What is a cooperative?

 A cooperative is an autonomous association of persons, united

voluntarily to meet their common economic, social and cultural needs
and aspirations through a jointly owned and democratically controlled
enterprise.
History of Cooperatives in India
 The introduction of the Co-operative Credit Societies Act in 1904
marked the commencement of the cooperative movement in the
country. The goal, as specified in the preamble of this Act, was to boost
thrift, self-help and co-operation amongst farmers, artisans and persons
of limited means.

 However, the movement did not make the progress expected of it. By
1911, there were only 8,177 credit societies consisting of around 4 lakh
members throughout the country, with a share capital of around Rs. 50.5
lakh. This concern pushed the government to take stock of the
circumstances, and a committee headed by Sir Edward Maclagan, was
appointed in 1915, to study and report whether the cooperative
movement was proceeding on reasonable and financially sound lines.

 The Committee submitted its Report in 1915 and it resulted in

reorganisation and thorough overhauling of the whole administration of
Co-operatives. An attempt was made to get rid of societies which did not
live up to the ideals of co-operation,and in particular, to insist upon
prompt repayments.

 Under the Reforms Act of 1919, co-operation became a transferred

subject with the result, that the control and course of the movement
passed completely into the hands of the new Provincial Governments.
This gave the movement the advantage of greater flexibility since it
could now be modified in accordance with the needs of every province.

 Thereafter, the Government in the year 1945 appointed the Cooperative

Planning Committee to draw up a plan of cooperative development in
the country.
 A distinct shift in cooperative guidelines happened in 1958 when the
National Development Council passed a resolution, which in effect, led
to ‘the rejection of the old large-sized credit society and the emergence
of small sized ‘Service Cooperatives’.

Need for Cooperatives in Agriculture

 Lack of sufficient numbers significantly reduces the bargaining power of
small and marginal farmers both in case of input procurement as well as
sale of produce.

 Small and marginal farmers require agricultural inputs in small

quantities, which they procure from local traders at a considerably
higher price than the wholesale rate. Most of the times, inferior quality
of these inputs further aggravates the problem.

 Often for small and marginal farmers transporting small quantities of

produce to urban markets is not a feasible option, and they end up
selling their produce (most often perishable produces) to local traders
at lower prices than normal.
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 Lack of techniques for access to credit and insurance services and

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vulnerability to several forms of risks (climate change, pests and other

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risks) complicate the scenario for small and marginal farmers in India.
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Different types of agricultural cooperative societies

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1. Farming Cooperative Societies: Planning Commission proposed the

idea to pool the land owned by small farmers for joint management.
The proposed approach was either to retain individual ownership of
the land and lease to the cooperative or transfer land ownership to
the cooperative and collect shares worth the value of the land. The
Cooperative could then pool the holdings for land improvement and
intensive cultivation, using modern technologies. These farming
cooperatives were supported financially to develop land and water
resources.
2. Agricultural Processing Cooperatives: cooperatives for sugar
processing, paddy milling, groundnut decorticating, copra and oil
seed crushing, processing of fruit, vegetables, tea and jute have been
established in India. These processing cooperatives with individual
farmers, cooperative marketing societies and local service
cooperatives as members are regulated under the cooperative rules
and by-laws.

3. Agricultural Marketing Societies: Establishment of marketing

cooperatives was encouraged to provide marketing facilities to small
farmers. The anticipated advantages were increase in bargaining
strength of farmers, removal of intermediaries and direct interaction
with consumers. There was also scope for availing credit and cheaper
transport, storage facilities, grading and processing of agricultural
produce to fetch better prices.

a. The National Agricultural Cooperative Marketing

Federation of India Ltd. (NAFED) was established in 1958 for
promoting cooperative marketing of agricultural produce.
NAFED procure food grains, pulses, oilseeds, spices, cotton,
tribal produce, jute products, eggs, fresh fruits and vegetables
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from farmers through its cooperative network in selected areas

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whenever farmers have faced problems of marking their

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produce as manifest in low remunerative in the market.

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b. The Indian Farmers’ Fertiliser Cooperative Limited

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(IFFCO) was established in 1967 to produce and distribute

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fertilisers through cooperatives. Presently, over 40,000

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cooperative societies are members of IFFCO.

4. Agricultural Service Cooperatives: Cooperatives play an important

role in disbursement of agricultural credit. These cooperatives have
been aiming at increasing agricultural production through credit
supply to agricultural producers, agricultural labourers, artisans,
supply of agricultural inputs, arranging storage, marketing and
processing of agricultural produce, arranging raw materials for
industries and providing technical guidance, while promoting social
and economic welfare.
 a. The Primary Agricultural Cooperative Credit Society
(PACS) at the village level is the base for many of these
activities. They federate into Central Cooperative Bank at the
district level (DCCB) and further into Apex Bank at State level.
Benefits of Cooperatives
 Information and Farm Advisory Centre: Cooperatives can play an
effective role in providing extension and advisory services for crop
cultivation and animal husbandry, fishery and aqua-culture.

