The Narmada Group Cooperative Fruit and Vegetable Society Limited, Panetha

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1 The Narmada Group Cooperative Fruit and Vegetable Society Limited, Panetha Ajit Kanitkar Keeping in mind the interests of the farmermembers, the Chairman of the NGCFVS is contemplating on the strategies the society should adopt in order to ensure reasonable price for the produce of the members if there is a glut in the production. Readers are invited to send their responses on the case to Vikalpa office. Ajit Kanitkar is Assistant Professor, Institute of Rural Management, Anand. "There are reasons to be happy and at the same time reasons to be worried about. Our society achieved a turnover of Rs 1.5 crore last year. You would agree that it is not a small achievement for a cooperative society which is just four years old. But our success might also prove to be a cause for our failure. Many farmers in this area have switched over to banana cultivation from other crops. I clearly foresee a glut in the banana crop in this region. I am afraid if our society fails to offer a reasonable price for the produce of the members in the ensuing years, our achievement in the last four years may just be shortlived." These were the remarks of Shri Govardhanbhai Patel, Chairman of the Narmada Group Cooperative Fruit and Vegetable Society Ltd., (NGCFVS), Panetha, when the case-writer met him in July Evolution of the NGCFVS The NGCFVS was registered as a cooperative society in The society started functioning in a panchayat premise offered free of rent. The main activity of the society was marketing of fruits (bananas and papayas) of its members though, at the time of registration, the bye-laws mentioned marketing of vegetables also as one of the activities of the society. The highlights of the achievement of the NGCFVS since its inception are presented in Exhibit 1. In the second year of its operations, the NGCFVS constructed a two-storeyed building with loan assistance from a district cooperative bank. It also installed its own weigh bridge facility. The building was designed to include the office of the secretary and the accountant, a small hall for guests, a godown to store fertilizers, and a weigh bridge. In July 1993, the society had a staff strength of five comprising of a secretary, an accountant, a marketing manager, a clerk at the weigh bridge, and a peon. During the peak procurement season, it employed four more persons to supervise loading of bananas. The trading account, the profit and the loss account, and the balance sheet of NGCFVS for the year are given in Exhibits 2,3, and 4 respectively. The Chairman of the society, Shri Govardhanbhai Patel, explained the circumstances which led to the Vol. 19, No. 4, October-December

2 formation of the society. "Till ten years ago, nobody was cultivating banana in our village. The main crops were HYV cotton, wheat, and jawar. I was one of the first few farmers who had observed how banana was cultivated in the Surat -Valsad region in South Gujarat and I started experimenting with its cultivation. Our farmers too realized that there was money in this crop. Our lands are black and extremely fertile. Banana requires large doses of irrigation. Being situated on the bank of the Narmada, irrigation is easy. The water table is also at a high level and we get water through our tube wells from a depth of feet. With so many factors in favour of banana cultivation, farmers slowly switched over to this crop. Growing cotton had its own problems because of recurrent attacks from pests known locally as the "white fly." Thus, the banana plantation that one sees in and around this village is a very recent phenomenon. Very soon, however, we faced the problem of marketing of our produce since farmers went in for banana cultivation in a big way. Initially, we had to approach the market through traders but the arrangement proved dissatisfactory as many of us were cheated by the traders and payments were irregular. It was at this point of time, sometime in , that we explored the possibility of forming a cooperative society. However, we proceeded slowly. Initially, a few of us joined together, formed a loose group and experimented with what one may call "joint marketing." It failed. Later, we visited the Sardar Bag Cooperative Society at village Kamrej in Surat one of the oldest and largest cooperative societies dealing in fruits and vegetables. We studied its functioning and returned to our village with the conviction that the cooperative way of marketing would be the best way to ensure remunerative prices for our farmers." The Secretary of the society, Shri Ramanbhai Patel, explained the challenges the society might have to face in the future. "Farmers are able to earn considerable revenue by cultivating this crop. One acre of banana plantation yields an income ranging between Rs thousand and the expenses required for cultivation including fertilizers, irrigation, labour, and electricity charges total around Rs thousand. This year, my estimate is that the total area under banana cultivation has risen up to 750 acres in our village. Around the same time next year, i.e., during , we are anticipating a bumper crop. As a result, prices are going to crash and, therefore, we do need to think seriously whether our existing arrangements for marketing are going to be adequate or not." Marketing the Produce Shri Harshadbhai Patel, aged around 35 years, was the Marketing Manager-cum-Procurement Manager of the society. A dynamic person, he had excellent rapport with fellow villagers and members of the society. Harshadbhai explained his style of functioning and his responsibilities as follows: "The procurement season has just begun. It would continue till December-January My job is to coordinate the supplies from the member-farmers and the demand of the traders. Our existing selling arrangements have evolved over the last four years. Around mid-june, traders and commission agents representing fruit merchants from Bombay, Ahmedabad, Bharuch, Delhi, and Jaipur start visiting our society and place their tentative demand. Simultaneously, the process of monitoring the banana crop ready for cutting goes on as the members keep informing me regularly. I record these figures in a register and try to match the demand and supply figures. It is important to ensure that the quantity available for sale is marketed properly. The nature of the trade is such that prices tend to fluctuate and I have to keep track of these changes in the market. The price that we offer to the sellers here in the village is dependent on the market rates prevailing in Bombay and Ahmedabad as also the local markets such as Rajpipla, Rajpadi, and Bharuch. Fixing a particular price is purely a matter of judgement. For instance, there are some days when lesser quantities of banana are available while the demand from the traders is high. On such occasions, we are in a dominant position as we can demand cash and also bargain for a higher price. When our members are unable to cope with the demand, we buy from non-members in our own village and other neighbouring villages to meet the demand. On the contrary, there are some days when there are no takers for our produce and traders begin to bargain for lowering the prices. On such days, we are forced to send bananas to far-away commission agents on "on sale" basis. Therefore, the rate we receive in such deals is extremely low and payments are also delayed by these agents. This is our existing marketing arrangement. I visit Rajpipla, the nearest market about 30 km from here, every alternate day to study the market. In addition, we keep contacting the traders on phone. This arrangement ensures that our members get an overall better bargain in the entire season though on any given day, the prices may be abnormally high or low. The society charges 2 per cent commission on the sale of produce made on behalf of the members which goes towards the society's income." Problems in Dealing with Traders During the course of his stay at the village, the casewriter observed that the prices of bananas declared by the society varied between Rs 350 and Rs 370 per quintal during the three days. He also observed that prices 50 Vikalpa

