Using Cooperatives to Create Rural Development

UWCC Brown Bag SeminarSeptember 25, 2003

Kim ZeuliUWCC

“Cooperatives are a valuable tool for rural community development.”

Why?

Economic impacts:Job creationInvestor returnsProvision of goods and servicesCorrection of market failure

Social impactsSelf-help vehicle

Are they really a tool?

In rural areas, we mostly see unintentional or passive community development.

Vast majority of co-ops are agriculture.

Do cooperatives ever act as the driving force behind rural community development; i.e., intentionally focus on development?

Why would they?

There is a need.Vanishing Main Street stores

Increasing non-farming population

Decreasing acceptance of manufacturing plants

Rural development is still the ugly step-child of farm policy

Existing studies

The relationship between cooperatives and communities is a neglected research issue.

Most studies focus on impacts of agricultural cooperatives.

Non-agricultural cooperatives treated mostly anecdotally (especially in the US).

A few unique cases (Mondragon, Evangeline, etc.) treated largely as unique cases.

Theory

Fulton and Ketilson (1992) provide some theory to explain cooperative behavior in communities.Wilkinson and Quarter (1996) describe theory of co-op/community development process.Classic paradigm: cooperatives are either unifunctional or multifunctional

Methodology

Objectives: (a) identify non-ag. cooperatives that play an intentional role in rural development; and (b) identify challenges/factors for success.

Team:Myself

David Freshwater, University of Kentucky

Ron Shaffer, UW—Madison

David Barkley, Clemson University

Deb Markley, Policy Research Group, N. Carolina

Methodology

Conducted case studies of 14 cooperative organizations across the US in 2001-2002.

Site visitsInterviews with co-op managers, board members, and key community individuals.

Case study criteria:Location (different regions in US)Innovation (non-agricultural, non-service sector)Success

Results—FrameworkTwo cooperative entry points into community

development:1. Unintentional

a) Business relatedb) Structure related

2. Intentionala) Extrinsic

Planned and Reactive Investments

b) Inherentc) Community cooperatives

Extrinsic Community Development

Flathead Electric Cooperative, Montana (Evergreen Rail Industrial Park)Pee Dee Electric Cooperative, South Carolina

(Pee Dee Electricom) Central Iowa Power Cooperative, Iowa (Iowa Capital Corporation) Rural Electric Cooperative, Oklahoma

(Country Living Homes)

Flathead and Pee Dee

Co-ops interested in developing industrial parks for business recruitment.Created subsidiary development corporations.Given permission by city/county governments because of their strong ties to community, “pure” motives.Partner with university/community colleges for business recruitment.

Central Iowa Power

Operates a comprehensive economic development program: recruitment, land development and construction.Partnered with another power co-op and state government to create venture capital firm (ICC).Bought out partners because of conflicting objectives.

Central Iowa Power

Manages ICC to maximize internal rate of return, not to maximize development.

Uses returns to cover losses at parent co-op.

Management of ICC would like to use returns for growth, so conflict with co-op.

Rural Electric

Created housing construction company (CLH) to increase business attraction (affordable housing in short supply).

Initially developed CLH with 7 other co-ops, but abandoned group effort.

Other co-ops were driven by membership concerns regarding the investment (their capital).

Also changed focus to high-end, custom homes (more profitable market). Successful.

Extrinsic—Reactive Investments

Northern Electric Cooperative, Montana

Purchased Granrud’s Lefse Shack in 1997

No other local buyer

27 jobs

Profitable

Inherent Community DevelopmentThe North Coast Co-op, CaliforniaA full service grocery store with strong community commitment

FarmersCommunity residents

Rural Wisconsin Health CooperativeProvides services to member hospitals and promotes rural health care at state and national level.

Community Cooperatives

Garrett Rural Information Cooperative, Maryland

Internet service provider created by local community college for students and to attract “virtual” employees from DC area

Struggles with member commitment and advances in technology (capital).

Community Cooperatives

Foodworks Culinary Center, California

A kitchen incubator created by community economic development corporation to capture comparative advantage

Failed as co-op.

Findings

Community support is keyCo-op may have advantages

If entering a competitive area, may not

Not necessarily automatic

Finding support within cooperative can be difficultConservative decisions about handling member equity

Diverse memberships may not share support

Members may want return from investment (especially if not community residents)

Findings

Community cooperatives are great examples of self-help community development.

Top down initiatives hard to sustain.

Individual interests tend to overwhelm community interest.

Need to be innovative and adaptiveCan be constrained by co-op structure

Need knowledge about business taking over (unless leaving it alone).

Conclusion

Co-op model still unknown; new opportunities for growth in rural areas.

Many practical reasons why co-ops may not pursue community development objectives

Relationship between cooperatives and communities is complex—interdependencies.