Company of farmers

-The Business Standard

 

Among the many initiatives and innovations being considered to improve returns to farming, the creation of producers’ companies deserves closer policy attention than has been the case so far. A farmers’ company, registered as a corporate entity with the registrar of companies, under the Companies Act, can help farm producers come together and derive economies of scope and scale. A group of farmers in Andhra Pradesh has reportedly taken the initiative to do precisely this. It may be recalled that the Companies Act was amended in 2002 to facilitate the formation of such companies by farmers and small producers of handicrafts and other products. The potential benefits of such enterprises go beyond acquiring greater bargaining power while procuring inputs and selling produce in bulk. They allow farmers to venture into newer fields, seek the latest technology and know-how, and add value to their produce and thereby boost returns.

This phenomenon of farmers’ companies has been observed in other countries as well. In many developed economies farmers have sought new markets and better prices by coming together to form marketing companies. Conceptually, farmers’ companies are different from both private limited companies and co-operative enterprises. Unlike listed private limited companies, farmers’ companies shares are barred from being listed or traded on the stock exchanges. Moreover, these shares, allotted on the basis of size of individuals’ land holdings, are transferable only between the existing shareholders; following the co-operative principle, each shareholder has only one vote, irrespective of the number of shares held. However, such companies steer clear of the pitfalls faced by co-operatives, notably bureaucratic dominance and political interference in their day-to-day business.

From a farmer’s standpoint, such corporate entities offer a possible way to increase their incomes, and therefore indirect protection against the takeover of their land by private moneylenders. Besides, they would not be expected to perform all related tasks, from procuring inputs and arranging for labour and machinery to marketing of the produce; such small companies are unlikely to be able to command expertise for the full range of functions. This may explain why, several after years the amendment of the Companies Act, no more than 200 farmers’ companies have so far been registered. The main deterrent has been the difficulty in seeking finance as these companies do not own land or other assets that can serve as collateral for bank loans. Fortunately, this constraint has now been eased to some extent as the National Bank for Agricultural and Rural Development has set up a fund that can be accessed by these ventures.

Since corporate farming is practically ruled out in the country owing to the difficulties of land acquisition, and because there is a ceiling on farm holdings, farmers’ companies seem the best way to reverse the failure of Indian farming to match the productivity levels in evidence elsewhere. They offer the advantages of both corporate agriculture and contract farming. In other words, if you cannot get companies to become farmers, get farmers to form companies! The Andhra Pradesh experiment will be watched closely across the country by farmers looking for a way out of the constraints imposed by the small size of their ownership holdings.

The Business Standard, 4 August, 2011, http://www.business-standard.com/india/news/companyfarmers/444748/

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