Farmers - Is it time to co-operate and reap the rewards

DEFRA are currently promoting co-operatives in the Rural Development Programme of England 2007-2013 (RDP), but why? With reduced costs, increased efficiency and shared investments listed as just some of the benefits, it is not surprising that nearly one in five people in the UK is involved in a co-operative. What is causing these independent enterprises to rise in numbers and why are many of us still in the dark?

With 4,370 co-operative enterprises in the UK, employing over 195,000 people, there must be clear benefits. It is little known however that the agriculture and food sectors currently account for fifteen of the top 100 co-operatives in the UK.

The RDP has highlighted the benefits of co-operatives, and how they can enable business growth and efficiency. It recognises that co-operation builds profitability, innovation and reduces costs. By encouraging greater collaboration, skills are shared which gives access to new information, ideas and the opportunity to pool negotiating skills and power. This in turn helps to strengthen the local economy and improve local strategies.

Co-operatives, despite their 'self-help', 'self-responsibility', democratic and equality approach, are often overlooked as a business model. There is no good reason for this, as the model is strong, with independence, objectives and mutual goals at the core of its purpose. Ian Hughes of Co-operative Development Scotland believes that the reason more co-operatives are not formed is down to intermediaries, such as lawyers and accountants, who assist in establishing businesses. Often entrepreneurs are simply not presented with the co-operative model as an option.

What is a co-operative society? Geoff Trobridge, Partner in the Corporate and Social Enterprise practice at Ashfords Solicitors explains: "They are enterprises registered by the Mutual Societies Registration section of the Financial Services Authority. Co-operatives are fair and equitable in terms of control and investments. They maximise financial advantages and add value to businesses whilst contributing to the economic and social well being of the UK with a collective turnover of £27 billion per annum."

To qualify as a co-operative, specific criteria must be met including having at least three members and a name that reflects its character. The members must hold control equally, with the maximum number of shares an individual can subscribe for being £20,000 worth, although the rules of the society may lower this.

The "rules" of a co-operative are its constitution, binding all members. They should reflect the objective of the co-operative being for a genuine community interest. Model rules can be adopted although many co-operatives will wish to have these tailored for their particular requirements.

Angus Bauer, Tax Partner at Ashfords, believes that there are advantages to co-operatives that aren't commonly appreciated. "Co-operatives are similar to companies in that their members enjoy the same limited liability status as shareholders, but benefit from tax advantages which are not available to companies. Interest paid on loans from members is generally tax deductible and free from withholdings. Additionally, members generally will not be taxed on dividends received from the society. Co-operatives can also benefit from grants that are not available to individuals."

With the support of DEFRA hopefully co-operatives will continue to grow and those currently in the dark with start to reap the rewards.