3 varied drastically across seasons, across months, and even across markets and regions. For example, the published records indicated that the price of banana given to the members of a Banana Growers' Cooperative Society in Surat district during May 1990 and June 1991 fluctuated between 0.25 paise per kg to Rs 2.30 paise per kg. The Secretary of the society also confirmed that there were similar variations in the prices every year, including the year The Accountant of the society, Shri Bhalubhai Patel, pointed out the following aspects on the current marketing arrangement: "Our existing arrangements of procurement and marketing would be grossly inadequate for the future, though these were excellent when we had a smaller business. In the year , we sold a total output of 4,300 tonne of bananas. In season, beginning July and continuing up to December, we would need to market bananas planted in 800 to 1,000 acres. In each acre, 1,500 plants or pila (bananasuckers) are generally planted. Our farmers buy these roots from Jalgaon in Maharashtra. These roots give excellent output, up to 20 kg of fruits a plant. In the financial year that ended, we marketed around 1,000 truck loads of bananas and I expect this figure to go up substantially. I do not think that our existing arrangements of sale and negotiating with the traders would be able to bear this load. We need to think of some new strategies." New Marketing Strategies Shri Bhikhubhai Patel, a member of the Board of Directors of the NGCFVS and one of the progressive farmers of the village, spelt out their new marketing strategies: "The Board of Directors is aware of the problems involved in marketing and has, therefore, identified an excellent opportunity. We have recently visited a public limited company located near Valsad which is in the business of manufacturing fruit purees and concentrates. A 100 per cent export business unit with technical and financial collaboration with a German firm, the company's requirements are very large, i.e., about 65 tonne of bananas every day. The company is interested in buying from us and would like to procure their entire raw material from us. However, they are insisting on three conditions being met: First, they are very selective about the quality of the fruits. On that count, we have nothing to worry as our fruits are the best in the banana growing region of Gujarat. Second, the society should stop supplying to the traders. This implies that the NGCFVS has to get tied up with only one purchaser. Third, the company would fix up a particular rate at the beginning of each month and the society would be required to supply the fruits at the same rate all through the month irrespective of the price changes that might be noticed in the market in a given month. In spite of these conditions, we hope to negotiate with them on specific details and be able to strike a deal." Shri Bhikhubhai Patel shared the correspondence the NGCFVS had with the company exploring the tieup. One of the letters sent by the company mentioned the delivery schedule for bananas as under: Months July-August September-November December-January February March onwards Requirements of the Company 2 trucks every day 4 trucks every day 3 trucks every day 1 truck every day Depending on the availability The company had also agreed to advance a sum of Rs 7,00,000 at the beginning of the season in July and had indicated that payment would be made at the end of every week on receipt of the truckload. The case-writer met Shri D G Shah, Manager (Purchase) of the company who visited the society to collect some samples. He confirmed that his company was interested in locating a supplier who would assure continuous supply of raw material. He was of the opinion that the quality of the fruits from the society was satisfactory though a formal quality control report from the company's laboratory was awaited. During the course of the discussion, he informed the casewriter that there was already a delay of 11 months in the commissioning of the fruit processing plant for mango and papaya at Bhilad, Valsad. He hoped that this would not affect the performance of the company. The company had recently raised a capital of Rs 10 crore for implementing this project through a public issue. Views of Members There were varied opinions among the committee members, the employees, and the members of the society regarding the tie-up with the company. The case-writer also observed that a sizable group of people had resigned from the membership of the NGCFVS two years back and had formed an informal marketing group called Reva Bagayati Sangh. This group, organized on cooperative lines, had a sizable membership and had achieved business to the tune of almost Rs one crore. The group functioned on an informal basis as the Registrar's office at Bharuch would not permit two cooperatives in the same village. Vol. 19, No. 4, October-December

