(Small) Farmer Livelihoods under Liberalised Agricultural Market Environment in India: Can Farmer Producer Companies be an Alternative?

Abstract

This article examines the rationale and experience of Farmer Producer Companies (FPCs) in the context of their promotion and public funding on a large scale. Simultaneously, corporate players have been provided a larger and free space under the APLM and CF&S Acts of 2017 and 2018, respectively. At the state level, the agricultural market reforms started with the model APMC Act of 2003, and the Producer Companies Act was passed in 2002. India is the second Asian country after Sri Lanka (where they mostly failed) to try this hybrid form of producer organisation. Based on empirical evidence from across states, the article assesses their (FPCs’) physical and financial performance and impact and examines their market interface to improve farmer incomes by creating a producer agency. It dwells on their experiences with corporate players/buyers and their own efforts to create alternative market mechanisms to connect small farmers effectively with modern mainstream or alternative markets.

Keywords

Agricultural markets small farmers producer agency empowerment India

Introduction

The average monthly income per agricultural household in India in 2018–2019 was of the order of ₹10,218 of which crop production accounted for 37.2%, and farming of animals another 15.5% making for a total of 52.7% with the rest mostly coming from wages (39.8%), non-farm business (6.3%) and leasing out of agricultural land (1.3%). It is important to note that the almost landless category of agricultural households had as much total income as the small farmer category and much higher than those in the sub marginal and marginal categories (Government of India [GoI], 2021). The need to focus on farmers’ incomes also stems from the fact that a very large proportion of farming households in most of the central and eastern states (23%–45%) live below the poverty line (BPL), higher than the national average (22.5%). The proportion of BPL farming households (17.5%–22.5%), even in some of the so-called agriculturally progressive states, such as Gujarat, Karnataka, Maharashtra and Tamil Nadu, is close to the national average. Further, the gap between farm and non-farm incomes has widened over the decades, from a ratio of 1:3 in the mid-1980s to 1:4.08 in the middle of last decade, and 1:3.12 in 2011–2012 (Chand, 2017).

Agricultural markets are key to ensuring higher farmer incomes. Surprisingly, the Farmer Producer Organisations (FPOs) were missing as sales channel with only 0.1%–0.5% households reporting them in paddy, cotton and gram. The private processor has a significant interface with the farmers with 30%–38% in sugarcane reporting selling to such players. In other major crops such as cotton (6%–9%), groundnut (7%), masoor (6%) and paddy (4%–6%), they sold to private processors in very small percentages as given in brackets. Another major channel-contract farming was also missing in most crops with the exception of sugarcane (3%–6% households). Further, in terms of share of different channels in the quantity sold, it was again the local market which dominated with Agricultural Produce Market Committee (APMC) channel accounting for more than 20% of the total quantity sold, in case of soyabean, cotton, arhar and ragi besides only 19% in case of groundnut and mung. The share of APMC market in wheat and rapeseed mustard was 13% each. The cooperatives accounted for 17%–25% of the sugarcane delivery with their shares in paddy being only 4%–8% and in masoor, 6%. The government agencies had significant presence in paddy accounting for 14%–18% of total marketed surplus followed by sugarcane, soyabean and rapeseed mustard at 6% each. Only cotton competed with paddy with 15% share bought by government agencies which also bought 14% of wheat. The FPOs again did not go beyond 0.1% in most crops with the exception of 0.3% in case of arhar. Similar was the case of contract farming channel which with the exception of sugarcane (7%–12%) did not account for even 1% of the total sales. The private processors had a significant share not only in sugarcane (27%–34%) but also in arhar (7%), potato (6%), groundnut (12%), soyabean (7%), cotton (5%–10%), paddy (8%) and gram (5%). Delayed payment was the major issue only in case of sugarcane (GoI, 2021).

The APMC Acts in India were brought in during the 1960s and early 1970s to protect the farmers from private trades and commission agents and these Acts specified the rules of the game for sale and purchase or even facilitation of any transaction. These Acts detail various charges that could be levied on sellers and buyers and specify payment rules. However, the Model (APMC) Act in 2003 by the Union Ministry of Agriculture and Farmer Welfare (MoAFW) provided new market channels, that is, direct purchase, private wholesale markets, and contract farming (CF) for farmers and buyers alike (Singh, 2018). This was around the same time when the Companies Act was amended according to which (farmer/primary) producer companies were allowed to be set up in 2003 (Singh, 2016). The new market channels are larger in scale and are global in many aspects such as value chain drivers, multinational and national processors engaging in contract farming or even supermarkets (both local and global) buying directly from farmers (Cohen et al., 2021).

