Transforming Agricultural Cooperatives in Pakistan

Agricultural cooperatives have the potential to play a pivotal role in boosting Pakistan's agricultural productivity, improving rural livelihoods, and fostering economic development. With agriculture contributing approximately 24% to Pakistan’s GDP and providing employment to nearly half of the population, efficient agricultural cooperatives are vital to ensuring sustainable growth in the sector.

However, agricultural cooperatives in Pakistan are currently facing numerous challenges that have hindered their ability to achieve their intended goals. This policy brief aims to assess the current state of these cooperatives, identify the challenges faced by cooperative members, and offer policy recommendations to restructure and revitalize the cooperative system for greater effectiveness and impact.

The State of Agricultural Cooperatives in Pakistan

Agricultural cooperatives in Pakistan were established to help farmers pool resources, access financing, improve production, and secure better prices for their products. There are several types of agricultural cooperatives in the country:

1. Credit Cooperatives: Designed to provide farmers with access to loans and credit facilities.

2. Producer Cooperatives: Facilitate collective production and procurement of agricultural inputs at lower costs.

3. Marketing Cooperatives: Assist farmers in marketing and selling their products at competitive prices.

4. Farming Service Societies: Offer machinery, technical services, and other support to enhance farming operations.

Despite the potential benefits, a recent study in Faisalabad found that these cooperatives are underperforming, with most members expressing dissatisfaction with the services provided.

Key Findings

1. Limited Effectiveness of Credit Cooperatives

A significant portion of farmers (60%) who are members of credit cooperatives prefer to obtain loans from informal sources rather than through the cooperatives. Several factors contribute to this:

• High Interest Rates: The loans offered by credit cooperatives, particularly through the Punjab Provincial Cooperative Bank, have high-interest rates, making them less attractive to farmers.

• High Collateral Requirements: Many farmers, especially smallholders, are unable to meet the collateral requirements for cooperative loans.

• Bureaucratic Delays: The loan approval process in credit cooperatives is time-consuming and involves excessive paperwork, which discourages many farmers from utilizing these services.

Consequently, credit cooperatives are falling short of their goal to provide affordable and accessible financing to the farming community.

2. Inefficiency of Producer Cooperatives

The study revealed that members of producer cooperatives do not sell their products through the cooperative system due to the lengthy government procedures involved. Additionally, farmers reported that they do not receive any input support, such as seeds or fertilizers, through the cooperative. This lack of access to inputs and inefficient market access has significantly impacted the profitability of these cooperatives.

3. Inadequate Support from Marketing Cooperatives

Marketing cooperatives have also failed to meet their objectives. Members reported that they do not receive any subsidies or favorable pricing policies from the government. As a result, farmers are unable to secure higher prices for their products, limiting the profitability of their operations.

4. Decline in Farming Service Societies

Farming service societies, which were established to provide machinery and technical services to farmers, are not operating as effectively as they once did. Members noted that these societies lack modern equipment and adequate funding to maintain their operations, leading to a decline in their effectiveness.

5. Income Disparities Across Cooperative Types

The study highlighted notable income disparities among the various types of cooperatives. The average annual income from major crops was PKR 306,814 for credit cooperatives, PKR 873,243 for producer cooperatives, and PKR 275,437 for marketing cooperatives. Minor crops also showed similar disparities, with credit cooperatives earning PKR 212,463, producer cooperatives PKR 196,891, and marketing cooperatives PKR 308,466. The farming service societies reported a significantly lower annual income of PKR 32,000.

6. Widespread Dissatisfaction Among Cooperative Members

Overall, most cooperative members expressed dissatisfaction with the performance of their respective cooperatives. Many felt that joining cooperatives did not lead to any significant improvement in their incomes or productivity. There was a general perception that the cooperatives were poorly managed and provided little value to their members.

Policy Recommendations

In light of these findings, the following policy recommendations are proposed to restructure and improve the functioning of agricultural cooperatives in Pakistan:

1. Restructure Cooperatives into Corporate-Style Models

One of the most effective ways to improve the performance of agricultural cooperatives is to adopt a corporate-style governance model. Under this model, cooperative members would become shareholders with stakes in the cooperative’s financial success. Members would be entitled to dividends in addition to routine cooperative benefits, creating stronger incentives for participation and collective management.

