PhD Scholar CHAPTER ONE Introduction

 PhD Scholar
Introduction

CHAPTER ONE

The title of the present study is "ASSESSING POLICY IMPACT UPON DEVELOPMENT OF CO-OPERATIVES IN NEPAL ". This thesis is conducted for academic purpose. The proposed study aims to undertake a survey amongst tea, dairy and credit co-operative societies to assess, identify and evaluate the business, financial, social and managerial aspects of the selected co-operatives based on policy impact. Policy is a principle or protocol, which guides to right decisions and achieve rational outcomes(Torjman, 2005).

The ecological and socio-economic description of the research area marks the importance of research. Nepal is an under developing south Asian landlocked country. It is located between economically emerging two great nations India and China. Ecologically, it consists of three parts: mountain, hill and plain from north to south respectively.  The physical coverage of mountain is 15%, hill 68% and terai 17%. The current census 2011 published the data of total population of the nation is 26,620,809. The data showed that the population increase rate is 1.34 percent per annum(Census 2011). However, the economic growth rate is not satisfied. Nepal is an agrarian country. More than sixtyper cent of its population is dependent on agriculture. In the context of unavailability of modern agricultural technology, institutional loan, storage facilities, market, cooperative is an appropriate device. Thus, it was introduced as one of the important segments under the First Five Year Plan (1956-61) of Nepal. The cooperative development activities have been continued until the present Interim Plan. It shows that there is long history of cooperative in Nepal even though performance is still poor. Why there is only quantitative growth rather than qualitative is the main cause of poor implementation of policies.

The Cooperative Movement of Nepal has dramatically been changed by the enactment of Cooperative Act, 1992. The National Cooperative Federation of Nepal Limited [NCF], an apex body of the cooperative movement of Nepal, registered on June 20, 1993 under the Cooperative Act, 1992, was voluntarily and jointly organized by cooperatives of different levels based on universally accepted cooperative principles. At present NCF has a membership of 3 Central Co-operative Unions, 1 National Cooperative Bank, 58 District Level Co-operative Unions and 7 Single Purpose Primary Co-operative Societies.

Cooperatives are businesses owned and controlled by the people who use them. Cooperatives differ from other businesses because they are member owned and operate for the benefit of members, rather than earn profits for investors. Co-operative is a form of business enterprises, or community organization, incorporated in service to its members and users, in order to meet their common economic, social and cultural needs and aspirations. Co-operative is jointly-owned and democratically controlled by its members and users on the basis of one member, one vote(Alliance, 1995).

Co-operatives follow democratic, participatory and transparent decision-making processes and organizational structures so that their members and users (i.e. owners, workers and consumers) may be directly responsible for benefiting themselves and the society in general. Co-operatives are based on the value of self-help, mutual help, self-responsibility, democracy, equality, equity and solidarity. Co-operative members believe in the ethical values of honesty, owners, social responsibility and caring for others. "The cooperative business structure provides insurance, credit, health care, housing, telephone, electrical, transportation, child care, and utility services."(Why Cooperatives Are Organized?, 1995, p. 1). Members use cooperatives to buy food, consumer goods, and business and production supplies. "Farmers use cooperatives to market and process crops and livestock, purchase supplies and services, and to provide credit for their operations."(Why Cooperatives Are Organized?, 1995, p. 1). Such farmers own cooperatives are also called agricultural cooperatives. An agricultural cooperative is an association of people who join together to engage in the production of agricultural products. Farmers seeking to organize cooperatives are usually seeking the benefits of economies of scale. Many farmers with common interests may organize through cooperatives and strengthen their market power.

Co-operation as a form of human organization has been in existence since the beginning of civilization. In a broad sense, the differenttypes of exchangeand reciprocal relations which existedin pre-industrialsocieties and which were crucial for survival of its members could be regarded as co-operative action. These types of co-operation are however different from what we now understand as the co-operative movement. The origins of co-operation as a formal movement can be traced to the first half of the nineteenth century in the philosophy of Robert Owen(Bhowmik, 1988). The first co-operative was started bya handful of weavers in England in 1844 and was known as the Equitable Pioneers of Rochdale(Bhowmik, 1988). The basic principles governing the functioning of this co-operative were later adopted by the co-operative movement all over the world. These were, “one vote for each member, sale at market prices and division of profits among shareholders on the basis of the extent of patronage(Hough, 1966, p. 44).”

