More power to the farmer

Raghav Raghunathan /Shivalika Gupta

Negative net margins have precluded attempts at enabling effective price realisation for India’s farmers, season after season. That this is despite burgeoning production levels, with a record production of nearly 275 million tonnes in the last fiscal, indicates that the fault might lie elsewhere than merely in our production capacities.

The recent re-jig of agricultural priorities towards creating an agricultural ecosystem for doubling farmers’ income has thrown light on the importance of sound market institutions for agriculture. Farmer Producer Companies (FPCs), a relatively new institutional architecture — being both farmer led and farmer owned — is fast gaining traction as a resilient interface between farmers and markets.

FPCs, created by a special amendment of the Companies Act in 2002, have led to the mobilisation of over two million farmers under the umbrella of Farmer Producer Companies (FPCs). At the last count, over 3,000 farmer producer companies have been formed, supported by various agencies including Nabard, Small Farmers Agribusiness Consortium and other resource institutions which help farmers arrange themselves into this new co-operative order. Till now, FPCs have created a network of nearly a million shareholders at the village level.

As ‘for-profit’ enterprises fully owned by farmers, they have successfully experimented with institutional and market led innovations to demonstrate a positive impact on price realisation, cost saving, and local employment. These organisations are a crossover between market and a social function; the collective ultimately being fairly independent of the state.

There now exists reasonable evidence to show that if formed and reformed carefully, these institutions can serve as an effective pathway for smallholders to emerge from the pitfalls of unviable farming. Such institutions enable farmers to own, in an incremental but sure way, greater parts of the agricultural value chain rather than just their farm produce.

Business model key

The foremost requirement to set up a FPC is having a compelling business model, a process that is organically driven by local leadership from farmers. These institutions have shown spontaneity, dynamism and adaptability towards a variety of commodity markets through the seasons — soyabean, mustard, tur, milk — along with input management and dispersed processing.

However, the challenges in tackling forward markets where farmer institutions sell to institutional buyers in fair and equitable terms have been far greater than inputs driven business. Such challenges can be explained, at least in part, by the inaccessibility of capital from private markets for infrastructure creation.

Yet, the pioneering experiment by women farmers of RamRahim Producer Company in 2014 to directly use futures contracts through FPCs has come a long way. Today a network of such FPCs taking to alternative market platforms including NCDEX is fast emerging. The latest example is of women federations under Raajeevika, the Rajasthan State Rural Livelihoods Mission procuring and selling nearly 100 tonne of mustard using futures contracts showcasing a powerful alternative to the dependency on MSP.

Today, over 70 FPCs have made use of the NCDEX platform to trade measurable quantities for hedging and price fixing; contributing to 15-20 per cent higher prices owing to lesser transaction costs and reduced uncertainty. This arrangement, however, is nowhere robust enough in terms of reach, access and inclusivity to create a national alternative to APMC backbone.

Clearly, these institutions demand a specific kind of incubation support that facilitate collective businesses. The nature of state support needed to create an ecosystem for viable FPCs is being deliberated on multiple fora — access to capital, organisational governance, technical training such as on quality parameters, and professional manpower. Thus the policy imperatives — as in the case of supporting any other industry — revolve around investment, organisational autonomy, talent management, and mentorship. While support from public corpuses is enough for a head start; their long-term competitiveness depends upon their ability to raising capital from markets. Carefully crafted provisions to allow select entities to own non-voting or limited voting shares to an extent of 24 per cent will give these institutions a chance to access a portion of private capital without compromising the collectives’ ownership.

Listing of producer companies on a specially marked exchange along the lines of a SME exchange, apart from attracted impact funds, would allow for a discerning and professional eye into the internal workings of these entities.

Further as these firms seek to integrate into the post-harvest segments of the value chain, it is important that FPCs add more value than costs for gaining favourable economies of scale. This would require the impetus to shift towards subsidising investments or Capital Expenditure, rather than the current subsidisation of consumption or Operating Expenditure.

Such a measure serves at two levels: one, it makes the FPC a medium to channelise investments for value addition infrastructure at the farmer level; two, creation of such infrastructure imparts market resilience to FPCs. Weaving producer companies into the strategy for routing public investments for rural infrastructure like the initiative to upgrade 22,000 Grameen Agricultural Markets can converge both social as well as investment capital needed for vibrant rural markets.

Direct control over local infrastructure for grading, sorting and storage is a dependable path for smallholders to realise a greater share of the net agricultural value generated.

The pre-conditions discussed above are necessary but nowhere sufficient for a nation-wide scale up of these institutions of tomorrow. The tsunami of start-up culture, an urban phenomenon until now, through FPCs can disrupt the village level entrepreneurial landscape. Collective businesses require specialised incubators that understand businesses based on an approach of servicing the member, while handling deftly the demands of a consumer.

‘Agro-industrialisation’

FPCs as decentralised ventures can nucleate creation of new jobs at the intersection of agriculture and industry. Such connectors for ‘agro-industrialisation’ counter the problem of local (un)employment, at least in part. The unmet want for skilled manpower for agricultural supply chains, willing to contribute in a village ecosystem on a suitable payroll can be catered to by broad-basing state skilling initiatives with FPCs acting as potential employers.

An enabling environment for these enterprises to flourish necessitates that the seemingly contradictory forces of a market ruled objective and a social imperative creatively manifest in FPCs. Policy discourses around FPCs need to move away from the rhetoric of viewing FPCs as mere sub-sets of the existing Cooperative Societies towards a more comprehensive vision.

Sixteen years since the Alagh Committee Report, it is time to resolve the paradox between attaining financial viability and maintaining social inclusiveness for all landholders alike. One can only hope that creating such nuts and bolts of a new market led architecture will give way to a more inclusive agriculture for the future.

Raghunathan is Principal, Farmers Segment at NCDEX and Gupta is Young Professional (Agriculture), NITI Aayog. Views expressed are personal.

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