UNIT 1 EVOLUTION AND DEVELOPMENT OF COOPERATIVES

UNIT 1 EVOLUTION ANDDEVELOPMENT OFCOOPERATIVES

Structure

1.0 Objectives

I .1 Introduction

1 .2 Concept and Definition

1.3 Evolution of Cooperatives in Developing Countries

1.4 Development of Cooperatives in India

1.4.1 Cooperative Movement in India

1.4.2 Cooperative Policies

1.5 Different Forms of Agricultural and Rural Development Cooperatives., .

1.5.1 Consumer Cooperatives

.1.5.2 Sugar Cooperatives

1.5.3 Horticulture Cooperatives

1.5.4 Fisheries Cooperatives<,

1.5.5 Women Cooperatives

1.5.6 Credit Societies

1.5:7 ,. Business Cooperatives

1.6 Strategies for Successful Cooperatives

1.7 Let Us Sum Up

1.8 Key Words

1.9 Some Useful Books/References

1.10 Answers/Hints to Check Your Progress

1.0 OBJECTIVESi.l:

After going through this unit, you will be in a position to:

• explain the concept, evolution and growth of cooperatives in developingcountries;

• discuss the different forms of agricultural and rural development cooperatives;and

• explain the strategies fors~cc~s of cooperatives.

1.1 INTRODUCTION.

Cooperation among the group for attaining certain common objectives has beenbasic requirement of civilization. We have seen that even very small creature like 7

Cooperatives ants joirr together in a big way to carry a grain of sugar or food to achieve theircommon objective of meeting their food requirements by way of sharing theefforts and also the fruits. In the same spirit InternationalCooperative Alliancewas formed long back as a structured body to strengthen the cooperative movementworld over which is defined as "an autonomous association of persons, unitedvoluntarilyto meet their common economic, social and cultural needs and aspirationsthrough ajointly-owned and democratically-controlled enterprise." Cooperativesare based on the principles of self-help, self-responsibility; democracy, equalityand solidarity. In the tradition of their founders, cooperatives believe in the ethicvalues of honesty, openness, social responsibility and caring for others. Most ofdeveloped countries started the cooperative movement with the poor people soas to share the benefit with the poor in improving their quality of life.

Agricultural cooperatives have played an important role in the Asian rural landscapefor decades, and have become an integral part of its social structure. Cooperativeshave contributed greatly to the development of modem national and systematizedagricultural production-base, helped enhance self-sufficiency of major staple foods,and strengthened farmers household economy by facilitating market access and

. competitiveness. Cooperatives have also helped in adapting technologicalinnovations in agriculture and encouraging democratic decision-making processes,leadership development and education. However, at the dawn of the 21st century,new issues and forces have been influencing the external and internal environmentof agricultural cooperatives worldwide. Some of these forces include therestructuring 0'£ the agricultural sector such as demographic changes anddiversificationof member-farmers;highly advanced technological innovations; large-scalemarketingand changingconsumer preferences;shiftinginternationalagriculturaltrade regime; and globalization of the financial market. All these factors have leftmany agricultural cooperatives, particularly in the Asian region, gropir.; to findmore efficient business models in an increasingly harsh economy, andwleavingresource-poor small-scale farmers with no option but to realign their economicactivities and meagre resources to external signals. Specifically, the emergence ofthe World Trade Organization (WTO) and other regional trade organizations hasdefined the areas and rules of the game for trade in agricultural commodities andprocessed produce, which are simply not easy to follow by developing countries.

1.2 CONCEPT AND DEFINITION

Cooperative institutions are democratic people-oriented rather than capital-orientedorganisations. Cooperatives are a universal form of organisation found practicallyin all countries and used by people in many ways in their economic and social life:for marketing the products of their labour; for purchasing supplies for their businessor their households and families, for depositing their savings or for borrowingmoney, for providing housing, for securing protection like insurance and healthservices, for the development of their regions, for producing together certaingoods and/or services. There is, practically, no end to the ways in which thecooperative form of organisation can be used to benefit people in their every dayneeds.

A cooperative is a 'user-owned' and 'user-controlled' business that distributesbenefits on the basis of use. More specifically, it is distinguished from otherbusinesses by three basic concepts:

" rFirst, the user-owner concept- "Persons who own and finance the cooperativeare those that use it.

Second, the user-control concept- Control of the cooperative is by those whouse tl~e cooperative.

Third, the user-benefits concept- Benefits of the cooperative are distributed to itsusers on the basis of their use. The user-benefit concept is often interpreted asbusi ness-at -cost.

A definition of the cooperative, which comes from these three basic concepts, is:a business organisation that is owned and controlled by those who use its services,the net income (surplus) of which is divided among the members in proportion tothe use they make of its service.

The definition of a Cooperative, as adopted by the International CooperativeCongress in 1995, and now universally-accepted, reads as under: "A cooperativeis an autonomous association of persons united voluntarily to meet theircommon economic, social and cultural needs and aspirations through a "jointly-owned and democratically-controlled enterprise."

Cooperation means people doing some of their economic activities together fortheir mutual benefit. By uniting their efforts, people gain from one another ideas,talents, skills and energies. In this way, they are able to achieve results, which theycould not achieve alone.

