IMB 855

TOTGARS’ CO-OPERATIVE SALE SOCIETY

Dovetailing Business to Meet Members’ Needs

GOPAL NAIK AND GOPI SANKAR G

Gopal Naik, Professor of Economics & Social Sciences and Gopi Sankar G, Doctoral Student, prepared this case for classroom
discussion. The Totgars’ Co-operative Sale Society Ltd., Sirsi cooperated and provided information to the Indian Institute of
Management Bangalore in connection with the preparation of this case and it was reviewed and approved before publication by
a company designate. No funding was sought or received from Totgars’ Cooperative Sale Society Ltd., Sirsi for the development
of this case. This case was also developed from available and permitted sources of information. This case is not intended to serve
as an endorsement, source of primary data, or to show effective or inefficient handling of decision or business processes.

Copyright © 2021 by the Indian Institute of Management Bangalore. No part of the publication may be reproduced or transmitted
in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise (including internet) – without the
permission of Indian Institute of Management Bangalore.
Totgars’ Co-operative Sale Society

INTRODUCTION

It was February 2020. Raveesh. A. Hegde, General Manager, Totgars’ Co-operative Sale Society Ltd. (TSS) was in deep
thought at the end of a busy day at his office. He was to make a presentation to the Board of Directors (BoD) on how
the TSS was enhancing members’ welfare. TSS was a marketing co-operative headquartered at Sirsi in Uttara
Kannada (UK) district of Karnataka, India. Its main objective was to provide marketing support for arecanut growers
of UK district. The co-operative had diversified into a wide range of activities such as manufacturing value-added
products, running supermarkets and managing a hospital, with the aim of benefiting its members. Hegde was about
to complete 15 years at TSS. He was instrumental in taking the co-operative from a turnover of around ₹750 1 million
in 2005 to ₹5,048 million in 2019. Hegde was reflecting on the portfolio of the co-operative and the benefits provided
to its members. He sat down to critically examine whether the portfolio of activities was addressing the risks and
vulnerabilities of the members, and to estimate the extent of their benefits.

Arecanut (also called betelnut) was a perennial plantation crop primarily grown in India, Bangladesh, China,
Indonesia, and Myanmar. In 2019, India led the production followed by China and Bangladesh. In India, it was mainly
grown in the southern and eastern parts of the country. Arecanut was consumed both as raw (either dried or
undried) nuts and as cut and processed products.2 It was mainly used for chewing and as an ingredient in gutkha,3
pan masala,4 and supari.5 It was also an inevitable part of ritual offerings by Hindus6.

THE TOTGARS’ CO-OPERATIVE SALE SOCIETY LTD., SIRSI

The Totgars’ Co-operative Sale Society Ltd. (TSS) came into existence in 1923. It was carved out of Totgars’ Co-
operative Purchase, Distributive and Credit Society Ltd., established in 1913, to separate the marketing functions
from the credit functions. TSS was initially set up as a marketing co-operative with a share capital of ₹280 and a
membership of 28 individuals. As of March 31, 2019, TSS had more than 30,000 members, a turnover of ₹5047.87
million, and a net profit of ₹21.03 million.

The co-operative was governed by a Board of Directors (BoD), which had 15 members. Hegde reported to the BoD.
The operational area of TSS was spread over 11 talukas7 of UK district (see Exhibit 1 for a map of the operational
area). However, its operations were mainly centered in three talukas namely, Sirsi, Siddapur and Yellapur. Besides
headquarters at Sirsi, TSS had three branches at Siddapur, Yellapur, and Mundgod.

Membership

TSS had three types of membership – A class, B class, and C class (nominal). ‘A’ class members were primary
agricultural co-operative societies (PACS)8, whereas ‘B’ and ‘C’ class members were individuals. ‘A’ and ‘B’ class
members enjoyed several privileges – voting rights, dividend on shares, and exemption from income tax on earnings
from shares – which the ‘C’ class members did not have. Other benefits were available to all types of members. As
of March 31, 2019, TSS had 44 ‘A’ class members, 3,348 ‘B’ class members, and 26,768 ‘C’ class members. ‘A’ and ‘B’
class members together held a share capital of ₹2.59 million. Each share was valued at ₹100. Exhibit 2 provides the
details of membership and share capital for 5 years (2014-2019). TSS closely monitored the patronage of its nominal

1
In this document, the average exchange rate is taken as $1 = ₹72.00
2
http://www.celkau.in/Crops/Plantation%20Crops/Arecanut.aspx
3
A sweetened mixture of chewing tobacco, arecanut, and palm nut used as a breath freshener.
4
“Pan masala (PM) is a mixture of arecanut with slaked lime, catechu, and other flavoring agents” – as is from Garg A, Chaturvedi P, Mishra A,
Datta S. A review on harmful effects of pan masala. Indian J Cancer 2015, 52, 663-666.
5
Arecanut crushed into small pieces and flavored.
6
Followers of Hinduism, an Indian religion
7
A taluka is an administrative sub-district. It is a group of villages organized for revenue purposes. As of 2011, there were 5,564 talukas in India.
8
PACS was an association of primary producers/farmers formed at grassroots level following co-operative principles and registered as a society.

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members (through the quantity of agricultural produce sold through TSS and frequency of transactions) before
issuing them shares.

