Areas of Cooperation and Competition

Source: Indian Express

Synopsis: Ministry of Cooperation cannot always guarantee price stabilisation and growth.

Do cooperatives guarantee growth?

• Firstly, in 1991 it improved the terms of trade for agriculture and benefitted millions of farmers.
  • Agri-exports zoomed, but this led to higher domestic prices.
• Secondly, in 1991, the finance minister wanted to delicense the dairy sector as well, but there was stiff opposition from Verghese Kurien, the “Milkman of India”.
  • As a compromise, Narasimha Rao partially de-licensed the sector through the Milk and Milk Products Order of 1992.
  • It was after 10 years in 2002 that the dairy sector was fully de-licensed during Atal Bihari Vajpayee’s tenure.
  • The developments in the dairy sector proved that competition between cooperatives and corporate dairy players has benefitted millions of farmers around the country.
  • The Amul model included collecting milk from millions of small and marginal farmers.
  • Then, processing as per food safety standards, and distributing to consumers in metro cities to start with, and then to second and third-tier cities.
  • With the entry of the private sector, the growth of the dairy sector accelerated at double the speed.
  • Now, growth in the organized private sector is faster than in cooperatives.
  • Also, despite the grand success of Gujarat’s milk cooperatives in Gujarat, the model did not spread to other states as successfully.
  • In UP, the biggest producer of milk, cooperatives, are nowhere in the scheme of things.
• Thirdly, the government recently created a new Ministry for Cooperation.
  • But India’s tryst with the cooperative movement has produced mixed results, few successes and many failures.
  • There are cooperatives in the financial sector, be it rural or urban.
  • But the performance of these agencies when measured in terms of their share in overall credit, achievements in technology up-gradation, keeping NPAs low, or curbing fraudulent deals has been poor to average.
• Fourth, it is often believed that urban cooperative banks had huge transactions during the de-monetization phase and were one of the main factors responsible for the failure of demonetisation.
• Fifth, the Subsidy based Karnataka model distorts price to benefit milk farmers.
  • In its eagerness to please milk farmers, the Karnataka Milk Federation (KMF), which sells its products under the brand name of Nandini, gives them Rs 5 to Rs 6 extra per liter.
  • KMF procures a lot of milk and then dumps it at lower prices in the market for consumers.
  • This depresses prices in adjoining states like Maharashtra, affecting the fortunes of Maharashtra milk farmers.
  • If Maharashtra and Karnataka were two different countries, Maharashtra would be challenging Karnataka at the WTO.
  • There is a question about the role of the new Ministry of Cooperation in such cases.
• Lastly, the Sugar cooperatives of Maharashtra initially succeeded but are in the doldrums now.

But, how Amul model got succeeded?

• During Operation Flood, it received a lot of capital in highly concessional terms.
• But its success also owed a lot to Kurien who believed in professionalism and business and, therefore, kept politics away.
• He supported dairy farmers strongly, at times even at the expense of consumers.

Way forward:

• Cooperatives desperately need technological upgradation.
• Ministry of Cooperation should give soft loans for innovation and technology upgradation and extend the same terms to the private sector.
• A level-playing field is critical to see which model suits India the best.
• Ensure no political interference in the operation of cooperatives.

Since no model is perfect that is why the government’s endeavour should be to support the one that relies the least on tax payers’ money.