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The national dairy development board's project on oilseed growers' cooperatives


A.K. Srivastava. National Dairy Development Board, Anand, India


Abstract
Introduction
Background
The Anand model
The project
The scope of the project
Co-operative organization and supervision
Arranging production enhancement inputs
Demonstration plots
Management subsidies and equipment/storage grant
District farms
Area agronomic centres
Present status


Abstract

Edible oils constitute the most important source of calories in the Indian diet, after food grains. However, oilseed production has stagnated, and India - once an oilseed exporter - now imports 1 million tonnes of edible oils per year Oilseed crops are grown on marginal land with low inputs if any; processing is inefficient; and marketing is characterized by high profit margins and speculative practices that exploit the growers. To combat these problems, the Government of India asked the National Dairy Development Board to develop the edible oil industry along the lines of the highly successful milk cooperatives. Growers' federations have been formed in four Indian states to supply agricultural inputs, secure stable product prices, and organize marketing channels. Under this project, production, processing, and marketing are handled wholly by the growers' organizations. Benefits are already showing - in Gujarat the grower members received the highest price to date for groundnut, in Madhya Pradesh, for soybean. It is anticipated that by the seventh year the growers' co-operatives will include 350, 000 oilseed growers in 8.000 villages of India.


Introduction

After food grains, edible oils constitute the most important source of calories in the Indian diet. However, the per capita consumption of fats and oils in the Indian diet is less than half the assessed nutritional requirement. Even though a sizeable area (about 16 million hectares) is under oilseed cultivation, the per hectare production is extremely low and stagnant, resulting in dependence on the import of over one million tonnes of edible oil every year to meet the country's growing demand. Grown on marginal lands under rain-fed conditions, without improved technology, unsupported by proper and timely credit-input-extension facilities, and faced with highly unstable

The views expressed in this article are the author's own and do not necessarily reflect the views of the organization with which he is associated. product prices, oilseeds in India are considered to be "orphan" crops. Oilseed processing is highly inefficient, with per unit production costs considerably higher than the world average. It has also failed to tap the high protein content of oilseeds, which could help farmers to obtain stable, remunerative returns, and consumers a quality product.


Background

The major oilseeds grown in India are the groundnut, rapeseed and mustard, sesame, castor, linseed, sunflower, and soybean. Among the edible oilseeds, groundnut uses for nearly 65 per cent of the area under oilseed cultivation constitute nearly half of the indigeneous edible oil production. This is followed by rapeseed-mustard, which accounts for nearly 30 per cent of the area. In the post-Green Revolution period, yields of rapeseed-mustard improved, but groundnut yields have experienced no such improvement except in irrigated areas and in certain tracts where improved farm practices are applied. During the planning period, the overall groundnut production increased slightly above 2 per cent per year but progress was uneven. For example, the Saurashtra region of Gujarat State recorded a rise of about 5 per cent, but in vast tracts of Maharashtra, Karnataka, and North Gujarat, production has declined in recent years.

Highly unstable yields and highly fluctuating prices are the crux of the groundnut problem. The unstable trends in groundnut yields are due to its total dependence on rainfall, which itself is erratic both spatially and temporally. This in turn makes the returns from groundnut low, very risky, and highly volatile. Therefore, the farmer does not invest in much-needed inputs such as improved seeds, seed treatment chemicals, rhizobium culture, pesticides, fungicides, and fertilizers, etc., which are necessary to raise the per hectare yield. To encourage the farmer to invest in these inputs, it is necessary not only to create awareness of their benefits, but to make all of them available at the right time, in appropriate quantities and at a price that is within the farmer's reach. The farmer also needs to be assured of reasonable prices for the produce. This can be realized only if the oilseed processing and marketing of oilseed products are done by the farmers themselves.