Key Activities

The primary objective of TSS was to undertake the marketing of its members’ agricultural produce. It had several
other objectives such as to provide loans and advances to members, supply agricultural inputs, and undertake
processing of the members’ agricultural produce.9 The key activities of TSS could be broadly classified into those
directly related to arecanut marketing and support services. Activities directly related to arecanut marketing
included managing the sale yard10 in a regulated market, trading arecanut, making value-added products, and
providing storage facilities. The support services included credit, agri-inputs, extension services, animal husbandry,
rice milling, transport facilities, health services, consumer goods, and a guest house.

ARECANUT MARKETING

Managing the Sale Yard

Exhibit 3 depicts the organization of agricultural markets in India. The Agriculture Produce Market Regulation
(APMR) Act of the state government regulated 11 the primary wholesale markets.12 A predefined set of commodities
(notified commodities) was traded in the regulated markets. Price discovery happened through a tender process.
The Agriculture Produce Market Committee (APMC) consisting of representatives of farmers, traders, and
commission agents 13 managed the regulated markets. APMC in Sirsi was established in 1954. 14 In this market, 113
commodities were notified under regulation. Arecanut was the most important commodity in terms of arrivals. TSS
managed a sale yard in Sirsi (hereafter, referred to as TSS sale yard) as a commission agent. Similarly, TSS managed
sale yards in Siddapur and Yellapur APMCs, which were smaller markets.

Arecanut, pepper, and cardamom were the commodities traded in the TSS sale yard. Sales were conducted through
an electronic first price sealed bid auction and monitored by APMC. Sellers invariably had to be members of TSS to
sell their produce in the TSS sale yard. A member could participate in the sales regardless of the quantity of produce
brought to the yard.15 A receipt was given to the seller with quantity details. The bags were then opened, and the
varieties ascertained. Lot numbers were assigned to each variety brought to the yard and then lots were displayed
in entirety in the sale yard for inspection of quality.

Potential buyers could examine the lots and bid for each lot. Registered buyers having license issued by APMC and
who satisfactorily met KYC16 norms alone could participate in the sales activity. TSS also participated in the bidding
process as a buyer. Typically, the bidding process started at 10:00 am and ended at 12:30 pm everyday throughout
the year, except on public holidays. At the end of the bidding process, the top three quotes for each lot and the
names of corresponding bidders were displayed on a monitor. Besides, an SMS was sent to the respective seller with
details of the highest bid amount for his/her lot and average market price for the day. Daily tender rates were also
published on the TSS website. The sellers could accept or reject the offer. Buyers (traders) who won the bids were

9
Objectives of TSS may be seen at https://www.tssindia.in/index.php/about-us/about-us/main-objectives
10
Sale yards were trade platforms where agricultural commodities were transacted between sellers and buyers in primary wholesale markets.
Farmers brought agricultural produce to sale yards, which were then auctioned and bought by traders.
11
The processes of exchange right from inwarding of agricultural produce, weighment, auctioning and payment were regulated.
12
Markets where farmers sell their produce.
13
Commission agents were registered market functionaries, licensed by APMC. They facilitated trade between buyers and sellers by charging a
commission.
14
http://agmarknet.nic.in/market_profile/MProfile.aspx
15
Members could decide to sell part of their produce. The unsold portion could be stored at facilities offered by TSS by paying storage and
handling charges.
16
KYC stands for Know Your Customer. Typically, it comprises identity and address proof.

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not allowed to reject any lot after the bidding results were announced. If accepted by the seller, the produce would
be sold to the highest bidder. A sale receipt with details of variety, quantity, rate, total amount, and deductions was
prepared and given to both seller and buyer. TSS and APMC charged a commission of 2% and 1.50%, respectively,
from the buyer. Handling charges were deducted from the sellers and paid to the laborers.

In FY 2018-19, 3,70,290 quintals17 of arecanut worth ₹9142.17 million were traded in Sirsi market. For pepper, it was
4,808 quintals worth ₹149.80 million. The TSS sale yard accounted for around 50% of the sales of both arecanut and
pepper at the Sirsi APMC market.

Arecanut Trading

TSS started outright purchase of arecanut and introduced grading of produce in the mid-1950s. Around the same
time, it commenced direct sales of arecanut in Bombay.18 Outright purchase was discontinued in 1969 following the
orders of the Regulated Market Committee. However, TSS continued its role as a commission agent in the regulated
market yard at Sirsi. In response to the sudden fall in arecanut prices in 1972, TSS took the lead in forming the Central
Arecanut Marketing and Processing Co-operative Limited (CAMPCO) with the assistance of the governments of
Karnataka and Kerala.19 TSS was a founder member of CAMPCO and acted as its purchase agent for a long period. 20

In FY 2001-02, following price fluctuations in the preceding year, TSS started participating in the regulated
agricultural produce market as a buyer on its own account. It acted both as a commission agent and as a buyer.
Later, in FY 2010-11, TSS re-started direct purchase of arecanut and pepper. Direct purchases were made from other
marketing co-operatives without going through any auction process. Every year, TSS set aside a certain amount as
‘Price Fluctuation Fund’, dedicated for arecanut purchase. In FY 2018-19, an amount of ₹228.00 million was allocated
as price fluctuation fund.

Arecanut purchased by TSS was traded in three forms: (a) unsorted and ungraded, (b) sorted and graded, and (c)
value-added products. Arecanut trading took place throughout the year. Grading was primarily based on the size of
the nuts. Sorted and graded arecanuts were packed into gunny bags, each weighing 65 kilograms. These were sold
either directly or through agents in different states.

