Denmark: The Agricultural Cooperatives in Denmark

   This document has been made available in electronic format
           by the International Co-operative Alliance.

         The Agricultural Cooperatives in Denmark

Table of Contents
     1.   Why Cooperatives?
     2.   The Danish Model. Can it be utilized in Eastern
     3.   How does the Cooperative Function?
     4.   The Bylaws of the Cooperative
     5.   The Capital Situation in Danish Cooperatives.
     6.   The Decision Process of the Cooperative

Since 1989, Danish agriculture has found new collaboration
partners in Eastern Europe. Danish farmers have wanted to get in
contact with their new colleagues and many forms of collaboration
are going on. 

This booklet is intended as a helping tool for the collaboration.

The first phase of the new collaboration is to understand each
other's situation. This, it appears, is not as easy as one might
expect. The history, traditions, ideas and concepts are all

It is our experience in Danish agriculture that it is very
difficult to explain those things that we do not normally think
about because we regard them as matters of course. In this text,
we have attempted to emphasize the basics which for the last
century have been the foundation for the business cooperation of
the Danish farmers, how the Danish farmers have organized
themselves in cooperatives, which own commercial cooperatives -
dairies, slaughterhouses and farm supply companies.

It is our hope that the Danish experience may be useful, when the
farmers of the new democracies decide how they want to cooperate
in order to manage better under the market economy conditions.
The text has been written by the Federation of Danish
Cooperatives in collaboration with the Agricultural Council.
These organization are ready to make themselves available if
anyone wants to know more about the Danish cooperatives.

     Danish Farmers     -    own their farms
                        -    organize their own counselling
                        -    export of their production
                        -    make up 30% of Danish export 

The present publication tells about the commercial enterprises
owned by the Danish farmers and organized as cooperatives.

Today, agriculture is the most important trade sector in Denmark.
Two thirds of the production is exported, 30% of the total Danish
export is agricultural products, and agriculture is important for
employment in Denmark.

A major reason for the strength and success of Danish agriculture
is the collaboration of the farmers. The individual farmers face
a string of challenges, not only in their daily production, but
also in the surrounding world: the market, the technological
development, political conditions for production and sales. 

In Denmark, the farmers have organized themselves in various ways
to solve the problems, which many farmers have in common.

     Danish farmers     -    own the Danish dairies and
                             slaughterhouses and other

Farmer organizations organize the "professional work", such as
employing consultants, who counsel the farmers with regard to
production and economic planning on each farm. The farmer
organizations carry out political work, i.e. they deal with all
sorts of legislation of importance to the farmer: tax
legislation, environmental legislation, legislation concerning
social conditions, the market regulations of the EEC. This work
involves analyzing of the legislation, providing information for
the farmers, discussion of the legislative wishes of agriculture
and finally dialogue with the politicians of the government and
parliament in order to influence legislation. The farmer have
economic interests in the market and have established

A cooperative is a commercial enterprise owned by the farmers
who are members of the cooperatives.

1.   Why Cooperatives ?
Agriculture consists of many small enterprises - the individual
farms. Agriculture is entirely different from the automobile
industry, telecommunications industry or the fertilizer industry.

Each individual farmer must sell his production on the market.
In a market economy that functions normally, the farmer will
always be able to sell his pigs, his milk or his grain. But the
question is, at what price?

When the individual farmers sell their production, e.g. to a
slaughterhouse, the slaughterhouse will pay as little as possible
and tell one farmer that they can get the pigs much cheaper from
another farmer.

Of course, the stockholders of the slaughterhouse have a problem,
too: What if the farmer does not have any pigs to sell? But the
farmer is rarely the winner in this game.

There are many ways to achieve greater stability. The
slaughterhouse can produce the pigs itself. The slaughterhouse
can enter into production agreements with the farmers. The
farmers can enter into production agreements with the
slaughterhouse. Or the farmers can own the slaughterhouse

During the second half of the 1800's the Danish export of bacon
to England grew. The farmers saw how private enterprises and
merchants earned lots of money from this business.

     Why cooperatives?  

