Introduction: In India, smallholder farmers face numerous challenges, including limited access to resources and markets. Farmer Producer Companies (FPCs) are emerging as a solution to address these issues. FPCs, registered under the Companies Act, provide a platform for farmers to collectively pool resources, access markets, and enhance their bargaining power. This article explores the concept of FPCs, their formation, objectives, membership, and benefits, shedding light on their significance in empowering smallholder farmers.
Background
The trend of decreasing operational farm sizes in India across generations is posing significant challenges to the viability of smallholder farmers. These farmers face a range of issues, including the lack of economies of scale, limited access to vital information, and difficulties engaging in price discovery processes.
In response to these challenges, the Farmer Producer Company (FPC), established under the Companies Act, is becoming a pivotal instrument for Farmer Producer Organizations (FPOs) to address the needs of grassroots-level farmers effectively.
What is a Producer Company?
A Farmer Producer Company is a company registered as a Producer Company under the Companies Act – 1956 or a Company registered under the Companies Act – 2013 having objects or activities specified in section 378B. Producer company may be considered as a Pvt. Ltd. Company without any limit to the number of members, however Producer Company shall not, under any circumstance, whatsoever, become or be deemed to become a public limited company.
Producer Companies, ” why now? “
In union budget 2019-2020, a new Central Sector Scheme titled ” Formation and Promotion of Farmer Produce Organizations (FPOS) ” was announced to form and promote 10,000 new FPOs with a total budgetary provision of Rs 4496.00 crore for five years (2019-20 to 2023-24) with a further committed liability of Rs. 2369.00 crore for period from 2024-25 to 2027-28 towards handholding of each FPO for five years from its aggregation and formation. Minimum number of members envisaged for the formation of Producer Companies under the Central Sector Scheme is 300 for plain areas and 100 members in case of North – Eastern and Hilly areas. Moreover, it provides a framework through which small holder farmers can unite with the objective of mutual assistance and benefit from theeconomies of scale with more streamlined and business-oriented cultivation and earn sizable profit.
Objectives of Producer Companies.
The objectives specified in the Companies Act for which a Producer Company shall be formed are as follows: –
(i) To manage activities related to the production, harvesting, procurement, grading, pooling, handling, marketing, selling, and exporting of members’ primary produce, as well as the import of goods or services for the benefit of members.
(ii) To engage in the processing of members’ produce, which includes preservation, drying, distilling, brewing, venting, canning, and packaging.
(iii) To provide a variety of services to members, including technical and consultancy services, training, education, and conducting research and development. These activities are aimed at promoting the interests of members.
(iv) To participate in the generation, transmission, and distribution of power, as well as the revitalization and conservation of land and water resources. This also includes managing communications related to primary produce.
(v) To manufacture, sell, or supply machinery, equipment, or consumables primarily for the use of its members.
(vi) To foster a spirit of mutual assistance among members, including the provision of welfare measures, financial services, and insurance for producers or their primary produce.
Membership & Voting rights.
Membership: A person without any conflicting business interest preferably primary producers or farmers. The membership shall be voluntary and available to all eligible persons who can avail the facilities of producer company and willing to accept the duties of members. Articles of Association (AOA) may provide for additional conditions.
Voting Rights: Individual members: single vote for every member irrespective of his shareholding.
Share capital and membership: Share capital shall consist of equity shares only. Shares held by members shall be in proportion to the patronage of that company.
Transferability of shares:
> Shares are transferable along with special rights if any to an active member only with prior approval of the board.
> Shareholder’s nominee within three months is must.
> Upon death of shareholder, nominee shall surrender the shares along with special rights if any to the Producer company at par or at a value determined by the Board if he is not a producer himself. If a member ceases to be a producer the Board shall direct the surrender of shares.
Benefits to members: Subject to AOA, every member shall initially receive such value of produce pooled and supplied as the Board of Directors (BOD) may determine, and the withheld price may be given in cash or in equity shares in proportion of the produce supplied. Member shall receive only limited return on the share capital contributed. Surplus after payment of limited return may be distributed as patronage bonus as proposed by the BOD and decided by members in Annual General Meeting (AGM).
Loan to members: Board may also provide credit facility to any Member in connection with the business of the Producer Company for a period not exceeding six months, however, loan against specified securities may be given to members for a period of exceeding 3 months up to 7 years.
Management: Number of Directors should be between 5 to 15. First directors are the subscriber to the Memorandum of Association (MOA). Election of directors should be held within 90 days of registration in 1st General Meeting for selecting directors. Directors may be appointed for a period of minimum 1 year and maximum 5 years. Expert directors can also be appointed up to a maximum of 1 / 5th of total number of directors for a period as specified in the AOA who can also be elected as chairman but cannot vote while electing chairman.