Value-added products

TSS manufactured and marketed plain/raw supari, sweet & scented supari, and pan masala. About 10% of arecanut
procured by TSS was converted into value-added products. The nuts were converted to value-added cut raw supari
of various shapes such as diamonds and slices. These were packed in varying quantities – 500 grams, 1 kilogram and
65 kilograms. “Sirsi Supari” was registered with the geographical indication registry. Women employed on piece-
rate basis did cutting and packing jobs. In 2019, 113 women worked in the supari-making unit and earned up to ₹300
per day.

Operations of the sweet & scented supari manufacturing unit commenced in 2009. A large-scale processing unit was
established in FY 2011-12. The supari was packed in small packets to suit retail sales. The sweet & scented supari
division, which had 2 packing units when it started, grew to 100 packing units by the end of FY 2018-19. Sweet supari
was marketed under the brand names of TSS Tiger, TSS Arjun, TSS Gold, TSS Train, and TSS Spoorti. Each brand
corresponded to a specific price point. Prices ranged from ₹0.50 to ₹5.00 per pack depending on quality and pack

17
1 Quintal = 100 kilograms
18
Now, it is Mumbai
19
CAMPCO was registered on July 11, 1973 under the Multi State Co-operative Societies Act for organized marketing of the produces of arecanut
growers. More details may be seen at http://www.campco.org.
20
TSS is no longer an agent of CAMPCO.

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sizes. The pan masala manufacturing unit was started in FY 2014-15 and shut down after a few months of operation
due to losses.21

Storage facilities

Storage facilities were extended to both farmers and traders. They could store their produce by paying storage
charges. In 1964, TSS finished construction of eight new godowns with financial assistance in the form of share capital
from the Government of Karnataka.22 As on March 31, 2019, TSS owned 63 godowns of cumulative floor area of 5.23
lakh23 square feet24 with a storage capacity of 26,000 tons. Both dry and cold storage facilities were provided to store
arecanut and pepper. Members could store their produce without incurring any charge up to a month. Dry storage
charges were ₹2 per quintal for the second month, ₹3 per quintal up to the fourth month, and ₹4 per quintal for any
period beyond 4 months.25 The cold storage charge was ₹10 per bag per month. Cold storage was maintained at a
temperature of 16⁰C. The stored produce was identified by farmer ID and bag number. A pledge loan to the extent
of 75% of the market value of their respective stock was available to members. An interest rate of 12% per annum
was charged on the pledge loan.

SUPPORT SERVICES

Credit

TSS provided and facilitated credit to members. The types of loans given to members included agricultural
development loan, educational loan, stock pledge loan, and deposit loan. Agricultural development loans were
extended to members based on average value of arecanut sold in the previous 3 years at the TSS sale yard. The
tenure of the loan was one year. Interest rates for this loan were periodically fixed by the management of the co-
operative. The borrower had to provide surety of two members and had to create charge of TSS on his/her assets to
avail this loan. Educational loans were extended to meet educational expenses of dependants of members who had
regular transactions with TSS. As on March 31, 2019, outstanding agricultural development loans and educational
loans were ₹1552.61 million and ₹17.10 million, respectively. Exhibit 4 provides details of outstanding loans of
members for 5 years (2014-2019). Default rate of agricultural development loan was around 3%. TSS also extended
advances to members during non-harvest seasons.

A branch of Vijaya Bank26 was opened in 2017 within the premises of the co-operative. Most of the account holders
in the bank were TSS members. The bank provided credit to borrowers by accepting land as collateral. According to
the branch manager, the non-performing assets of the branch were NIL, as the repayment was facilitated by TSS
directly from sale proceeds. TSS had deployed its employees in the bank to assist the member farmers in conducting
transactions at the bank.

Agri-inputs

The Agriculture division, started in 1962, supplied chemical and organic fertilizers, pesticides, fungicides, agricultural
implements, electric pumps, fencing and protective materials, plastic bags, and gunny bags at subsidized rates. Agri-

21
According to Mr. Hegde, “… the losses were mainly due to high taxes and duties imposed on pan masala. TSS continued to show losses in
financial statements, accounting for machinery and raw materials.”
22
The share capital from the government was returned in FY 1969-70
23
10 lakh = 1 million
24
10 square feet = 0.93 square meter
25
As per email from TSS dated August 13, 2020
26
Vijaya Bank was a public sector bank headquartered at Bengaluru, Karnataka. As part of the bank merger project of the Government of India,
it was merged with Bank of Baroda in 2019.

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supermarkets functioned at all the branches. Exhibit 5 provides details of sales of agri-inputs for 5 years (2014-2019).
Nearly 7% of the sales amount was given as discount to member farmers.

The agriculture division also housed a research & development section that examined best practices in areca
cultivation, harvesting, drying, grading, and sorting. The division was also engaged in research and manufacture of
organic manure and fungicides. Organic manure was manufactured and marketed under its own brand name, TSS
Green Gold; it was launched in FY 2016-17. In FY 2018-19, a new unit that manufactured Trichoderma and
Pseudomonas, bio-fungicides used on areca and pepper plants, was started in its agricultural laboratory. TSS also
managed a workshop for servicing agri-implements of members.

