Producer companies can help marginal farmers to compete in upcoming markets, such as the export market and the capturing modern retail sector in India. In developing countries like India, lives of small and marginal farmers’ are being threatened due to globalization, liberalization and privatization of Indian agriculture and the increasing interest of private capital in the agribusiness sector. The present scenario of Indian Agriculture is of a greater instability and competition, hence there is a need of organization and collective action which can enhance farmers’ competitiveness and increase their advantage in upcoming market opportunities. The functions and organizational structure of producer companies in India and the ideas of value chain and collective-action literature are within this context. On the basis of a case India’s leading farmers’ producer company consisting of a collective group of 8000+ marginal farmers who grow fruits and vegetables on less than one hectare of land. We discuss the potential benefits for rural communities and the empowering effect of this form of farmer organization with its effective governance of value chain.
Keywords: collective action, marginal farmer, value chain, globalization, governance
Indian is a land of agriculture and is the home of small and marginal farmer’s occupying 85% of total landholdings. It was estimated that 117 millions of land holdings were small and marginal out of total 138 million, as per the last Agriculture Census done in 2010-11. Hence there is a need for sustainable agriculture growth and high performance of small and marginal farmers collectively which will ultimately take care of food security and livelihoods of a vast section of the country. Collectivization of producers, especially small and marginal farmers, into producer organizations has emerged as one of the most effective pathways to address the many challenges of agriculture but most importantly, improved access to investments, technology and inputs and markets.
Department of Agriculture and Cooperation, Ministry of Agriculture, Govt. of India has identified farmer producer organization registered under the special provisions of the Companies Act, 1956 as the most appropriate institutional form around which to mobilize farmers and build their capacity to collectively leverage their produce. Producer organizations are defined as “membership-based organizations or federations of organizations with elected leaders accountable to their constituents” (World Bank, 2008) and have been viewed as a hybrid of private companies and cooperative societies (Trebbin and Hassler, 2012). In India, the Companies Act, 1956 was amended in 2002 to allow for incorporation of producer organizations on the basis of the recommendations of a high powered committee chaired by Y K Alagh (Government of India, 1999).
The main aim of PO is to ensure better income for the producers through an organization of their own. Small producers do not have the volume individually (both inputs and produce) to get the benefit of economies of scale. Besides, in agricultural marketing, there is a long chain of intermediaries who very often work non-transparently leading to the situation where the producer receives only a small part of the value that the ultimate consumer pays. Through aggregation, the primary producers can avail the benefit of economies of scale. They will also have better bargaining power vis-à-vis the bulk buyers of produce and bulk suppliers of input.
The paper is based on secondary data collected and literature review regarding how power of collectivism and governance of value chain reaping benefits in the form of FPO and interview conducted with the members of sahyadri Farms (SFPC) a leading producer company in India. This paper will focus mainly on problems faced by the Indian farmers with respect to the land holdings, the concept of farmer producer organization, understanding its structure and services provided followed by a case study of SFPC explaining its value chain and how it transformed the lives of the farmers.
The organization of the paper is into four sections. In section two is literature review of value chain analysis and collective action of FPO. Section 3 consists of concept of FPO and structural characteristic of agriculture in India. In section 4, the case study of SFPC is presented and analyzed in relation to the success of this producer company in empowering farmers and improving their livelihood. In the final section, we conclude that producer companies are a promising new model of smallholder organization.
Strengthening Farmers Through Collective Action
Smallholder agriculture faces several constraints related to the small size of the operation. These include the inability to create scale economies, low bargaining power because of low quantities of marketable surplus,scarcity of capital, lack of market access, shortage of knowledge and information, market imperfections, and poor infra-structure and communications (Barham and Chitemi, 2009; Bie¨nabe and Sautier, 2005;Mercoiret and Mfou’ou, 2006; Teshome et al, 2009). Against this backdrop, a renewed interest in farmer organization has developed in recent years (Barham and Chitemi, 2009). Much emphasis has been placed on its potential role for poverty alleviation within a so-called `smallholder revolution’ in the 2008 World Bank report (World Bank, 2007a).
Most of the collective-action literature emphasizes increasing economies of scale as well as the lowering of transaction and coordination costs as the main benefits of organizing farmers (Bernard and Spielman, 2009; Bie¨nabe and Sautier,2005). The creation of countervailing power, access to capital markets on favorable terms, risk management, and income improvements are other major reasons for establishing farmers’ organizations (Datta, 2004). Most farmer organizations act as multipurpose organizations and offer a wide range of services to their members, independent of the specific type of organization.
In view of the trends within global agrofood systems and the strong power concentrations in buyer organizations, farmers’ organizations, especially in the Western world, are in the process of adapting their organizational structures. This includes strategies to develop structures as regular commercial companies (Datta, 2004; Singh, 2008). Strategic reorientations are largely reactions to problems at several organizational scales.