The basic human concept has been practiced through out history. Informal typesof cooperatives are as old as human history. But the cooperative movement, as.we know it today, started in the nursery of modem civilization, that is Europe, inthe context ofthe industrial revolution, the expansion of the money economy and.ihe growing concentration of power in the hands of the few.

With the introduction of 'Cooperative Credit Societies' Act of 1904, theCooperative Movement was started in India. The main objective was 'to encouragethrift, self-help and cooperation among the agriculturists, artisans and other personsoflimited means'.

1.3 EVOLUTION OF COOPERATIVES INDEVELOPING COUNTRIES

The agriculture and rural developmentin developing countries, in which a largemajority of the total population live in rural areas and depend upon agriculture fortheir livelihood, is far from being viable and sustainable. In this sense; the rules oftrade liberalization are aggravating the adverse livelihood conditions of the ruralpoor who are mostly small and medium producers, without much market-orientedorganizational and management capacities. Evolution of cooperatives in developingcountries with special reference to agriculture and allied sectors particularly inIndia, China, Indonesia and Philippines are as under:

l ) .lndia

In India, the beginning of cooperatives is linked to the Nidhi's, the cooperativeundertaking in the form of indigenous nidhis or mutual loan association in the

Evolution and Development.of Cooperatives

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Cooperatives Provinces of Madras, in the second half of 19th century. These were quite similarto Raiffeisen credit cooperatives which were originated in Germany. The Germanpioneer, F.W.Raiffeisen established a cooperative credit society in which borrowingfarmers themselves were members. Other types of cooperatives, like consumercooperatives, were also organized on the basis ofthe Rochdale model, the openingof store by Richdale pioneers in U'K, in the last decades of the 19th century.Seeing these trends and considering the problems of rural agricultural economy,the First Cooperative Law of India was enacted by the Brirish in 1904, coveringthe undivided India. The law covered only credit cooperatives and was repealedby a new law to cover various types of cooperatives in 1912. The 1912cooperative law focused on provisional issues and provinces were given powersto enact their own cooperative laws. Henceforth, all provinces/states introducedown cooperative laws. To cover the cooperatives that have members in morethan one State, the multi unit Cooperative Societies Act was introduced by theGovernment of India in 1942. This Act was an enabling Act and was replacedby a comprehensive enactmenti.e. Multi State Cooperative Societies Act 1984and is presently operative.

2) China

After the People's Republic of China was founded, agricultural cooperativeschanged from elementary agricultural producers cooperatives, advanced agriculturalproducers cooperatives to People's commune and formed the system combiningcooperatives and govemments, which hurt the enthusiasm of farmers for production,hindered rural productivity. In 1979, rural reform was carried out in China, People'scommune system was abolished, and the dual management system within theframework of the household responsibility system was adopted. On above basis,all kinds of rural cooperatives developed gradually. In some areas, farmers organize

. farmers special cooperatives, such as pig raising cooperatives, chicken raisingcooperatives, plant cooperatives and so on. These cooperatives carry out activitiesaccording to the principle of mutual benefit, voluntaries, organized by farmers,managed by fanners, benefited by fanners. Some rural cooperatives formulatetheir own regulations. Regulations are approved by concerned authorities, and thecooperatives have therefore practically become state agencies. Ministry ofAgriculture is incharge of the work and develops cooperatives in the way ofguidance and direction.

3) Indonesia

The initiation of the Indonesian cooperative movement can be traced back to theformation offirst cooperative bank "Hulp en Spaarbank" of savings and assistancein the year 1895, the first consumer cooperative by Budi Utomo in 1909, and anorganization by Javanese Medical School in Jakarta. Later, since 1·913 SarekatIslam, a political organization based on cooperative ideas, played an active rolein promoting cooperatives and is reported to have created hundred of consumercooperatives. The cooperatives became legal entities with the introduction byjheDutch Government on April 7, 1915 of Regulations concerning Cooperatives,based on the Netherlands Cooperative Law of 1876. This law was replaced bythe National Government, first in 1967, and then again in 1992, regulating alltypes of cooperatives.

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4) Philippines

The cooperative movement in the Philippines was sponsored by the civic andregional groups. The first Cooperation law was introduced in April 1906 followedby the Rural Credit Cooperatives Associations Act in 1915. The establishment ofcooperatives picked up particularly during the American occupation. Cooperativeswere, registered under the cooperative law No. 1459, enacted on April 1, 1906,Agricultural Credit Associations Act No. 2508, ylt February 1915 and cooperativemarketing law No. 3425 on 911t December 1927, repealed in April 1973. Saidlaws continued to be valid along with sectorial regulations till all of them wereintegrated in the "Cooperative code of Philippines" in 1989.

1.4 DEVELOPMENT OF C·OOPERATIVES ININDIA

During the British rule, Nicholson a British Officer in India suggested to introduceRaiffesen model of German agricultural credit cooperatives in India. As a follow-up of that recommendation, the first Cooperative Society Act of 1904 was enactedto enable formation of "agricultural credit cooperatives" in villages in India underGovernment sponsorship. With the enactment of 1904 Act, Cooperatives were toget a direct legal identity as every Agricultural Cooperative was to be registeredunder that Act only. The Cooperative Societies Act (1904) was repealed byCooperative Societies Act (1912) which provided formation of Cooperativesocieties other than .credit. Under Administrative Reforms Act (1919) Cooperativewas made a provincial subject making each province responsible for Cooperativedevelopment.

