Cooperative Model

The cooperative model of social enterprise provides direct benefit to its target population or "clients," cooperative members, through member services: market information, technical assistance/extension services, collective bargaining power, economies of bulk purchase, access to products and services, access to external markets for member-produced products and services, etc. The cooperative membership is often comprised of small-scale producers in the same product group or a community with common needs--i.e. access to capital or healthcare. Cooperative members are the primary stakeholders in the cooperative, reaping benefits of income, employment, or services, as well as investing in the cooperative with their own resources of time, money, products, labor, etc.

The cooperative model is embedded: the social program is the business. The cooperative's mission centers on providing members services. Financial self sufficiency is achieved through the sales of its products and services to its members (clients) as well as in commercial markets. Cooperatives use revenues to cover costs associated with rendering services to its members and surpluses may be used to subsidize member services.

Cooperatives social enterprises include agricultural marketing cooperatives, which market and sell its members' products, while agricultural supply cooperatives, provide inputs into the agricultural process. Fair trade organizations frequently work with agriculture and commodity producer-owned cooperatives--i.e. coffee, cocoa, wine tea, as well as nonagricultural products--i.e. handicrafts.

Self-Help Groups (SHGs) comprised of low income-women, and popular in South Asia, are frequently organized into cooperatives to support a variety of their members' interests related to commerce, health and education.

Credit Unions are another example of a cooperative tied to economic development and financial service programs, popular across West Africa, Latin America, and Balkans.

In the UK a slight variation on the cooperative, called "mutuals" or "societies" are commonly associated with social enterprise. Unlike a true cooperative, mutual members usually do not contribute to the capital of the social enterprise company by direct investment, instead mutuals are frequently funded by philanthropic sources or the government.

Theoretical example: cooperatively owned and run community savings and credit systems, "Rotating Savings and Credit Associations" (Latin America), Tontins (West Africa), Zadrugas (Balkans) are a form of indigenous credit union long implemented around the world to provide access to financial services. Self-organized community savings and credit systems are capitalized through member investments and savings, which are then mobilized as interest bearing loans also to members. Ownership is communal and equitable with all members owning a stake in the organization. Community savings and credit systems are democratically governed by an elected board of members responsible for financial oversight and loan approval and administration. Community savings and credit systems are self-sufficient through earned interest income from loans.

Equal Exchange, an example of Cooperative Model

Equal Exchange (EE) is a US-based fair trade coffee company legally structured as an employee-owned cooperative and an example of embedded social enterprise. Equal Exchange purchases coffee beans and cocoa directly from small democratically-run farmer cooperatives in developing countries at fair trade prices--a guaranteed minimum price regardless of how low commodities markets fall. Equal Exchange pays a fixed rate of $1.26 and $1.41 per pound for organic certified coffee in contrast to $0.45 and $0.60 per pound that buyers pay on the commodities market1
. The embedded nature of Equal Exchange's social programs is evidenced in its business activities.

Marketing strategy--the company uses educational marketing campaigns to raise awareness of the positive social impact purchasing fair trade coffee has on low income farmers. Equal Exchange's coffee packaging contains information regarding the social benefits of fair-trade purchasing.

Distribution channels--in addition to retail outlets, products are sold through interfaith organizations and nonprofits that educate their constituents about fair trade coffee; then retain a margin on each sale to support their social activities.

Quality products--Equal Exchange assists farmers with sustainable techniques to promote ecological-friendly cultivation of coffee. The results yield higher product quality, environmental conservation, and 85% certified organic fair trade coffee for consumers.

Social Impact--EE works with twenty-five trade partners, farmer cooperatives, in twelve countries, and achieves social impact in two significant ways: supplier credit and fair trade premiums.

  • Supplier credit--Most cooperative farmers in developing countries do not have access to bank financing, and those that do pay 25%-35% interest. The more available option is moneylenders, who charge up to 100% of the price of the loan. EE offers pre-harvest credit at interest rates of 8% to 9%, which enables farmers to produce high quality crops without losing margins on the sale of their products. In 2001 EE extended $700,000 in pre-harvest credit to 75% of farmers who requested loans.
  • Fair trade premiums have substantial impact on the economic security of farmers and their families, increasing disposable income for food, education, healthcare, housing, etc. EE pays farmers more than twice the going rate on the commodities markets. In 2002, EE paid $1.2 million in fair trade premiums to cooperative farmers. In a protracted commodity price slump, which has occurred in recent years, these premiums literally save thousands of lives by warding off starvation occurring in many coffee growing regions.

Financial strategy and viability--Its for-profit legal status notwithstanding, Equal Exchange's financial motives are viability, not profit; in 2002 the company had $10.4 million in sales, which translated into $1.2 million in above market premiums for cooperative farmers, and funded marketing activities that raised the awareness of tens of thousands of consumers who bought fair trade products. The dollar figures are a monetary representation of Equal Exchange's sustainable mission accomplishment.

Equal Exchange is a mission-centric social enterprise; its business decisions and activities are central to accomplishing its mission: "To build long-term trade partnerships that are economically just and environmentally sound, to foster mutually beneficial relations between farmers and consumers and to demonstrate through our success the viability of worker-owned cooperatives and fair trade."

  • 1Statistics from 2002