In 2017, yet another model Act—Agricultural Produce and Livestock Markets (promotion and facilitation) Act 2017 (hereafter APLMA, 2017) was brought in by MoAFW that was argued to be more in tune with the changing times. This model Act leaves out contract farming from the APMC domain citing conflict of interest. Traders and commission agents opposed it, anticipating that their business would get adversely affected because the contracted produce no longer needed to come to the APMC mandi and pass through the mandi agents (commission agents). Therefore, a separate model Agricultural Produce and Livestock Contract Farming and Services (promotion and facilitation) Act, 2018 (hereafter APLCFSA, 2018) was brought in by the MoAFW which stated that one of the benefits of keeping contract farming and services out of the purview of the APMC was that the buyers would not need to pay the market fee and commission charges resulting in a saving of 5–10% of their transaction costs (GoI, 2018, p. v). That the model Act reflected a major policy change is seen in the very titles of the two Acts which have promotion and facilitation in them (Singh, 2018). The titles seem to suggest as if there is no need for regulation anymore and that farmers do not need protection in markets. In fact, this model Act does not even have model CF agreement that was a part of the 2003 model Act. The 2003 Act had mandatory and optional provisions of the CF agreement and the mandatory ones were an essential part of the model contract agreement (Singh, 2018).

FPOs can strengthen (small) producers and make them attractive to value chains and large buyers in terms of economies of scale and lower transaction cost and also to capture value from such networks/chains for such producers. Producers capture less value as they don’t have organisational platforms and mechanisms that can improve their agency within a chain or network (Gersch, 2018). This is due to the fact that in general in developing countries, farmer organisation remains poor proportional to the total number of farmers. For example, in India, 29% of farmer households had a membership in a cooperative society and only 19% had availed of any services from a cooperative like fertilizers or credit facilities in 2003 (Mahajan, 2015). In this context, farmer entities like cooperatives or other producer institutions can empower the primary producers to manage the market interface with new players like food supermarkets and large exporters and processors who coordinate directly with farmers (Trebbin, 2014; Trebbin & Hassler, 2012).

Private agribusinesses are better at creating value owing to resources at their disposal, business models and marketing orientation, for example, contract farming that can improve efficiency and create value in the value chain. However, they do not increase value capture for the producer that only producer organisations (POs) can do as the latter can create better bargaining power compared to an individual small producer. Therefore, both mechanisms (contract farming and producer organisation) are complimentary to each other (Gersch, 2018). Such producer organisations not only help small farmers avoid distress sale but also help realise better prices, lower selling costs and enable better access to markets. They can also improve the value of the product or process, or provide functional upgrading (Roy & Thorat, 2008). Indeed, producer organisations also help small farmers improve technology adoption, get favourable credit terms and thus eliminate interlocking of factor and product markets where the farmers have to sell their produce back to traders or commission agents who advance credit or provide farm inputs on credit (Verma et al., 2019). The co-operative impact on yields and profits of member farmers unlike contract farming could be significant but membership also could have positive impact on farm and non-farm income due to spill over effects (Liang et al., 2020). There have been studies on the impact of the co-operatives on farmer members in the Indian context (Bhamra, 2016) as well as scoping reviews covering Asia and Africa (Bizikova et al., 2020) that found many positive outcomes influencing income, yield and costs. But, studies of producer companies in terms of their performance and impact are still few and far between. This article tries to fill this gap by addressing their contribution so far and their potential role in the emerging agricultural market context.

In the context of changing agricultural output markets in terms of regulation (deregulation) and policy focus on FPOs, this article assesses the Farmer Producer Companies (FPCs)’ physical and financial performance and member impact and examines their market interface to improve farmer incomes by creating a producer agency. It dwells on their experience of dealing with corporate players/buyers and their own mechanisms to create alternative market mechanisms for linking small farmers effectively with modern mainstream or alternative markets. Primary data and insights from thirty-five case studies which also included interviews with more than 650 farmers (member and non-member) across five states of India in 2019–2020 (Singh, 2021) are examined on these aspects besides robust review of other studies on the functioning and impact of PCs in India.

