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Farmer Producer Companies in India

Determinants of Performance and Viability

Kushankur Dey (kushankur@xsrm.edu.in) teaches finance at the Xavier School of Rural Management, Xavier University, Bhubaneswar.

For farmer producer companies, the determinants of performance and viability are governance structure; network with external agencies; access to capital and technology; member–producers’ contribution to business; and financial performance. These companies can become viable if they follow the stakeholder strategy for cooperation and orientation to marketing of members’ produce and business expansion. Farmer producer companies can benefit if robust performance metrics based on these determinants of performance and viability are developed; these metrics influence policymakers and apex agencies; and there is a bottom-up approach in implementation and convergence between promoting agencies and financial institutions.

This study formed part of the author’s postdoctoral research at the Centre for Management in Agriculture, Indian Institute of Management, Ahmedabad (April 2014 to December 2015). An earlier version of this paper was presented at a conference on agribusiness in developing and emerging economies at the Institute of Rural Management, Anand over 6–7 January 2016.
 

The author gratefully acknowledges the comments of the anonymous reviewer of this journal and stakeholders of selected farmer producer companies and resource institutions for their involvement and assistance at data collection stage. The usual disclaimer applies.

Farmer producer organisations are non-political entities that provide smallholder farmer members business services (Onumah et al 2007). These organisations can take any of various legal forms—cooperatives, societies, or farmer companies. The design and governance of producer organisations has long received considerable attention from academic and policy circles, especially in developing and least developed countries (Ton 2008; Meinzen-Dick 2009). India is no exception—the cooperative, a prototype of producer organisations, came into existence several decades ago. But, largely, cooperatives are fragile or appear to be dormant—due to the free-rider or agency problem, horizon problem, equity or efficiency issue, elite capture, and social exclusion (except, to some extent, in the case of milk, sugar, and plantation cooperatives).

More than a decade ago, policymakers were in search of a “competing institutional logic” that would make producer organisations viable social enterprises (Sharma 2013; Singh and Singh 2013). After a concerted effort and much deliberation, and following amendments to the India’s Companies Act, 1956, farmer producer companies (FPCs) emerged in 2002 as the fourth category of corporate entity (Trebbin and Hassler 2012). This hybrid form possesses the altruistic characteristics of a cooperative and the attributes of a private limited company (for more details, see Murray 2008).

The Small Farmers’ Agribusiness Consortium (SFAC), a society under the Ministry of Agriculture and Farmers Welfare, was instrumental in setting up FPCs in a drive to promote rural enterprises. This was a major policy boost for technology, credit, and marketing support during the period of the Twelfth Five Year Plan (2012–17). The union budget (2018–19) allows FPCs a 100% tax deduction for post-harvest activities up to a turnover of ₹100 crore for five years.

As on 31 March 2017, there were 580-odd registered and SFAC-promoted FPCs operational in agriculture and allied sectors. The National Bank for Agriculture and Rural Development (NABARD) has promoted more than 2,000 producer organisations (through its producer organisation development and upliftment fund of ₹200 crore) since 2008–09 (Shah 2016; Tagat and Tagat 2016). But these organisations are concentrated in a few states where, perhaps, an enabling environment has supported and nurtured enterprising farmers and mobilised collective action by creating FPCs (Shah 2016). While efforts and resources have been invested in the promotion and capacity building of FPCs and to improve governance, it is important to identify and discuss the potential determinants of their performance that can make these producer companies viable (Sharma 2013; Cherukuri and Reddy 2014).

This study identifies and discusses potential determinants for sustaining FPCs drawn from a few states and sheds some light on their viability.

Literature Review

Numerous micro- and macro-level studies assess the performance of farmer organisations in Ethiopia (Bernard and Spielman 2009; Barham and Chitemi 2009); Ghana, Uganda, and Nigeria (Ragasa and Golan 2012; Francesconi and Wouterse 2015); Mexico and Salvador (Hellin et al 2009); and India (Trebbin and Hassler 2012; Cherukuri and Reddy 2014; Trebbin 2014). Empirical research has highlighted a few critical issues concerning farmer organisations’ performance or their economic viability. First, there is concern over the most appropriate type of organisation and role of promoting agency with respect to orientation, competency, or demonstrated skills (Trebbin 2014).

