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Cooperative Processing

Booklet no. 76 Agricultural Cooperation: ACS -11 Contents Preface I. Introduction II. Meaning and Scope III. Need and Importance IV. Processing of Agricultural Produce V. Co-operative Processing in India VI. Present Position in India VII. Organization and Structural Pattern VIII. Planning and Establishment IX. Defects and Difficulties X. Suggestions for Improvement XI. Conclusion Preface Almost all the agricultural produce have to undergo stages of processing before they reach the consumer. Presently the majority of this processing is done by the middlemen which ultimately lead the producer and consumer to a great loss. This booklet discusses the setting up of a co-operative processing unit through which the producer and the consumer can get rid of this exploitation. Dr. K.T. Chandy, Agricultural & Environmental Education I. Introduction Processing of food grains and other agricultural products is the most important stage in preparing them for the ultimate consumption. Almost all the agricultural commodities have to undergo one or more stages of processing before they reach the consumer. At present the work of processing is largely done by middle men owning the processing units and a good chunk of the ultimate price paid by the consumer goes to these intermediaries. This can be eliminated if the processing activities are organized on a co-operative basis by the producers themselves so that they Call get better return on their produce and in some cases bring down the sales price. II. Meaning and Scope Processing is an activity connected with the preparation of foodgrains and commercial crops for the purpose of making them fit for ultimate consumption. Practically every agricultural produce, after harvested and before it reaches the ultimate consumer, is subjected to certain transformation in one form or the other. For example, paddy may be threshed and winnowed by the cultivator but husked by the millers, the trader or even the consumer. Similarly, cotton has to be ginned and pressed, before it goes to textile mills. Sugarcane has to be processed into gut or sugar and so on. In majority of crops, broad uniformity for processing is available in the country. Food grain processing involves changing the form of the grain. These are processed to make them more edible, more palatable and in some cases for preserving the grain. Commercial crops are processed to make them directly usable, to make them durable, look attractive and

keep its original taste and characteristics, and to make it suitable for transport to long distances in foreign market where remunerative prices could be gained for them. The small and marginal farmer cannot afford to take up this aspect of agriculture because of limited resources in terms of finance, technical skill, knowledge and limited marketable surplus. Consequently, it is being undertaken by the middle men in the private sector. For achieving maximum economy, processing units may be set up close to the sources of supply. A processing unit or society can offer a number of advantages to the rural people. 1. It can help in the decentralization of industries. 2. It may be cheaper because of low wages of labour, low rent of building and low cost of transportation. 3. The by-products can also be used in the rural areas. 4. It helps in reducing unemployment among the rural masses. Processing can be done either by indigenous methods or by mechanical power. The farmer can be of advantage only in those areas where unemployment and under employment is rampant. But, in areas where there is shortage of man-power and where the problem is one reducing the cost, processing by mechanical power would be economical. III. Need and Importance Well established co-operative units can effectively undertake to recover the loan paid by the co-operative credit societies for agricultural production, for the development of co-operative marketing and consumer co-operatives. There is now an increasing awareness of the importance of the role of co-operative processing in economy development in general and in co-operative development in particular. The importance of co-operative processing relates to ~e following considerations. 1. Indispensable for marketing Co-operative processing is an indispensable part of co-operative marketing, particularly with regard to cash crops. The price--spread between the producer and the consumer is sizable in the case of commodities which have to be processed before they reach the consumer. Consequently, successful handling of these commodities on a co-operative basis is generally not possible, unless their processing is also undertaken by co-operative institutions. 2. Linking credit with processing Well established co-operative processing units can effectively undertake to recover the loans provided by the co-operative credit institutions for production of relevant agricultural commodity. This has been tried with a large measure of success in the case of co- operative sugar factories in Maharashtra, where they are recovering the loans advanced by the primary credit societies for raising of sugarcane crop. 3. Help to consumer societies In several parts of the country the distribution of sugar, produced , by co-operative sugar factories, has been entrusted to co-operative supply agencies and this has been to the mutual benefit of co-operative processing organizations and the co-operative supply institutions. It is quite obvious that the functioning of consumer institutions will be considerably facilitated if there is a large scale development of co-operative processing activity. what is desirable is that the co-

