The Demise Of Cooperatives And The Rise Of Farmer Producer Companies In India
The agriculture sector has always been an area of concern for our country since independence. The primary sector which employs almost the half our workforce only contributes around 20% to GDP. Such glaring and ghastly wastage of factors of production like labour, land and capital not only raises some nerve-wracking questions to our economy but also has a tremendous societal and political impact. While a plethora of reasons including failure in the adoption of modern techniques, credit unavailability and lack of real governmental support, the problem of excessive fragmentation of land stands tall. If we are to look at developed nations, farmlands are heavily concentrated within a small section of farmers and subsequently, this helps them to muster the fruits of economies of scale.
Economies of scale is an economic concept explaining the reduction in input cost when the production is above a certain level. But the total potential output must be of a significant volume for attaining the optimum output level. Unfortunately, our farmers who typically own lands of paltry size don’t even fit in this picture. Fragmentation not only leads to low productivity but it financially cripples the agrarians. The input costs tend to be higher which is usually compensated by increased borrowing from informal sources like local money lenders. Subsequently, the farmer is entrapped in a vicious and perpetual cycle of debt. Due to a lack of organizational structure, fragmented farmers find it difficult to access and compete in the market. Vicious parasites i. e. , middlemen take the advantage of this situation and exploit the cultivators unscrupulously. Collective efforts like cooperative societies were deemed to be the panacea and it was pretty much suited to the Indian condition. But the results didn’t turn out as expected.
Cooperative societies: what went wrong? Cooperative societies were thought to be a comprehensive solution to the hardships endured by Indian farmers. Collectivisation, nevertheless, is a fabulous strategy to pool resources and attain economies scale by lowering input costs. Also, it helps farmers a better access to the market and, hence, higher prices. But de facto, collective societies couldn’t bring out the changes they sought for. Quite a few structural flaws and external pressures yielded the notion of cooperatives relatively ineffective. Structural flaws embedded in the organisational structure were that cooperative society focused primarily on meeting the requisites of farming like seeds, equipment and cheap credit etc while completely snubbing market dynamics, trends, and preferences essentially lacking a business approach. Lopsided marketing policies pursued by cooperatives had a negative bearing upon the returns of agrarian population. An excruciating majority of cooperatives failed to formulate and implement a good business model or plan to capitalize on viable market opportunities. External factors like lack of governmental backing both politically and financially have led to its deterioration. Unnecessary political encroachment and systematic assimilation of power within the system by landlords have adversely impacted the sector. Nor they could circumvent or negotiate, effectively rendering the organizations crippled with woes. Dismally, even partially successful cooperatives in AP, Maharashtra couldn’t match the half of what AMUL achieved in its glorious run over the past five decades. AMUL is an enticing saga of a regional milk cooperative in Gujarat, a small-scale initiative becoming the harbinger in India’s white revolution.
What makes the case study of AMUL so insightful and admirable is the combined existence of entrepreneurial and leadership traits, favourable social and political settings and massive cooperation and profound coordination between the cooperative and its members. Rare incidence of a strong business plan and a market-oriented organisational structure differentiate AMUL from other quasi-successful and failed cooperatives. Advent of farmer producer companies in India As we have discussed the problems of Indian agriculture and sector and the inability of cooperatives to counter them, there is a new boy in the town to be talked about- FPC’s. Farmer producer company is a fusion of the cooperative spirit with corporate efficiency and was brought into the limelight in 2003 by the government of India. Not only the government but also NGO’s, international agencies like world bank, IMF etc have been quite supportive and enthusiastic about this relatively new structure. There has been a trend of declining average landholdings according to the latest surveys. In 1971, it was 2. 28 ha, but it fell to 1. 33 ha in 2001 calling the need for an efficient institution of collectivisation to counter rising decentralisation of land. FPC’s are meritorious in helping farmers to integrate with new supply networks with less cost and time while accruing the benefits of economies of scale.
FPC’s provide an opportunity to participate in the emerging high-value markets for agrarian products like the export market. Facilitation of the adaption to new expanding and demanding market created by the arrival of large MNC’s and retail chains. The simultaneous threat of exploitation by large players while integrating with the supply chain can be also neutralised by FPC’s. Surplus generation automatically increases when the products are collected and marketed in bulk quantities by FPC’s. The farmers can also adopt new technologies and farming techniques through FPC’s, owing to the sizeable capital accumulated by companies. Perhaps, the most highlighted feature of FPC’s is their better managerial efficiency achieved by appointing trained professionals to manage the operations of the companies. The Vasundhara Agri-Horti Producer Company (VAPCOL)VAPCOL, which has been promoted by an Indian NGO, the Bharatiya Agro Industries Foundation (BAIF) is the poster child of highly successful FPCs in India. VAPCOL was transformed into a producer company by merging various farmer organisations like cooperative societies, farmers association and SHG’s.
The commencement of the operations was in 2008 and in the first year itself VAPCOL succeeded in garnering 34 million Indian rupees through the sale of their primary products- mango and cashew. Currently, this Pune headquartered company has 37 members from states like Gujarat, Karnataka, Madhya Pradesh, Maharashtra, and Rajasthan and is the largest FPC in India. The success of VAPCOL lies in its ability in creating an organisational structure that encompassed and managed dispersed farmers across the country. They established a direct contact with bulk buyers within and outside the country to sell the products at profitable prices. Most importantly, VAPCOL also generated employment opportunities in the community and hence allowed families to improve their economic capability and reduced labour migration. Almost 42. 5% of the adult family members of the community had employment through VAPCOL in the company's first year. Professional managers appointed by VAPCOL carefully designed and executed a well-sculpted business plan to find space and better prices in the market. Not only the supply side was benefitted by VAPCOL but also the demand side. Consumers are now able to procure quality products through reliable sources at relatively cheaper prices due to the elimination of exploitative intermediaries.
Impediments in the way forward
Attracting investments in an FPC is a challenge as investors often tend to recognize these agro companies with the slow and low rate of return. Efforts are to be made in removing such perceptions and projecting FPC’S as a lucrative area of investment. Like any other company, FPC’s requires constant support from the government. A conducive atmosphere must be deliberately engineered to nourish growing producer companies. This includes relaxation of taxes, providing subsidies and support through legislation.
Financial institutions like banks and NABARD must be directed to allocate required loans and credit for FPC’s. Setting up of a producer company is a tedious process that is money and time consuming and cannot be done by smallholders initiative alone. Finally, the concept of farmer producer company has captured little attention. Even the government has delegated the responsibility of the active participation in the creation of FPC’s to civil society organization. Such a complacent attitude from a responsible stakeholder is to be censured vehemently and are to be rectified with a great sense of urgency. Albeit the expansion of the agro market due to the arrival of giant MNCs is a boon, the threat of crony capitalism and unsavoury intentions of the vertical integration of the supply chain are to be countered as soon as possible. Political interference is another looming threat for producer companies as political parties have this tendency to expand their influence into all the spheres of the society especially agriculture and its allied activities. Such malicious intentions must be defeated as unnecessary political influences can be detrimental for the growth of producer companies.
