Cooperatives - II

Trilochan Sastry
IIM Bangalore

Re-cap
Coops are very big world over, including the
US, Europe several Fortune 500 companies
with well known brands, turnover > $15 billion
each
No such success in India except for Operation
Flood led by NDDB
Reasons lie in governance and design
Governance:
Needs to be in the control of members; Not in the
hands of promoters, whether NGOs or Government

Re-cap 2
AMUL success has some key principles:
Ownership, control and governance is with farmers
The business has majority member stakes or funds
Very little subsidy: only capital subsidy

Designed on the well known Anand pattern

with 3 tier structure at village, district and
State
The grant is only for cost of promotion of
coops

Dairy: Initial Strategy

Milk has two components Fat and SNF
(Solids-not-fat) Traditionally after meeting
local liquid milk needs, fat was separated
and sold, SNF was given away. A modern
processing plant extracts commercial
value from SNF
Use donor supplied milk to attack
competitors in urban markets
Retain members with
quality/weight/payment/ offtake/ support
services assurances

Examples of successful
Coops
AMUL, KMF (brand Nandini), Sudha Dairy
Patna,
Mulkanoor Cooperative (Rice), Telengana
Mulkanoor Womens dairy Coop
PRADAN, an NGO, promoted Poultry Coops
in Madhya Pradesh, Chattisgarh and
Jharkhand
SIFFS South India Federation of Fishermen
Societies, Kerala and Tamil Nadu, AP

 Gambhira Society, Gujarat tobacco

growers doing joint farming and marketing
Valsad jilla fal ane shakbhaji sahakari sangh
ltd Valsad District Fruits and Vegetable
Cooperative Federation
Naandi Foundation promoted coffee coops in
Araku Valley, AP
CCD promoted Federations and Coops
Are there common ideas that lead to success?

Where do coops succeed?

Member centrality: everything
revolves around member benefits.
They are central
Coop should be important to
members: e.g., neem seeds versus
dairy versus agri commodities
Business model should be clear with
potential for profits

Design Overall
What are the business opportunities?
Which part of the value chain does
the cooperative address?
Are private partnerships needed?
Background homework: e.g., cotton
versus pulses or dals
Which commodities are amenable to
coops?

Design: Operations
Rules for members:
Do they sell all their produce to coop?
Can they sell wherever they want to?

Quality assessment at point of purchase, at

processing unit, at shipment
Dispute resolution: e.g., difference in quality
between collection centre and processing unit
Proper, transparent accounting systems. Each
member has a passbook
Sale through reliable channels

Design Financial
Share capital needed, but initially
members cant pay. Gradually build it
up
Share capital of each member left to
his/her choice but related to
quantity of supply
Payment of bonus: on share capital
or on patronage, i.e., quantity
supplied?
Limits of share holding or not?

Design Financial 2
How much and when is payment
made to members?
Immediately or delayed?
Full or part payment?
Any special focus on the poor on
payment terms?

Problem of capital accumulation: how

do we address this? Bank norms
today in India do not allow lending to
coops on large scale

Design Financial 3
No way of getting around member
having to put in their funds.
compulsory deposits
Bridge financing required, e.g., coffee
plantations in Araku Valley

Design Financials
Loans to members versus loans to
Coop business activity
E.g., loan to member to buy a cow or
buffalo versus loan to District Milk
Union to set up a dairy plant
Which loans do you give?

Design Financials: Use of

surplus

What do we do with the profits?

Distribute to members?
Retain them?
Keep in general fund as reserves?
Keep as individual member deposits?
How do we plan for crisis and losses?

Design: Marketing and

Strategy
What is the competitive advantage
the coop has over private business?
What are the handicaps it has?
How should it compete?

Design: Governance
Is leadership important?
How do we try to ensure that good
solid leadership emerges?
Is leadership tied to the design and
financial systems in place?
Who takes the business decisions
the promoting agency, the leaders,
the hired professionals or the general
body?

Governance
How do we try to ensure member
control?
Regular meetings
Transparent accounts
Regular internal and external audits
Regular elections
How do we get over member apathy if
any?

Linking Design, Leadership and

Governance
Member stake and no subsidy
ensures good responsible leadership
Part payment avoids gambling on
Other Peoples Money (OPM)
Makes members take interest and
hold leaders accountable
Member stakes allows Coop to take
Bank Loans

 Regular savings or compulsory

deposits allows members to take
loans from their own funds
Transparent fair practices (e.g.,
quality assessment, proper accounts)
builds trust
Rules for loan recovery from
members makes it more sustainable
Member stakes changes mind set
from service to business.