Producer Company - a new generation farmers institution

Yogesh Kumar Dwivedi and Arun R. Joshi

upport for natural resource management, ensuring food security, creating marketable surplus and better income leading to livelihood improvement are the normal sequences of any development programme. Production technologies put together may increase production significantly. But, the ultimate objective of increased farm income may not be realized through production led approach alone. Absence of appropriate, viable and competitive marketing facilities often restricts small and marginal farmers in deriving maximum benefits from development efforts. The small marketable surplus, the produce not meeting market preferred quality, poor negotiation capacity of the unorganized farming communities further complicate the situation. Producer Company, as an alternative institutional model, was tried out as part of the MPDPIP NGO collaborative effort to address these issues. Madhya Pradesh District Poverty Initiatives Project (MPDPIP) is a World Bank funded mega poverty alleviation programme of Government of Madhya Pradesh started in the year 2000. The project is operational in 14 districts of MP and has covered over 2902 villages. The project based on participatory development process facilitates activities through a special Project Facilitation Team (PFT) at identified village cluster level. About 121 clusters with same number of PFTs have supported over 3.1 lakh families organized into 17500 affinity groups called as Common Interest Groups (CIG). The CIGs manage small income generating activities, create and provide opportunities for self and waged employment to its members and others and share the benefit in a participatory manner. Amongst the project beneficiaries, the most common are small and marginal farmers, landless and women. In the last few years, for these vulnerable groups, the project has created many new opportunities. Over 70% of the activities are classified as land based activities. ASA, an NGO, is a partner of this project working on enhancing productivity of DPIPs land and agriculture based beneficiaries. They are mostly small and marginal farmers. The intervention focus is on PVSP (Participatory Varietal Selection and Promotion) and appropriate market linkages. Besides improving yields, PVSP opened up new avenues of agri business and seed enterprise in MPDPIP. MPDPIP land and water activities amalgamated with PVSP and seed related interventions, increased farmers average crop productivity by approximately 30-40%, generating small marketable surplus at the household level. In the third year of DPIP, it was observed that agriculture production of the villages improved significantly. However, despite yield increment, the farm incomes did not increase proportionally due to poor outreach and unstable markets. Farmers were selling their produce to local vendors, many times under duress. During 2004-2005, more than 200 buyers and processors of neighboring states were contacted for selling farmers produce. However, the price received was less owing to poor quality and small quantities of the produce. Most of the buyers insisted on

five aspects assured quantity; good quality; procedural expertise (like seed or organic certification); easy operation; reliability and sustainability. To fulfill these requirements and enable farmers to get a good price, it was felt that they need to be organized into a formal business institution. Based on advantages offered by the Producer Company Act 2002, it was decided to organize farmers into producer companies. Keeping the interest of millions of small and marginal producers in mind, Government of India came with Producer Company Act or Companies (Amendment) Act 2002, (1 of 2003) which was basically a hybrid of Cooperative and Private Company Act 1956. The modus operandi Villages were selected on a contiguous basis. Numerous village, cluster and district level meetings, group discussions, workshops and awareness rallies were organized in all the districts. Advantages of farmers federations were explained to the

What is producer company? It is a legal institution, registered under Company Amendment Act 2002 (1 of 2003) or also called Producer Company Act 2002. The new type is termed as Producer Company, to indicate that only certain categories of persons can participate in the ownership of such companies. The members have necessarily to be primary producers, i.e., persons engaged in an activity connected with, or related to, primary produce. What is primary produce? In terms of the Act it is a produce of farmers arising from agriculture including animal husbandry, horticulture, floriculture, pisciculture, viticulture, forestry, forest products, revegetation, bee raising and farming plantation products: produce of persons engaged in handloom, handicraft and other cottage industries: by - products of such products; and products arising out of ancillary industries. Why producer company? After realizing the needs of the farmers, given the challenges of world market and uncompetitiveness of existing Cooperative Acts and institutions, Government of India setup a committee under the Chairmanship of a noted economist, Y. K. Alagh in 1998. The objectives of the committee were: (a) to frame a legislation that would enable incorporation of cooperatives as companies and conversion of existing cooperatives into companies and (b) to ensure that the proposed legislation accommodated the unique elements of cooperative business with a regulatory framework similar to that of companies. Thus, in the Companies (Amendment) Act 2002, (1 of 2003), a separate category, came into force and producer companies, found a place in the Act. For this, a new Part IXA, divided into 12 chapters, has been included in the Companies Act, 1956, comprising 46 sections, interestingly numbered as 581A to 581Z and 581ZA to 581ZT.

