What is a cooperative (or co-op)?
The what, how and why of cooperatives
What is a cooperative?
A cooperative, or co-op, is a business owned and governed by and operated for the benefit of its members. But this definition doesn’t give clarity to how different cooperatives can be, nor the profound impact that cooperatives have in strengthening the power of individual members.
Many people are familiar with agricultural or farm cooperatives, one of the most critical components of Fairtrade. Homes can be structured as housing cooperatives. Credit unions are financial cooperatives. Hundreds of rural electric cooperatives power homes, schools, businesses and communities across the country. Small businesses come together in purchasing cooperatives to aggregate their purchasing power. Frontier Co-op is a cooperative made up of independent retailers around the United States. Our friends at DC-area food lab, ReDelicious, are a worker cooperative, although Sam Jared Bonar, Co-founder and Finance Circle Lead says, “We're a weird co-op in that we operate more like a mutual aid collective and less like a business.” Even within the space of cooperatives, you can see the way different co-ops operate to best serve the needs of their collective members.
The National Cooperative Business Association CLUSA International, is the leading organization advocating for and representing cooperative business interests in the United States. Director of Cooperative Engagement and Member Outreach, Virginia Brown, says, “NCBA’s membership spans the entire cooperative ecosystem, from national and regional cooperative associations to co-op developers, financers, and educational institutions, to individual cooperatives across all sectors. Our cooperative members include consumer cooperatives like credit unions, grocery co-ops and rural electric cooperatives, and also worker cooperatives, purchasing cooperatives, and farmer cooperatives.”
The seven principles of cooperatives
What is common to all cooperatives? They typically operate in accordance with seven principles as institutionalized by the International Cooperative Alliance (ICA), the global apex body representing cooperatives around the world:
1. Voluntary and open membership
2. Democratic member control
3. Member’s economic participation
4. Autonomy and independence
5. Education, training, and information
6. Cooperation among cooperatives
7. Concern for community
These seven cooperative principles provide guidance for cooperatives in centering people in the function and purpose of the business. Whether the cooperative is made up of individual farmers, individual retailers, or otherwise, the focus on benefits to its members is critical. At their core, cooperatives value the importance of serving people over maximizing profits, and this reflects in all other aspects of their business. For example, Frontier Co-op’s goal for investment in their Well Earth program is $5 million by the end of 2026, funding projects in Egypt, Zimbabwe, and Madagascar that support smallholder spice farmers to improve climate resilience and livelihoods. That kind of investment has massive impacts for the farmers in those supply chains and demonstrates the importance of the 7th principle – concern for community.
Why use a cooperative model?
Organizing as a cooperative is one way for businesses to ensure that they place the members at the center of their work. The pooling of talent, time, skill, experience and resources provides greater leverage in addressing challenges and power imbalances. Shared ownership and responsibility keep members accountable and everyone working toward a common goal. In some cases, the mere forming of the cooperative is a political act. In the case of Fairtrade certified farming cooperative Ataisi de R.L., Marketing Manager and Treasurer, Josué Alejandro Mira Cárcamo says, “The cooperative was formed following an agrarian reform in 1980; the land had previously belonged to a single family, so the reform was implemented to redistribute the land for the collective good of all the member families.” Structuring their farming organization as a co-op was a key tool for rebalancing power dynamics.
How a co-op works in practice
Within the broader ideas of shared ownership and the seven cooperative principles, co-ops can look quite different from each other in their daily operations. Bonar says Redelicious has “a group of core worker-owners who take responsibility for making the organization run, but we also have a dedicated and critical group of volunteers who make our food distribution work every Sunday through pickups, dropoffs, and working on Sundays to setup, distribute the food, and cleanup.” While the member-owners keep the organization running and oriented towards its goals, the collective benefits from volunteers to deliver value to the surrounding community.
Like other businesses, cooperatives have boards of directors that oversee management teams. Frontier Co-op and Ataisi de R.L. both have boards of directors, and each member-owner gets one vote toward the board of directors.
How cooperatives are different
What sets cooperatives apart from other businesses are the shared ownership structure and governance model. Rather than most businesses in which decisions ladder up to a single leader, decisions are made collectively by the members – one member, one vote. This democratic decision-making is a mechanism to ensure that all members are represented in the co-op’s trajectory.
Shared ownership is another characteristic of cooperatives, providing both agency and risk-bearing. Aligning ownership, responsibility and decision-making helps ensure all members are accountable to themselves as well as each other. Alicia Simmons, Director of Sustainability and Communications at Frontier Co-op says, “Because we all take this shared, long-view on the business, we have the flexibility to invest in the things we believe will create lasting value for our company and our communities.”
Cooperatives and Fairtrade
Cooperatives are integral to Fairtrade and the democratic nature of cooperatives was a key component of early fair trade movements that led to the establishment of Fairtrade International, the world’s largest and most trusted fair trade certification. Cooperatives within the larger community effectively create a cooperative of cooperatives, bringing the needs, skills and challenges of individual coops into a global structure of power sharing and leverage. Within the context of Fairtrade International, Ataisi R.L. illustrates how powerful a cooperative model can be. Cárcamo says, “[Our cooperative] negotiates directly with international buyers to secure better prices and purchases inputs in bulk to reduce costs; through the cooperative, we generate local employment, promote sustainable agricultural practices, support schools, and conserve the environment.”
While not a cooperative itself, Fairtrade International applies the cooperative principles to our work, and our structure ensures farmer representatives have 50% of voting power at the General Assembly, the highest body of decision making. That means the nearly 2 million smallholder farmers and farm workers who work with Fairtrade are giving input from real lived experience on everything we do, from updating our Fairtrade Standards, to setting our Minimum Price and Premium, to setting priorities for our Impact Programming. Frontier’s Simmons says, “The cooperative model is such a powerful tool for strength and resilience in smallholder farming communities. It helps create economic, social, and environmental resilience that lasts from one generation to the next.”
Why cooperatives matter for equity today
Centering people is a key differentiator for most cooperatives and critical to addressing inequality. As money and power continue to consolidate and centralize into smaller groups of people or individuals, a true balance of power can only be achieved through cooperative action. The cooperative model offers a formal structure to work toward the business’s goals. Cooperatives are one of the best tools we have to achieve greater equity for everyone. NCBA’s Brown says, “As a consumer, how and where I spend my money matters. We all have spending power. For example, buying Fairtrade certified coffee supports fair prices for coffee farmers and through Fairtrade premiums puts more money back into farmers’ cooperatives so they can reinvest in and strengthen their businesses. Similarly, when you buy groceries from your food co-op, you keep more dollars in your local economy and strengthen local food systems. The same goes for when you bank with your local credit union because credit unions invest in their communities and keep money local. All of these choices strengthen the cooperative economy.”
Want to learn how to spend your money in a way that matters? Subscribe to our newsletter.