Topic – Entrepreneur
State – North East India
Sector – Agriculture

The concept of Farmer Producer Organisation has started gaining popularity in the North Eastern Region recently. While the concept of Producer Company has the potential to change the agricultural economy of the region, the understanding on the subject is poor among the target population, i.e. the farmers. Collectivisation of producers, especially small and marginal farmers, into producer organisations has emerged as one of the most effective pathways to address the many challenges of agriculture but most importantly, improved access to investments, technology and inputs and markets. Department of Agriculture Cooperation and Farmers Welfare, Ministry of Agriculture and Farmers Welfare, Govt. of India has identified farmer producer organisation registered under the special provisions of the Companies Act, 1956 as the most appropriate institutional form around which to mobilise farmers and build their capacity to collectively leverage their production and marketing strength. According to the National Bank for Agriculture and Rural Development (NABARD), a producer company is a hybrid between a private limited company and a cooperative society. Therefore, it enjoys the benefits of professional management of a private limited company as well as mutual benefits derived from a cooperative society.

The formation and development of FPCs is actively encouraged and supported by the Central and State Governments and their agencies, using financial resources from various Centrally sponsored and State-funded schemes in the agriculture sector agencies. Many of the flagship scheme of Government of India are currently being implemented through formation of Farmer Producer Company. Most of these FPCs are concentrated in a few states such as Madhya Pradesh, Rajasthan, Maharashtra and Bihar. The concept of Farmer Producer Company got popularised among the North Eastern States after 2010.

The key difference between the FPCs formed in NER and other parts of India is the land holding by member farmers. Most of the farmers of NER are considered as marginal farmers having average landholding of 1 Ha. This in turn impacts the volume of production of the FPC and their bargaining power. This was noticed that most of the FPCs of North Eastern Region are still at very nascent stage which are facing different challenges. Though farmers of the region are skilled in their core area of expertise i.e. farming, running a Producer Company is no less than running any other business venture. Success of a Farmer Producer Company hugely depends upon its leadership and it was observed that though emphasis is given on formation of company, at the same time equal stress was not given on capacity building of the board members in terms of leadership skills, financial literacy, governing skill as well as communication skills. Capacity building of the FPC board members through training and exposure visits is of utmost importance. Exposure trips to experience the best practices of FPCs need to be considered for motivating our FPCs. Inspiring success story such as Sahyadri Farms, the farmer producer company of Nashik Mahindra, who is today the the largest grape exporter of the India can be role model for our FPCs. Most of the FPCs are weak in terms of documentation.

The basic documents required for FPCs include PAN Card of the company, Memorandum of Association, Article of Association, KYC of the board members etc. In NER, it was observed that the unavailability of KYC documents of the board members is a major issue, specially in terms of availability of the PAN card. Since, FPC is a collective entity, therefore the primary asset (only asset in case of most of the FPC) of an FPC is its paid up capital. Majority of the FPCs of North East India are weak in terms of paid up capital. The members of the FPC i.e. the farmers are mostly unaware of the importance of the share subscription. This not only affects the the availability of capital of the FPC but also impacts the financial appraisal of the company when it comes to creation of any infrastructure. Cases has been observed, where FPC having authorised share capital limit of Rs. 20 Lakhs has paid up capital of Rs. 10,000 after one year of its establishment.

It was observed that till now, the effort amongst the FPCs of NER for value addition of their products are minimal. The members of the FPC Board of Directors are have little or no knowledge about various post-harvest management processes and related infrastructure. Further, lack of information about availability of raw material (season and crop wise) is another area of concern. Government has engaged Service Providers/Resource Institutions which are entrusted with the responsibility of guiding the FPCs for necessary document preparation, raising of share capital and information collection in terms of raw material availability, marketable surplus etc. The resource institutions should intensify their effort towards these activities so that, the FPC members can learn necessary skills required to run a company profitably.

Further, the FPCs of North Eastern Region also lacks post-harvest infrastructure for value addition. Starting from farm level primary infrastructure such as collection and grading sorting unit to infrastructures such as processing unit/ packaging unit/cold storage & cold chain, there exists a huge gap. The post-harvest infrastructures under FPCs are promoted under various centrally sponsored schemes such as Mission Organic Value Chain Development for North Eastern Region (MOVCDNER), Pradhan Mantri Kishan Saampada Yojana, etc. Till now it has been observed that though huge incentives are offered to FPCs under these missions, the takers from FPC are few for such infrastructures such as Integrated Processing Unit, Integrated Pack House, Cold Storage. Some of the reasons behind these are low net worth, lack of documentation etc., as discussed above. Most of the government schemes require the beneficiary to contribute certain portion of the total project cost as promoter’s own contribution. In case of North East based FPCs, it is observed that due to low net worth, the financial closure of project is difficult to achieve as FPCs are unable to bring their contribution in the project. The government agencies as well as the resource institutions can play an important role in creating awareness among FPCs about importance of raising share capital and conduct transaction under the FPC for building of reserve. The government agencies have been providing support to the FPCs in terms of market linkage. This is done through participation of buyer-seller meets, participation in exhibition and through marketing service provider. For increasing the revenue, it is expected that the FPC will conduct transaction under its own name. But in reality it was observed that, though the participation is done under its collective entity, the transaction actually happens at individual farmer level. The practice of buying from its members and selling it under the banner of FPC, thus making a profit margin is still not practiced by most of our FPCs. Due to these reasons, the credit worthiness of the FPCs of NER are also very low. Hence, the access to formal credit is a challenge to the FPCs of NER. Since, getting working capital for an FPC is challenging, therefore to increase their net worth, the FPCs need to conduct business which can be done on credit. Some examples are- selling agri inputs, farm mechanisation tools, samplings and seeds etc. to own member farmers.

Though the documentation and net worth of the FPCs are major hindrance in access to formal credit, at the same time, the awareness level at the field offices of commercial banks/financial institutions regarding FPC modality is also low. The field level bank officials are also need to be sensitised regarding the he guidelines and incentives available to FPCs. Amidst these challenges, this is worth mentioning that the North Eastern Region is also progressing towards creating a green revolution through formation of Farmer Producer Company. Under Mission Organic Value Chain Development for NER (MOVCDNER), all the NER states have formed Farmer Producer Companies and Organization which are currently at different level organic certification. Currently, the states are preparing their FPCs towards setting up various post-harvest management infrastructure required for value addition of their organic produces and FPCs of Assam and Nagaland has already purchased for-wheeler vehicles subsidised under the mission for movement of the their produces to the nearby markets. Further many of the FPCs have already applied for setting up infrastructures such as collection and grading sorting unit, Integrated Pack house etc.