4 In the annual general body meeting of the NGCFVS which had taken place in June, the members had raised the issue of outstanding amounts from the traders. The Chairman had his own views on the suggestion of abandoning the dealings with traders and tying up with a company. According to him, "some members are unnecessarily getting panicky about the overdues. Yes, I do agree that the dues are large but where will these traders go? They have to come to us to buy bananas. When the season starts, all of them, including the defaulters, will place their demand. Also, they are not petty traders. I have seen their business in Bombay. They own properties in prime localities. Many of them defaulted because of the riot situation in December- January. We are initiating court cases against some of them. Our business is such that we have to extend credit. This business is similar to selling raw vegetables. A lakh or two may turn into bad debts. There is nothing wrong about that." Addressing the question whether he would be able to cope with the work load and ensure reasonable price for the produce if there is a glut in the output, Shri Harshadbhai Patel remarked, "This is a business where the traders and the members depend on each other. We have to ensure that the farmers get remunerative prices. The society has done an excellent job for the last four years. We have managed to sell the entire quantity of bananas received from our members at any point of time. However, the prices do fluctuate over which we have little control. On a given day, the Bombay market may get suddenly flooded with twenty truckloads of bananas from Jalgaon and the prices would touch rockbottom on such days. No trader is willing to transact business with us on those days. Reversals also do happen. I agree that there are overdues and some traders have not kept up their promise. But is there a guarantee that the company from Valsad would pay us regularly? In fact, that would increase our dependence. Currently, we are independent and are in a position to decide rates. We may get extremely good prices, or suffer losses. On the whole, we are better-off. Despite such uncertainties, we have managed to earn decent profits in all the four years." Major Disadvantages Availing the cash-credit facility from the Bharuch District Cooperative Bank, the society had borrowed to the extent of Rs 8.18 lakh to enable it to pay the dues to the farmer-members since a large number of traders had not paid them. The society owed Rs 1.57 lakh to the members as per the balance sheet. Against these two major liabilities, the society expected to receive payment from the traders to the tune of Rs lakh. Shri Bhalubhai Patel agreed that overdues was a major problem which the society had to face right from its inception. According to him, "the outstandings for were considerable the amount ranged from Rs 3,000 to Rs 3,00,000 per trader." However, he also felt that there was a need to bring in some kind of certainty regarding the sale of bananas as over-dependence on traders might prove harmful. Another major disadvantage the society faced was Panetha's location as traders found it difficult to reach Panetha. During the peak season, if the traders were unable to visit the society or if there was a glut, the society had to take the initiative and get in touch with the traders, commission-agents and transport contractors. Most of the pending dues were a result of such "on sale" transactions, wherein the rates were not negotiated with the traders. Efforts to convince the farmers that they should space their plantation over a period of three to four months were not fruitful as they preferred to plant new roots during the monsoon months (June-July) thereby increasing the chances of survival of the roots. Thus, every year, after the June-July harvest, they had to face a glut in output. Only those who had invested in irrigation facility could space out the plantation. It was evident that certain members were not happy with the prices the society was able to negotiate with the traders. According to Shri Manubhai Patel, the Sarpanch of the village, the prices as seen in the Ahmedabad fruit market (and printed in Gujarat Samachar, a local newspaper) on a given day and the prices the NGCFVS got through their dealings with the-traders and offered to the members varied considerably. He felt that the Ahmedabad prices were always higher and that the society failed to bargain for a better price. Similar protests were voiced by a few more members of the NGCFVS individually. Issues for Discussion A Board meeting was scheduled in August to discuss various issues related to marketing of bananas. Shri Govardhanbhai Patel was wondering whether he should pursue the following options keeping in mind the interests of the farmer-members: 1. Should the society think in terms of establishing its own processing plant? (The feasibility and economic viability of a processing unit would depend on the location, financial position, infrastructure, and managerial resources.) 52 Vikalpa

5 2. Should it also set up a cold storage plant? (Normally cold storage plants are commissioned for vegetables such as potatoes and fruits like apples. According to horticultural experts, the cold storage facility would extend the life of raw bananas by two or three weeks. Also, the National Cooperative Development Corporation has a scheme for extending long-term loans to such cooperatives.) Having observed the entire functioning of the society from close quarters, the case-writer was also concerned about the financial implications of pursuing these options. More specifically, he felt that the society had to focus on the following factors: The society seemed to have invested (implicitly) its own resources since it expected to receive Rs lakh from traders. What was the risk of not being able to recover? What are the long-term implications for the survival of the society? What about the society's future profitability? (The society's net profit in was just about 25 per cent of what it was in and it had continuously declined.) Could NGCFVS pursue these options at all? Are they financially viable?

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