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Farmer Producer Companies A Ray of Hope for Small Farmers

With the constant decline in average landholdings by India farmers, the need for collective farmer institutions is far more at current juncture of time than any time in the history.

With a realigned focus on the backbone of Indian agrarian economy by putting aside Rs 35,984 crore in the Union Budget 2016-17, Government of India has signaled the importance of farm sector for the development of farmers and the overall development of country for the coming future. While the announcements like doubling the farmers’ income within next 5 years seem ambitious without the clear action plans being put on the table, the focus on investing in rural infrastructure and moving from food security towards income security makes the budget hopeful and progressive for the distressed farm communities.

A macro level analysis of Indian farm sector shows that India accounts for an overwhelming majority of smallholder farmers who operate on less than 2 hectares land per household. Majority of Indian farmers still operate for subsistence based farming. Together the small and marginal farm holdings in the year 2010-11 accounted for 85 per cent of total farm holdings in the country. As per Ministry of Agriculture report in 2013, more than half of the country’s population is engaged in agriculture and allied activities and its contribution to Gross Domestic Product is around 20 per cent which is considerably lower as compared to the population engaged in it.
From a food deficient country to self sufficient and now exporter of major crops shows the success of agriculture in India since its Independence. While moderate droughts in many parts of the country are still a major concern for farm distress, research shows that both their impact and intensity have reduced over a period of time. Since 1966, when operation Green Revolution was introduced in India, we have faced 13 major droughts.

Small farmer constraints
While we are slowly moving towards the resilience against depending on rainfall for successful harvest, there are other structural challenges which farmers face as a barrier between them and the market. Constraints which hinders their growth and market viability are poor market infrastructure, credit unavailability from formal channels, access and knowledge about market, information asymmetries, interlocking of factor and product market, lower bargaining power and holding capacity, higher input costs and output yield due to fragmented buying and selling and competition from other forms of private organisations in the market. With the continuous challenges like these and the absence of an effective organisational structure, Indian farmers, especially the small and marginal farmers are on the verge of either becoming incompetent in the market or find themselves in the captivating position under local buyers like arthiya or village level brokers. These constraints ring an alarm bell for macro level policymakers to make some structural changes in the country’s distressed agrarian population and must be tackled with the joint efforts of government and the local collectivisation efforts.

Collectivisation of farmers is a good old strategy which has benefitted many farmers across the world. It helps in bringing economies of scale, bringing down the input costs, better bargaining power and magnifies the voices of farmers as collective voice. The most common form of collectivisation that Indian farmers have adopted in the form of producer organisations over the years are Cooperative Societies, Federations of Self Help Group, Joint Liability Groups, Framer Clubs, Common Interest Groups and the most recent among them are Producer Companies. While many of these structures are operating in different parts of the country, cooperatives as a form of institutional structure have been adopted by most farming and non-farming communities. But over a period of time cooperatives majorly have failed due to problems of heavy political interference and capturing of management by poor leadership and powerful elite. Apart from facing a lot of bureaucratic control by government in its day to day functioning, they had an issue of not being business oriented. Therefore, there was a constant search and need of creating an institutional structure that can withstand these challenges and constraints while maintaining the ethos of cooperation for farmers’ collectivisation.

What went wrong with Cooperatives?
If we see majority of the cooperatives in India and other similar societies and other farmer federations and SHG’s in India, we will find that most of them have always been inward oriented i.e. focusing on the requirements of farmers and acting as a facilitating organisation to them while completely ignoring the outward orientation i.e. the market needs, suppliers and end consumer demands and changing accordingly.