The second section profiles the performance and impact of the PCs in terms of farmer incomes, market interface and inclusiveness. The third section discusses the (potential) role these entities can play in the context of marginalised and small producers facing new and larger markets (both domestic and global) based on empirical evidence from across the country and whether these entities can emerge as an alternative channel for such producers who are otherwise likely to be excluded from new market arrangements like contract farming or direct purchase. The article concludes with insights on the future of these entities and policy support they need to emerge as robust people’s institutions and play their role in livelihood improvement and producer empowerment.

India is the second Asian country after Sri Lanka to try the PC form of producer organisation. These entities promoted during the 1990s by the state agencies directly had mostly failed in Sri Lanka (Singh, 2016) but in India, their prospects appear to be better as they were initiated by Non-Government Organisations (NGOs) after the legal provision came in, in 2003. More recently, the government policy has taken this route to promote smallholder market connections through various policy mechanisms at union and state levels (For details see Singh, 2021). PCs have gained currency across India during the last 15 years and India now has more than 7,000 such PCs, with many of them being supported by state agencies (Neti et al., 2020). More recently, India’s Union government has planned to promote 10,000 more such entities over the next 5 years with additional financing support besides existing policy incentives and schemes for such entities which include income tax exemption up to a certain turnover for PCs.

India’s Producer Companies (PCs) wherein ten or more primary producers or their institutions or a combination of the two can set up a PC under the Corporate Companies Act and undertake any business activity like a private limited company, are a (legal) institutional innovation (Bhanot et al., 2021). These provisions facilitate more business-like entities for the primary producers without any bureaucratic or government control and interference as they are registered under the Companies Act and are monitored by the Registrar of Companies on par with any private limited company. This is unlike the cooperatives which are registered under the Cooperative Societies Act and are controlled by the Registrar of Cooperatives in many ways in their governance and management. Further, the PC structure makes producer organisation free of the welfare-oriented, inefficient and corruption-ridden image of cooperatives. The PCs are hybrid structures which blend the strengths of traditional cooperatives with the efficiency of a private company (Singh, 2021). The PCs can provide organisational services (bringing farmers together), production services (bulk buying of inputs and supply), marketing services (from transport to certification, branding and accessing a new market), financial services (providing loans and accessing grants for members), technology and education services (extension on good agricultural practices), management of resources (like water and energy) and policy advocacy (Bhanot et al., 2021). It is expected that PCs create conditions for autonomous decision making by small producers improving their wellbeing and livelihood instead of depending on state agencies or other buyers or sellers.

The objectives of a PC can be production, harvesting, procurement, grading, pooling, handling, marketing, selling, export of primary produce of the members or import of goods or services for their benefit. Its membership can be ten or more individual producers, or two or more producer institutions or a combination of both. It is deemed to be a private limited company but there is no limit on membership, which is voluntary and open. It is a limited liability company by share and not a public limited company under the Companies Act. It retains the one member–one vote principle irrespective of shares or patronage, except during the first year when it can be based on shares. Like traditional cooperatives, it provides a limited return on capital but can give bonus or bonus shares based on patronage. It is named ‘producer company limited’. It can issue only equity shares, that too, based on patronage. These are not transferable but are tradable within the membership. It is free to buy other producer companies’ shares and to form subsidiary/joint venture/collaboration/new organisations. It can have five to fifteen directors, one chairperson and one chief executive as ex-officio member. It can co-opt expert or additional directors without voting rights. It lays emphasis on member education, and cooperation among PCs. If it fails to start business within a year, registration can be cancelled. The audit has to be conducted by a chartered accountant (Singh, 2008). Thus, a PC is a New Generation Cooperative (NGC) (Nilsson, 1997). It is a cooperative form of business enterprise democratically owned and controlled by active user members. It enjoys the same liberalised regulatory environment as available to other business enterprises but it has unique characteristics of cooperatives (Singh, 2008).