Extension Services

Extension services included advice on farming practices, soil testing, and consulting services. Technically qualified
resources were specifically recruited for providing extension services. As on March 31, 2019, TSS had four technical
officers on its rolls. Their responsibilities included regular field visits, soil testing, and advising farmers on farm
practices. The phone numbers of technical officers were widely publicized, and the farmers were encouraged to
reach out to them for guidance. According to estimates by TSS, average yield of arecanut in Sirsi area was 2,471–
2,965 kg/ha and the annual cost of cultivation was approximately ₹200/kg. Agri-inputs accounted for around 25% of
the total cost.

TSS brought out a quarterly journal on agricultural practices, which was distributed free of cost to the members. A
library was set up for the use of members. An IVRS 27-based information kiosk was also set up for information
dissemination on farming practices. In July 2018, a special event called Hasiru Maasa28 was organized to evoke a
sense of environmental protection among the members.

Extension services were not limited to agriculture. TSS provided advice to members on construction activities. A
qualified civil engineer was recruited for this purpose. Services included preparation of building plan, construction
supervision by engineers, and arranging supply of specialized construction workers.

Animal husbandry

Most members were engaged in animal husbandry as a supplementary source of income. TSS provided several
services including veterinary services, cattle feed, and pet shop. In FY 2010-11, a tie-up was established with BAIF
Development Research Foundation29 and Suradhenu for providing cattle breeding services. Seven artificial
insemination and breeding centers were set up under this arrangement. Artificial insemination of cattle was done
on payment of ₹50 and ₹80, respectively, for members and non-members. In FY 2018-19, 4,796 members benefited
from this scheme.

Cattle breed development center was established at Yellapur in FY 2017-18. When TSS sold cattle feed of other
manufacturers, there were several complaints about the prevalence of skin disease among cattle. It was suspected
that the presence of higher amount of urea in the cattle feed was causing this. To address this problem, TSS decided
to manufacture and supply cattle feed which was free from urea. Maize, the major ingredient, was purchased from
the members. The cattle feed manufactured by TSS was marketed under the brand name Dhara, which was urea-
free.30 Dhara cattle feed was sold at subsidized rates to members at an average rate of ₹1,170 per bag. The selling
price of a comparable product in the market was ₹1,220 per bag. In addition to its own manufacturing, TSS purchased

27
IVRS – Interactive Voice Response System
28
Literally translates to ‘green month’.
29
BAIF is a renowned civil society organization that focuses on agricultural and rural development. It was founded in 1967 as Bharatiya Agro
Industries Foundation. More details may be seen at https://baif.org.in.
30
In the email communication dated August 13, 2020, TSS claimed that the skin disease problem was not reported any more.

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cotton seed cake and other cattle feed in bulk quantities and supplied them to members at prices lower than market
rates.

Rice milling unit

TSS established a rice milling unit in 1965. The facility was open to both members and non-members. A fee of ₹55
and applicable taxes per bag of 70 kilograms was charged for milling. Annually, around 60,000 bags of rice were
milled in the facility. After milling, the users were free to sell the rice to the buyer of their choice. The unit also
provided storage facility for paddy at nominal charges.

Transportation facilities

The co-operative owned both commercial vehicles and passenger vehicles. It provided facilities to members to
transport their produce by charging a fee. Transportation charges varied according to the vehicle capacity; per
kilometer rates were ₹28, ₹24, ₹22, and ₹18, respectively, for capacities of 6.5 tons, 4 tons, 3.5 tons, and 2 tons.
Transportation facilities were also provided to traders at the same rates.

Health

Interventions in the health sector started with the opening of a medical store in 1962. Later, Janoushadhi31 centers
(for generic medicine) and other medicine outlets at Sirsi and Siddapur were opened. A multi-speciality hospital,
Shripad Hegde Kadave Institute of Medical Sciences, was established in Sirsi in 2007 with a capital outlay of ₹100.00
million. The hospital was managed by a trust, namely, Totgar's Seva Samiti Charitable Trust, and controlled by TSS.
The trustees were nominated from among the members of the BoD of TSS. The hospital was situated in a six-acre
campus and had a capacity of 150 beds. It had 17 full-time departments and six visiting specialities. 32 In this hospital,
the members of the co-operative and their families were provided treatment at concessional rates. Since inception,
a cumulative amount of ₹4.48 million was provided to 6,500 members as concession. In addition to the hospital, TSS
commissioned Raitara Arogya Kendra33 at its headquarters to provide the services of doctors and pathology
laboratory to the members.

TSS formulated special schemes for accident coverage and health protection of its members. In FY 2015-16, TSS
launched the accidental benefit scheme (Krishi Karmikara Afaghatha Parihara Yojane), which covered co-operative
members, their families, and the agricultural laborers they employed. With the objective of meeting healthcare
expenses of members and their families, another scheme, TSS Sadasyara Aarogya Suraksha Yojane, was launched in
FY 2017-18. The scheme was designed in a contributory form – with contributions from both the co-operative and
its members. In FY 2018-19, TSS combined both the schemes and launched a new scheme, TSS members’ Raksha
Kavacha. This scheme was implemented to reimburse the medical treatment expenses of the members and their
dependants, including farm laborers. The scheme was managed by equal contribution of premium amount from the
members and TSS. The medical expenses incurred by members and their dependants were reimbursed, subject to
the upper limit specified for different slabs based on premium amount contributed by the members.