operative processing units and the consumer institutions should establish suitable points of contact 4. Base for rural industrialization It has been seen that the rural economy gets immediately transformed and immensely strengthened by taking up agricultural processing. Larger surplus become available for further investment and larger inputs make for technical and economy advancement in both agriculture sector and industry. 5. Socio-economic change Co-operative processing societies ,have facilitated the introduction of technical change in agriculture: they have created not only economic opportunities, but have helped in building a class of entrepreneurs amongst ordinary farmers. Besides, co-operative processing accelerates the rate of capital formation in agriculture both at the production and processing stages. Agricultural processing has been assigned a significant role in co-operative development. Processing of agricultural produce is now being considered specially appropriate for the co-operative method of organization. IV. Processing of Agricultural Produce Practically every agricultural produce, after harvested and before it reaches the ultimate consumer, is subjected to certain transformation in one form or other. This is done to enable the commodity to stand long durability, and help it in providing a continuous supply for the market. Processing differs for different crops and for different areas and preference on the part of the consumer. A single form of processing may consist of more than a single operation carried out by different parts at different stages. A. Processing of food crops Food grain processing involves transforming the harvested produce to consumptive produce. The principal types of processing of food grains are drying, parboiling, husking, polishing, grinding, separating, cooling etc. Rice, wheat, pulses and millets are some food crops which are processed for use. 1. Rice After harvesting the paddy, it is dried to reduce its moisture contents. Then the grains are separated from the straw by striking "sheaves" against a block of wood or by leaving them to be trodden by bullocks. The impurities viz. chaff-dust, lumps of mud, pieces of stone etc., are removed by the winnower. In some parts of our country, paddy is parboiled before it is husked. Parboiling consists in leaving the paddy in water and when the grain has swollen and has become soft, it is dried under artificial heat generated by steam so that a greater quantity and a better quality of rice is released. Rice may be hand-pounded or milled. The milled or hand pounded rice may be dressed, coloured and polished to improve its luster or to make it more attractive or for reducing decaying elements in the grain and to improve its keeping quality. Rice is then graded by size. Grains that are three-fourths of a whole grain are termed "head" rice and smaller grains are termed "broken". 2. Wheat After harvesting the wheat grains are separated from the ears \ either by hand or by weighted wood frame drawn by bullocks. The beaten stuff is then winnowed.

Nearly all the wheat in India is milled and cleaned before it is consumed. This can be done both commercially as well as in home. Wheat milling involves grinding the kernel into a whole wheat flour and if desired separating the bran and germ from the more digestible white endosperm. Most of the whole wheat flour is milled by hand in the home by local flouring mills. Practically all the white flour is produced by roller mills. Roller flour milling involves the steps described below. a. Cleaning Incoming wheat is cleaned of stones, dirt, metal, weed, seed, and other foreign materials by separators, aspirators, scouvies, magnet and washers. b. Tempering The cleaned wheat is moistened and held in the tempering bins for 8 to 24 hrs. to toughen the outer coat and mello the endosperm. c. Blending Wheat of different protein content are mixed to produce a flour with desired characteristics. d. Grinding & separating The wheat grain is first broken by a pair of corrugated rollers. The whole wheat is repeatedly rolled, sifted, and purified until the bran and germ are well separated. 3. Pulses Pulses are processed into different products. In Punjab, a survey showed that 61 % of gram was utilized either as food, feed or seed or the farm. The remaining 39% was marketed. The various pulse products are processed in different ways. Cattle feed is usually ground by local bullock or motor powered 'chakkies'. Pulses are parched on a small scale in towns in ovens. 'Dal' is made in series of steps both at home and in mills. They include cleaning, dampening, tempering, husking and splitting. Dal may further be processed by grinding it into a flour called 'besan'. 4. Millets Major millets like jowar, bajra, ragi and maize are generally eaten as thin un leaven cakes but are also parched and popped. The most sophisticated millet processing is used in the manufacture of et cornflakes and maize mill products such as starch, glucose, dextrose, dexbine, maize oil, gluten etc. B. Processing or commercial crops The main objectives of the processing of commercial crop is to make them attractive, durable and keep its original taste or characteristics. Groundnut, sugarcane, tobacco, cotton, jute, tea and coffee are the few commercial crops which are processed before use. 1. Groundnut After the pods have been collected, they are usually dried in the sun till the nuts make a rattling sound and kernels get loose in the shell. The pods are either marketed as groundnut in

