Consumer Cooperatives

Booklet No. 551 Agricultural Cooperation: ACS-22

Contents Preface I. Introduction II. Meanings and Objectives III. Origin and History IV. Committee on Consumer Cooperatives (1961) V. Introduction of New Schemes (1962) VI. Progress of Various Schemes VII. Present Structure of Consumer Cooperatives VIII. Problems of Consumer Cooperatives IX. Future of Consumers' Cooperatives X. Conclusion Preface Consumer's cooperation is a very wide term and includes consumers supply societies, consumers thrift societies, cooperation insurance societies etc. These societies were originally organized to restrict unfair trading practices of private retailers and to prevent the consumers from exploitation of the various measures taken by the government to hold the price line. The development of the consumer cooperative stores has by far attracted the greatest attention. Dr. K. T. Chandy, Agricultural & environmental Education I. Introduction Consumer cooperative societies are of a recent origin in this country. Indian economy being predominantly agricultural, its production is dependent on the vagaries of the monsoon and very often there is partial failure of crops in one or more regions. Again, in the event of such shortfalls in domestic production, the wholesalers and retailers often create artificial shortages. Apart from that, the tendency of private trade to increase profit margin is more pronounced in such situations. The government, therefore has promoted consumer cooperatives as an alternative channel of distribution to exercise a healthy influence on individual distributors. Although consumer cooperatives were organized even earlier, they increased in number rapidly during the Second World War and during the immediate post war years owing to the encouragement from the government. With the advent of modem market economy the position has radically changed and growing number of market functionaries have interposed themselves, adding to the margins at various stages. The result is that, now there is often a considerable price-spread between the producer and the consumer. Cooperatives of producers on the one hand and the consumers on the other, offer one of the practical means of reducing this price-spread; Of the various measures taken by the Government to hold the price line, the development of the consumer cooperatives has by far attracted the greatest attention. II. Meaning and Objectives

A consumer co-operative is a voluntary organisation of consumers, organised to obtain their requirements of consumer goods and services on terms of greatest advantage to them. This type of cooperative undertakes retailing, wholesale trading, and sometimes the production and processing of consumer goods. Most of the consumer stores have been established on the principles enunciated by the Rochdale pioneers. These principles are open membership, democratic control, cash trading on a market prices, fixed on capital and dividend on purchases. The main objective of a consumer store is to serve its members and customers with goods required by them for household consumption. It is expected to provide goods at a reasonable price and to protect the interest of the members. These stores are also expected to stabilize the price line and check: the exploitation of the consumers by the private businessmen. III. Origin and History The consumers cooperative movement owes it origin to the famous Rochdale cooperative store established in 1844 in Britain. The success of the consumer movement is so well known, that it needs no detailed description. The movement has flourished in other European countries also but it did not make any headway in this country till the Second World War which gave a stimulus to this form of cooperation. Acute shortage and high prices of food grains and other necessities of life during the war and post war period, made controlled rationing a great necessity. It were the cooperative institutions which were considered to be the best agencies to make fair distribution of such goods and check black marketing. This movement has achieved spectacular success in some of the western countries like Sweden, Denmark, Finland and Britain. In India consumer cooperatives did not make much head- way before the First World War. It was only during the war period that some consumer stores were started in Madras and Bombay. It jumped from 11 in 1914 to 103 by 1920-21. This was a temporary phase of expansion as it slackened subsequently. It was only during the Second World War that the store movements made giant strides. The reversion to decontrol and the consequent functioning of the free economy, however dealt a heavy blow to these stores. The process of disintegration and liquidation which has set at the time of decontrol, continued unabated up to 1961. The number of consumer stores fell from 9,757 in 1950-51 to 7,050 in 1960-61, while the membership fell from 18.45 lakhs to 13.41 lakhs both recording a fall of about 27 per cent. In short, it can be. stated that, the progress of consumer cooperative stores was quite fair up to 1951-52, when the government followed a policy of decontrol and de-rationing in view of the improved position of supplies. The prices of essential goods began to register a sharp downward trend. The consumer cooperatives had to suffer a great loss due to fall in prices. IV. Committee on Consumer Cooperatives (1961) Majority of the 7000 consumer cooperatives existing at the end of the second plan were not working satisfactorily and those working were operating in a small way. The need for revitalizing the existing consumer cooperative structure and organization of new stores was keenly felt. In November 1960, the National Cooperative Development and Warehousing Board the predecessor of the National Cooperative Development Corporation appointed a committee under the chairmanship of Dr. P. Nateson to review the existing position and to examine the promotional and organizational aspects of consumer co- operatives with a view of ensuring their

