My Association with the Indonesian Co-operative Movement - An exercise in self-develoment (1997)

This document has been made available in electronic
Format by the International Co-operative Alliance (ICA)
Dec., 1997
(Source: Co-op Dialogue, Vol.7, No.3, Sept-Dec.1997,

My association with the Indonesian co-operative movement
- An exercise in self-development by Dr. Daman Prakash*

The association
During the nearly 35 During the nearly 35 years of my professional
work in the co-operative movement, eight good years were devoted to
the service of the Indonesian co-operative movement. I have been one
of the very few Indians who had the opportunity of working for the
development of the co-operative movement of this country. 

For five years I had worked and led the ILO-UNDP and ILO-Swiss
KUD Development Projects together with the Department of
Co-operatives and the Dewan Koperasi Indonesia (Dekopin). During
these projects we were able to develop, install and experiment with
the concepts of co-operative management consultancy (CMC) and
self-supporting member education activities. A large number of CMC
consultants and member education trainers were trained who were
subsequently deployed by co-ops in the field. Happily, these activities
are still in operation. 

For almost two years, I also worked as a Senior Technical Consultant
on a JICA/JA-Zenchu-Japan-sponsored team on Project for Integrated
Development of KUD in Indonesia. The rest of the period was spent
on various developmental activities in Indonesia of the International
Co-operative Alliance (ICA), with which I have spent a major portion
of my life, including the organisation of the 2nd Asia-Pacific
Co-operative Ministers' Conference held in Jakarta in February
1992, which was inaugurated by President Suharto.

In my professional work I had also the pleasure of associating myself
with senior level co-operative leaders, government leaders and officials,
scholars, managers, trainers, field extension workers and basic members
of all types of co-operatives, especially the KUD. I had also participated
in a number of seminars, conferences and technical meetings organised
by the Dekopin, the Department of Co-operatives, universities, institutions
of higher learning and co-operative institutions.

My best associations were with the basic members of co-operatives
and the field extension workers. These simple people were real, objective,
sincere and full of enthusiasm. My contacts with them were very
rewarding. During the course of my work in the country, more intensively
from 1981 onwards, I drank the waters of Indonesia Indah from Banda
Aceh, the West-most tip to Irian Jaya, the East-most tip of the country, and
saw for myself, unfolding before me, the secrets of the fascinating
blending of the culture and religions of Indonesia with those of my own.
It was heart-warming for me to visit KUD Temple in Yogyakarta, in the
vicinity of the world-famous Budhist Borobodur Temple, which was once
visited by none other than the President of India.

Based on my interaction with the individuals, institutions, studies and
observations, I have also written several articles and produced some
teaching manuals and training packages, some of which were translated
into Bahasa Indonesia and published. I do not claim that I have a
comprehensive knowledge and understanding of the Indonesian
co-operative movement, but I do appreciate the situation and follow
the trends in their development. 

Indonesian co-operatives had the advantage of receiving technical
advice on their development from a number of international organisations
and co-operatively-advanced countries. Major contributors have been
the ILO, UNDP, FAO, JICA, FES, ICA, CCA, CCD, Swiss Development
Corporation, and others. The government and the movement had
participated in all these development-oriented exercises. A number
of institutions have been created. I had the benefit of observing all
these developments. 

On the learning side, I was able to absorb the finer points of the
Javanese culture and the way of life of the Indonesians.

Based on these first-hand professional experiences, I would like to
bring a few points to the attention of policy-makers, co-operative
workers, leaders and co-professionals with the objective of
strengthening further the movement and making it more member
driven and service-oriented. Co-operatives, particularly the rural
co-operatives, are today standing on the crossroad - to sustain
themselves or to perish. They are re-evaluating their strategies in
the context of open market economic forces. Many of them are afraid
and many of them assert that they can withstand the pressures of
competition because they think that their members are with them
and they conduct business with them.

The broad spectrum of the movement
The Indonesian Co-operative Movement has two principal segments
- the KUD segment and the non-KUD segment. The KUD (Koperasi
Unit Desa) are the rural multipurpose co-operative institutions at the
primary level with a higher level of involvement of rural population
- the farmers, farm workers, small traders, fishermen, dairy farmers.

The non-KUD segment covers the rest of the lot, for example thrift
and credit co-operatives of civil servants, armed forces, industrial
workers, professionals, traders and all other types of co-operatives.
The KUDs are structured vertically in provincial business federations
of KUDs (the Puskuds) and the national federation (the Inkud). Milk
co-operatives and KUDs doing milk business are federated into a
national federation of dairy co-operatives (the GKSI).

