Farmer Producer Companies

Basics about FPC:
  • On the recommendations of an expert panel led by Y.K. Alagh, Centre had amended the Indian Companies Act, 1956, in 2002-03 to provide for “producer companies”.
  • A Farmer Producer Company is a hybrid between cooperative societies and private limited companies.
  • The objective of the concept of FPC is to organize farmers into a collective to improve their bargaining strength in the market.
  • They are owned and governed by shareholder farmers (or artisans) and administered by professional managers.
  • They adopt all the good principles of cooperatives and the efficient business practices of companies and also seek to address the inadequacies of the cooperative structure.
  • A Farmer Producer Company can be formed by any 10 or more primary producers or by two or more producer institutions, or by a contribution of both.
  • They can undertake activities related to production, harvesting, procurement, grading, pooling, marketing, processing, etc., of agricultural produce.
  • Non-producers seeking to invest in these companies as shareholders are precluded under the statute concerned.
  • The Farmer Producer companies have democratic governance, each producer or member has equal voting rights irrespective of the number of shares held.
  • There is a limitation on the amount that can be distributed as dividend. Profit is largely distributed on the basis of “patronage”, which acts as a reward for members contributing to the business.
  • There can be 5-15 directors and expert directors can be co-opted for professional guidance.
 
Problems faced by Farmer Producer Companies (FPC):
  • There is a restriction on trading in the shares of a FPC, as of now there is no exit route for investors. If some one is non-producer and wants to invest in the equity of these companies, it is not possible. The fall out of this is that it is not easy to mobilize sizeable funds as primary producers do not have the wherewithal to contribute large amounts to the share capital.
  • As of now, there is little state support to FPCs. Since the FPCs are profit-oriented organizations, they have limited avenues to get donations also. As of now, the banks are not very much familiar of the concept, so these companies have limited access to banks.
  • To get the APMC (agriculture produce marketing committee) license, which is a must for trading in agri produce, there is a need to make concerted efforts to promote and nurture producer companies. State governments need to extend all the benefits of farmers’ cooperatives to them. The legislation concerned needs to be amended to make these companies more attractive for investors.
  • Since agriculture income is exempted from income tax, it would be appropriate that similar exemptions are also given to producer companies set up by farmers.