Agricultural processing cooperatives

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Cooperatives are member-driven organizations with an entrepreneurial spirit and a social heart that are founded to meet immediate needs and address vulnerabilities. Cooperatives allow people to pool their resources to create their own economic opportunities, thereby transforming individual risk into collective risk. Cooperatives have proven to be resilient and able to respond to the consequences of crises like the Covid-19 pandemic and the economic crisis of 2008. Studies show that small farmers working collectively within strong producer organizations and cooperatives were better able to take advantage of market opportunities and avoid the negative consequences of food crises.

According to the World Cooperative Monitor (2019), more than 12% of humanity is part of one of the 3 million cooperatives worldwide, contributing to sustainable economic growth and quality jobs, employing 280 million people worldwide.

The formal development of cooperatives in Nepal dates back to the establishment of the Bakhan Multipurpose Cooperative Society in Chitwan in 1957. There is a long tradition of informal community cooperatives in Nepal, including savings and credit associations like Dhukuti. The government enacted the first cooperative law in 1960, and it has since undergone several amendments, most recently in 2017. In 1992, there were 883 cooperatives in the country. The number has now grown to 35,000 with 6.3 million members. Among them, about 7,230 cooperatives are engaged in basic agricultural production.

Although the effectiveness of cooperatives in rural socio-economic change is mixed, there are some encouraging examples of cooperatives being used to restructure the rural economy in Nepal and elsewhere.

Agricultural processing

The main constraint faced by farmers, especially small-scale farmers, is the lack of marketing opportunities. Smallholder farmers are subject to the “curse of smallness” because their production is too low to attract traders, and their input requirements are also too low to attract input suppliers. And as such, cooperatives fill the gaps where individual business owners find it unprofitable to provide services or where farmers are unfairly exploited. The Milansar Women Social Entrepreneurs Cooperative, which operates in Tansen, Palpa with technical assistance from Heifer International, is a shining example of how cooperatives can help farmers connect to markets.

Lack of access to agricultural loans is a systemic limitation to the commercialization of the agricultural sector. Despite the regulatory requirement for banks and financial institutions to invest at least 11% of their total investment in agriculture, the actual figure is less than 7%. Due to the considerable risk involved in lending to small farmers, banks are willing to pay a penalty to Nepal Rastra Bank for not complying with regulations. Because cooperatives can minimize transaction costs and reduce the risk of default, they have the potential to act as a financial intermediary for small farmers.

Inadequate and inefficient service delivery is a significant impediment to agricultural development. Due to institutional inconsistencies, political instability and poor governance, the capacity of the institutions put in place to deliver services (agricultural extension, inputs, credit, marketing) has been limited. Cooperatives have the potential to provide services to the community.

Cooperatives face a fundamental challenge to improve their economic viability and institutional sustainability. They fail due to poor governance, poor financial management, inactive members, insufficient member services, lack of working capital and lack of entrepreneurial capacity.

Cooperative values ​​and principles are the foundation of cooperatives. The challenge is to link cooperative ideals to governance operations at all levels, including staff, members and the board. It should be noted that cooperatives have a unique governance structure with the three main constituents. The Board of Directors, staff and members from diverse backgrounds strive to achieve the same goal.

Another challenge cooperatives face globally is to remain innovative and competitive. Innovation increases the likelihood of adapting to changes and discovering new opportunities to provide members with better products and services.

Cooperatives formed with the federation of mature groups have a solid base of social capital that makes cooperatives strong. Most cooperatives in Nepal have a weak social capital base, which results in non-performing cooperatives.

Go forward

Cooperative capacity building in several areas such as governance, financial management, business management and community and stakeholder engagement should be an important component of the cooperative formation process. Many tools are available to assess and analyze capacity gaps in cooperatives. It is essential that co-op employees and board members are fully involved in the evaluation process. An improvement plan should then be developed and implemented based on the capability gaps.

Having the right people at the governance and management levels is critically important to the success of cooperatives. Without them, no matter how much time cooperatives devote to capacity building, they will not achieve the expected results. It is essential that members are made aware of the desired qualities of the board and management.

The development of smart cooperatives should be part of the strategy to make cooperative enterprises competitive, innovative and able to attract capital and generate economic opportunities. It is important to facilitate the growth and development of cooperatives that are economically viable, socially acceptable and respectful of the environment.

In collaboration with NGOs, INGOs and the private sector, national, provincial and local governments should plan and implement a coordinated approach to create an enabling environment for cooperatives. Local governments, in particular, should prioritize the development of cooperatives by allocating resources and providing oversight.

Cooperatives are largely business entities with a social mission that have proven robust in times of financial hardship. Cooperatives can help market agriculture as a sustainable community organization in situations where government service delivery is poor and the private sector is reluctant to invest in agriculture. It would be prudent for local and provincial governments to work together to create an environment that allows cooperatives to thrive as a viable instrument of community socio-economic transformation.

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