rd

3Edition 02 October 2016

Resource Book on Formation and

Functioning of Farmer Producer Companies
(The Green Book)
Developed With Financial Support of

Nabkisan Finance Limited

(A subsidiary of NABARD) Mumbai

Developed by

Action for Social Advancement (ASA), Bhopal

www.asaindia.org
 Disclaimer
This Resource book is intended as a general summary on the various aspects of producer companies which is
based largely around the experience of the producer companies of the farmers . Therefore, a word of caution for
those willing to use the manual for generic purpose is to refer other relevant materials conjunctively while using
this Resource book.
The provisions of the policies contained in this Resource book, and any other similar written policy or document
developed or disseminated by various legal authorities, are designed and intended to provide guidance and
information. This Resource book was prepared in accordance with Government’s current policies for Farmer
Producer Organisations, and is not intended to substitute, replace, overrule, or modify any existing federal and
state laws, agency rules, regulations or policies, or terms of a farmer producer company.
Links to other web sites, in the resource book has been provided to assist the user in locating information. The
Agency is not responsible for, and expressly disclaims all liability for, damages of any kind arising out of use,
reference to, or reliance on any information contained within the Resource book or any link contained within the
guide. While the information contained within the site is periodically updated, no guarantee is given that the
information provided in Resource book is correct, complete, and up-to-date. Your connection to any linked site is
at your own risk.

Contributors : Ashis Mondal, G. Jayanthi, Neeraj Mansaramani, Vivek Saraf, Yogesh Dwivedi (ASA),
Shaji John, S. C. Rajshekar (ASA Associates)
Sketch : Gaurav Gangle, Bhopal,
Design & Layout : M/S Agitprop, Bhopal
Chapter Contents Page No.
Foreword 1-2
Message 3
Chapter 1 Abbreviations 4-5

1. Producer Companies-Concept and practices 6

1.1 Background – Why Farmer Producer Organisation ? 7-11
1.2 Key characteristics of Producer Companies 11
1.3 Salient Features of Producer Companies 12-13
1.4 Experience of ASA in establishing Producer Companies 13-15

2. Incorporation of a Producer Company 16

2.1 How different should be the social processes while setting up a PC Vis a
Vis Community Based Organisation (CBO) ? 17
2.2 Whether primary CBOs (viz. SHGs, forest collectors group, water users
group, common interest group, etc.) can be transformed into PC ? 18
2.3 Whether the process of establishing PC is self triggered by the members
themselves or externally triggered? 18
2.3.1 Who can be the initiator for establishing PC ? 18
Chapter 2

2.4 Preparation for the formation of PC 19-21

2.5 Registration of PC 21
Step 1: Digital Signature Certificate (DSC) 22
Step 2: Director Identification Number (DIN) 22
Step 3: Naming of a Producer Company 22-23
Step 4: Memorandum & Articles of Association 23
Step 5: Documents to be submitted to the RoC for the Incorporation of
Producer Company 23
Step 6: Certificate of Incorporation 23
Step 7: Tasks to be completed immediately after incorporation of the PC 24
2.6 Changes in company law according to 2013 Act 24
2.7 Roles and Responsibilities of the Board of Directors and Chief Executive
Officer 25
Chapter 3

3. Assessing the Capital Requirement of a Farmer Producer Company 26

3.1 What is working capital 27
3.2 What is operating cycle 27
3.3 Components of working capital 27-28
3.4 Methods for assessment of working capital 28
3.4.1 Operating cycle method 28
3.4.2 Turnover method 28
3.5 Important heads of expenditure 30
3.5.1 Management & office administration cost 30
3.5.2 Cost of furniture & fixtures 30
3.5.3 Cost of Infrastructure & Machinery 30
3.5.4 Training & capacity building of BODs & FPC functionaries 30
Chapter Contents Page No.

4. Assessment of the financial viability of the business of Farmer Producer

Companies 31
4.1 Introduction 32
4.2 The Business planning process 32
4.2.1 How to generate business ideas? 33
4.2.2 Opportunity and Threat – Analysis and Business Opportunity Identification 33-34
4.2.3 Risk mapping and management 35
4.3 Marketing Plan 35-36
Chapter 4

4.3.1 Choosing a marketing strategy 36

4.3.2 Positioning strategy 36
4.3.3 Basis of Positioning 36-37
4.3.4 Strategies based on Price and Promotion 37
4.3.5 The PC’s Marketing plan 37-40
4.4 Financial Plan 41
4.4.1 What is a ‘Budget’? 41
4.4.2 What is working capital? 41
4.4.3 How to prepare a Budget? 41-42
4.4.4 Breakeven analysis 42
4.4.5 Sources of finance 43
4.4.6 What is interest? What are the various ways of calculating interest? 44
4.4.7 What is Net Present Value (or NPV)? 45-46
4.4.8 What is an Internal Rate of Return? 47
4.4.9 Cash Flow Statement 47-48
4.4.10 Sensitivity analysis 49
4.4.11 Importance of debt coverage ratio 49
4.5 Writing a Business Plan 49
4.5.1 What is a business plan? 50
4.5.2 What are the elements of a business plan? 50
4.5.3 Tips on writing a business plan 50
4.5.4 Suggested outline of a business plan 51-52
Chapter 5

5. Aassessing Institutional Performance of Farmer Producer Company 53

5.1 Framework of Participatory Assessment of Institutional Performance of FPC 54
5.2 Producer Company rating tool by NABARD 55
5.3 Advanced Rating methods of PC 55

6. Institutional Support to the Farmer Producer Companies 56

Chapter 6

6.1 Financing the FPCs 57

6.1.1 Incubation and Early Stage 57
6.1.2 Emerging and Growing Stage 57
6.1.3 Matured Stage (Business Expansion) 58
6.2 Government Programmes supporting FPO promotion 58
6.2.1 SFAC (Small Farmers Agribusiness Consortium) 58
6.2.2. National Bank For Agriculture And Rural Development (NABARD) 58
Chapter Contents Page No.
6.3 Schemes for Supporting Farmer Producer Companies /

Chapter 6
Organisations – Financial and non-Financial products 59
6.3.1 Small Farmers Agribusiness Consortiun- Equity Grant Fund 59
6.3.2 Small Farmers Agribusiness Consortium- Credit Guarantee Fund 59
6.3.3 Small Farmers Agribusiness Consortium- Venture Capital Assistance 60
6.3.4 National Bank For Agriculture And Rural Development (NABARD)-PODF 60-61
6.3.5 State and Central Schemes for Supporting Farmer Producer Companies 61
6.3.6 Maharastra Agricultural Competitiveness project (MACP) 62
6.3.7 Initiative of Karnataka State Government 62

