There are 7374 producer companies in India

There is increased interest among policymakers and practitioners on collectivization, as it can offer a platform for small and marginal farmers to negotiate with markets from a position of greater strength.  More and more producer companies (PCs) are being formed. Therefore, it is important to know their numbers, their distribution and health. Yet, as those working on producer companies are aware, disaggregated data on registered producer companies is not easily accessible.

Therefore, my colleague and I undertook an exercise to clean up and analyse data uploaded by the Registrar of Companies on all types of pubic and private companies registered until end of March 2019.

As of March 31, 2019, a total of 7,374 PCs have been registered in the country. Almost all states and union territories have registered some producer companies.  However, a large number of companies are concentrated in some states: for example, Maharashtra alone accounts for more than one quarter of all producer companies in India.

PCs by state

The above table shows state-wise distribution of producer companies registered until end of FY18-19.  92% of these companies are farmer producer companies (FPCs).

The 7374 registered producer companies have a combined Paid-Up Capital (PUC) of about Rs. 860 crore. As one would expect, there are a few companies with very large PUC and a large number of companies with very small PUC.  For example, the PUC of top 100 companies (Rs 587 crore) accounts for more than two thirds of the total PUC of all companies and at the other end, there are 189 companies with just Rs. 1000 or less PUC each. The median PUC is Rs. 1.06 lakh for all registered companies.

As part of this analysis, we also estimated the total number of farmers who are now members of FPCs and the number turned out to be quite large: 4.3 million.  There are roughly 90 million farming household in India, so 4.3 million represents roughly 5% of all farmers.  With continued formation of new PCs, this number is expected to increase.

We recently published an article on this in The Wire with more details: How Many Farmer Producer Companies Are There in India?

We are working on a comprehensive report, which will be released over the next few months.

 

 

 

Farmer Producer Companies and Agrarian Distress

Over 7000 farmer producer companies (FPCs) have been promoted in the country since the enactment of Producer Companies Act.  A colleague and I are conducting a study of such companies.  We are finding that most such companies are under-capitalized.  Any many are simply defunct.

Instead of trying to address the issues, the policies continue to focus on launching more new companies.  Here’s my recent piece in TheWire on why FPCs are an important part of the solution to agrarian distress, but not the solution per se.

More to come on this topic… stay tuned

Of latitude and longitude

“We never used to go out or know about new things.  Now that we know about ‘line siri [SRI technique]’ we are practicing that.  The paddy production is much better now.”

“Now even if the men are away somewhere, we can go get fertilizer from the [Farmer Producer] company shop ourselves.”

These words spoken by women farmers in Lucknow district are emblemic of farmers I have met elsewhere in the country.  The women are thirsty for more information and access.  They toil away on family farms without acknowledgement of their labour and contribution.  Worse, they are not included (and in some cases actively excluded) from knowledge networks which might help them make better decisions about crop choice, cultivation practices, and markets.

The women talked candidly of their experiences and concerns.  The meeting was full of warmth, openness and enthusiasm, which I find to be invariably the case in meetings with women farmers across the country.

In this village, many farmers have come together to form a Farmer Producer Company (FPC).  The company has set up an inputs shop for its shareholders (~20% of whom are women) in a village about 1.5 km away.  Prior to the FPC shop, women had not been involved in the process of purchasing and picking up inputs from any shop; this was a role reserved for men (who have greater mobility).  They explained that now they could get information through awareness camps conducted by the NGO which was supporting the FPC.  Some women said that they find it very convenient to buy inputs from the shop and they were excited about learning new techniques like SRI (System of Rice Intensification).

The shareholders of this FPC are marginal farmers, with an average of 1.5 acres of landholding, growing paddy, wheat, mustard, potatoes and a few other crops.

Earlier in the day, my colleague and I had met the board of directors (all men; there was one female director, who was not available).  The discussion was animated and covered a wide range of topics, not dissimilar from other such discussions I’ve had in northern India. They commented on how the fertilizer in the market is highly adulterated and the distributors charge over and above the official MRP, often 50% more than the IFFCO MRP.  Not surprisingly, they explained how the creation of a Farmer Producer Company has been instrumental in getting access to good quality fertilizer at MRP when they need it.

The male farmers explained that when they had started the FPC, they had raised only a limited amount of equity capital.  They needed additional funds to buy good quality fertilizer in bulk. No bank or other formal sector entity would give them a loan.  After several attempts, the farmers took a loan from the Pradhan, who is also a member of the company.  They also organized loans from many other sources, which enabled them do proceed with their activities.