 Market Led Extension: Cooperative personnel can be trained for

linking farmer produce to the market.

 Value Creation, Processing and Branding: Individual farmers can

be organized through cooperatives to go for value creation and brand
building of their produce. Farmers can bring their produce to
cooperatives for value addition and market integration.

 Storage and Warehousing: Warehousing of agricultural produce

and inputs can be effectively done by the cooperatives as they
present at village level and are in close proximity to the farmer fields.
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 Better Market Price Realisation: Cooperative registered

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warehouse can act as a mandi (market) or hub for shifting produce,

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physical grading, cold-chains for perishables, etc. so that better price

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realisation of farmers produce is possible. Farm produce can further

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be assayed for export purpose.

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 Soil-Water-Seed-Fertiliser Testing: Cooperatives can be provide

accredited services for soil testing, water testing, seed and fertilizer
testing, etc. This will help farmers get assured product quality for
higher crop yields and also diversification of business cooperatives.

 Farm Machinery and also Other Facilities for Custom Hiring:

Cooperatives can provide custom hiring services for farm
mechanisation. They can also tender their services for farmers for
transportation of their farm produce.
Successful Cooperatives in India
  Maharashtra has been home to some successful cooperative
movements in agriculture, with the strong emergence of sugarcane
farming and sugar production cooperatives, as well as in
consolidation of cooperative credit banking system.

 The dairy cooperative is another success story in India. The Anand

model for cooperative milk marketing in Gujarat launched in the year
1946, with its well-recognized Amul brand, provided later the
blueprint for replicating its success elsewhere under the National
Dairy Development Board program, contributing to the success of
Operation Flood.

 In case of fertilizer production and distribution, the Indian Farmers

Fertilizer Cooperative (IFFCO) controls over 35 per cent of the
market.

 In the production of sugar, the cooperative share of the market is 58

per cent, while in the marketing and distribution of cotton it is 60 per
cent. Cooperative sector accounts for 55 per cent of the production in
the hand-woven textiles sector, whereas cooperative marketing and
distribution channels account for 50 per cent of the edible oil market
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in India.
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Major areas of concern

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1. Government interference: Right from the beginning, the

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cooperative movement in India has been patronized by the

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government, which also provided a window for interference.

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Cooperative institutions were treated as if they were part and parcel

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of the administrative set up of the government making such intrusion

an indispensable element in working of these institutions. Also, often
cooperative societies are enforced upon the people irrespective of
their desire or willingness for such togetherness. This top down
approach has only brought about increase in number of members,
while compromising the cooperative spirit.

2. Mismanagement and manipulation: The essence of the cooperative

movement is that it gives the farmers the status of shareholders and
assures them of agricultural, educational and medical facilities. Over
 the years, this truly democratic idea got corrupted and farmers with
larger holdings grew more powerful. A more disturbing trend,
however,was the domination of co-operative institutions by group
politics. Various other parochial interest associate into its vitals. The
result was that either a society did not do much work or there was
favouritism and nepotism in the grant of loans restricting the benefits
to favoured members. There were instances where members of rival
faction persuaded people not to repay their dues.

3. Lack of awareness: People are not well informed about the

objectives of the movement, the contributions it can make in
rebuilding the society and the rules and regulations of cooperative
institutions. Members did not understand and appreciate the aims,
objectives, and the possibilities of the coopeartives. Lack of
education, politics of the village, caste-ridden elections to the offices
of cooperative societies, bureaucratic attitudes of the government
officers, particularly, at the lower rank are some of the hurdles in
diffusion of right information and spread of cooperative spirit.

4. Restricted coverage: The cooperative movement has also suffered

on account of two important limitations in its working.
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a. One, is that the size of these societies has been very small.
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Most of these societies are confined to a few members and their

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operations extend to only one or two villages. As a result, their

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resources remain limited, which makes it impossible for them

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to expand their means and extend their operations.

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b. Two, most of the societies have been single purpose societies,

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rendering them unable to take a total view of the persons

seeking help, nor be able to analyse and solve problems from
different angles.

5. Functional weakness: The cooperative movement has suffered from

inadequacy of trained personnel right from its inception. As a
consequence, often co-operative institutions suffered with issues
such as the lack of proper accounting, irregularities of loans,
maintenance of records etc. Despite the introduction of training
 programme, the quality of staff in the co-operative institutions has
failed to attain high standard of efficiency.