Co-operatives in the present do not function merely as mutual benefit societies. They have in addition certain social obligations which are spelt out in the principles of co-operation. The commission on co-operative principles, appointed by the International Co-operative Alliance in 1964, noted in its report that "co-operation at its best aims at something beyond promotion of interests of the individual members ...(Report of the Commission on Co-operative Principles, 1976)”. Its object is rather to promote the progress and welfare of the humanity. It is this aim that makes a co-operative society something different from an ordinary economic enterprise and justifies its being tested, not simply from the standpoint of its business efficiency, but also from the standpoint of its contribution to the moral and social values which elevate human life above the merely material and animal. This implies that there is a qualitative difference between the earlier forms of co-operation and the present co-operative societies. The earlier exchange relations were a result of the existing socio-economic formations. These relations were not aimed at altering the economic relations in the society they operated in.

On the contrary, they played a functional role and contributed towards perpetuating the system. The co-operative movement on the other hand grew out of a need to change the existing society. The early co-operators such as the Rochdale Pioneers and Robert Owen in England, Herr Schulze and F W Raiffeinsenin Germanypropagatedthe co-operative movement as an alternative to the exploitative nature of capitalist society in nineteenth century Europe(Bhowmik, 1988). Co-operation for them was a vehicle through which capitalist exploitation couldbe replacedby an egalitarian and just society. They envisioned co-operatives not as bodies which were functional to their respective societies but as instruments for transforming their societies. In this way, the objectives of co-operatives differ not only from those of private enterprise but also from traditional forms of exchange and reciprocal relations. Thus, co-operatives are good in nature and sound well. However, its functions are very important, from which the members can be benefited. The core of development of co-operatives is fully relied on the implementation of policies. Thus, the next section follows with the concept of policy.

1.1.       What is policy?

Policy is a broad concept that consists of several dimensions. It is a principle or protocol, which guides to right decisions and achieve rational outcomes(Torjman, 2005). It is heart of any institution either government owned or private. Policies are directions to plan. "They are a road map management can follow to research goals and attain objectives"(Rapp, 1990, p. 1). Thus, policy is the guideline to achieve the goal of organization and broader concepts to set up action plan. The policy is made based on objectives of organization and action plan controls to achieve objectives. Further explanation of the policy is given in Chapter Two: Literature Review.

1.1.1.      What is co-operative policy?           

"A policy is a statement that provides guidelines for actions to attain the established objectives of the cooperative and reflect the cooperative’s basic philosophy"(Rapp, 1990, p. 1). Policies are direction to plans. Well written policy facilitates are delegation of authorityto the lowest realistic level in the cooperative. Written policystatements are supposed to be a major factor of each cooperative’splanning activity. So that, these policies reflect thecooperative’s basic philosophy and assist as guidelines foractions the cooperative takes to achieve its established objectives.Rapp (1990) states policies are not all of equal importance. Some policies are of such significance they determine the character of the business. Others are limited in scope and could be changed or eliminated without effect.

1.1.2.      Highlights of co-operative policies in Nepal

It was nineteen fifties after the end of Rana regime and establishment of democracy in Nepal, the co-operative movement started. Formally, in Nepal the concept of co-operative started in 1956 AD(Thakuri, 2011). The cooperative credit societies were the first institutional sources of supplying credit to the farmers in Nepal. Due to lack of institutional credit facilities, the farmers were the subject of individual moneylenders throughout the country and such domination of the private credit agencies had been increasing the rural indebtedness. In such critical situation the concept of cooperative movement was realized for the rural economic development and His Majesty’s Government created a Cooperative Development in 1953.From the government level of Nepal, the policy level body: cooperative department was first established under the Ministry of Planning Development and Agriculture in 1953 AD.

The first co-operative act of Nepal was issued in 1959 AD(Thakuri, 2011). Similarly, in 1961, Co-operative Training Centre was established to educate and train the members who were participated in co-operatives. In the beginning, the Department faced several problems such as the lack of legislative framework, lack of proper consciousness of the people towards the cooperative system, lack of persons educated in cooperative principles and methods. The prominent obstacle to the department was the extremely inadequate fund for the development of cooperative spirit (NRB, 1972).

