Cooperatives in Developing Economies
- Managing Change
Dr. L.K. Vaswani
KIIT School of Rural Management, KIIT University,
Bhubaneswar, Orissa, India
Key Note Address
“New Horizons of Co-operative Innovations”
ICA AP Research Committee Conference 02
September 2010, Beijing, China
1
Future of Coop. - Viewpoints
Cooperatives may
not be able to deliver
in the context of the
globalized market
conditions and
emerging competition
Cooperatives can
mitigate some of the
adverse impacts of
globalization
particularly for
weaker segments of
the society.
2
Unresolved Concerns-Enabling Legislation
• Cooperatives are constrained by the role of the
government and prescriptive and restrictive
legislation. Compounded further by politicization
of cooperatives.
• The amendment to the Constitution, will address
key issues for the empowerment of coop. through
their voluntary formation, autonomy, democratic
control, and professional management.
• The link between government and co-operatives
has to be weakened at every stage to allow them
to retain an autonomous and democratic
character.
3
Unresolved Concerns-Capital
• The concept of the quality of a cooperative's
capital is relevant for long-term stability,
independence, and lower financial costs.
• The degree of a member's financial stake
is an essential element.
• Generation of capital therefore had to be
"need based“ (external funding whenever
required) and should be a means to achieve
something and not an end in itself.
4
Emerging Concerns?
• Promoting Good Governance
• Meeting Competition
– Revisiting Cooperative Domain
– Integrated Supply Chains in Agri. Coops
• Creating Cooperative Advantage
– Member Commitment
5
Governance Concerns
Cooperative have problems like
-"free rider“
-"horizon“
-"portfolio“
-"control“ , and
-"influence costs“
Demand Good Governance
6
Cooperative Governance Framework
Members
Directors
Managers
Member’s Interest
7
Cooperatives Governance -Principles
Transparency in operations leading to
Accountability and democratic governance
Accountability for stakeholders in terms of
providing value.
8
Governance and Leadership
Key leaders are extremely important in influencing
the direction taken by Organization
Leaders constantly Signal
their Management Approach
Members are
permitted to
participate in the
cooperatives’
governance
system
Members have a
good chance to
influence the
decisions through
their democratic
control
9
Promoting Good Governance
• Observance of the principles of governance
matters for success
• Structure that is adopted for achieving the
goals is only secondary
• Build a cadre of young and educated
cooperative
leaders
with
outstanding
capabilities, knowledge and above all
conviction to the function of governance
10
Meeting the Competition :
Revisiting Cooperative Domain
Whether cooperative form of business can
be adapted to all sectors of economy
?
More specifically to all products/services in
each sector
?
11
Cooperative form of business
-Satisfying the core of collective action
Sectoral Failures
Product/Services Failures
• Understand factors • Dairy and sugar subsectors.
contributing to the
cooperative stress • These commodities have
characteristics leading to
• Re-examine
fair
product
related
whether
management and
cooperative form of
business is
• A benefit system nearly
suitable for many
free
from
crosssectors.
subsidization
12
Cooperatives/ Cooperation
 Cooperatives have failed but cooperation must
succeedAll India Credit Survey Committee
 Cooperation is an organized behavior system
“wherein the organising element is the
expectation of the members that they
as members of the system will
achieve a surplus beyond what they
could attain through individual and
independent action.”
(Alderson, 1965)
13
Cooperation or Cooperative Domain?
• Scrutinize the existing domain of nonviable cooperatives more carefully
• Challenge unexamined assumptions, false
dichotomies and ideological biases that
get in the way of seeing ‘what is actually
there’
• Guard against negative perceptions and
attitudes among the policy makers and
general public with regard to cooperatives.
14
Agricultural Cooperatives as
Supply Chains
• The consumer demands are transmitted
from food retailer
to wholesalers and processors and
ultimately back to the farmers
• This will require reconfiguration of
backward linkages with its members from
mere
“exchange”  “organized exchange”.
15
Agricultural Cooperatives as
Supply Chains
• Sheer difference in economic size between
farmers and retailers making power
imbalanced towards the end links of the
chain.
• Main consequences of these imbalances are
a relentless downward pressure on farm-gate
prices.
• These market pressures can be countered by
agro-cooperatives owned and controlled
integrated supply chains, extending from
‘farm gate to retail’.
16
Agricultural Cooperatives as
Supply Chains
• Advantage of integrated supply chains
promoted by agri-cooperatives
• Reduce transaction costs
• Gain larger value added through their
collective action,
• Keep the economy residuals within the
agriculture,
• However, vertical growth typically requires
larger capital than the original cooperative
model was designed to provide.
17
Proposed Market Growth Cycle for
Agricultural Cooperatives
18
19
“Cooperative Advantage” through Member
Commitment
• Member commitment is a critical dimension
to success of cooperatives
• Conditional upon member’s believing that the
organization is acting in their interest.
• Member commitment and participation is
enhanced by trust
• The declining member commitment can be a
result of inability of the cooperative to
differentiate itself from other organizations or
business entities.
20
Member Commitment
Critical Dimension of Coop. Success
Inability of the coop to
differentiate from other
business entities.
Conditional upon member’s
believing that the organization
is acting in their interest
trust
21
“Cooperative Advantage” through Member
Commitment
• Cooperative differentiation can be achieved
through
a
unique
member-cooperative
interface.
• local origination of cooperatives gives them
advantage to build this interface
• Individual gains are as important as collective
gains.
• Cooperatives need to ensure that “adding
value” to membership as important as “value
addition” to achieve ‘member-orientation’
22
“Cooperative Advantage” through Member
Commitment
Individual gains are
as important as
collective gains.
Differentiation
through a unique
membercooperative
interface.
“Adding value” to
membership as
important as “value
addition”
Member
Commitment
Local
origination
advantage to
build this
interface
23
Cooperatives-Managing Change
• Good governance
• Build a cadre of young and educated
cooperative leaders
• Promote Cooperatives with essentials of
Cooperation both in Governance and
Operational practices to Improve Imagery
and Public Trust
• Farmers owned and controlled Integrated
Supply Chains in Agri-Coops to reap full
benefits of cooperation
24
Cooperatives-Managing Change
• The member commitment can be reinforced
through relationships as opposed to simply
benefitting them.
• The continuing and purposeful education of
membership is vital to the development of a
successful co-operative
• Establishing Research traditions as opposed
to intuition which will provide positive
solutions to the most difficult challenges
faced by the cooperatives
25
Cooperatives-Managing Change
Governance
Managing
Change
Promote
Research
Meeting
Competition
Member
Commitment
Governance Principles
Building Leadership
Coops. with essentials
of Cooperation
Producer owned
Integrated Supply
Chains
Reinforcing Relationship
Continuous Purposeful
26
Education
Analytical Background
• Gujarat Coop. Milk Marketing Federation(GCMMF)
Amul
• IFFCO / KRIBHCO
• Indian Coffee Marketing Cooperative (COMARK)
Hassan,Karnatka
• MILKFED,Punjab
• Amalsad / GUJCOMASOL,Gujarat
• Mahagrapes ,Maharashtra (Desk Study)
27
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