Speculative marketing practices and high profit margins characterize the industry. The traders and other intermediaries have a powerful hold in the oilseeds and oil trade, both in the domestic as well as export markets. They have contributed to the high degree of instability in the edible oil market through hoarding, illegal forward trading, and speculation. The speculative operations of the private trade has deleterious effects on the incentive of the farmers during the years of good production and on the welfare of consumers in periods of shortage. Oilseeds in general are grown as a rain-fed crop. resulting in marked seasonality in arrival of the crop in the markets. The bulk of the crop is received in the mandis (local markets) during October-November, when the traders, by collective action, depress prices. The price decreases all the more if there is a bumper crop, as in 1975/76. They tend to avoid purchases till the farmers are ready to accept prices dictated by them. The farmers are unable to withhold their produce as they need cash immediately after harvest, and are at the mercy of the hardened traders. The reward for increasing production is often ruin. The intermediaries take double advantage of the seasonality of oilseed crops when they artificially jack up prices, especially of edible oil, in the off-season period, and particularly when the oncoming year is not expected to be a normal one. Thus the marketing of oilseeds and their products is subject to a high degree of exploitation, and is self-degenerating. These problems are too complex to be solved by ad hoc measures, and call for an integrated approach towards restructuring the entire edible oil sector - oilseed production, processing, and marketing - so that growers are not robbed of their returns, and consumers are saved from exploitation.


The Anand model

A similar situation, though of lesser intensity, prevailed in the case of milk about 30 years ago, when the exploitation by middlemen had forced the milk producers to sell milk at throw-away prices. The answer to such a situation was found in developing a system that enabled milk producers to own and operate not only their processing facility, but also the inputs, delivery machinery, and the marketing of finished products.

The integrated approach first proved very successful in Kaira - the AMUL organization - and through the Operation Flood programme, which aimed to establish similar farmers' organizations in 18 districts in the country. The programme when implemented did face some preliminary problems, but these were overcome, so much so that when the International Bank for Reconstruction and Development world Bank) came forward to finance dairy projects in Karnataka, Rajasthan, and Madhya Pradesh, they saw to it that similar farmers' organizations were created in these states. The result was that 12 milk producers' co-operative unions were established. Based on the success of these 30 unions, bodies owned by the farmers themselves, the other phase of dairy development, Operation Flood II, is being implemented to bring the total number of such district unions to 155, and cover some 10 million farmers. The success of these 30 unions have further demonstrated that problems can best be solved if the agency implementing the programme is owned and operated by the producers themselves (only then can it be sensitive to their needs), who employ the best professionals to carry out their policies. It has also proved that the responsibility of such an organization is not only to guarantee a remunerative market for the rurally produced commodity (milk in this case) by its member producers, but also guarantees a package of inputs for enhancing production (milk) and ploughs back the profit for further development.

Again, in the case of milk, since marketing of the product (especially milk for city supplies) was largely controlled by middlemen/traders/cattle keepers, etc., who were capable of using any means, fair or foul, the organized dairy was not in a position to take a commanding share of the market and thereby pay a better price to the milk producers. Market intervention was therefore required to enable these dairies to supply milk to the consumers at reasonable prices. This was the first time that food aid - skimmed milk powder, and butter oil in this case - was used to prime the pump of the modern dairies in four metropolitan cities (Calcutta, Bombay, Delhi, and Madras), and permit them to meet the demand on a much larger scale. The funds generated through the sale of skimmed milk powder and butter oil were used to build up farmers' organizations in the milksheds that supplied these metropolitan cities.

At about the same time, the Government was viewing the situation in the edible oil industry very seriously. Wide fluctuations in the prices of edible oils and oilcakes had produced repercussions in the dairy sector and thus on the total availability of fats and oils in the Indian diet - and had also resulted in stagnancy in the production of oilseeds. The question was: could the experience gained in milk be utilized for the production and distribution of oils and oilseeds? Although the nature of production and the commodity itself was quite different from milk, other situations, such as the lack of bargaining power of the producers and the organized actions of the traders/middlemen, allowed the situation in question to continue in favour of the latter. An integrated approach to the entire situation indicated that the experience gained by the National Dairy Development Board (NDDB) in organizing milk producers, and using food aid to prime the pump as well as generate funds for further investments in the programme, could very well be utilized to restructure the oilseed/oil industry as well.


