Cooperative Management Module PDF

CHAPTER I LESSON 1: GENERAL CONCEPTS AND PRINCIPLES Learning Outcomes: At the end of this chapter, students will be able to:  Discuss the concept of cooperative  Discuss the Cooperative Principles  Explain the key differences between the cooperative against other organizations...

CHAPTER I LESSON 1: GENERAL CONCEPTS AND PRINCIPLES Learning Outcomes: At the end of this chapter, students will be able to:  Discuss the concept of cooperative  Discuss the Cooperative Principles  Explain the key differences between the cooperative against other organizations  Explore the cooperative history ------------------------------------------------------------------------------------------------------------------------------- A cooperative is an autonomous and duly registered association of persons, with a common bond of interest, who have voluntarily joined together to achieve their social, economic, and cultural needs and aspirations by making equitable contributions to the capital required, patronizing their products and services and accepting a fair share of the risks and benefits of the undertaking in accordance with universally accepted cooperative principles. Cooperative Principles. – Every cooperative shall conduct its affairs in accordance with Filipino culture, good values and experience and the universally accepted principles of cooperation which include, but are not limited to, the following: (1) Voluntary and Open Membership – Cooperatives are voluntary organizations, open to all persons able to use their services and willing to accept the responsibilities of membership, without gender, social, racial, cultural, political or religious discrimination. (2) Democrative Member Control – Cooperatives are democratic organizations that are controlled by their members who actively participate in setting their policies and making decisions. Men and women serving as elected representatives, directors or officers are accountable to the membership. In primary cooperatives, members have equal voting rights of one-member, one- vote. Cooperatives at other levels are organized in the same democratic manner. (3) Member Economic Participation – Members contribute equitably to, and democratically control, the capital of their cooperatives. At least part of that capital is the common property of the cooperative. They shall receive limited compensation or limited interest, if any, on capital subscribed and paid as a condition of membership. Members allocate surpluses for any or all of the following purposes: developing the cooperative by setting up reserves, part of which should at least be indivisible; benefitting members in proportion to their patronage of the cooperative’s business; and, supporting other activities approved by the membership. (4) Autonomy and Independence – Cooperatives are autonomous, self-help organizations controlled by their members. If they enter into agreements with other organizations, including government, or raise capital from external sources, they shall do so on terms that ensure democratic control of their members and maintain their cooperative autonomy. (5) Education, Training and Information – Cooperatives shall provide education and training for their members, elected and appointed representatives, managers, and employees, so that they can contribute effectively and efficiently to the development of their cooperatives. (6) Cooperation Among Cooperatives – Cooperatives serve their members most effectively and strengthen the cooperative movement by working together through local, national, regional and international structures. (7) Concern for Community – Cooperatives work for the sustainable development of their communities through policies approved by their members. KEY DIFFERENCES BETWEEN THE COOPERATIVE AGAINST OTHER ORGANIZATIONS ____________________________________________________________________________ Definition of Terms. The following terms shall mean: Member includes a person either natural or juridical who adhering to the principles set forth in this Code and in the Articles of Cooperative, has been admitted by the cooperative as member; General Assembly shall mean the full membership of the cooperative duly assembled for the purpose of exercising all the rights and performing all the obligations pertaining to cooperatives, as provided by this Code, its articles of cooperation and bylaws: Provided, That for cooperatives with numerous and dispersed membership, the general assembly may be composed of delegates elected by each sector, chapter or district of the cooperative in accordance with the rules and regulations of the Cooperative Development Authority; Board of Directors shall mean that body entrusted with the management of the affairs of the cooperative under its articles of cooperation and bylaws; Committee shall refer to anybody entrusted with specific functions and responsibilities under the bylaws or resolution of the general assembly or the board of directors; Articles of Cooperation means the articles of cooperation registered under this Code and includes a registered amendment thereof; Bylaws means the bylaws registered under this Code and includes any registered amendment thereof; Registration means the operative act granting juridical personality to a proposed cooperative and is evidenced by a certificate of registration; Cooperative Development Authority refers to the government