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Commodity Cooperatives in Drought Prone Regions – Part 1

Trilochan Sastry (Academic Dean, IIM-Bangalore)

[Editor’s Note: I had a scintillating conversation with Dr. Trilochan Sastry (Academic Dean, IIM-Bangalore and social entrepreneur/activist) a few weeks ago regarding his pioneering work in shaping a new model for farmer owned-and-run commodity cooperatives in Andhra Pradesh. I professed my ignorance about cooperatives in general and Dr. Sastry was kind enough to share his pre-published paper on commodity cooperatives in drought prone regions. With his permission, I’m reproducing his paper as a 7-part series on this blog.]


Only about 30% of agricultural land in India is irrigated. The rest is rain fed and farmers face all the vagaries of the monsoon, including floods and drought. In regions of lower rainfall, which includes large parts of Central India, Rajasthan and the Deccan plateau, the problems are more severe. In such areas farmers often have only one crop a year. In purely income terms, the net income in a good year from such areas is between one sixth and one tenth the income from other regions. For instance, at current prices, one acre of irrigated land growing rice gives a net income of Rs.30,000 to Rs.40,000. However, for single crop groundnut crops in arid regions, the net income in a good year is about Rs.5000 per acre. Most years, it is less than that. For pulses, this figure could be a little higher, say about Rs.6000 per acre, and for cotton or soya bean perhaps Rs.7500. The risks are much higher as drought periodically affects the crops. In addition, as we see later, the market risks are also higher.

In such areas, farmers typically grow pulses (dals of various types including tur, moong, udat, chana etc.), oil seeds (soya, groundnut, sunflower, castor etc.), cotton and minor millets (bajra, jawar, ragi etc.). We can classify them as crops of the poor.  They give low yields, and net incomes from these crops are much lower than wetland crops like rice, wheat and sugarcane. The reason farmers grow such low yielding crops is simple – that is what grows in areas of low rainfall. At the same time, the investment in seed, fertilizer and pesticide (inputs) and other farming inputs is also low. Labour costs could sometimes be high as they often have to remove weeds to prevent them from taking up the soil nutrients. We can classify this is a low investment, low return strategy.

Farmers in rain fed, single crop regions constitute perhaps the single largest category of the poor in India. Estimates vary, but between 200 million to 350 million are in this category. They do not depend on farming for their entire income.  Perhaps 30% to 50% of their income comes from farming. They are forced to supplement this with wage labour. In drought years, they are forced to migrate seasonally during the agriculture off season to cities or other places for labour. In some areas, the pattern is set and lakhs of people migrate seasonally. With the boom in construction in urban and semi-urban India, and the growth in infrastructure like roads and bridges, the attractiveness of such opportunities is currently high. But living conditions in urban slums for such migrant labour are usually very harsh.

With the opening up of markets, including the WTO stipulations, sometimes these farmers are part of the collateral damage, as imports of oil seeds or pulses depress prices, sometimes below cost, leading to acute, widespread distress.

Conditions for Cooperatives to Work

The major condition is that there should be some marketable surplus. If farmers are practicing subsistence farming where all the output is used for household consumption, there is little chance of promoting a successful cooperative. With rice and wheat available at highly subsidized prices through the Public Distribution System (PDS), many regions have shifted over from growing minor millets to cash crops like soya, groundnut, cotton and so on. This does provide an opportunity for marketable surplus.

Farmers in an area are often victims of tied sales, where they are forced to sell their produce to the money lenders from which they have borrowed funds for agriculture or other needs (usually at terms that are exploitative). If a very large number of farmers are in this trap, it would require a lot more effort to establish cooperatives.

In areas of high rainfall risk where the crop yields fluctuate a lot from year to year, there is a bigger challenge. During drought years, there is no sizable produce for the cooperative to market. This means that there is hardly any activity in the cooperative during such a year. Severe drought in the initial years of a cooperative could pose challenges, but once a cooperative is well established, it can weather a bad year as we see later.

If the State’s legal framework for cooperatives is not conducive it poses further challenges. Several States in India including Andhra Pradesh, Karnataka, Madhya Pradesh, Chattisgarh, Jharkhand, Bihar, Uttarakhand and Orissa have new Cooperative Acts. These Acts allow member owned, member controlled cooperatives to be established. In other States, such cooperatives cannot be registered. The existing Cooperatives under the old Cooperative Acts are under the control of the Government. They stipulate conditions on membership, composition of the Board, finances, use of surplus funds, prevent more than one cooperative in an area to be registered, stipulate how much bonus can be paid and so on. The Department of Cooperation sends its officers on deputation to run the Cooperatives. They also give power to the Registrar of Cooperatives to dissolve the elected Boards of Cooperatives. In such a regime, it is very challenging to establish vibrant cooperatives. Sometimes they resort to registering them as trusts or Societies to overcome the hurdles placed by the old Acts.

Part 2 of this series continues here – How commodity cooperatives differ from milk or sugar cooperatives.

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