Establishing commodity cooperatives – promoter philosophy, leadership and cooperative rules

[Editor’s Note: This is part 6 of a 7-part series on commodity cooperatives in drought prone regions, originally authored as a pre-published paper by Dr. Trilochan Sastry (Academic Dean, IIM-Bangalore and social entrepreneur/activist). Dr. Sastry is shaping a new model for farmer owned-and-run commodity cooperatives in Andhra Pradesh through Center for Collective Development (CCD), a Hyderabad-based NGO he founded in 2003. Part 5 in this series was Establishing commodity cooperatives – crucial role of member stakes.]

Philosophy of promoter and Capacity building

Trilochan Sastry (Academic Dean, IIM-Bangalore)

Very often the promoting organization, in its anxiety to avoid mistakes, takes charge of operations and decisions. It takes control of procurement, quality assessment, storage, and decisions on marketing. Such an approach puts severe strain on the promoters since they cannot be present at the same time in several villages during the harvest season. Either the work suffers or they are not able to expand their coverage of villages or their costs go up.

It is perhaps better from the early stage to make clear what the promoter will do and will not do. This brings up the crucial role of capacity building. A lot of time and resources have to be put into training members and their leaders on what cooperatives are, how they work, the bye laws, the rights and duties of both the members and leaders. In addition, training is required on the business aspects as well – keeping accounts, finance, storage practices, quality assessment, purchase norms from members, price movements, and marketing. In addition to all this training on an ongoing basis, exposure visits to successful cooperatives motivates new members and their leaders tremendously. Once they see that other farmers like them are able to run such cooperatives and are getting huge benefits, they think they too can do it.

A crucial decision is when to sell the produce. Often the promoter takes the decision. This does not build the capacity of the cooperative. It is better to give all relevant information, discuss with the Board of Directors of the Cooperative, but leave the final decision to them. Obvious pitfalls must be pointed out. People learn only by making mistakes, and as long they are not destructive, there is no need for any external interference. For instance, one cooperative used a conservative strategy one year (due to high member stakes) and sold their produce at a good profit. Unfortunately, the price went up even further six weeks later. Lots of members criticized the Board of Directors. Next year, they did the opposite. They did not sell when the price was good, and later were forced to sell at a small loss. It was a notional loss, not a cash loss. These two years helped not only to educate the Board of Directors, but the entire membership. If the promoter had taken the decisions, he would have got blamed, there would have been far higher dissatisfaction, and worst of all, there would have been no learning for members.

Crucial Role of Leadership

For a well functioning cooperative, its leaders elected by members (who form the Board of Directors) should be capable and trusted by everyone. The outside promoting agency does not know the leaders as well as the members since they have been living in the same village all their lives. In the current political scenario, a good leader is one who can convince voters that he will be able to raise resources. This could be from the Block, District, the MLA or MP, various Government schemes or from philanthropists. He is articulate and persuasive. People vote for him, he gets resources and sometimes keeps some of it for himself and his friends and relatives. People know all this but continue to vote for him since the resources he is using are not theirs.

For promoting genuine cooperatives, the whole approach needs to be turned upside down. Instead of external grants or subsidized loans, the members need to put their money into the cooperative (member stakes). In such a situation two things happen. First, those ‘leaders’ who realize that there is no money to be made, step aside. Second, voters on their own think about it and select a capable trusted person – one who can be trusted with their money. Such leaders are usually not those who give rousing speeches, but more quiet and responsible and those who work systematically. This is where the philosophy of the promoter is crucial. If he insists that there will be no subsidy or grant, and that in turn, members have to have a stake in the cooperative, eventually members elect the right leaders on their own.

Putting Rules in Place

Without commonly discussed norms or rules, cooperatives cannot function. Some of the most crucial relate to the use of funds. Deliberate loan defaulters who have no real reason not to pay, must be dealt with strictly. Members know better than outsiders why a person is not repaying a loan. The promoter in the early stages must insist that working capital would not be paid to those members who are in default. Similarly, leaders who do not bring their produce to the cooperative, should not be eligible for re-election. Over the years, members’ own funds accumulate and reserves grow in the Cooperatives. There is a tendency amongst some leaders of the Cooperatives to use these funds as loans just before the harvest for threshing, labour and related charges, or at other times for other reasons. Unless the norms for taking such loans are discussed and are part of the bye laws and equitably available to all members, such people should be made to repay and become ineligible for being elected. Otherwise the promoting organization or NGO can perhaps say that such cooperatives would not be eligible for working capital loans the next season. In today’s environment, it is a good idea to bar those who contest political elections – whether for Sarpanch, Mandal Parishad, Zilla Parishad, State Assembly or Lok Sabha from becoming a Director of a Cooperative. If these rules are not in place in the early or growth stages, the cooperatives are not likely to thrive in the long run.


, , , , , , ,