Vacation of office of Directors:
Director/s has to vacate office due to any of the following reasons: –
> Imprisonment for more than 6 months for moral turpitude.
> The producer company in which he is a director has made a default in repayment of any advances or loans taken from any company or institution or any other person and such default continues for more than 90days.
> Producer company has not filed AOC – 4 & MGT – 7 forms for more than three years with the Register of Companies.
> Producer company failed to repay its deposits / patronage bonus / interest on due date and failure continues for more than 1 year.
> Producer company has defaulted in holding of election of directors or Annual General Meeting is not called within the prescribed time.
Powers and Functions of the BOD
Subject to AOA, BOD may do all acts the company is allowed to do such as;
> Determination of Dividend.
> Determination of withheld price.
> Admission to new member.
> Formulate policies, objectives, approve corporate strategies and financial plan.
> Appoint CEO / CFO etc. as well as supervise direct and control CEO and other officers.
> Acquisition and disposal of property in the ordinary course of business.
> Sanction of loans and advances.
> Invest funds of FPC.
Liabilities of the directors:
When the directors vote for a resolution, or approve by any other means, anything done in contravention of the provisions of this Act or any other law for the time being in force or articles, they shall be jointly and severally liable to make good any loss or damage suffered by the Producer Company. The Producer Company shall have the right to recover from its director the following: –
a) where such director has made any profit as a result of the contravention of the Act. or AOA, an amount equal to the profit so made;
b) where the Producer Company incurred a loss or damage as a result of the contravention, an amount equal to that loss or damage
The liability imposed shall be in addition to and not in derogation of a liability imposed on a director under the Companies Act or any other law for the time being in force.
Chief Executive Officer (CEO): The Board of directors shall appoint CEO from persons other than members who shall not retire by rotation. Qualification and experience of CEO may be as determined by the Board or Directors.
Functions of CEO:
> CEO shall have substantial power of management & manage the affairs of the FPC as well as look after the administration
> Operating bank account s / to approval of the board.
> Arrangement for safe custody of cash and other assets of FPC.
> Maintaining books of accounts as well as placing Audited Financial Statements in Board Meetings & AGM.
> Shall provide periodic information to members.
> Advising & assisting the board in the formulation of policies.
Company Secretary
Appointment of a wholetime company secretary is mandatory where average annual turnover exceeds 5cr in preceding 3years.
Board Meetings
Board meetings shall be held once in every three months and minimum four board meetings per year. Quorum of the board meeting shall be 1 / 3rd of total number of directors and minimum 3 directors. CEO has the responsibility of giving a 7days notice to all the directors or else a penalty of Rs. 5000 / -shall be levied.
Matters requiring approval at AGM
BOD shall exercise following powers only after approval at the AGM:
> Approval of budget and adoption of annual accounts
> Approval of patronage bonus.
> Issue of bonus shares
> Specify conditions for loans to directors.
Annual General Meetings:
First General Meeting of a FPC must be held within a period of ninety days from the date of incorporation after giving a 14 days clear notice to all its members.
Following matters that may be transacted in the first General meeting
> Re – imbursement of pre – incorporation expenses to promoters.
> Appointment of directors (min: 5- max: 10)
> Opening of bank account.
> Appointment of first auditors etc.
Subsequent AGM shall be held annually within a period of 15 months from the previous AGM. The Quorum shall be 1 / 4th of the Total number of members. The proceedings of every annual general meeting along with the report of the Board of Directors, the audited balance – sheet and the profit and loss account shall be filed with the Registrar of Companies within sixty days of the date on which the annual general meeting is held, with an annual return along with the filing fees as applicable under the Companies Act.
Conclusion: Farmer Producer Companies (FPCs) play a crucial role in transforming the agricultural landscape of India by empowering smallholder farmers. By facilitating collective action and providing access to markets, finance, and technical services, FPCs enable farmers to enhance their livelihoods and achieve sustainable agricultural development. As the government continues to promote the formation and growth of FPCs through various schemes and incentives, their role in promoting inclusive and equitable agricultural growth is expected to expand further, benefiting farmers across the country.
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Author`s Profile: CA. Lakshyajit Gogoi is member of the Institute of Chartered Accountant. He has been a resource person for Assam Agribusiness and Rural Transformation Project (APART) for training & capacity building of the board of directors of Farmer Producer Companies. He has completed ISO 27001(LA) training on Information Security Management Systems facilitated by British Standards Institution (BSI-Group) He has also done certificate courses facilitated by the World Bank which includes, “Infrastructure, Public-Private Partnerships, and Fiscal Management”, “E-Procurement” and “Digital Agriculture”.
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