shell or after a further process (called decortications) or taking out the kernels by breaking and removing the shell. Decortications is carried out either by hand or by machines. The process consists of heaping the pods and sprinkling water over them in the evening. The nuts are spread the next morning and beaten with sticks or a wooden mallet which is notched on one side. The kernels are then separated by winnowing and marketed generally after being dried. Shelling by hand is also done without beating with sticks or mallets. Each pod is pressed between the fingers so that the shell is broken and the kernels are taken. For crushing the groundnut kernels the machinery used may be bullock driven village' chakkies' screw press, power driven rotary mills, power driven expellers and hydraulic press. 2. Sugarcane Sugarcane is sold after being processed to sugar or gur. About 45% is consumed in the manufacture of gur, and the rest in the manufacture of factory sugar. Extraction of juice for making gur from the cane is largely done by the cultivator in bullock driven three roller iron mills and in case of smaller quantity by wooden : or two roller iron mills. When the production of sugarcane is very little in quantity, a large number of producers join the 'khandsari' or sugar broker in making sugar. 3. Tobacco The operations involved in the processing of tobacco are curing, sorting, bulking for fermentation, and reconditioning followed by bundling and packing. Curing is the most important operation of tobacco and has a great bearing on the quality, colour, texture and finally on the value of the product. Four principal methods of curing tobacco are employed in India (a) flue curing (b) rack curing (c) ground or sun-curing and (d) pit-curing. a. Flue curing is applied to about 5% of the crop. In this process, the heal and smoke arc circulated through the curing home in large pipes or flues and do not come into direct touch with the leaves. A rather light coloured tobacco results from this process. b. Rack curing is done in aboul25% of the crop. Il is normally done for country cigarette, cigar and cheroot tobacco. c. Sun or ground curing is applied to about 65% of the crop. In this process, the tobacco leaves are hung on the strings and open fires are made on the floor of the barn and kept burning for a few days. The smoke of the fire affects the tobacco and gives il a characteristic odour and taste. d. Pit-curing is applied to a little over 5% of the crops. This is done for hookah and chewing tobacco. After curing, the leaves are graded into different qualities. The cured leaves are pit in layers to allow for fermentation and then the excess moisture is dried and the flavour and aroma is improved. In order to prepare bidi and hookah tobacco, the dried leaves are roughly pressed so that small pieces are formed. The mid-ribs and veins are further allowed to dry and then beaten into small n pieces and mixed with leaf powder. The coarsely crushed leaves have to be reduced to small sized flakes which are passed through sieves of different meshes. The dried plants are further beaten into powder for hookah. For reconditioning, tobacco is passed through a series of three chambers in each of which the heat and humidity are so regulated that the leaves become soft and pliable, and contain only 10 to 20% moisture. The method of packing varies with the type of tobacco. In making bundles, the leaves are separated from the stem on a dewy morning and put into bundles of about 20 to 30 leaves with the best leaves on the outer side. The butt ends are tied with tobacco leaf, mid-rib string or

cotton tape. The bundles are then packed in gunny cloth and stitched to form a bale. The bidi tobacco powder is packed in gunny bags. The cigarette tobacco is usually packed in gunny bales, wooden cubes and hogsheads. The bag in all cases is pressed close by means of a hydraulic press or by trampling. 4. Cotton The bulk of cotton produced is disposed of by the growers as kapas' or cotton seeds in the village to the Mahajan or village trader and in the market or in the yard of the ginning factory. Some of the big foreign firms and Bombay mills have set up their own factories in the cotton growing areas for ginning and pressing the cotton. 5. Jute After the jute crop is harvested, it is tied into small units called Anti (6 to 8 plants) and then in to a larger bundles called Bojhas (6 to 8 antis) and left for 2 to 4 days for the shedding of the leaves. The two main operations in the processing of jute are (a) steeping, which involves the immersion of bundles of jute plants in running :. water in order to soften the tissues of the plants, and (b) the stripping of the fibre. The processing is done by the cultivator who generally engages paid labour. Each labour strips about half a mound of fibre per day. The fibre is then left for about 2 days in the sun to dry and sold in bundles. 6. Tea A number of operations such as withering, rolling, fermenting and drying are involved in the preparation of black tea. These require a high degree of skill and expensive equipment, and production is, therefore, confined to factories. After processing the tea leaves are stored, blended and divided into commercial grades such as leaf grade and broken grade. The left over is sold as buff for the extraction of caffein. In case of green tea, the withering and fermentation process are omitted, and the leaves are heated, treated, rolled, dried and polished. The bulk of the crop gather~ from plantation is processed into 'black tea' and a small percentage into 'green tea. 7. Coffee Coffee picking is a selective operation and is confined to ripe berries. There are two methods of processing it i.e. 'dry method' and the 'wet method' both seeking to rid the beam of various coverings, the skin, parchment, pulp and outer-skins. Small plantations, unable to afford the equipment needed for the wet process, employ a set up operation collectively called the 'dry method'. V. Co-operative Processing in India Co-operative processing has a long history in our land to come upto this level. This has been enumerated in the following lines. A. Historical background The beginning of agricultural co-operative processing in India dates back to 1917, when a co-operative cotton ginning unit was established in the Mysore State. A similar was made in Gujarat in 1921. For nearly 40 years, co-operative processing of cotton was more or less confined to the areas of Mysore and Gujarat. The first sugar co-operative was set up in 1933 in V.P. Between 1933-35, four more sugar co-operatives were operated in V.P. and three in Madras. For nearly two decades, no further development was made. An effective starting point for the sugar industry in the co-operative sector was provided by the establishment of cooperative sugar mills at Prauranagar in Maharashtra.

