Cooperative Sector and its Role in Indian Farming

GS Paper 3

Syllabus: Agriculture

Source: PIB

 Context: The Prime Minister inaugurated and laid the foundation stone for several key initiatives in the cooperative sector. This included:

1. Pilot project of the ‘World’s Largest Grain Storage Plan in Cooperative Sector‘ in 11 Primary Agricultural Credit Societies (PACS) across 11 states
2. The foundation stone for an additional 500 PACS for the construction of godowns and other agricultural infrastructure nationwide.
3. Project for computerization in 18,000 PACS across the country

What is the Cooperative Sector?

A cooperative society is a voluntary association aiming to fulfil common economic interests through self-help and mutual assistance. India’s cooperative movement dates back to its independence era. The 97th Constitutional Amendment Act of 2011 recognized the right to form cooperative societies as a fundamental right (Article 19), introduced a new Directive Principle (Article 43-B) on promoting cooperatives, and added a new part to the Constitution focusing on cooperatives (Articles 243-ZH to 243-ZT). This amendment empowers both Parliament and state legislatures to enact laws governing cooperatives. In 2021, the Union Ministry of Cooperation was established to oversee cooperative affairs, which were previously managed by the Ministry of Agriculture.

The Indian cooperative movement is the world’s largest cooperative movement, with more than 8 lakh cooperatives. The collective strength of the agricultural cooperatives offers unique benefits to farmers in various ways.

Role of Cooperatives for Indian Farmers: 

Market access and bargaining power:

• Marketable surplus:
  • With agricultural cooperatives, the constraint of small and fragmented landholdings and less produce is overcome.
  • The marketable surplus of food grain and industrial raw materials can be transported and marketed on a bulk basis for remunerative prices.
• Market reach:
  • With collective strength, cooperatives enable farmers to control supply and marketing channels.
  • Agricultural cooperatives assist farmers in expanding their market reach so they may sell their products for remunerative prices.
  • Cooperatives increase the farmers’ creditworthiness, and thus, they have a better capacity to sell surplus items for more money.
• Collective strength:
  • Small farms would not have been able to expand irrigation potential and land production on their own.
  • Farmers in cooperative farming have access to more land and resources, including men, materials, and money, thus increasing production capacity.
• Better price realization:
  • Cooperatives could offer better competitiveness for smallholder farmers.
  • They can thus give farmers more negotiating leverage, access to new markets and technology, and cost savings by pooling their resources and expertise.
  • Farmers who are efficiently organized can form a collective voice to advocate for their needs and access services at affordable prices for better yields, sales, and profits.
• Government interaction:
  • From the administrative viewpoint, cooperatives facilitate easier interaction and transactions with the government.
    • g., collecting taxes, distributing subsidies, introducing improved methods of production, etc.
  • This, in turn, increases the bargaining power of the cooperatives in terms of price fixing, subsidies, etc.

Profitability:

• Knowledge sharing:
  • Agricultural cooperatives can play a vital role in educating the farmers to reduce the cost of cultivation through balanced use of fertilizer, and improve water-use efficiency.
  • It also helps farmers understand new technologies in farming.
• Credit facilitation:
  • Cooperatives can give farmers access to finance, which they can use to buy farming-related supplies and equipment.
  • It facilitates credit to farmers at a reasonable rate of interest
• Income generation:
  • Cooperatives can help establish more warehouses to avoid distressed sales of produce, link with the National E-market (e-NAM), emphasize value addition and encourage farmers to take up other allied activities like poultry, beekeeping, and fisheries.

Challenges with Cooperatives in India:

1. Regulation and Supervision: Fragmented regulatory framework and dual control issues lead to inconsistencies in supervision.
2. Governance and Management: Poor governance and management contribute to mismanagement and fraud, leading to failures.
3. Capital Adequacy: Struggles to maintain sufficient capital levels hinder operational resilience and expansion.
4. Credit Risk Management: Lending to SMEs and individuals with limited credit history poses challenges in managing credit risks.
5. Technology and Innovation: Lack of investment in modern technology limits competitiveness against larger banks and fintech firms.
6. Competition: Intense competition from commercial banks and fintech companies makes customer retention difficult for financial cooperatives.

Other Government Initiatives for the Cooperative Sector:

1. Financial Support: The government ensures that every farmer in the country receives approximately ₹50,000 annually through various means, providing financial security and assistance.
2. Formation and Promotion of 10,000 Farmer Producer Organizations (FPOs): This Central Sector Scheme aims to empower farmers by enabling them to enhance their bargaining power, leverage economies of scale, reduce production costs and increase their incomes through the aggregation of agricultural produce, contributing to sustainable livelihoods.
3. Fertilizer Subsidy: Over the past nine years, the government has allocated ₹10 lakh crore towards fertilizer subsidies, ensuring that farmers have access to crop nutrients at affordable prices despite global price fluctuations.
4. Parliament passed the Multi-State Cooperative Societies (Amendment) Bill, 2022, aimed at enhancing transparency, accountability, and ease of doing business in the cooperative sector. The bill introduces provisions such as the establishment of a Cooperative Election Authority, the creation of a Cooperative Rehabilitation Reconstruction and Development Fund, the appointment of a cooperative ombudsman and information officers, and the representation of women and SC/ST members on cooperative society boards.
5. Government’s Electronic Marketplace (GeM): GeM version 4 is an innovative online platform dedicated to marketing goods and services from MSMEs and non-financial cooperatives, boasting over 62,000 government buyers, 49 lakh sellers, and numerous products and services.
6. Welfare Schemes for Dairy Development: Several welfare schemes support dairy development and fisheries, pivotal for rural households, with milk cooperatives proving successful.
7. Cooperatives as a Business Model: Cooperatives serve as a viable business model for post-harvest processing, warehousing, and packaging.
8. Use of Technology: The government envisions rural development through technology adoption in schemes like Digital India, BharatNet, and e-Governance.

For FPOs: Role of Farmer Producers’ Organizations (FPOs)

Conclusion

Cooperatives play a vital role in supporting farmers by offering financial aid, sharing modern farming knowledge, facilitating the marketing of produce, and procuring essential inputs. Their efforts contribute significantly to the advancement of the agricultural sector and the well-being of farmers.

Mains Links:

“In the villages itself, no form of credit organization will be suitable except the cooperative society.” – All Indian rural credit survey. Discuss this statement in the background of agriculture finance in India. What constraints and challenges do financial institutions supply agricultural finances? How can technology be used to better reach and serve rural clients? (UPSC 2014)