sound and speedy development under the Third Five Year Plan. The committee made a number of recommendations regarding organizational structural pattern of consumer cooperatives, size and viability the need for strong wholesale stores, improvement of managerial efficiency, business technique and government assistance. These recommendations were generally accepted by the government. A scheme was introduced from the very beginning of the third plan to revitalize some of the existing primary stores and organize new ones in the urban areas. The scheme envisaged revitalization and organization of 2~00 primary stores in the country and one apex wholesale store in each state during the plan period with provision of financial assistance according to the approved pattern. The cost of assistance to the stores was to be shared between the government of India and the state government on 50:50 basis. V. Introduction of New Schemes (1962) It was felt necessary to build up a large network of consumer cooperatives with a view to assist in the inequitable distribution of consumer goods at fair prices. Accordingly the government of India sponsored a number of schemes namely; -A centrally sponsored scheme for consumer cooperative among the general public in important urban areas. -A scheme for the organization of consumer cooperatives among central government employees. -A scheme for the supply of essential commodities to the rural population. -There was also a scheme for consumer stores in schools, colleges and universities. 1. Centrally sponsored scheme for general public This scheme envisaged organization of 200 wholesale/ central stores and 4000 primary stores/ branches amongst general public in cities and towns with population exceeding 50,000. As a rule the wholesale store should cater to the needs of 50 primary units. 2. Schemes for industrial workers The Ministry of labour and employment formulated a scheme in 1962 for the organization of consumer cooperatives in all public and private sector undertakings employing 300 or more workers with the financial assistance to be provided by the employers. The minimum membership for such a store should be 250. Assistance to consumer stores under the scheme is almost on similar pattern as in centrally sponsored scheme with a little difference. 3. Schemes for government employees The Ministry of Home Affairs, Governrnent of India introduced a scheme for the organization of a central store amongst the central government employees at Delhi in the first instance as a welfare measure. In the light of experience gained, the scheme was extended to other important cities having sufficient concentration of central government employees. Apart from these schemes sponsored by the Government of India, a few State Governments also sanctioned schemes for the organization of consumer cooperatives among their employees. In a few union territories, adhoc schemes for the development of consumer cooperatives with financial assistance from government were introduced during the third plan. 4. Scheme for rural areas

Since organization of separate consumer cooperatives in rural areas was not warranted under the existing conditions, a centrally sponsored scheme was introduced in 1962-63 for the supply of essential goods in the rural areas through existing marketing and service cooperatives. Under this scheme the primary marketing societies and primary agricultural credit societies were expected to open separate sections for the distribution of essential consumer goods to the rural population. 5. Consumer cooperatives in universities and colleges Besides conferring economic benefits on the students, such stores help to foster the spirit of cooperation in them. The Government of India therefore suggested to the universities to encourage formation of consumer cooperatives with assistance, whenever possible, out of their own resources. VI. Progress of Various Schemes Under the centrally sponsored scheme for consumer cooperatives among general public, 224 wholesale stores and 4123 primary stores! branches were set up by January 1965. In addition, state federations of wholesale stores were organized in seven states to coordinate the activities of wholesale stores, make bulk purchases on inter-state basis and important consumer goods from abroad. In the fourth plan organization 'of various central and wholesale stores has been formed and practically all, districts with an urban population of 50,000 and above have been brought within the area of operation of such stores. On the institutional side the weakest link in the consumer cooperative movement lies at the level of primary consumer cooperative. While over 14,000 primary consumer cooperatives have been registered, about 3500 of them are dormant. At the beginning of fourth plan period (June 1969) a country wide infrastructure has been built up comprising 13,913 primary consumer cooperatives, 387 central/ whole-sale stores with 2647 branches and 80 departmental stores 74, state federations of consumer cooperative stores and a National Cooperative Consumers Federation at the apex. In the fifth plan to increase the number of retail outlets 50 large departmental stores and 150 small departmental stores were proposed to be organized. This work was undertaken besides the consolidation and strengthening of existing stores. In addition to these departmental stores, about 1300 retail outlets were expected to be set up by central/wholesale stores during the fifth plan. Department of Civil Supplies The Government of India established the department of Civil Supplies and Cooperation in October 1974 to ensure satisfactory and adequate arrangements for distribution of food and other essential commodities of mass consumption to the common man and to develop a viable consumer cooperative movement as an integral and important part of the consumer oriented distribution system. The consumer cooperatives were given a significant place in the 20-point programme of Smt. Indira Gandhi during emergency and they are related to: -streamlining of the distribution of essential commoditics -distribution of controlled cloth of better quality, and -supply of essential commodities to student hostels and approved lodging houses at concessional prices.

