Farmer Producer Company

On the recommendations of an expert panel led by Y.K. Alagh, Centre had amended the Indian Companies Act, 1956, in 2002-03 to provide for “producer companies”. A Farmer Producer Company is a hybrid between cooperative societies and private limited companies.

Key Points:

1. The objective of the concept of FPC is to organize farmers into a collective to improve their bargaining strength in the market.
2. They are owned and governed by shareholder farmers (or artisans) and administered by professional managers.
3. They adopt all the good principles of cooperatives and the efficient business practices of companies and also seek to address the inadequacies of the cooperative structure.
4. A Farmer Producer Company can be formed by any 10 or more primary producers or by two or more producer institutions, or by a contribution of both. They can undertake activities related to production, harvesting, procurement, grading, pooling, marketing, processing, etc., of agricultural produce.
5. Non-producers seeking to invest in these companies as shareholders are precluded under the statute concerned.
6. The Farmer Producer companies have democratic governance, each producer or member has equal voting rights irrespective of the number of shares held. There is a limitation on the amount that can be distributed as dividend. Profit is largely distributed on the basis of “patronage”, which acts as a reward for members contributing to the business. There can be 5-15 directors and expert directors can be co-opted for professional guidance.

Problems of FPCs

India has some 80 Farmer Producer companies so far. India’s first Farmer Producer Company was the Vanilla India Producer Co. in Kerala (est. 2004).  Now here are some problems of these companies, which explain why the progress has been so low in India.

• The first issue is that there isa restriction on trading in the shares of a FPC, as of now there is no exit route for investors.
• If some one is non-producer and wants to invest in the equity of these companes, it is not possible. The fall out of this is that it is not easy to mobilize sizeable funds as primary producers do not have the wherewithal to contribute large amounts to the share capital.
• As of now, there is little state support to FPCs. Since the FPCs are profit-oriented organizations, they have limited avenues to get donations also.
• As of now, the banks are not very much familiar of the concept, so these companies have limited access to banks.
• The next problem is to get the APMC (agriculture produce marketing committee) licence, which is a must for trading in agri produce.

There is a need to make concerted efforts to promote and nurture producer companies. State governments need to extend all the benefits of farmers’ cooperatives to them. The legislation concerned needs to be amended to make these companies more attractive for investors. Then awareness has to be created about this structure among banks so that they may provide term loans and working capital loans to producer companies. Since agriculture income is exempted from income tax, it would be appropriate that similar exemptions are also given to producer companies set up by farmers.

The concept is an excellent one; if implemented in right earnest, it offers great promise of being a win-win proposition for farmers as well as consumers. (Inputs Live Mint)

Farmer Producer Companies in Budget 2013-14

• Farmer Producer Organizations (FPO), including Farmer Producer Companies (FPC), have emerged as aggregators of farm produce and link farmers directly to markets.
• To signal our support to them, the Government has decided to provide matching equity grants to registered FPOs upto a maximum of 10 lakh per FPO to enable them to leverage working capital from financial institutions. A sum of ₨ 50 crore has been earmarked for this purpose.
• Besides this, a Credit Guarantee Fund will also be created in the Small Farmers’ Agri Business Corporation with an initial corpus of ₨ 100 crore.
• Other Proposals
• The Finance Minister also proposed matching equity grants to registered Farmer Producer Organisations (FPOs) up to a maximum of Rs.10 lakh per FPO to enable them to leverage working capital from financial institutions with an outlay of Rs. 50 crore. At the same time, an initial corpus of Rs. 100 crore has been set aside for a Credit Guarantee Fund under the Small Farmers’ Agri Business Corporation. However, the programme is incumbent on amendments to the Agriculture Produce Marketing Act by the State governments.