This model would promote a greater sense of ownership among members, increase accountability, and improve overall operational efficiency. It would also allow cooperatives to function more like businesses, with clearer goals, financial planning, and performance targets.

2. Reform Credit Systems to Improve Access to Finance

Reforming the credit systems within agricultural cooperatives is essential to provide better access to affordable financing for farmers. Interest rates on cooperative loans should be reduced to make them more competitive with informal sources of credit. Additionally, collateral requirements need to be lowered, particularly for smallholder farmers, to enable wider access to credit.

The government could also consider setting up a dedicated cooperative loan fund with preferential terms for cooperative members. Streamlining the loan approval process by reducing paperwork and bureaucratic hurdles would further encourage farmers to take advantage of cooperative credit.

3. Strengthen Input and Marketing Support for Producer and Marketing Cooperatives

Producer and marketing cooperatives should be given better support to help them fulfill their intended roles. This includes providing cooperatives with access to subsidized inputs like seeds, fertilizers, and pesticides. Additionally, marketing cooperatives should help farmers secure better market prices through collective bargaining and by facilitating access to markets.

Creating a centralized platform for cooperatives to market their products would enhance transparency and help farmers secure fairer prices. This would reduce the reliance on middlemen and increase the profitability of farming operations.

4. Invest in Farming Service Societies to Improve Machinery Access

The government should invest in modernizing farming service societies by providing them with updated machinery and equipment. These societies should also be provided with adequate funding and technical support to maintain their operations and ensure that they are capable of offering quality services to cooperative members.

Additionally, partnerships with private sector companies could be explored to provide cooperatives with access to the latest agricultural technologies and machinery at subsidized rates.

5. Improve Cooperative Management and Governance

Effective management is crucial to the success of agricultural cooperatives. Training programs should be introduced to enhance the management skills of cooperative leaders. Furthermore, transparency and accountability mechanisms should be put in place, including regular audits and clear reporting procedures to ensure that cooperatives are managed effectively and with integrity.

Introducing performance-based incentives for cooperative managers could help improve operational efficiency and ensure that the cooperatives are run in the best interests of their members.

6. Develop a Comprehensive Policy Framework for Agricultural Cooperatives

A dedicated policy framework is necessary to guide the development and operation of agricultural cooperatives in Pakistan. This framework should outline the incentives for cooperative formation, provide clear guidelines for governance and management, and establish mechanisms for government oversight.

The policy should also include provisions for regular monitoring and evaluation to ensure that cooperatives are meeting performance standards and providing tangible benefits to their members.

7. Leverage Digital Technology for Cooperative Operations

The use of digital technology can greatly enhance the efficiency of agricultural cooperatives. By creating digital platforms for cooperative management, marketing, and resource sharing, cooperatives can streamline their operations and improve communication among members.

Mobile apps could also be introduced to provide farmers with real-time information on market prices, weather conditions, and input availability. This would enable cooperative members to make more informed decisions and improve their productivity.

Conclusion

Agricultural cooperatives have the potential to drive significant improvements in Pakistan’s agricultural sector, but the current system is underperforming and in need of reform. By restructuring cooperatives into more efficient corporate-style models, improving access to credit, strengthening input and marketing support, and investing in farming service societies, Pakistan can unlock the full potential of its agricultural cooperatives.

These reforms will not only improve the livelihoods of farmers but will also contribute to the broader economic development of the country. The time is ripe for Pakistan to take bold steps in transforming its agricultural cooperative sector to ensure long-term sustainability and prosperity for its farming communities.

Please note that the views expressed in this article are of the author and do not necessarily reflect the views or policies of any organization.

Asima Nazir holds MPhil Economics and Muhammad Khalid Bashir is an Associate Professor at the Institute of Agricultural and Resource Economics, and Co-Chair of Policy, Advocacy and Outreach at Pak-Korea Nutrition Center, University of Agriculture, Faisalabad, Pakistan.

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