They feel frustrated by agriculture policies on several fronts.  For example, they say that the  government has not notified FPCs as being on par with farmer cooperatives when it comes to distribution of fertilizer. As a result, during peak season when fertilizer becomes available, it is first sent to cooperatives and the FPC is unable to get sufficient quantity.  They thought of buying during off-season but they don’t have enough working capital or storage capacity to store enough for all members.

The farmers grumbled about other interactions with bank officials:  The officials don’t know what a producer company is.  We had to tell them about FPCs.  Even then they didn’t want to support us because they did not have a circular.  The farmers claimed that one government circular stated that a particular scheme is available only to FPCs registered by SFAC.  “They don’t even know that SFAC does not register companies and only ROC (Registrar of Companies) does. We tried to convince them but they demanded a revised circular.

They gave more examples:  The FPC, under the guidance of the NGO-promoter, tried getting a license to procure at MSP (minimum support price), to become an “MSP centre” as they called it.

The FPC got the license and decided to open the centre for procurement.  After a few days of procurement they were informed that they must pay farmers for the procurement within 72 hours or face jail.  But they were expecting FCI (Food Corporation of India) to pay them about a month later. The head of the procurement centre was in a bind and felt distressed, saying ‘ab ya to jail ya fansi‘ (I am facing jail or suicide by hanging).  Somehow or the other, with the help of other producer companies and the promoters, well-wishers, etc, they managed to come up with the funds.  Not surprisingly, they decided to terminate all MSP procurement activities immediately.

The Chair of the FPC board lamented:  “How are marginal farmers supposed to come up with enough money to pay for all their entire produce within 72 hours?  We should be given advance like govt MSP centres are.”  

Perhaps a practical approach might be to allow FPCs to pay after receiving funds from FCI.  It is odd that these rules are being enforced without understanding the nature, capabilities and purpose of FPCs.

The farmers cited yet another example: They have recently received a circular requiring them to upload the geographical coordinates of their FPC office (geo-tagging of latitude and longitude) and a photo of their office on the website of the Registrar of Companies.  The farmers are relying on the NGO-promoter for compliance, despite the fact that the NGO’s project funding (and formal support activities) ended a few months ago.  They also pointed out that the forms and the website are in English for which too they need the NGO’s support.  The chair of the FPC board said “Unhi ka sahaara lenge (we will continue to rely on them)”; the NGO team member added quickly “jab tak yahaan hain” (until we are here).  I got the feeling that the farmers were referring to not only the NGO but the individual team members sitting among us, with whom they had built a trusting relationship.

In the course of my work, I have held similar discussions with farmers from different parts of the country.  Once we get over the initial hesitation, the discussions become open and candid.  This meeting was no different.  But it was unique in that most of the farmers’ laments were directed at policies which appear to be pro-farmers on the surface but are impractical, such as MSP procurement centre rules or expecting barely-literate marginal farmers to geo-tag their offices.

This particular group of farmers seemed to be well-informed and highly-engaged, and their FPC was quite active.  Yet they were unsure how they would manage after the exit of the NGO-promoter.

Update: The promoter of this FPC adds, “Today, ROC compliances for TATA or Reliance and a producer company situated at remote rural  location is same.  Recently ROC asked to update KYC of all BODs [Board of Directors] of companies, otherwise a heavy penalty was imposed.  Doing KYC of BODs means [that] each BOD had to upload his video and also whole process was linked with BOD mobile number. BOD received an OTP which he has to send to CA for uploading KYC documents.  In this process many BODs [who didn’t] have smart phone or not able to handle whole process got stuck and the result was ‘heavy penalty on FPC’. We are promoting these FPCs at remote locations to help small and marginal farmers, and we know about status of our country infrastructure and status of digitization.”

Explainer: Minimum Support Price (MSP)

There are many misconceptions about MSP, which I had written about in an earlier post. To help my students understand this better, I put together a short explainer on the topic, including some inputs from my colleague.  I’m sharing a link below, in case regular readers of this blog find it useful too.  Please do share your feedback in the comments section below.

