Early Cooperatives

Authors: Greg McKee, North Dakota State University, gregory.mckee@ndsu.edu, and Donald Frederick,
Rural Business-Cooperative Service, USDA

In the early 1800s, cooperative businesses appeared on several fronts. In Britain, cooperatives were formed as a tool to deal with the depressed economic and social conditions related to the struggles with Napoleon and industrialization. In the United States, farmers began to process their milk into cheese on a cooperative basis in diverse places such as Goshen, Connecticut, and Lake Mills, Wisconsin.

Writers sometimes trace the origin of cooperatives from the Rochdale Equitable Pioneers’ Society, an urban, consumer cooperative organized in England in 1844. It sold consumer goods such as food and clothing to persons unhappy with the merchants in the community.

While neither the first nor most successful early cooperative, the Rochdale Society developed an active outreach program, encouraging and assisting others to form cooperatives. It also prepared a written list of practices and policies that seemed consistent with success of such efforts. This list became one of the first sets of cooperative principles, characteristics that distinguish cooperatives from noncooperative businesses.

  • Open membership
  • Cash trading
  • Membership education
  • Political and religious neutrality
  • No unusual risk assumption
  • Limitation on the number of shares owned
  • Limited interest on stock
  • Goods sold at regular retail prices
  • Net margins distributed according to patronage

The Grange, founded in 1867, quickly became the major thrust behind agricultural and rural cooperatives in the United States. In 1874, a Grange representative went to Europe to gather information about cooperatives. In 1875, the Grange published a set of rules for the organization of cooperative stores, based on the Rochdale principles.

Local granges organized stores to serve their rural members. They sold groceries and clothing as well as general farm supplies, hardware and agricultural implements. Granges in the South marketed cotton. Those in Iowa operated grain elevators. In Kentucky, they sponsored warehouses for receiving and handling tobacco. California granges exported wheat and marketed wool.

As the country recovered from the depression of the 1870s, fewer Granges were organized and many cooperatives went out of business, but the impact of the Grange cooperative movement survives. It demonstrated that the Rochdale type of cooperative, which handled goods at prevailing prices and distributed net savings according to use, offered a sound basis for cooperative efforts in America.

Cooperation flourished during the three decades from 1890 to 1920. As many as 14,000 farmer cooperatives were operating by the end of the period. Cooperative growth was fueled by the wave of other farmer movements and farm organizations sweeping the country, such as the American Society of Equity, National Farmers Union and the American Farm Bureau Federation. They were engaged in marketing virtually every farm crop and furnishing supplies and services to their producer-members. Many of today’s major farmer cooperatives were formed during this period.

The following decades have seen farmer cooperatives develop their own financial institutions through the Farm Credit System. Nonagricultural cooperatives likewise developed the National Cooperative Bank. With help from the Rural Electrification Administration, rural residents used cooperatives to bring electric and telephone services to their towns and farms. The rural electrics formed the National Rural Electric Cooperative Finance Corporation (CFC) as a supplemental source of financing.