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How a farmer producer company concept can remodel Indian agriculture

For many of us, this concept may look new. You may wonder what this ‘Farmer Producer Company’ is all about. It was in the year 2003 that a provision was made for setting up a farmer-producer company in the Companies Act, 1956 by an amendment to the Act. As per the National Bank for Agriculture and Rural Development (NABARD), a farmer-producer company is a hybrid between a private limited company and a cooperative society. Hence one can see a farmer-producer company enjoy the benefits of professional management of a private limited company as well as reap the benefits of a cooperative society.

India is basically an agricultural country. Around two-thirds of our population depend on agriculture for their livelihood. But due to competition from global markets and low-profit prices, the farmers and primary producers in India are hit hard. To address their issues, the Government has set up an expert committee to look into the matter. They introduced the concept of Producer companies in the year 2002 to help primary producers gain access to credit, input, market, production technology etc.

In India, most of the FPC’s are located in Madhya Pradesh, Rajasthan, Maharashtra, and Bihar. A vast proportion has been engaged in the sale of agricultural inputs such as seeds and pesticides to farmers, while some are engaged in commercial seed production. However, the truth is that only a handful of FPC’s is able to become financially stable.

Some major facts about farmer producer company

  • The main objective of a FPC is to organize the farmers collectively improve their bargaining strength in the market.
  • They are owned and governed by shareholder farmers and administered by professional managers.
  • They follow the good principles of cooperatives and efficient business practice of companies.
  • This form of business entity can be formed by any 10 or more primary producers or by 2 or more producer institutions, or by a combination of the both. They can carry on with activities related to production, harvesting, procurement, pooling, processing etc. of agricultural products.
  • Non-producers who are looking to invest in such firms as shareholders are prevented under such act.
  • The FPC has democratic governance where each producer or member has equal voting right irrespective of the number of shares held. The profits are largely distributed on the basis of patronage which acts as a reward for the members contributing to the business. However, there is a limitation on the amount that can be distributed as a dividend.

Let me share an interesting fact with respect to farmer producer company.

Mr. Vilas Shinde an agriculture engineer by profession has reaped a rich harvest. He set up a farmer-producer company known as Sahyadri Farms in the year 2011. This firm that was established by him went from strength to strength. Today it is one of the largest FPC in the country, with a membership of 8,000 farmers, and has a turnover in excess of Rs. 300 crore. Sahyadri Farms has overtaken Mahindra Agribusiness to become one of the largest grapes producing company. Many are under an impression that this is going to revolutionize the fruits and the vegetable business favouring the growers.

Retail giant Future Group has signed a memorandum of understanding (MOU) with Sahyadri Farms for outsourcing of fruits and vegetables for its supermarket chain Big Bazaar hoping that the FPC model may succeed where traditional methods have failed.

Here are some of the benefits that a farmer-producer company enjoy:

  • As determined by the directors the members will initially receive the value for the product or products pooled and supplied. This amount is given out later either in cash or in kind or by allotment of shares.
  • Members are eligible to receive bonus shares in proportion to the number of shares held by them.
  • The surplus after provision for payment of limited return and reserves will be given out as patronage bonus among the members.

Some of the issues faced by FPC:

There may be roughly about thousands of FPC in India so far though one may not be able to keep the exact track. The first FPC to establish in India was the Vanilla India Producer Company which was established in Kerala in the year 2004.

Though the FPC has received all the support from the government, it has faced some hurdles that explain why the progress has been so low in our country.

  • As there is no exit route for investors there is a restriction in trading in the shares of a FPC.
  • It is not possible for any non-producers to invest in the shares of these companies. The reason being it is not easy to mobilize sizeable funds as the primary producers do not have sufficient funds to contribute large amounts to the share capital.
  • As most of the FPC’s are profit-oriented organizations they receive limited funding or donations.
  • Many banks and financial institutions are not much aware of their concepts. Hence these organizations have limited access to banks.
  • To get the Agriculture Produce Marketing Committee (AMPC) license which is a must for trading in agri business is not an easy process.

It is high time the government must start treating agriculture as a prime option. When the government has a start-up policy then why it can’t have a policy for agriculture business? Currently, many FPC’s are taking loans at an interest rate as high as 22% from banks and Non-Banking Financial Companies. This is creating a huge burden on farmer producer companies as most of them are not able to repay the loans.

For any FPC’s to succeed largely depends to an extent on the leadership they get. It is equally essential to create an atmosphere to attract people with leadership skills.

Finally a huge sigh of relief for the farmers. A long-standing demand of FPC’s received a favourable response from the Indian government when the Finance Minister exempted their profits from tax for a period of 5 years from the next financial year.

FPC’s registered under the Companies Act with an annual turnover up to Rs. 100 crore need not pay tax on profits obtained from agriculture-related activities. The move would bring positive results and ensure more income by involving the farmers in agriculture-related activities.

Though the introduction of the GST had put some financial burden on the functioning of the FPC’s however, the Income Tax exemptions would help enhance their profitability to a large extent.

To conclude a favourable tax regime for Farmer Producer Companies is a welcome move by the Government. It brings an end to the crisis to the long-standing conflict where individual agriculturists will not be taxed anymore. Despite getting all the financial aid and the support from the Government, the sad part is that FPC has not gained the momentum than what was expected.

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