There are examples of successful cooperatives in almost every business sector from funeral homes to ski resorts. Cooperatives are particularly prominent in the U.S. agricultural sector. Understanding the forces behind that observation reveals a lot about our agricultural sector and the cooperative business model.
Many sectors of U.S. production agriculture are dominated by family farms. Generally speaking, the family farm structure has been successful, and family members, or in many cases extended family members with skin in the game, are able to manage the unique aspects of the farm resources. However, that family-based organizational structure also leads to inherent challenges. Many farms are specialized in a single standardized commodity. They also deal with firms that are much larger than them in both their upstream (input purchase) and downstream (commodity marketing) transactions.
Agricultural cooperatives function as extensions of the farm firm allowing producers to achieve economies of scale and a better bargaining position for both inputs and marketing. One of the major reasons that agricultural cooperatives are prominent in the U.S. is that family farms are prominent in the U.S. Cooperatives allow farmers to operate independently but still capture the economies of a large-scale business structure. Those scale economies are possible because many producers are sourcing similar inputs and marketing similar commodities.
Geography and transportation also contribute to the rationale for agricultural cooperatives. A dairy producer in New York cannot sell their milk to a processor in California. Producers depend on input suppliers and marketing outlets near their location. Their success is dependent upon those outlets remaining in existence. They also face the possibility that a local input supplier or marketing firm could have a “mini-monopoly” in an area. Agricultural producers form cooperatives to guarantee access to input and marketing infrastructure and to help keep markets honest.
In my Agricultural Cooperative textbook, I have an entire chapter discussing the economic rationale for cooperatives. In the case of agricultural cooperatives, their prominence and success relates back to the prominence of family and multi-family farms. The gap in size between family farms and their upstream and downstream trading partners continues to grow rapidly. That suggests that agricultural cooperatives are more important now than ever!
Kenkel, Phil. “Why Are Cooperatives Prominent in U.S. Agriculture?” Southern Ag Today 5(11.5). March 14, 2025. Permalink