          Because  -    the farmers sell together
                   -    the farmers buy together
                   -    the farmers refine together
                   -    the farmers share the profit
                   -    the farmers make the decisions

The Danish farmers decided that they wanted to own their own
slaughterhouses. The idea was quite simple. Instead of the
individual farmer selling his own production on the market, the
farmers sell their production jointly. And they are not selling
raw materials, but refined products. As an extension of the
farmers, the production enterprises receive, refine and sell the
production for the members. The profit goes to the farmer as
higher prices for the products. Though the cooperative is not in
itself a guarantee of profit and high prices.

In the farmers' own enterprises it is the farmers themselves who
make the decisions. They enter into a mutually binding
cooperation with rights as well as obligations.

A little more than 100 years ago, the farmers also built their
own cooperative dairies. The first cooperative dairy was built
before the first cooperative slaughterhouse. It may be a natural
thing that the possibilities of cooperation become evident to
milk producers first, as the milk has to be sold every day.

Later farmers have established for instance cooperative feeding
stuff businesses, in which the farmers purchase feeding stuffs,
fertilizer and other production necessities together.

2.   The Danish Model. Can it be utilized in Eastern Europe ?

     Danish History

In Denmark in the second half of the 1800's, there were special
preconditions for the success of the cooperative movement and the
fast increase in the number of cooperative enterprises - first
the dairies and soon thereafter the slaughterhouses.

N.F.S. Grundtvig and the Danish folk high school are always
mentioned as an important part of the background of the success
of the cooperative movement. The folk high schools are schools
for adults, where the students reside during the course period,
e.g. 6 months. Many farmers' sons went to the folk high schools,
where they not only dealt with concrete knowledge, but also
emphasized the free word, conversation, discussion, history,
social debate and active participation in the decisions of the
democracy. The folk high schools promoted the conscious mental
life. The young farmers understood that they were responsible for
their own future. In this way the human basis for the cooperative
movement was ready. The basis of knowledge was also present,
partly because of the general obligatory school in Denmark and
partly because of the agricultural schools. 

The technical foundation for the cooperative enterprises was also
in order and relatively new. The continuous centrifuge was
relatively new and formed the basis of modern butter production. 

There was a market basis as well. The export of butter and bacon
to England was increasing, and the profit of joint organization
and competitiveness towards the private merchants was noticeable.

The first cooperative dairy was established in 1882. The first
cooperative slaughterhouse was established in 1897. Dairies and
slaughterhouses were established independently, and every society
had its own clearly defined field of activity.

The need for capital for financing the slaughterhouses and
dairies was also satisfied. The individual farmer was
creditworthy because he owned his own farm. In the cooperatives,
the farmers guaranteed jointly for the loans that were needed to
start the enterprise.

Apart from the farmers' realization of their own situation,
understanding of the strength of solidarity and their power to
act, the external conditions were favourable, too. It was a time
of changes, and the farmers understood that they must lead the

     Historical Danish headlines
          -    Grundtvig
          -    Folk high schools, mentalitY
          -    Technology
          -    The market
          -    The capital
          -    1882: the first cooperative dairy

     Danish Cooperatives Today

The cooperative enterprises have revealed themselves to be the
strongest in the two most export oriented sectors, pigs and milk,
where almost 100% of the sector is owned by cooperatives. In the
cattle branch about two thirds of the sector is owned by
cooperatives. The cooperatives are also strong within such fields
as fur pelts and seeds. 

In the farm supply sector - supplies of feeding stuff,
fertilizer, plant protection and grain sales - about half of the
sector is owned by cooperatives. 

In some sectors, the cooperative way has been less successful:
agricultural machinery and buildings. Cooperative farming has
never been common in Denmark - the farmers do not operate their
farms jointly.

The Danish cooperative enterprises are single purpose
cooperatives. They have had the greatest impact in the sectors
where the common task is refining and sale often, as already
mentioned, for export purposes.

In the fields of milk and pigs, today's cooperatives have large
internationally competitive enterprises. Two dairy cooperatives
and five slaughterhouses cover almost the entire production in

The cooperative develops in competition with the privately owned
enterprises, which are usually corporations. The individual
cooperatives also compete on the market. History shows that when
cooperative dairies or slaughterhouses have been competing
directly with each other for a certain period, the farmers /
members decide to join them together.