PCs in India: Performance and Impact

In Uttar Pradesh, of the four PCs studied (promoted by two subsidiaries of Basix¹, that is, BCTS and BKSL), the authorised capital in all cases was modest (from ₹5 to 15 lakhs) and most of them except one (Navjyoti) had mobilised that. Their turnover was significant enough (₹50–88 lakhs) except in case of one (Naveen Kisan) that was limited to ₹16 lakhs. Most of them except one (Gram Development PC) had small profits and most of them (except Navjyoti) had reserves as well. These PCs showed average performance on various parameters of input and output business. But, they suffered from lack of scale as all of them had only 1,000 members each despite the fact that they had been in existence for more than 5 years. In case of one PC, until recently, the equity shares remained confined to a large extent with the promoters and a few members. Only 0.48% of the shares were held by just eight members in 2016–2017 that is not a desirable thing for a PC though it may have been needed initially. There were ten cases of failure of FPCs promoted by Basix Consulting and Technical Services Ltd. (BCTS) in U.P. because some traders created problems which led to infighting within the Board. Some FPCs were organised just to meet the targets and there was no member involvement. In some others, there were outright frauds committed by Board of Directors (BoDs). Thus, it was more of a governance failure. Further, all FPCs in the state had poor staff capacity and there was no money for professional staffing in the projects supported by the World Bank under its land development project². In fact, one person was looking after fifteen FPCs. The BCTS had deployed one project manager in each district. The BCTS had twenty-nine field staff under the Uttar Pradesh Bhumi Sudhaar Nigam (U.P. Land Reclamation Corporation) for 6 years which later numbered only five. Of these, four were positioned at the local level (Singh, 2021).

All of the studied PCs (four) in Rajasthan, except Molasar PC, could not mobilise enough equity capital from their members. It was not even 70% even after a few years of the existence of the PCs. Two of them were stuck at just 20% and 32% each of the authorised capital, that is, ₹5 lakhs each in case of the PCs promoted by Indian Society for Agribusiness Professionals (ISAP). Further, all of the PCs made losses throughout their existence. The main reason for this was their low turnover which was a few lakh rupees each except one (Shekhawati). The low turnover in case of the ISAP PCs was for the reason that they had not undertaken much farm produce handling business and were mainly supplying farm inputs to members and non-members. Even Indian Grameen Services (a Basix subsidiary) that promoted PCs had undertaken only some procurement for the Small Farmer Agribusiness Consortium (SFAC—a special purpose vehicle of the MoAFW that is also one of the national level nodal agencies for promoting FPCs since 2014) at minimum support price (MSP). This helped the PCs stay afloat for some time as they received some commission and service charges. It also helped one of them in receiving matching equity grant and another a capacity building grant from SFAC even though they had no business plans of any significance (Singh, 2021).

A comparative analysis of the seven PCs in Madhya Pradesh set up by various promoters (Singh, 2021) shows that action for social advancement (ASA)-promoted-PCs had lower membership though they had registered with good amount of authorised capital of ₹15 lakhs each. One of them, however, could not even reach 50% of it even after 6 years of working. Their turnover was significant enough (₹45–81 lakhs) given the small size of membership. However, they also seemed to have passed on the profits to the members as revealed by the small profits and reserves they had. On the other hand, Agha Khan Rural Support Programme- India (AKRSP-I)-promoted-PCs that were of more recent origin had low authorised capital (₹5–10 lakhs) and mobilised equity (only 20%–34% of authorised). But they were able to achieve good level of revenue/turnover (₹24 lakhs and ₹80 lakhs each) and remained in profit almost throughout. The performance of goat PC was even more impressive as it was all women member PC and was in an unusual and unorganised sector of meat and animal trade. A Professional Assistance for Rural Action (PRADAN)-promoted-PC had a good start and mobilised a significant amount of equity from members (60% of authorised i.e. of ₹25 lakhs in 2017–2018 raised from earlier ₹10 lakhs). In fact, it had reached 75% of its earlier authorised capital of ₹10 lakhs. It had high level of revenue (> ₹1 crore in 2017–2018) and profits throughout and created some small reserve as well (> ₹1 lakh) (Singh, 2021).

However, the Mhow PC of IGS had a poor start and working and it was even delisted by the Registrar of Companies (ROC) as it did not file returns. It was defunct for some time and could not even mobilise 10% of its authorised equity of ₹10 lakhs. The PC conducted no business in 2018–2019 and had only ₹4 lakhs revenue in 2017–2018. Vrutti-promoted PC (Betul) was in an even worse condition as it could not go beyond mobilising 10% of its authorised capital of ₹10 lakhs and had no business in 2018–2019, and therefore, no revenue. It showed large revenue in 2017–2018 mainly due to the opportunity given by SFAC to procure on its behalf which it did not buy from its members but from a mandi. A major departure in performance among PCs was that of the Ram Rahim Pargati PC, promoted by Samaj Pragati Sahyog (SPS—an NGO). This was an all-women member PC and had a large authorised equity of ₹40 lakhs in 2015–2016 that was raised to ₹1 crore in 2017–2018. The PC had mobilised 100% of it in 2016–2017 and 60% of the enhanced limit. It had a very large turnover (₹5 crore), decent profits (₹1–2 lakhs) and surplus of above ₹20 lakhs. It had also created assets worth ₹12 lakhs. The warehouse and other facilities created by it later showed that it was on the path to sustainability (Singh, 2021).

