New Generation Cooperatives leading to Producer Companies
Cooperatives are one form of organizations where the Producers amass to an autonomous association voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise. As collectives the producers strive towards managing and owning of enterprises related to procuring, processing and retailing of their produce.
Need for Institutional reforms
In India the cooperative movement has mostly been a state sponsored affair and most of the cooperatives still continue to be governed under the regulatory environment. In recent times when Globalization and Liberalization have shrunk socio-economic and cultural boundaries and opened up cooperatives to global competition in terms of trade between rural and urban, labour and industry, finance and commerce. The changes in commerce, banking, international trade and information technology helped raise the living of the rural masses by linking rural economy with regional, national and global demands.
The need for Institutional reforms that could adhere to and uphold the basic principles of cooperation while enjoying the business and regulatory framework of companies were sought that could link the rural economy with the emerging new opportunities and put cooperatives on the same level playing field in the present competitive scenario. If present forms of co-operative enterprise are to continue to serve rural producers, they require an alternative to the institutional form that is presently available under the law.
Predecessors of framing legislation for Producer Company
Framing of a Producer Company Legislation
Keeping this in view, The Department of Company Affairs (DCA) Government of India constituted a High Powered Committee headed by Dr. YK Alagh, noted economists and former Union Minister to examine and make recommendations with regard to:
- Framing a legislation which would enable incorporation of cooperatives as Producer Companies and conversion of existing cooperatives to Producer Companies and
- Ensure that the proposed legislation accommodates the unique elements of cooperative business within the regulatory framework similar to that of companies.
On the basis of recommendations of the Committee, the Companies (Second Amendment) Bill 2001 was finalized and introduced during December, 2002 in the Parliament. Finally, the Companies (Amendment) Act 2002 came into effect 0n 6th February 2003. Until then The Companies Act, 1956 (the Act), recognised only three types of companies, namely:
- Companies limited by shares (subdivided into public limited and private limited Companies),
- Companies limited by guarantees and
- Unlimited Companies.
The amendment to the act now adds a 4th variant: ‘Producer Companies’.
Rationale for forming Milk Producer Companies
Private sector, large MNCs and retail chains are rapidly expanding their operations and in 15 years have created capacities equal to that set up by cooperatives in more than 30 years. While the private sector grows, it is in the interests of livelihoods and inclusiveness that cooperatives retain their existing share of the milk handled by organized sector. Therefore while significant and substantial strengthening of the existing dairy cooperatives is envisaged, Part IX A of the Companies Act would also be used to promote Producer Companies. This legislation provides the same legal and regulatory framework enjoyed by companies, but protects the basic principles of cooperation: voluntary and open membership, democratic member control, member economic participation, autonomy and independence.
New Generation Cooperatives
With the aim of setting up Producer Companies in areas where cooperatives are not present or have low coverage and procurement NDDB envisages mobilization and Institution Building through promotion of new Milk Producers Institution/ New Generation Cooperatives, which would subsequently be registered as Producer Companies under the Companies Act.
Design & Process
To begin with, a producer company would usually pool and supply milk to processors on mutually agreeable terms. In future the producer company could take up activities leading to milk processing and marketing.
It is through Training, Capacity Building and investments in village level infrastructure for milk collection and bulking such as milk cans, bulk milk coolers for a cluster of villages, associated weighing and testing equipment and related IT equipment that NDDB envisages strengthening of milk procurement systems, propagating cooperative business through Milk Producer Institutions. The expected results could be increase in milk production, number of milk producers and milk producer institutions as they would have improved access to the organized milk processing sector and improved price realization.
The first step in promoting a New Generation Cooperative was taken when the activity was taken up in the Saurashtra-Kachch region in November 2005. A team from NDDB started organizing Milk Producers into Milk Producers Institutions in the villages of Junagadh district of Gujarat state. The system was fine-tuned and the model extended to eight states. Today many Producer Institutions are present in Andhra Pradesh, Bihar, Gujarat, Haryana, Maharashtra, Punjab, Rajasthan and Uttar Pradesh. Most of the NGCs have evolved into producer companies, Maahi, Paayas, Saahaj, Baani and Sreeja are some of them.