A demonetisation policy pursued by the government of India is posing challenges to both dairy and financial co-operatives.
Prime minister Narendra Modi announced earlier this month the demonetisation of Rs 500 (£5.9) and Rs 1,000 (£11.7) banknotes in what he described as an effort to stop counterfeiting of the current banknotes and reduce corruption.
The decision has caused problems for a number of agricultural co-operatives, with some societies unable to pay all farmers on time. Co-operatives banks are also affected by this measure, after they were forbidden to engage in the collection of deposits and exchange notes.
India is home to 92,789 Primary Agricultural Credit Societies with a total membership of 121 million, the majority of which operate in rural areas. Unable to exchange the banknotes at their local co-op banks, farmers have taken it to the streets to protest against the government’s ban.
In November, Amul dairy co-op announced it would aim to pay all of its milk producer members directly into their bank accounts. Around 60% of its milk producers already have bank accounts and the co-op is encouraging those who do not to open them. The country’s biggest food brand, Amul will be working with farmer dairy unions to support members in opening bank accounts.
The co-op’s chair, Jethabhai Patel, said in a statement: “In view of the demonetisation of currency notes by central government, we have made necessary arrangement to pay milk producer members for their milk price through direct credit in their bank account.”
Amul includes 3.6 million farmers affiliated to 18,000 village co-operative societies handling 17m litres of milk. The dairy giant transfers weekly payments of Rs 450 crore (Rs 4.5bn) to the bank accounts of the primary village co-operatives, which then pay farmers in cash. Amul is now looking at transferring the money directly into their farmers’ accounts.
Another dairy co-op, Chennai-based Hatsun agro, has been marking 99% of its payments through bank accounts over the past 18 months. The co-op owns over 9,800 dairy production centres and makes payments to its farmers three times a month.
Other co-ops are taking it to court. The Mumbai District Cooperative Bank has filed a petition in the Bombay High Court against a circular by the Reserve Bank of India preventing co-operative banks from accepting deposits in demonetised currency notes.
Balu Iyer, regional director for Asia-Pacific of the International Co-operative Alliance wrote a blog post describing the current situation in India. He commented: “The support for co-operative banks to be allowed to engage in collection of deposits and exchange notes cuts across the political spectrum and across state boundaries.”
He added: “Farmers are starting to express their frustration by coming out to the streets.
“The wisdom of the RBI in curbing functions of banks that fall under its ambit is unclear as is the lack of support to the co-operative banks from the National Bank for Agriculture and Rural Development and the Ministry of Agriculture and Farmers Welfare under whose ambit co-operatives come under.”