In West Bengal, most of the studied PCs (five) had mobilised a high percentage of authorised capital except Shantiniketan. Authorised capital itself was small or modest in most cases (₹10 lakhs) except one PC (Hooghly) that had an authorised capital of ₹25 lakhs. Further, their revenue remained low (<₹50 lakhs) except in one case (Chhattna) due to a franchise of Sufal Bangla where the turnover could go up to ₹3 crore per annum. Therefore, all PCs made negligible profit or net losses except the Chhattna PC that made a small profit. Except Hooghly PC, most of them had a small size of membership that was problematic given the small size of land holdings in the state. This kind of small membership could not generate a large equity capital and large volumes of business for viability (Singh, 2021).

In Tamil Nadu, all the three Evangelical Social Action Forum, (ESAF) expand promoted PCs which had small mobilised equity base of ₹10 lakhs, ₹6 lakhs and ₹1 lakh against authorised capital of ₹10 lakhs in each case, had not undertaken any business activity in one case even after 4 years of existence, and therefore was into losses technically. The other two had decent turnover of ₹67 lakhs and ₹17 lakhs but their profits were negligible. Kodai Hills of ESAF was one PC which made small profits every year as its revenue was from high value crops like pepper and coffee. But still, it could not mobilise more than 61% of its authorised equity from its members. The Theni goat PC unique in many ways being an all-women-PC into goatery and the only PC promoted by an NGO (Vidiyal) achieved one of the largest equity mobilisation by reaching 100% of its authorised capital and revenue of the order of ₹54 lakhs per year with small profits. This was mainly because it was into high-value low-cost business of rearing goats and selling meat and live animals locally. Kottampatti PC by Dhan was a big failure throughout with only coconut trading giving it much needed respite recently. It could not mobilise even 50% of its authorised equity despite being a landowning farmer PC. Both the PCs promoted by KTL (Kalanium Thozhiligam Limited—a section 25 company of Dhan Foundation—an NGO) had mobilised most of their authorised capital (₹10 lakhs and ₹25 lakhs) and very high levels of revenue in each case which was more than ₹1 crore. But even their profits were negligible due to the fact that PCs behaved like the cooperatives passing on the surplus to their members to avoid paying income tax on their profits. The SEEDS NGO promoted PCs were the most vibrant and successful as they not only mobilised most of the authorised equity capital (77%–90%) which itself was of the order of ₹20 lakhs and ₹40 lakhs but also had revenue in crores (>₹4 crore) in case of SEEDS PC. But, even then its profits were very modest (₹8 lakhs). However, the second PC had small revenue and no profits from its operations (Singh, 2021).

On the other hand, National Dairy Services’ (of National Dairy Development Board, hereafter NDDB) state-level milk PCs performed better on many parameters despite being new entities. (Singh, 2021). All of the PCs were set up under the National Dairy Support Project, financed by the World Bank for 5 years. The relatively better physical and financial performance of the four PCs though varying across them on various parameters is also corroborated by a recent assessment of their performance. They had achieved the targets of farmer membership, including women members and small-holder producers but fell short on number of villages covered at the end of the project period (World Bank, 2020). The membership ranged from a low of 51,590 in Baani (in Punjab) to as high as 104,603 in case of Paayas (in Rajasthan) with the other two being at 95,000 (Maahi, in Gujarat) and 91,000 (Saahaj in Uttar Pradesh) members each. The women membership out of the total stood at 25% and 26% (Baani and Maahi, respectively) and 35% and 38% (Saahaj and Paayas, respectively). Likewise, small-holder percentage of total membership was lowest at 34% and 35% for Paayas and Baani, respectively and the highest for Saahaj at 64% with Maahi at 52% (Singh, Forthcoming).

Over time, the share of small holders in Paayas and Saahaj was declining due to the existing members expanding their herd size on an average. However, Paayas and Maahi stood apart from others in milk procurement at more than eight lakh litres per day while Baani and Saahaj were only at less than three lakh and six lakh litres each, respectively. This was reflected in the turnover figures as well. Finally, the share capital mobilisation by Baani was the poorest and that of Paayas and Maahi the best, and Saahaj fell in between these two extremes (World Bank, 2020).