It has never happened in Denmark that a cooperative has gone
bankrupt so that the creditors have taken over the enterprise.
When cooperative enterprises have been discontinued they have
been merged with other cooperatives.

     The Cooperative Sector Today

     -    large market shares
     -   single purpose cooperatives
     -    no legislation
     -    no Ministry

In Denmark there is no cooperative law. The constitution supports
the freedom of associations, the freedom to form philatelic
clubs, soccer clubs, political societies, cooperative societies
and all classes of other associations, which the Danes like very
much. Associations which operate enterprises must respect the
Danish laws in general: the tax laws, the labour market laws,
environmental laws etc.

The strength of the cooperative movement cannot be separated from
the farmers' general strong organizational tradition. All farmers
are members of one of the farmers' labour unions: the farmers'
unions or the smallholders' unions. Simultaneously these unions
are technical - professional unions, which arrange professional
counselling for the farmers.

Some cooperatives have employed staff to counsel the farmers in
matters of production and quality. This is very limited in
Denmark, because the farmers have chosen to organize professional
counselling in the unions mentioned above. Therefore, the
activities of the cooperatives are for all practical purposes
concentrated around the commercial, i.e. business matters.

3.   How does the cooperative function?
The rights and obligations of the farmers in their own

A group of farmers who establish their own cooperative must agree
on a number of conditions: That it is an advantage to sell the
products jointly, and that the purpose of operating the
enterprise together is to achieve a high price for the farmers'
production or to secure the cheapest possible raw materials, as
a means of production. The enterprise is a means, not a goal.
This is also reflected in the general international cooperative

     Cooperative principles

     -    One man,  one vote in a democratic member government
     -    Voluntary and open membership
     -    No or limited interest on the member capital
     -    The profit belongs to the members and is distributed
          in proportion to the turnover between the member and
          the cooperative

The farmers' rights and obligations as a member of the
cooperative and co-owner of the enterprise may also be expressed
as advantages and disadvantages.

     Rights or                    Obligations or
     advantages                   disadvantages

     Secured sales                Obligation to 
     (the cooperative is          deliver to the
     obliged to buy).             cooperative.

     The highest possible price   No price 
     and sharing the profit.      negotiations.

     Joint ownership of the       Shared responsibility
     enterprise.                  for the debts and
                                  operation of the

All these items must be discussed thoroughly and understood by
the farmers who establish a cooperative enterprise together. They
must be agreed on the obligations they are going to accept and
the rights they will have as members.

In the Danish cooperative dairies and slaughterhouses there is
unconditional obligations to deliver and to buy. This means that
it is forbidden for members to sell milk or pigs to anyone else.
All must be delivered to the cooperative. On the other hand, the
farmer can always decide for himself how much he wants to
produce, and the enterprise is obliged to take and sell the
entire production. 

The farmer does not negotiate the price; all members get the
same price. The price may differ from the price of other
enterprises, whether they are private or cooperatives.

"How the price is determined"

The profit is distributed according to the amount of milk or
number of pigs the member has delivered.

As a result of the farmers' discussions, the individual
cooperatives are set up differently. The conditions of the Danish
cooperative dairies and slaughterhouses are as described in the
preceding text. 

In the farm supply branch, i.e. the cooperative enterprises that
deliver feeding stuff, fertilizer etc., the members are not under
obligation to buy or deliver. The profit sharing, the joint
ownership and the farmers' determination of business policies,
e.g. concerning quality, become the distinctive feature of the

The enterprise is owned by the members together. No member owns
his share in such a way that he can sell it. Membership is not
an economic asset, which can be sold, but an asset which is a
means to secure stable sales and the highest possible price for
the production. Thus the purpose is not to get any return on the
capital which is tied up in the enterprise. 

In some countries, the farmers own shares in their cooperative.
This does not occur in Denmark. 

Only farmers with a direct business interest in the enterprise
can be members of the cooperative. This means that the members
buy from the cooperative or sell or deliver their production to
the cooperative. 

