How to Join a Farm Cooperative: Steps and What to Ask

To join a farm cooperative you generally apply to the co-op, show that you qualify under its bylaws (usually as a producer of what it handles, or as a farmer who buys from it), sign a membership agreement, pay a membership fee or buy membership stock if it requires one, and commit to use the co-op. The exact steps, fees and commitments are set by each co-op's bylaws and board, so the first step is always to ask for them in writing.

This page walks through the practical steps and explains the terms you will meet: member versus patron, membership stock, voting, delivery commitments and what happens when you leave. It relies on USDA Rural Development's Cooperative Information Reports and on federal law. What a member earns depends on how much business is done with the co-op and on the co-op's results.

What USDA says membership usually involves

USDA's Cooperative Information Report 1, Section 7 (issued April 1990) describes the usual requirements for membership in local or centralized farmer cooperatives. They are:

USDA's Cooperative Information Report 12 adds that a member of an agricultural cooperative must be a producer, and in some cases the producer of a specific commodity such as citrus fruit or cranberries. It also says some co-ops require members to meet legal requirements set by the bylaws, state statutes and certain federal laws.

Federal law reinforces the producer rule for marketing co-ops. The Capper-Volstead Act (7 U.S.C. 291) lets "persons engaged in the production of agricultural products as farmers, planters, ranchmen, dairymen, nut or fruit growers" act together in associations to process, prepare for market, handle and market their products. It also says the association "shall not deal in the products of nonmembers to an amount greater in value than such as are handled by it for members." See the Capper-Volstead Act for how it works.

Which co-ops are open to you

Not every farm co-op accepts every farmer. USDA's CIR 1, Section 7 distinguishes:

In practice, supply and service co-ops are the more open kind, while a marketing co-op for a specific crop or for milk may be selective, so ask whether it has room for your product. For sectors, see agricultural cooperatives, dairy cooperatives and marketing cooperatives.

Member or patron?

The two words are not the same. USDA's CIR 1, Section 7 defines a patron as "any person marketing, purchasing, or obtaining a service through a cooperative," and calls members who fill their obligation by using the co-op "member-patrons." A co-op can do business with people who are not members, within the limits set by law and its bylaws. Ask whether the co-op treats nonmember patrons differently from members, for example on voting and patronage.

Step-by-step: how to join

1. Find the co-ops that serve your crop and area. Ask neighbors and extension offices, and look at each co-op's website. Marketing co-ops usually serve set regions or products.
2. Ask for the bylaws, articles of incorporation and membership application. USDA says members should read the articles of incorporation and bylaws to understand the co-op's purpose in serving members. These documents set who may join, who may vote and how equity is handled.
3. Read the membership or marketing agreement. Look at the term, what you must deliver or buy, the notice for ending it, and any specified share of your business. Ask for a copy before you sign.
4. Ask how you become a member. USDA says members may join by purchasing membership stock, paying a membership fee, or earning membership through patronage refunds. Ask which applies and the amount. Each co-op sets its own.
5. Ask about equity. Find out how your investment builds up over time (retained patronage refunds, per-unit retains) and when it is repaid. See per-unit capital retains and patronage refunds.
6. Apply and sign. The board or a membership committee may review the application, especially at a selective co-op.
7. Use the co-op and take part. USDA says members should commit most or all of their marketing or supply purchases through the co-op under their membership or marketing agreements, vote at annual meetings and elect directors.

Membership fees and stock

USDA describes two structures:

• Capital stock co-ops issue stock certificates as evidence of ownership. Most stock cooperatives issue one share of common stock per member to show membership and voting rights, and other classes of common or preferred stock, generally nonvoting, reflect additional capital contributions.
• Noncapital stock co-ops issue a membership certificate, and revolving fund certificates or other documents show members' capital contributions.

The cost of membership therefore varies. USDA noted in 1990 that a few co-ops have no financial requirement and that federated co-ops (whose members are other co-ops) usually ask for a larger investment. Today's amounts are in each co-op's bylaws. If a figure is not on the co-op's website, ask the co-op for it.

Joining a Farm Credit lender

If you borrow from a Farm Credit association, you become an owner by buying stock. The statute (12 U.S.C. 2154a) requires the lender's bylaws to require a borrower who is entitled to hold voting stock or participation certificates to buy it when the loan is made, in an amount not less than $1,000 or 2 percent of the loan, whichever is less. Each institution sets its own requirement. See the Farm Credit System.

Voting rights

USDA says democratic member control rests with the members who use the co-op, who exercise it by voting at annual meetings and other meetings called when decisions are needed. On how the votes are counted:

• Most co-ops limit each member to one vote.
• Some add votes based on use. In some, the basic vote is supplemented by additional votes based on the previous year's patronage volume, or on the number of shares held up to a stated limit.
• State and federal law limit dividends in those cases. Where voting is not one member, one vote, statutory limits are placed on the rate of dividends co-ops may pay on capital shares. The Capper-Volstead Act has the same structure: one vote per member, or dividends on stock capped at 8 percent a year.
• Use it or lose it. USDA notes that the bylaws of many co-ops provide that members who do not patronize the co-op for 1 or 2 consecutive years lose the right to vote, and their membership stock or certificate moves to nonvoting status.
• Proxy and mail voting. Some bylaws, usually in regional co-ops, allow proxy and mail voting, and federated or mixed co-ops may use delegate voting.