This fragmentation in Indian agriculture creates problems for the supply side as well as the demand side of the market. On the supply side, farmers of small holdings are often unable to apply knowledge and technologies. Low levels of technological input usually result in low levels of output produced, low incomes, and low creation of surplus value to support the family livelihood. On the demand side of the markets, it is often difficult to find a sufficient supply of products meeting certain quality standards at the required time. In addition, large-scale distribution organizations, such as the evolving retail chains in India, are searching for alternatives to the existing supply models, in which a number of independent intermediaries such as small aggregators, traders, and wholesalers are also involved between smallholder production and retail distribution. Therefore, supplying a growing domestic or export demand for, for example, high-value produce, from smallholder agriculture is a challenge in terms of constant volumes as well as quality.
A common mode of production in many developing countries, especially in the case of high-value produce, is the implementation of contract farming or similar forms of vertical integration of production. In an attempt to move into this direction, the Indian government introduced a new form of organization which offers farmers the opportunity to compete with other business organizations. The Companies Act 1956 was amended on 6 February 2002. Since then, producer companies have been recognized as a fourth form of corporate entity alongside companies limited by shares (public limited and private limited companies), companies limited by guarantees, and unlimited companies. The new legislation ensures that producer companies maintain unique elements of cooperatives while the regulatory framework is similar to that of other company types. The primary goal of producing companies is to link smallholders to markets. Therefore, they predominantly work on the downstream end of the production system.
The benefits of the entire concept, however, can be seen both on the supply side as well as on the demand side of the market. Individual smallholders would be unable to deliver directly to and interact with large-scale customers. The producer company organization replaces intermediaries between market participants. Through this, profits which otherwise would be paid to intermediary organizations such as wholesalers are captured by the farmers themselves because they are shareholders in the producer company. In addition, through the collective market appearance, small- holders are able to access market information in terms of required standards and prices and to integrate this information into their production planning and methods. Producer companies are also implementing programs to upgrade farmers’ production methods.
The Sahyadri Farmer Producer Company (SFPC)
This is the case of one of India’s leading farmers’ producer company consisting of a collective group of 8000+ marginal farmers who grow fruits and vegetables on less than one hectare of land. SFPCL is formed by a grape exporter of the Nashik district, who is M.Tech in Agricultural Engineering Mr. Vilas Shinde. Main promoter of the PC is the exporter and farmers themselves.
SFPC is a group of farmers that grow fruits & vegetables on less than 1 Hectare of land. They are smaller than the smallest farmers and hence are called the ‘Marginal Farmers’ of India. Many such like them across India together account for 63% of the total farmer population.
Sahyadri Farmers Producer Co. Limited was established in the year 2011, at Nashik (Maharashtra, India). It is a cent percent farmer owned, professionally managed, grower – Producer Company, operationally sound with best use of technology. It is India’s leading manufacturers, wholesalers and exporters of Frozen Vegetable, Frozen Fruit, etc. It exports its products to Germany, USA, Norway, etc.
The value chain of Sahyadri farms helps in connecting famers to experts and framers across the world to meet the global quality standards. It imports new patented varieties across the borders to improve productivity by 20 percent and quality by 80 percent, thereby reducing the cost of production by 15 to 20 percent.
Profitable and sustainable by assuring the best possible realization for all farm produce under allCircumstances like new technology, scientific storages, grading packaging, commercial viable logistic and harvesting of farm produce skill development.
A group of Farmers from Nashik gathered together in huge numbers for setting their targets towards development and built their own Infrastructure which would be capable to export their produce with help of financial institute like APEDA. As years passed number of farmers joined the FPO, this made Shayadri farms to have huge producers’ base organization which in turn results in large amount of production and they developed Traceability system by Crop-In software, by this Software Farm managers are able to manage growers/farmers and ensure standing crop quality by keeping close tab on each growers plot. Also, they can manage their field staff under them and monitor their tasks and day to day activities. Slowly they started on value addition and processing of their farm produce into Pulps, Juices & Ketchups. They had started their own retail business, which showed them better results in terms of profit. This integrated work of all Actors in Agri Value chain by single FPO makes it as India’s leading farmers’ producer company.
Key high light of the SFPC
- Largest Global gap certified farmer group in India
- Total 6610 growers are registered with total area of 15789 Acres
- 1050 grape grower,4947 acres under command of export
- Till date not availed govt help or subsidy
To face the challenges of the of liberalization, privatization and globalization, the government has introduced the concept of Farmer Producer Organization and Producer company which established the principles of profit oriented business organizations within farming communities. FPOs offer a proven pathway to successfully deal with a range of challenges that confront farmers today, especially small producers. Overcoming the constraints imposed by the small size of their individual farms, FPO members are able to leverage collective strength and bargaining power to access financial and non-financial inputs, services and appropriate technologies, reduce transaction costs, tap high value markets and enter into partnerships with private entities on more equitable terms.
With fragmentation of holdings due to generational transfer unlikely to abate, FPOs offer a form of aggregation irrespective of land titles with individual producers and uses the strength of collective planning for production, procurement and marketing to add value to members’ produce. International and national experience in the performance of FPOs makes a strong case for policy support to member based farmer bodies, to significantly increase their power in the market place, reduce risks and help them move up the agri value chain. Finally, the researcher concludes that producer companies are a promising new model for sustainable agriculture and unlocking value chain.