B. Co-operative processing in Five Year Plans The importance of co-operative processing to the rural economy of India has been emphasized by all committees and commissions set up to review the position of co-operative movement, but nothing substantial was achieved until the beginning of third Five Year Plan. 1. First Five Year Plan It was in 1946, that the Suriya Committee on Co-operative Planning advocated that marketing societies should undertake the grading and processing of agricultural produce. The Rural Credit Survey Committee stressed the need for promoting co-operative processing societies at the primary, taluka, district, state and national level on the basis of state partnership with financial, technical and administrative assistance. It recommended that the government should license all factories and mills engaged in the processing of agricultural produce. In case of license for a new factory, the possibilities for giving it to a co-operative society should be explored. Accepting this recommendation, during the First Plan period, licenses were granted to 16 co-operative sugar mills, 13 in Maharashtra and 3 in Punjab. A few cooperative marketing societies also undertook processing as an adjunct to marketing. Such societies included paddy husking, groundnut decorticating and cotton ginning. 2. Second Five Year Plan The second plan envisaged the setting up of 166 co-operative processing units including 48 cotton gins. However, in the light of the expanded programme of co-operative development implemented by the states subsequent to the National Development Council resolution on cooperative policy, 646 units were programmed and assisted during that plan period. National Co-operative Development and Warehousing Board, appointed a Committee, in 1961, under chairmanship of Sri R.G. Saraiya, to review the existing position and examine the promotional and organisational aspects of co-operative sugar factories and other processing societies to ensuring their sound and speedy development during the third plan. 3. Third Five Year Plan At the end of third plan period there were 2,130 processing societies which included 78 co-operative sugar factories, 155 cotton ginning and pressing societies, 329 paddy husking, 12 rice mills, 298 oil crushing, 22 fruit and vegetables and 1106 other societies including two state and one central society. The largest number of processing co-operative was in Andhra Pradesh (940). 4. Fourth Five Year Plan Co-operative processing units made rapid progress during the fourth plan period. By the end of fourth plan the number of such units was about 1,900 with an established cost of about Rs. 550 crores. Of the 1,756 processing units organized over 225 could be classified as large and medium agricultural industries like sugar factories, spinning and jute mills, distilleries, solvent extraction plants, vanaspati and cattle feed factories etc. The encouragement is also being given to take up by-product utilization and diversification of processing activities. By the end of 1974-75 the number of processing units rose to 1,962, of which 1,616 were installed. 5. Fifth Five Year Plan The fifth plan encouraged the establishment of 650 new processing co-operatives. They include 76 sugar factories, 45 cotton ginning and processing units, 2 jute mills, 40 oil mills, 4

solvent extraction plants, 4 vanaspati oil units, 155 rice mills 35 dal mills and 60 cold storages. It was believed that the total production capacity of sugar mills (under co-operative sector) would rise to 9 lakh spindles. There are 1544 agricultural processing societies in the beginning of Fifth Five Year Plan. In 1975 December, the number of such societies increased to 1,611. 6. Sixth & Seventh Five Year Plan During the sixth plan (1980-85), co-operative processing made substantial progress. About 2,448 units were organized during 1984-85 in the co-operative sector. In the seventh plan target for sugar factories and spinning mills were 220 and 130 respectively. VI. Present Position in India India produces Rs. 60,689 crores worth of agro-food material which when converted to processed products require a value addition of Rs. 50,703 crores but this value addition due to food processing at various stages, utilize only 12% of the country's total food production even though we have potentiality to increase. At the same time we can not ignore the achievements of co-operative processing units. For example, the growth of co-operative sugar industry is an interesting fact in the history of agro-processing industry in the country. There are 216 cooperative sugar factories run by farmers. Over 18 lakh sugarcane growers own and use these 216 co-operatives. Co-operatives accounted hardly 1 % of national sugar production in 1955-56 whereas in 1987-88 they produced 52 lakh tonnes or 58% of national production. In terms of capacity utilization and efficiency of recovery of sugar from sugarcane, co-operatives have been consistently ahead of the private or the public sector sugar units. Now let us look into few co-operative processing units in our country. A. Sugar processing co-operative One of the most hopeful development of the last decade in the field of co-operative processing has been the rapid establishment of co-operative sugar factories in the country. According to the latest statistics the number of co-operative sugar factories licensed as on 31st March 1987 was 216. The number of factories installed on that date was 203. However, 186 units were in operation in 1986-87. During 1985-86 crushing season (ending 30th September, 1986) 186 co-operative sugar factories produced 47.13 lakh tonnes of sugar as compared with 36.37 lakh tonnes produced in the previous year by 170 co-operative sugar factories. The small and marginal farmers constitute around 80% of the membership of these factories. The total number of grower members of these factories is about 16.61akh and have contributed Rs. 143.86 crore to the share capital of these co-operatives. The sugar processing co-operatives suffer from following drawbacks. 1. The under utilization of the installed capacity because of the shortage of sugarcane due to increased use of sugarcane for the manufacture of gur and kandsari, and inadequacy of early and late maturing varieties of sugarcane.