agency in charge of the registration and regulation of cooperatives as such hereinafter referred to as the Authority; Universally Accepted Principles means that body of cooperative principles adhered to worldwide by cooperatives; Representative Assembly means the full membership of a body of representatives elected by each of the sectors, chapter or district o the cooperative duly assembled for the purpose of exercising such powers lawfully delegated unto them by the general assembly in accordance with its bylaws; Officers of the Cooperative shall include the members of the board of directors, members of the different committee created by the general assembly, general manager or chief executive officer, secretary, treasurer and members holding other positions as may be provided for in their bylaws; Social Audit is a procedure wherein the cooperative assesses its social impact and ethical performance vis-a-vis its stated mission, vision, goals and code of social responsibility for cooperatives to be established by the Authority in consultation with the cooperative sector. It enables the cooperative to develop a process whereby it can account for its social performance and evaluate its impact in the community and be accountable for its decisions and actions to its regular members; Performance Audit shall refer to an audit on the efficiency and effectiveness of the cooperative as a whole; its management and officers; and its various responsibility centers as basis for improving individual team or overall performance and for objectively informing the general membership on such performance; A Single-Line or Single-Purpose Cooperative shall include cooperative undertaking activities which are related to its main line of business or purpose; Service Cooperatives are those which provide any type of service to its members, including but not limited to, transport, information and communication, insurance, housing, electric, health services, education, banking, and savings and credit; Subsidiary Cooperative refers to any organization all or majority of whose membership or shareholders come from a cooperative, organized for any other purpose different from that of, and receives technical, managerial and financial assistance from, a cooperative, in accordance with the rules and regulations of the Authority;” and Federation of Cooperatives refers to three or more primary cooperatives, doing the same line of business, organized at the municipal, provincial, city, special metropolitan political subdivision, or economic zones created by law, registered with the Authority to undertake business activities in support of its member-cooperatives.” HISTORY OF COOPERATIVES The Early Origins of Cooperatives In early human societies people learned to cooperate and work together to increase their success in hunting, fishing, gathering foods, building shelter, and meeting other individual and group needs. Historians have found evidence of cooperation among peoples in early Greece, Egypt, Rome and Babylon, among Native American and African tribes, and between many other groups. Early agriculture would have been impossible without mutual aid among farmers. They relied on one another to defend land, harvest crops, build barns and storage buildings, and to share equipment. These examples of informal cooperation - of working together- were the precursors to the cooperative form of business. The First Cooperatives The earliest cooperatives appeared in Europe in the late 18th and 19th centuries, during the Industrial Revolution. As people moved from farms into the growing cities, they had to rely on stores to feed their families because they could no longer grow their own food. Working people had very little control over the quality of their food or living conditions. Those with money gained more and more power over those without. Early co-ops were set up as a way to protect the interests of the less powerful members of society - workers, consumers, farmers, and producers. In England, consumers were frustrated by the abuses of storeowners, many of whom adulterated products to increase their profits. In many cases, workers’ wages were paid in company "chits" - credit that could only be used at the company's stores. The average consumer had very few choices and little control. Groups of these people began experimenting with various methods of providing for their needs themselves. They decided to pool their money and purchase groceries together. When they purchased goods from a wholesale dealer and then divided them equally among themselves, they were surprised at the savings and higher quality of products they were able to obtain. From colonial times on, most early American co-ops were formed primarily for the benefit of farmers. Some co-ops helped farmers keep their costs low through joint purchases of supplies, such as feed, equipment, tools, or seed. Some marketing co-ops helped farmers obtain the best prices for their goods by combining their crops and selling in large quantities. Others provided storage or processing services, such as grain elevators or cheese making. Consumer groups in the United States began taking note of the early British consumer co-ops and the success of American farmers who worked together. They began forming consumer protection associations. in 1845, one group started a store in Boston, founded on the same principles the Rochdale Pioneers had applied a year