Agricultural cooperatives have been promoted in India's economic development programme as a means of encouraging large-scale agricultural production while enhancing community cooperation and equity. Focusing on sugar cooperatives in Gujarat state of western India, the author shows that these cooperatives have been successful in promoting large-scale agricultural production and in improving the economic and social standing of their members. This success, however, has been built upon the exploitation and pauperisation of local landless communities and migrant labourers. As a result, there has been an increased differentiation of the peasantry in south Gujarat.