The National Cooperative Union of India (NCUl) was established in 1929 as anapex promotional organisation for promoting and strengthening of cooperativesector, providing education and training in cooperative, propagation of cooperativeideology and research in cooperatives, intemationaI cooperative relatlons,cooperative planning and information services. Similarly, a National CooperativeDevelopment and Warehousing Board was set up in 1956, in pursuance to therecommendations of the All India Rural Credit Survey Committee (1954) underthe aegis of the Reserve.Bank ofIndia. The National Cooperative DevelopmentCorporation (NCDC) was established in March, 1963 by the Government ofIndia under NCDC Act 1962 as a successor organisation to the above Board,with an objective of"planning and promoting programs for production, processing,marketing, storage, export and import of agricultural produce, foodstuffs andcertain other notified commodities and collection, processing, marketing, storageand export of minor forest produce on cooperative principles," NCDC .since thenhave been playing a very crucial role in promoting the cooperatives on the above

'said objective.

India unlike the developed countries started the cooperative movement with thepoor people so as to share the benefit with the poor in improving their quality ofli fe. In some countries, we come across very small community based cooperativesand large industrial cooperative establishment which are, sometimes difficult todistinguish from other industrial enterprises but their service to members is unique.In India the industrial cooperatives in the fertiliser sector, milk sector, sugar sectorwhich have come up a long way to compete with the big industries have maintainedtheir structure of primarily serving to the poor. Multi-Unit Cooperative SocietiesAct, 1942 enacted by the British Govenunent with an objective to cover societies

Iwhose operations are extended to more than one state. The impulses of the Indian

Evolution and Developmentof Cooperatives

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Cooperatives freedom movement gave birth to many initiatives and institutions in the postindependence era in India and armed with an experience of 42 years in the

.working of Multi-Unit Cooperative Societies and the Mult-Unit CooperativeSocieties Act, 1942. The Central Government enacted a comprehensive Actknown as Multi State Cooperative Societies Act, 1984, repealing the Act of1942. An Expert Group constituted by the Government of India in .1990, -recommended

i) to facilitate building up of integrated co-operative structure;

ii) to make the co-operative federation organisations responsive towards theirmembers;

iii) to minimise government interference and control in the functioning of co-operatives; and

iv) to eliminatepoliticisation.

Based on the recommendations, the central government enacted the Multi StateCooperative Societies Act, 2002 which provided for democratic and autonomousworking of the Cooperatives, which came into force with effect from August 19,2002. The Government of India formulated National Policy on Co-operativeswhich uphold the values and principles of co-operation recognizing its autonomouscharacters and attaching priority to professionalism, human resource developmentand to act as preferred instrument for execution ofpublic policy in rural areas andin sectors where they provide the most effective delivery system. To strengthentheir competitive edge in the market, total quality control initiatives, managementinitiatives and cost reduction initiatives will also be taken up. It is now increasinglyrecognised that the co-operative system in India has the capacity and potentialityto neutralise the adverse effects emerging from the process of globalisation andliberalization, and continue to play an important role in employment promotionand poverty alleviation,both as production enterprises - mainly ofthe self-employed- and as providers of services to members. Although cooperatives are not :instruments of employment promotion, they do effectively create and maintainemployment in both urban and rural areas and thus prov.ide income to bothmembers and employees in the form of shares of surplus, wages and salaries orprofits depending on the type of cooperative.

1.4.1 Cooperative Movement in India

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India has basically an agrarian economy, 71 per cent of its total population residein rural areas and 29 per cent in urban areas. The rural people need lot of servicesin daily life which are met by village cooperative societies. The village cooperativesocieties provide strategic inputs for the agricultural sector, consumer societiesmeet their consumption requirements at concessional rates; marketing societieshelp the fanner to get remunerative prices and cooperative processing units helpin value additions to the raw products etc. In addition, cooperative societies arehelping in building up of storage godowns including cold storages, rural roads andin providing- facilities like irrigation, electricity; transport and hea Ith. Thus the

. cooperative societies in India in fact are playing multi-functional roles both in ruraland urban areas. The industrial cooperatives in the fertiliser sector, milk sector,sugar sector which have come up a long way to compete with the big industrieshave maintained their structure of primarily serving to the poor. Cooperation in avast country like India is of great significance because:

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• It is an organization for the poor, illiterate and unskilled people.

• It is an institution of mutual help and sharing.

• It softens the class conflicts and reduces the social cleavages.

• It reduces ·thebureaucratic evils and follies of political factions.

• It overcomes the constraints of agricultural development.

• It creates conducive environment for small and cottage industries.