There are nearly 16 national level business federations of all types
of co-ops. All of them are the affiliates of the Dekopin. The non-KUD
sector is regarded to be self-sustaining, self-propelling and self-supporting,
and consequently does not look for financial support from the government.
They finance their own programmes from their own resources and provide
to their members a variety of services, like consumption loans, consumer
goods, housing assistance, medical care, consultancy, member education
and staff training. One of these federations established its own commercial
banking institution. Some federations have their own production units,
sales outlets, and fairly large business operations, like batik federation and
dairy federation.

The rural co-operatives sector
In the rural sector, nearly 10,000 KUDs service roughly 20 to 30 per
cent of the national population, and roughly 50 per cent of rural Indonesia.
The KUDs were conceived with three principal objectives in view: 

(i) It was necessary that the farmers are structured, organised and
 provided with some full-time remunerative opportunities;
(ii) The existing land resources be appropriately re-organised with
 a view to ensure that a constant flow of food-grains to the people
 is maintained; and 
(iii) An institution, like that of a KUD, be installed to help the farmers
 to make the best use of their land resources and serve as a link
 between the farmer-producers and the consumers through the
 national food-stock agency-Bulog. 

The KUDs were established by the government with the main objective
of maintaining national food supplies in collaboration with the Bulog.
These institutions were procuring rice and other grains from the farmers,
doing simple processing, rice milling, and distributing essential
commodities including farm inputs.

In order to ensure that the supply and distribution functions operate
smoothly, they were provided with several services and facilities,
warehouses, rice milling units, drying floors, transportation equipment,
monopoly on distribution of chemical fertilisers and disbursement of
farm credit.

They were also given incentives by way of commissions on fertiliser
distribution and farm credit disbursement with the objective of
strengthening their capital base and business operations. It was
envisaged that KUDs would eventually become economic centres for
rural Indonesia and, also strengthen democratic management practices
in the country. Since a large number of members, management members,
managers, employees were involved in the KUD sector, the government
also created and operated a set of training and development institutions
at the provincial and national levels, the Balatkops and the Puslatpenkop.

To cater to the needs of the entire co-operative movement, with the
support of the government the movement created several development
institutions, the IKOPIN (the Institute of Management), the AKOPs
(Academies of Co-operatives), and LAPENKOP (Institute of Co-operative
Education) to support human resource development activities.

President Suharto has consistently advocated the expansion and
development of KUDs in the country. He had once said: "Co-operatives
must be built up to be a proper means to gather power for the
economically-weaker group...Through co-operatives we want to
distribute, equally, development output which will lead towards social

This sentiment echoes the feelings of Pt Jawaharlal Nehru, the first
Prime Minister of India, himself a strong advocate of the co-operative
movement, when he said: "...but my outlook at present is not the
outlook of spreading this co-operative movement gradually,
progressively as it has done. 

"My outlook is to convulse India with the Co-operative Movement,
or rather with Co-operation: to make it, broadly speaking, the basic
activity of India, in every village as well as elsewhere; and finally,
indeed, to make the co-operative approach the common thinking of
the country.. Therefore, the whole future of the country really depends
on the success of this approach of ours to these vast numbers, hundreds
of million of people." 

During my work in Indonesia, I had watched President Suharto, with
great admiration and respect, speaking to the farmers in remote villages,
explaining to them, like a teacher using a very simple language, the
advantages of co-operative action, and its great force in improving the
living conditions of rural populace of Indonesia. 

As the executive head of the country and as prime-mover of national
economic development, the President had provided strong support to
the KUD and motivated the farmers to get into the fold of these rural
co-operative institutions. He wished that a KUD becomes a centre of
economic activity at the village level and members make the best
possible use of its services - be they social or economic. 

The five-year national economic development plans have made special
mention of these institutions and made handsome financial allocations
for their promotion.

The government, at the moment, however, believes that co-operative
institutions should become self-reliant by undertaking more of business,
and thereby generate funds for themselves and for providing services
to their members.

The 1945 Constitution of Indonesia recognises the principle of
co-operation - which, by itself, is a unique provision in any national
Constitution. Co-operatives in the country are currently regulated by
two distinct laws - the Co-operative Law of 1992 and the Presidential
Decree No. 4/1984 (especially for the KUDs). 

The Ministry of Co-operatives and Small Enterprises Development
implements the laws and is responsible for the registration and guidance
of co-operative institutions through its field offices.

The national apex - The Dekopin
The Dekopin is the national apex of the Indonesian co-operative
movement. There are provincial and district level co-operative
councils, called the Dekopinwil and Dekopinda. 

