic profits when the grain reached market.
Farmers from that part of the state gathered to collectively start their own elevator, providing an alternative for the sale of grain. And thus began an era of cooperative agriculture that exists to this day.
“Co-ops have been important to the development of agriculture in the United States, and in Iowa maybe even more so,” said Keri Jacobs, assistant professor and extension economist with Iowa State University. “I don’t think you can understate the importance of their role in the growth of agriculture in Iowa.”
This history and function of co-ops is the focus of a five-part video series featuring Jacobs that are now available through a partnership with the Iowa Institute for Cooperatives. The videos were sponsored by ISU College of Agriculture and Life Sciences through a gift from CoBank and are designed to educate both members and employees about the history, function and methods of cooperatives.
Co-ops are businesses that put the needs of a particular class of stakeholders above the needs of all others. And with cooperatives, those stakeholders are their member-owners.
“There are three principles that govern a co-op: that they are user owned, user controlled and the user receives the benefits the co-op offers,” Jacobs said. “Profits earned by the co-op are then returned to their members. In this way it is a business that seeks to provide benefits to those for whom it exists.”
The benefits earned from a co-op are different depending on your relationship to the organization. Members share in the the company’s profitability through patronage, have access to services and have a vote in how the company is run. Non-members are still able to use the co-op and receive the benefit of a competitive marketplace through competition the co-op fosters.
Cooperatives benefit rural communities
Perhaps the largest group to benefit from cooperatives are rural communities.
“Cooperatives generate a tremendous amount of tax revenue while also providing a place of employment,” Jacobs said. “Those employees then spend their income in rural communities. The co-op also supports the community in other ways, budgeting money for local school activities or, for example, the FFA. They have a connection and really do integrate themselves in the community.”
Currently, there are 618 grain and farm supply and petroleum co-op locations in Iowa, employing 6,490 people and serving 129,000 members, according to the Iowa Institute for Cooperatives. Those grain and farm supply co-ops paid nearly $26.7 million in property taxes while having an annual sales volume of $11.5 billion. Additional revenue, employment and taxes are generated through rural electric co-ops, telephone co-ops and credit unions throughout the state.
“Co-ops operate differently than just strict profit maximization, they service the rural areas where investor-owned firms might not decide to have assets when no competition exists,” Jacobs said. “These co-ops grew up in the state to fill a need for producers to gain access to missing goods and services. Cooperatives maintain assets in rural areas that investor owned firms wouldn’t. In many cases they are the reason we still have local services like banks in these rural areas. The co-ops also help insure rural services are maintained in the areas their members live.”
Which brings us back to Marcus. The elevator in town was originally built along the railroad, providing easy access to grain transportation. If the co-op were to cease operation, farmers in the area could be forced to transport their grain longer distances as privately owned companies may not want to devote resources to rural parts of the state. The closest town to Marcus with over 10,000 residents is Storm Lake, 37 miles away. Le Mars, a town of just over 9,000, is still 20 miles away.
“A co-op board president told me, ‘my grandfather built the co-op, my dad and I used it and my son will destroy it,’” Jacobs said. “His son has never lived in a world without a co-op nearby and has no idea what the marketplace would look like without one. Cooperatives are still incredibly relevant but unfortunately many members don’t remember why they were started and the value in having a countervailing force in the marketplace.”