2. Failure of co-operatives to collect regularly the non refundable deposits from the cane price payable to members. 3. Insufficient utilization of the by-product of sugar i.e. the bagasse and molasses which could be profitably used for the manufacture of alcohol, hard-board and chip board. 4. The competition among the members to secure a position in the co-operatives, and the thoughtless expansion of the co-operatives. 5. Lack of development of infrastructure and failure to win over the loyalty of members. 6. Poor maintenance of plant and machinery. 7 .Inefficient management and its concern with electioneering and getting concession and privileges rather than improving the internal management and efficiency. B. Cotton processing co-operatives The first co-operative spinning mill was formed in 1951, with : the object of producing yam required for weavers co-operatives. According to the general principles enunciated by the All India I Handloom Board, the following condition should be fulfilled in the formation of cooperative spinning mills. 1. Membership should be thrown open to weavers co- operative societies, other co-operatives societies, central financing agencies and individuals, preferably cotton growers and weavers. 2. Each mill should have a minimum of 12,000 spindles (however, the current trend of thought is that only mills with 25,000 spindles will prove economical). 3. The government should agree to take shares to the extent of 51 % of the total share capital of co-operative spinning mills. C. Oilseed processing co-operatives The oilseed economy has been characterized by large imports of edible oil to meet the needs of the growing population. The government ha, initiated a number of measures to stimulate domestic production of oilseeds. The National Oilseed Development Programme has been launched to step up the production of oil seeds. D. Fruits and vegetable processing units At the end of June 1982, there were in all 96 fruits and vegetable processing units, of which 22 were dormant The total membership of 96 societies was 7,836. During 1981-82 they sold fruits and vegetables worth Rs. 16 crores. The value of fruits and vegetables, marketed by co-operatives was Rs 69.48 crores in 1986-87. The main difficulty in the development of fruit and vegetable processing programme is lack of assured market for the finalized products. By and large, all fruit and vegetable products need considerable publicity and propaganda. The co-operatives find it difficult in their formative stage to compete successfully with established firms like M/s Hindustan Levers, Kisan, Mohan etc. State encouragement is, therefore necessary in the initial stages. It is suggested that government departments. particularly defense, hospit1\ls etc. may give positive preferences to co-operative in the matter Of procuring their requirements of both fresh and processed fruits and vegetables. E. Co-operative cold storage Cold storage in the co-operative sector enables the farmers to secure better fruits and vegetable products. Programme of promotive development and financing of co-operative cold storage have been undertaken by the NCDC since 1962, when there were only 15 cold storages in the co-operative sector with a storage capacity of 14,<xx> tonnes. As on March 1987, the number of cold storages organized in the co-operative sector has increased to 244 with a

capacity of I 6.7 lath tonnes. NCDC had sanctioned Rs 897 laths in 1986-87 I for co-operative cold storages. About 80% of the cold storages in the co-operatives sector are located in 6 states viz. Punjab, UP, Orissa, MP, Bihar, and West Bengal. F. Co-operative processing of plantation crops The major plantation crops in the country are tea, coffee, rubber, cashew, cardamom, arecanut. cocoa and coconut. The total number of co-operative plantation crops processing units organized and installed stood at 88 and 70 respectively. NCDC had assisted 6 plantation crops processing units in the underdeveloped and least developed states up to March 1986. During 1986-87 additional assistance of Rs 98.24 lakh for one processing unit was released besides sanction of Rs 100 lath towards strengthening the share capital base of primary coconut marketing society. G. Paddy processing co-operatives The number of rice mills in the co-operative sector has increased from 266 in 1964-65 to 614 in 1986-87, of which 614 (100%) have been installed. The total investment in setting up these mills amounted to Rs 11.68 crores. The total capacity of the co-operative rice mills is said to the nearly 25 lath tonnes per annum representing 5% of the aggregate paddy milling capacity of 500 lakh tonnes in the country. The capacity utilization of rice mills was 64.7 percent in 1985- 86. Upto 31st March 1987, NCDC assisted 155 conventional rice mills for modernization and has provided Rs 43.93 lakhs. Studies conducted by the NCDC recently into the working of the co-operative rice mills have made some interesting revelations. In some states like Maharashtra, Gujarat, Karnataka, A.P. and Haryana, the co-operative rice mills have shown excellent results in respect of capacity utilization as well as profitability. In some states like Bihar, West Bengal, Rajasthan, Assam and Orissa the position is not so good. The main reasons for slow progress have been attributed to: 1. difficulty in getting licenses; 2. delay in getting milling equipment; 3. difficulty in transportation of milling equipment over long distances particularly in case of Assam; and 4. lack of suitable trained managerial personnel. VII. Organization and Structural Pattern In India, processing units established in the co-operative sector conforms to two distinct patterns. 1. Units established as adjunct to co-operative marketing societies. 2. Units established by independent processing societies. Medium and small units, such as rice mills and hullers, oil mills, jute baling units, and cotton ginning and processing units, mostly fall under the first category. Large units such as sugar factories, oilseed solvent extraction plants, spinning mills, cattle feed factories etc. are set by the co-operatives exclusively organized by growers either in a federal or unitary form depending upon the size and local situation.