The country’s socio-economic condition was very poor after the establishment of democracy in 1951. A vast amount of agricultural land was under the control of limited proprietors. Farmers were out of credit system and marking facilities were rudimentary. Government formulated a long-term plan to develop the economic condition of the people by allocating and mobilizing the scattered resources together and enabled them to work with cooperation by establishing cooperatives (Lal, 1974).As the cooperative movement had proven effective in other countries in promoting economic activities of the farmers, the government established a cooperative Development in 1953 under Ministry of Planning and Agriculture and identified three major problem, i.e. (a) need for cooperative legislation: (b) training of cooperative personnel, and cooperative organization (Prabashi, 1965).

Just after the establishment of Cooperative Department, the department conducted surveys in Kathmandu for formulating some rules and regulations for the establishment and registration of cooperatives. By the time settlement program for landless people was started in Chitwan District  under the Rapti Valley Multipurpose Development Program. For this purpose, government established 13 credit Cooperative Societies in 1956 as part of the resettlement program for the flood stricken people under financial and technical support of the United States Agency for International Development (USAID) on experimental basis. These cooperatives were provisionally registered under an executive order of His Majesty’s Government of Nepal.Considering the necessary rules and regulations for managing and guiding cooperatives effectively and efficiently, the first cooperative Act was promulgated in 1959, which provided legal entity, among other things, to all cooperatives previously registered under the executive order. Similarly, with many more vicissitudes in policies National Cooperative Policy of Nepal 2012 has promulgated. The detailed explanation of development of co-operatives in Nepal in different plans is given in Chapter Two: Literature Review.

1.1.3.      Present status of cooperative in Nepal

By the year of 2012, there are 3620420 shareholders of co-operative(Dahal, 2012, p. 30). Dahal further reports that there are 25353 primary co-operatives, 11594 Credit co-operatives, 1785 Dairy co-operatives and 100 Tea co-operatives. There are 15 central cooperative organizations and national cooperative bank in the country. According to the co-operative department, there are 40 Tea co-operatives in Illam district, where there are 1957 male and 485 female shareholders. Similarly, there are 119 Dairy co-operatives, and 7644 male and 1148 female shareholders. There are 53 Credit co-operatives, and 3381 male and 3819 female shareholders.

1.2 Statement of the Problem

The history of co-operative in Nepal is longer but lack of knowledge, policy and market it was shadowed for long time. With the implementation of the Cooperative Act 1992, it has got shaped come into organization, even though it is not well structured till now. The co-operative policy is the main factor to shape it into maturity. Because of the political inconsistency, agricultural co-operatives as well as credit co-operatives have not been flourished well. The same kind of scenario is found in Illam district, the far eastern district of Nepal. This tension is in essence the research problem. The key questions that follow from this tension are:

What is the role of co-operative policy in the development of co-operatives?

What is the role of co-operatives to address the three pillars of the national economic policy and what must be in the future?

What will be the role of co-operatives in federal Nepal?

What is the role of co-operatives to uplift the socio-economic status of rural people?

What is the impact of Co-operatives in each village program launched by the previous government (Gaungaun ma sahakarigharghar ma bhakari)?

1.3 Significance of the Study

This study, to the best knowledge of the researcher, is the most extensive piece of contemporary research on the tea, dairy and credit co-operative sectors in Nepal. The study of development policy of government, its impact on the co-operative, co-operative theory and practice in Nepal is important as the government of Nepal has accepted co-operative is the one of the three pillars of the national economy. As such, the study is of significance to academic research related to the present development policies, relevance of it due respect of co-operatives, business structures, agricultural restructuring, agricultural economics and national economics. The study contributes to these areas of study by commenting on overlooked drawbacks of policies and examining the co-operative business model as possible sustainable economic sources to the targeted groups and the nation.

In terms of application, this study will enhance understanding of tea, dairy and credit co-operative behaviors within the Nepalese context. This will contribute to the knowledge base for policy makers within government, and to those working in the agricultural industry, the agro-political sector and the wider Nepalese co-operative movement. The study also highlights issues related to the internal organizational behaviour of tea, dairy and credit co-operative businesses as these organizations adjust to unfolding changes in the tea supply chain.

Employing qualitative research methodology, specifically in-depth interviews for the case studies, as an alternative to the more commonly applied quantitative method, is also another contribution to the field of tea, dairy and credit co-operative studies. This approach enables the ‘voice’ of actors from within tea, dairy and credit co-operatives and other institutions influencing the co-operative sectors to be distinctively heard throughout the study.