The share of Cooperatives in National economy is as follows:

Rural Network (villages covered) 100%

Agricultural Credit disbursed by Co-operatives 46.15%

Fertilizer disbursed (6.049 million tonnes) 36.22%

Fertilizer production (3.293 M.T. - N&P) Nutrient 27.65%

Sugar produced (10.400 million tonnes) 59.0%

Capacity Utilization of Sugar Mil1s 11l.5%

Wheat Procurement (4.50 million tonnes) 31.8%

Animal Feed Production/Supply 50%

Retail Fair Price Shops (Rural + Urban) 22%

Milk Procurement to Total Production 7.44%

Milk Procurement to Marketable surplus 10.5%

Ice Cream Manufacture 45%

Oil Marketed (Branded) 50%

Spindlage in Co-operatives (3.518 million) 9.5%

Cotton yam/Fabrics Production 23.0%

Handlooms in Cooperatives 55.0%

Fishermen in Cooperatives (Active) 21%

Storage Facility (Village level PACS) 65.0%

Rubber processed and marketed 95.0%

Arecanut processed and marketed 50%

Direct employment generated 1.07million

Self-Employment generated for persons' 14.39million

Salt Manufactured (18,266 Metric Tonnes) 7.6%

IJlIlIrce: 'Samantaray. 2004

The statistics here indicates that modem cooperative movement has made'tremendous progress in every walk of its activities and occupies a major place inthe share of the national economy.


Cooperatives 1.4.2 Cooperative Policies

In the pre-independence era, the policy of the Government, by and large, wasone of laissez-faire towards the cooperatives and Government did not play anactive role for their promotion and development. After independence, the adventof planned economic development ushered in a new era for the cooperatives.Cooperation came to be regarded as a preferred instrument of planned economicdevelopment and emerged as a distinct sector ofthe National Economy. It wasspecifically stated in the first Five Year Plan document that the success of the Planshould be judged, among other things, by the extent to which it was implementedthrough cooperative organisations. In the sixties, special importance was attachedto achieving increased agricultural production as well as rural development throughcooperatives. A significant development on the agricultural front, during 1966-71,was the implementation of the new agricultural strategy, aimed at the achievementof self-sufficiency in food. The introduction of high-yielding and hybrid varietiesof seeds and the allocation of large outlays for the provision of irrigation faci Iitiesand adequate application of farm inputs led to a manifold increase in the role ofcooperatives. Thus, the Green Revolution gave a big boost to the activities of thecooperative societies; increased agricultural production and enhanced productivitynecessitated an emphasis on value-addition in agricultural produce, marketing andstorage and the development of allied sectors. As a result, specialised cooperativesocieties in the fields of milk, oilseeds, sugarcane, cotton, agro-processing, etc.were set up. Many large cooperatives emerged in the fields of fertiliser manufactureand marketing of agricultural produce. The role of cooperatives, thus, no longerremained confmed to their traditional activities and expanded to new economicventures as in the case of other such enterprises in the public or the private sector.

Check Your Progress 1

Note: a) Use the space given below for writing your answers.

b) Check your answers with those given at the end of the unit.

1) N arne the first Act enacted for cooperati ve in India .

................................................................... .

2) What is the concept of cooperative movement in India?

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3) Explain the significance of cooperatives in the economic development ofthecountry.

............................................................ : .,'.' .

1.5 DIFFERENT FORMS OFAGRICULTURAL AND RURALDEVELOPMENT COOPERATIVES

Cooperatives are no more limited to the rural credit. It has spread its activitiesto the almost all aspects of rural life. This section highlights the important formsof cooperatives in operation serving interest of their members.

1.5.1 Consumer Cooperatives

The village cooperatives are expected to provide consumption loans to the farmersto avoid them going to the money lenders. Another aspect is supply of essentialcommodities, particularly to the weaker sections of the society. The governmenthas launched a.nationwide Public Distribution System (PDS), which is beingimplemented by the State Govemments. Under this programme, fair price shopshave been allotted to individuals, non-governmental organizations includingcooperatives. Of the total number of fair price shops allotted in the rural areas,the share of cooperatives is 17.7 per cent. The cooperative fair price shopssupply all the items identified under the PDS. In a few states, only cooperativeshave been assigned the task.

1.5.2 Sugar Cooperatives

India is one of the largest sugar producers in the world based on the sugarcaneand produced 15.5 million ·tons of sugar during 1998-99. The share of sugarproduced through the cooperatives is more than 57 per cent of the total sugarproduction of the country ~ompared to 0.5 per cent in 1950-51. The ownershipof these sugar cooperatives are mainly with the sugarcane growers. During 1998-99the average capacity utilisation in the cooperative sector sugar mills was 104 percent compared to 103 per cent overall capacity utilisation of the industry. Theaverage recovery of sugar in cooperative. sector' was 10.35 per cent comparedto 9.86 per cent in the overall sugar industry.

1.5.3 Horticulture Cooperatives

In the present milieu, cooperatives have a pivotal role to play in shaping andhaosting the export trade of the country, especially with r,espect to those highvalue crops such as Fruits and Vegetables. It has been already established thatvarious horticultural commodities such as banana, grapes, sapota, lychee, onion,tomato and mushroom etc., of India are highly competitive in the intemationalexport market. The potentiality in the export trade ofthese valued crops need


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Cooperatives to be exploited further. In fact, it has indeed been only in the last few years thatIndian horticultural exports got a real boost because of more' liberal marketenvironment. An integrated approach to the post harvest management throughactive and joint participation of various organizations such as National HorticultureBoard (NHB), Agricultural and Processed Food Products Export DevelopmentAuthority (APEDA), NCDC, etc. will, therefore, be more appropriate to boostcountry's net horticultural exports. It has already been established that the growthprospects of developing countries will be more favourable in the export trade ofF & Vs due mainly to the fact that these countries with abundant labour in relationto capital or land enjoy a comparative advantage in labour.intensive horticulturalproduction as compared to cereal productio~.

