The Producer Companies Act 2002 was pioneering in its vision of combining the principles of collective action with the structural benefits of a company. It was predicated on the belief that producer companies (PCs) would enable small producers to pool their resources and establish successful businesses which would improve their incomes and reduce risks in the long run. And, as member-based institutions, they would be inherently embedded in local communities and have the potential to become strong local institutions of marginalised producers.
Over the last 17 years, thousands of PCs have been registered in India, engaged in a wide range of activities such as bulk procurement of inputs, aggregation of produce, value-addition and marketing. We undertook a study of PCs in India to (i) analyse the characteristics of producer companies in India, (ii) investigate their strategic challenges, capitalisation, internal governance, regulation, and long-term potential, and (iii) recommend possible strategies for improving the viability of producer companies.
For this purpose, we constructed a comprehensive and robust dataset of all PCs registered in India up to 31 March 2019. We also conducted over 100 in-depth interviews of stakeholders involved in promoting and supporting PCs including farmer shareholders, board of directors, CEOs and management of 24 PCs across 8 states as well as government and non-government organisations.
Producer companies face several challenges such as weak sense of ownership among producer shareholders, undercapitalisation, inadequate business skills, poor governance and the lack of an enabling ecosystem. We found that these challenges are partly a result of incongruities in stakeholder imaginations of the purpose of producer companies. In order to improve the likelihood of PCs’ success, we recommend promoting them in a two-tier model comprising multiple supplier PCs and one market-facing company in each block or district (depending on the number of small producers).
It is vital that supplier PCs and individual farmers own a significant stake in the market-facing company and have strong representation on its board to ensure alignment with interests of small producers. It is equally important for the market-facing company to be invested in the success of supplier PCs. It would also be advisable to simultaneously fund and develop a business ecosystem to support producer companies by encouraging local entrepreneurship for providing support services to PCs. Such an approach allows producer companies to attract greater capital and skilled talent, and generate higher turnover, profits and member loyalty.
Producer companies should be made explicitly eligible for government schemes available to individual farmers and their collectives. Policymakers should further support producer companies’ growth by simplifying compliance processes, instituting differential regulation, protecting the rights of vulnerable shareholders and enabling external investment through a different class of non-voting shares (with appropriate safeguards and
limits). The geographical disparities in PC promotion should be addressed by promoting PCs in the most backward districts with the largest numbers of small producers.
Currently there are 7374 producer companies covering over 4.3 million small producers in the country. These numbers are expected to more than double over the next few years, covering almost 10% of all agricultural households in India. Strengthening the long-term viability of producer companies has the potential to improve the life and livelihoods of millions of small and marginal producers across the country.