Second, the member or/and domain centrality of farmer organisations involved in input supply and pooling/procurement of member produce may not be as significant as in organisations in value addition or processing (James and Sykuta 2005, 2006; Markelova et al 2009; Trebbin 2014).

Third, it is not yet understood if the state or development sector is better placed to support these FPCs. This is important because the state-promoted Primary Agricultural Cooperative Societies (PACS) have often failed to guard smallholders’ interest and enhance their welfare (Hellin et al 2009; Sharma 2013).

Fourth, to bring about the conditions necessary to ensure the viability of an organisation, it is necessary to understand the stakeholder potential for cooperation, their threat to the organisation, and the life cycle attributes of an organisation (Turnbull 1998; Cook and Chambers 2007). The health of a farmer organisation is determined by the heterogeneity in member risk preference and effectuation of collective investment (Francesconi and Wouterse 2015).

Significant effort has been made in developing and developed countries to assess the performance, governance, and management of farmer organisations—whether cooperatives or professionally run legal entities. China enacted the farmer professional cooperative law in 2006 to encourage professional farmers’ cooperatives; there was a similar movement in India in the early 1990s.

For farmer organisations, the attainment of economic viability or/and sustainability constitutes a key aspect of performance diagnostics (Ragasa and Golan 2012; Cherukuri and Reddy 2014; Francesconi and Wouterse 2015). Analysing Vasundhara Agri-Horti Producer Company Limited (VAPCOL), Maharashtra, one of the oldest FPCs in India, Shaikh and Dey (2016) suggest that consistency in patronage distribution between member-producers under a robust governance structure is critical in sustaining FPCs. To sustain or increase member contribution to the organisation’s business, it is crucial to distribute patronage bonus and dividend per equity share to members.

The literature expands the scope for assessment of performance and viability. The determinants of a viable and sustainable producer organisation are organisation building in relation to leadership, managerial skills, formalisation (of organisation structure), participatory decision-making, and collective resource management (Bernard and Spielman 2009; Barham and Chitemi 2009). A study on farmer organisations in Mexico and Salvador investigates whether organisations are effective in linking smallholders to markets, and the intervention is profitable for farmers and other supply chain actors and is scalable to effect change for many farm communities (Hellin et al 2009).

Producer organisations in India can succeed if “partner organisations” or resource institutions can nurture or handhold them by rendering technical, marketing, and financial support at the initial stage of their life cycle (Cherukuri and Reddy 2014). Collaboration with development or non-governmental organisations (NGOs) can be effective in group formation, capacity building, and member welfare.

Private agencies can be instrumental when market access or leveraging business opportunities seem important to the organisation’s survival. In other words, reciprocity with the partner organisation can catalyse viability. Therefore, stakeholder potential for cooperation or their threat to the organisation is considered in strategy formulation for collective action and cooperation (Turnbull 1998).

Ragasa and Golan (2012) assess rural producer organisations that provide agricultural services in African countries such as Ghana and Uganda. The comprehensive theoretical framework includes governance and management; group composition and heterogeneity; member centrality/commitment to the organisation; external linkage and support; and community and agro-ecological factors. These determinants are measured by several factors/variables.

Organisation viability can be understood in terms of member centrality, domain centrality, and patronage centrality (Shah 1995, 1996). The economic viability of producer organisations can be diagnosed, as in Ghana (Francesconi and Wouterse 2015), by measuring the magnitude of heterogeneity in member risk preference and effectuation of collective investment. An understanding of the organisational life cycle also explains a producer organisation’s health. The replicable business model lets producer organisations attain economic viability, but replication depends on group attribute, institutional arrangement, setting/context, enablers, and the policy environment (Cherukuri and Reddy 2014).

Trebbin (2014) conceptualises the typology of FPCs based on orientation, nature of business, and role of promoting agency in market linkage: (i) FPCs promoted by not-for-profit organisations with community members having inward orientation and welfare focus (Type A); (ii) a larger representation of Type A organisations that evolved from an experimental stage/early stage of start-ups and that are more aligned to business and marketing (Type B); and (iii) FPCs promoted by for-profit entities that include input suppliers, supermarket chains, and food processing units (Types C and D).

Type A FPCs focus on member welfare. Type B FPCs rely on intercommunity trade and input supplies, with less of a thrust on value addition of primary produce. Type D FPCs strike a balance between input supplies and marketing (of member produce) as the promoting agency is motivated by profit.