This network has the responsibility of safeguarding the principles
and values of co-operation, enriching co-operative thought, advising
the government on current co-operative thinking, consulting with
the government on various problems faced by various sectors of
the movement, promotion of co-operative institutions, organising
member education programmes, issuing publications and journals
on current topics, and holding national co-operative congresses. 

Co-operative institutions are obliged to pay a certain percentage of
their profits to the Dekopin network to undertake promotional activities. 

The Dekopin also represents the Indonesian movement at various for a
including the International Co-operative Alliance (ICA), a Geneva-based
world confederation of co-operatives of all types. 

The Dekopin is also a co-founder of the Asean Co-operative

Challenges faced by rural co-operatives
Almost 90 per cent of the KUDs are engaged in rice procurement
and distribution of farm inputs and consumer goods. Farm products
in Indonesia are varied - some include high-value commodities like
coffee, tea, cloves, rubber, oil palm, coconut and the others deal in
rice, maize, soybeans, fruits and vegetables, fisheries and dairying. 

The economic situation of the KUDs has considerably weakened since
the introduction of open market system, withdrawal of farm subsidies,
and restricted purchase of rice by Bulog from the local farmers. With
the deregulation of farm chemicals, chemical fertiliser except Urea,
seeds, the business levels of KUDs have gone down considerably. 

The KUDs, which hitherto had enjoyed full protection from the
government and a considerable amount of monopoly in some
commodities, are finding it difficult to survive. The KUDs outside
Java are facing difficult times. This is due to several reasons. 

In Java, the KUDs have better marketing opportunities, more of
business ties with private enterprises, communication and
transportation facilities are better and an easy access to high
consumption areas, more experienced management, and application
of post-harvest methods and techniques, and a somewhat higher
level of technology. 

KUDs outside Java have several limitations, like a limited number
of members, larger area of operation, limited range of farm products,
lack of farm machines, inexperienced board members and untrained
employees and lack of infrastructure, transportation and communication.
Due to inadequate business operations, KUDs have lost credibility in
certain areas. They lack capital, equipment and market access.

Credit supply has become expensive. Deposits received from the
members are not productive due to "no interest" or very low interest
given. Voluntary deposits in KUDs are negligible. Farm credit on
concession terms is not available to the farmers. 

The Bukopin, a co-operative-owned commercial bank, does not
extend farm credit on concession rates. There are no district or
provincial co-operative banks, except the BRI-Bank Rakyat Indonesia,
a government-owned bank. This serves as a government channelling
bank only.

The business linkages between the KUDs and the Puskuds on one hand,
and between the Puskuds and the Inkud, on the other, are very thin and
weak. The Puskuds often tend to compete with their own affiliates thereby
killing their initiatives and business. Horizontal linkages among the KUDs
and among the Puskuds is also absent. They do not have the advantage of
any business information system.

Finding market for the members' product is becoming difficult. No
KUDs, except for the milk co-operatives, undertake any "value addition"
or "agro-processing" activities. The GKSI (Dairy Union) acts as a main
coordinator for the supply of fresh milk to private milk processing
companies. It also operates its own milk treatment plant in Bandung
of a limited capacity. It has also promoted production of balanced
cattle-feed in association with some of its affiliates. 

The current main business of a majority of KUDs, Puskuds and
Inkud revolves around government-sponsored programmes, like the
procurement of cloves, distribution of chemical fertiliser and
disbursement of farm credit. 

Procurement of cloves is a KUD monopoly. Puskuds and the Inkud are
the main players in association with the BPPC -national cloves
procurement agency. Many clove farmers have complained of a
complicated price settlement system. Clove-cigarette manufacturers
are obliged to procure their entire cloves supplies only from the BPCC. 

Processing activities like cattle-feed manufacture, rice milling, fruits
and vegetable processing are not undertaken so extensively. Even in
the province of Kalimantan where oranges are widely grown, or in
apple-growing areas of Malang in East Java, no KUDs or the Puskud
has undertaken any processing activity. The KUDs, located as they are
in rice-growing areas and whose main business is rice, have made no
significant efforts to create a brand-name of the product to accelerate its
marketing to the advantage of their members. As a result, much of farm
products become un-remunerative for the farmer-members.

Although there is a government classification of KUD -  Mandiri and
Mandiri-Inti - (there is a 13-point criteria developed by the government
for the KUD to fulfil to graduate to these higher categories: from a simple
KUD to KUD Mandiri and from KUD Mandiri to KUD Mandiri Inti)
The quality and range of business of these KUDs need improvement.
Co-operatives which do not conform to the Mandiri criteria need to be
merged with stronger ones.