The project

At the request of the Government of India, the NDDB formulated a project

"Restructuring of Oil and Oilseed Production and Marketing" in October 1977 - again using food aid (edible oils) to generate funds for use in agricultural development in the oilseed sector - with the following objectives

  1. to co-ordinate the modernization of oilseed production, processing, and the marketing of vegetable oils, oilseeds, and by-products, in areas covered by the project;
  2. to procure and market imported and indigenously produced vegetable oils in such a way as would contribute to the stabilization of supplies at levels that will be fair to consumer and growers;
  3. to increase the opportunities for productive and remunerative employment in the selected major oilseeds growing areas;
  4. to generate the funds required for the establishment of a modernized oilseeds and vegetable oil industry based on oilseed growers' co-operatives, which will put the functions of oilseeds processing and marketing into the producers own hands;
  5. to devise and implement a programme of investment and development that will enable growers to increase their oilseeds production, and their returns, while also increasing the efficiency of the processing and marketing functions, through the growers' own co-operatives.

It was expected that oilseeds production in the areas covered by the project would increase by about 30 per cent by the end of the project period.


The scope of the project

The project spreads over a seven-year period with a total outlay of Rs 1,50 million, and has two phases. The first phase of the project is of three years, and will cover eight contiguous areas, each having approximately 250,000 hectares under oilseed cultivation. At the end of phase 1, the progress made under the project will be reviewed, and subject to availability of additional funds, etc., the project may be extended to cover another twelve contiguous areas in major oilseeds growing States. At the end of the project period, it is expected that the project will cover 350,000 oilseeds growers, organized in about 8,000 villages, located in the states of Gujarat, Madhya Pradesh, Andhra Pradesh, Tamilnadu, Maharashtra, and Orissa.

The requisite funds (Rs 1,500 million) would be generated through the sale of 250,000 tonnes of donated edible oils received during the seven-year period. The funds generated from the sale of these commodities would be invested on the following action items:

Action Items

Investment (Rs in million)

Creation of processing facilities

596.75

Operations research and CIS studies

18.50

Market research and testing

22.95

Oilseeds Growers' Co-operative Organization and Production Enhancement

439.74

Product and Process Development

11.70

Manpower Development

30.00

Project implementation

102.87

TOTAL

1,222.51

The remaining Rs 277.49 million would be used as a sinking fund for Federation share capital, procurement support, operational losses, management training, and co-operative development.

The project was approved by the Government of India in September 1978. It was launched in Gujarat in July 1979, in Madhya Pradesh in October 1979, in Andhra Pradesh in October 1980, and in Tamilnadu in January 1981. Maharashtra and Orissa were also to be covered by the project by mid-1982.

The project envisages the setting up of village-level primary oilseed growers' co-operative societies, affiliated to a state-level co-operative oilseed growers' federation. This farmers' organization will not only own and operate the facilities for procurement, processing, and marketing of oilseeds and their products, but will also have ties for provision of technical inputs for increased production of oilseeds (mainly through rise in the current per hectare yield in the project area). The project envisages that the grower members, through their elected Boards of producers, will control and manage all activities right from production to processing with the help of hired professionals so that the producers' interests are represented throughout the hierarchy. All the functions that the traders and other intermediaries were performing will be taken over by the farmers' own organization and in the interests of farmers themselves. The by-laws of the village level oilseed growers' co-operative societies and the state-level federations have been drawn in such a manner as to ensure participation of only genuine oilseed growers in the running of the co-operatives. One-third of the members of the Board retire each year by rotation, thereby providing an opportunity for entry of new leadership through a democratic process. In the event that a member does not supply a specified minimum quantity of oilseeds to the village cooperative or engages himself directly or indirectly in trading activities, he loses voting rights. Continuous and concurrent audit is yet another feature that would make such co-operatives more aware of the need to follow strict financial practices in their day-to-day operations.

The State-level Co-operative Oilseeds Growers' Federations, created as implementing agencies under the project, have two major components for investment.

 

Creation of Processing Facilities

The funds allocated, Rs 596.75 million, or about 40 per cent of the total generated funds, would be spent on hiring existing processing facilities and renovating them if necessary, and on creating modern processing, storage, movement, and packing facilities. The money would be advanced to the project implementing agency - state-level federations - on a 30 per cent grant and 70 per cent loan basis. It is expected that by the seventh year of the project, farmer-owned oilseed processing units would handle some 1.5 million tonnes of oilseeds.

 

Growers' Co-operative Organization and Oilseed Production Enhancement Programmes

The funds allocated, Rs 439.74 million, or about 29 per cent of the total generated funds, would be made available to the Co-operative Oilseeds Growers' Federations to enable them to undertake a number of activities at the micro and macro levels of project operations.