The shared responsibility for the operation and debts of the
enterprise is managed in a democratic decision process. A
responsible managing director is employed, and an agreement has
to be reached about the daily rules and strategies of the
enterprise. All major decisions about changes in production,
investments and market strategy have to be approved by the

As a basic rule, two conditions have been retained in the Danish
cooperatives. The individual member, the farmer, cannot buy or
sell shares of the joint enterprise. And in the democratic
organization, the principle of one man - one vote is maintained.

At least two criteria of success may be listed for all

     1)   The active engagement and participation of the members
          in the democratic decision model of the cooperative.
     2)   Effective operation of the enterprise.

What do the words mean?

A number of words, e.g. cooperative, cooperative association and
cooperative enterprise are sometimes used interchangeably. The
same is true of those words, which describe the farmer's
relationship with the cooperative: buy, deliver, sell, turnover. 

The meaning attached to a word is determined historically and
culturally, and often language borders also become borders
between different sets of ideas and concepts.

The correct use of the words should be as follows:

Cooperative association:     A group of farmers who have
                             organized themselves in an
                             association the purpose of which
                             is to establish and operate an

Cooperative enterprise:      The business which is
                             established. For example a
                             slaughterhouse or a farm supply
                             society. A director and other
                             workers are employed in the

Cooperative:            Usually used as a common designation
                        for the cooperative association and the
                        cooperative enterprise.

Cooperative movement:   The ideological designation of the way
                        the farmers are organized in a

Buy and sell:           The price can be negotiated.

Deliver:                The price cannot be negotiated. The
                        farmer delivers his production and
                        receives the price that has been

4.   The Bylaws of the cooperative
When a group of farmers have agreed to operate an enterprise
jointly in the form of a cooperative, it all has to be written
in the "constitution" of the new cooperative - the bylaws. The
bylaws of the individual cooperative establish the rules for this
particular cooperative, and describe in particular the
relationship between the owners / members and the cooperative.
Both the rules for the decisions of the members in the democratic
organization, and the rules for the commercial relationship
between the cooperative and the members.

In the first many years of the cooperative movement in Denmark,
the members used standard bylaws as a basis which they then
adapted to their specific needs. Standard bylaws consist of a
memo listing the conditions which must be treated in the bylaws.
The work with standard bylaws and questions concerning bylaws
altogether has always been an important task for the common
organizations, which the cooperatives have established. In
Denmark it has not been a task for the state.

The following points are important in the bylaws.

          General Assembly
          Board of Directors

1.   The name and geographic home of the cooperative

2.   The purpose of the cooperative

For instance: "Its purpose is to receive, treat and sell the
members' milk production and the products maid from this, and any
activity related to this, and altogether strive to obtain the
best possible conditions for the milk production" or;

"The purpose of the cooperative is to sell the members'
production of pigs, sows and possibly other domestic animals in
the best possible way... ~ Furthermore the cooperative may obtain
shares and stock in companies that have similar purposes and
companies with other purposes, if this is deemed to be in the
interest of the members."
"The purpose of the cooperative is to provide the members with
as good and cheap feeding stuffs and other agricultural materials
as possible, to sell the members' production of grain and other
products in the best possible way, and to trade e.g. by
participating in other agriculturally related societies or

The important thing for the societies is their commercial
activities. The bylaws are expressed broadly ~ there are many

3.   Members

For instance: "Any milk producer, whose farm is located....may
be accepted as member..."

"Any person of age who owns his/her estate, who operates within
the natural field of activity of the cooperative, and who uses
materials within the assortment of the cooperative, may be
accepted as a member"

"Any member confirms his membership by his signature and is
subject to the bylaws of the cooperative."

Membership is open. Anyone who may become a member according to
the bylaws will not be rejected. As a rule it does not cost money
to become a member. But in some societies, one has to pay a small
share capital.
Members may discontinue their membership with a set notice. A
leaving member must pay his share of the net debt of the society,
but does not receive any payment if the society has a net

There are rules for the exclusion of members who do not abide by
the bylaws. Excluded members are still responsible for debt.