The co-operative processing units have their own state level and federal organization in respect of some commodities. They are also supported by several government agencies, most, important among them being the NCDC. In 1977-78, out of 1862 units organized, about 1360 were established as adjuncts to the marketing societies while the remaining units were set up by the independent processing co-operatives as against 1169 units and 1067 units in 1976-77. The co-operative sugar factories have federated themselves into 8 state level federation and one national level federation. The co-operative spinning mills (both in weavers' and in growers sector) have federated themselves into an All India Federation. The other types of processing units have not yet formed federation. There are also a few instances where independent processing units have federated themselves into central processing federation for the purpose of undertaking secondary processing. VIII. Planning and Establishment It is an acknowledged fact that before organizing any co- operatives, proper planning is necessary for determining its economic needs and prospects. In the field of co-operative processing the importance of planning cannot be underestimated. A. Important factors for planning 1. Agricultural processing industries are more complex. 2. Their fortunes are tied up with the vagaries of climate which influence agricultural production. 3. Raw material are very often liable to dryness, shrinkage and wastage. 4. The distance from the sources of raw material can severely influence the economies of an agricultural processing industry. 5. It also affects the determination about the optimum size of the processing units. B. Feasibility study Before establishing a co-operative processing unit, it is highly desirable to study the economic feasibility of such a centre. The Committee on Planning of Co-operative Processing (1966) laid down considerable emphasis on planning and feasibility study. 1. Studies should include the importance and suitability of the product for processing and economic prospects of the industry. 2. It should also include ascertainment of the price of the raw materials and selling price of the end products. 3. The taxation as well as the subsidies and governmental measures have also be taken into account at this stage. 4. Size and location of the industry should be a major consideration. 5. Technical and economic description of the plant including process of production, supply of raw material, manpower planning, transport arrangement and distribution have to be taken care of. 6. Fixed and working capital requirements and sources for obtaining them should be studied. 7. Studies should also include profitability aspect of the investment 8. The type of organization and planning necessary for every stage of implementation of project The membership of co-operative processing units consists of primary agricultural producers, workers, co-operative marketing societies and central banks. Service co-operatives located in the area are also admitted as members to establish a link between co-operative credit and co-operative processing.

Co-operative processing units require block capital for construction of buildings and installation of plant and machinery. The capital is raised through various sources such as the contribution by the members as share capital, State contribution to the share capital, through medium, long-term Industrial Finance Co-operation, State Co-operative Banks and the State Bank of India. Besides block capital, a processing society requires working capital for payment to producer member against delivery of new materials, for purchase of fuel, stock and spares, and also for payment of wages. Co-operative banks and the State Bank of India provide accommodation to them against pledge of produce. Co-operative processing units are registered under Co-operative Societies Act of various states. Their work is regulated by co-operative rules and by laws. They have a Board of Directors in whom their administration is vested. Sometimes a whole time manager is also appointed in larger units to look after its day to day administration. Technical staff is also appointed to run the units. The National Cooperative Development Corporation is in charge of planning, promoting and financing of the co-operatives undertaking processing of agricultural produce. It provides financial assistance to the State Governments who in turn pass it on LO the processing cooperation in the form of a share in its share capital. C. Business practices or co-operative processing societies Different practices are followed by the co-operative processing units. In some cases, the processing societies undertake processing on behalf of the produce members. In other cases, the societies pool produce, grade it, carry out processing and sell the produce and pay the members an average pooled price. In order to build up proper relations with the grower-producers, co-operative processing units provide certain essential services to their members. For example, co-operative sugar factories make arrangements for the harvesting of sugarcane crops, their carting and transportation to the factory and also arrange for distribution of manures, seeds etc. They also appoint agricultural experts to advise the growers on various aspects of raising sugarcane crop. Such facilities create a spirit of loyalty among members and ensure successful working of the societies. D. Pattern or financial assistance The agricultural processing units raise finances according to the pattern set from time to time in relation to the nature of crop and level of economic development of different regions. These patterns have helped to develop norms of financing by the government, the leading institutions, together with the quantum of funds locally needed for raising share capital. It has become easier for the Industrial Finance Corporation, and Life Insurance Corporation to provide loans to the sugarcane factories and spinning mills because of the existence of the preconceived patterns of financial assistance. The State governments have however, found it difficult to make adequate provision of funds for financing agricultural processing units, especially in areas which are economically underdeveloped. Consequently, the growth of this programme has not been uniform all over the country. To overcome this difficulty the NCDC has sponsored schemes of financing these units outside the slate plant resources. These schemes are: i. Central sector scheme of block loans to the small and medium -sized processing units.