MSP Explainer

Migration for us, not them: A conversation in class

Discussions with students on agrarian distress and migration inevitably turn into “how can we stop migration from rural to urban India”.  In India, one in five rural households have an out-migrant for economic reasons.  About half of these out-migrants send remittances home.  In most cases, these remittances provide an essential life-line to households otherwise suffering from various forms of agrarian or broader rural distress.  Despite this, the idea of wanting to stop migration has taken a firm root in our collective consciousness.

When we say that we want to stop migration, what we are really saying is that we want people to stay where they are – where they were born.  And how narrowly would we define “where they were born”?  Would we require they stay in their own district? Within a 100 km radius of where they were born? Within a 10 km radius?

And whose migration would we want to stop?  Everybody? An IT professional? A construction worker? In my class, emphatically state that I am a migrant to Bangalore.  If all migration was stopped, I wouldn’t be here teaching this class. Many students laugh. Some are silent.

The cognitive dissonance in the class is palpable. The students want to say “we meant stop migration of poor rural people not you” but they realize how elitist that sounds, so there is silence for some time while students process their own thoughts.

How can we subscribe to any argument which says that everyone should remain within 10 km of where they were born?  Imagine how boring the world would be… Creating a dynamic society requires exchange of ideas, of people, of things.  In “no migration” scenario, we would have a pretty boring and stagnant human society.

“We don’t want that”. Then what?  You want to prevent only the rural poor from migrating but are okay with the well-off to migrate?

Some clarifications emerge: Migration for marriage is okay.  Urban-to-urban migration is okay.  Rural-to-rural is okay. But rural-to-urban is not.

Okay, let’s back up. Why do we want to stop migration, anyway? “Because our cities cannot support any more migrants”.

If that’s the case, instead of stopping migration, shouldn’t we improve the capability of our cities to provide for the migrants?  Shouldn’t we develop/improve many more cities to absorb migrants, rather than using our inability as an excuse to stop others?

“But then, who would do farming? Who would produce our food?”  Ah, so now we are saying that we want to stop migration so that we can compel others to grow our food.

But shouldn’t choice of occupation be voluntary? Just because someone’s parents are farmers, must they continue farming?  Are you in the same occupation as your parents? “No”.  So why demand that of farmers’ children?  Shouldn’t they have a choice too?

“But then, who would do farming”? Firstly, all farmers may not leave farming.  Even if they did, in principle, others who are currently in cities could move to rural areas to do farming.  Why not?

“But they will not want to move to rural areas because farming doesn’t pay enough. It is risky. Also there are no good schools or hospitals so they won’t want to live in rural areas”.  So,  shouldn’t we provide essential services like schools and hospitals in rural areas?  Shouldn’t we address systemic issues of agricultural incomes and risk mitigation, instead of forcing those who are currently dealing with the risk to continue to do so for generations to come?

So, let’s ask again: Why do people migrate, leaving aside marriage? “To find jobs. Better schools for their children. Better health care.”  Why shouldn’t everyone be allowed to migrate for a better life? How can we tell them that you must stay in your own village/city regardless of how bad the situation is?

Moreover, aren’t we all descendants of the prehistoric people of Africa? Over millennia, they moved north and then east to form the hunter-gatherer peoples of ancient India. More waves of migrants came 3-4000 years ago from modern-day Iran, from eastern-central Europe followed by even more waves of people in recent history.  So, aren’t we all migrants? The only difference is how many generations ago we arrived here.

[This post is an amalgamation of multiple discussions on migrations with students]

Minimum support prices (MSP): For whom and for what?

Every year we see news of increase in government announced Minimum Support Prices (MSP) and how the MSP benefits farmers get a reasonable income from their production.  We also hear about complains by farmers about how low the MPS is.  This year was no exception.

What is MSP?

The MSP and the government system of foodgrain procurement are all part of the 1960s green revolution policies aimed at achieving food security for the country.

 As part of these policies, the government created a system of food grain procurement for multiples reasons:

  • Maintaining reserve stocks of food (national food security)
  • Providing price support to farmers by declaring, and procuring at, ‘minimum support price’ for various commodities
  • Selling the grain at subsidized rates for those who cannot afford it

 

The MSP is calculated by the CACP (Commission for Agricultural Costs and Prices), based on estimate of the average costs of production of each commodity and a desired farmer profit.  The MSP is declared for 24 commodities, for Kharif and Rabi seasons.

The MSP is simply the recommended price for the government to buy produce at.  Over the years, the nominal MSP has increased for all produce, but real MSP (inflation adjusted) have varied quite a bit.