In 1982, a four tier structure consisting of the National Federation, State Federation, Central/wholesale stores at district level and primary stores at base level has been built up in the urban consumer movement over the years. The increasing involvement of consumer cooperatives in the public distribution system has resulted in increasing turnover of the consumer cooperatives both in urban and rural areas. This position is also clear from table 1. Table 1: Wholesale central consumer cooperatives (1977-78 to 1981-82) Sl.No 1 2 3 4 Sl. No 1 2 3 1977-78 No. of stores 440 No. of branches 2838 Membership 1616 (individual 000s) Total sale 32928 Primary Consumer Cooperatives 1977-78 No. of stores 15827 Membership (000s) 4528 Share capital (Rs in lakhs) (a) Total paid up 1374 capital (b) Government 299 contribution Total sale (Rs in 31495 lakhs) 1979-80 566 3675 1739 43824 1979-80 15583 4628 1521 327 31789 1981-82 582 4166 2611 60443 1981-82 15878 4753 1965 499 42054 1989-90 660 N.A. 2400 106900 1987-88 22035 6900 2970 N.A 76300

VII. Present Structure of Consumer Cooperatives Consumer cooperatives have been organized either on a unitary pattern or on a federal pattern. Under the unitary pattern a central store with individual membership operates through branches. In federal pattern primary stores with individual members generally form a central/ federal organization. to get them adequate support in the matter of procurement and supplies. The structure may be a mixed one also. There has been no uniformity in the pattern of organization of the consumer stores in India. Both the systems have their own advantages and disadvantages. The Indian cooperative Congress in its fifth session held in New Delhi, 1967 recommended that as a normal practice there should be only one consumer society in a city operating a number of shops catering to the requirements of consumers in various localities. The conference of state ministers of cooperation held at Bangalore on July 1969 also endorsed this recommendation that the emphasis should be laid on the shift from the federal to the unitary pattern. However, the programme evaluation organization of the Planning Commission in their report (1967) has advocated for greater flexibility in determining the pattern of organization as sometimes local members at the lower level may be enthusiastic in popularizing the store due to their active participation. The present position is as follows..

National Cooperative Consumers Federation It is an apex organization, having its head quarters at Delhi. It was registered in 1965. All the state federations of consumer cooperatives are affiliated with it. The main functions of NCCF are: -To assist and facilitate the working of consumer societies -To establish trade connections with suppliers or manufacturers so as to arrange procurement of consumer goods for cooperative stores. -To arrange import and export of consumer goods -To build up ancillary services for the benefit of the consumer cooperatives -To establish and run processing and manufacturing units for consumer goods. -To undertake publicity and propaganda for the development of consumer movements and -To hold seminar, conferences and to discuss plans and problems of consumer cooperatives. The NCCF has also taken up cooperative education and training programmes. It is also helping in the distribution of cloth to consumer cooperatives, and getting readymade garments manufactured on contract with an Ordinance Clothing Factory . 2. State Cooperative Consumer Federation The main functions of a state federation are to coordinate the work of the consumer stores in the state and to obtain supplies from the NCCF and other sources and supply the same to consumer stores. They have been undertaking procurement and supply of textiles, pulses, spices, imported and confiscated goods, besides distribution and reallocation of quotas of certain commodities in short supply such as baby food, tyres and tubes, razor blades, dry battery cells to consumer cooperatives. 3. Wholesale cooperative stores Such wholesale cooperative stores with a network of branches have been set up in all big cities. These stores were organized under the central sponsored scheme. First they were set up in all cities with a population of fifty thousand and above. Later on such stores were set up in almost all the districts of the country. 4. Departmental stores/ Super Bazar The beginning of Super Bazars was made in India when on 15th July 1966, the biggest departmental store was set up in Delhi. This programme related to Departmental stores were initially restricted only to big cities which later extended to other cities also. 5. Primary stores The primary stores are the last ladder in the structure of consumer cooperative movement in India. These have been organized either on unitary or federal pattern. These primary stores have been organized primarily to provide rationed commodities or other necessary items to members living in the locality. There was significant increase in the number of primary stores from 7058 in 1960-61 to 13950 in 1967-68 and 15827 in 1977-78. However, in spite of rapid increase in number and sales as seen from the table 1., one third of them have ceased to function and have become dormant. Out of 15827 primary stores in 1977-78 only 58% showed profit while the remaining incurred losses or showed no profit or loss. The working of these stores shows that most of them are not viable or potentially viable units. Even some of the departmental stores are running under at loss. We all try to analyze some of the problems faced by the consumer cooperative movement in India.

