Farmer Companies

For the past several years of development planning and institution building for rural development and Nation building, Government of India and civil society has promoted several set ups such as cooperatives, multi state cooperatives, companies and social organizations with legal sanctity. Our people and Nation's strength lies in villages and therefore strengthening the rural areas and its people have the pivotal role of Nation building.

The economic liberalization and the booming stock markets touched upon the progressive growth and urban life. The rural population is yet to catch up with the progress as part of overall inclusive growth. Natural resource management, agriculture production, value addition, storage and marketing at several levels of local, national and international are yet to take place in advantage of rural population for inclusive growth. The rural farming communities should have a fair stake in the progress and that will strengthen the economy and rural prosperity.

One of the best instruments under the "inclusive growth" in promoting rural vibrancy is agriculture production by farmer collectives which will sustain the economic strength. This can be achieved by farmer induced quality production, value addition, storage and marketing. The farmer collectives can be "Farmer Owned Companies" and is more relevant under the economic liberalization and market economy. Farmers should have the first economic benefit rather than investors, middleman, non agriculture enterprises and urban elites. The finance, technology, infrastructure, marketing and management have to be bridged together and work for the rural revitalization which will contribute towards a marching economy reflecting the removal of rural poverty.

The farmer owned companies can come up in the rural areas and at least one in every punchyats and potential agriculture production areas. Farmers are to be motivated, empowered, educated and capacitated to set up "Farmer Owned Companies" under the legal provisions and law of the land.

Civil society organizations, NGOs, corporates, government bodies, financial institutions, and development agencies working for the cause of small and marginal farmers can help in setting up the farmer companies. Farmers require support due to the fact that they are primarily producers and not professionals in the field of organizational set up and company matters.

Under the provisions of the Companies Act 1956, companies can be formed under the following set up:

Private Limited Company (PLC)
Limited Company (LC)
Farmer Producer Company (FPC)

Private limited Company	Limited Company	Farmer Producer Company
Minimum 2 Directors are required	Minimum 3 Directors are required	Minimum 5 Directors are required
Minimum 2 Members are required, Maximum 50	Minimum 7 Members are required. Maximum any number	Minimum 10 primary producer members or two producer institutional members and maximum any number
Any one can become member	Any one can become member	Only primary producer can be member or producer institutions.
Can have two type of shares 1. Equity (2) Preference	Can have two type of shares 1. Equity (2) Preference	Only One type of Share Equity
Voting rights based on number of equity shares held	Voting rights based on number of equity shares held	Only one vote irrespective of number of shares held.
Shares can be transferred to any other person on price consideration	Shares can be transferred to any other person on price consideration	Shares can be transferred only to primary producer on price consideration
Shares are open to investors and Fis	Shares are open to investors and FIs	Shares are not open to investors and FIs
Conversion of Private Limited to Limited is possible, but conversion to Farmer Producer Company is not possible	Conversion of Limited to Private Limited is possible, but conversion to Farmer Producer Company is not possible.	No conversion is possible, but registered multi state cooperatives and cooperatives can be converted to FPCs and vice versa.
Internal audit is conditional subject to financial limit	Internal audit is conditional subject financial limit	Internal audit is compulsory
There is no bar on the donations made	There is no bar on the donations made	Donations can be made only up to 3% of the net profit.
Investor friendly and less cumbersome.	Investor friendly and more procedural than private limited.	Not investor friendly and more procedural than private limited and limited.

Major constraints in agriculture sector in rural areas is lack of infrastructural facilities such as intermediate collection centers, Godowns, transport, farm implements, affordable quality inputs, technology, quality extension, investment on natural resources, credit facilities, secondary agriculture activities and marketing. Politically inspired bad habit of non repayment of loans and non fulfillment of promise of subsidies by the Government has created severe damage to the actual production of agriculture in quality and quantity thus contributing to rural poverty. Heavy investment is required and that cannot be realized through farmer producer companies the concept of which has been introduced under the company amendment Act 2002 (1 of 2003) or also called Producer Company Act 2002. The other problems are farmer literacy, small land holdings, insufficient quantity of production to set up secondary agricultural activities in a given location of singular villages. The solution is farmer collective endeavors.

While looking ahead, the current possibility is to start with the set up of private limiteds owned by the farmers' collectives and moving towards limited company if the need is there. The farmer collectives can be a registered body under Society Act 1860 or mutually benefit public trust.

The farmer limiteds should be set up as an independent entity from a group of local farmer organizations either severally or jointly in a convenient geographical area

Farmer Group (Generally 20 Members)
Local cluster associations (LCA), 50 farmer groups membered which is registered U/s Society Act XXI of 1860
Ten or more LCAs from an agro-climatic zone forming a Farmer Limited with the support of various useful institutions.

(Note: Ten LCAs will have 10,000 members, 20,000 to 50,000 Acres of land and the tentative agriculture production could be 4 Lakh MT produces, out of which 25% can be convincingly secured for secondary agricultural activities).

The Farmer owned limited will have 10 Members (LCAs), investors, lead promoters and professionals which in every circumstance less than the upper limit of 50 members prescribed for private limited companies under the Companies Act 1956.

Lead promoter can be a Civil Society Organization/ NGO, KVKs, Government autonomous bodies, ATMA, and special projects. The promoting organization can put in one promoter director in the management set up of the farmer limiteds. The Investor Bank can be included in the board of directors. Two or three farmers can be the board of directors representing farmer share holders (LCAs). Care has to be taken to see that the Farmer Limited will not go forward the way the cooperatives moved ahead and got stagnated and disengaged from the goal of keeping farmers economic benefit. The Farmer Owned Companies will be run by professional staff team. The Farmer Owned Company Board will function professionally and not politically.

Way back during the 1990s the Rubber Board under Dr. A.K. Krishnakumar, Rubber production commissioner promoted Producer Companies for small rubber growers. Few such companies have grown up and functioning as producer companies. Dr. Y.K Alagh is the author of farmer producer companies on line with the rules and regulations of multi state cooperatives. Not more than 150 Companies are registered during the span of six years. Dr. E.V. Murray, Professor National Institute of Bank Management, Pune made a study on Limiteds. The World Bank funded district level poverty reduction project of Madhyapradesh Government under the leadership of Dr. Patsor registered 17 FPCs with professional management. Such companies are coming up in Tamil Nadu with World Bank funded projects. AOFG India is promoting 4 Farmer Private Limiteds in Kerala.

Farmer Companies

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