7. Credit Support to the Farmer Producer Companies 63

Chapter 7

7.1 NABKISAN Finance Limited (NKFL) 64

7.1.1 Loan products with availability of collateral/guarantee 64
7.1.2 Loan products without collateral 65
a. Emerging FPOs/POs with promising 65
b. Start-up FPOs/POs 65
7.2 NABARD Financial Services Limited (NABFINS) 66
7.3 FWWB (Friends of Women’s World Banking) 66
7.4 Ananya Finance 66
7.5 Maanaveeya Development & Finance Private Limited (Maanaveeya) 67
7.6 Public and Private Sector Bank 67

8. Post Incorporation Compliance for Farmer Producer Companies 68

Chapter 8

8.1 Post Incorporation Compliances 69

8.1.1 First Meeting of the Board of Directors of the Company 69-70
8.1.2 Obtain Certificate of Registration to begin Business 70
8.1.3 Arrangement for Corporate Stationary 70-71
8.2 Mandatory Compliance/annual Compliance 71
8.3 Event Based Compliance 72
8.4 List of Registers required to be maintained by the FPC 72-73
8.5 Calendar of Returns returned to be filed by FPC 73
8.5.1 Annual Returns 73
8.5.2 Specific Event Based Returns 74-77
Chapter 9

9. Emerging Marketing Models and Avenues for FPCs: Field Experiences 78-79
9.1 Government supported pulses price stabilisation scheme: 80
9.2 On-door procurement model 80
9.3 FPC led localised seeds production and marketing model 81
9.4 Credit linked market system 81
9.5 Assessing financial market by leveraging collective strength 82
9.6 Peer group linkage marketing 82
9.7 Commodities Exchange 82
9.8 Warehouse Receipts (WHR) 82
9.9 e-Kisan Mandi 83
Chapter Contents Page No.

Chapter 10
10. Success Stories of Farmer Producer Companies 85
10.1 Aggregation of finer cotton from small-holders 85-86
10.2 Scaling the value chain through quality seed production 87-88
10.3 Electronic trading platform for small and marginal women farmers
in Bihar 89-91
10.4 From droplets to ocean 92-95
10.5 Success through self discipline and perseverance 96-99
10.6 MBCFPCL vision of transforming agriculture of small & marginal
farmers of Madhya Pradesh 100-102
Chapter 11

11. Frequently Asked Questions (FAQs) 103-129

Tool Kit for Financial Analysis 129

Annexures
Annexure # 1: Model Memorandum of Association (MoA) 130-141
Annexure # 2: Model Articles of Association (AoA) 142-158
Annexure # 3: Profiles of FPCs financed by NKFL 159-163

List of Tables
Table 1: Key differences between Producer Companies and Cooperatives 10
Table 2: O/T Analysis of Marketing of collective produce of small farmers 34
Table 3: S/W Analysis of Marketing of collective produce of small farmers 36
Table 4: Calculation of Interest 44
Table 5: Repayment plan 44
Table 6: calculation of NPV 45
Table 7: Cash Flow-1 45
Table 8: Cash Flow-2 46
Table 9: Cash Flow-3 46
Table 10: Calculation of IRR 47
Table 11: Example of Cash flow Statement 48
Table 12: Criteria and Indicators for assessing PC formation process and
functioning 54
Table 13: Features of Nabkisan Loan Products 64
Table 14: List of Registers required to be maintain by FPC 72
List of Figures
Figure 1: Change in role of Initiator as the CBO matures 17
Figure 2: A Typical Break-Even Chart 43
 Foreword
It is over a decade since the concept of the producer company was first introduced through an amendment in the
Indian Companies Act.1956 (now Indian Companies Act.2013). Action for Social Advancement (ASA), a non-
governmental development organisation was one of the first few organisations started incorporating the
collectives of the small and marginal farmers as producer companies, instead of registering them under the
Cooperatives Act. That was 2006/07. Realising that there was hardly any guidelines for the promoting
organisation on how to go about registering a producer company, statutory compliances to various statutory
authorities and few basic steps to begin business, ASA in 2007 developed the first resource book for establishing
producer company. The term “Farmer Producer Company or FPC” was first time used in this manual although
there is no sanctity of this term in legal parlance. Later in 2013 the National Policy and Process Guidelines coined
the term “Farmer Producer Organisation or FPO” which is a popular term today to denote a farmers’ organisation
irrespective of their legal entity as producer company or producer cooperatives. The producer company or PC is
the legal term used in the Act. However, since ASA’s experience has been largely around forming producer
companies of small and marginal farmers the term FPC and FPO have been used in substitutable manner in this
manual. Since this manual is largely around the experience of the producer companies of the farmers and
therefore a word of caution for those willing to use the manual for generic purpose is to refer other relevant
materials conjunctively while using this resource book. In 2010, with the request and financial support of the Food
and Agriculture Organisation of the United Nations (FAO), we revised the 2007 manual with new chapters added
to it. The financial aspects like business planning, etc. was given emphasis in the version of 2010. In 2013, the
Department of Agriculture, Government of India included the Resource book of the 2010 version into the National
Policy and Process Guidelines of Farmer Producer Organisations.
By 2016 the movement of the Farmer Producer Organisation has gained momentum and demonstrated potential
of growing as a sector. Over 3000 FPOs are reported to be functioning across states. Several organisations are the
beneficiary of the resource book and have customised in different forms like translating in regional languages (the
manual is available in seven languages facilitated by the Small Farmers’ Agribusiness Consortium), developing
FAQs, etc. We receive frequent enquiries from the cross section of people engaged in the FPC development for
issues which are not necessarily covered in the resource book of 2010. We realised that with the passing time and
sector growing, there is a need for revision of the resource book of 2010 incorporating latest development and
issues around the FPCs. We are grateful that the NABKISAN Finance limited, a subsidiary of the NABARD, readily
agreed for a small grant to develop the third edition of the resource book which is now in your hands. Without their
support and urge to do the third edition, especially by Shri R. Amalorpavanathan, the Chairman of NABKISAN, it
would have perhaps taken some more years before it saw the light of the day.
We owe our gratitude to the organisations such as Centre for Indian Knowledge Systems, Chennai for giving their
consent to modify and reproduce their publication “Frequently Asked Questions and Answers on Producer
Companies”, Small Farmers’ Agribusiness Consortium, Techno Serve, Development Support Centre, Madhya
Bharat Consortium of Farmer Producer Companies Limited and Action for Social Advancement who have
contributed case studies of their work which we believe will inspire many.
This resource book deals with the processes to be followed and preparations required to set up a Farmer producer
company. The resource book is developed based on the experiences of ASA in developing a series of FPCs in
Madhya Pradesh and other states and the lessons learnt from the contemporary development on the FPOs
contributed by the stakeholders.
There are many new features in the third edition. Besides replacing the old facts with new we have added new
chapters like – Government support for FPCs (Chapter-6), Credit support to FPCs by NBFCs (Chapter 7), Various
compliances for the FPCs (Chapter-8), Emerging marketing models and avenues (Chapter 9), Success stories,
Frequently Asked Questions (FAQs), etc. A business planning software for the FPC has been added in the manual.
Using the weblink the user can download the software. Pencil drawings have been introduced in the Third edition
to make it readers’ friendly.