ii. Loans to the State governments from the NCOC's own funds for assisting processing capital. iii. Loans to the slate governments from its funds for contribution to the share capital of the processing units for raising loans by them from the commercial banks. Under the central sector/scheme, refinance facilities are made available to the apex cooperative banks, state government to the extent of 100% of their financing to the processing units in the form of block loans. The margin money scheme is also expected to go a long way in helping the processing units, already installed, raising working capital for full utilization of their installed capacity. The scheme for contribution to the share capital of the processing units is likely to facilitate the commercial banks to finance the individual processing units. Besides the above assistance, central assistance was also released to state governments for processing programmes included in the centrally-aided state plan schemes as part of block grants. IX. Defects and Difficulties It would be interesting to note that the co-operatives do not enjoy any kind of preferential treatment for setting up of agricultural processing industries. Government has given preference only to sugar co-operatives in issuing licenses for establishing sugar factories. Preferential treatment is also not given to the co-operatives in the matters of finance. Thus the co-operative has to undertake processing of agricultural produce functions under competitive conditions. Some other problems faced by them are discussed here. 1. Inadequate supply Some of the processing societies especially rice mills could not work to their full installed capacities because of inadequate supply of raw materials. The procurement policies adopted by some of the state government have placed the co-operatives at a disadvantage since they have to face the unfair competitions of the private tender. 2. Price fluctuations Hazards arising out of price fluctuations and market competition have also stood in the way of maximum utilization of the installed capacity of processing societies. Working of cooperative oil mills, for instance, has revealed that many of them could not utilize their capacities, mainly on account of wide price fluctuations and price disparities in respect of groundnut oil and oil cake. 3. Inadequate working capital Modem processing units require large capital. The members of the co-operative being marginal, small growers have not been able to contribute enough finance. Constraints on the state government's plan resources have been a bottleneck in the speedy implementation and enlargement of processing programme. The state governments have been experiencing difficulties in the matter of finding adequate resources from within their plan funds for share capital participation in the co-operative processing societies so as to enable them to attract block loan assistance from the institutional sources. 4. Lack of suitable managerial personnel The successful planning, installation and functioning of a processing unit will largely depend on the caliber and competence of suitable managerial personnel especially the chief executive officer of the factory. In some of the states the problem has been solved to some extent by centralizing recruitment of managers of these units through apex marketing federation.

5. Time lag in installation The progress of co-operative processing units has also been hampered on account of too much time taken in the installation of the factory, mill or any other plant. On account of too much time lag in installation, it becomes difficult to keep alive the interest and confidence of its members. Such a situation at times, adversely affects the ability of the processing unit to collect required amount of share capital and secure financial assistance. 6. Inadequate preliminary planning The importance of preliminary planning and investigation of various factors bearing on the economic aspects of a processing unit is imperative, if pitfalls are to be avoided in future. For instance, a cotton ginning and pressing co-operative society was organized in an area where production of cotton was gradually receding. In a short-time, the society found itself unable to feed the installed capacity of its factory and had to dispose of its plant In a few cases, the economics of the capital outlay on the processing units was not carefully worked out with the result that, right from the beginning, the units had to face a recurring deficit. 7. Domination of traders A co-operative processing society is expected to be established and owned by the primary producers. Some of the processing units were however, dominated by the traders. It was reported that 60 to 70% of paddy milled by co-operative rice mills in Vidarbha belonged to traders and about 30 to 40% only to the paddy producers. 8. Party politics and elections In some co-operative processing societies, specially in sugar co-operative, election to the seats of board of directors were reported to be hotly contested and were often bitter and highly expensive. The result is that electioneering and intrigue and pressuring of office has become the order of the day. Because of the importance of sugar co-operatives in economic activity, politicians are attempting to control these societies. 9. Lack of cost consciousness Many of the co-operative processing units have hardly realized the importance of cost consciousness, which is necessary right from the preparation of the project. selection of machinery, designing, lay-out etc. It is because of lack of cost consciousness that many processing units are running in a loss. 10. Defective pricing policies Some of the processing units have come to grief on account of defective pricing policies pursued by them in their buying and selling operations. The task of fixing correct pricing policies for processing units assumes greater significance on account of high fluctuation in the price of raw materials specially in case of groundnut. cotton, oilseeds etc. 11. Untimely audit Arrangement for timely and quality audit of processing cooperative is absolutely imperative to have a proper appreciation of their working and financing results. However, the audit of these societies have fallen in arrears mainly due to paucity of staff. 12. Uneven development Co-operative processing industries in the weaker states and the tribal areas have not taken roots and as a result their development is uneven in different parts of the country.

13. Non-benefited weaker sections It has been reported that the benefits of various schemes of co-operative agricultural processing have not percolated to the level of the small and marginal farmers, particularly those who are depending on dry farming. 14. No processing of foodgrains Excluding paddy and to some extent, pulses, the co-operative have not shown initiative in taking up processing of foodgrains. This is particularly true for crops like wheat and maize. 15. Time-lag between financial assistance and installations It is observed that the time lag between the sanction of financial assistance by the NCDC and the installation of the concerned units is unduly large in respect of some of the states. The arrangements made for supervising the progress in installation of such units is also in many cases inadequate. This is resulting in delays in the completion of the projects adversely affecting the costs and the economic viability. 16. Other defects Some of the important factors limiting the development of processing units, as reported by a working group of the Reserve Bank are: a. inadequacy of block capital; b. delay in getting loans from financial institutions; c. lack of technical know -how; d. inability of members to raise the required share capital speedily; e. inability of units to provide margin money; and f. lack of raw materials. X. Suggestions for Improvement The importance of processing programme in the overall strategy of agricultural development and also as an instrument of rural industrialization and generation of employment in rural areas, cannot be overstressed. It is, therefore, imperative that state governments should take special interest in the development of co-operative processing units. It is imperative that adequate funds should be made available for government contributions to the share capital of these units. Some suggestions are made here with respect to the improvement in the cooperative processing sector. 1. Proper preliminary planning Before setting up a new processing unit in the co-operative sector, a proper and detailed investigation into the following aspects should invariably be undertaken. a. The extent of availability of agricultural produce to the processed within the area of operation of the proposed society. b. The extent to which the need for the proposed processing unit is felt by the growers and the prospects of attracting their loyalty. c. Examination of the estimates of recurring income and expenditure including interest and depreciation charges, so as to consider the over-all economics of the proposed units. d. Facilities of transport of raw material and disposal of finished products. While organizing co-operative processing units, study of their economic feasibility must be considered of utmost importance.