Trebbin’s (2014) classification of FPCs seems normative, as the FPCs promoted by the SFAC and NABARD are all either Type A or B. Type A and B FPCs can work better for smallholder farmers’ collectivisation and welfare in India’s context (Tagat and Tagat 2016). But for their participation in the market (for example, vertically integrated value chains of high value commodities) or in the electronic trade (Dey 2016), Types C and D FPCs can outperform Types A and B FPCs (Trebbin 2014).

In light of the extant literature, this paper identifies and discusses determinants of performance and viability for FPCs. It uses two theoretical frameworks—stakeholder potential for cooperation and the life cycle framework—to understand the functioning (non-financial and finance performances) of three FPCs selected as case studies.

Theoretical Framework

This study uses two theoretical frameworks to build arguments on potential determinants of performance and viability. The stakeholder potential for cooperation framework illustrates the potential of stakeholders for cooperation within the organisation and their threat to it. The life cycle framework explains how organisational diagnostics and governance structure are critical in sustaining producer organisations.

Stakeholder potential for cooperation: Farmers are primary stakeholders in producer organisations as they have a direct stake in the business. The contribution of members to the business determines their share of the patronage or dividend bonus (Shah 1996). The stakeholder potential for cooperation and their threat to the organisation has implications for “member centrality,” as measured by the organisation’s share in all kinds of economic activities of members, and also “domain centrality,” as measured by its share in all kinds of economic activity (Shah 1996). Secondary stakeholders, such as contract buyers and promoting agencies, say NGOs/corporations, have only a limited interest in the organisation. Another classification includes core stakeholders—say, farmers and strategic stakeholders, promoting agencies, and public institutions. Figure 1 presents the typologies of stakeholders and cooperation strategies available (Turnbull 1998).

The framework in Figure 1 presents strategies based on four different types of stakeholders and their potential for cooperation vis-à-vis their threat to the organisation. Type I is supportive (high stakeholder potential for cooperation and low threat); therefore, an involving strategy can emerge. Type II is marginal (low stakeholder potential for cooperation and low threat); therefore, a monitoring strategy can be adopted. Type III or non-supportive stakeholders adopt a defensive strategy for cooperation as the stakeholder threat to the organisation is high, relative to cooperation potential. Type IV stakeholders have high potential for cooperation and pose a great threat to the organisation. Hence, there is complementarity in extending technical and financial support between core and secondary stakeholders.1 Vasundhara Agri-horti Producer Company draws upon a collaborative strategy as their promoting agency has often been involved in decision-making, fund-raising, and strategy formulation.

Life cycle of an organisation: Farmer producer companies, the new generation of cooperatives, are user-oriented social enterprises (James and Sykuta 2006). In the US, the analysis of similar organisations, especially cooperatives, stimulated development scholars to propose a life cycle framework (Cook and Chambers 2007); it underscores, for the survival of farmer organisations, the importance of transaction costs and of economies of scale. Once founded, producer organisations tend to experience growth in membership and performance until a problem occurs that leads to either dissolution or reinvention. But since this theoretical argument is grounded in the analysis of US-based agricultural cooperatives, it is necessary to assess its validity in the context of developing countries (Francesconi and Wouterse 2015). The life cycle framework appears to be useful to understand management and governance, group composition, degree of heterogeneity, and centralities (mainly member and patronage), and can explain their performance (Ragasa and Golan 2012).

Producer organisations are incentive-based for member producers. They attain a common interest through collectivisation and try to achieve economies of scale by reducing transaction costs (Poulton, Dorward, and Kydd 2010; Francesconi and Ruben 2014). But, as information asymmetry and market externalities may affect the business, public incentives or government intervention seem critical in mobilising members to contribute to the business and maintain collective interest (Greenwald and Stiglitz 1986). In the absence of external incentives or motivation, farmers do not often decide to self-organise (Varughese and Ostrom 2001). This may be true of FPCs, too, as they are promoted by agencies (NGOs/civil society organisations [CSOs]) and a central agency (SFAC), and are provided initial support and coordination.

Producer organisations that attain economies of scale and scope enter the “growth and glory” stage. As they mature, member differences in socio-economic status and risk-taking ability may increase heterogeneity. Heterogeneity helps to spread risks among members, but it can also lead to the free-rider problem: some members who benefit do not share the cost of resources (Ostrom 2004, 2011). This free-rider problem often makes input cooperatives (primary agricultural cooperative societies in India and in many other developing countries) unviable, as members who receive inputs on credit from the cooperative often sell their produce directly in the market and do not repay their loan (Francesconi and Ruben 2014).

