Cooperatives in Developing Economies - Managing Change

1. 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

2. 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.

3. 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.

4. 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.

5. Emerging Concerns? • Promoting Good Governance • Meeting Competition • Revisiting Cooperative Domain • Integrated Supply Chains in Agri. Coops • Creating Cooperative Advantage • Member Commitment

6. Governance Concerns Cooperative have problems like -"free rider“ -"horizon“ -"portfolio“ -"control“ , and -"influence costs“ Demand Good Governance

7. Cooperative Governance Framework

8. Cooperatives Governance -Principles Transparency in operations leading to Accountability and democratic governance Accountability for stakeholders in terms of providing value.

9. Governance and Leadership Key leaders are extremely important in influencing the direction taken by Organization Leaders constantly Signal their Management Approach Members have a good chance to influence the decisions through their democratic control Members are permitted to participate in the cooperatives’ governance system

10. 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

11. 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 ?

12. Cooperative form of business-Satisfying the core of collective action Sectoral Failures Product/Services Failures Dairy and sugar sub-sectors. These commodities have characteristics leading to fair product related management and A benefit system nearly free from cross-subsidization • Understand factors contributing to the cooperative stress • Re-examine whether cooperative form of business is suitable for many sectors.

13. Cooperatives/ Cooperation • Cooperatives have failed but cooperationmust succeed- All 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)

14. Cooperation or Cooperative Domain? • Scrutinize the existing domain of non-viable 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.

15. 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”.

16. 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’.

17. 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.

18. Proposed Market Growth Cycle for Agricultural Cooperatives

20. “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.

21. Member Commitment Critical Dimension of Coop. Success Conditional upon member’s believing that the organization is acting in their interest

22. “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’

23. “Cooperative Advantage” through Member Commitment

24. 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

25. 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

26. Cooperatives-Managing Change Governance Principles Building Leadership Governance Coops. with essentials of Cooperation Meeting Competition Managing Change Producer owned Integrated Supply Chains Reinforcing Relationship Continuous Purposeful Education Member Commitment Promote Research

27. 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)

28. Thank you for your kind attention