Building a generation of cooperatives

Nashik (Maharashtra): In a nation where farmers are giving up land, and sometimes their lives, in desperation, Anil Shinde of Bhatwadi village in Nashik district of Maharashtra decided to give up his factory job and take up farming.

Shinde faced derision two years ago when he quit his 10-year job as a helper in a glass factory of Larsen and Toubro Ltd in nearby Sinnar. Yet, his move back to the farm seems to have paid off, as his monthly income from his 10-acre plot has increased fivefold, to ₹ 25,000, thanks to the modern farm practices he has adopted.

Hardly looking the part of a company director, Shinde sports a perpetual expression of amazement as he narrates the story of his life, the firm he helped found, and the man behind his success: social activist Sunil Pote.

Pote, 40, heads a non-governmental organization (NGO) Yuva Mitra and has spent the better part of the last decade in Sinnar block, mobilizing farmers to make farming more remunerative. The Devnadi Valley Agricultural Producers Co. Ltd, a 550-farmer-strong producer company that Pote has created, buys farm inputs at bulk rates for its members and will soon open retail outlets after tying up with firms to sell crops and packaged food directly to consumers. A graduating student of the US-based Kellogg School of Management, Bryan Lee, is in talks with the company to set up a processing unit as a joint venture between his start-up social enterprise named Kisan First, and Devnadi Valley.

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Somdutt Lad talks about NGO’s projects for farmers and moves to link producer companies with end consumers

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Small farmers do not have adequate bargaining power when they are either buying inputs or selling their produce to traders. Incomes suffer. Low bargaining power both in the market for inputs and outputs leads to worse prices for small farmers, studies by Food and Agriculture Organization show.

A producer company helps small farmers consolidate their buying and selling, and earn more. The number of such producer companies in India, with farmers as sole shareholders, has shot up, nearly doubling to 270 over the past year. Western Indian states such as Maharashtra, with a history of rural cooperatives, are leading the surge.

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Aware of the greater bargaining power a collective offers, but wary of traditional cooperatives, farmers are turning to the producer-company model, which marries the ethos of the cooperative with the flexibility of a corporate structure.

On the recommendations of a committee led by economist Y.K. Alagh, a special section was introduced in the Companies Act in 2002 that allowed primary producers to start their own company while retaining the cooperative principle of “one vote, one share”.

Farm to market

Pote’s venture is probably the most organized version of efforts under way across Maharashtra ( Read) to build a new generation of cooperatives that tie farmers directly with the market, minimizing the role of the middlemen. The common goal in these initiatives is to deliver higher returns to farmers and make small farms sustainable by shortening the chain between farms and markets.

Indian agriculture is dominated by small landowners, with 83% of farmers tilling plots less than five acres. Although small farmers reap higher yields, they have lower incomes or profits compared with big farmers, and borrow more for consumption than for investments, according to National Sample Survey data. Around half of such farmers do not want to continue farming, according to the same survey conducted in 2004-05.

Our focus as a nation has been far more on farm output than on farm incomes, said Pote. “The aim at Yuva Mitra was to ensure a decent and steady flow of income to farmers and we realized that can happen on a sustained basis only when farmers are trained and organized,” he said.

Initially, Pote formed a farmers’ club with around 15 members and tied up with Tata Chemicals Ltd to sell vegetables. The arrangement lasted six months and made the farmers realize the need for a larger grouping and more organized structure—and Devnadi Valley was born.

So far, two main kind of producer companies have cropped up in the country. The first and more numerous variety is of companies such as Devnadi, initiated by NGOs, often by bringing together pre-existing groups.

The second breed are those initiated or supported by companies. These firms include those in the retail, packaged goods or agri-inputs sectors that aim to strengthen their supply chains. They also include distributors of farm produce such as Tata Chemicals that save costs in dealing with large groups of farmers directly, and had helped set up five producer companies in Punjab. “The producer-company model is the most efficient and transparent way for companies to work with farmers,” said Sukhpal Singh, a professor at the Indian Institute of Management, Ahmedabad (IIM-A), who has studied such groups extensively.

As Pote started mobilizing farmers to form their own company and establish a market chain, he found their need for a reliable input chain was greater. Farmers complained of being taken for a ride by retailers, who bundled several inputs together and sometimes sold fakes.

Inspired by the experiences of similar organizations in Gujarat, Devnadi Valley set up an agri-mall in September 2011 that buys fertilizers and pesticides at bulk rates from dealers or firms, offers cheaper tractors and makes it easier for members to get bank loans. It has a mark-up of 7% over wholesale rates, but is still able to save around 30% of input costs on average for members; retail margins for some?inputs being as high as 50%.

In its first four months of operation, the agri-mall saw an average turnover of ₹ 3.5 lakh as members purchased inputs for the rabi crops—sown in autumn and harvested in winter. “It is too early to judge the performance of Devnadi Valley, but Sunil’s initiative appears promising,” said Singh of IIM-A.

Pote’s initial success in mobilizing farmers revolved around water. He successfully revived a 140-year-old network of canals built by the British around the Devnadi river that had dried up by the late 1990s.

Expectedly, Pote faced hurdles from panchayats (village councils) and local politicians. He also found it difficult to convince villagers that he did not have any political motive, or that his efforts would eventually bear fruit. After the district collector of Nashik, P. Velrasu, visited Sinnar and took a liking to Pote’s idea, the resistance waned and people contributed voluntarily to the canal rejuvenation project.

Pote’s biggest success came in the tribal village of Andhewadi, where he was able to source water from a spring atop a hill nearby, an achievement that led Marathi dailies to hail his achievement as a real life version of Swades, the Ashutosh Gowariker-directed Hindi movie with the same theme. It was only when he started working with farmers on their water needs that Pote was able to identify the factors that could make a difference to farming. Pote, a persuasive speaker, held workshops to popularize the idea of the ₹ 1,000-a-day model: that involves growing three or four vegetables on a 1-acre plot that will generate a daily harvest and coupled with money earned by selling milk, ensure a steady income stream. It was after attending one of these workshops that Shinde decided to take up farming.

The Andhewadi project also brought Pote in close contact with Somdutt Lad, a Pune-based builder who decided to use his business skills in helping Yuva Mitra form Devnadi Valley and raise funds from the National Bank for Agriculture and Rural Development (Nabard). “We often have a typical NGO attitude and remain contented in social mobilization, but one must think like a businessman to run a company and Lad’s presence helps in restoring that balance,” said Pote.

Not all farmers’ collectives have a smooth transition to a producers company. A farming community in the nearby block of Dindori that runs a successful network of water cooperatives, had started a producer company—Waghad Agricultural Producer Co. Ltd—two years ago. It is making losses and still struggling to find its feet, and is taking Devnadi Valley’s help in framing a new business plan.

Two other producer companies, one of cotton-growers in Vidarbha, which plan to set up a ginning plant, and another of prosperous horticulturists in Pune, who plan to set up a processing unit for export markets, have also turned to Pote for help. Devnadi Valley now acts as a consultant for them in preparing detailed project reports required for Nabard loans.

Next: Key policies that will drive growth of farmer-owned companies