1.504 Fisheries Cooperatives

The Government of India as well as National Cooperative DevelopmentCorporation (NCDC) have evolved several schemes, which inter alias, help theeconomic upliftment of poor fishermen and fish fanners through various welfareschemes like the Fish Fanners Development Agency (FFDA,s) and strengtheningvarious fish farmers cooperative institutions such as fish drying through fishennenlwomen cooperatives. Schemes are implemented by the government, along withpattem of sharing of budget with respective states. At the initial stage, the coveragewas limited to some infrastructural facilities (such as godowns, diesel pumps, etc.)and share capital to the cooperative. Subsequently, the coverage widened toother areas, like facilities of marketing, transportation, processing, cold storage,retail outlets etc. There is a network of fisheries cooperatives in India with verticalstructure up to the national level (8,372 Primaries, 78 District Federations, 15State Federations and national federations ofFishennan's Cooperatives). '

1.5.5 Women Cooperatives

For the upliftment of women of weaker sections and rural artisans various schemeswere started on cooperative basis by the central and state government, with thefinancial support ofNABARD and other banks along with technical support ofdifferent institutions and NGOs. Women's Cooperative in the field ofprocessingand marketing of agro products like, 'papad making; preservation of fruit andvegetables and dairy farming are the some of the successful enterprises runs bythe women on cooperative basis. A survey ofthe existing livelihood ski lis showedthat, after farming, the dairy trade is the most commonly-pursued occupation inthe village. Today, several NGOs are working to change this scenario to be moreinclusive of women. The Self-Employed Women's Association (SEWA),Ahmedabad, Gujarat was the first one to start the concept of all-women dairycooperatives in the Banaskantha district. This scheme is implemented by womenmembers of SEW A, now organised into the Development of Women and Childrenin Rural Areas Association. SEWA has also revived some defunct dairies inSanthalpur and Radhanpur talukas. Apart from NGOs, govenunental organisationslike the National Dairy Development Board have also organised special trainingprogrammes for women in modem livestock management. Traditionally, India'sdairy cooperative societies have been run by men, but this is gradual1y changing.According to 'Dairy India' - a publication on the dairy industry - at present, ofan all-India total of9.2 million cooperative members, 1.63 million (18 per cent)are women. Some 2,476 all-women cooperatives are functioning in the country.

·1.5.6 Credit Societies

The Cooperative Movement was introduced into India by the Government as theonly method by which the farmers could overcome their burden of debt and keepthem away from the clutches of the money-lenders. The Cooperative CreditSocieties Act, 1904 was passed by the Government of India and rural creditsocieties were formed. Through the appointment of registrars and through vigorouspropaganda, the Government attempted to popularize the Movement in the ruralareas. Within a short period, the Government realized some of the shortcomingsof the 1904 Act and, therefore, passed a more comprehensive Act, known as theCooperative Societies Act of 1912. This Act recognized non-credit societies also.But the rural credit societies have continued to be predominant till now. Theagricultural cooperative credit structure is broadly divided into two sectors, onedealing with the short-terms and medium-terms finance and the other with thelong-term credit. The short-term and medium-term credit structure is based on athree-tier system, i.e., the Apex Cooperative Bank at the State level, the CentralCooperative Bank at the districtltehsillevel and the Primary Agricultural CreditSocieties at the village level.

Primary Agricultural Credit Societies (PACS): The Primary Agricultural CreditSocieties constitute the 'hub' ofthe Indian cooperative movement. Every fourth.co-operative in India is a primary credit society. The main objectives of a PACSare:

• to raise capital for the purpose of giving loans and supporting the essentialactivities of the members,

• to collect deposits from members with the objective of improving their savingshabit,

• to supply agricultural inputs and services to members at remunerative prices,

• to arrange for supply and development of improved breeds of livestock forthe members,

• to make all necessary arrangements for improving irrigation on land owned bymembers, and

• to encourage various income-augmenting activities such as horticulture, animalhusbandry, poultry, bee-keeping, pisciculture and cottage industries amongthe members through supply of necessary inputs and services.

District Central Cooperative Banks (DCCB): The PACS are affiliated to theDCCBs who perform the following functions.

• Serve as balancing centre in the district central financing agencies.

• Organise credit to primaries.

• Carry out banking business.

•. Sanction, monitor and control implementation of policies.

State Cooperative Banks (SCB): The DCCBs in turn are affiliated to SCBs,which perform the following functions.

Evolution and Development.of Cooperatives

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Cooperatives • Serve as balancing centre in the States.

• Organise provision of credit for credit worthy fanners.

• Carry out banking business.

• .Leader ofthe Cooperatives in the States.

The National Federation of State Cooperative Banks: At the national levelis the National Federation of State Cooperative Banks. It performs the followingfunctions:

• Provides a common forum to the member banks.

• Promotes and protects the interests ofthe member banks.