Co-operative organization and supervision

The first step in the production enhancement process will be to organize the oilseed growers into village level co-operative societies. A promotional and educational effort will be undertaken by a mobile team, which normally consists of technicians, a co-operative specialist, agricultural extension workers, etc. Generally, a mobile team will be required to look after 20 villages. It will hold meetings with villagers and exhibit films showing how milk producers have been able to form and operate their "Anand Pattern" co-operatives. Eventually, two or more receptive farmers will be selected to participate in the NDDB's Farmers' Induction Programme (which has already trained over 15,000 farmers in the last decade). These farmers will be brought to Anand or any other similar training centre for about two to three days to see for themselves how "Anand Pattern" co-operatives function, and what benefits they provide to their members.

Normally, a Village-level Co-operative Oilseeds Growers' Society will cover an area of approximately 800 to 1,000 hectares. Initially, societies will be assisted by the NDDB mobile team in organizing their business, and in their record-keeping system (which consists of trading, financial, and operational activities). A local resident is hired by the society to be its paid manager (called secretary) . The project provides an initial two-year subsidy for expenses on salaries of the secretary and assistant, and rent of the office building, to help it become viable relatively quickly. The Village-level Oilseeds Growers' Cooperative Society undertakes procurement of oilseeds from grower members based on quality and also provides the much needed infrastructure that will enable the oilseed growers' federation to implement the production enhancement programme.


Arranging production enhancement inputs

An effort will be made to mobilize the resources already available from various agencies, especially the Government. The purpose is to avoid duplication in manpower and financial investments. In fact, most of the inputs available are not properly utilized by the farmers for various reasons. The aim is therefore to assure maximum utilization of the available resources, laying a strong foundation for future utilization of the inputs envisaged in the project at the optimum level. The oilseed growers' co-operatives will arrange supply of improved seed, rhizobium culture, fungicides for seed treatment, fertilizer, insecticides, and other inputs on cash payment basis or in kind. Where such facilities do not exist, mobile team members will assist oilseed growers to obtain finance from other sources for input purchases.


Demonstration plots

In each village or in each co-operative society, one or more village co operative representative will be selected to serve as a demonstration oilseed grower. Two demonstration plots of four hectares each will be established in each village to demonstrate the advantages of improved oilseed cultivation techniques. The plots will be periodically supervised and inspected by the agricultural specialists of the mobile team. During the growing season, "field-day" demonstration programmes will be organized at the demonstration plots to introduce co-operative members to innovative practices and test results. The grower-demonstrator will be given a subsidy (in various forms) of up to approximately 25 per cent of the total cost of production or Rs 500 per hectare. The produce from these demonstration plots, if meeting the prescribed field standard, will be procured as seed material at an incentive price of, say, 5 to 10 per cent over the market price. After cleaning, grading, and testing for physical purity and germination, these seeds will be supplied to the members of the society.


Management subsidies and equipment/storage grant

Each organized co-operative society, during its first two years of operation, will be provided an organizational and managerial subsidy, equivalent to Rs 3,000/- per year. This is to assist the society in hiring a manager (secretary), and in meeting start-up costs. Each co-operative also receives equipment, such as a large hanging bar scale for weighing the oilseed produce, a moisture meter, a small balance for testing produce to calculate shelling percentage, refraction, and impurity discounts. This provision has been made mainly to help ensure the viability of village-level co-operatives in their initial years of operations, when the oilseeds procured through these societies may not be adequate to generate incomes, earned in the form of society commission from the federation, to meet their running costs. Grants to develop local storage facilities are also given to the co-operatives.


District farms

In each contiguous area of 250,000 hectares, where project implementation will be initiated, the project authority will seek to acquire a farm of 300-400 hectares (to be donated by the state government) to serve the purpose of a district farm. In the absence of such large farms, the project envisages having a cluster of smaller farms belonging to rural community councils (panchayats), State Department of Agriculture, Agricultural High Schools, etc., to be operated on a joint management basis. These farms are expected not only to demonstrate improved cultivation methods and ways of dealing with local cultivation problems, but also to serve as training bases for farmers and extension workers serving on the mobile teams. Thus they would play an important role in the multiplication of foundation seeds.


