Italy's Co-ops Draw Strong Public Support

Constitution of the Italian Republic (1947), Article 45:

"The Republic recognizes the social function of co-operation with a mutual and non-profit character. The law promotes and favors its growth by the most suitable means and ensures, by appropriate controls, that its character and purposes are respected."

How about life, liberty and the pursuit of cooperation? As the above quotation from the Italian post-war constitution demonstrates, cooperation is a way of life for the 50 million residents of this European nation. Sporting not one but four national apex cooperative organizations (roughly tied to different political parties), each with its own national sectoral, regional and local branches, the Italian cooperative system is nothing if not organized.

The largest and oldest of these national organizations is Legacoop, founded in 1886. In 1998, Legacoop members employed close to a quarter million people, serving a combined membership in excess of 4.5 million members. Sales for all member co-ops topped $27 billion (USD), a significant volume for a country of this size.

One of the largest and most important sectoral organizations within Legacoop is the ANCC/Coop, or the National Association of Consumer Cooperatives. Formed in 1957, ANCC members market under the common "Coop" label. Close to 1,000 diverse products currently sport this flashy label, accounting for about 10% of sales. Taken together, the ANCC's member co-ops had sales of over $8 billion (USD) last year, through 1320 outlets representing about 200 different cooperatives.

If taken as a chain, the co-ops represent about 17% of national grocery store sales, the largest segment of any retailer in a market that is still quite fractured. The past few years have seen steady increases in members, sales, and retail square footage, but a decline in the actual number of co-ops as smaller co-ops have merged into larger ones for greater efficiency.

While they may resemble conventional grocery stores on the outside (indeed, the fastest growing segment of the consumer co-op market is the "hypermarket," a gigantic multi-product format designed to compete with the influx into Europe of Walmart and similar stores), co-ops differ markedly from their conventional competitors in a number of significant ways. Aside from a pledge to offer the best service and quality to their members at the best possible price, Italian consumer cooperatives have a long standing commitment to "protect and represent the rights of consumers, defending their economic interests, health and safety, and safeguarding the environment."

In a nation that has only been unified for something over a century and where centralized government is still seen as relatively weak and inefficient, Italian consumer cooperatives have filled a void that protective government legislation has played in many other countries. Long before government action regulated the use of environmentally damaging substances such as phosphate detergents and CFCs, for example, Italian consumer cooperatives used their substantial collective market power to eliminate such substances from their shelves by simply saying to manufacturers, "we're not buying it."

Italian consumer cooperatives also take great pride in the high quality represented by their own "coop" label. Far from simply signing a marketing agreement and turning a blind eye to actual production as many American corporations do, the Italian co-ops pay close attention to the ingredients and manufacturing processes that go into the products that bear their name. This attention to detail was rewarded recently, when, according to one informant, the scare of "mad cow" disease hit Europe. While one of the largest supermarket chains in Italy saw its meat sales plummet by 30% almost overnight, the co-ops saw a decrease of only 5%. Italian consumers trust their co-ops and know they can have confidence in the co-op's products.

The healthy growth of the cooperative sector in Italy is greatly facilitated by two major financing advantages, both enshrined in national law: The first, which dates to the post-war period, is the fact that any retained earnings of a cooperative organization are not subject to taxation at all. This provides a major advantage for cooperatives over their privately owned peers and has greatly enhanced the sound capitalization of these businesses. Because they have not been subject to taxation, retained earnings can also never be distributed to members; upon the dissolution of any cooperative enterprise, its remaining assets go to help the promotion and development of other cooperatives.

The second more recent innovation, passed in 1992, is the national law which provides that 3% of annual profits of all cooperatives must be contributed to a special fund to provide equity investments and low-interest loans for the growth and development of new cooperatives. This law has proved particularly beneficial to efforts to promote cooperation in the "mezzogiorno," the South of Italy, which is by far the nation's poorest region and where cooperatives are scarce relative to the more affluent and activist central and northern parts of the country.

Legacoop's member cooperatives also have access to their own internal financing mechanism, FINCOOP, a lender with assets in excess of $700 million (USD), fully capitalized by the savings of cooperatives of all sizes. In this area too, Italian consumer co-ops lead the way as the largest sector of depositors, providing about half of all funds.

Italian consumer cooperatives have an additional means for beneficial capitalization, that of an active and highly organized system of member loans. Italians regularly save at their local consumer cooperatives, much as they would at their local credit union or in-store bank branch. While such savings are not insured as they would be at a bank or credit union in this country, co-op members have well-placed confidence in the financial health of their co-ops and enjoy a superior rate of return on their savings, while the co-ops enjoy a steady stream of below-market funds. Some 800,000 people take advantage of such savings plans, about 20% of all members.

While the impressive success of the Italian cooperative movement has much to do with a beneficial legislative environment, the co-ops own willingness to work together is also a key element of their success. Italian consumer cooperatives could not have won the environmental and consumer battles they did in the '70s and '80s if they had not agreed to let their independent identities take a back seat at times and instead exercised their substantial market power in concert.

As the director of a cooperative development loan fund with assets of about $4 million and 100 co-op members (the largest such loan fund in our country), I find it interesting to ponder what we could do for cooperative development with similar participation in this country. What if 1,500 of America's largest cooperatives made $700 million of their reserve funds available for the growth of the movement, as our Italian peers routinely do?