Although the study gives some background information on the history of the tea, dairy and credit co-operatives in Ilam district, the case studies focus primarily on these three types of co-operative and institutional behaviour at the present. The case studies therefore provide a valuable base line for future research. The study also demonstrates that co-operatives in Nepal are organizations that merit further academic research and industry support.

Insofar as the study is concerned only with the Ilam district tea, dairy and credit co-operatives sector and the way it interfaces with political and economic factors, it has some limitations. The study does not address the behaviour of the other co-operative sector in other parts of Nepal or internationally. Lastly, the study makes only passing reference to the potential role of the tea, dairy and creditco-operative structures to rural community economic development. This is a subject worthy of further investigation.

In Nepal, a few numbers of studies have been conducted on the performance of co-operatives. A study conducted by the Asian Development Bank for the purpose of Rural Co-operatives Project in Nepal (December, 1984)concludes that the member participation in the co-operatives in Nepal is very weak. Likewise, a report entitled “SahakaritaKo Bhawi Disha (Future Directions of Cooperatives)” (1993) identified various activities to be taken by the cooperatives on the Impact of Liberal Economic Policy on Cooperatives, Review of Existing Cooperative Policy and Role of Cooperatives in Poverty Alleviation.

The main objectives of the General Conference were to set up the future directions of co-operative movement and to identify the scope and programs of co-operatives. The General Conference identifies some of the key areas to be reformed. They are increment of dealership commission to the co-operatives, co-operativization of public corporations, structural reform of co-operatives, conduct of women and adult literacy classes by co-operatives, involvement of co-operatives on environment conservation, establishment of co-operative ministry and co-operative bank etc. Hence, the researcher has undertaken this study to find out the impact of the co-operative policy towards the co-operatives (especially tea, dairy and credit co-operatives) : leadership selection, responsibilities of leadership, selection of executive members, members, participation, their perception, socio-economic status promoted by the cooperatives in Nepal.

1.4 Objectives of the Study

The importance and possibilities of the co-operative in the socio-economic development of the poor and marginal people are multifarious. They have a number of contributions in the local resource generation and mobilization through the joint effort of the community. However, all these possibilities are promoted as well as limited because of the co-operative policy. Hence, the proposed study aims to undertake a survey amongst tea, dairy and credit co-operative societies to assess, identify and evaluate the business, financial, social and managerial aspects of the selected co-operatives.

The specific objectives of the study are as follows:

·         To find out the managerial constraints of co-operatives;

·         To identify the obstruction of co-operative policies to gain the best outstanding of the tea, dairy and credit co-operatives;

·         To provide relevant suggestions and recommendations for the proper development of co-operative societies;

 

1.5 Hypotheses

In the present context, this study proposes to find out the answers to the following questions about the co-operatives in Nepal:

1)      There is quantitative growth of co-operatives rather than qualitative.

2)      Rural co-operatives are in loss lack of managerial tactics.

3)      Lacks of co-operative education, members are not aware of policy, principles, objectives and management of co-operatives.

4)      Management committee has not been influenced by the co-operative policies to manage the co-operatives perfectly.

1.6 Philosophical Worldviews

            “Worldview refers to the culturally-dependent, generally subconscious, fundamental organization of the mind. This organization manifests itself as a set of presuppositions or assumptions, which predispose one to feel, think, and act in predictable patterns"(Cobern & W.W., 1991, p. 2). Worldview is defined as "a basic set or belief that guides action" (Guba, 1990, p. 17). Worldviews are overall orientation about the world and the nature of research that a researcher holds. These worldviews are shaped by the discipline area of the student, the beliefs and advisers and faculty in a student‘s area, and past research experiences. The types of beliefs held by individual researchers will often lead to embracing a qualitative, quantitative or mixed methods approach in their research. Four different worldviews are discussed: post-positivism, constructivism, and advocacy/participatory, and pragmatism.

