Farmer Producer Companies and operational challenges


Image Source: Livemint

In the last week of January, I sat through an Farmer Producer Company ( FPC) ‘s annual review meeting. This FPC* is based out of Tamil Nadu. The company was formed in 2010. The FPC as it is right now is stable and profitable. The FPC has attained a reputation wherein, the coconut prices set by the FPC is now the reference for all coconut farmers in the locality. That is no trader or a mandi is anymore able to  undercut a coconut farmer. If anything a farmer may get a maximum difference of  INR 0.50( per coconut ) than the price set by the FPC . This in itself , is a huge achievement in improving farmer incomes. The variation in price no more swings in a large bracket of  Rs 3 -Rs 4 ( per coconut) from the actual mandi price of the day of procurement.

Seeing this FPC in operation provided me an opportunity to understand the nuts and bolts of what it takes to run one and the realtime challenges faced in running one. Many of this will never be perceived by someone writing a policy note from doing a desk review, as most of the challenges will be negated by basic assumptions that lay foundation to any policy.Nonetheless the laws that are in place to facilitate formation of the FPC is quite good. Since the initial days of this statute in 2002, it has slowly picked up across the country. Now the idea of formation of producer company is common place and many progressive and aware farmers are coming together to form a company to benefit from the provision of the statute.

The broad areas of FPC’s activities are that of aggregation of produce, on-farm services to aid improvement in production/ harvesting/ post harvest etc. The FPC that I observed was engaged in on farm harvest service provision as well as aggregation of produce from the farmers of the company and other non-member farmers of the company. This FPC’s primary focus is coconuts. The service they provide is harvesting of the nuts, and they aggregate the coconuts. 

When I heard about this FPC- the image that comes to me after listening to the one line scope of the FPC is  that of: All the stakeholder ( farmers) of this FPC , avail the harvesting service of FPC and sell all their coconuts to the FPCs. I was too naive to assume and expect farmers to not exercise choice like any other stakeholder of a company  a publicly listed company or a customer in a retail shop. To explain how naive my expectation was , sample this: You hold shares of Videocon company and therefore I expect you to  buy Videocon TV, Videocon satellite tele and all other products that Videocon produces that meets your need.  No shareholder of any company behaves like that, instead people buy what they consider is good quality/ value for money or with which they have any sentimental attachment. Isn’t it?  This freedom for a farmer gives way to challenges in running a FPC profitably.

In the case of the coconut FPC that I observed let us look at their pool of farmers they cater to. I try to ilustrate the group of farmers with notations below.

Let, farmers who access harvesting services  from FPC can be denoted as FH and farmers who sell their coconuts to the FPC as FC, and farmers who access both harvesting service and sell their coconuts to FPC as FHC. Lets say the total shareholders of the FPC be X. Nonmember farmers that access the FPC’s  harvestingservice is denoted as  FNH, and nonmembers who sell coconuts is denoted as FNC.

Ideally one would have assumed that in this FPC ,

FHC = FH=FC = X, That is all stakeholder farmers use both harvesting service and sell their coconuts to the same FPC.

FH: But in this FPCs case, the farmers who access the harvesting service,  need not necessarily sell to the FPC, and they are not necessarily stakeholders either. They are farmers who grow coconut and have their farms in the neighbourhood. The farmers who access the service are less than 20% of X(the total FPC members) .

FH<= 20% of X, this includes few FNH too.

FC: The farmers who give the coconuts to the FPC is less or half of the total FPC members and some of the farmers selling to the FPCs are non stakeholder members too.

FC= <=60% of X.  This includes a good number of FNCs too.

FHC : The farmers who access both harvesting service and sell the coconuts to FPC make an even more platy number.

FHC <= 10% of X.

There are two major takeaways from the above observations:

  • All members/ stakeholders need not participate in the FPC by accessing either harvesting service or selling their coconuts.
  • And the corollary is also true- Non member farmers are not restricted from accessing either the harvesting or selling to the FPC.

So if the FPCs profits are to be improved then the all member farmers should access the service and sell their produce to the FPC, and the number of nonmember farmers accessing both service and selling has to improve. To be able to do this, the FPC took up an exercise to understand the reasons behind the farmer behaviours.

The following are the broad reasons for the observed pattern :

  1. Pre-existing ecosystem of services and procurement of coconuts
  2. Bottlenecks in harvesting service
  3. Payments

1. Preexisting ecosystem: The coconut famers who are now the stakeholders of the FPC have been engaged in coconut farming for decades. Although they chose to become stakeholders of the FPC, they still have their social ties to the traders whom they sold to earlier or a moneylender or a relative  and therefore do not want to severe ties. One must not read these relationship in a negative light.  That is a trader or a money lender need not be the evil guys all the time. That is if not for the traders a farmer might not have had access to markets at all.  A trader also provides access to harvesting or transportation service along with buying the coconuts. Of course many times they have taken advantage of the information asymmetry  lie between them and  the farmer. But this in the past has worked for the farmer. And one cannot discount it. Also a farmer will take his time in understanding and trusting  a new entity like an FPC. This bit only accounts for a small portion of farmers who do not sell to the FPC. And when there is no easy way  for a farmer to access credit in the times of urgency a money lender comes to his help. There again the farmer may be showing his loyalty by selling his produce to the lender.

But the FPC by its sheer presence has made sure the coconut farmers in the locality of the FPC do not get exploited by establishing the price of the nuts.

2. Bottleneck in harvesting service: The harvesting service provided by the FPC is made available by allocating labourers skilled at harvesting. The FPC has been struggling to service the existing demand. That is when a request for harvest is placed it takes them few days before they service it and this leads to cancellation of  these request. This slack in harvesting leads to non selling of coconuts by a group of farmers too. That is many times harvesting service and uptake of coconuts is provided by all other traders or other service providers in a package. There are not many harvesters who just harvest and go.

3.Payment : Firstly, Many member and nonmember farmers who would wish to sell to the FPC end up not selling due to the fact that FPC do not pay the farmers in advance. This advance request (counterintuitively) is usually from the large farmers.  It remits money to the farmers into their bank accounts within 24 hours after the procurement. Secondly, many medium and large farms are managed by managers and not the farmers themselves. There exist a manager -trader nexus where the manager and trader  seem to have a certain cut in the profits by underquoting the number of nuts sold.

When the FPC addresses the above listed concerns it may be able to improve the number of farmers who access their service and also sell their coconuts to them. While some concerns listed above especially the preexisting ecosystem or payment expectations cannot be met by the FPC, the FPC can work on expanding the services that they provide and begin to engage in value added services like production of virgin coconut oil or other products from the nuts. . Along with it the FPC may also try to tweak and amend their bylaws to ensure the new and existing stakeholders are mandated to sell the produce to the FPC with specific terms and conditions elaborated in them.


* The name and details of the FPC  is not revealed to respect the confidentiality of the company.