1
The whole idea behind this resource book is not to provide prescription, as the Producer Companies require
context specific strategic interventions (like any other community institutions), which is best manoeuvred by the
practitioners working in a given situation, but to provide a methodical guidelines in establishing a FPC. Thus, this
resource book should not be considered as the sole source of information. It is suggested that the interested users
also seek details of legal compliances related with company affairs, available at the website of Ministry of
Corporate Affairs (www.mca.gov.in) and also from the websites of the relevant statutory authorities such as
Income Tax, Sales Tax, etc.

Finally, I would like to thank profusely my colleagues G. Jayanthi, Neeraj Mansaramani, Vivek Saraf, Shaji John
and Yogesh Dwivedi who have worked extensively to finalise the third edition of the Resource book. Our sincere
gratitude is also due to Gaurav Gangle Ideas who has meticulously drawn the sketches and M/s. Agitprop which
has done the design and layout of the resource book .

I hope that you find the THIRD EDITION of the Resource book useful.

Ashis Mondal
Director
02nd October 2016 Action for Social Advancement (ASA)

2
 Message
India has over 12.5 crore farmer households of which over 85% are small and marginal farmers with land holdings
of less than 2 hectares. The average size of land holding is 1.33 hectare/ farmer household. Due to this
fragmentation and disorganization, it is not economically viable for farmers to adopt latest technology and use
high yielding varieties of inputs like seeds and fertilizers. They are also unable to realize good value from their
marketable surplus by individually selling their produce.
Collectivizing farmers into Farmer Producer Organizations (FPOs) has been considered as one of the ways to
procure inputs at a lower price, and gain more selling power for their produce/product.A Farmer Producer
Company entails the spirit of a cooperative society with professional management.Forming a producer
organization can also provide access to timely and adequate finance, build capacity and provide linkages to
markets.This approach is demonstrating the potential to evolve farmers owned enterprises and in enabling their
effective participation in agri value chain with better access to markets.
Govt. of India has, in fact, identified farmer producer organisation registered under the Companies Act as the most
appropriate institutional form for mobilising farmers and for their capacity building which will leverage their
collective strength for their economic betterment. Now the concept of Farmer Producer Companies (FPCs) has
become a cornerstone of all policy initiatives of Govt. of India, various State Govts., NABARD and other policy
makers in the field of agriculture development.Govt. of India has set up a separate fund, PRODUCE in NABARD
with a corpus of Rs. 200 crore to facilitate promotion of 2000 FPOs in various parts of the country. As per rough
estimates there are about3000 FPOs formed under various programmes including PRODUCE.
NABARD has desired that its subsidiaries, especially Nabkisan Finance Limited (NKFL), should focus on financing
FPOs.NKFL is providing credit for promotion, expansion and commercialization of enterprises engaged in
agriculture, allied and rural non-farm activities. The experience of financing FPOs in the last one year has revealed
that there is an urgent need for capacity building of stakeholders in promoting institutions for key functionaries
and board members of FPCs and other concerned etc.
Considering the changed landscape and recent developments, NKFL decided to publish a manual, in association
with ASA, on FPCs not only containing basic information on why and how of FPCs but also having information on
business planning, emerging marketing opportunities in agriculture, government policies in this sector, success
stories, etc. This manual will serve as resource book for all those interested in the emerging sector of Farmer
Producer Companies. It is expected that the manual will be helpful not only to key functionaries of FPCs and
promoting institutions but also to bankers, developmental organisations, researchers, etc.
The efforts of Shri. AshisMondal and his team at ASA,other resource institutions who have contributed to
refinement of the document deserve commendation.
I hope this manual serves its intended objectives and you will find this resource book helpfulin guiding the FPOs to
emerge as viable business enterprises.

(Amalorpavanathan)
Place: Mumbai Chairman
Date:31st January 2017 Nabkisan Finance Limited (NKFL)

3
ABBREVIATIONS

AGM Annual General Meeting

APMC Agricultural Produce Marketing Committee
ASA Action for Social Advancement
BoD Board of Directors
CBO Community Based Organisation
CEO Chief Executive Officer
CIG Common Interest Group
DAC Department of Agriculture and Cooperation
DIN Director Identification Number
DPIP District Poverty Initiative Project
DSC Digital Signature Certificate
DSCR Debt Service Coverage Ratio
FAO Food and Agriculture Organization
FAQ Frequently Asked Questions
FIG Farmers Interest Group
FPO Farmer Producer Organization
FWWB Friends of Women’s World Banking India
GDP Gross Domestic Product
IRR Internal Rate of Return
LMF Large and Medium Farmers
MBCFPCL Madhya Bharat Consortium of Farmer Producer Companies Limited
MCA Ministry of Corporate Affairs
NABARD National Bank For Rural And Agriculture Development
NABFINS NABARD Financial Services Limited
NBFC Non Banking Finance Companies
NAM National Agriculture Market
NCDEX National Commodity and Derivatives Exchange
NKFL NABARD Kisan Financial Services
NGOs Non Governmental Organizations
PAN Permanent Account Number
PO Producer Organization
PODF Producer Organization Development Fund
PRADAN Professional Assistance for Development Action (NGO)
PRODUCE Producer Development and Upliftment Corpus
RBI Reserve Bank of India

4
ABBREVIATIONS

RKVY Rashtriya Krishi Vikas Yojana

RoC Registrar of Companies
RRB Regional Rural Bank
SFAC Small Farmers’ Agribusiness Consortium
WUG Water Users Group
SHG Self-Help Group
SMF Small and Marginal Farmers
TAN Tax Deduction and Collection Account Number
TIN-FC Tax Information Network Facilitation Centre
UPNRM Umbrella Program for Natural Resources Management
VAT Value Added Tax
WHR Warehouse Receipt

5
 CHAPTER 1

PRODUCER COMPANIES -
CONCEPT AND PRACTICES
The chapter deals with the generic issues in regard to need of
farmer’s collectives, genesis of Producer Companies Act.,
key differences in characteristics between producer
companies and cooperatives and experience of ASA and
other promoting organisations in establishing producer
companies

