The ₹23 Gap: Why 22% of Members Stopped Supplying the Cooperative Mill
Sri Ganesh Sahkari Chini Mills, a cooperative mill in western Uttar Pradesh with 9,500 member shareholders, crushed 8.4 lakh quintals last season at 9.6% recovery. This season its three cane societies report that supply from member villages has fallen 22% against the allotted indent, while a cluster of khandsari and gur units within 8 km is buying openly. The notified SAP is ₹370 per quintal, but the first installment of 60% reaches farmers about 45 days after weighment and the balance after roughly 90 days; ₹64 crore of last season's dues are still unpaid. The gur units pay ₹395 per quintal in cash at their own weighbridge, where farmers allege 4% short weighing. Society commission is ₹4 per quintal, and the mill's purchase centre is 14 km from the affected villages against 6 km to the gur units. At the general body meeting, members passed a resolution demanding that the society stop supplying the mill until arrears are cleared, and the board has called the supervisor to explain the collapse.
1. Using the figures given, estimate the effective net realisation per quintal from each channel. Is the 22% supply loss economically irrational, or is it a predictable response?
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Step 1 - Cash value at the mill's gate. SAP ₹370 − society commission ₹4 = ₹366 per quintal.
Step 2 - Cost of the delay. Average wait = (0.60 × 45) + (0.40 × 90) = 27 + 36 = 63 days. At a borrowing rate of 12% a year, the time cost is 366 × 0.12 × 63/365 ≈ ₹7.6. Realisable value ≈ ₹358.4.
Step 3 - Transport. The extra 8 km each way costs roughly ₹1.5 per quintal more. Net ≈ ₹357.
Step 4 - Gur channel. ₹395 × 0.96 (the alleged 4% short weighing) = ₹379.2, plus a ₹1.5 transport advantage ≈ ₹380.7.
Gap ≈ ₹23–24 per quintal - about ₹46,000 on 2,000 quintals, which is a smallholder's entire season's cash. Add the ₹64 crore arrears and the risk of a fresh default.
Conclusion: the loss is not irrational. It is a rational exit from a ₹23 price-and-trust gap. Loyalty appeals will not close a gap of that size, and the resolution to stop supply punishes the mill, not the gur unit. The levers available to a cooperative are payment speed, weighing honesty and service - the next task tests them.
2. The board proposes three options: (i) cut society commission from ₹4 to ₹1; (ii) pledge sugar stock and pay the 60% installment within 15 days; (iii) ask the district administration to act against the gur units. Evaluate each and recommend a package.
Read the worked answer
(i) Cutting commission to ₹1. Adds ₹3 per quintal - about 0.8%, roughly one-eighth of the gap. It also starves the society of the field staff who prepare indents, issue slips and run extension work, i.e. the only service that keeps members attached. Reject as the main measure.
(ii) Pledging sugar and paying in 15 days. A cash-credit limit at about 9.5% on ₹370 for the 30 days saved costs ≈ ₹2.9 per quintal - very cheap against a ₹23 gap, and it signals reliability, which is worth more than the interest. Adopt, and publish a written payment calendar on the notice board and on every farmer's slip.
(iii) Action against gur units. Gur and khandsari units require a licence and cannot lawfully draw cane from an area reserved for a mill. But a society does not file the complaint; a written report with weighment slips, vehicle numbers and timings goes to the District Cane Officer, who forwards it to the Cane Commissioner's office.
Recommended package: (ii) as the core, (iii) through the proper channel, electronic weighbridges with printed slips at every centre, and an open arrears dashboard. Commission stays at ₹4; it is buying credibility, not saving money.