Co-ops and Minnesota Communities

I - Minnesota Cooperatives in the National Context

II - Co-ops and Local EconomiesIII - Cooperative Culture: Perception of Co-

ops in MN CommunitiesIV - Alternative Co-op Structures in

Minnesota

I - Minnesota Cooperatives in the National Context

National Impact Report

In 2009, the USDA launched a Congressionally funded study of cooperatives across the country

It identified more than 29,000 cooperative businesses in the United States

Member-owned businesses generate more than $654 billion in revenue annually

They also provide $75 billion in wages for more than 2 million workers

And In Minnesota

The Midwest features the highest concentration of co-ops in the country

3.4 million cooperative memberships

Statewide, cooperatives generate nearly $11 billion annually, approximately 80,000 jobs and $146M in state and local taxes

National Impact Report

The report suggests that cooperative business is not merely viable, but highly successful, even in the business climate of a national recession

While individual cooperatives may be small (or large), their cumulative economic impact on communities is considerable

II - Co-ops and Local Economies

The Multiplier Effect

Non-cooperative businesses may provide products and jobs that stay in the community, but revenue is more likely to be spent in other communities (think of executives, international investors, etc)

Co-ops contribute to what is called the local multiplier effect

The Multiplier Effect

Here’s an example: M. spends $1,000 at a cooperative grocery store in Duluth in a year. Rather than $500 going to salaries and supplies and $500 being sent to pay owners in New York, all $1,000 is disbursed to cooperative members (employees, patrons, suppliers, etc.)

These Minnesotans all choose to buy products from stores in their town, many of them cooperatives

The Multiplier Effect

M’s $1,000 of goods produced $1,000 of revenue, which immediately was used to produce another $1,000 of goods and $1,000 of revenue. Through the local multiplier effect, the community of Duluth enjoys $2,000 of goods and $2,000 of revenue from an initial sum of $1,000. From the perspective of the community, money seems to multiply as it cycles through local businesses

Cooperative business enacts the multiplier effect by keeping money within a community

“Study Shows Cooperatives VitalTo Rural Economic Growth”

A government report released in 2004 says that cooperatives are more likely than corporations to have positive economic impact on their community The report, measuring the Economic Impact of

Cooperatives in Minnesota, is a public-private partnership between the Minnesota Association of Cooperatives (now known as Cooperative Network), the USDA/Rural Development, the Minnesota Secretary of State and Minnesota State Colleges and Universities (MnSCU)-Mankato

“Study Shows Cooperatives VitalTo Rural Economic Growth” Why? The report explains:

Cooperatives are member-owned, with benefits to local patrons more likely to stay within the community. Other businesses, such as corporations, are more likely to have any benefits in the form of dividends distributed mainly outside the community, and local ownership is often missing

It concludes, “The cooperative form of business is an excellent tool in promoting rural economic growth as well as local leadership development”

Discussion

How does the structure of cooperative business encourage the positive economic impact described in this report?

What role might co-ops play in our community?

III. Popular Perceptions

St Norbert’s Co-op Attitudes survey According to a 2007 telephone survey of 400 residents of

Minnesota and Wisconsin, the first words people think of when they hear the term cooperative or co-op is

(1) Owned by people for the common good/shareholders - 43% (2) Farming/foods - 18% (3) Lower prices/competitive/quality - 13% (4) Local/community based and owned - 9% (5) Business/dividends/profit sharing - 8% (6) Gas/electric/phone - 4% (7) Other - 3% (8) Credit unions/banks - 2%

How are popular perceptions important to a business?

IV. Alternative Co-op Structures

New Type of Co-op Created in 2003

In 2003, a new state law was passed that created a new type of co-op that allows for outside investors to be members of a co-op

This law, Minnesota Statutes Chapter 308B, provides significant tools for patron members seeking outside equity capital for cooperative creation, modernization or expansion

The law authorizes non-patron investment in return for limited voting rights in the cooperative

308B co-ops preserve the historical cooperative focus on distribution of profits to patrons based on patronage, governance not based on investment, and capital investment subordinate to patron control, but modify their application from the models of a hundred years ago

Overview of 308B Co-ops, Continued

Co-ops and outside investors can form a new 308B, receive tax advantages of LLC, while remaining a cooperative - ensuring owner-user voice.

Ex: two electric co-ops can join with a non-cooperative for joint right-of-way maintenance, security services, etc.

As of 2009, about 40 of these new co-ops have been created since 2003

Some of the Many Diverse 308B Start-Ups

Bushmills EthanolBushmills EthanolCo-op Metrics Co-op Metrics Builders One Builders One Innovative Health Solutions Innovative Health Solutions Iceberg Technology Iceberg Technology Avalanche Corporate TechnologyAvalanche Corporate TechnologyForest Management Systems Forest Management Systems Plantavit Plantavit Premier Distribution Cooperative Premier Distribution Cooperative Three Rivers Market Three Rivers Market Organic Farmers Agency for Relationship Marketing  Organic Farmers Agency for Relationship Marketing  Integrated Media Cooperative Integrated Media Cooperative Independent Natural Food Retailers AssociationIndependent Natural Food Retailers AssociationAgricultural Labor Cooperative of AmericaAgricultural Labor Cooperative of AmericaUFC Grain Share Systems UFC Grain Share Systems

Founded inFounded in2003-20082003-2008

Some of the Many Diverse 308B Start-Ups(continued)

Rehab Funding Cooperative, St. PaulRehab Funding Cooperative, St. PaulThe Nokoma, MinneapolisThe Nokoma, MinneapolisBelle Plaine Ag. ServicesBelle Plaine Ag. ServicesCommon Properties Management Cooperative, Common Properties Management Cooperative, Minneapolis Minneapolis The Hub Bike Co-op, Minneapolis The Hub Bike Co-op, Minneapolis Cooperative Consulting and Development Services, Cooperative Consulting and Development Services, St. PaulSt. PaulNCGA Development Cooperative, St. Paul NCGA Development Cooperative, St. Paul SCH Purchasing Cooperative, St. Paul SCH Purchasing Cooperative, St. Paul GSC Financial Co-op, St. Paul GSC Financial Co-op, St. Paul

Founded inFounded in2008-20092008-2009

308B Co-ops Are Good for Rural and Community Development

These new types of co-ops support local economic growth and development. The law passed in 2003 is a means to access capital to help fund expansion or to start-up a new co-op business

308B Testimonials from Co-op Founders

“My husband and I were excited to invest in the new Bushmills Ethanol co-op because it gives the mainstreet non-producer investor like us the opportunity to invest in a local project that has a high chance of success.” Ranae Rahn, Former Project Coordinator, Bushmills Ethanol

“The ability to have non-patron classes has given us the flexibility to include 10% non-patron investor members in our co-op.” Jay Hansen, CEO of Avalanche Technology

Generalities about new 308B co-ops

About 1/3 of 308B co-ops registered in MN operate in other states

Most 308B co-ops don’t have outside investor members and are currently operating as traditional co-ops

Several have dissolved or project was abandoned

For more information

To find out more about cooperatives in Minnesota, particularly those located in your community, please visit the Cooperative Network

This material is made possible by the CHS Foundation.