VIII. Problems of Consumer Cooperatives The problems of consumer stores have been studied by special committees or experts or discussed in conferences and seminars. The problems confronted by the consumer cooperatives could broadly be classified as follows. (a) Supply problems (b) Financial problems (c) Management problems (d) Problems of coordination Some of the reasons given for the failure of consumer cooperative movement are as follows: 1. Narrow base of operation It has been observed that most of the stores deal with limited number of commodities and hence most of the requirements of the customers are not at all satisfied. 2. Small and uneconomic size Most of the primary stores have been very small and non-viable units. They have poor membership inadequate working capital and their average sales have been so low that they could hardly meet their ordinary expenditure. 3. Lack of efficient management Most of the stores are run by persons and who have hardly any experience of business. They also don't have adequate arrangements for the training of the staff. 4. Hurriedly organized and disloyalty of members Most of the stores were organized by cooperative staff to fill up the targets without making the members understand their responsibility. At some places they were organized by vested interests. Sometimes persons running these stores have not been able10 inspire confidence in the general public. The committee on consumer cooperatives (1961) had warned that before opening a store the organizers should see that the promoters understand the principles and methods of consumer cooperation, -there was genuine need for organizing a store in the locality and that adequate response was forthcoming from the inhabitants, -at least one or two prospective members understand the principles of modern retailing and should be aware of requirements of the consumers from a consumer store, -they have adequate financial resources, suitable accommodation and services of competent managerial staff, and -members should have time to supervise the working of the stores. However these warnings/ pre requisites are often ignored when they have targets to achieve within a stipulated time. 5. Indifference of state government In spite of earnest directions from central government, state governments have followed policies which are not congenial to the development of store movement. In matter of supply or allotment of ration shops the cooperative stores are mostly ignored and preference is given to private agencies.

6. Dishonesty of the employees and management Pilferage has been a common disease in many stores. Some stores come to grief because of the dishonesty of employees. Prompt action was not taken against such employees which were found guilty. 7. Lack of coordination and cooperation among different constituents. It has been observed that in many instances there has been no proper coordination between cooperative marketing societies, processing societies, and the wholesale consumer stores. 8. Defective price and purchase policy Some of the cooperative came to grief as they did not follow a sound price and purchase policy. In the case of price policy it has been said that the store may either sell goods at market price or at a price less than market. 9. Lack of supervision and audit There was no body to see whether accounts were properly kept and collect prices Were charged. This was due to lack of supervision and audit by the cooperative department, which led to failure of some stores. The slackness in supervision, inspection and audit encouraged the dishonest office bearers to play with already meager resources of the stores. 10. Lack of inventory and verification of stock. There was hardly any system of inventory control in most of the stores with the result there is over stocking of goods. In a number of central stores, the monthly or quarterly physical stock is not done and this has been responsible for a good deal of pilferage. An official committee set up in 1976 identified the following factors that caused losses to the consumer stores is (1) high overhead costs (2) low margin of profit, (3) running small and uneconomic branches (4) dealing mainly in controlled items (5) injudicious purchases (6) mismanagement and disproportion and (7) locking up of funds in slow moving and unsaleable articles. IX. Future of Consumers' Cooperatives The analysis of consumer cooperatives movement in India would convince anybody that the store movement has not made any striking progress in this country. There have been a few shining examples of well established stores in different parts of the country, but by and large, the consumer cooperative movement has remained paralyzed. In 1951, the Planning Commission struck a note of pessimism regarding the future of consumer cooperatives. Such doubts were expressed even much earlier. It is a well known fact that most of the retail traders, resort to questionable tactics like mismanagement in weighing adulteration etc, which are unthinkable on the part of these stores. According to one expert survey, the working cost of consumer cooperative is nearly 8.7% against the barely 1% of the average retailer. The point to be considered is whether the store would stand on sound footing in the face of cut throat competition from the private trader. Because of the past experience and unsatisfactory records, it is natural for the people to be septic about the future of the newly formed cooperative stores under the various schemes of government. The departmental stores have already begun to be called as white elephants because of their high cost and huge losses.

In spite of the. gloomy situations, it can not be denied that there is a vast scope for the consumers movement to succeed ultimately in the country provided it is organized on sound lines and on a better economic footing with the active assistance of the state governments. The organization and strengthening of the consumers movement has assumed considerable significance in view of the decision of the government to socialize the wholesale trade in many spheres. The need of the hour is to provide all facilities financial or other- wise to this movement so that it may be able to get out of the wood and become strong enough to be reckoned as a force. The most important thing is that it should be made vital and dynamic enough to compete with the private trader. In order to give further fillip to the store movement and to inspire confidence in consumer, the government is reported to have decided to transfer the business of the fair price shops to consumer cooperatives. An official enquiry into the working of fair price shops in the country generally confirmed the suspicion of the weary consumer of the sharp and shameful practices adopted by the shop keepers. Conclusion It is significant to note that streamlining of distribution is one of the comer stones of the new economic programmes. In this context, the cooperatives have an important contribution to make to this national effort in making available essential commodities of mass consumption at reasonable prices, particularly to the more vulnerable sections of the community. The conference of the Registrars of the Cooperative Societies has recommended adoption of a two fold approach on the part of cooperatives to function as an important and expanding sector in the public distribution system and also to undertake effective open market operations to exert healthy impact on prices of essential consumer articles and thus help in measures of price stabilization. %%%%%%%%%%%