 

 

Figure 1: Philosophical worldviews

 

Postpositivism - Determination - Reductionism - Empirical observation and measurement - Theory verification

Constructivism -Understanding -Multiple participant meanings -Social and historical construction -Theory generation

Philosophical Worldviews

Advocacy/Participatory -Political -Power and justice oriented -Collaborative -Change-oriented

Pragmatism -Consequences of actions -Problem-centered -Pluralistic -Real-world practice oriented

 

 

 

 

 

 

Source: (Creswell, 2003)

The study was based on The Pragmatic Worldviewbecause researcher wanted to be problem centered and used the mix data tools to gather the in-depth knowledge on subject matter (Karki, 2015).           

 

1.7 Theoretical Framework

            The present study was based on "The Neoclassical Theory of Cooperatives" (Royer, 2014). The neoclassical theory of cooperatives is useful because it generates valuable insights into the expected behavior of cooperatives in various market structures and the differences between the behaviour of cooperatives and IOFs.  Because the theoretical analysis of cooperatives can be based on several different assertions about cooperative objectives, it also sheds light on the economic implications of a cooperative’s choice of objectives and aids in the development of business strategies for cooperatives that are consistent with their objectives.  In addition, cooperative theory yields some important implications for public policy based on the expected effects of cooperatives on economic welfare, including their effects on the performance of other firms in imperfect markets (Royer, 2014, p. 1). Not all theoretical analyses of cooperatives have been conducted using the neoclassical approach.  Game theory, which is used to study strategic decision making, and a variety of other theoretical methodssuch as transaction cost economics, agency theory, and property rights economicsthat may be conveniently labelled “new institutional economics” have been used to provide additional insights into cooperative behaviour and address shortcomings in the neoclassical theory.

            The development of the neoclassical theory of cooperatives represents an important step in understanding cooperatives because the standard theory of the firm is inadequate for analyzing these organizations given assertions about their behavior are generally different than those for other firms.  Specifically, cooperative theorists usually have ascribed objectives other than profit maximization to cooperatives. The neoclassical theory of cooperatives has generated valuable insights into the expected behavior of cooperatives in various market structures and the differences between the behavior of cooperatives and IOFs.  An analysis of farm supplycooperatives suggests the price and output solutions of cooperatives may differ substantially from those of IOFs both in the short run and the long run, especially if the demand curve is downward sloping. The stability of the cooperative price and output solutions is an important issue.  Because the receipt of patronage refunds provides members an incentive to expand their use of the farm input beyond the optimal level, a cooperative may not be able to pursue its objective without imposing some sort of restriction on the purchase of the input.  The significance of this problem depends on the extent to which members consider patronage refunds when making purchasing decisions. Cooperatives must adopt business strategies to successfully adapt to changing market conditions.  Because they may have objectives other than profit maximization, strategies used by IOFs may not be appropriate for them.  Neoclassical cooperative theory has led to the development of strategies for cooperatives that are consistent with their objectives.  Both short-run and long run strategies for reducing the average cost of producing the farm input are described here.  "Those strategies, which consist of shifting either the demand curve or the cost curves for the input, are consistent with the cooperative objective of minimizing the price it charges members for the input" (Royer, 2014, p. 19).

1.10       Conceptual Framework

 

 

1.10 Delimitations and Limitations

            The research had following limitations:

·         The study had not covered other districts than Illam.

·         The study had only studied about Dairy, Tea and Savings & Credit Cooperatives.

·         It had taken only leaders of cooperative societies for in-depth interviews.

1.11 Organization of the Study

The study consists of six chapters. The first introductory chapter introduces the definition of the key terms, world history and Nepalese history of co-operatives in brief, co-operative policy of Nepal Government, and status of tea, dairy and credit co-operatives in Nepal. The chapter also includes the theories of co-operatives, significance of the research, objectives of the study and hypotheses.

Chapter Two describes development of co-operatives in different plan period in Nepal. This chapter also focuses on the review of co-operative development in Nepal. Chapter Three selectively reviews the international literature on co-operative theory and agricultural co-operatives to introduce theoretical concepts and empirical research. The reviewed literature within agricultural and credit co-operatives focuses mainly on tea, dairy and credit co-operatives. The review will be done to find out the scope, methodology, theoretical development and findings of the previous studies and research works in these fields.

Chapter Four is about methodology of the study, which includes the framework and design of the study, sample area, sources of data, instruments of data collection and techniques used in data analysis. Then Chapter Five analyses and evaluates the result broadly. Chapter Six is the concluding chapter. It concludes the study with some recommendations as well as the area for further study.

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