6
1.1 Background-Why Farmer Producer Organisation ?
Over 83 per cent of Indian farmers are small and marginal is 36%, yet there are huge uncertainties in input supplies
(2005-06), cover nearly 50 per cent of operational holdings. mainly due to malpractices in distribution system. Things
An estimated 65 per cent of all farmers are marginal. More are likely to improve with the Government’s recent move to
than 90 per cent of the small and marginal farmers (SMF) digitize fertiliser distribution system and direct subsidy
are dependent on rain for their crops. In absolute numbers transfer to the farmers bank account .
there are about 90-100 million SMF in India who depend on A recent paper has noted the competitiveness of small
agriculture for income and employment. Due to continued farms on virtually all parameters of resource and input use
phenomenon of land fragmentation the number of SMF is but concludes that this is in itself not sufficient to pull
ever increasing. smallholders out of the grip of poverty. The missing
Only a minority of India’s farmers is served by the formal elements of support, information asymmetry and the most
agriculture extension system due to various limitations critical issue of finance are among the key factors that seem
including the structural problems. Only 9% farmers receive to determine the terms on which small producers relate to
extension services from government extension staff, while the market2.
19% of farmers depend on private input dealers for advice Globalization, an expanding domestic middle class and
(NSSO, 2005). This implies that poor extension systems led diversification of the food basket are driving growing
to a situation where farmers do not have any problem corporate interest in agriculture as a source for raw material
solving mechanism for improving their productivity. This for agriculture value chain3. There are numerous examples
has created a widening gap between the agriculture of backward linkages between the corporate sector and
research results and their adoption on the ground. farmers in various parts of the country. However, majority of
A large chunk of SMF seek farm credit from moneylenders existing examples of linkages between farmers and
while only a limited numbers from banks. In the XI and XII processors/retailers involve Large and Medium Farmers
plan there has been significant jump in supply of agriculture (LMF), with very few instances of SMF successfully linking
credit, however, in RBI’s own admission the SMF share in up with processors/retailers. The highly fragmented nature
institutional credit is less than 10%. of production and low per capita surplus of SMF make it
1
APMC to some extent has provided needed safeguard to unviable to directly link with the organized markets and
the farmers against exploitation by the market leverage better returns for their produce.
intermediaries. However, it has restricted competitiveness The climate change debate and the linked issue of global
in the market. Also it could not expand its reach to the population expansion have raised the public’s awareness of
remote areas. There is one regulated market per 450 sq. km. global warming and the allocation of scarce resources for
Perhaps, not even one third of Indian farmers, especially the food and energy production. There is an increasing global
SMF, have access to the formal agriculture marketing trend demanding consumers to become more responsible
system, leaving the rest dependent on the informal service in their consumption pattern.
providers which are exploitative and non-remunerative. The The multi-stakeholders (producers, trade and industries
Model APMC Act., which advocates open trade between and NGOs) voluntary initiatives popularly known as
buyers and sellers outside the market yard, has not been Round Table for Responsible Production, processing and
adopted by many state governments. And where adopted it marketing of agriculture commodities like soybean
has been either adopted partially or the rules make the (www.responsiblesoy.org,sugarcane
changes ineffective. The role of organized private sector in (www.bettersugarcane.org), cotton
the primary agriculture market is thus very limited. (www.bettercotton.org), palm oil (www.rspo.org), etc.
Corporate and other bulk buyers of agriculture are established mechanisms and fast growing. The
commodities find the transaction costs of dealing with a organic production standard is already an established
large number of small producers prohibitively high and system and growing globally including India at a faster
prefer dealing with bigger farmers and mandi aggregators. speed. All these are happening due to perceived
The middle men fill the gap by making huge margin. environmental, economic and social benefits.
Although the share of cooperatives in fertiliser distribution
1
Agriculture Produce Marketing Committee
2
Farm Size, Input Use and Productivity: Understanding Strength and Improving Livelihood of Smallholders.
3
Ramesh Chand, P.A. Lakshmi Prasanna and Aruna Singh. Economic and Political Weekly, June 25, 2011 Vol. XLVI Nos. 26 & 27 7
A recent USDA data shows that about 47% of the income of India’s 160 million middle class consumers is spent on food.
 PRODUCER COMPANIES - CONCEPT AND PRACTICES

The constraints faced by the small and marginal farmers, ways. Several national experience in the performance of
as summed up, are as following: FPOs suggests that FPOs are able to leverage their
collective strength and bargaining power to access
financial and non-financial inputs and services,
a. Shrinking land asset, rising per unit cost of technologies, reduce transaction costs, tap high value
cultivation and shrinking profit margins markets and enter into partnerships with private and public
b. Difficulties in accessing critical inputs like credit, entities on more equitable terms.
water, power as well as quality seeds, fertilizers, Several institutional models of farmers have been tried or
pesticides and appropriate and timely technical being tried in India to integrate farmers with the value
assistance chain. The most common model is the producers’
c. Fragmented value chain in agriculture marketing, cooperatives, which enable farmers to organise themselves
monopoly and /or monopsony conditions, few as collectives. The cooperatives are registered with the
opportunities for value addition at the bottom of Registrar of Cooperative Societies. India has a large
the chain number of cooperative institutions in a vast range of
enterprise sectors. Baring few, the cooperative experience
d. Weak bargaining with market agents and low in India has not been a very pleasant one, as cooperatives
returns on investment have largely been state promoted, with a focus on welfare
e. Present arrangements for risk mitigation, rather than to do business on commercial lines.
especially crop insurance instruments, are highly
unsatisfactory and do not adequately cover the
risks faced by the SMF, leaving them vulnerable to In 2002, through an amendment in the Indian Companies
the vagaries of weather. Act. 19564 the Government of India (GoI) enacted the
Producer companies Act. by incorporating a new section IX
f. Finally, there is no special targeting or earmarking A in the Indian Companies Act.1956 based on the
of resources for SMF in centrally sponsored recommendations of the Y.K. Alagh Committee set up for
agriculture development programmes. this purpose. The producer companies are incorporated
with the Registrar of Company (RoC). The objective of the
Hence, there is an urgent need for solutions that mark a Government of India for such an initiative was to formulate
break from the past and significantly improve the terms of a legislation that would enable incorporation of
smallholder access to the market. The Farmer Producer cooperatives as companies and conversion of existing
Organization (FPO) is a necessity in Indian scenario if one cooperatives into companies, while ensuring that the
has to effectively address the issues mentioned above. unique elements of the cooperative business remain intact
Member based FPOs offer a proven pathways to in the new legislation.
successfully deal with a range of challenges that confront
small producers, empowering their members in a variety of

4
In the amended Companies Act of 2013, the chapter IX of companies act, 1956 to be applicable mutatis mutandis till such time a separate
bill for PCs is brought out 8
 PRODUCER COMPANIES - CONCEPT AND PRACTICES

A PC is formed with the equity contribution by the members. The day to day operation is expected to be managed by the
professionals, under the direction of the Board of Directors (BoD) elected/selected by the General body of the PC for a
specific tenure.
Since farmers or the producers are the equity holders of the company, a PC as an organisation provides an appropriate
framework for owning the company by the producers themselves. The basic purpose of the PC is to collectivise small
farmers or producers for (a) backward linkage for inputs like seeds, fertilisers, credit, insurance, knowledge and
extension services and (b) forward linkages such as collective marketing, processing, market led agriculture
production etc. At the heart of this effort is to gain collective bargaining power for small farmers/producers.

