Cold storage or rice mill? A village cooperative's five-year loan
Panoor village cooperative has 340 members: 60% small farmers, 30% fish vendors and 10% shopkeepers. It holds ₹45 lakh - a ₹30 lakh bank loan at 9% annual interest and a ₹15 lakh grant. Proposal A is a 20-tonne cold storage costing ₹38 lakh, with power at ₹1.2 lakh a month and expected fee income of ₹2.4 lakh a month. Proposal B is a rice mill costing ₹42 lakh; it needs 12 tonnes of paddy a day, but local supply is only 8 tonnes a day, and expected fee income is ₹1.8 lakh a month. Proposal C is to lend the corpus to members at 12% and make no investment. Fish vendors need ice from 4 a.m. and currently travel 18 km. The loan must be repaid in five years. Members are split, and the annual general body must decide next week.
1. Compare A and B using the given figures. Identify the capacity problem in B and the operating-cost problem in A.
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A has expected fee income of ₹2.4 lakh a month, or ₹28.8 lakh a year, against power of ₹14.4 lakh a year. That leaves ₹14.4 lakh before staff, repairs, insurance and loan repayment. The loan is ₹30 lakh at 9%; even before principal, interest is ₹2.7 lakh a year, and five-year repayment adds roughly ₹6 lakh a year of principal. B has fee income of ₹1.8 lakh a month, or ₹21.6 lakh a year, but it needs 12 tonnes of paddy a day while only 8 tonnes are available locally. That is about 67% capacity utilisation; unless outside paddy is contracted, income will fall below the estimate and per-tonne costs will rise. A's main risk is recurring power cost and cold-storage utilisation; B's main risk is raw-material supply. Neither proposal is risk-free, and the cooperative should not compare only headline income.
2. Which proposal would you recommend to the general body, and what safeguards would you attach?
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I would recommend a phased version of A rather than B, because A serves the fish vendors' concrete need for early-morning ice and has a clearer local demand base. But A should be scaled to reduce power risk: a 20-tonne store may be too large at first, so the cooperative could start smaller, add solar-assisted power or off-peak operation, and contract fees with fish vendors before borrowing. The loan should be sized so annual repayment does not exceed the conservative net income. B should be deferred until paddy supply contracts reach 10–12 tonnes a day. C is safe but does not solve the ice problem and may not build a productive asset. Safeguards include a written fee schedule, a maintenance fund, monthly energy monitoring, and a break-even calculation presented to members before the loan is drawn.
3. A member argues that because fish vendors are only 30% of members, the cooperative should choose the rice mill for the farmer majority. How should the general body reason about this?
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The general body should not reduce the choice to majority numbers. A cooperative exists to serve all members, and the rice mill's viability depends on paddy supply, not on the number of farmers who vote for it. If the mill runs at 67% capacity, farmer-members may also lose through higher charges or a loss-making asset. The cold storage, meanwhile, addresses a service gap that affects 102 fish vendors and can generate fee income for all members. The body should compare net benefits, risk and repayment capacity, not identity. It could also combine elements: a smaller cold storage with an ice-making unit, and a later rice mill only with supply agreements. A vote is legitimate only after members see the break-even figures and the loan schedule. Majority support cannot make an under-supplied mill viable.