What is a cooperative, in plain terms?
It is a business that exists to serve its members. Members use it, own it and control it, usually with one vote per member regardless of investment. Profits are typically shared according to how much each member used the co-op, not how much money they put in.
Farmers form marketing co-ops to pool product and gain bargaining power, supply co-ops to buy inputs together, and service co-ops to share equipment or labor.
Some cooperatives are traditional, with the same type of members, and others are multi-stakeholder, bringing growers, workers or buyers together. The legal form affects how decisions and profits work.
How does USDA support cooperative development?
Rural Development has operated a program that gives grants to organizations, typically nonprofits and universities, that provide technical help to new and existing cooperatives in rural areas. The help is often feasibility studies, business planning, and training, delivered by a center and not paid directly to a farm.
Because details differ by year, check the Rural Development site for the current program description and the list of funded centers.
Applicants for these grants are typically the development centers themselves, so a farm group seeking help is usually a client of a funded center, not an applicant. Ask the center what services it offers and whether fees apply.
How can a farmer use that help?
Contact a cooperative development center in your region, your state extension office, or a state cooperative council. Describe what you want to do and ask whether they have worked on similar projects. Many centers offer initial conversations for free.
Bring a short description of the problem: what your group of farmers wants to do better together, how many people are interested, and what each might contribute.
- A cooperative development center
- Your state extension office
- A state cooperative council
- Existing co-ops in your region
What questions decide whether a co-op makes sense?
Ask whether enough members will commit volume to make the business work. Ask what it will cost to start and who covers that cost. Ask who will manage it, since volunteer boards struggle without a competent manager.
Run the numbers on the alternative. A well-written contract with an existing buyer or a simple joint purchasing agreement might meet the need with less risk.
Also ask how profits will be shared, how new members join, and what happens to a member's equity when they retire or sell the farm.
- How many members and how much volume?
- What does startup cost and who funds it?
- Who will manage day to day?
- What is the simpler alternative?
- What happens if a member leaves?
What legal steps are involved?
Cooperatives are organized under state law, and the rules differ by state. Founders write articles and bylaws, define membership, set rules for patronage and decide how equity is built and returned. Tax treatment of cooperatives is specialized.
Hire an attorney with cooperative experience and talk to a CPA who understands cooperative taxation. This is not a do-it-yourself form.
Capital is another early topic. Members often contribute equity over time, and cooperative lenders, including some Farm Credit institutions, finance co-ops. Ask potential lenders what they look for in a young cooperative.
What mistakes do new co-ops make?
Starting with a building before confirming members and markets, underfunding the first years, and leaving rules vague about member commitments. Another is lacking a plan for conflicts among members.
Ask existing co-ops what they would do differently. Founders are usually generous with their experience.
What is a sensible first year plan for a new co-op?
Spend the first months on listening and counting. Hold meetings with interested farmers, write down what each is willing to commit, and survey the buyers or suppliers the co-op would deal with. Do not form a legal entity until you know whether the numbers work.
Next commission a feasibility study, often with help from a development center, and read the whole thing, including the parts that say the idea may not work. A study that finds a problem early saves far more than it costs.
Only then move to legal formation, capital raising and hiring a manager. Slow, documented steps tend to build the trust that keeps a cooperative together.
Key takeaways
- A co-op is owned and controlled by the members who use it.
- USDA support is mostly technical help through development centers, not direct payments.
- Confirm that members, volume and management are in place before spending money.
- Use an attorney and a CPA experienced with cooperatives.
Sources and official links
Last reviewed: November 12, 2026. Written by the Farm Money & Grants Editorial Team. Educational only, not tax, legal or financial advice. See our editorial policy.