     The General Assembly, Representatives, Elections

It is determined which kind of democratic gathering is the
highest authority of the cooperative. It may be a general
assembly for which all members are invited. It may be council of
representatives, appointed by the members according to certain
rules. It will be determined how often meetings are held, how the
participants are called to the meetings, how the meetings are
lead and what points must be treated (approval of accounts, how
the profit is utilized, election of Board members). Rules for
changing the bylaws are also determined. The principle of one man
~ one vote is stipulated in all the bylaws of Danish

     "The decision-making authority" - The Board

One of the tasks of the decision-making authority is to elect the
members of the Board. The bylaws state how many members have to
be elected and how.

If the Board has many members, the bylaws sometimes state that
e.g. the chairman, the deputy chairman and three other Board
members form a business committee. The Board always elects its
own chairman and deputy chairman.

The Board takes is the managing authority of the cooperative, and
sets its own rules of procedure for its functions. The Board must
monitor the activities of the cooperative and see to it that it
is managed responsibly and in accordance with the bylaws.

The Board employs and dismisses the director (the administrative
leader of the cooperative). The managing director employs and
dismisses the other employees of the cooperative.

In concert with the management, the Board decides on the
framework of the commercial operation. 

In their bylaws, most Danish cooperatives have rules for staff
participation in the leadership. In accordance with these rules,
staff and employees elect representatives to the Board of
directors and Board of representatives. There are no stipulations
about this in Danish legislation.

The employed commercial managers undertake the day to day
leadership of the enterprise and are responsible towards the

     Bylaws, Economy

     -    Obligation and right to deliver
     -    Responsibility and liability
     -    Accounts
     -    Profit
     -    Audit

4.   Obligation to deliver

For instance:  "Each member is under obligation to deliver to the
cooperative all the milk produced by his healthy cows..."

" under obligation to deliver to the cooperative his entire
production of pigs. Except pigs which demonstrably are sold as
breeding animals and young pigs which are sold for further

The members of the Danish farm supply societies do not have any
obligations to trade with the cooperatives.

5.   Right to deliver

For instance: "...the cooperative is under obligation to receive
the production of the members."

6.   Responsibility / liability

For instance: "The Board is authorized to take loans in the
amount which it deems necessary for the responsible operation and
maintenance of the cooperative. In all debts ... the members are
liable one for all and all for one."

"The members are liable towards a third party for any obligations
which the cooperative has assumed. This obligation may not exceed
$ ... per kilogram ... for any individual member."

"The capital of the society is liable for the obligations of the
cooperative. Furthermore, the individual members are liable in
the following cases..."

The basic capital of the cooperative is a decisive factor. In
connection with the establishment of the cooperative it is
necessary to borrow most of the capital. Banks, credit unions and
others can read in the bylaws in what way the individual farmer
is personally liable for the debts of the cooperative. As the
Danish cooperatives have grown into large vigorous enterprises,
it has been possible to maintain credit-worthiness at the same
time, as the bylaws have been changed in such a way that the
liability of the individual member has become limited.

     Delivery and Settling

Under this heading we find the practical rules for the delivery
of the production of the farmer or the cooperative. There may be
rules for settling 'payment to the member'  according to
quality, and rules for the frequency of settling. There will also
be rules for how the prices are determined. In farm supply
societies there are no rules for this.


The bylaws contain rules for bookkeeping and accounts.


Different bylaws have more or less precise rules for using the
annual profit - "the amount which is at the disposal of the
cooperative, after all the costs have been paid." There may be
rules for making appropriations or for the net capital, e.g.:
"15% is set aside in advance for depreciation and appropriation",
or "no distribution that may damage the net capital of the
cooperative must ever take place."

When the necessary amounts have been set aside, the remainder is
distributed among the members in proportion to their turnover
with the cooperative, e.g. per kilo milk of per kilo pigmeat.

     "Deciding on profit distribution"

In most cooperatives the supreme authority, e.g. the
representatives, make the annual decision on distribution among
the members. The decision is made after the recommendation of the

The importance of having a well consolidated common enterprise
which is able to make the necessary investments for the future,
is often encountered by the argument that money is better off in
the farmers' own pockets.


Rules for impartial auditing and control of the accounts.


Rules for resolutions in case of disagreement between the
cooperative and the members.


Rules for dissolving the cooperative.