earlier. These "protective unions' eventually became divided over political and social issues of the time and were all out of business by the end of the Civil War. Most early American co-ops failed due to insufficient capital (money invested by the owners), poor management, and a lack of understanding of the cooperative principles by their members. It wasn't until the early 1900s that co-ops began to have true, long-lasting success in the United States. Consumer Co-ops Make Waves In rural and urban areas alike, consumer co-ops were first organized to provide consumers with control and to fight the unfair practices of private and company stores. Over the years, consumer co-ops have experienced "waves" of growth and development, followed by periods of decline. The first of these waves began in the early 1900s with what was called "the Rochdale plan." Under this plan consumer organized into buying groups to purchase from a cooperatively owned wholesaler. The wholesaler would then gradually help these buying clubs convert their operations into retail outlets by supplying management, inventory, and capital. In 1920, there were 2,600 consumer co-ops in the United states - all but 11 were general stores - and 80% were in towns with populations of less than 2,500. Combined sales volume for these stores was about $260 million. Unfortunately, when the wholesalers began having problems due to rapid growth, the whole system crumbled, and most co-ops were closed within the decade. The Great Depression the the 1930s triggered another great wave of co-op organizing in cities and in rural areas. In California, the "End Poverty in California" (EPIC) campaign established and promoted "self-help" cooperatives and worked unsuccessfully to elect the reformer Upton Sinclair governor. Several national "consumers' unions" were formed to promote consumer education and protection. In 1936, Toyohiko Kagawa, a Japanese clergyman with a social gospel, inspired the development of many co-ops in the United States by preaching "brotherhood economics," his term for cooperation. "Cooperatives," he said, "are the foundation of world peace. They are the love principle in action. Whether we like it or not there is no other way but cooperatives." These efforts, bolstered by Franklin Roosevelt's New Deal, supported urban co-ops with technical assistance. Some leading consumer co-ops were launched in this period – in Berkeley, Palo Alto, Eau Claire (Wisconsin), Hanover (New Hampshire), and Hyde Park (a Chicago, Illinois neighborhood), and Greenbelt (Maryland - a Washington, D.c.suburb). All of these stores survived to their 50th anniversaries. But in the 1980s, the co-ops in Berkeley and Greenbelt closed, and those in Eau Claire and Palo Alto greatly scaled back their activities. The co-ops in Hanover and Hyde Park are thriving and growing- both with dynamic membership programs. In the late 1960s and 1970s the "new wave" of consumer co-ops began. Born out of the ideas and philosophies of the 1960s counterculture, these stores were opened by young and idealistic members. They set up co-ops to fit their belief in equality, not to follow their co-op predecessors. Most of the new co-ops sold only whole, unrefined, and bulk foods. Their operating practices were diverse and experimental. Some stores had limited store hours; others were open seven days a week. Some were run by volunteers, others by fully paid staff. Some had various forms of worker self-management; others had more traditional management structures. Some paid year-end patronage refunds; others gave members a discount at the cash register. These co-ops were pioneers in what came to be known as the "natural foods" industry. But not all were successful. Some failed because of their experimental structures and operating systems. Most were unable to escape the same problems that had troubled older, earlier co-ops - insufficient capital, inadequate membership support, and inability to improve operations as the natural foods industry developed, a stronger commitment to idealism than to economic success, the lack of adequate support from their wholesalers, and resistance to consolidation. But the "new wave" co-ops which survived are strong and well-established. The consumer co-op movement in the United States has had mixed success – especially in contrast to consumer co-ops in Europe and Asia. But each wave of cooperative growth produces renewed enthusiasm for a time-tested idea and innovations that prove successful in the consumer marketplace - at least for a time. HISTORY OF COOPERATIVES in the PHILIPPINES Introduction: Based on available sources, notably the Cooperative Development Authority, tracing the history of Philippine cooperative movement would not be complete without mentioning the name of Dr. Jose P. Rizal who, in his travels to Europe in the latter part of the 19th century, was impressed with the success of a new economic movement which transformed the economic and social life of the Europeans. After his side trip to Sandakan, Borneo in 1892, Rizal requested Governor General Despujol to allow him to move with some relatives and friends to that place and establish therein a colony under the cooperative production and marketing plan of Robert Owen, who is acknowledged as the father of world cooperation. Instead, he was arrested for treason and banished to Dapitan, Zamboanga del Norte. In Dapitan, Rizal had his ideas in cooperation