Farmer Producer Organizations

 Cooperatives being traditional in structure, lack linkages with

buyers, input suppliers, etc., who are vital actors across the larger
supply chain. This undermines long term sustainability of
cooperatives. Thus came a new form of collectives called Farmer
Producer Organisations (FPOs) to address the challenges faced by
the small and marginal farmers, particularly those to do with
enhanced access to investments, technological advancements, and
efficient inputs and market.

 The basic purpose envisioned for the FPOs is to collectivise the

small farmers for backward linkage for inputs like seeds,
fertilizers, credit, insurance, knowledge and extension services; and
forward linkages such as collective marketing, processing, and
market-led agriculture production.
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 While cooperatives entail benefits to farmers via state intervention,

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FPOs are perceived to empower farmers through collective

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bargaining along with imparting an entrepreneurial quality to

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farming, which otherwise is practised as a subsistence, particularly

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by the small and marginal farmers.

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Benefits provided
Major services delivery by FPOs leverage the benefits of economics of
scale for both production and marketing enabling more efficient
production and better price discovery. Some of the major services that is
being delivered are as follows:
 Farm inputs: The FPO buys essential inputs such as seed, fertilizer,
pesticide in bulk and sells through its retail outlet. The inputs are
sold to the members at a price which is far below the market price
and thereby help the member farmers to reduce the cost of inputs.
  Custom Hiring Centre: To address the ever increasing cost of
farming by small and marginal farmers many FPOs have established
Custom Hiring Centres with assistance from Central/ State Schemes
on farm machinery. The FPOs rent out machineries and implements
to members at affordable cost (much below the cost charged by
private players).

 Output market linkage: Many FPOs have succeeded in creating

market linkages for their produce. FPOs have tied with major
retailers for selling their produce and have succeeded in getting
remunerative prices for their produce. Besides, many FPOs, with
assistance from State Government, have established retail outlets for
marketing their produce. Some of the FPOs have also gone ahead
with value addition, processing and branding of their produce.

Government Measures to promote FPOs

1. The Small Farmers Agri-business Consortium (SFAC) mandated
by Department of Agriculture, Cooperation and Farmers Welfare,
Ministry of Agriculture and Farmers Welfare, Govt. of India, supports
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the state governments in the formation of Farmer Producer

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Organisations (FPOs). Besides providing initial grant, it also provides

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venture capital assistance.

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2. Central Sector Scheme of “Formation and Promotion of 10,000

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Farmers Produce Organization (FPOs)” under which professional

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handholding support is to be provided for a period of five years to the

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new FPOs formed under the scheme. Provision of financial assistance

to the tune of Rs.18 lakhs to each FPOs under the scheme towards
establishment cost for 3 years has been made.
a. In addition to this, provision has been made for matching
equity grant upto Rs. 2,000 per farmer member of FPO with a
limit of Rs. 15.00 lakh per FPO and a credit guarantee facility
upto Rs. 2 crore of project loan per FPO from eligible lending
institution to ensure institutional credit accessibility to FPOs.
Suitable provision for skill buildings of the FPOs has been
made.
 3. Under Deendayal Antyodaya Yojana- National Rural Livelihood
Mission (DAY-NRLM), Ministry of Rural Development, Government of
India, had been promoting FPOs by mobilizing farmers, building
market linkages through a value chain development approach
for farm based livelihood is an important strategy under this
mission. DAY-NRLM has promoted 177 FPOs in the country.

4. National Bank for Agriculture and Rural Development

(NABARD) hasbeen also promoting FPOs in the States.

a. NABARD had set up dedicated Funds, viz., Producers

Organization Development Fund and PRODUCE and so far
promoted 4878 FPOs. During 2020-21, NABARD promoted 394
FPOs and provided grant assistance of Rs 38.41 crore leading
to a cumulative grant support of Rs 244.40 crore.
b. Subsidiary NABKISAN complements NABARD’s efforts in
formation and nurturing of FPOs by sanctioning credit facilities
to the tune of Rs 108 crore to 365 FPOs both directly and
indirectly. Cumulatively, NABKISAN has supported 675 FPOs
directly and 400 FPOs indirectly so far and in the process
carved out a niche for itself as the largest lender in the FPO
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ecosystem.
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Types of Farmer Producer Organizations

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Farmers can be mobilised into farmer producers organisations (FPOs)

through different instruments. These include:
 FPOs registered under Societies Act.
 FPOs registered under State Cooperatives Act.
 FPOs registered under Indian Companies Act.
FPOs registered under the Companies Act are called as farmer producers
companies (FPCs).These are a hybrid that combine the strength of
cooperatives and companies. FPCs stand to benefit from the collective spirit
of a cooperative society and management flexibility of a private company.
Challenges and Issues in Building Robust FPOs
1. Lack of technical Skills/ Awareness- Inadequate awareness among
the farmers about the potential benefits of collectivization & non
availability of competent agency for providing handholding support
are the major constraints in the rural areas in promoting strong
FPOs. Further, there is lack of legal and technical knowledge about
various Acts and Regulations related to formation of FPOs and
statutory compliances thereunder.