• 'Co-ordinates and liaison with GOI, RBI, National Banks and others.

• Provides research and consultancy inputs to the member banks.

• Organises conferences/seminarslworkshops/meetings.

1.5.7 Business Cooperatives

Today, the cooperative movement has really come of age in this country. Themajor thrust of the cooperative sector today is towards supporting agriculturalproduction through supply of necessary inputs, providing post-harvest supportfacilities, and facilitating export trade of agricultural produce. The success ofIFFCO, KRIBHCO, cooperative sugar factories, large-sized dairies establishthe fact that cooperative have the potential and experience to venture into large .industrial enterprises in the field of agro, horticultural and food processing. Theynot only provided gainful employment to the rural masses but increase the incomeof fanners in particular and rural masses in general. Cooperatives have played amajor role in integrating the village and national market to the international marketin the present scenario of globalization and liberalization of market. Major businesscooperative in agricultural sector are:

a) Krishak Bharati Cooperative Limited (KRIBHCO): It is a premierCooperative Society for manufacturing of fertilizer, registered under Multi-StateCooperative Societies Act-1985, was promoted by the Govt. oflndia, IFFCO,NCDC and other agricultural Cooperative societies spread all over the country.KRIBHCO has setup a Fertilizer Complex to manufacture Urea, Ammonia andBio-fertilizers at Hazira in Gujarat State.

18.

b) Indian Farmers Fertilisers Cooperative Limited (IFFCO): The objectivesofIFFCO shall be to promote the economic interest of its members by conductingtts affairs in professional, democratic and autonomous manner through selfhelpand mutual cooperation. It undertake manufacture/production/development ofchemical fertilisers, bio-fertilisers, petrochemicals, refining industrial chemicals,and hydrocarbon, their inputs and technologies and allied products/by-productsand conversion, storage, transportation and marketing. It also undertakemanufacture/processing/conversion 'of farm and forestry products, bio-technology, pisciculture and aqua-farming, agriculture machinery and implementsand other agricultural inputs/outputs and their conversion, storage, transportation

and marketing, activities. IFFCO extend to. undertake trading, shipping,transportation, communication and telecommunication, informationtechnology,power generation and distribution from conventional or non-conventional energysources, housing, real estate, construction, banking and insurance. It undertakessuch other activities which are conducive and incidental thereto.

c) National Agricultural Co- perative Marketing Federation of India(NAFED): The objectives of the NAFED shall be to.organise, promote anddevelop marketing, processing and storage of agricultural, horticultural and forestproduce, distribution of agrici l.ural machinery, implements and other inputs. Italso undertake inter-State, impart and export trade, wholesale or retail as thecase may be and to.act and assist far technical advice in agricultural productionfor the promotion and the working of its members and cooperative marketing,processing and supply societies in India.

d) National Dairy Development Board (NDDB): The National DairyDevelopment Board (NDDB) was founded to. replace exploitation withempowerment, tradition with modernity, stagnation with growth, transformingdairying into an instrument far the drveloprnent ofIndia's rural people. TheNational Dairy Development Board 1.as been constituted as a body corporateand declared an institution of national importance by an Act of India's Parliament.The National Dairy Development Board - n .itially registered as a society underthe Societies Act 1860 - was merged with the erstwhile Indian DairyCorporation, a compa: ,j formed and registered under the Companies Act 1956,by an Act of lndia's Parliament - the NDDB Act 1987 (37 ofl987), with effectfrom October 12, 1987.

1.6 STRATEGIES FOR SUCCESS:FULCOOPERATIVES

In a protected econon y the functioning of enterprises be it cooperative or otherwise,used to be a different affair, but with the opening up of the economy and liftingof quantitative restrictions on imports, the cooperatives face a great challenge tocompete with the Multi National Companies (MNC) who have a strong financialbackup, efficient marketing network, professional management and high technologyResearch and Development. Most ofthe cooperatives in India lack in all theseareas, If the cooperatives do not wake up at the right time to strengthen theirsystems and management, they are prone to become sick and may die in the stiffcompetition, Some of the parameters where innovations are essential for successare discussed below:

• Paradigm Shift in Governance of Cooperatives: The cooperatives need tobe governed in a participative manner by its members having common businessinterest. The Cooperative Laws need to be reformed to provide environmentfor growth, adequate autonomy for its management and encourage members'participation. The cooperative societies of various sectors should be allowed tointegrate at primary levels to provide a number of services/products under oneroofin the true spirit of cooperation.

• Professionalism in Management: Cooperative societies basically consist ofthe members and they elect their committee which manages the administrationof the society as well as the business of the society. When there is a competition

Evolution and Developmentof Coop~ratives

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Cooperatives in the market, the cooperative societies need professional managers in the.areas of its core business and financial management etc., so as to make thesociety a profitable entity.Prefit by the Society will not only benefit its membersbut also necessary for its sustenance.

• Technologies in Manufacturing and Quality Control: The manufacturingareas of the cooperative societies need to adopt the latest technologies forcompetitive quality and economy"of scale so as to provide a product withadded value at competitive prices. Many ofthe cooperative ventures in theareas of sugar manufacturing or textile manufacturing have become sick inabsence of technological upgradations, product innovations and competitiveprices. The success ofIFFCO and KRIBHCO in fertiliser sector and Amulin milk/dairy sector for adoption of latest innovative technologies andprofessionalism in management are good examples of successful cooperativesocieties.

