Cooperative Theory, Practice, and Financing

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Cooperatives are the aggregates of economic units, such as farms. The cooperative is neither a horizontal integration of its member-farms nor a vertical integration between member-farms and the cooperative, but rather a third mode of organizing coordination. Cooperatives are owned, controlled, financed, and used by members for mutual benefits, with service at cost and proportionality being two basic principles. Farmers organize marketing cooperatives to access markets, exercise countervailing power vis-àvis other market participants, promote competition, and thus enhance market efficiency. Cooperation as practiced by dairy farmers in marketing milk is an enduring business model that is in full accord with the economic theory of what cooperatives are and what cooperatives do. Members supply equity capital needed for the cooperative to carry out its core business of marketing members' milk. Capital financing, in general, is not a contentious issue for dairy cooperatives.