Membership growth motivates producer organisations to transcend their initial community boundaries. That may bring about member anonymity and erosion of social capital (Nilsson et al 2012). Low social capital compels organisations to invest in monitoring and member incentives, and in enforcing graduated sanctions, but the costs of monitoring and enforcement can erode profits substantially, and bring about external attention. This is the agency cost problem, which delimits the growth of producer organisations. It is also known as the free-rider problem. Recognising or addressing these problems leads to the dismantling or reinvention of an organisation (Cook and Chambers 2007). The life cycle framework describes the health of producer organisations as characterised by three stages: start-up incentives and design (stage 1); growth and glory (stage 2); and problems (stage 3) (Figure 2).

A farmer organisation’s health depends on performance (financial and non-financial). Measures of centrality (member, domain, and patronage) receive greater attention to this end. In other words, centrality such as member, patronage, and domain of varying degrees are outcomes of performance.

Determinants of Performance and Viability

The stakeholder potential for cooperation framework and the life cycle framework help in diagnosing organisational performance and assessing viability. The stakeholder potential for cooperation is critical in building orientation of producer organisations. In a given context, the life cycle framework captures the determinants of financial and non-financial performance as it helps explain a stage-wise development of producer organisation.

Economic viability depends on group attributes, leadership, institutional arrangement, business and financing decisions, and the policy environment (Barham and Chitemi 2009; Bernard and Spielman 2009; Markelova et al 2009). Internal dynamics steers progress through the life cycle stage; for economic viability, interaction with the state and the market is critical (Hellin et al 2009).

In India and other developing countries, cooperatives lack capability symmetry, and they do not improve smallholder well-being; FPCs were promoted to overcome these problems (Singh 2008). Cooperatives have not yet gained salience in certain areas, especially domain and member centralities; producer organisations need to work on these areas (Shah 2016).

The life cycle framework explains that the agency cost and free-rider problems bear potential for organisational decay. A legitimate governance and management structure can overcome mistrust between members or/and leaders or resource institutions by instituting a decision support system and a cohesive group (Masakure and Henson 2005; Deng, Huang, Xu, and Rozelle 2010).

First, governance and management are at the fore of the determinants of non-financial performance—shareholding pattern; appointment and succession planning of a board of directors; capital acquisition and allocation; leadership style; rules/norms; family influence in decision-making; and participatory decision-making (Ragasa and Golan 2012; Carlberg et al 2006).

Organisation studies suggest that keeping a producer group small increases internal cohesion; a large group helps to attain economies of scale. In a large group, heterogeneity sometimes inhibits collective action, due to the nature of business, and affects costs of coordination and membership growth, but a federal structure enhances efficiency in resource management (for example, Japan irrigation management federation) and value-added services (Sarkar 2014). Group boundaries can make a trade-off between the range of services and biased membership rules; the trade-off often excludes smallholders, but it could improve a group’s effectiveness (Barham and Chitemi 2009).

Producer groups can be interdependent and enjoy autonomy in participatory decision-making. Patronage centrality, as measured by organisational significance in sectoral economies, can assess the magnitude of member participation in business; shared norms and social capital have an impact on organisation functioning and economic viability (Nilsson et al 2012).

In patron-owned organisations, leaders are instrumental in catalysing performance. They need to be elected following voting rights; any external interference may affect the leader–follower relationship. Members must be careful in selecting or nominating their leader. Rules need to be simple and understandable, so that compliance can easily be monitored. Graduated sanctions are necessary, as are low-cost adjudication methods. The leaders must hold the members accountable.

Monitoring and enforcement provisions are needed to improve functioning. Accounting and management standards will help FPCs emerge as viable and competitive business entities after resource institutions or promoting agencies withdraw support. In FPCs, factors of success are the degree of predictability, mobility, storage of resources, and technologies. Interaction with the market and state makes collective resource management effective (Barham and Chitemi 2009).