Fo
rw
rketing
ard
es of Collective Ma
Collectiv
es

Seeds
Processing

Lin
Small
kag

Fertilisers riculture

ka
/ Market led ag
Farmers
Lin

g
Credit

es
Insurance production
rs
Produce
rd
Knowledge
a
kw
Extension Services
c
Ba

The collectives of farmers in the form of producer companies is gaining popularity among the farmers/producers and
among the promoting agencies primarily due to several advantages it carries in comparison to the conventional model of
producers cooperatives. The Producer Companies Act. enshrines the ethos and basic tenets of cooperatives and infuses a
professional attitude into management. Table-1 provides a comparative analysis of producer companies and producers
cooperatives to understand the difference in the basic premises of these two Acts which enable incorporation of producers
collectives.

9
 PRODUCER COMPANIES - CONCEPT AND PRACTICES

Table-1 : Key differences between Producer Companies and Cooperatives

Parameters
Registration
Cooperatives Producer Company

Cooperative Societies Act. Indian Companies Act.

Objectives

Single object Multi-object

Operation
Area of

Restricted, discretionary Entire Union of India

Membership

Any Individual, Group, Association,

Individuals and Cooperatives
Producer of the goods or services

Not tradable but transferable

Share

Non tradable limited to members on par value

Profit sharing

Commensurate with volume of

Limited dividends on shares
business

One member, one vote, but One member, one vote. Members
Voting rights

Government and Registrar of not having transactions with the

Cooperatives hold veto power company can not vote
Govt. control

Highly patronized to Minimal, limited to statutory

the extent of interference requirements
of Autonomy

Limited in “real world Fully autonomous, self ruled within

Extent

scenario” the provisions of Act

Reserves

Created if there are profits Mandatory to create every year

Borrowing
power

Restricted More freedom and alternatives

Producer Company may, subscribe to the

Relationship with other

share capital of, or enter into any agreement

corporate / business

or other arrangement, whether by way of

houses / NGOs

formation of its subsidiary company, joint

Transaction based venture or in any other manner with any body
corporate, for the purpose of promoting the
objects of the Producer Company by special 10
resolution in this behalf.
 PRODUCER COMPANIES - CONCEPT AND PRACTICES

Apparently the producer companies have inherent advantages over the cooperatives in many areas. Specifically of the PC
there is less government control whereas the cooperative institutions have more state control. The overriding powers of
the Registrar of Cooperative Societies to direct and regulate cooperatives, whenever the government deems necessary, has
throttled the growth of the cooperative institutions5 . Majority of the cooperative institutions are currently facing severe
financial crisis and at times are heavily dependent on the state subsidy for existence.

1.2 Key characteristics of Producer Companies

• It is a corporate body registered under the Indian Companies Act. 2013. Ownership and membership of such
companies is held only by ‘primary producers’ or ‘Producer Institution’, and member’s equity cannot be traded.
However, it may be transferred, only with the approval of the Board of Directors of the producers companies.

• The clauses of Private Limited Company shall be applicable to the producer companies except the clauses
specified in Producer Company Act. ). For this a new part IXA, divided into 12 chapters and 46 sections numbered
as 581A to 581Z and 581ZA to 581ZT has been inserted, which makes it different from a normal private or limited
company.(Kindly refer to the Producer Company Act for details).

• The liabilities of the PC is limited to the value of the share capital it has issued. Similarly the member’s liability is
limited to the value of share capital held by them. The minimum authorized capital at the time of incorporation of
PC should be Rs.5 lakh. The authorised capital is
such that a company has been authorized to
raise by way of equity shares through the
Articles of Association / Memorandum of Key Characteristics of a PC
Association of the PC. This is typically the capital
at the time it has been incorporated. There ü Corporate body registered under the
cannot be any government or private equity Indian Companies Act 2013.
stake in the producer companies, which implies ü Ownership and membership of such
that PC cannot become a public or deemed companies is held only by ‘primary
producers’ or ‘Producer Institution’,
public limited company.
ü Member’s equity cannot be traded. Can be
transferred only on approval of BoDs of
• Minimum number of producers required to producer company.
form a PC is 10, while there is no limit for ü Liabilities of the PC is limited to the value of
maximum number of members and it can be the share capital it has issued. Member’s
increased as per feasibility and need. However, liability is limited to the value of share
based on the experience (not to be treated as capital held by them.
prescribed) it is found that for agriculture based ü Minimum authorized capital of PC at time
PC 800-1000 farmers with about 1000-1500 of incorporation should be Rs. 5 lakhs.
acre of agriculture land is a good size for initial ü Minimum 10 producers required to form
years to make it economically viable and the PC. Maximum no limit.
increasing up to 2000 as the company grows. ü PC cannot become a public or deemed
public limited company.
• The area of operation for a PC is the entire ü PC can operate in entire country
country.

5
NABARD, EV Murray, 2008, Producer Company model: Opportunities for bank finances, CAB Calling, April – June issue, 2008 11
 PRODUCER COMPANIES - CONCEPT AND PRACTICES

1.3 Salient Features of Producer Companies

Producer Companies are slightly different from other companies in nature of their incorporation, structuring,
management, administration, etc. Some of the key highlights of their features are as under:
• Objects as per Section 581B of the Companies Act, 1956
Producer companies are allowed to carry on the activities as specified in Section 581B of the Companies Act, 1956
which makes it slightly different from other companies as Companies Act, 2013/1956 doesn’t prescribe the
specific objects to be pursued by any company relating to any specific sector i.e. infrastructure sector, IT Sector,
etc. Such objects are being specified by the Act so as to make the stakeholders understand the purpose of
differentiating producer companies from other companies, to avoid any conflict of objects and to protect the
interest of producers and their institutions.
• Promoters may be minimum 10 individuals or 2 Producer Institutions
Minimum 10 (Ten) individuals or 2 (Two) Producer Institutions or a combination of 10 or more individuals and
Institutions are required to form a producer company. Producer Company is treated as Private company as per
Companies Act, 1956 but the minimum criteria of forming a private company i.e. 2 promoters doesn’t apply to it.
Such criteria are being determined so as to widen the scope of producer companies rather than making it a closely
held company or a business restricted to a family.
• Single vote of every member without any relation with shareholding or patronage, except where all
members are institutional members
Single vote of every member irrespective of his shareholding is being determined so as to give equal rights to
every producer associated with it rather than giving the controlling power to the person holding maximum
shareholding as in the case of private companies.
• Name ends with “Producer Company Limited”
Name of producer company ends with Producer Company limited irrespective of its being a private company so as
to give the producer company an identity separate from other corporate entities. ‘Limited’ doesn’t make it a Public
Limited company by nature

Key Functions (CEO) Key Functions (BoD)

-Managing day to day operations CEO - Determination of the dividend payable
-Maintain proper books of account (Ex ofcio Director - Determination of the quantum of withheld price
-Furnish members with periodic information -Admission of new Members
-Advise the Board with respect to legal and
of the Board)
-Appointment of Chief Executive Ofcer
regulatory matters -Investment of the funds
Operations

-Operate bank accounts etc.

