Linking small farmers with the value chain in commodities

Policy support is essential to sustain a Farmer Producer Company (FPC) as competitive yet viable business entity.

Marketing of agricultural produce and managing risks of small growers in the country have been a policy agenda for several decades.

The National Agriculture Policy is aimed at protecting producers from market failures and externalities.

Bringing smallholders together and linking them with markets could be a benign effect of this policy. Co-operatives deserve a special mention as they address producers’ concerns and make the market work for them.

Nonetheless, most of them have failed (except dairy and plantation) to withstand the test of time due to internal and external issues such as horizon problem, capital acquisition and allocation problem, and drift from domain or member centrality to name a few.

To make cooperatives competitive in a liberalised business environment, a new variant known FPC was promoted in 2003.

FPCs are a new generation cooperative that possesses the attributes of cooperatives and private limited companies.

Every FPC is eligible to receive ₹50 lakh through priority sector lending and can seek additional funding from Nabard for promotion. Apart from this, FPCs are also eligible to get benefits from schemes floated by Small Farmers’ Agribusiness Consortium (SFAC).

Schemes floated by SFAC to promote the FPCs are Equity Grant Fund (EGF) and Credit Guarantee Fund (CGF).

There has been little research yet on organisation and performance of FPCs in India.

About 402 registered producer organisations have been operational in many states, supporting artisans, organic produce growers, growers of vanilla, banana, coconut, turmeric, ginger, chilli, other spices, silk, seed, grain, pulses, poultry and milk.

Though FPCs have been set up in 26 States, the concentration is more in Tamil Nadu (50), Uttarakhand (45), Telangana (44), Madhya Pradesh (34) and Maharashtra (34).

While FPC appears to be more competitive than cooperatives, it is yet to receive support or incentives from the Centre or State. Obtaining licenses from Agricultural Produce Marketing Committee remains a major hurdle as traditional cooperatives often create an entry barrier to FPCs.

Entry barrier to the capital market for fund-raising may be another limiting factor to the scalability.

Further, legislative issue has complicated a hassle-free functioning of FPCs as JJ Irani Committee’s recommendations generated debate on their inclusion in the Companies Act.

Policy support is essential to sustain FPCs as competitive yet viable business entity in India. NGOs or not-for-profit organisations, namely PRADAN, Srijan, ADS, ASA, BAIF and BASIX among others might facilitate contracting between FPCs, buyers and, sometime, lenders.

Market infrastructure institutions such as collateral management agencies, viz. NCML, StarAgri, NBHC and other service providers may promote pledge financing to FPCs against negotiable warehouse receipt issued against commodities stored.

Similar to Credit Guarantee Fund, SFAC may also give guarantee cover to banks while extending pledge loan to FPCs.

Institutes such as National Institute of Agricultural Marketing can extend the training in futures/forward trading to FPCs.

Commodity exchanges can also make producers aware of the utility of futures in price discovery and risk management.

It may, however, be noted that most of the producer-members are small and marginal and therefore, only a little goes to the market or is left as marketable surplus.

FPCs may thus pool member produce on a lot basis and grade and deliver to commodity exchanges.

They might also draw indirect benefits from futures if direct participation is not feasible.

Kushankur Dey is a post-doctoral fellow of CMA in IIM-Ahmedabad. Enamul Haque is associated with National Institute of Agricultural Marketing, Jaipur. Views are personal.

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