Good governance practices should be supported by local conditions such as human capabilities and technology, producer skills, financial capacity, and managerial experience. These governance practices should be coupled with local ownership, through available local participation, and institutional arrangements. A legitimate incentive structure and a federal structure (as in Amul [Gujarat Cooperative Milk Marketing Federation]) can strengthen and improve functioning. To survive, producer organisations need formalisation, standardisation, and access to credit and markets.

The government has provided for support in the form of grant-in-aid to FPCs during their formative stage. To FPCs promoted after 2013–14, the SFAC provides ₹2,00,000 as promoting cost and ₹5,00,000 as equity matching grant. It provides for project deliverables up to a maximum of ₹2.4 million. NABARD gives farmer producer organisations ₹9,00,000 (₹5,00,000 for set-up cost and ₹4,00,000 for promoting cost). To build their confidence in business, FPCs may be exempted from corporate tax in the initial years of operation, and the financing agency may be included in their management (NABCONS 2011).

Producer organisations are not allowed to raise capital from the debt or equity market. Mobilising more equity from members can make the organisation more patron-oriented. To raise capital, some organisations have attempted to vary shareholding-related patronage by linking voting rights to patronage and patronage to shareholding (Singh and Singh 2013).

Second, networking with external agencies and stakeholder support are important determinants of non-financial performance. At the early stage of an organisation’s life cycle, financial support is essential to survival. If FPCs last three to five years, at a later stage, say “growth and glory,” technology and marketing support is important. About 580 FPCs have been promoted in India, but only a few states have created a “fertile ground” for FPCs. These states include Madhya Pradesh (20%), Karnataka (16%), Maharashtra (12%), West Bengal (9%), and Rajasthan (5%).

An example of market orientation is the for-profit Monsanto–Walmart–McDonalds consortium, which has set up more than 10 FPCs in Maharashtra (Trebbin 2014). Another is of Reliance Foundation, the corporate social responsibility (CSR) arm of Reliance Industries, which has promoted 15 FPCs and linked them to the futures market. The market can create a competitive environment between various legal forms of FPCs and MNCs. Hence, a promoting agency—for-profit or non-profit—should withdraw their support when organisations can chart their own operations and marketing strategy.

Third, organisation viability and sustainability also depends on community; agroecological, demographic, socio-economic and behavioural factors which include enterprising attitude of farming communities; and ecological factors like rainfall trends and temperature variation. Market linkage raises the likelihood of organisational viability. If organisations are linked to the market, their orientation can change from inward to outward, and they can grow in size and profitability. Promoting agencies can play a crucial role in creating a market that can work for the poor (Hellin et al 2009).

Organisations can use their business capability to acquire the skills required for intercommunity trade or aggressive marketing. Through value addition services, producer organisations can harness their potential in marketing of high value commodities, influence the pricing of value-added products, and improve earning potential. Vertical integration with processors and marketers expands the scope of business operations. Alliances with similar types of organisation or with the state-level consortium of FPCs seek to raise their voice in the market and influence policymaking. Financial literacy or market awareness of producer groups can contribute to market positioning and business scale and, therefore, economic viability. Table 1 presents a few determinants of performance and viability.

Financial performance can be measured from financial statements and disclosures. Liquidity, activity, and profitability ratios impact financial health. When an organisation matures, earnings surplus, retained earnings, and dividend payout can be considered as payment along with return on equity and growth rate. The liquidity ratio implies whether current assets such as cash balance, inventories, and accounts receivable can meet current obligations at a point of time.

Leverage ratio is the ratio of debt (secured/term loan) to shareholders’ fund (paid-up/issued capital and reserves and surplus). Total asset–turnover ratio or activity denotes a ratio of sales (no other incomes and contributions from development of market linkages) to total assets. Net profit margin or efficiency ratio implies how much earnings after tax is generated from sales. Ratios considered as a “window-dressing” procedure to determine financial health of FPCs are return on equity (net profit margin times activity ratio times equity multiplier), payout, and plowback ratios (dividend to net income and retained earnings to net income).

The SFAC offers FPCs financial support through schemes such as equity matching grant fund, credit guarantee fund, and venture capital assistance (for more details, see SFAC guidelines). These schemes are channelised through empanelled banks or financial institutions. Therefore, workshops or awareness programmes need to be conducted for officials, board members, and executives of banks, farmer organisations, and supporting resource institutions.