• Innovative Marketing: The competitive marketing needs evolving a systemto include various channels of distribution. In the competitive environment,cooperative societies may require to join hands with other strategic partnersfor distribution, export and other products. It may need even strategic alliancewith the MNC's and vice-versa for marketing.

• Joint Ventures in Strategic Areas: The cooperative also need to join handswith MNC's for joint ventures abroad to source certain vital raw materials orproducts which are not available in the country so as to remain competitivewith others in the market and also vice-versa for export of Indian produce.Therefore, to grow competitively in a business environment, the cooperativeshave to keep its eyes and ears open and be innovative to join hands withMNC's at the appropriate time. That is how IFFCO is an example of innovativecooperati ve society.

• Information Technology: The cooperative societies need to be networkedwith the computer system for information flow and to be put on e-commerceroute of business for fast decision taking and marketing. This area needs a lotof education and support to bring the cooperative ventures and the cooperativenetwork competitive in the economic liberalisation process. Basically forcarrying out a particular business a multi unit cooperative society is formedwith the membership of a number of primary cooperative societies at thegrassroots level. Therefore, for dissemination, sharing and adoption of latestinformation technology is essential for the success ofthe cooperative movement.All the primary cooperative societies should be provided with computer systemlinked network with the apex cooperative society as well as with the internetand other relevant agencies. The sharing of knowledge through networking ofcooperative will be a move in right direction and will be conducive tocooperative principle. The cooperative societies will have to think for adoptinge-commerce system of business as well. With the economic liberalisation andopening up of the markets under WTO provisions, the localised production!marketing willnot suffice.

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• Operational Transparency: Most of the Cooperatives today suffer fromcharges of corruption, malfunctioning and non-transparent decision making.The computerized system of working will have operational transparency ofbusiness. Every member of the society will be able to know the status of their

societies business, trend etc., and to give his suggestions to the society instantly.The transparency in operation will also attract greater support from membersin decision making and increase the operational efficiency. The cooperativeventures need to follow strict financial discipline and strong financial managementfor not only profitability but also for its credibility in the financial market formobilisation of financial resources and decision making.

• Value Addition to Agri-Produce: Agro processing plants in cooperativesector are needed a lot to minimise the wastages of perishable commoditiesand improve its packaging and marketing for remunerative prices. A networkof cold storages along with food processing plants needs to be developed incooperative sector to avoid the losses of agriculture produce. It will beworthwhile to note that because of the infrastructural and other constraints,million of tonnes of perishable agricultural products in India are wasted everyyear. Avoidance ofthese wastages will not only boost the economy but alsoprovide food to a large number of underfed human beings. Also in the seasonof harvesting, they are sold at throwaway prices which at times do not bringeven the input prices for these items to the farmers. Therefore, ifthese produceare kept in cold storages or proper warehouses the wastages could be minimisedand by selling it in off-season and also by adding value.through agro-proeessing,better retums shall be achieved':

• Diversification: The cooperative societies in India need to come forward inthe health, insurance, irrigation sectors etc. These sectors are still not exploitedby the cooperatives where a lot of people are affected and could be utilisedfor the well being of the members. For example, with the opening up oftheinsurance sector in India, IFFCO is diversifying into insurance business whichwill include providing insurance services to the farmers for their crops andagricultural products etc. in addition to other areas,


Note: a) Use the space given below for your answers.

b) Check your answers with those given at the end of the unit.

I) Explain the cooperative credit structure in India.

2) Name the successful cooperatives in India which are closely linked to thegrowth of livestock and agricultural sector.


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Cooperatives 3) Explain the role of different forms of agriculture and rural cooperatives in theeconomic developme t.

1.7 LET US SUM UP

I Lpe after reading this unit, you have understood the evolution of cooperativesin developing countries, different forms of agricultural and rural developmentcooperatives, successful cooperatives institutions in agriculture and rural sector.

Cooperatives have contributed greatly to the development of modem andsystematized agricultural production-base, helped enhance self-sufficiency of majorstaple foods, and strengthened farmers household economy by facilitating marketaccess and competitiveness, adapting their operations to agricultural technologicalinnovations and encouraging democratic decision-making processes, leadershipdevelopment and educai.on. However, at the dawn of the 21 st century, newissues and forces have been influencing the external and internal environment ofagricultural cooperatives worldwide. Some of these forces include: the restructuringof the agricultural sector such as demographic changes and diversi fication ofmember-farmers; highly advanced technological innovations; large-scale marketingand changing consumer preferences; shifting intemational agricultural trade regime;and globalization ofthe financial market.

