08/07/2010 - 00:00

Federal grant to fund study into coops

08/07/2010 - 00:00

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THE global cooperative movement employs about 100 million people and the top 300 cooperatives turn over $US960 billion per year, yet the sector has been largely ignored within mainstream economic and management studies for the past 60 years.

Federal grant to fund study into coops

THE global cooperative movement employs about 100 million people and the top 300 cooperatives turn over $US960 billion per year, yet the sector has been largely ignored within mainstream economic and management studies for the past 60 years.

UWA Business School professor Tim Mazzarol is aiming to rectify that situation, having just secured a $260,000 federal government grant for a three-year study into the sector.

Cooperatives WA, which has 70 members, and three of its largest businesses – Capricorn Society, CBH Group and Ravensdown Fertiliser Cooperative – are also backing the study.

Cooperatives WA chairman Chris Enright said his group has been working with Professor Mazzarol to lift awareness and understanding of the cooperative business model.

“The grant will allow that work to go to a new level,” said Mr Enright, who also chairs the Mount Barker Cooperative.

Most of WA’s cooperatives have a rural focus, including major operations like CBH and Ravensdown.

Others focus on specific industries, like the Geraldton Fishermen’s Cooperative and Challenge Dairy Cooperative, while others service farmers in particular regions, like the Mt Barker and Cunderdin cooperatives

The sector also features several centralised buying groups, such as Capricorn, which services the automotive trade, Travellers Choice, Cooperative Purchasing Services, which has 500 members, primarily in the hardware trade, and Wesbuilders Cooperative.

Caxton Cooperative is the state’s newest. It was set up in 2004 by five Snap printing franchisees, who pooled their resources to buy printing equipment they couldn’t afford or justify in their own businesses.

Osborne Park-based Caxton has a traditional cooperative structure – each shareholder has one vote, while financial contributions and rewards are linked to print volumes through the production centre.

The UWA research partnership coincides with completion of the WA Cooperatives Act, a complete rewrite of legislation governing the sector, which is due to be proclaimed this year.

Mr Enright said the new act would create both challenges and opportunities for cooperatives.

The opportunities will include the ability to raise capital from non-members by issuing ‘cooperative capital units’.

A CCU may be a debt instrument like a debenture or an equity instrument like a redeemable preference share, but holders will not have voting rights.

This will provide a potential solution to one of the major constraints facing cooperatives – how to raise capital to fund their growth.

Professor Mazzarol said the issue of shareholder power lay at the heart of many of the strengths and weaknesses of ccops.

“The inability of any one group to concentrate power through their accumulation of share ownership ensures that the coop will not be easily taken over or have its democracy eroded,” he wrote in a recent report.

“However it also makes the ability of the coop to raise capital difficult as investors will not willingly provide money without influence.”

The new WA legislation will also put clearer responsibility on cooperative members to be active, or else face being expelled.

Professor Mazzarol believes cooperatives can play a very important role in the economy.

“They can have particular value helping smaller entities, like farmers, to help them grow and take on larger corporate entities. In that way they can help to maintain competition,” he said.

Professor Mazzarol’s study of the sector has shown that cooperatives are mostly driven by commercial goals rather than altruism.

“At the end of the day they want to make money for their members; they want to lower costs or lift their (selling) prices,” he told WA Business News.

However one of the major challenges facing coops is the ability to demonstrate value to members.

In contrast to a listed company, where the share price and dividend payments provide a clear measure of value, the benefits of being in a coop are usually derived from patronage.

Professor Mazzarol said ‘new generation’ coops in the US were tackling this issue by allowing more open membership.

For instance, they offer greater voting rights to members who trade more with the cooperative.

Despite their limitations, Professor Mazzarol has found that the financial performance of coops is similar to investor-owned companies.

His upcoming study aims to identify international best practice, so coops can employ it in future.

It will also examine why some have abandoned the cooperative business model and become investor-owned companies.

A related question he will examine is how do cooperatives measure and communicate true value to their members.

 

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