The SFAC mandates that an FPC must have at least 33% of small and marginal farmers. Its aim is to induce heterogeneity in risk preference and effectuate collective investment. Member participation is driven by patronage bonus and equity dividend; therefore, in consultation with the board of directors, the management can assess or monitor cash flow generated by operating activities and source or allocate funds through financing and investment activities. In FPCs, the governance structure, which ensures compliance, is as important as financial management.

These determinants should be considered in assessing viability. Each determinant has several measures; therefore, assessors should adopt a congruent measurement technique in consultation with promoting agencies and FPCs. Viability should be assessed on the basis of performance over a period of three to five years, and attention should be paid to the context and state-level policy/legal environment.

Risk Sharing Opportunities

Capital acquisition is a challenge for FPCs as their capital is not as large as that of a corporation and member contribution to paid-up capital is limited. Capital injection from promoting agencies or organisations is not a common practice. Several FPCs were promoted in Madhya Pradesh, Rajasthan, and Uttar Pradesh by Indian Grameen Services—a development arm of Bharatiya Samruddhi Investments and Consultancy Services (BASIX) and other group subsidiaries—but few survived. Ajaymeru Kishan Samruddhi Producer Company too promoted a few FPCs in Ajmer-Kekri of Rajasthan; few of those survived. In Maharashtra, MNCs promoted some 15 FPCs and linked these to the upstream value chain; their orientation and nurturing capabilities resulted in domain and member centralities (Trebbin 2014). The FPCs promoted by the National Dairy Development Board in the dairy industry have also gained salience (Shah 2016).

Horizontal and vertical alliances become necessary for organisation viability, but a cost–benefit analysis is necessary too. New-generation farmer organisations should strike a balance between governance effectiveness and operating effectiveness; they should not attract external attention once they enter the “growth and glory” stage (Cook and Chambers 2007; Shah 2016). A key function of farmer organisations is to reduce on-farm risks. Producers can use a transfer mechanism to mitigate farm-level risks by spreading these among members. In producer organisations, risk-sharing increases with the degree of heterogeneity in member risk preference. However, risk-sharing mechanism can be a source of equity and inefficiency (Mazzocco and Saini 2012). Equity and inefficiency gives rise to either the free-rider problem or the agency cost problem. To overcome the problem, FPCs can integrate factor and product markets by investing in core activities (operations and marketing) and support activities (technology, infrastructure, procurement, and human resources) (Francesoni and Wouterse 2015).

Given the low levels of social capital, internalisation of efficiency-enhancing investments can lead to elite capture, and risk-sharing opportunities may eventually disappear. Therefore, an organisation’s internal dynamics drives its progress through its life cycle stage. In Madhya Pradesh, Samaj Pragati Sahayog—set up by the Ram Rahim Pragati Producer Company, with 1,500 women self-help group (SHG) members—has gained salience in commodity trading on the electronic exchanges. Aranyak FPC, promoted by Jeevika in Bihar, has been trading in commodities (maize) on the futures exchange.

Group cohesiveness enhances member affinity and social capital. Producer organisations at the “growth and glory” stage constantly search for heterogeneity in group composition to accentuate collective investment and dominance in the local market and sectoral economies (domain centrality and patronage centrality). Heterogeneity can lead to a trade-off between governance and management. Including large farmers could stress smaller farmers and affect participatory decision-making, but participation of large farmers can increase the organisation market share with value added produce and services.

In July 2006, Samarth Kisan Producer Company (SKPCL) emerged from the District Poverty Initiative Project (DPIP). In the Agar-Malwa region of Madhya Pradesh, the SKPCL is one of the most capitalised farmer organisations. It has 6,500 small and marginal farmers. Its expertise in the seed certification business and exposure to the good agriculture practices of the Round Table on Responsible Soya has created assets and improved reserves and surplus.

The SKPCL has leveraged its strength in seed production and certification, and seed marketing business. It has acquired two hectares of land for cultivating and producing seeds. In 2013, it rented a 2,000 metric tonnes warehouse for storing soya and wheat seeds. To offer members pre- and post-harvest agricultural services, SKPCL acquired agricultural mechanisation assets (spiral set, grading machine, rotavator, seed drill, and soil testing mobile van).

The SKPCL has made a conscious effort to raise funds. In 2007, it raised a working capital of ₹2.5 million from the Department of Rural Development of Madhya Pradesh. In 2013–14, the SKPCL borrowed ₹4.5 million (long-term credit) and ₹1.5 million (pledge loan) from the Union Bank of India to undertake seed certification. Earnings management and reinvestment in asset creation have led to robust financial health.