partially fulfilled. He put up a school for the poor community on a purely cooperative basis. He also established a cooperative store with the help of his pupils. One noteworthy group organized by Rizal was the La Sociedad de los Abacaleros (Society of Abaca Producers). This functioned for only one year. Rizal returned the members share capital without any loss. Another name worthy to mention is Teodoro Sandiko, who in his travels in Europe, must have had a close contact with the cooperative movement in Germany where he came across with the Raiffeisen movement. He was very much impressed by this type of cooperative and he looked forward for an opportunity to have it introduced here in the Philippines. As destiny might have its choice, Sandiko had his chance when he was appointed one of the early governors when Civil Government, under the Americans, was established. As soon as Civil Government was established, Filipino participation in government was encouraged. Teodoro Sandiko, then governor of Bulacan, prepared a bill patterned after the Raiffeisen type of credit union and had Rep. Albert Barreto of Zambales sponsor it in the lower House of Congress. The principal aim of this bill was to protect and develop the agricultural interest of the country. When the Barreto sponsored bill was presented it readily obtained unanimous approval on January 20, 1908. The Philippine Commission however, turned it down. Undaunted by this defeat the sponsors of the bill again put it through in the Second Philippine Legislature. This time it was sponsored in the Lower House by Rep. Rafael Corpuz who succeeded Rep. Barreto from Zambales. The bill was ably presented in both Houses and it was finally passed into law on February 11, 1914 and became Act 2508. When this Act was finally made into law, Gov. Sandiko earned the title of Father of Cooperation in this country. The administration of the Rural Credit Law was entrusted to the Bureau of Agriculture. The first rural credit association that was organized under this Law was the Agricultural Credit Cooperative Association of Cabanatuan, Nueva Ecija. It was formed on October 18,1916. With this initial organization, farmers in the different provinces were organized. At the end of 1926 there were 544 rural credit cooperatives organized in the 42 provinces and by 1930 there were 571 associations formed all over the country. In 1935, however, about 90% of these cooperatives were inactive with no funds left in their treasury. The experiment on rural financing, through cooperatives was a failure. In the same year of 1916, the first Consumers Cooperative was organized at the College of Agriculture, Los Baños, Laguna. As soon as the organization of rural credit cooperatives was in full swing, The Cooperative Marketing Law (Act 2425) was enacted and approved on December 9, 1927. The rural credit associations were designed to help finance the productive efforts of the farmers. In order to provide incentives to the farmers to produce more, an efficient machinery for the profitable marketing of their products should be provided. Wherever rural credit associations were organized cooperative marketing societies were also designed to be organized. In 1938, the first Credit Union was organized in Vigan, Ilocos Sur. The apparent weakness of the rural credit cooperatives, however, failed the enthusiasm of farmers to organize themselves into cooperative marketing associations. By 1939 only 164 societies were actually organized with a total membership of around 5,000 farmers. With this number only 35 reported their sale of products to the Bureau of Commerce. The number of associations reporting indicated that only 20% of the organized associations were active. Amidst this situation, Commonwealth Act No. 565 or the Cooperative Law was passed in 1940 effecting legal sanction for the organization of Credit and Consumers Cooperative. In recognition of the strategic position occupied by our farmers in the social structure and economic development of the country, the Congress of the Philippines in 1952 enacted Republic Act 821. This law established a system of liberal credit which is specially designed to meet the needs of the small farmer. It also created an administrative agency known as the Agricultural Credit and Cooperative Financing Administration (ACCFA). Through ACCFA, the government organized and financed Farmers' Cooperative Marketing Associations (FACOMAS) by providing collateral free loans funded by the US Agency for International Development (USAID). By 1957, there were 600 FACOMAS. Provincial as well as national federations of FACOMA were organized. To implement the great task of rural financing, four general and interrelated objectives of the law are set forth as follows:  To assist small farmers in securing liberal credit.  To promote the effective groupings of farmers into cooperative associations.  To establish an orderly and systematic marketing machinery for, and controlled by, the small farmers.  