Consumer goods

TSS ventured into supply of groceries to its members starting from the early 1960s. Over a few decades, it grew into
a full-fledged supermarket with a wide range of stock keeping units (SKUs). Exhibit 6 shows the growth of the
supermarket over the years. Around 8000 SKUs were sold in the supermarket. The SKUs consisted of perishables

31
Literally translates to ‘mass medicine’.
32
Details may be seen at https://tsshospital.com/specialities.php.
33
Literally translates to ‘Farmers’ Health Center’.

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such as fruits and vegetables, dairy products, food grains, packed food items, storables such as grocery items,
household consumables such as garments, foot wears, kitchen utensils, toys, show-piece items and durables such as
home appliances, electrical and electronics goods, and furniture. The members could purchase these items at prices
lower than the maximum retail price. Exhibit 7 shows the price differences offered by the supermarket for the 10
most sold items. For home appliances, after-sales services were also arranged with the help of distributors and
manufacturers. In FY 2016-17, the supermarket was shifted to a newly constructed “Kadave Memorial Complex”, a
four-storied building. In addition to Sirsi, the supermarket facilities were available at Siddapur and Yellapur.

In FY 2017-18, building construction materials such as TMT (thermomechanical treatment) steel bars, pipes, ceramic
tiles, bathroom fittings, paints and emulsifiers, plumbing materials, and electrical items were added to the
supermarket portfolio.

TSS marketed several goods under its own brand name. These were mainly locally sourced items. Appemidi34 pickle
prepared by women self-help groups, ghee prepared by members, and ready-made garments were marketed under
the TSS brand. The co-operative believed that its intervention in the consumer goods market would help members
have access to quality products at cheaper rates and create competition in the marketplace. 35

Gold and Silver Ornaments

TSS had a jewelry store that sold gold and silver ornaments. The store had facilities for accurate weighment of
ornaments. Gold rate was charged only to the extent of gold content in the ornaments and the remaining content
was charged on other metal rate. There were no other charges. The sale bill had the details of differential rate
proportional to the weight of the contents. The jewelry store also had facilities for purity checking of ornaments and
issued a certificate for the same. These facilities were accessible to both members and non-members.

Guest house

A guest house with 62-room capacity by name “Samrat” located in Sirsi was added to the portfolio of services in
1985 for providing affordable lodging facilities, primarily to the TSS members. The building also housed a restaurant
and several other shops. The guest house was available for non-members as well.
Exhibit 8 provides a timeline of events.

TSS AS A BUSINESS ENTERPRISE

TSS, from an early stage, relied on its internal resources for operations. TSS managed to mobilize deposits from its
members which served as its working capital. Deposits were mobilized in the form of fixed deposits, cash
certificates,36 and savings deposits. As on March 31, 2019, the deposits in the three forms amounted to ₹235.89
million, ₹1331.55 million, and ₹23.75 million, respectively. Interest rates given on deposits were often higher than
the prevailing market rates.

The two major revenue sources of TSS were commission from sale yard and interest earned from loans given to its
members. According to Hegde, “our strategy was to leverage large volume trade. We sold arecanut at low margins.
Since the volume of trade was large, it compensated for the low margin. We never purchased on credit. We made
immediate payments to our suppliers. For super market, we negotiated for price discounts on products procured

34
Tender mango
35
TSS, in its annual report 2015-16, stated that the objectives of these activities were “to provide members goods at cheaper rates and
comparative information. These are not to compete with any organization. If other co-operative institutions move in this direction to meet at
least 30-40 percent needs of farmers, then growers do get requisites at competitive rates and it is a real value addition in farmer’s life.”
36
For fixed deposits, interest was posted half-yearly. For cash certificates, interest was posted at the end of the year.

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instead of vailing credit facility”. Thus, TSS enjoyed both scale economies and price discounts in its purchase
activities. Exhibit 9 gives details of the growth and net profit of each business division for 5 years (2014-2019). Hedge
co-ordinated the functioning of various divisions. Employees were shuffled across the divisions every 2–3 years.

TSS adopted a three-pronged strategy to minimize price risk. The first strategy was to sell throughout the year. The
second strategy was to manufacture value-added products of arecanut. The third strategy was to sell to multiple
value-chain participants in various locations. Trading was carried out through agents, wholesalers, and retailers, and
also directly to customers. Sweet supari was sold to carrying and forwarding agents, who then distributed to several
states such as Karnataka, Tamil Nadu, Andhra Pradesh, Telangana, Goa, Rajasthan, Madhya Pradesh, Uttar Pradesh,
and West Bengal. In Gujarat, TSS sold sweet supari directly to the agents.

BENEFITS TO MEMBERS

TSS provided benefits to its members in three major ways: (i) by intervening in arecanut market as a commission
agent, trader and processor; (ii) by giving monetary benefits in the form of incentives, bonus and dividends; and (iii)
by providing integrated quality services and inputs.

Market Interventions

According to TSS, the primary objective of its market interventions was to stabilize arecanut prices. 37 During the five-
year period from April 2014 to March 2019, Chali and Rashi were the predominant varieties traded in the TSS sale
yard, together accounting for 57–67% of the annual quantity traded (Exhibit 10). Chali and Rashi were traded for a
minimum of 230 days and a maximum of 296 days in a year. Market arrivals were seasonal, with Chali peaking in
February–May, and Rashi in December–March. In FY 2018-19, average monthly price of Chali was ₹23832 per quintal
with a standard deviation of 2229. For Rashi, average monthly price was ₹31,264 per quintal with a standard
deviation of 991.