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farmers. Ten enthusiastic persons from each project village were selected as promoters of the company. Several farmers came forward to become a member of such federation. Each farmer purchased 10-20 shares at Rs100-200. After the company was set up, the first Board of Directors meeting was conducted within 90 days of incorporation as per requirement of the law, where names of promoters were approved as first BoD of the company. Approval for recruitment of the Chief Executive Officer was also given in the meeting as per the guidelines of the Act. The CEO is a qualified professional, non shareholder and is an outsider. A working team consisting of CEO Marketing and production personnel was formed. Their job charts were prepared and training started. Service providers from the same villages were selected and trained on agricultural production technologies and service delivery systems. Farmers need assessments were done through farmer surveys. Market survey was done and buyers identified, meetings conducted with them by CEO. Production was planned as per the market demand. Kissan Credit Card (KCC) was issued through commercial bank to all the shareholders of the company. Scale of operation Fourteen Farmers Producer Companies have been set up in 14 different backward districts of Madhya Pradesh. More than 28000 small and marginal farmers are the share holders of these companies. These producers companies have fulfilled all statutory and legal obligations required for doing Agri businesses like seed selling, licenses for seed production, fertilizers etc. Each company has established collection and distribution centre at the cluster level. From this centre, farmers can sell their produce and also purchase reasonably priced agriculture inputs of best quality. At the end of each financial year, the company also distributes dividend in terms of cash or kind to each of the shareholders of the company. Collective and diverse marketing Presently, these companies manage the business enterprise of products identified by the community e.g. turmeric at Narsinghpur, coriander at Guna, ginger at Tikamgarh, chilli at Chhattarpur, organic rice & tomato processing at Sidhi, Vermicompost at Shajapur. Seed production, grain production and trading besides supply of agro inputs like seeds fertilizers, farm machineries and farm tools are the other main activities of these companies. Trading of farm produce, agricultural inputs and formal seed production and marketing of major popular crops and varieties are the main activities of these institutions The seed business is related to composite and synthetic crop varieties and does not include hybrid or GM seeds. Business turnover of each company varies from Rs. 5 lakhs to 1 crore. Business turnover of all 14 companies in the previous financial year was Rs. 3.5 crore where profit realized by the shareholder farmers in terms of services and extra premium was more than Rs10 lakh in two cropping seasons. Early results of market up linking initiatives are encouraging. Four buyback agreements have been done with industries with extra premium price Rs 100/- to Rs 300/- per qtl. Negotiation on better trade agreement with national and international merchants like States leading processors such as VIPPY Industries Limited, Krishidhan Seeds Ltd., National agencies like APEDA, and Fair Trade (U.K) is in progress. A recent example is an advance

Farmers view on the company Badrilal Malviya a shareholder farmer of village Suagaon in Shajapur district said the company has given new hopes. In the last season while we received quality seeds and fertilizers from the company at a reasonable rate, the non shareholder farmers were affected as fertilizers were not available in the market. I also sold my farm produce to the Company. It saved my time and money. I received extra premium of Rs.100-150 per quintal on selling soybean and wheat as compared to local market. I wish to purchase all agricultural inputs from the company since it is our organization and profit shall be distributed between us.

indent for supply of 600 MT rice from ENREE International USA and other several indents from Indian exporters. Future strategies Enthused by these developments, the producer companies plan to do the following in future. Establish Central Seed /Product processing unit at each company level. Establish warehouses at each cluster level. Establish companys product brand and market development. Minimum one business agreement at each company level to sell farm produce. Cover more than 50000 farmers in Kharif 2007. Seed production, processing and selling of 20000 qtl seeds valueing 3 crore rupees. Trading of other agriculture inputs to exceed 2 crore rupees. Challenges and opportunities Despite its advantages, the institution has its own challenges. Majority of the customers are small land holders. They are illiterate with low awareness on the importance of new seeds and other inputs. Their purchasing capacity is low and have poor loan repaying habits. The villages that are poorly connected also pose a great challenge. However, there are positive elements which give a great opportunity for the companies to grow. There is a strong bond and faith established amongst community members which is most essential for a cooperative initiative to keep going. Direct access to community and strong networking through service providers is an encouraging aspect. The unexploited and underutilized market offers huge business potential for expansion and growth. Most importantly, the positive and proactive support received from the government is quite encouraging. Government of Madhya Pradesh has provided long term support by reforming 12 major policies in favour of strengthening these federations.

Yogesh Kumar Dwivedi Programme Coordinator, Farming Systems Research & Agri Business Initiative Cell, Action for Social Advancement (ASA) Bhopal, Technical consultant to MPDPIP, Girish Kunj, E-5 Area Colony Bhopal, 462016 M.P. Ph: 0755-2427369, 09425469672 Arun R. Joshi Head, National Livelihood resource Institute (NLRI) Ratlam, M.P & Technical consultant to MPDPIP. Ph: 09425010784

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