-Sanction any loan or advance etc.
Board of Directors
(Min. of 5 and max. of 15)

“................Producer Company”

10 or more members and a

producer Company 2 or more producer Companies
Formation

10 or more members
Producer Producer
Member-1 Member-2 Member-2 Member-10 Company-1 Company-2

Initiator
(NGO, Cooperative Societies, Government Organization, SHG, Community Organization)

12
 PRODUCER COMPANIES - CONCEPT AND PRACTICES

• Minimum 5 Directors and maximum 15 building the capacity of the BoD by providing handholding
Directors: support. These FPCs are mainly into agribusiness and focus
Minimum 5 (Five) Directors and maximum 15 largely into the seed production, processing and marketing
(Fifteen) Directors are stipulated for the of various crops, marketing of agriculture produce,
Governing Body of Producer Companies. retailing of agriculture inputs, running farm mechanisation
centres on custom hiring basis, linking farm credit and
• A full time Chief Executive who will be ex – insurance services, price information, agriculture extension
officio Director and not liable to retire by services, warehouse rental, etc.
rotation
In 2014, a state level farmer producer company was
Chief Executive of Producer Companies as per promoted which has current shareholding of over 60
Section 581W of the Companies Act, 1956 shall not farmer producer companies of Madhya Pradesh. The
be confused with Chief Executive Officer under the objective of this apex FPC was to leverage the strength of
Companies Act, 2013 and Key Managerial aggregation at another level for better market realisation
Personnel under Companies Act, 2013. Role of and providing much needed marketing and other essential
chief Executive of producer companies have been professional support to the FPCs.
prescribed in the Companies Act, 1956.
• A Whole time Company Secretary when average 1.4.1 Learning and observations :
annual turnover exceeds rupees five crore 1. As far as businesses are concerned the market size
In case of Producer Companies, a whole time for agribusiness is quite large and there is plenty
Company Secretary is required to be appointed on of scope for FPC to position itself in the market
the basis of average annual turnover rather than without affecting anybody’s interest immediately.
as per paid-up capital. In practice it has been 2. Normally it is expected that FPC eventually should
found that due to lack of availability of the service be able to –
of the Company Secretary in the rural areas many
farmer producer companies jointly avail the a Meet all agri. inputs requirement of the members,
services of the Company Secretary from the b Handle all marketable surplus to a preferred
nearby urban centre. The services of the Company market,
Secretary is a must for the Producer Companies so c Provide/facilitate technical services (e.g. good
as to make them good entity for corporate quality seeds, improved agronomic practices,
governance. information, etc.) through service delivery mode,
• Share Capital only in Equity Shares as per and
Section 581ZB of the Companies Act, 1956 d Connect the producers with the company’s
Contribution to share capital can be made only by governance system. From our experience we know
way of equity shares. that all these make the task special and
challenging. The challenge here is that the
1. 4 E x p e r ie n c e o f A SA i n company’s Management Team has to pursue both
establishing FPCs the social and economic objectives
Since late 2004, ASA has been promoting the concept of simultaneously. It is a long drawn agenda and
Farmer Producer Companies in M.P and other states. So far depends largely on the quality of the MT. Our
it has promoted 53 FPCs with over 100000 small and experience has been mixed because some FPCs
marginal farmers in the resource poor regions with an could balance the economic and social agenda
average membership of about 1900 farmers per FPC. both while some could only achieve the economic
objectives undermining the governance objectives
There is a professional management team in each of these
or not able to focus equally on the governance
FPCs which carries out the operations under the directions
issues thus facing severe challenges later on.
of the Board of Directors (BoD) of the respective FPC. The
Some FPCs could achieve neither, due to poor
responsibility of the Management Team also includes
quality of the management team.
13
 PRODUCER COMPANIES - CONCEPT AND PRACTICES

So the lesson is that one should not compromise a. Supply of agriculture inputs like seeds and
on the quality of the MT. This is perhaps the first fertilizers to its members and also non-members.
and foremost condition for success of any FPC. FPCs in this case had taken dealership of seeds
3. The external support, mainly for the overheads of and fertilizers from the public and private
the FPC, should be for a longer period of time, companies and worked as commission agents on
minimum of five years. It can be made behalf of those companies in supplying materials
performance based but there should be assurance to the members and non-members on cash.
of its uninterrupted flow. A short term support Because of the significant quantity the FPCs could
makes a FPC (read management team) emphasize make a good margin and not the least a business
more on economic agenda compromising the relationship with those companies which resulted
social agenda. in getting credit limit from those companies in the
subsequent years.
4. Due to lack of professional service providers the
FPC faces problem to comply with the statutory b. The same experience was repeated in the case of
requirements. For the service providers like procurement of agriculture produce when the
Company Secretary or Chartered Accountant FPCs identified the prospective buyers and
firms the FPC is a new concept and there is a lack arranged buy back guarantee from them. Sale was
of sufficient knowledge and technical skill at their organized at the farm gate level and therefore no
end to guide FPCs on these matter satisfactorily. transportation and storage cost were involved at
In fact, ASA has conducted orientation the FPC level. FPC ensured a transparent
programme for the CA & CS firms on the producer transaction between the buyers and sellers and by
companies to fill this gap. Things have improved doing so they earned some margin from the
but still lot to be done. Promoting organisations or buyers as well as from the sellers.
institutions like SFAC and NABARD should run c. Many FPCs took the advantage of GoI’s scheme
basic training or orientation courses for the CA which provide loan against the pledging of goods
and CS firms on the issues specific to the PC. called Warehouse Receipts (WHR). As per the
5. The real challenge for the FPC is to mobilize initial scheme the bankers extend loan upto 70-80%
starting capital due to the following reasons: (depending upon the commodity) of the value of
the produce against the pledging. This was mainly
a. From the point of view of the financial institutions used for the seed production activity where the
FPC is a commercial entity and therefore all their FPCs had to store raw seeds for over six months
proposal for financing need a margin money before sale.
contribution by the FPC which they can not
provide due to unavailability of reserves, d. FPCs took the dealership from various companies
for agriculture implements like water pumps,
b. FPCs are also required to provide collateral for the mechanized plough, tractor, etc., which they sold
loan which is again a constraint for a new business to the members at a reasonable price and earned
entity like FPC a margin of commission.
c. Initially FPCs do not have any credentials for doing However, things have changed drastically in the
successful business which also makes the recent years with NBFCs and banking institutions
financial institutions uncomfortable for financing. providing collateral free loan. The SFAC has
6. To overcome these initial problems the FPCs in created a Credit Guarantee Scheme for the
ASA have followed a different business model in formal banking institutions to lend FPCs. All these
the initial years before they have generated have been discussed in detail in the relevant
reserves and credentials. The FPCs had taken up chapter of this resource book. .
those business activities which required less or no
working capital. Four such examples are given
here.
14
 PRODUCER COMPANIES - CONCEPT AND PRACTICES