TSS purchased the varieties Chali and Rashi as a licensed trader in the regulated market. The co-operative purchased
a substantial share of these two varieties traded in the TSS sale yard (Exhibit 11). During the five-year period from
April 2014 to March 2019, TSS purchased at least one lot of Chali and Rashi for a minimum of 229 and 196 days,
respectively, in a year. The quantity purchased by TSS was positively correlated with market arrival. TSS bid rates
were significantly higher than that of other bidders. Difference between the highest and second highest bids, on
average, was greater when TSS emerged as the winning bidder (Exhibit 12).

Monetary Benefits

A large portion of the profits earned by the co-operative was redistributed to the members as direct and indirect
benefits. TSS had adopted its mission as “members’ welfare is institution’s pride”. 38 Dividends were given to
members in proportion to their shareholding. A portion of the co-operative’s profit was allocated every year to the
members’ welfare fund. Annual bonus was given to the members at the rate of 0.25-0.50% of the value of their
produce sold at the TSS sale yard. Members received yearly sales incentives at the rate of 0.25-0.50% of the value
of the produce sold at the TSS sale yard, and purchase incentives at the rate of 2% of the value of purchase from the
supermarket. Exhibit 13 gives the details of dividends, bonus, sales incentives, and purchase incentives given to
members in 5 years (2014-2019).

37
“All these market-oriented activities are undertaken by the institution in the interest of the members and in stabilizing the price, not with the
motive of making profit.” - as is from TSS Annual Report 2010-11.
38
As is from TSS Annual Report 2010-11

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Totgars’ Co-operative Sale Society

Integrated Services

TSS provided services related to agricultural inputs, marketing of agricultural outputs, access to consumer goods,
and other livelihood needs such as health and education of member households. It also supported supplementary
activities such as animal husbandry and rice milling. The co-operative’s members could access multiple services
simultaneously, as and when they required. TSS was conscious of the quality and rate at which various products
were delivered to its members. According to Hegde, “we provided agri-inputs, consumer goods and animal feed at
prices lower than market rates, without compromising on quality”. Members could also avail rebates for expenditure
incurred on health care and health protection. Scholarships were given to meritorious students from member
families.

Member Cohesion/Member Allegiance

Despite the multi-pronged strategies adopted by TSS, ensuring member allegiance remained a challenge. In 1985, a
few dissident members of TSS formed another society, namely, Taluka Agricultural Produce Marketing Society
(TMS).39 In 2010, a few members filed complaints of funds misappropriation and misuse of power by the
management of TSS. A court case was registered and a legal enquiry on the business operations of TSS under section
64 of the Karnataka State Co-operative Society’s Act 1959 was initiated. The authorities concluded the enquiry in 6
months by stating that there was no prima facie evidence to prove any misappropriation or misuse of power by the
management of TSS and pointed out certain administrative lapses. TSS complied with the requirements as per the
directions of the authorities.40

Several PACS remained members of both societies for a long time until 2013. During general elections, a few member
PACSs decided to shift permanently to TMS. As a result, the number of ‘A’ class members came down from 67 in FY
2013-14 to 45 in FY 2014-15 and to 44 in FY 2015-16. During the same period, the number of ‘B’ class members
increased from 2,903 to 2,979 and then to 3,041. Share capital was ₹1.86 million, ₹1.92 million and ₹2.01 million;
and profits were ₹19.59 million, ₹19.72 million and ₹20.03 million, respectively, for the years FY 2013-14, FY 2014-
15 and FY 2015-16. The co-operative leadership constantly sent messages to the member community exhorting them
to remain loyal.41

BENEFITS TO EMPLOYEES

TSS had 598 employees hired locally across its branches and various divisions. Among them, 198 were directly
employed and 400 were employed through contractors. The overall operation was headed by General Manager.
Business divisions were headed by divisional managers. In addition to salary, employees received monetary benefits
including annual bonus, performance-based incentive, gratuity, leave encashment facilities, medical allowances, and
reimbursement of children’s tuition fee. Personal and housing loan facilities were provided to employees. Bonus and
staff welfare fund were allocated from the net profit earned by the co-operative. Exhibit 14 provides details of salary,
bonus, and welfare fund for the 5 years (2014-2019). Health scheme facilities were provided to both direct and
contract employees with equal contribution of premium amount from TSS. Medical expenses were reimbursed from
this scheme.

39
In 2018-19, TMS had a turnover of ₹2,030.38 million and a profit of ₹6.35 million.
40
As per email from TSS dated August 13, 2020
41
“We humbly request every member to transact fully through us and strengthen the institution. We would like to draw your attention to the
fact that those who sell all their agri-produce through the institution and purchase their day to day and agricultural need from our supermarket
only will be eligible to get facilities like agri-accident relief, funeral aid, sales incentive and super market purchase rebates, etc.” – as is from TSS
Annual Report 2016-17
“[M]embers selling their total produces in our institution can only get crop loan reimbursement facility and additional loan during unexpected
emergencies. We also wish to bring to your notice that those members who are not selling their entire agriculture produces through our
institution do not get any additional financial assistance during any kind of emergencies.” – as is from TSS Annual Report 2017-18.