2. Lack of/ Inadequate Professional Management-A Farmers’

Organization is required to be efficiently managed by experienced,
trained and professionally qualified CEO and other personnel under
the supervision and control of democratically-elected Board of
Directors. However, such trained manpower is presently not
available in the rural space to manage FPO business professionally.

3. Weak Financials- FPOs are mostly represented by small and

marginal farmers having poor resource base and, hence, initially they
are not financially strong enough to deliver vibrant products and
services to the members and build their confidence.
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4. Inadequate Access to credit- Lack of access to affordable credit for

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want of collaterals and lack of credit history are also major

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constraints the FPOs are facing today. Further, the credit guarantee
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cover being offered by SFAC for collateral-free lending is available

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only to Producer Companies (other forms of FPOs are not covered)

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having minimum 500 shareholder membership. Due to this, large

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number of FPOs, particularly those which are registered under other

legal statutes as also FPOs with lesser than 500 members are
not able to access the benefits of credit guarantee scheme.

5. Lack of Risk Mitigation Mechanism- Presently, while the risks

related to production at farmers’ level are partly covered
under the existing crop / livestock / other insurance schemes, there
is no provision to cover business risks of FPOs.

6. Inadequate Access to Market- Marketing of produce at

remunerative prices is the most critical requirement for the
success of FPOs. The input prices are largely fixed by corporate
 producers. The cultivators lose through the complex gamut of market
processes in the input and output prices. There are more market
opportunities, if FPOs can identify local market
needs of the consumers and have tie-ups for sale of its produce. A
linkage with industry/ other market players, large retailers, etc. is
necessary for long term sustainability of FPOs.

7. Inadequate Access to Infrastructure- The producers’ collectives

have inadequate access to basic infrastructure required for
aggregation such as transport facilities, storage, value addition
(cleaning, sorting, grading, etc.) and processing, brand building and
marketing. Further, in most of the commercial farming models, the
primary producers are generally excluded from the value chain.

Needed Policy Support/ Suggested Measures

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Some of the critical policy reforms and other suggested measures to be

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initiated by the Govt. of India/ other stakeholders for further strengthening

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the FPO movement in the country are as under:

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 Suitable amendments in the APMC Act to treat the country as a

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single, unified market for agri produce with no restrictions on

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commodity movement as also to enable FPOs market their produce

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directly to the consumers/ bulk-buyers, without payment of mandi

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fee would go a long way in strengthening FPOs. Buyers may be

encouraged to set up collection centres near to FPOs /crop clusters”.
Provision may also be made in the amended Act to provide direct
market access to FPOs, treating the FPO as a place of Gramin Agri
Market (GrAM) and building up of required marketing infrastructure
to be owned and managed by FPO.

 Convergence of resources for creation of farm level

infrastructure at FPO level for cleaning, grading, sorting, assaying,
processing, branding & transportation of agri commodities up to
delivery/ market centres as also for establishment of custom hiring
 centres for the benefit of shareholder members. Specific fund
allocation may be made under these schemes by Govt. of India for
FPOs.

 Appropriate provisions may be made in the Food Grain

Procurement Policy of GoI specifying procurement of agricultural
commodities directly through FPOs under MSP scheme.

 Suitable amendments in the Producer Companies Act, 2013 may

be made to make provision for small private equity
participation/ refundable long-term capital infusion by the
private investors so as to strengthen the financials of FPOs and
create appropriate business model for commercial sustainability.
Also, Angel/ Venture capital support to FPOs on the lines of Start-ups
may be extended.

 The benefits of Equity Grant & Credit Guarantee Fund schemes of

SFAC may be extended to all forms of FPOs as also to FPOs having
shareholder membership of less than the existing limit of 500
producers.
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 The concerned Ministries/ Departments of the Central / State

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Governments may be mandated to implement all “Farmer-centric

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Schemes” through the FPOs for efficient delivery of services and

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improved outcomes.
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 Relief to FPOs from various statutory compliances may be

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provided at least during initial 5 years so as to help them adjust with

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the regulatory business environments and stabilize business

operations as a part of “ease of doing business” concept of GoI.

 Private Institutions and Agricultural Universities may introduce

special courses on FPO promotion and agribusiness
management, with focus on rural youth including women, so as to
create large pool of professionals in rural areas for managing FPO
activities. Further, the existing scheme of Agriclinics and agribusiness
Centre (ACABC) may be redesigned to create professionals for not
only promoting FPOs but also acting as CEOs of the FPOs in their local
areas.
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