5.   The Capital Situation in Danish Cooperatives
Who Owns the Cooperative Enterprise?


"Enterprise Cash in the Cooperative Cash"

In corporations the stockholders put up capital. The enterprise
pays no interest on this capital, but a dividend is obtained if
the enterprise makes a profit. It is also an advantage to the
stockholders that the value of enterprise increases, and the
value of the stocks increases. The stocks may be sold at a
profit. In some cases, the tax legislation causes that particular
type of gains to be especially attractive. In this way
corporations acquire capital on which they pay no interest. It
is a liable capital which can give the investors a great loss or
great profit. This is not the way it works in cooperatives.

By way of an outline, the cooperative may be divided into the
cooperative society and the cooperative enterprise. The
cooperative society owns the commercial enterprise. Therefore the
farmers own the enterprise in common ~ they do not own individual
shares of it. 

The capital situation of the farmers in the cooperative society
may be described by looking at the balance of the cooperative
               Good will          100%

               -   Banks
               -   Creditors       60%

               Net capital         40%

In common the farmers have borrowed 60% from banks and other
creditors. When the society was started, the members borrowed the
money together and were jointly liable for the loans. As the
cooperatives grew larger, it became possible to limit the
liability of the members to a smaller amount.

The creditors have had sufficient security in a well run
enterprise and the member obligation to deliver to the

The difference between the assets and the debt is the net capital
of the cooperative society.

In most cooperative societies the members own the net capital in
common. The capital is not distributed among individual members
in such a way that they buy and sell shares of the enterprise.

In some cooperative societies, the net capital is divided into
an undistributed common capital and a personal member account.
The personal member accounts are a sort of loan which the members
have contributed to the cooperative society. If a member
discontinues his membership, he does not receive any part of the
joint capital, but he receives what is in his personal account.

Some cooperatives may want to refine their products to a higher
degree than previously. The reason may be that the cooperative
wants more control over the products all the way from the soil
to the consumer. 

To increase the degree of refining, a series of considerable
investments may be needed, but the cooperative may not have the
necessary capital or may not wish to take the full risk.

In Denmark some cooperatives have decided to organize the
refining process in a corporation and then get the capital from
banks, insurance companies, and pension funds. Usually the
cooperative keeps the decisive majority of the stocks of the
corporation, but the risk is shared with others. 

The farmers have entered into a community where the decisions
concerning capital are made jointly, because the capital is owned
jointly. This is the undistributed common capital.

6.   The Decision Process of the Cooperative
In the cooperative, situations always arise that necessitate
making decisions. 

In the cooperative, the General Assembly or the Board of
representatives is the highest authority.

In the cooperative, the employed management is responsible for
the operation of the enterprise.

The bylaws state who is responsible for what.

The decision process may be illustrated as follows:


                      Managing Director


                      General Assembly

All decisions must be made so that they strive towards fulfilling
the purpose of the cooperative, which is that the farmers achieve
the highest possible price for their products. 

In practice the division of labour among the elected farmers of
the Board and the employed manager will vary from one cooperative
to another. But the Board always holds the final responsibility
in relation to the employed management, and employs and dismisses
the management. The Board of directors is responsible towards the
highest authority of the cooperative - the general assembly or
the Board of representatives - which may elect another Board of

The Board of directors is under obligation to keep abreast with 
the decisions of the commercial management concerning the
activities of the enterprise.

In more important decisions that may demand investments, the
Board makes the final decision. Changed strategies which involve
staking money or a new risk are also decided by the Board, but
always based on suggestions from the commercial management. 

The Board goes into more detail with matters that concern the
farmers directly, e.g. determining different payment for
different quality, rules for the delivery of milk or pigs and
picking up payment for these. The great annual discussion of the
Board is the distribution of the "profit" either as payment to
the members or as consolidation of the cooperative.

The employed management must carry out the decisions made by the

The employed management is free to decide on the production of
the enterprise, wages for employees, adapting to the demands of
the market, marketing, choice of sales methods and price
negotiations with customers.

Whether to concentrate on cream cheeses for the German market or
traditional hard cheeses for the English market is not the choice
of the Board. Nor whether to concentrate on ham for France, bacon
for England or meat cuts for Japan. 

Copyright:  Federation of Danish Cooperatives, FDC