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Totgars’ Co-operative Sale Society

BENEFITS TO OTHER STAKEHOLDERS

TSS extended several benefits to the traders who purchased arecanut in the TSS yard. Most important was the credit
purchase facility. The traders could purchase arecanut without making immediate payment. The payment to farmers
would be made by the co-operative on their behalf. The produce was later released partly or wholly to the purchasers
in proportion to their payment to the co-operative.

The traders could access storage facilities provided by the co-operative. They could store the produce for up to 3
days without incurring any additional charges. Beyond 3 days, an interest rate of 12% per annum was charged. TSS
also extended credit to the traders against their pledged stock. As on March 31, 2019, the amount outstanding from
traders was ₹595.45 million. Exhibit 15 gives details of outstanding loans in traders’ account for 5 years (2014-2019).

To claim these benefits, traders were required to register themselves with TSS as nominal members of the co-
operative, who did not have voting rights. They were required to make a security deposit with TSS in accordance
with their intended value of purchase. The security could be in the form of either fixed deposit or pledging the land
title. The limit for purchasers was fixed based on the security deposit and their track record.

Strategic Choice

Hegde’s presentation was due in a week to the BoD which had plans to revisit the portfolio of activities to shape
future strategy. He wanted to present an assessment of the usefulness of TSS’s portfolio to its members and its
ability to address risks and vulnerabilities of the members. He was also trying to quantify the benefits provided to
members to foster their loyalty to the co-operative.

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Totgars’ Co-operative Sale Society

Exhibit 1
Area of Operation

Source: https://www.mapsofindia.com/maps/karnataka/karnatakalocation.htm
https://www.researchgate.net/publication/258168180_Assessment_of_Seismically_Induced_Landslide_Hazard_for_the_State_of_Karnataka_
Using_GIS_Technique/figures?lo=1 https://www.tssindia.in/index.php/about-us/about-us/main-objectives

Exhibit 2
Details of Membership

No. of Members Share Capital

Year A Class B Class C Class (₹ million)
2014-15 45 2979 16952 1.92
2015-16 44 3041 18345 2.01
2016-17 44 3103 20911 2.15
2017-18 44 3255 23510 2.36
2018-19 44 3348 26768 2.59

Source: Annual Reports, TSS. Details of C class members in email from TSS dated June 13, 2020.

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Exhibit 3
Organization of Agricultural Markets in India

Primary Wholesale Markets

Licensed functionaries: Secondary Wholesale Retail End
Farmgate
Commission agents; Traders;
Markets Markets Consumer
Processors

Local Private
Traders

Source: Authors’ Description

Exhibit 4
Outstanding Loans of Members

(All figures in ₹ million)

Agriculture Development Loan Education Loan

2000.00 20.00
1500.00 15.00
1000.00 10.00
500.00 5.00
0.00 0.00

Source: Annual Reports, TSS

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Exhibit 5
Sales of Agri-inputs

(All figures in ₹ million)

Particulars 2014-15 2015-16 2016-17 2017-18 2018-19
Fertilizers 46.49 46.27 64.17 102.56 144.69
Insecticides 31.03 35.49 39.25 50.71 71.80
Agri Implements 20.57 38.25 55.17 72.44 83.63
Empty Gunny Bags 12.80 9.65 17.96 18.21 16.47
Polythene Bags 3.99 8.44 13.05 17.41 18.45
Irrigation Implements - 8.01 36.85 65.72 75.80

Source: Annual Reports, TSS

Exhibit 6
Sales in the Supermarket

Year Sales Value

(₹ million)
2012-13 112.30
2013-14 166.70
2014-15 287.80
2015-16 408.70
2016-17 681.90
2017-18 1208.00
2018-19 1631.80
2019-20 1752.60

Source: Email from TSS dated August 13, 2020

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Exhibit 7
Price Differences for Most Sold Items
Sl. Item Unit Market Price TSS Price
No. (₹/unit) (₹/unit)
1 Ruchi Gold Oil Liter 86 85
2 Surykanti Oil Liter 105 103
3 Idli Rava Packet 38 36
4 Pusti Atta Kilogram 38 36
5 Ashirvad Atta Kilogram 57 53
6 Sugar Kilogram 40 38
7 Dal Kilogram 102 99
8 Tur Dal Kilogram 135 132
9 Atta Kilogram 32 30
10 Rava Kilogram 34 33

Note: Prices as of August 2020

Source: Email from TSS dated August 13, 2020

Exhibit 8
Timeline of Events

Year Event 1973 Purchase agent of CAMPCO since its inception

1923 TSS was established 1985 Added Samrat Guest House to the portfolio
1940s Price Stabilisation Fund was introduced 1985 Formation of Taluka Agricultural Produce
Marketing Society (TMS)
1947 Opened branch at Siddapur 2001 Started purchase from regulated markets
1955 Opened branch at Yellapur 2007 Opened multi-specialty hospital
Mid Started direct purchase of arecanut 2009 Started operations of scented sweet supari
1950s
1960s Commenced direct sales of arecanut in 2010 Re-started direct purchase of arecanut and
Bombay pepper
1962 Opened medicine store 2010 Started tie-up with BAIF to provide cattle
breeding services
1962 Started supply of groceries and agri-inputs 2011 Set up processing unit of scented sweet supari
1964 Finished construction of godowns 2014 Opened branch at Mundgod
1964 Opened petrol bunk 2015 Started pan masala manufacturing unit
1965 Opened rice mill 2016 Supermarket was expanded and shifted to a
newly constructed building
1969 Discontinued direct purchase following the 2017 A branch of Vijaya Bank opened in TSS premises
orders of Regulated Market Committee