In West Bengal, Bhangar Vegetable Producer Company (BVPCL) has been successful in the vegetables production and marketing businesses. It has 1,750 vegetable growers. Access Development Services (ADS) promoted BVPCL under the National Vegetable Initiative for Urban Cluster (NVIUC) in 2012.

In Maharashtra, Bharatiya Agro Industries Development and Research Foundation (BAIF) promoted VAPCOL in 2004. The BAIF helped VAPCOL transition from a cooperative to a corporate entity as a second-tier multi-state FPC.

Shaikh and Dey (2016) comment on a uniform organisation structure between VAPCOL’s member–producer states (Gujarat and Maharashtra). The uniform structure can address patronage distribution problem between the member–producers. While the SKPCL and the BVPCL have harnessed their business potential through uniform organisation structure, member contribution to businesses, and local economic conditions, VAPCOL is yet to adopt a uniform structure to streamline its Gujarat and Maharashtra business operations.

Findings from Case Studies

The concentration of FPCs is higher in Maharashtra, Madhya Pradesh, and West Bengal than in other states; and FPCs promoted in these states draw attention from the point of stakeholder support, nature of businesses, and their incorporation period and life-cycle stage. Therefore, FPCs are selected from these states for an analytic understanding of determinants of performance and viability as discussed in the earlier section.

The FPCs selected are VAPCOL, SKPCL, and BVPCL (Table 2). Each is at a different stage of the life cycle—BVPCL is in Stage 1 (introduction); SKPCL is in Stage 2 (growth and glory); and VACPL is in Stage 3 (problem)—but all are Type B FPCs. Members of these FPCs contribute to business and, in turn, improve their livelihoods and well-being (member and patronage centralities). This study followed the methodology of a field-based survey and interviews with FPCs members, executives and promoting agencies.

VAPOCL, SKPCL, and BVPCL were promoted, respectively, by BAIF, Madhya Pradesh District Poverty Initiative Project (MP DPIP), and ADS. The nature of intervention varies by promoter, business, and context. The selected FPCs have been oriented to marketing and business expansion, but their stakeholders differ in the nature of cooperation. The BAIF is a non-profit organisation, ADS is a Section 25 company, and the MP-DPIP is a state initiative. However, they fall in Type B FPCs.

VAPCOL is one of the oldest FPCs. The BAIF promoted it in 2004, but it started commercial operations in 2008–09. VAPCOL has drawn greater amount of financial and capacity building support from the BAIF (Table 2 and Figure 1), but its handholding can also be a source of threat, resulting in a collaborative (Type IV: mixed blessings) strategy for cooperation. The BVPCL received support in its initial stage (setting up, mobilisation of producers, capacity building) from the ADS that brings about a involving (Type I: supportive) and monitoring strategy, at a later stage (Type II: marginal). Though the SKPCL received the state government support during inception, it has moved further capitalising member–producers’ business contribution and trading in the local markets.

The SKPCL emerged from a state-promoted poverty initiative in 2006. The BVPCL was created under the NVIUC in 2012. VAPCOL and BVPCL were promoted by SFAC-empanelled resource institutions (respectively, BAIF and ADS). The Madhya Pradesh state government through its DPIP (2006) supported the SKPCL.

Under the Umbrella Programme—Natural Resource Management, VAPCOL was awarded a working capital limit of ₹50 million from NABARD. The company used the capital to procure cashew from members at 10% interest. It used ₹1.95 million to ₹3.50 million annually until 2013–14.

VAPCOL operates through cooperatives and vibhags (divisions) in Gujarat and Maharashtra. It procures mangoes and derivatives, and cashew kernels, and processes and markets these through five distributors and 43 retailers at various locations. Sometimes it also sells through kiosks. To market member produce in Gujarat, Maharashtra and Rajasthan, VAPCOL has ramified its operations through 55 member organisations of some 41,000 farmers. In 2013–14, VAPCOL marketed 5.5 tonnes of fresh mango, 26.8 tonnes of derivatives and 222 tonnes of cashew kernel (including 137 tonnes of raw cashew). Its sales turnover was ₹49.8 million, and it disbursed ₹4,00,000 of patronage bonus. VAPCOL member–producers access services such as finance, market information, and patronage bonus and equity dividends.

