The Gujarat Co-operative Milk Marketing Federation (GCMMF) and brand Amul was, till recently, seen as a glittering example of what a producers’ collective could actually do.
Co-operatives, which combine the commercial orientation of a for-profit enterprise with a service to the community, work on the assumption that if a producer’s collective is set up with pay offs that reward the producers, then their self-interest ensures that it will function as an effective economic organisation. However, the months-long power struggle at GCMMF raises questions on whether the assumption of self-interest is indeed true.
Till the time Verghese Kurien was at the helm everything seemed to be moving as per principles. He was no milk producer and in that sense did not have a ‘self-interest’ in the success of the organisation. However he espoused the cause of milk producers almost like a chief executive who was appointed to do a job that was assigned to him. GCMMF was also able to prevent the State from taking over individual units. GCMMF never looked vulnerable because it was run professionally and in an orderly manner. There was no scandal that tainted the organisation, and hence no scope for anybody to touch it.
How a system that ran smoothly and grew into a phenomenon could show cracks in a matter of a few years indicates the fragility of the co-operative form of organisation. It also raises some doubts on whether it is indeed a credible alternative to the market model.
Checks and Balances
Suddenly the glue that held the structures together seems to be wearing out. The people at the helm of affairs do not seem to be representing the interests of the milk producers. In a similar situation, with a crisis in the leadership of a for-profit firm, there would have been an attempt at takeover from somebody who thought that it was possible to provide better management and thus better value to the shareholders. The institution of stock market also helps. There would have been enough signals in the market that would have predicted this situation and the movement would have happened early on.
Unfortunately, the co-operative structure does not have an exchange where supply rights could be traded. Change can happen only through the mechanism of a board room or a general body meeting or through the intervention of the state. There could be no market action that could build a tempo for such a change.
Structural Issues
GCMMF’s organisational structure too has something to do with the crisis. Unlike the sugar co-operatives which are a single-tier structure (with the cane producer directly voting for the board of the sugar processing unit), GCMMF is a federal unit with a three-tiered structure operating on a representational democracy. The village level co-operatives (which procure milk from the members, the dairy farmers) elect members to the district union (which transports and processes the milk); the district unions elect members to the federation, whose role is to market, provide strategic planning and investment — these are the people who sit on the board of GCMMF. At the primary level, voting is on a one member one vote basis, whereas at the federal level the votes that a person commands is proportional to the business interests his/her institution represents. The membership [and thus the ownership] could theoretically be transient — only milk producer pourers (the dairy farmers) could be voting members of the milk co-operative and their capital contribution is incidental. Therefore, if they were to exit from the co-operative, the cost to them would at best be the loss of an assured buyer for the product. At exit, there is no exit bonus and for entry into a co-operative there is no entry load or premium. This is an invitation for free-riders.
A brand built and nurtured over a period of 50 years is showing cracks at the hands of a dozen board members who may not behave in a responsible manner. These board members have only an upside with limited downside. They actually lose no capital, no loss if they lose a source that procures the milk that is produced. The ones who would shed tears at the fall of the brand would be those whose livelihood depends on the payments received from the milk co-operative. That somebody is far removed — at least three tiers away — from the machinations.
(This story appears in the 10 September, 2010 issue of Forbes India. To visit our Archives, click here.)
I am really eager to know, are farmers at grass root level really satisfied with the services and model of dairy cooperative?
on Oct 29, 2010A really insightful article, and the way the "interest" of the stakeholders was brought out leads one to think not only about the imminent immediate fate of AMUL, but also about the inherent fragility of the co-operative as a mode. The striking dilemma is that while in the initial stages of the life-cycle of a co-operative, it makes economic sense for the producer to "outsource" the "value addition" activities (processing, packing etc) to someone above him within the organization (or create that someone to do that), with expansion in value addition layers, the bonding between the various layers of stakeholders loosen, and the "outsourcing" boomerang, threatening the very functioning of the organization. Had the co-operative as a model been robust enough to withstand the market forces and fool proof enough with respect to serving the interests of stakeholders proportionately, the model would have been behind countless AMULs by now. What disappoints me is that even after so many years of co-existence with fiercely competitive firms at the marketplace, the model has been unable to evolve itself as a savior of the small producer's agony.
on Sep 2, 2010Its a good piece, if you allow we may use it for Indiancooperative.com
on Sep 2, 2010