Problem and situation Analysis:

Mr. Agarwal is the Manager of Varun Nagar Agricultural Cooperative Society (VNACS), which is in
Jaldhara district, Nanded, Maharashtra. The society operates with 300 members who maintain the
production of agricultural produce from farmers and market it to the district mandi’s platforms. The
Society also procures and supplies agricultural inputs to the farmer members.

The society currently has 100 tons of Paddy owned by the members; the society also has an
overdraft of Rs. 5 Lakh drawn from the Jaldhara District Cooperative Bank with an interest rate of
10% annually. The cash reserve with the society is Rs. 5 Lakhs. The storage space of the society can
hold upto 100 tons of Paddy (Appendix 1).

The society has an offer from the National Fertilizer Corporation to supply the Society's annual
fertilizer requirements at a discounted rate of Rs. 250 per ton, instead of the normal rate of Rs. 300
per ton, if payment is made within 2 weeks. The members will use the fertilizer only after 6 months
and the society will have to make provisions to store the fertilizer for the time, which would incur
additional costs to the society and 5% loss of stock.

As per the analysis made by Mr. Sharma, one of the members of society, the price of Paddy will
increase to Rs. 7500 per ton in 6 months. Mr. Agarwal remembers the price of Paddy going upto Rs
6200- 6,300 per ton in the last two seasons.

Society must decide if the current cash reserve should be used to repay the bank overdraft, pay the
members or to buy the fertilizers at the discounted rate. They should decide if the Paddy should be
sold now or after 6 months and if the fertilizers should be bought now at the discounted rate or after
6 months at the normal price (Appendix 2).

Objective:

The Cooperatives Societies Act,1912 makes it easier to create cooperative societies to stimulate
the economy and promote self-help among farmers, artisans, and others with little resources. The
mission of any cooperative is to take care of the economic interest of its members. The vision of
cooperative is to become self-reliant to fulfil all the requirements of its members. The short-term
objective of the cooperative is to make surplus for better functioning of the cooperative. This can be
achieved by selling paddy at higher prices by waiting for a suitable time period. The long-term
objective of a cooperative is to fulfil all the expectations of each stakeholder. This can be achieved
by giving timely payments to farmers and helping them in their farm-related activities while
following all the rules of the cooperative society. Also, timely installments to the bank should be
made. The loan should be paid back within the time allotted by the bank.

Constraints and Criteria:

Assumptions:

1. Mr. Agarwal has complete authority and autonomy to make the decisions.

2. The farmers have enough money to sustain their livelihood for 6 months and they would prefer
surplus for the Paddy.

3. The interest charged by the bank is simple interest.

4. Society has enough working capital to incur small expenses.

5. The insurance amount given is for the year but will be charged on a pro rata basis.

Constraints:

1. The cooperative society must repay the loan within 6 months.

2. The cooperative society must pay the members within 6 months.

3. Society prefers not to take additional overdraft from the bank.

Criteria:

1. The option with a positive surplus should be selected.

2. Society will select option with minimum risk.

Alternatives:
While deciding whether to pay farmers, the manager should keep the central philosophy of the
organization in mind. Doing better for farmers is the sole philosophy of society.

We have listed all the possible options in Appendix 1. After applying the constraints as discussed
above, we have listed down the options in Appendix 2. Then we applied the criteria and now we
have the following best possible alternatives:

1. Pay the Farmers now, sell the paddy later, pay the overdraft later, buy fertilizers later.
2. Pay the Farmers later, sell the paddy later, pay bank overdraft later, buy the fertilizers now.
3. Pay the Farmers later, sell the paddy later, pay bank overdraft later, buy the fertilizers later.
4. Pay the Farmers later, sell the paddy now, pay bank overdraft later, buy the fertilizers later.
 5. Pay the Farmers later, sell the paddy now, pay bank overdraft now, buy the fertilizers later.

The balance sheet for the alternatives is given in Appendix 3.

Analysis
Based on the mathematical calculations (appendix), we have arrived at two options that align with
the interests of the society and yield the maximum surplus/minimum deficit.

1. PAY THE FARMERS NOW, SELL THE PADDY LATER, PAY THE OVERDRAFT LATER, BUY
FERTILIZERS LATER.
2. PAY THE FARMERS LATER, SELL THE PADDY LATER, PAY THE OVERDRAFT LATER, BUY
FERTILIZERS LATER.

Both the options yield the same results in terms of monetary returns to the society. Therefore, to
reach at the best alternative amongst the two, we consider the values that govern the actions of the
society. The society always considers the welfare of its members and therefore, to maintain trust
and credibility, it is necessary that the farmers get timely repayment. Therefore, Option 2 is the best
alternative.

Contingency Plan
We have often seen that things don't go as planned. So, in order to ensure the continuity of the
process, a business should have a contingency plan.

A Contingency Plan is a recommendation based on the understanding that unexpected disruptions

can occur, and having a contingency plan in place helps to minimize the impact and facilitate a
quicker recovery.

In our case, the society should have plans to minimize losses. The decision to sell paddy later is
dependent on market uncertainty. If prices, instead of appreciating, start depreciating, what should
be done? As the society is responsible for small and marginal farmers, who are risk averse. Let's
stop losses by selling paddy at prices which will land us in the situation of no loss no gain. These
break-even prices are variable with respect to time as they include the interest amount. A graphical
representation and calculations of stop loss prices are indicated in appendix 5. Thus, Mr. Sharma
should make a sell decision at the price level as indicated in the graph by ‘break-even price per ton’
to avoid deficit.

To arrive at a Break even price, we need to sell paddy at a price at which there is no surplus and no
deficit. By analysing our balance sheet for the two alternatives, we see that there is a deficit of
15000 on sale of 100 tons of paddy. To cover this deficit, we need to sell paddy at 6250 per ton.
Appendix

Appendix 1

Appendix 2

Appendix 3