Causes of Co-op Failure

A 1980 booklet entitled “Dashed Hopes, Broken Dreams,” contained case studies of several consumer cooperatives that had failed through the years. The common factors contributing to the downfall of those consumer co-ops two decades ago can still provide an important lesson for leaders organizing new value-added agricultural cooperatives.

Factors of Failure Among All Kinds of Co-ops:

• Permitting use of proxies.
• Articles or bylaws poorly drafted.
• Excessive legal and organizing costs.
• Inadequate provision for action by dissatisfied members.
• No regular financial statements or audits.
• Expansion into an innovative field without careful study, and with inadequate capital.
• Difficulty in securing management with strong cooperative experience.
• Did not adapt to changes in the industry.
• Board did not understand its roles and responsibilities, and its relationship to management.
• Lack of reserves to ride out local economic problems or recessions.
• No continuing new member recruitment or orientation program.
• Needs of customers not emphasized in planning.
• No outside agency or organization that can review developing internal problems or insist on regular financial statements or audits.

Among newer co-ops, add these factors:

• Inadequate member investment.
• Inexperienced staff and management.
• Inadequate membership base before opening.
• Internal friction on social/political objectives.
• Initial capital budget did not allow for probable operating losses during the first months (or years).
• Sponsoring groups had goals incompatible with those of the co-op.

Among established co-ops, add these factors:

• No provision for management succession.
• Did not adapt to changes in the marketplace.
• Excessive distribution of patronage dividends in cash.
• Did not maintain or replace old equipment and/or facilities.
• Domination by old-timers.