Apart from the Cooperatives in Western India that were involved in sugarcane and milk production, majority of them across the country have failed to provide with a business case due to lack of market orientation and a strong business plan for running their institutions. Government support and political interference have done successful damage to them for standing on their own. AMUL brand owned by Gujarat Cooperative Milk Marketing Federation (GCMMF) has been the only poster child for a cooperative success. While there are many more successful cooperatives in India in the states of Gujarat, Andra Pradesh and Maharashtra but none of them was able to match the fame and success achieved by AMUL. Some of the reasons for the success of these producer institutions are strong leadership, contextual factors and entrepreneurial traits of a community, legal and environmental support to these institutions and a robust design are some of the reasons for the success of cooperative institutions. While many of the above listed characteristics have been seen in many cooperatives but very few of them collectively hold these features in a given context.
With other conflicting nature in the structure itself like balancing the needs of farmers at the same time being competitive in the market were not handled properly by these institutions. The other major factor is the fluctuation in the market demand which affects the prices of the commodities these cooperatives are dealing with. This uneven demand, lack of planning as per the market and fluctuating price mechanism have made many of them uncompetitive in the market. This had gradually led majority of them to become lame enterprises for input supply and aggregating outputs for selling it to processors in the agri value chain. Leaving few progressive farmers dealing with cash crops and other stable commodities stabilised themselves and the demands of their commodities, most of them have not got the business success in the market.

Producer Companies
With a much need of an institutional structure that consists of ethos of cooperation on one side and the business resilience on the other side, Government of India came up with a new institutional form called ‘Producer Companies’ in 2003. The recent years have attracted a significant interest and focus of Government in these Producer Companies. Ministry of Agriculture and Cooperation under Government of India had declared 2014 as the year of Farmer Producer Companies and aligned them with existing finance schemes by government. Promotion of Farmer Producer Organizations has been considered as key strategic activity under the 12th Five year plan. Apart from the local NGO’s, international organisations such as World Bank, FAO and UNDP are showing great interest in promoting and facilitating them.

The concept of Producer Companies (PC) is relatively new in India as compared to other forms of Producer Organisations. Latest Agricultural Census shows the constant decline in average landholdings by India farmers. From 2.28 ha in 1971-71, it has fallen down to 1.33 ha in 2000-01 while the area being operated has remained almost same. This shows that in future, the land holdings per household are going to fall even more while the area under agriculture will remain constant or even decline. Therefore the need for collective farmer institutions is far more at current juncture of time than any time in the history.

Challenges

  • Patient Capital

While their robust business models may be one of the reasons to attract investor’s capital, a mindset needs to be created to see these entities as viable business enterprises. Patient capital and skilled resources need to be infused in building these enterprises with a firm business plan similar to what NDDB is currently doing with its five Milk Producer Companies across five different states in India with a phenomenal success by far.
 

  • Constant support through viable ecosystem

A favorable ecosystem is a must for development of these Producer Companies because they have to deal with most vulnerable part of agri-value chain which starts from the farm and goes on till processors and the far away markets. Starting from government’s initiative and focus towards development of farmers’ income, which can be seen from the budgetary declarations from the support through facilitating institutions like NGO’s, financial institutions like NABARD and Banks that focus on giving loans to farmer led business enterprises must be supported and encouraged by the government.

  • Thinking beyond NGO’s

While NGO’s are playing a crucial role in development of these Producer Companies as promoting institutions, they majorly run on a philosophy of social work because that’s the area from where donations and aid come. Political Economy of Aid and donations make them work in a certain manner and ultimately making these institutions as fragile units which remain small within a region. More approaches of social enterprises must be infused to change the discourse and thinking for developing these companies.

  • Focus on productivity enhancement per unit of land

As the farm size per household is decreasing and commodity prices being more driven by the Global Value Chains, the chances of exposing the primary producers to open market will increase. Therefore a focus on enhancing productivity per hectare by improved seed quality, better crop planning, rotation and shifting patterns of crops and development of value chains to reduce the transaction costs are required to make the business case for smaller farmers in the market.

  • From production orientation to market orientation

While production oriented is necessary in case of a primary produce, knowing the needs and demands of market is equally important as the consumer ultimately lies there. Better understanding of future market potential; demand for certain types of food can help farmers to cultivate accordingly.

Future Ahead
A famous African proverb says “If you want to go quickly, go alone. If you want to go far, go together.” Producer Companies if handled and nurtured properly can help reduce the distress of our farmers and can make a sustainable long term change in the lives of our farmers and at the same time can bring a business case for primary producers, especially small farmers who are more vulnerable to the current market and environmental situations. Collectivisation through keeping the basic concepts of business and cooperation in mind can be the best solution for farmers in the current context of neo-liberal and globalised market environment.

Author: Sandeep Rawat, Research Fellow, Mudra Institute of Communication 

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