Inclusiveness of PCs

The PC members had higher average land holding both owned and operated across all states than those held/operated by non-members, with large difference only in Rajasthan and Tamil Nadu. Both states also had the highest average size of landholdings. The goat owning households were landless or marginal landowners or operators (Singh, 2021). This was also corroborated by other recent studies as well. For example, in Maharashtra, the average size of holding of members of a PC was 1.6 hectares and only 10 out of total of 839 members were holders of more than four hectares. Further, the PC member farmers had the lowest average land holding as well as land under the crop (tomato) compared with wholesale wet produce market and contract farmers (Bhanot et al., 2021). Another recent study involving 779 farmer members showed the average size of land in six PCs across three states of Tamil Nadu, Odisha and Bihar to be lower than two hectares each (Nair et al., 2020).

However, there are also exceptions. For example, one of the most discussed cases of successful PCs is that of Sahyadri Farmer Producer company. With a share capital of ₹257 crore and profits of ₹8 crore, it is engaged in grape and vegetable produce—both fresh (82% of turnover) and processed—marketing for more than 10 years. This includes export and own retailing in some cities (MANAGE, 2017–2018). It has worked with 6,400 registered growers cultivating 15,790 acres as of 2017–2018. About 73% of its member farmers (not all shareholders) in contrast with the non-members (wherein 45% were supplying to this PC for the last few years and only 58 of 77 farmers had shareholding in the PC), were small and the rest medium but the medium category had 72% of the total land held by PC farmers. In fact, the categorisation of small and medium was somewhat faulty because those having less than three hectares were called small landholders whereas it should have been up to two hectares according to the official categorisation of farmers in India. This could have shown that the proportion of small farmers was even lower than 73% of the total members and land held by them much smaller than 46%. It is important to note that this PC originated in 2003 as a privately held company with ten farmers as shareholders and it became producer company only by 2011 when it had 140 farmers as supplying members. Even today, there are three types of farmers associated with the company—shareholders, registered farmers and non-registered farmers. The Sahyadri Group alone had eleven shares besides 421 individual shareholders. Therefore, there are only about 432 shareholders as against 6,400 farmer members or suppliers (Lalitha, 2019).

Farmer Member Agency and Engagement

There are three ways to empower rural producers: Understanding which includes rural actors acquiring knowledge and know-how related to agriculture such as legal rights and applicable law, market analysis and contractual arrangements; Organising which includes developing loose or more formal organisation for coordinated or collective economic or political action; and Engaging referring to engaging with other market-based actors individually or collectively to strengthen their position in value chains or in advocacy for legal and policy reforms (Cotula et al., 2019).

If farmers’ agency³is about producers being in control of the decisions about their livelihood atleast in terms of market interface and also ownership of the organisation in terms of governance, the members should know and feel that they own the entity. However, our field study showed some missing links on these aspects of member engagement and empowerment where farmers could think and realise that they could also own companies and control such entities. Since some PCs were being organised by professional agencies and even NGOs to meet government targets, some of them skipped the long processes needed to create member awareness and buy-in. Of the thirty-five PCs studied, awareness of basic information about the PC was limited. 62% of the members knew the name of the PC compared to 44% of non-members. Further, another 27% members did not know it at all and another 11% reported it wrong. In addition, only 27% member farmers knew that PCs were owned by farmers with only 6% of non-members thinking so. The more worrying part was the large proportion of members saying it was owned by PC employees rather than member producers (18%) and BoD (8%). Another 3% members were not aware who owned the PC they were members of. About 80% of non-members had no awareness of who owned the PC. A few farmers in all states, except Tamil Nādu, also thought it was owned by the government (Singh, 2021). This was corroborated by other studies as well. For example, a recent study states:

However, small farmers see producer companies primarily as non-exploitative buyers and service providers who will be able to provide them steady income with minimum risk, rather than as businesses owned by them. Infact, may producer-shareholders view their equity contribution as a service or membership fee and not as share capital…. While most farmers claim that PCs are their companies (yeh toh hamari hi company hai, in Hindi), deeper discussions showed that they don’t really understand the meaning of this statement. For example, soon after claiming that ‘this is our company’, one shareholder in a dairy PC said, ‘this is a government dairy’ and in another PC, a board member seemed to think that the PC was an NGO program. This lack of understanding and ownership combined with their meagre savings contributes to the inadequate capitalisation of producer companies. (Govil & Neti, 2022, p. 10)

In general, mostly farmer members (78%) joined PC due to encouragement and persuasion by PC promoters which included PC BoD members and PC promoting NGO/agency staff; and PC employees along with some others like friends and relatives (Singh, 2021). It is also important to understand what makes some farmers join the PC while others don’t. An examination of the factors which can be associated with farmers becoming members of PCs as against non-members suggested that literacy, ownership of livestock and being a member of any other farmer collectives like Primary Agricultural Co-operative Societies (PACS), Self-Help Groups (SHGs) or another PC had a significant association with the membership of a PC. However, other factors like operated land and gender were not associated with the membership of a PC (Singh, 2021).