The process of amalgamation thus becomes inevitable if the members
have to be serviced. The amalgamated co-operatives could perhaps
become specialised branches of the main KUD and provide more
efficient services to the members. Co-operatives could pool their
resources to become strong and efficient.

Role of co-operative leaders and policy-makers -An opportunity
For self-evaluation
Looking at the current situation of the KUD sector, and the problems
faced by them and their members, it is necessary that the policy-makers
and co-op leaders evaluate the roles of the two segments of the
Indonesian movement. There cannot be a better timing for this than
the 50th Indonesian Co-operative Day (1997). The following issues
might be of some interest:

Examine critically and to the best advantage of the members, the entire
relationship between the KUDs and the Puskuds, and between the Puskud
and the Inkud, from the viewpoint of economic business rather than of a
formal membership by holding some serious and professional type of
national conventions attended by KUD basic members and leaders.

With a view to activate KUD business, introduce the concepts of Joint
Marketing, Joint Purchasing, Joint-Use Facilities, Joint Use of Capital
and members' accounts settlement procedures. This will encourage
KUD-KUD relationship at the horizontal level.

Encourage KUDs to enter into joint ventures with private enterprises
to overcome the shortage of working capital, in some selected sectors
such as horticulture, fruits and vegetable processing, poultry, live
stock etc.

Members' deposits with the KUDs should be made more attractive
by giving market rate interests, especially on voluntary deposits. This
will strengthen the working capital base and enhance members'
participation in KUD business.

Farm credit be made available on concession rates to increase
agricultural production and to strengthen economic position of
farmer-members. For this, establishing a chain of district/provincial
level co-operative financing institutions become inevitable.

Comfortable funds be provided for undertaking member education,
farm extension and KUD staff training programmes.

With a view to consolidate education and training programmes and
strengthen related institutions, a National Council of Co-operative
Education and Training (NACOCET), under the joint patronage of
the government and the Dekopin, be established, and provided with
adequate funding. 

The government is, in any way, obliged to educate and train the
co-operative members and employees. 

The NACOCET could be assigned the tasks of research, training,
education, co-operative extension and development for the entire 
Co-operative Movement.  This will, hopefully, streamline the HRD
efforts instead of maintaining a host of present HRD institutions and
funded by the government. 

The Inkud, in association with other business federations and the
government, to establish a market information system, for the benefit
of co-operative institutions in the country.

Special grants or 'no interest' or `low-interest' funds be made available
to the KUD and KUD members in some sectors like rattan processing,
rubber processing, sugarcane cultivation, horticulture, cattle-feed
production, up-grading of existing rice milling units, land-tilling
and transportation equipment.

Weak KUDs be amalgamated with others to create stronger units
for providing better services to their members. The amalgamated
KUD could then serve as technical service branches of the main
KUD. They will eventually work together with private enterprises in
Agro-processing sectors.

The quality of advisory and other services from specialised
institutions like the insurance and audit co-operative be further
improved and the costs be made more reasonable for the KUD/
co-operative to be able to afford.

These are not perfect solutions to the problems I perceive, but I
strongly feel that the vast natural resources, the high quality of
farmers, the strength of education and training structure and the
capacity of co-operative leaders enable the Indonesian co-operatives
to face the challenges of the open market economy. The KUDs have
now to face stiff competition to survive. 

The spirit of tolerance and Panchashila has kept the country together
for so long, promoted its social and economic institutions, and given
courage to the people to carry on further the missions of national

It should be clearly understood that co-operative institutions still
continue to provide strength to any national economy whatever
economic policies and political methods are pursued by any nation.
They involve a large number of people from the rural areas, they
undertake a wide range of business and are a significant link in
the national economy.

They are all the more relevant to the developing economies in
present-day context of open market economy, Indonesia being no

Indonesian leaders and intellectuals have the capacity, capability
and wisdom to strengthen their own co-operative institutions, which
are the heritage of Indonesian culture, thought and tradition of 'Gotong Royong'

* Dr. Daman Prakash is the Director, International Co-operative
Alliance, Regional Office for Asia and the Pacific, New Delhi.
"For good eight years I drank the waters of Indonesia Indah from
Banda Aceh, the West-most tip to Irian Jaya, the East-most tip of the
country, and saw for myself, unfolding before me, the secrets of the
fascinating blending of the cultures and religions of Indonesia with
those of my own...The Indonesian leaders and intellectuals have the
capacity, capability and wisdom to strengthen their own co-operative
institutions, which are the heritage of Indonesian culture, thought,
philosophy and tradition of `Gotong Royong' - the spirit of Working Together."