Dutch Lesson For Indian Farmers

Updated: Oct 20 2002, 05:30am hrs
The rural cooperative movement in the Netherlands, as in other European countries, was inspired by the Raiffeisen banks in Germany, which were established in 1844 to provide credit for small farmers, liberated from the yokes of the Prussian landlordsthe Junkersin the aftermath of the French revolution. In the second half of the 20th Century Dutch agriculture was in transition from subsistence farming to integration with market and money economy. In the 1880s it was in a state of crisis.

Market-oriented agriculture had to be a specialised business dependent on chemical fertilisers, machines and new technologies, all of which required financial resources. But the commercial banks in towns and cities were not eager to help the farmers. The German example prompted the farmers union in the Netherlands to establish similar cooperative banks. Two umbrella central banks were established by the local cooperative banks in 1898, one in Utrecht for the centre and north of the country, and another in Eindhoven for the southern provinces.

The representatives of the two central banks travelled all over the country and by 1925 had established a nationwide network of 1,250 local cooperative banks. The two central banks were merged in 1972 to become Rabobank, Ra and Bo having been taken from the first two letters of the names of the original banks. In the 25 years that followed the merger, Rabobank continued to develop and extend its banking operations to cover the Dutch wholesale sector as well.

It established its presence in important trading centres for food and agro-business. A further expansion took place when the cooperative insurance company joined the Rabobank organisation. The centenary year of 1998 saw the abolition of compulsory membership for business borrowers as well as the abolition of member loyalty. Rabobank still claims, though, that its cooperative principles were not been diluted in the 100 years in which it grew in strength. It still has a strong customer base and a committed membership.

This world class institution has simply adapted itself to changing circumstances without foregoing its cooperative ideals and principles. Cooperatives and Cooperative BanksTheir Contribution To Economic And Rural Development by Rabobank International places the banks rich experience at the disposal of cooperative banks in developing countries. It offers a strategy for promoting economic development in general and rural development in particular. Some of the papers talk of the manner in which cooperative principles and ideas slowly adapted to the changing economic environment and the preconditions that had to be fulfilled. The papers also dwell on the development of the cooperative movement in general and cooperative banking, in particular, in underdeveloped countries.

Cooperatives occupy a pride of place in agriculture and handle 50 per cent of the entire turnover of agro-business in Europe. Cooperatives handle 95 per cent of the business in Denmark and Ireland, 90 per cent of the business in Austria and 84 per cent of it in the Netherlands. In other countries like France, Germany, Portugal and Belgium, the share of cooperatives in agro-business is about 70 per cent.

Cooperatives also account for 87 per cent of the credit available to Dutch farmers, 85 per cent of the credit available to French farmers and a great deal of it available to farmers in Germany, Austria and Portugal. The share of cooperatives in dairy business is 90 per cent in New Zealand and 60 per cent in Austria.

Cooperatives also play an important role in purchasing agricultural inputs, as in the United States, where they supply 26 per cent of the inputs to farmers and are responsible for 28 per cent of the processing and marketing. Cooperatives have, thus, made a substantial and sustainable contribution to the prosperity of developed countries over the last century and a half.

The cooperative movement owes its origin to the Rochdale consumer cooperatives born in North England in 1824 and to the Raiffeisen credit cooperatives in Germany. They had their own sets of practices, which were slowly elevated to the status of universal cooperative principles like democratic management, limited interest on capital and distribution of dividend in proportion to transactions. Cooperatives also believed in education and the vision of cooperative commonwealth, based on the ideas of self-help and mutual help and cooperation among cooperatives.

As time changed, the business aspects of cooperatives became more prominent than their social idealism. Both in their objectives and management structure, cooperatives have begun to resemble capitalist firms. Some of the inevitable problems that have arisen as a consequence pertain to participation of members, control and benefit to the primary producer compared to mere commercial profit, and preserving the original socially-inspired ideas. In the end, though, cooperatives remain user-oriented firms, which bring better returns to both producer members and consumers.

Developing countries like India can certainly draw inspiration from the cooperative experience in developed countries. The successful functioning of cooperatives requires some definite preconditions. Firstly, cooperatives have to be looked upon as private business organisations and not as substitutes for states. In India the policy is just the opposite.

Cooperatives are looked upon as agents or instruments of the state. They are required to undertake functions and activities without any regard for business considerations and called upon to work as agencies of the public distribution system, irrespective of the business prudence of such activities. An example is the use of NAFED for importing onions when prices rise. Agricultural marketing cooperatives are for marketing farmers produce at the best possible price and not for importing consumer goods.

This misplacement of functions hampers the working of cooperatives as business organisations. In some countries state cooperatives have been organised with the express purpose of monopolising exports in order to generate state income. Such cooperatives have failed conspicuously.

Secondly, agricultural cooperatives cannot function in a feudal environment, where farmers are controlled by absentee landlords. Land reforms have to confer elementary rights on the tillers of the soil before they qualify as members of cooperatives. Thirdly, cooperatives have to be protected from political interference. If cooperatives become a part of politics, they become subject to illegal obstructions by politicians in power. Fourthly, cooperatives must have the autonomy and freedom to work in an optimum manner in market conditions. Legislation on cooperatives should only provide a broad framework, leaving ample scope for members to regulate their own activities in a businesslike manner.

The dirigist or tutelary legislation found in many developing countries is detrimental to the development of cooperatives. Only with such preconditions could the success of cooperatives in Europe be transferred to cooperative institutions in developing societies. Cooperatives are business organisations and have to follow the laws of the market. Sound business behaviour is the sine qua non for their successful functioning. They should, moreover, be supported by enabling institutions in a global environment, in a wide range of functions, from research to quality control and sales promotion.

Businesslike functioning of cooperatives does not rob them of their social relevance. Successful economic functioning of cooperatives do not have any indirect or long-term impact on social objectives, like equity and freedom either. The Rabobank publication is very timely and contains rich material, which can be of great educational value to managers of cooperatives and policy makers in India

Cooperatives and Cooperative BanksTheir Contribution To Economic And Rural Development; Rabobank International; price not mentioned; Pp 92