In 2006–07, the Government of Madhya Pradesh (MP) promoted 17 FPCs. The SKPCL was one of these. It owes its success to membership growth, patronage centrality, expertise in seed production and certification, and marketing (interview with Ram Singh Thakur of SKPCL, 17 May 2015). The company represents small and marginal farmers.

Under the Soya Producer Support Initiative programme, since 2011–12, SKPCL produced more than 80,000 tonnes of soybean seeds over 6,300 hectares. It has gained salience in seed certification and marketing in Malwa. In 2015–16, it set up a krishak bazar (farmer markets) to benefit members by emulating ITC’s choupal sagar (one-stop retail for farming communities) and expanded warehouse capacity for seed storage. The member-driven company has a formalised structure; sound financial health (as evident from asset creation and increased shareholders’ funds); and human resources dedicated to production, marketing, and finance. As per the directive of the state seed corporation or APMC board, SKPCL pays farmers a premium of ₹150–₹200 a quintal for soy seed when repurchasing breeder/F1 seeds. In addition, the MP government provides a distribution subsidy for wheat seeds at ₹400 a quintal and for soybean seeds at ₹700. These raw seeds are certified by the seed certification agency and tagged and labelled.

The BVPCL has succeeded in the vegetable production and marketing business. In 2012, BVPCL mobilised 1,750 growers and integrated with the NVIUC and the West Bengal horticulture department. The BVPCL’s intervention helped members realise yields of 9,500 kg in a 120-day crop season and a profit of ₹85,000. The company increased productivity and sales price and lowered uncertainty in cash flow. By reducing vegetable production cost in a cluster, the BVPCL promotes market linkage to agri-inputs (contracted with PAN seed, Syngenta, and IFFCO). The company carries out primary value addition at the farm level. It uses processing facilities in clusters to package vegetables into various categories. The company also carries out service procurement through the sufaal bangla static and mobile outlets of the West Bengal state government and output marketing through the Mother Dairy Fruit and Vegetable Company.2

We received a subsidy of ₹12.1 million from the West Bengal government for infrastructure creation such as shade net, motorised vending cart, vermi-compost pit and integrated pest and nematode management. Also, the company has received equity matching grant of ₹7,44,000 from SFAC this year. We look forward to enhancing our scalability, range of utility services, and employ skilled manpower in finance and accounts. (interview with Jabbar Ali ofbvpl, 26 May 2017)

Conclusions

In organisations, performance is linked to viability. This article uses two frameworks—stakeholder potential for cooperation and life cycle— and three case studies to identify and discuss a few determinants of the financial and non-financial performance and viability of FPCs. Assessment can be carried out by measuring the variables/factors of each determinant. The impact of any programme that promotes FPCs can be assessed at any stage of their life cycle; such assessment will help differentiate between “surviving” and “non-surviving” social rural enterprises.

Factors critical to an organisation’s survival in the early stage of their life cycle are leadership, managerial skills, formalisation, comparative advantage in business domain, reciprocity with promoting agencies, and technological and financial support. Patronage bonus and capital share (dividend per equity share) can drive member contribution; therefore, FPCs need to improve management of their earnings and accounting policy to strengthen governance and management.

This study offers fresh insights into the performance and viability of FPCs in India. It also provides operational and financial determinants for assessing FPC performance; these can differentiate “performing” from “dwindling” FPCs. The apex agency can then take corrective action.

To improve performance, Indian resource institutions or promoting agencies can adopt best practices of performance and viability in developing countries and use these as benchmarks. That will help agencies (SFAC, NABARD, state government) improve the well-being of small and marginal farmers and also make economic sense.

This article has implications for policymaking. If scholars design robust performance metrics based on these determinants of performance and viability, and if these metrics influence policymakers and apex promoting agencies and resource institutions, a bottom-up approach in implementation—and convergence between promoting agencies and financial institutions—can help FPCs gain expertise in value chain integration, harness agribusiness potential, and become viable.

Notes

1 Vasundhara Agri-horti Producer Company draws upon a collaborative strategy as their promoting agency has often been involved in decision-making, fund-raising, and strategy formulation.

2 For more details, see Banerjee, Dhanda, and Ghatak (undated), “Case Study on the Bhangar Vegetable Producers’ Company,” Access Development Services.

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Updated On : 31st Aug, 2018

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