To place agriculture on a basis of economic equality with other industries. In 1957, RA No. 2023, otherwise known as the Philippine Non-Agricultural Cooperative Act, was passed by Congress which enabled the people in developing their enterprises on a cooperative basis. In 1960, the Agricultural Credit Cooperative Institute (ACCI) was then established. Three years later, RA No. 3844 or the Agricultural Land Reform Code was enacted. ACCFA was organized into Agricultural Credit Administration (ACA). The Land Bank of the Philippines was also established during the same year. In 1969, the Agrarian Reform Code was passed, mandating that coops be utilized as primary conduits for credit, supply and marketing services to agrarian reform beneficiaries. During the Martial Law, Presidential Decree No. 2 or the Agrarian Reform Decree declared the entire country as an agrarian reform area. Under the Land Reform Program, the tenant-farmers were obliged to compulsory join a pre-cooperative organization called Samahang Nayon. Benefits would include the right to borrow funds from government banks and the assurance of being supplied with farm inputs. Subsequently, fully fledged cooperatives of at least ten Samahang Nayon called Kilusang Bayan were organized. Federations of cooperatives were then formed. In 1973, PD No. 175, L.O.I. 23 was promulgated. This was an Act to strengthen the Cooperative Movement, consolidated the different Cooperative laws, provided a sound basis for a truly systematic cooperative program and placed the responsibility of initiating, promoting organizing, supervising and developing the cooperatives under one government agency, the Bureau of Cooperatives Development under the Department of Local Government and Community Development. In May 1980, under EO 595, the Bureau of Cooperatives Development under the Ministry of Local Government and Community Development was transferred to the Ministry of Agriculture. Executive Order No. 116 dated January 30, 1987 established the Bureau of Agricultural Cooperatives Development in the Ministry of Agriculture and Food, the function of which was to formulate an integrated system for development and evaluation of agricultural cooperatives; provide assistance in the establishment of agricultural cooperatives in the rural communities and; evolve a program to promote the economic viability of agricultural cooperatives. In 1990, Republic Act No. 6938, the Cooperative Code of the Philippines and RA 6939 creating the Cooperative Development Authority (CDA) were signed into law on March 10, 1990. RA 6938 rationalizes and unifies all cooperative laws while the CDA is created to promote the viability and growth of Cooperatives. In 1993, the National Cooperative Movement (NCM) was organized and then the organization of the Philippine Cooperative Center (PCC) the following year. In 1998, the Cooperative-National Confederation of Cooperatives (COOP-NATCCO) Network Party formed by members of NATTCO landed a seat in the House of Representatives after garnering over 2% of the votes of party list elections. The party list also won another seat in the 2001, 2004 and 2007 elections thereby enabling the cooperative movement to have a voice in the halls of Congress, particularly in the efforts to amend the cooperative code. In 2009, the partly list was accorded another slot in Congress with the decision of the Supreme Court. In recent May 10, 2010 elections, the party list is poised to win two seats and still awaiting for the final canvass and still hoping to get a third seat. Republic Act No. 9520 or the Philippine Cooperative Code of 2008 was signed into law last February 17, 2009. The new law amending RA 6938 was passed to meet the challenges of the global economic situation and the advent of the age of information technology. Moreover, the new cooperative code is expected to strengthen the thousands of cooperatives in the country and enable the system to contribute better to the country's economic growth. Despite the various laws passed and government interventions being implemented, early cooperatives in the Philippines was generally a failure. Filipino economists and students of cooperatives in this country have often attributed the failure of cooperative societies in this country to the following causes:  Incompetent management.  Lack of proper understanding of the principles, practices, true aims, and purposes of cooperative associations.  Improper use of credits by the borrowers, who, instead of using money borrowed for production, spent it for fiestas or luxuries.  Defective securities.  Political interference particularly in the collection of overdue accounts.  Lack of compensation of officers  Inadequate character and moral responsibility in handling the other fellow's money.  Lack of adequate safeguard against unscrupulous officers who took advantage of their position to grant loans to themselves and their compadres which later proved disastrous to the system.  The dominance of the individualistic attitude instead of the spirit of cooperation among the people.  Inability of cooperatives to secure adequate capital.  Their dependence on alien suppliers and distributors.  Ineffectiveness of the government in the promotion of cooperative organizations.  Inadequate marketing facilities. Considering the experiences of similar societies in other countries, however, the fundamental cause of failure in a cooperative enterprise is the lack of proper understanding of the principles and true aims of cooperative associations, and the non-adherence to them in actual operation of cooperative enterprises. Despite the sad experience of the Philippine cooperative movement, there are a number of Philippine cooperatives who flourished and succeeded in their endeavors and their stories provide inspiration to the starting and growing cooperatives in the country.