Effectiveness of Output Market Linkage for ‘Engagement’

The creation of a producer agency requires that producers are enabled economically to earn a better livelihood with choice of channels for sale of their produce. Realisation of better prices and other benefits like lower transaction cost and stable market access and engagement should also be made available. Such an agency, in turn, can reinforce more effective market linkages due to participation by members in such interfaces. The output linkage of the PCs reflects the extent and nature of the engagement of their members with the markets.

Most of the PCs generally begin with farm input and service provision as these are lacking in local areas and have serious availability, quality and cost issues. In Maharashtra, member farmers’ input costs were reduced by 22% due to membership of the PC (Bhanot et al., 2021).

However, if the output market engagement is not attended to, then these production-related efforts are not very effective. Therefore, output market linkages become crucial to strengthen producer agency as such entities open up possibilities for new markets, create market channels like contract farming or institutional supplies due to large volumes, bring opportunities to grow new crops, undertake value addition at individual or collective producer level through networking, professional planning and institutional support. An assessment of the output market benefits for members and its sustainability is crucial to create agency, to create awareness and understanding among existing and potential members and inculcate a sense of belonging to the entity. This is needed for viability, scaling up and sustainability.

The PC structure can also help small producers get out of situations of interlocked markets and exercise choice of channels including new channels like direct selling or contract farming which small farmers on their own can’t avail due to problem of scale and higher transaction cost to buyers. There are cases of PCs that have undertaken contract farming even with multinational corporations and facilitated farmer interface for contract farming or direct sale. Many PCs have even participated in e-NAM (electronic national market)⁴, for example, in U.P. and West Bengal (Singh, 2021; Singh & Singh, 2014). Case studies show that when contract farming is carried out through PCs, the small producer’s bargaining power improves, and there is lower default from both sides due to peer pressure and institutional mediation (Winters et al., 2005). It lowers transaction cost for contracting agencies as they don’t need to directly deal with hundreds of small producers. On the other hand, this enables PC members to grow new and higher value crops as they are assured of markets and prices besides other support like seeds, technology or extension. There are many PCs undertaking or intervening in contract farming somewhat successfully. The contracting agencies/companies pay the PCs some facilitation charges and also use their (PC) peer influence to make farmers deliver on the contract.

The output linkages have still remained poor across most PCs. In India, with many PCs not dealing with member’s produce at all (in Rajasthan) and some other PCs only procuring a crop or two for the government at MSP (in M.P.), the farmer benefits from PCs have been limited. There were many cases of PCs procuring pulses, oilseeds and cereals in limited volumes for the government; in some cases mainly to access the MSP and earn some revenue for the PC. On the other hand, some PCs were and still engage in contract farming with private agencies like in potato or drumsticks or even seeds and that has benefited farmers in terms of growing a new high-value crop as well as realising assured and better prices especially because these crops do not have MSP protection (Singh, 2021).

Another study in Maharashtra revealed that out of the thirteen PCs studied, only two had developed corporate linkages with agencies like Pepsi for potato, Amul for milk and fresh produce food supermarkets for vegetables (Badayta et al., 2018). This is corroborated by yet another study of six PCs along with a survey of 779 farmer members across states of Bihar, Odisha and Tamil Nadu. The survey revealed that PCs struggle to connect with bigger and non-local buyers due to insufficient capital, lack of storage space, no facility for value addition and more importantly (emphasis added by this author) lack of member trust in the PC to sell only to PC. The percentage of farmer members selling their harvest to the PC ranged from 0.3% in Bihar to 34.1% in Odisha. In fact, farmers did not sell to PCs as they did not buy or the farmers were not aware that PCs were buying. The PC did not buy on time or farmers found it more convenient to sell in other places (Nair et al., 2020).

In the case of another relatively successful PC in Maharashtra that had market linkage with various buyers like food supermarkets and also sold directly to consumers, only 25% of member produce could be sold through the PC. The rest was sold to the wholesale wet market but still PC channel delivered the second highest income to the farmers in the crop (tomato) after contract farming channel. On the other hand, the proportion of produce sold to contracting agency by contract farmers was only 20% of the total with the rest going to the wholesale market by the producing farmers (Bhanot et al., 2021).

