A plain explanation of producer cooperatives: who owns them, how members vote, what the seven international cooperative principles say, and why buyers and fair trade schemes work with them.

by Joe Kimble

What Is a Producer Cooperative? How Farmer and Maker Co-ops Work

Read the story behind a bag of coffee, a jar of honey or a bar of chocolate and you will often meet the same phrase: "sourced from producer cooperatives." The term crops up in fair trade and direct sourcing too. So what is a producer cooperative, how does it differ from an ordinary company, and why do ethical buyers keep returning to this model?

A simple definition

The International Cooperative Alliance (ICA) defines a cooperative as an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise.

A producer cooperative is that idea applied to people who make or grow things. The members are the producers themselves: farmers, fishers, weavers, beekeepers or other makers. They join forces so that they can do together what is hard to do alone, such as:

gathering enough product to interest larger buyers;
sharing equipment, storage or processing facilities;
negotiating prices and contracts as a group;
training members and sharing knowledge;
finding markets that an individual smallholding could not reach.

Consumer cooperatives, such as a member-owned retail store, are owned by the people who are also its customers. Worker cooperatives are enterprises in which the workers are also the owners. Agricultural supply and marketing cooperatives, one kind of producer-owned cooperative, organise the collection and marketing of their farmer-members' produce. The common thread is that the owners are also the people the business exists to serve.

How a producer cooperative is run

Members own it

In an investor-owned company, shares are bought by outside investors whose main stake is financial. In a cooperative, the owners are the members. Under the ICA's third principle, members contribute equitably to, and democratically control, the capital of their cooperative, and members allocate any surpluses.

Members vote

Democratic control is central to the model. The ICA lists "Democratic Member Control" as its second cooperative principle, and states that in primary cooperatives members have equal voting rights (one member, one vote). In other words, a member's vote does not depend on how much they produce. Under the same principle, men and women serving as elected representatives are accountable to the membership.

Surplus goes back to members and the business

The ICA's third principle says members allocate surpluses for any or all of the following purposes: developing the cooperative (possibly by setting up reserves, part of which at least would be indivisible), benefiting members in proportion to their transactions with the cooperative; and supporting other activities approved by the membership. Exact arrangements differ between cooperatives and countries.

The seven cooperative principles

Cooperatives around the world are guided by the ICA's statement of cooperative identity. It lists the values of self-help, self-responsibility, democracy, equality, equity and solidarity, and seven principles:

Voluntary and open membership
Democratic member control
Member economic participation
Autonomy and independence
Education, training and information
Cooperation among cooperatives
Concern for community

These are guidelines for how cooperatives put their values into practice. Individual cooperatives vary in how closely they follow them, so the principles describe an ideal as much as a guarantee.

Why ethical buyers work with producer cooperatives

Closer to the source

When a brand buys from a cooperative, it deals with an organisation that knows its members and their land. That can make it simpler to trace a product back to a group of farms and to ask questions about how it was grown. If you want to understand what traceable, ethical sourcing involves in practice, a cooperative can be an easier place to start than a long chain of anonymous traders.

Collective bargaining power

A single small farm usually has little say over the price it is offered. A cooperative that pools many farms' output can negotiate as one seller. This does not guarantee a higher price, since market conditions still apply, but it can give members more say than they would have on their own.

Democratic decisions about community spending

Fair trade systems build on this kind of democratic structure. Fairtrade International describes its standards for small-scale producer organisations as requiring that all members have a voice and vote in the organisation's decision-making, that its set-up must be transparent to members, and that it must not discriminate against any member or social group. Members decide how to use the Fairtrade Premium, an additional amount of money paid on top of the agreed Fairtrade price. In the Small-scale Producer Organizations standard currently published on fairtrade.net (marked as version v2.10 on its cover), the general assembly is defined as the highest decision-making body, and the Fairtrade Development Plan, which documents activities the organisation plans to fund with the Premium or other sources of funds, is presented to the general assembly for discussion and approval before it is implemented. The detailed rules change over time and differ between product standards, so check the current standard on the Fairtrade website before relying on specifics. For a wider look at how those schemes are evolving, see our piece on how fair trade is changing.

A route to direct relationships

Some buyers skip intermediaries and buy straight from producer groups. Cooperatives can make this more practical, because the buyer has one counterpart to contract with instead of many individual producers. The related idea of shorter, more direct supply routes is discussed in our article on why local sourcing matters.

Limits and trade-offs

Producer cooperatives are not automatically fair or successful. Points worth keeping in mind:

Governance takes skill. Running a democratic organisation, keeping accounts and managing quality all need training. Weakly run cooperatives can disappoint their members.
Decisions can be slow. Voting and consultation take time compared with a single owner making a call.
Benefits depend on the market. A cooperative can improve its members' position, but it cannot remove the effects of weak prices, poor weather or unequal bargaining power elsewhere in the chain.
Membership is not always equal in practice. Cooperatives are meant to be open and non-discriminatory, but local circumstances sometimes affect who is able to take part. Look for evidence of how women, young people and smaller farmers are represented.

How to read a "sourced from cooperatives" claim

If a product says it comes from cooperatives, you can ask a few practical questions:

Which cooperative or cooperatives, and in which region?
What share of the product comes from them?
Is there an independent certification or audit, or is it the brand's own statement?
What does the brand say about prices and long-term purchasing commitments?

Answers that are specific and consistent are a good sign. Vague answers tell you less.

Bottom line

A producer cooperative is a business owned and democratically controlled by the people who produce what it sells. That structure gives small producers a collective voice, and it gives buyers a clearer link to the source. It is a framework, not a promise: the quality of a given cooperative depends on how well it is governed and what market it operates in.

This article is general information only.