Area agronomic centres

It is planned to establish one area agronomic centre during phase-1 of the project and one to two additional centres during the third to seventh years of the project.

The Area Agronomic Centres will serve several purposes. First, they will help in applied production research by conducting local trials of oilseeds technology developed at regional and possibly international agronomic research stations. Second, they will produce foundation seeds for multiplication by the district farms. Third, they will disseminate recent research findings in oilseeds to project participants. Land for these centres is to be provided by the state governments. Each centre will have a total proposed land area of about 500 hectares.

In the project, provision has also been made to meet expenditure likely to be incurred on Operations Research Studies, Market Research and Testing, Product and Process Development, etc. The manpower development component of the project provides funds to meet training costs of farmers and of staff employed by the federations, besides for setting up centralized training facilities.


Present status

Though the project was approved by the Government of India in September 1978, its actual implementation began only in July 1979 with the arrival of the gift shipment of oil from the Co-operative League of the USA (CLUSA). State Co-operative Oilseeds Growers' Federations have been set up in Gujarat, Madhya Pradesh, Andhra Pradesh, and Tamilnadu. In Gujarat, there are 667 village-level oilseed growers co-operatives with a total farmer membership of 35,733. In Madhya Pradesh and Tamilnadu, the number of societies are 69 and 10, with a membership of 3,584 and 500 respectively.

The members of the above oilseeds growers' co-operative societies have been provided with technical inputs, namely improved quality seeds, fungicides for seed treatment, rhizobium culture, plant protection chemicals, and improved agricultural implements. In addition, fertilizer-like diammonium phosphate, which is in short supply, has also been supplied. A total quantity of 1,060 tonnes of improved quality seed, 3,993 kilograms of seed treatment chemicals and 15,328 packets of rhizobium culture were distributed to members. The seeds distributed were produced at the demonstration farms and on selected progressive farmers' fields. The performance of the seed was found to be generally satisfactory, and the federations did not have to depend on any other organization for supply of improved seeds. Efforts are under way to produce foundation seeds of oilseed crops required by the respective federations. One major problem faced by the project is lack of availability of land for district farms as originally envisaged in the project.

After having seen the benefits derived by grower members in terms of the highest price ever paid for groundnuts in Gujarat last year, and the ability of the federation to provide seeds and undertake disease and pest control measures, there is a lot of enthusiasm among grower members to join the cooperatives. The table on page 245 gives the details of the progress made so far in co-operative organization and production-enhancement activities.

With a view to crush the produce in units owned by the members and to gain some experience in processing and marketing, two processing units acquired under the project are functioning at Bhavnagar and Jamnagar in Gujarat. In addition, the Gujarat federation has also obtained an industrial licence to set up a groundnut processing plant of 500 tonnes per day capacity in the Saurashtra region of Junagadh district and a 200 tonnes per day capacity mustard processing plant in north Gujarat. The Madhya Pradesh federation has obtained a letter of intent for setting up a 300 tonnes per day capacity soybean processing plant at Ujjain. Both Gujarat and Madhya Pradesh federations have started marketing oil and vanaspati.

Procurement operations have increased considerably, and the farmers have gained in terms of better returns. In Madhya Pradesh, the State-level Oilseeds Growers' Federation procured 5,000 tonnes of soybeans in the 1980/81 season, and were expected to procure around 15,000 tonnes during the 1981/82 season. Similarly, in Gujarat, as against 3,000 tonnes of groundnut procured in 1979/80, procurement reached a figure of 21,000 tonnes in 1980/81 through organized co-operative societies. Besides, the Gujarat federation procured 182,000 tonnes of groundnuts as a part of the joint venture with the Gujarat State Co-operative Marketing Federation in 1980/81. The total turn-over of Gujarat and Madhya Pradesh federations for 1980/81 was around Rs 700 million and it was expected to be around Rs 800 million during 1981/82. The prices paid to oilseeds growers averaged Rs 4200/- per tonne for groundnut, offered by the Gujarat federation, and Rs 2,760/- per tonne for soybean, offered by the Madhya Pradesh federation. This has benefited the growers, particularly as they received such prices at their doorstep.


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