Market power through cooperation: a summary of an NFUS and SAOS webinar

Following the administration of Alexander Inglis and Son, an East Lothian grain trader, NFUS ran a joint webinar with SAOS to discuss farmer cooperatives as a potential way for farmers themselves to be more in control of sales and marketing of grain. This blog provides a summary of the main points from the webinar.

A series of questions from members were answered by Jim Booth (SAOS), Robin Barron (East of Scotland Farmers) and Russel Brown (Scottish Potato Co-op). Jim has been supporting farmers to work co-operatively in his role as Head of Co-development at SAOS for several years now, East of Scotland Farmers is a long running co-op that was established in 1959, while the Scottish Potato Co-op is ware potato marketing co-op that is in its second year.

The co-op business model is unique and not well understood.  Co-operation involves people coming together to achieve a commercial objective they cannot achieve individually. Co-op members are both the ‘owners’ and ‘customers’ of the business.  A co-op’s purpose is to provide benefit to its members, not return to external shareholders.  While a co-op’s primary purpose is to provide economic benefit, there are many secondary benefits that include supporting members to improve their performance, manage risk, save time, protect rural communities, and provide rural employment. Co-ops have ‘multiple bottom lines’: one of which is profitability.

HMRC data show co-ops have a failure rate that is about half that of conventional businesses. A well-governed co-op with a clear purpose and strategy, with good quality management is likely to be successful and deliver real benefits to its members.

Forming a new co-op typically can take up to 12 months to complete. The same basic rules apply to a co-op as to starting any business.  Is there demand, a commercial opportunity, route to market and will it be a sustainable business?  It needs good market research, a feasibility study and business planning. Co-ops may also be formed to fight monopolies, corruption, exploitation, market failure or other objectives only possible through group action.

Co-ops are owned and governed by their members, any of whom can stand to join the board of directors. Co-ops are guided by a set of values and principles, which are based on the values of self-help, trust, equity, fairness and solidarity.

Members have to buy a share in the co-op, which is usually a nominal value (~£10-£100). The value of the share doesn’t change over time.  The benefit of membership comes from participation in the co-op, not from the shares.  Some co-ops will require a capital investment. Members exiting the co-op would normally receive their investment returned.

Co-ops are limited liability businesses, therefore the only thing at risk is the initial share and any capital invested in the business. Most co-ops are ‘agency’ businesses, meaning they never take legal title of the produce they market. It always remains with the farmer producer.

There are a range of different types of co-ops, including: marketing, input supplies, specialist services, and multipurpose. The most common are ‘marketing co-ops’, which market members’ produce, allowing members to benefit from economies of scale, market access, greater influence in supply chains, managing risk, and negotiation power using specialist professional staff. East of Scotland Farmers employs these people, while the Scottish Potato Co-op contracts in marketing agents.

What are the key success factors for co-operation?

  • Common goals and united commitment amongst members (requiring sound strategy and excellent two-way communications between the board and members)
  • Ambition and leadership amongst members and directors, and concern for the future
  • Active participation in democracy and accountability
  • High standards of governance, and professional management that understands the primary purpose of members in co-operating
  • Commercial success, satisfying members’ needs, rewarding them in proportion to their participation

Author: David Michie

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About The Author

David Michie

David has been involved in the agricultural sector for the last two decades where he has worked on his family farm, at an agricultural science agency, as an agricultural and rural business consultant, and for an environmental food and farming charity. He joined NFUS in 2021 as their crops policy manager, where his role includes working with the arable, oilseed, potato, soft fruit, horticulture, and ornamental sectors.

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