How farmer producer company model can transform Indian agriculture
Agricultural engineer Vilas Shinde has reaped a rich harvest. Sahyadri Farms, the farmer producer company (FPC) set up by him in 2011, has grown to become the largest FPC in the country, with a membership of 8,000 farmers and a turnover of Rs 300 crore. It has overtaken Mahindra Agribusiness to become India’s largest grape exporting company, and many say it may well be on course to revolutionise the fruits and vegetables business in favour of growers just as Amul did for milk producers of Gujarat
Kishore Biyani’s Future Group has signed a memorandum of understanding (MoU) with Sahyadri Farms for direct sourcing of fruits and vegetables for its supermarket chain Big Bazaar, triggering hope among many policymakers that the FPC model may succeed where traditional solutions have failed, in helping India overcome the agrarian case and doubling farmers’ incomes.
In the past one year alone, visitors to Sahyadri Farms, located in Mohadi village near Nashik in Maharashtra, have included members of the government’s premier think tank Niti Aayog, senior ministers, agriculture secretary and joint secretaries of the Union government, besides Biyani.
THE ORIGINS OF FPCs IN INDIA
A provision for setting up FPCs was made in the Companies Act, 1956 in 2003 by an amendment to the Act. According to the National Bank for Agriculture and Rural Development (Nabard), a producer company is a hybrid between a private limited company and a cooperative society. Therefore, it enjoys the benefits of professional management of a private limited company as well as mutual benefits derived from a cooperative society.
The preamble of the national policy for promotion of farmer-producer organisations said: “Department of agriculture and cooperation, ministry of agriculture, Govt. of India has identified farmer producer organisation registered under the special provisions of the Companies Act 1956 as the most appropriate institutional form around which to mobilise farmers and build their capacity to collectively leverage their production and marketing strength.” Despite efforts by the government over the past 15 years or so, including major financial help, the country has just about 3,000 FPCs so far, set up by Nabard, Small Farmers’ Agri-business Consortium or individual initiatives. Some have been formed by landless women, labourers or marginal farmers.
Most of these FPCs are concentrated in a few states such as Madhya Pradesh, Rajasthan, Maharashtra and Bihar. A significant proportion of FPCs has been engaged in sale of agricultural inputs such as seeds and pesticides to farmers while some of them are involved in commercial seed production. However, only a handful of FPCs have been able to become financially viable.
The National Commodity and Derivatives Exchange (NCDEX) has taken initiatives to take FPCs along for hedging and other benefits. Yet, FPCs face a number of problems such as the lengthy process of registering a company, non-availability of collateral-free loan at low rate of interest and lack of leadership and business acumen.
WHY FPC MODEL IS THE BEST BET
Nonetheless, Niti Aayog member Ramesh Chand said, “The prediction of western economists that small farms will eventually cease to exist as big farmers will buy their land, did not come true in Asia. We will have to live with the fact of small and marginal farming and try to make it more viable.” Small farmers, Chand said, do not get the advantage of scale, however much they increase the productivity of their farm holdings.
Therefore, India, a country of six lakh villages, needs at least one lakh FPCs to transform agriculture, he said. Other Asian countries have used solutions suitable to them for dealing with the problem of small farms. Japan has the concept of part-time farmers while Thailand has used the contract farming model and China has adopted collective farming.
In India, the model of cooperatives has worked only in the case of milk and sugarcane, said Chand. “There is a need to reassess the necessity of FPC because we cannot see any other model to deal with the problem of small farmers,” he said.
While Shinde created an island of hope in Nashik after facing failures as a farmer and exporter, Chetan Jachak followed a different course on his way to setting up an FPC in Nagpur. He often visited the tehsil office (block-level revenue office) for paperwork related to his father’s farm while pursuing his BSc course. There he came to know about FPCs and, with detailed guidance of the Maharashtra Agriculture Competitiveness Project, set up the Shri Krishna Farmers Producer Company about a year ago.
With a total government grant of `13.5 lakh, Jachak’s FPC does cleaning and grading of pulses to sell it to dal mills. This year, it has signed a contract with farmers to buy their sweet corn at `6 per kg and sell it to an exporter based in Nagpur for `7 per kg. Shinde of Sahyadri Farms said that Jachak can grow big since he has the mindset required to grow a business. “He knows that having a good business plan can help him get bank loan,” said Shinde.
Maha FPC, the federation of FPCs from Maharashtra, is engaged in minimum support price (MSP) procurement operations on behalf of the government. Yogesh Thorat, managing director of Maha FPC, is upbeat about the procurement model. “This year, we are hopeful of large-scale procurement of pulses and soyabeans,” he said.
Although Jachak found it difficult to get together 10 people who would pay initial share capital and had to arrange for paying on behalf of three of his directors a sum of Rs 10,000 for each, he said having a group of friends and acquaintances who were socially aware and active and organised in farmers’ groups, helped him set up the company. Farmers in Maharashtra have been informally organising themselves into groups based on common interests such as crop-based groups, area-based groups and groups of progressive farmers for more than a decade. That probably explains why Maharashtra ranks among the leading states in setting up FPCs and number of successful FPCs.
AMUL AS A ROLE MODEL
“All FPCs will have to follow the Amul model. Amul was run by professional people who were experts in their own fields. They had a clear business understanding, had a clear business model. They were aware about the importance of creation of a brand in the 1960s. We are trying to do it in fruits in vegetables,” said Shinde.
Emphasising the need to create leadership, he pointed to the Institute of Rural Management, Anand (IRMA). “New leadership is continuously required. This thought has been missing.”
However, the cooperative model did not ensure success in crops. In Maharashtra, MahaGrape, a cooperative of farmers was involved in export of grapes. Though it laid the foundations to make the state the largest onion exporter in the country, accounting for more than 90% of the total exports, MahaGrape became defunct. Politics keeps professionalism away from cooperatives, leading to their failure as business entities, said Shinde.
Sahyadri Farms is the parent umbrella FPC with direct membership of farmers, all of whom have voting rights. While increasing the number of farmers associated with it, Sahyadri Farms has preferred FPCs as members.
These FPCs, with 2,000-3,000 farmers each, usually produce a single commodity.
“We felt the necessity to adopt this model to keep politics at bay and remain professional,” he said.
TREAT AGRICULTURE AS BUSINESS
Shinde said the government must start treating agriculture as business. “The government has a startup policy. Why does it not have a policy for agriculture business?” he asked. “At present, many FPCs are taking loans at rates of interest as high as 22% from NBFCs (non-banking financial companies). It won’t be sustainable. FPCs have to create strength. We use capital at 2.5% rate of interest due to our strength,” he said.
Further, according to the leaders of the FPC movement, it is imperative to treat each commodity as an industry, just like the sugarcane industry. Sugarcane is the only crop to have a separate a commissioner for sugarcane. This can happen in other crops too, they said.
As of now, the success of FPCs depends to a large extent on the leadership they get, said Jagannath Khapre, president, Grape Exporters Association of India. “It is equally important to create an environment to attract people with leadership skills,” he said. Shinde said, “It is not the job of the government or Nabard to set up an FPC. They should make enabling policies.”
On his part, Shinde has signed an MoU with Tata Strive to set up a skills development academy to train rural youth for agriculture. Niti Aayog’s Chand said developments such as the deal between Sahyadri Farms and Future Group, and a small investment by the Aditya Birla group in another FPC, gave him hope that the potential of farmer producer companies to transform agriculture in the country could be realised.