MSP real over decades

How much does the govt. procure?

If the MSP is intended to provide reasonable income to farmers, such a system would work only if the govt. directly procures the majority of the produce.  Of all the 24 commodities, government procurement is greatest for wheat and rice.  GOI currently procures about 30% of all wheat and rice produced in the country (for market and subsistence) and about 6-7% of other commodities.

Who benefits from MSP?

The government’s procurement operations concentrate on a few crops and a few states. For paddy, about 50% of the total paddy procured for the central pool came from three states: Punjab, Andhra Pradesh and Telangana.  For wheat, about 60-65% is procured just form Punjab and Haryana. Even within these states, procurement takes place only in a small number of districts.  Strong lobbies (e.g. wheat and rice in Punjab and sugarcane farmers in Maharashtra) also influence where and how much procurement takes place. (For more details on procurement, see Pocketbook of Agricultural Statistics 2016).

In the case of oilseeds and pulses, in principle the government is supposed to procure these commodities when market prices crash. However, the quantity procured as a percentage of the marketed surplus is usually negligible.

As the govt. procurement is concentrated at a few centres, it requires farmers to have transport facilities to reach the procurement centres. There are sometimes delays in govt. procurement which makes it difficult for small and marginal farmers to wait for sale of their crops. In districts where a large proportion of production is procured by the government, the MSP can also affect the overall market prices at which the traders buy produce, due to competition from govt. agencies.

So direct procurement benefits only a small percentage of farmers because

  1. procurement is concentrated in some states and districts, e.g. Punjab, Haryana, AP,
  2. while MSP is set for 24 commodities, the government procures mostly wheat and rice
  3. most of the MSP procurement by the govt. happens from medium to large farmers

 

In fact, in 2015, a High Level Committee on Reorienting the Role and Restructuring of Food Corporation of India estimated that only about 6% of farmers benefit from the MSP.  This is also evident from various data from the NSSO, as below.

MSP procurement

So the next time we see a lot of debate over MSPs, it would be useful to remember that currently it benefits only 6% of farmers. But if the region, crop, and land holding bias of MSP could be fixed, MSP could provide much needed income assurance and risk reduction for the most vulnerable farmers .

Update November 2018:  Here is a more detailed ‘MSP Explainer’.

References

  • Kannan 2015. Trends in Agricultural Incomes: An Analysis at the Select Crop and State Levels in India. Journal of Agrarian Change. 15(2)
  • NSS Report 473 Statement 3.12b
  • Pocketbook of Agricultural Statistics 2016, Table 9.2
  • Report of the High Level Committee on Reorienting the Role and Restructuring of Food Corporation of India (“Shanta Kumar Committee Report”). January 2015. pp 12-13

Fertiliser reform

The government of India spends around 1% of GDP on fertliser subsidies every year.  Given the highly political nature of this subsidy, the government has tried but not succeeded at reform.  Every year, the Economic Survey includes a chapter on Fertiliser subsidies and points out the various issues.  Leakages are rampant.  Despite subsidies, more than half the farmers in India buy fertilisers at prices higher than the (subsidised) MRP.

India now uses more fertiliser per hectare than the US!  But take this with a grain of salt.  Some of the fertiliser gets diverted as cheap inputs for other industries such as plywood and paint.  Even if we discount for this, India’s fertiliser use is quite high, especially taking into account the fact that about 40% of agricultural farms (by area) don’t use any fertiliser at all. Even self-reported data by farmers points this out (I have written about this earlier).

The Economic Survey points out that response to fertiliser has been decreasing dramatically across the country.  The skewed nature subsidies (much higher on nitrogen than other types of fertilisers), the nutrient balance of Indian soils is now skewed. And, instead of the ratio of NPK (Nitrogen, Phosphorous, Potassium) being 4:2:1, it is now around 8:3:1.

Successive efforts have failed to make a dent in any of this.  Scroll.in reports on a recent government initiative, which tried to address some issues through Aadhar + land records + soil quality data.  The idea was to use information about a farmer’s landholding and soil quality, to suggest a recommended amount of fertiliser.  They are now rolling back this effort due to the obvious — farmers want to buy a lot more, and why would any retailer not want to sell a paying customer what he wants?

What is interesting is that the government seems to be aiming at small fish (the large number of small transactions at point of sale to farmers) and not large scale diversion of fertiliser at the fertiliser plants.