Your co-op's bylaws set the rules. Ask who may vote, how directors are nominated and elected, and how you can run.

Delivery and purchase commitments

Members are obligated to use the co-op, but the strength of the obligation differs, according to USDA:

USDA says such arrangements do not destroy the voluntary character of members' affiliation. Before you sign, check whether the agreement requires all of a crop or only part of it, how long it runs, and the notice you must give to end it.

Leaving and getting your equity back

Money you put in, whether by buying stock or through retained patronage refunds and per-unit retains, comes back when the co-op redeems it. USDA's Equity Redemption Guide (CIR 31, dated April 1983 and approved for reprinting in 1991) explains why. Redeeming equity is an ownership transfer process to keep the co-op financed, owned and controlled by current member-users, and "decisions on equity redemption must be made by the board instead of individual members."

USDA lists several redemption methods:

• Revolving fund: equities are redeemed in the order they were allocated, usually at the board's discretion and subject to the co-op's financial condition.
• Percent of all equities: the co-op redeems the same percentage of every member's equity.
• Base capital: each member's required capital is adjusted to patronage over a base period.
• Special plans: equity is redeemed on an event such as estate settlement, a member reaching a certain age, a member leaving the trade area or ceasing to farm, or hardship.

So before joining, and again before leaving, ask the co-op for its redemption policy: which method it uses, how long its cycle is, and whether it redeems for estates or for members who stop farming. No redemption date is guaranteed. The co-op's board decides based on its finances.

What membership does and does not give you

USDA's CIR 9 explains that in a cooperative the benefits are distributed according to use rather than the amount of investment, and that those benefits "do not enhance the value of shares of stock or other equity capital." So a farm co-op membership works differently from buying stock in a company to earn a return:

• You gain an owner's vote, a say in who runs the co-op, and access to the co-op's marketing, supply or other services on terms set by its bylaws.
• You share in surplus only if the co-op has surplus and its bylaws provide for patronage refunds, in proportion to your use.
• You commit capital that comes back on the co-op's redemption schedule, not on demand.
• You take on responsibilities. USDA says members are responsible for understanding the co-op, supplying equity capital, using the co-op and taking part in its control.

Membership does not guarantee a return, a price or a payment date. Ask any co-op to show you its recent patronage and redemption history in its own documents, and ask a tax professional how patronage refunds and retains affect your return.

Questions to ask before you sign

These are questions, not advice.

1. Who may join, and do you have room for my product or farm?
2. What is the membership fee or stock requirement, and is it refundable?
3. What does the agreement require me to deliver or buy, for how long, and with what notice to end it?
4. How is the price I receive worked out, and what is deducted for equity?
5. Does the co-op pay patronage refunds? In what form?
6. What is the redemption policy and the current cycle?
7. How do votes work, and how can I run for the board?
8. Can I see the bylaws, the latest financial statements and the annual meeting notice?

Frequently Asked Questions

How do I join a farm cooperative?

Ask the co-op for its bylaws and membership application, confirm you qualify (usually as a producer of what it handles, or a farmer who buys from it), sign the membership agreement, pay any fee or buy any stock it requires, and commit to use it. Each co-op sets its own terms.

Can anyone join a farm co-op?

Not always. USDA says supply and service co-ops normally have open membership, while many processing, marketing and bargaining co-ops have a selective membership policy to secure dependable volume and quality. Federal law for marketing co-ops is written around producers of agricultural products.

How much does it cost to join a farm co-op?

It varies by co-op. USDA describes joining by buying membership stock, paying a membership fee, or earning membership through patronage refunds, and notes a few co-ops have no financial requirement. Ask the co-op for its figure.

What is the difference between a member and a patron?

A patron is any person marketing, purchasing or obtaining a service through a cooperative. A member who fulfills the obligation by using the co-op is a member-patron. Membership brings ownership and a vote, and the co-op's bylaws say what members and patrons receive.

Do I have to deliver all my crop or milk to the co-op?

It depends on the agreement. USDA says commitments are more binding in marketing co-ops, sometimes legally enforceable contracts, and a few co-ops require a specified percentage of business each year. Read the agreement before you sign.

Do members get one vote each?

Most co-ops limit each member to one vote. Some add votes based on the previous year's patronage or on shares held, up to a limit. Many co-ops' bylaws remove voting rights from members who do not use the co-op for one or two consecutive years.

What happens to my money when I leave a co-op?

Your equity is repaid under the co-op's redemption policy, and the board decides when. Methods include a revolving fund, percent of all equities, base capital and special plans for events like estates. Ask the co-op for its redemption policy before you join and before you leave.

Do farm co-ops guarantee patronage refunds or a return?

No. Patronage refunds come from a co-op's net earnings after expenses, and its bylaws and results decide whether any is paid. USDA says benefits are distributed according to use rather than investment.

Where to go next

• Agricultural cooperatives: the full guide
• Per-unit capital retains and patronage refunds for farmers
• Farm Credit System
• How to start an agricultural cooperative
• Cooperative membership
• Cooperative bylaws
• Patronage refunds
• Dairy cooperatives
• The Capper-Volstead Act