Last week AgriMatters discussed the concept of Transaction based decision making in co-operatives. This has evoked a mixed response on the net: with some saying that if decision making has to be based on the extent of transactions, then it is perhaps better to have informal groups/corporate structures. Why change the ‘salient’ aspects of the co-operative model as is universally understood. AgriMatters has also been ‘accused’ of toeing the government line (as if there is any) so that federal co-operatives (like NCUI, NCCF, Nafed, and IFFCO) can be controlled by the ‘bigger players’.
The response is as follows. Informal groups, co-operatives and corporate structures- all have a different focus, and AgriMatters has never supported a ‘one size-fits –all’ strategy.
Informal groups come together when the requirement is not in ‘the present continuous’. These groups work best when an ‘issue’ has to be addressed. Take for example the case of growers of a particular commodity – say apple , coming together only to seek an enhanced duty, or a Minimum Import price for apple, or seeking an ‘anti-dumping duty’ against China and/or New Zealand. This group would include co-operatives of apple growers, individual orchardists and also those involved in the packing, grading and value chain logistics of apple. Naturally those with a higher stake will put in greater resources and efforts. Once institutional mechanisms are in place to settle these issues- the group may never need to meet. For example, once the ‘in-principle’ decision on the Minimum Import/Export price has been taken, the action agenda shifts to the government, and in all probability, an inter ministerial group will be constituted to meet at regular intervals to take appropriate decisions.
Let us now examine the option of corporate structures under the Companies Act. It is true that the domain stakeholders can establish Section 25 companies which have significant ‘co-op like features’ : especially rules regarding restricting membership to actual users, and the upfront declaration that the main purpose for their establishment is not ‘return on dividend’, but facilitating transactions. This has many advantages – the governance structure is more akin to a corporate structure – the focus is on the enterprise, rather than the ‘democratic and socially responsible’ aspects of members. This can work well when the members are few, and the operation is ‘stand alone’. Perhaps it can work at the apex level. However, for the typical ‘three tier structures’ that is the norm for milk, credit and marketing societies, the corporate structure may not work. Besides, there will be the practical difficulty of converting all the existing co-ops from the fold of the co-operative organization to the ‘company law institutions’.
Therefore this column will discuss the practical ways in which transaction based decision making in co-operatives can be made effective. First, rather than look for exact apportionment of voting strengths, broad categories may be established. Thus, for a milk producer’s co-operative society, there could be three categories based on the amount of milk supplied over the year. To illustrate, take the case of a primary society with a hundred members and a collection of hundred thousand litres of milk per year. The distribution of milk among these hundred members is as follows: fifty five members contribute thirty three thousand litres of milk, thirty members contribute another thirty three thousand litres, and the remaining ten members contribute thirty four thousand litres. If these three categories are given three positions each in the governance structure, the problem can get resolved to a large extent. The assignment to a particular category will depend on the annual contribution to the overall kitty, and there is complete transparency in the process. This also acts as an incentive to members to pour more milk to their co-operative society. This is also ‘transaction based decision making’, though exact weights are not being assigned, and in any case, this was never the intention of the previous essay.
This brings us to another issue: how can co-operative organizations restructure themselves financially when they are in crisis. For unlike the BIFR, there is no equivalent organization in the co-operative sector which can take remedial steps like debt restructuring, or asset consolidation or debt recovery. This is something which the Multipurpose State Co-op Societies Act has not addressed, and the only option is liquidation, (which is a non-option). In a typical corporate structure, a new company, or a subsidiary can be floated with relative ease, and few questions are raised. However, if an organization like Nafed was to restructure its operations, or think of establishing a strategic tie-up with other co-operative organizations, the process is rather difficult. Assuming for a moment that another co-operative like IFFCO or Kribhco wants to help Nafed out of its current crisis, the process of establishing a Multi state co-operative is so cumbersome and time consuming that a corporate structure becomes a preferred option. The interesting aspect is that co-operative organizations may find it easier to float a Section 25 company with restricted membership, restricted dividend, but decision making based on equity contribution. This idea has still not been tried out, but unless new concepts are tried out, how do we know that they will not work. Moreover it is only when conventional options are no longer available that newer, out-of the box options are considered.
AgriMatters is aware that this is not as easy as it appears. The biggest apprehension is that both within the co-operative movement and the government, there are many who regard the co-operative form of organization as sacrosanct. The oft quoted lines of Nehru: ‘Co-ops have failed, but co-ops must succeed’ have really been taken out of context to shackle the co-op movement to shibboleths of the past. It’s time to break free… and the crisis in organizations like Nafed should be looked upon as an opportunity to break new ground.