Another recent study of PCs in MP also reported that the largest share of members’ output handled by any PC was 43%, and marketing and value addition remained major challenges across PCs but the subtle trend towards crop diversification among PC members after membership of the PC was emerging (Verma, 2020). Overall, this shows low member patronage of the PCs which impacts their engagement and understanding and thus compromises their agency and empowerment.

For making the output linkage more effective and useful for members, a majority of the members (53% who responded) across states (47%–66%) suggested interventions in procurement (11%) better, timely, lower cost input supply and procurement (9%) and rentals of farm machinery and equipment (3%) (Singh, 2021). This clearly shows output interventions were lacking in most cases and that is what matters the most for farmers as even if they produce at lower cost or higher output from same piece of land, if they are not able to sell it well, the farmer benefit goes missing. Therefore, engaging, and that too, effectively is crucial for creating producer agency and, thereof, empowerment of small producers.

A comparison of the impact of a grape-exporting PC on member farmers as against non-members showed that the cost of production for members was lower, income per hectare higher, yields were also higher (1.5 times) and chemical pesticides spray cost much lower for members giving them a much higher benefit cost ratio (4.91) compared with 3.42 for non-PC members. The incomes of members were 1.18 times higher than those of non-PC members. Whereas, in terms of prices realised for the grapes 85% of the non-PC members sold their grapes at lower than ₹50 per kg., only 44% of the members had sold it at that lower price (Lalitha, 2019).

Conclusions

The above analysis of the working and governance of the PCs shows that they are already making some difference to the lives of farmer members in terms of reducing input costs, improving price realisation for their produce, bringing new crops and enterprise opportunities in a fairly inclusive manner. However, these interfaces with farmer members are more transactional instead of being transformational in nature. The member farmer engagement with PCs remains low across regions with a few exceptions. On the other hand, there are cases of milk PCs especially those promoted by NDDB that have shown good performance in terms of scale and farmer impact. That has been possible largely because of the good governance rules followed by the promoters. This shows that the legal structure per se has no design issues and it provides for business freedom as well as engagement with other market players, including private entities. What is needed is the design of appropriate governance mechanisms for improving member engagement and patronage combining contract farming in terms of member interface to avoid problems of free riding on the PC and not investing adequately, typical of traditional cooperatives.

Some of the rules of governance in NDDB-promoted milk PCs that have enhanced cohesiveness and operational effectiveness are: one, they do business with only members; two, new members join only during specific windows in each year; three, only those with minimum supplies of milk vote; and four, the BoD are chosen from three categories of members in proportion to the milk supplied by each category of members. Further, members have to maintain a ratio of 3:1 flush to lean milk supply and have to increase their shareholding after 1 year of membership, and those with known political affiliations are not eligible to run for BoD election. Furthermore, 1/3rd members retire every 2 years. About 2–3 expert directors are also placed in each milk PCs (Shah, 2016). This has led to a sense of seriousness among the members who can’t think of free riding without serious consequences for their participation and benefits from PC. This enhances the understanding of business orientation of the PC among membership and helps appreciate their role in ‘organising’ to create an agency for their empowerment. However, this is only about governance features that have enhanced the chances of better performance of the milk PCs as there are also different dynamics of each crop or commodity sector like perishability and frequency of delivery to the PC which need to be factored in (Ganesh, 2017).

Finally, there is nothing inherently problematic in the PC structure which prevents it from being competitive in the market or in helping farmers interface the new market reality more effectively. It is all about planning and managing the PC business more carefully and in a business-like manner which will come if members have a sense of ownership and control and there are professionals who manage the entity on behalf of the farmer member owners. The PCs can make markets more amenable to benefit small farmers. This can be done by nurturing PCs in a need-based and gradual manner instead of treating it as targets and also letting it to or wither away in different contexts. The policy support from outside and more market orientation is what is needed in a value chain framework.

Footnotes

Acknowledgements

The author thanks Emily Polack and Emma Blackmore, both from the International Institute of Environment and Development (IIED), London for comments on initial version of the third section of the article for a different purpose, and the Ministry of Agriculture and Farmer Welfare, Government of India, for supporting the study carried out by the author at CMA, IIM, Ahmedabad on which the second section of the article is based.

Declaration of Conflicting Interests

The author declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.

Funding

The author received no financial support for the research, authorship and/or publication of this article.

Notes

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