Source: Authors’ analysis based on TSS annual reports and discussions with the TSS management

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Exhibit 9
Growth and Net Profit of Business Divisions

2014-15 2015-16 2016-17 2017-18 2018-19

Section
Sales Net Profit Sales Net Profit Sales Net Profit Sales Net Profit Sales Net Profit
Super Market 183.90 2.04 269.12 3.42 467.42 2.01 891.34 9.04 1230.43 12.35
Agriculture 103.96 5.02 139.61 7.99 214.51 9.30 316.67 17.72 401.44 30.46
Trading 2186.47 9.07 1414.07 4.54 1759.20 12.25 1835.25 7.47 1964.73 5.39
Sweet Supari
Manufacturing Unit 349.00 1.93 420.64 2.12 482.64 2.33 435.14 2.71 338.11 -3.06
Pan Masala Unit 66.08 -13.26 1.91 -6.75 0.89 -8.56 0.50 -6.33 0.38 -10.18
Income Net Profit Income Net Profit Income Net Profit Income Net Profit Income Net Profit
Rice Milling 2.65 0.49 2.45 0.26 2.86 0.31 3.43 0.43 2.69 0.040
Guest House 8.92 0.74 10.33 1.55 11.27 1.82 11.90 2.31 12.79 3.46
Transport 1.82 -0.34 2.32 -0.34 3.46 -0.37 3.53 -0.61 4.85 -0.51

Source: Annual Reports, TSS

Exhibit 10
Arecanut Trade in TSS Sale Yard

No. of days No. of days

Year All Varieties Share of Chali Share of Rashi when Chali was when Rashi
(Quintal) (%) (%) traded was traded
2014-15 100870.30 54.70 12.36 231 230
2015-16 101446.40 44.30 13.66 243 266
2016-17 130183.70 50.64 16.71 280 280
2017-18 111463.30 53.89 12.13 293 292
2018-19 110929.90 49.10 17.92 296 296

Source: Authors’ calculation based on daily transaction data obtained from TSS

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Exhibit 11
Share of TSS Purchase

Chali Rashi
Share of Share of
Share of lots Total quantity No. of days TSS Total quantity No. of days TSS
Total No. of purchased by Arrival purchased by purchased at Total No. of Share of lots Arrival purchased by purchased at
Year lots arrived TSS (Quintals) TSS least one lot lots arrived purchased by TSS (Quintals) TSS least one lot
2014-15 19037 53.50% 55178.91 56.73% 229 7980 39.04% 12469.34 44.12% 196
2015-16 16095 41.79% 44936.32 47.19% 241 8782 32.77% 13854.60 36.17% 197
2016-17 20247 38.17% 65920.08 45.11% 260 12093 55.89% 21751.03 60.14% 254
2017-18 19202 38.32% 60062.54 44.79% 283 8197 52.57% 13523.99 58.30% 243
2018-19 18842 40.35% 54462.14 48.83% 276 10371 41.81% 19875.93 43.48% 273

Source: Authors’ calculation based on daily transaction data obtained from TSS

Exhibit 12
Average Difference between the Highest and Second Highest Bid Rates
(All figures in ₹/Quintal)
Chali Rashi
Month Overall TSS won bid Others won bid Overall TSS won bid Others won bid
Apr 2019 416.69 549.55 267.33 892.47 1221.79 732.09
May 2019 312.64 447.17 217.74 1164.46 1889.70 694.91
Jun 2019 262.87 353.21 215.64 787.57 1046.81 629.29
Jul 2019 287.94 415.94 213.20 652.78 880.16 535.31
Aug 2019 379.70 416.20 343.34 704.00 856.45 546.45
Sep 2019 321.07 353.57 295.41 657.18 671.73 649.01
Oct 2019 367.08 405.06 331.25 715.77 941.91 491.63
Nov 2019 317.56 358.62 283.38 786.45 1243.10 557.23
Dec 2019 277.50 318.02 236.37 572.98 654.85 547.09

Source: Authors’ calculation based on daily transaction data obtained from TSS

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Exhibit 13
Benefits to Members
(All figures in ₹ million)
Bonus Paid to Sales Purchase
Year Net Profit Dividend Members Incentives Incentives
2014-15 19.72 0.31 3.80 4.30 -
2015-16 20.03 0.40 4.02 5.59 -
2016-17 20.35 0.43 4.11 6.13 -
2017-18 20.55 0.47 1.45 9.70 3.11
2018-19 21.03 0.52 5.68 4.11 5.52

Source: Annual Reports, TSS

Exhibit 14
Benefits to Employees
(in ₹ million)
Staff Bonus Staff Welfare
Salary Fund
2014-15 26.01 4.12 0.30
2015-16 25.91 4.15 0.58
2016-17 27.50 3.86 0.60
2017-18 33.90 5.24 0.60
2018-19 42.12 6.00 0.60

Source: Annual Reports, TSS

Exhibit 15
Outstanding Loans of Purchasers

Purchasers' Loan (in ₹ million)

700
600
500
400
300
200
100
0
2014-15 2015-16 2016-17 2017-18 2018-19

Source: Annual Reports, TSS

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