A focus on co-operatives: Exploring the different types, factors to consider when starting, the challenges they face and their potential contribution to economic development.

PRIMARY, SECONDARY AND TERTIARY: WHAT'S THE DIFFERENCE?

Co-operatives can be classified into primary, secondary, and tertiary based on the level of cooperation and integration.

Primary co-operatives.

These are the most basic forms of co-operatives, and they are owned and managed by individual members who come together to meet common economic, social, and cultural needs. Members:

·       Have an equal vote regardless of the number of shares they hold.

·       Have direct and active involvement in activities, contribute financially, and participate in decision-making processes.

·       Share the profits, which are distributed based on the level of participation or use of the co-operative's services.

Secondary co-operatives.

Secondary co-operatives, also known as federations or unions, are formed by primary co-operatives to strengthen their collective bargaining power further and achieve common goals. Key features are: 

·       They support their members, including facilitating joint marketing efforts, training, and education programs, as well as representing members' interests at a higher level.

·       The ability to provide economies of scale by pooling resources to negotiate better prices, secure funding, or improve operational efficiency.

Tertiary co-operatives.

Also known as apex or central co-operatives, these are the highest level of these types of enterprises in the hierarchy, and they serve as umbrella organisations for secondary co-operatives. Their main characteristics are that:

·       They have secondary co-operatives as their members.

·       They represent the collective interests of secondary co-operatives and work towards strengthening the co-operative sector.

·       They centralise certain functions such as financial services, marketing, research and development, training and education, and representation in policy-making processes.

·       They facilitate networking opportunities among secondary co-operatives, enabling knowledge sharing, cooperation, and mutual support.

FACTORS TO CONSIDER WHEN STARTING A CO-OPERATIVE

Whether it's a primary, secondary, or tertiary co-operative, there are various factors to consider when starting or expanding this alternative economic model.

A clearly defined shared purpose

Ensuring all members have a shared vision and common goals will help create unity and cohesion.

Market research

Understanding the target market, competition, and potential challenges will help determine the viability and possible success of the co-operative.

Feasibility study

Conducting a feasibility study to assess the co-operative's financial, technical, and operational feasibility will help identify potential risks and provide insights into the required resources, infrastructure, and capital.

Membership and governance

Defining members' rights, responsibilities, and benefits by establishing a governance structure will ensure democratic decision-making, transparency, and accountability. Potential members should also consider developing bylaws or a constitution to guide operations.

Capital and financing

Determining the capital requirements to start and sustain the co-operative will require exploring potential funding sources such as member investments, loans, grants, or government programs.

Skills and expertise

This entails assessing existing skills among members to determine any gaps that need to be filled and then providing training or seeking external expertise if necessary.

Legal and regulatory requirements

Understanding the legal and regulatory framework applicable to will ensure compliance with the necessary laws, regulations, registration, licensing, and reporting requirements.

CHALLENGES FACING CO-OPERATIVES

Starting a co-operative requires careful planning, collaboration, and commitment from all members involved. By considering these factors, you can lay a strong foundation for a successful co-operative venture. There are, however, numerous possible challenges and they're highlight some below:

Limited access to funding

Co-operatives often need help securing loans or investments, making it difficult to expand their operations or invest in modern technologies.

Inadequate skills and capacity

Some co-operatives lack business management skills, technical knowledge, and entrepreneurial expertise, which can hinder their ability to effectively manage their operations, implement sound marketing strategies, and adapt to changing market conditions.

Market access and competitiveness

The stiff competition co-operatives face from larger, established enterprises can make accessing markets and selling their products or services challenging. Limited marketing resources, distribution networks, and inadequate packaging can further hamper their competitiveness.

Limited infrastructure and resources

There needs to be more infrastructure, particularly in rural areas, to ensure the growth of co-operatives. Inadequate transportation networks, limited access to electricity, and unreliable water supply can hinder production, storage, and distribution activities.

Governance and management challenges

Effective governance and management are crucial for the success of co-operatives. However, conflicts among members, lack of accountability, and weak internal systems can undermine operations and decision-making processes.

Policy and regulatory environment

Inconsistent regulations, bureaucratic procedures, and a lack of supportive policies can pose significant challenges for co-operatives. Simplifying the rules, providing targeted support, and creating an enabling environment can help address these issues.

CONTRIBUTION TOWARDS ECONOMIC DEVELOPMENT

Addressing the above challenges requires concerted efforts from various stakeholders, including government agencies, financial institutions, and development organisations, as there are potential societal benefits to doing this. They are:

Job creation

By pooling resources and sharing responsibilities, co-operatives can establish businesses that generate jobs and reduce unemployment rates. This is especially important in areas with high levels of unemployment and limited formal job opportunities.

Income generation and poverty alleviation

Co-operatives enable community members to generate income and improve their living standards. By collectively running businesses, individuals can access markets, negotiate better prices for their products or services, and increase their earning potential.

Skills development

Members can receive training in various areas, such as business management, marketing, financial literacy, and production techniques. This knowledge transfer empowers individuals with valuable skills, enhancing their employability and fostering a culture of entrepreneurship within the community.

Local economic circulation

Co-operatives tend to reinvest their profits into the community, leading to a multiplier effect. This income circulation helps create a self-reliant and sustainable economic ecosystem within the community.

Access to resources and markets

Co-operatives often facilitate collective access to resources and markets that would require more work for individuals to obtain. By pooling resources and negotiating as a group, co-operatives can access credit facilities, bulk purchasing discounts, and larger markets, enabling members to overcome entry barriers and compete more effectively in the marketplace.

The above information was researched and consolidated by Dali Ramncwana, the Regional Facilitator for Co-operatives, and Community Public-Private Partnership at the Seda, Johannesburg branch in Braamfontein. Aspiring and existing co-operative members can e-mail him at dramncwana@seda.org.za for more information on Seda's tailored interventions.