(Small) Farmer Livelihoods under Liberalised Agricultural Market Environment in India: Can Farmer Producer Companies be an Alternative?

 From: Sociological Bulletin

Agricultural markets are key to ensuring higher farmer incomes. Surprisingly, the Farmer Producer Organisations (FPOs) were missing as sales channel with only 0.1%–0.5% households reporting them in paddy, cotton and gram, as per the latest NSSO survey data. The private processor has a significant interface with the farmers with 30%–38% in sugarcane reporting selling to such players. In other major crops such as cotton (6%–9%), groundnut (7%), masoor (6%) and paddy (4%–6%), they sold to private processors in very small percentages as given in brackets.

The Agricultural Produce Market Committee (APMC) Acts in India were brought in during the 1960s and early 1970s to protect the farmers from private traders and commission agents and these Acts specified the rules of the game for sale and purchase of such produce or even facilitation of any transaction. These Acts detail various charges that could be levied on sellers and buyers and specify payment rules. However, the Model (APMC) Act in 2003 by the Union Ministry of Agriculture and Farmer Welfare (MoAFW) provided new market channels, namely,  direct purchase, private wholesale markets, and contract farming for farmers and buyers alike (Singh, 2018). This was around the same time when the Companies Act was amended according to which (farmer/primary) producer companies (PCS) were allowed to be set up in 2003 (Singh, 2016). The new market channels are larger in scale and are global in many aspects such as value chain drivers, multinational and national processors engaging in contract farming or even supermarkets (both local and global) buying directly from farmers (Cohen et al., 2021).

FPOs can strengthen small producers and make them attractive to value chains and large buyers in terms of economies of scale, lower transaction costs, and capture value from such networks/chains for such producers. Producers capture less value as they don’t have organisational platforms and mechanisms that can improve their agency within a chain or a network (Gersch, 2018). This is due to the fact that, in general, in developing countries, farmer organisation remains poor proportional to the total number of farmers. For example, in India, 29% of farmer households had a membership in a cooperative society and only 19% had availed of any services from a cooperative like fertilizers or credit facilities in 2003 (Mahajan, 2015). In this context, farmer entities like cooperatives or other producer institutions can empower primary producers to manage the market interface with new players like food supermarkets and large exporters and processors who coordinate directly with farmers (Trebbin, 2014; Trebbin & Hassler, 2012).

In the context of changing agricultural output markets in terms of regulation (deregulation) and policy focus on FPOs, this article assesses the Farmer Producer Companies (FPCs)’ physical and financial performance and member impact and examines their market interface to improve farmer incomes by creating a producer agency. It dwells on their experience dealing with corporate players/buyers and their own mechanisms to create alternative market mechanisms for effectively linking small farmers with modern mainstream or alternative markets. Primary data and insights from thirty-five case studies which also included interviews with more than 650 farmers (PC member and non-member) across five states of India in 2019–2020 (Singh, 2021) are examined on these aspects besides robust review of other studies on the functioning and impact of PCs in India.

There is nothing inherently problematic in the PC structure which prevents it from being competitive in the market or in helping farmers interface the new market reality more effectively. It is all about planning and managing the PC business more carefully and in a business-like manner which will happen if members have a sense of ownership and control and there are professionals who manage the entity on behalf of the farmer member owners. The PCs can make markets more amenable to benefit small farmers. This can be done by nurturing PCs in a need-based and gradual manner instead of treating their setting up as targets and also letting it  wither away in different contexts. The policy support from outside and more market orientation is what is needed in a value chain framework.