2. Pattern of organization The pattern of organization has a bearing on future viability of processing unit. An appropriate organisational pattern facilities for business operations, optimizes efficiency and reduces costs. In this connection it has been suggested that basically the processing units not involving heavy capital outlay should normally be set up as an adjunct to marketing cooperatives and large size processing units should be organized as independent processing units of the growers on the lives of co-operative sugar factories or cotton grower's spinning mills. 3. Regular supply of raw materials Arrangements are essential for getting regular supply of the required raw materials and proper storage of the same. An important measure for getting the bulk of the raw material requirements from the members is to link share capital to acreage under the concerned crops cultivated by the members, as is being done to large extent in case of sugarcane and cotton. 4. Proper storage facilities In the working of some of the processing units, il has been observed that they have suffered on account of inadequate storage arrangements and consequent underutilization of their installed capacities. As the co-operative processing societies will have to make the bulk of their purchases from growers immediately after the harvest, it is highly desirable that they make adequate arrangements for the storage of raw materials on a scale much bigger than that of the private units. 5. Technical knowledge The development of co-operative agricultural processing units needs specialized technical assistance for identification of areas, location of site. selection of plants and machinery, technical audit of the processing units in production etc. For obvious reasons it may not be possible for the individual processing unit to secure services of specialized technical experts for this purpose. 6. Trained and qualified staff As the success of a processing unit will largely depend on trained and qualified staff, it is necessary that these societies have suitable technical and trained personnel and security of their tenure. The selection and appointment of managerial personnel should be done in a systematic manner and their service conditions formulated in such a manner that no unhealthy competition arises between different co-operatives. 7. State assistance The processing of agricultural produce occupies a strategic place in rural economy, for its development is not only necessary for increasing rural income, but also for building up an agro-industrial economy on co-operative basis. Recognizing this, the state and the central governments have been providing various facilities for the development of cooperative processing activities. The state governments have been directly participating in the share capital of the processing units, providing guarantees to the financing agencies for giving them loans. The state promotes the development of co-operative processing units by giving them preference in the matter of licensing. Certain tax concessions are also extended to these units. 8. Role of NCDC

The NCDC has been playing the role of effective promoter, co-ordinator and financier for the development of co-operative programmes relating to marketing, processing, storage of agricultural produce and supplies of agricultural inputs. 9. Integrated complexes The number of units and the proportions they account for in the total processing capacity is important for influencing the market for procurement of raw materials and for sale of finished products. In this context, it is desirable to plan the individual co-operative processing unit as a part of an integrated processing complex in a given area. Such a strategy would help to enhance, on the one hand, efficiency and viability of the individual units and, on the other create favourable conditions for introducing secondary and tertiary stages of agricultural produce in cooperative sector. 10. Emphasis on large and medium-size units During the fifth plan, emphasis may be given to the establishment of large and medium size processing units and on the integration of primary processing with secondary and tertiary processing stages, particularly in respect of commodities which experience acute price fluctuations. 11. Processing of foodgrains Co-operatives should take initiative in taking up processing of foodgrains particularly, wheat and maize, by installing composite flour mills, bakeries, factories for production of breakfast foods etc. 12. Open market purchase The conference of Registrars of co-operative societies had recommended that the cooperative mills should be persuaded to make an open market purchase of paddy in sufficient quantity so as to feed the rice mills to their full capacity. XI. Conclusion Co-operative processing industries have proved to be an effective instrument of socioeconomic change and have helped in building a class of entrepreneurs from amongst ordinary farmers. Co-operative processing can also playa very useful role in the functioning of consumer co-operatives. Besides, co-operative processing can strengthen the functioning of agricultural and marketing system and provide a side base for rural industrialization. Larger surplus become available for further investment and large inputs make it feasible to utilize the latest technology. The successful planning, installation and functioning of a processing unit will largely depend on the caliber and competence of suitable managerial' personnel. Some processing units failed due to lack of a good membership. In some states this problem has been solved to certain extent by centralizing recruitment in these units. Thus, if producers can organize to undertake processing of their produce through co- operatives, they can get the benefit of the value added returns. %%%%%%%%%%%%%%%%%