The Cooperative Movement was introduced into India by tile Govemment as theonly method by which the farmers could overcome their burden of debt and keepthem away from the clutches of the money-lenders. The Cooperative CreditSocieties Act, 1904 was passed by the Government of India and rural creJitsocieties were formed. Within a short period, the Govemment realized some ofthe shortcomings of the 1904 Act and, therefore, passed a more comprehensiveAct, known as the Cooperative Societies Act of 1912. This Act recognized non-credit societies also. But the rural credit societies have continued to be predominanttill now. Today, the cooperative movement has really come of age in this country.Cooperatives like consumer cooperative, sugar cooperatives, horticulturecooperatives, fishermen cooperatives, women cooperatives, credit cooperativesand some of the business cooperatives have played significant role in thetransformation of agricultural and rural economy of the country. The success ofIFFCO, KRIBHCO, cooperative sugar factories, large-sized dairies establishthe fact that cooperative have the potential and experience to venture into largeindustrial enterprises in the field of agro, horticultural and food processing. Theynot only provided gainful employment to the rural masses but increase the incomeof farmers in particular and rural masses in general. Cooperatives have played amajor role in integrating the village and national market to the international marketin the present scenario of globalization and liberalization of market.

1.8 KEY WORDS

22 APEDA Agricultural and Processed Food Products ExportDevelopment Authority.

Cooperative A form of organization where in persons voluntarilyassociate together as human beings on the basis ofequality for promotion oftheir economic interest.

Liberalization ofEconomy

Opening of national economy at international marketfor free trade.

Management The task of the managers and the managing process inthe effective achievement ofpredetennined objectivesof an organization.

NABARD National Bank for Agriculture and Rural Development.

NCDC National Cooperative Development Corporation.

1.9 SOME USEFUL BOOKS/REFERENCESChengappa, P.G. and B. M. Shashidhara (1998). 'Impact of New EconomicPolicy on Cooperatives' in 'India s Rural Cooperatives'. Gursharan SinghKainth (ed.), Regency Publications,New Delhi.

Deb, Alok Kumar (2006). World Cooperative Movement, WWW. CooperativeMovement India. Corn

Dwivedi, R.e. (1996). 'Role of Cooperatives in Rural Economy'. Indian Journalof Agricultural Economics, Vol. 51, No. 4, Oct.-Dec., pp. 713-727.

Eleanor, Margaret Hough, K. Madhava Das (1967). Cooperative Movement inIndia (Ed). Oxford University Press ,506p

Kaith GS (1998). India's Rural Cooperatives/(Ed). Vedam Books, Delhi, 456 p.

Mukherjee, R. (1998). 'Credit Cooperatives in India s Rural Economy' in'India s Rural Cooperatives', op. cit. pp. 147-158.

Paranjothi, T. (1984). 'Committee and Commissions on Cooperation'. RainbowPublications, Coimbatore, November, pp.79-90.

Samantaray, P.e.(2004). Hundred Years of Cooperative Movement: Emergingissues and Challenges, Orissa Review, Dec. 2004, P. 7-12. (http://orissa.gov.nic.inle-magagine/orissreview/deczouq )

Thorat, Y.S.P. (2005). Key note address, Centenary of Indian CooperativeMovement, Round Table on Cooperative Banking, Pune.

1.10 ANSWERSIHINTS TO CHECK YOURPROGRESS


I) Cooperative Society Act, 1904

2) The rural people need lot of services in daily life, which are met by village co-operative societies. The village cooperative societies provide strategic inputs


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Cooperatives for the agricultural sector, consumer societies meet their consumptionrequirements at concessional rates; marketing societies help the farmer to getremunerative prices and cooperative processing units help in value additionsto the raw products etc. The cooperative societies in India in fact are playingmulti-functional roles both in rural and mucinareas. The industrial cooperativesin the fertiliser sector, milk sector, sugar sector which have come up a longway to compete with the big industries have maintained their structure ofprimarily serving to the poor. -

3) After independence, the advent of planned economic development ushered ina new era for the cooperatives. Cooperation came to be regarded as apreferred instrument of planned economic development and emerged as adistinct sector of the National Economy. It was specifically stated in the firstFive Year Plan document that the success of the Plan should be judged,among other things, by the extent to which it was implemented throughcooperative organisations. In the sixties, special importance was attached toachieving increased agriculturalproduction as well as rural development throughcooperatives.


1) The agricultural cooperative credit structure is broadly divided into two, onedealing with the short-terms and medium-terms finance and the other with thelong-term credit. The short-term and medium-term credit structure is basedon a three-tier system, i.e., the Apex Cooperative Bank at the State level, theCentral Cooperative Bank at the districtltehsillevel and the Primary AgriculturalCredit Societies at the village level.

2) Cooperative institutions like Krishak Bharati Cooperative Limited(KRIBHCO), Indian Farmers Fertilisers Cooperative Limited (IFFCO),National Agricultural Cooperative Marketing Federation of India (NAFED)and National Dairy Development Board (NDDB) etc., helped in transformingthe agricultural and rural sector into an instrument for the development ofIndia.

3) The rural people need lot of services in daily life which are met by villagecooperative societies. The village cooperative societies provide strategic inputsfor the agricultural sector, consumer societies meet their consumptionrequirements at concessional rates; marketing societies help the farmer to getremunerative prices and cooperative processing units help in value additionsto -the raw products etc. In addition, cooperative societies are helping inbuilding up of storage godowns including cold storages, rural roads and inproviding facilities like irrigation, electricity, transport and health. Thus, thecooperative societies in India in fact are playing multi-functional roles both inrural and urban areas.

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UNIT 1 EVOLUTION AND DEVELOPMENT OF COOPERATIVES

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