Chapter 8

Consumers Cooperative
Soon, Kim Asha Almendral, Janara Almendral, Rowstrell

 A cooperative is an association of individuals

(producers, middlemen or consumers) who are banded together for the purpose of doing business at reduced costs.
Consumers Cooperative is a business enterprise, acting

as a middleman for its members who are also its patrons. It is centered upon the activity of a store, called the cooperative store. As a middleman it provides consumer goods and services of unnecessary middlemen, thus conserving the middlemens profit for the benefit.

Brief History of Cooperatives

Cooperatives originated from the Pioneers of

Rochdale in England where tremendous success of a little store encouraged and influenced people all over England to organize similar cooperative organizations, as the beginning of the cooperative movement.

Brief History of Cooperatives

In the Philippines, Rural Credit Law or Act No. 2508, in 1914 paved the

way for the establishment in the country of rural credit associations consisting of agricultural credit cooperatives.
In 1927, Act No. 3425, known as the Cooperative Marketing law, the

Bureau of Commerce and Industry was vested with the function of organizing the farmers into cooperatives for the purpose of helping them to market their products.
In 1938, Commonwealth Act No. 656, otherwise known as the

Cooperative Law, was enacted. This act exempted cooperatives from the payment of all taxes and government fees for the five years of its operation.

Brief History of Cooperatives

In 1973, Presidential Decree No. 175 was promulgated to strengthen the

cooperative movement.

Basic Cooperative Principles

1. Open and voluntary membership. Membership in a cooperative

means the privilege of availing and using the services of the organization just as it also mean acceptance of responsibilities that goes with such membership. However, no one is excluded from membership on account of sex, color, religion, or political affiliation.
2. Democratic control. The principle of one member, one vote

makes the cooperative organization truly democratic in action. Under this principle, every member, irrespective of the number of shares of stock he owns will be entitled to only one vote during meetings

Basic Cooperative Principles

3. Limited returns on capital. Like a corporation, a cooperative

acquires capital by selling shares of stocks. However, to make cooperative shares non-speculative investments, the holders of shares of stocks earn only limited interests.
4. Patronage refund . This is the distribution of savings to members

based upon their patronage.

Cooperative Practices
1. Cash trading. This frees working capital from being frozen in

overdue receivables. Thus, fresh capital is always available to replenish the stocks of the store. Also, it minimizes losses due to bad or uncollectible debts. 2. Sales at prevailing market prices. This means selling goods to members at prevailing market prices. 3. Religious and political neutrality. Divisive activity should be avoided. 4. Continous educational campaign. Educational campaigns familiarize the members not only with principles and objectives of cooperatives but also with modern accepted practices. 5. Adequate and accurate bookkeeping. Efficient operation in any enterprise is possible with adequate recording of day-to-day transaction. 6. Reserve fund. There is a need to set aside a part of cooperatives net income as reserve fund designed purposely to meet possible contingencies in the future.

Types of Consumers Cooperatives

1. Commodity cooperatives. They are primarily engaged in the

procurement of essential merchandise to serve the needs of its members.

2. Service cooperatives. These cooperatives are organized to provide

certain services which are hardly possible for an individual to provide for himself but quite easy to be borne by a group of individuals.
3. Specialized consumers cooperatives. Under this category are

rural electric cooperatives, telephone cooperatives, insurance associations, transportation cooperatives, and the like.

Immediate Objectives of Consumers Cooperative

Elimination of economic wastes.

A consumers cooperative acquires merchandise for use by its members. Under an independent-operated store, where profit is the motivating factor, the merchant is interested to purchase for resale only those that could give an assurance of clean profit. As long as the goods satisfy the fundamental need the quality becomes a secondary consideration.

Elimination of unfair trade practices. Misinformation, mislabeling, misrepresentation, adulteration, underweighing, short-measuring, and the like are unfair trade practices which the cooperative eliminates altogether.

Immediate Objectives of Consumers Cooperative

Elimination of unnecessary middlemen.

By acting as a service agent for the members it necessarily and incidentally replaces one or several middlemen in the distributive process. This process enables the cooperative to save for its members what is known as the middlemans profit. This profit is now conserved as savings of buying members.
Promotion of initiative and enterprise.

A consumers cooperative offers a rich field of opportunities by providing for their growth. It also creates a favorable climate for the development of initiative and its final implementation into profitable enterprise.

Patronage Refund
The distinguishing mark of a consumers cooperative over that of a

profit-oriented enterprise is its method of allocating net income.

Computing Patronage Refund of Individual Members

A members share of the dividend fund is ratio to the total amount available for which his total purchases bear to the total gross sales of the cooperative. This can be expressed in the following formula:
PR = P x D S

Where: PR = patronage refund P = total purchases of the member for the period. D = dividend fund, net amount available to members. S = total net purchases of all members during the period.

Computing Patronage Refund of Individual Members

Now, suppose the total gross sales is P500,000.00. Net amount

available for patronage dividend is P15,000.00. Mr. Russell, a member made a total purchase of P7,500.00 during the year. His patronage refund is computed as follows:

PR= P x D S = P7,500 x 15,000.00 P500,000.00 = P225.00 is Mr. Russells patronage refund.

Financing a Consumers Cooperative

1. Membership fee. This fee is charged upon registration 2. Investment. The basis of membership in a consumers cooperative is the ownership of at least one share of capital stock of the business. 3. Retains. At the end of a fiscal period a certain amount of the net savings is usually set aside by the Board of Directors which is retained for business expansion purposes. 4. Loans from financing institutions. Being itself a corporation, a cooperative possesses legal personality to transact with any financial institution. 5. Special deposits of members. Some members who have savings deposited in banks may be convinced by an intelligent management to transfer that deposit to the cooperative. 6. Productivity of cash trading. The availability of cash to replenish any depleted item in the shelves help boost financial morale of a cooperative.