7. It learnt over the years that the promotion of FPC

as a standalone activity is difficult. It suits best as a 11. The point worth mentioning here is that like any other
value addition initiative in an area where institution the financial viability and the institutional
agriculture based livelihoods activities are on- sustainability are two core factors that determine the
going or completed and the village level primary sustainability of the PC. Also the success of the
institutions are in place. This makes the producer’s collectives would largely depend on the
mobilization easier and the foundation is made on skill and commitment of the promoting agency. The
stronger primary groups. real challenge in building such institution is how to
8. Scale- up of FPC initiative is possible if process connect the individual producer to the governing
standardization is done in due course and most system of the producer’s organisation. The agency
importantly, a higher level support mechanism is promoting the producers organisation has to pursue
put in place which provides handhold support to bo t h t he soci al and eco no mic objectives
the FPC management team. Later on an apex simultaneously. It is therefore a long drawn agenda
body of the FPCs at the state or regional level can irrespective of the legal format under which these
provide support for handholding, marketing and institutions are formed. An enabling legal format can
for several other things facilitate the process well but cannot ensure a
9. The collectives should be formal and size should profitable institution without a proper process
be reasonably significant. For meaningful followed.
engagement with the trade and industries and
government the legal and formal status of the Finally, with all humility we would like to mention that
collectives is important for the convenience of the experiment that ASA started in 2004 has triggered
both the parties. The discomfort to engage with development of a sector of farmers’ collectives
informal farmers’ organization for serious popularly known as FPOs. Over 3000 FPOs are
businesses is observed with both public and reported to be formed in India in recent years
private organizations. About 1200-1500 farmers is promoted by hundreds of promoting institutions.
a good size for an FPC covering a cluster of 15-20 There has been several initiatives by the public, private
villages. and NPO sectors to popularise the model across the
10. From the preliminary assessment it appears that country. According to us the model of FPO could break
farmers collectives like FPC is a cost-effective the stereotype of rural development model which
initiative and can achieve business objectives for emphasised building institutions of farmers only
the shareholders and at the same time can deliver around social and governance issues undermining the
effective extension services and address social great need of organising them around agribusiness
issues. If we extend our imagination little further thus liberating them from the clutches exploitation
this platform can also be effective in achieving the which they are subjected to for centuries. We, in ASA,
social, economic and political objectives in the feel proud of our contribution in the journey of FPOs in
rural areas. It can be an effective platform for India.
burgeoning with the market and government in
favour of small farmers.

15
 CHAPTER 2

INCORPORATION OF
A PRODUCER COMPANY

This chapter is divided in two parts. The first part

deals with process to be followed at field level and the
preparations required for forming a PC. The second
part of the chapter focuses on the legal requirements
for establishing a PC and processes involved in it.

16
 INCORPORATION OF A PRODUCER COMPANY

The Producer Company Act. 2002 does not provide any guidelines or directions about the mobilization and social
processes that need to be followed while forming PC. However, in last few years there has been significant improvement in
efforts for documenting learning and best practices emanating from the farmer producer companies. What is written in the
following paragraphs about the social processes while forming FPCs is largely drawn from the current experiences of the
promoting organisations, mostly the NGOs and that too primarily for the agriculture sector. Also these experiences are
context specific and may vary with the change in context as it happens with any social processes. Attempt has been made to
write on those aspects related to social processes which normally come in the minds of practitioners before embarking on
setting up a producer company.

2.1 How different should be the social processes while setting up a PC

vis a vis a Community Based Organisation (CBO)?
The point to be kept in mind that PC is also a Community Based Organization (CBO) with a shared objective, mutually
agreed plan of actions, shared responsibilities and benefits and a mechanism of functioning where the decisions are taken
by the opinions of majority. Hence, the processes of building organization can not be different in case of PC than what is
generally followed for any CBOs. Generally the processes start with the conceptualization of the idea by the initiator about
the objective and structure of the CBO that is intended to be formed in a given situation. It is the initiator, normally an
external person or agency, takes the lead and in consultation with the potential members of the CBO forms the
organization and continues to provide support till it is stable and growing. In this trajectory the role of promoting agency
changes from Initiator to Facilitator and than Advisor. This is depicted in a diagram below.
The diagram shows that as the capacity within the people and the CBO increases, the role of the promoting agency changes
from one of initiator to that of a facilitator. As this takes place, the methods of participation for dialogue also change.

Fig#1 Change in role of Promoting Agency as the CBO matures

10

sor
dvi
Degree of capacity of CBOs/ People

A
Time Frame

or
(Years)

t
c ilita
Fa

r
i t i ato
In
0

Role of Promoting Agency

17
 INCORPORATION OF A PRODUCER COMPANY

2.2Whether primary CBOs (viz. means to fight poverty. Hence, the promoting agency leads
the initiative in establishing the PC. This is also true for
SHGs, Forest collectors group, majority of the initiatives for community based
water users group, Common organizations.
i n te re s t g ro up , e t c . ) c a n b e
transformed into PC?
2.3.1 Who can be the Initiator
for establishing PC ?
It is better to take such approach of organizing the primary
groups on the basis of common interest, geographical
locations and then federate them as PC to address the
bigger issues of integration with the market, value chain
development, etc. and that too when such need has been
felt by the members of the primary groups. The benefits of
taking such approach are:

• it builds further on the organization building

efforts already made with the primary groups.
• since the primary groups are already strengthened Initiator Any person or group of
therefore their participation in the process of PC persons
but not necessarily primary
formation will be effective resulting in better producer/S.
leadership and governance of the PC.
However, this approach takes little longer time than direct
formation of PC through membership campaign. In many a
cases the PCs were formed with the common interest
groups, SHGs, Water Users’ Groups, etc. which already
existed in the area and after formation of the PC the original
identity of the CIGs / SHGs / WUGs was not diluted. They • An NGO working with the primary producers
continued to function as primary groups as earlier. It has group and willing to introduce the concept of
been found that PCs have matured faster in cases where it ‘Producer Companies’ for the economic
was formed in an existing working area of promoting enhancement of the producers.
organisation and primary groups like SHGs, FIGs, etc. • Any person or group of persons but not necessarily
already existed. PC’s governing system was found stronger primary producer/s can be the initiator. This could
from the beginning. Further, areas where past project be a socially motivated group of people having no
investment (viz. Watershed, Wadi, irrigation projects) on interest for stakes in the PC.
land, water, agriculture development was done the PCs • Already strengthened CBOs like SHG federation
found to have better control over the production systems and Cooperative societies can also initiate the
and better understanding of the market which have worked process of transforming them into PC. In this case it
in positive way for the PC. will be a self triggered initiative.
2.3 Whether the process of • Any Government organization or department can
also promote Producer Companies. The
establishing PC is self triggered by Government can approach an NGO, administrative
t he me m b e r s t he m s e lve s o r bodies like village panchayat, state departments
externally triggered? etc. or any community organization for this
Usually the process of PC formation is externally triggered purpose. The Government could provide financial
by the promoting agency because often poor people do not and professional support to the implementing
realize the need to organize and use their organization as a bodies.

18
 INCORPORATION OF A PRODUCER COMPANY

assessment of requirement of land,

2.4 Preparation for the formation infrastructures, volume of business, working
of PC capital requirement, financial viability, procedures
of incorporation etc. In short there should be a
This stage precedes the process of legally registering the
blue print or plan with the initiator before hand.
company. As mentioned earlier that the processes related
Needless to mention that the initiator has to take a
to the mobilization of producers is purely context specific
professional approach in completing these tasks
and would vary from case to case. The factors which
and may need external support.
contribute towards mobilization of producers are many
and at times quite complex. However, it is experienced that b Selection of area of operation on the basis of
existence of primary groups in the area, rapport of the cluster approach means a cluster of at least 12-15
external agency and their understanding about the local villages should be targeted. Normally about 800-
context and issues, play a significant role in effective 1000 producers are a good size to form agriculture
mobilization of the producers. However, an attempt has based PC, however this would change depending
been made to describe the broad general steps that an upon the products to be handled. Normally
initiator should follow while taking the producers on board selection of the area and the members is done on
to form the PC. The steps are neither in chronological order the basis of the commonalities like produce,
nor are in the water tight compartment. The steps could farmers’ need and common problems they are
overlap depending upon the situation. facing in terms of production and marketing.
c The initiator starts the process through conducting
The steps are: a series of meetings with the potential producers,
a Before setting off to establish PC the Initiator must developing rapport with them and introducing the
be clear with the objective and the potential of the concept of PC. The potential socio-economic
business. S/he (herea er ‘he” which denotes benefits of PC alongwith the possible risks and
both feminine and masculine gender) must their implication on shareholding members has to
have done the homework well for the area of be also shared.
operation, type and number of producers,

Preparation of Initiator for setting up PC preceding its Registration

Step - 1
Ÿ Clarity on objective and
potential of the business
Ÿ Area of operation based on
production & marketing (cluster
of 12-15 villages) Step - 2
Ÿ Type and number of producers
Ÿ Conducting series of meetings
6 to 8 Months

(eg; 1000-1500)
with potential producers
Ÿ Assessment of requirement of
Ÿ Developing rapport with them Step - 3
land, infrastructure, business
Ÿ Introducing concept of PC Ÿ Exposure visit to successful PC
volume,
Ÿ Sharing of Potential socio- for clarifying concepts and
Ÿ Working capital requirement
economic benefits of PC methodologies
Ÿ Financial Viability
Ÿ Sharing of possible risks and Ÿ Exposure visit to be meticulously
Ÿ Procedures of Incorporation
their implications on planned
shareholding members Ÿ Exposure visit to be facilitated by
experienced person who can
explain things in right
perspective

19
 INCORPORATION OF A PRODUCER COMPANY

d Once the concept is understood by the potential started or grown. Secondly, the equity grant
members, an exposure visit to successful producer support of the SFAC (discussed in other chapter)
companies may be organized to further should be obtained at the early stage of the PC.
strengthen the understanding of the identified A good equity base is healthier in getting into
group of producers. The exposure visit is found to the business quickly, attracting institutional
be the better approach in clarifying concepts and credit and also improving governance by
methodologies to the potential members in making the shareholders interested in the
comparison to the class room training. However, business because of their equity investment.
the exposure visit should be meticulously planned Experience suggests that PCs could not start
and facilitated by an experienced person who can business for many years since incorporation due
explain things in right perspectives. At the later to low equity base. The promoting agency
stage when the PC is incorporated the formal should be particularly aware of this
training would be required to the BoD members phenomenon and should work on strategies for
in the areas of (not limited to) – (a) mobilising maximum equity from the initial
understanding the PC rules and regulations, (b) years of the PC.)
statutory requirements to the RoC, (c) business f The eligible community members are required to
plan of the PC, (d) Government schemes, (e) apply through a membership application form
leadership, (f) basic accounting and record (specified in the Act.) to the BoD. The General
keeping and several such aspects as the need is Body (GB) is the final authority to approve or reject
felt. It is suggested that a capacity building plan the membership application.
for BoDs including the training calendar is g Once the concept is well accepted, based on the
prepared every year and reviewed periodically common understanding a business plan is
by the promoting agency. developed in consultation with the members. The
e The Membership process needs to be explained to business proposal, its viability, market
the producers. Normally the share value is kept at opportunity, size of business and possible benefits
Rs.10 per share. The share capital contribution per of the new enterprises must be shared properly
member depends upon the economic condition of with the potential members. In Chapter 4, the
the producers. In the PCs developed by ASA, the process of business plan development is discussed
number of shares per member ranges from Rs.100 in detail.
to Rs.200. In some PCs equal number of shares has h Simultaneously, the initiator in consultation and
been distributed to the members, whereas in support from the members develops the draft
some cases it varies. There is no bar on the number ‘Memorandum and Articles of Association’
of shares per member in the Act. However, it is specifying the roles and responsibilities of each of
suggested to have equal number of shares among the office bearers of PC. The shareholders have
the members to maintain a balance in the power 6
also to finalize the authorized capital of the
structure of the PC. The norms for distribution of company and the cost of each share.
share should be mentioned in the Articles of
Association of the PC. (The experience suggests i Once these documents are in place, the first formal
that the PCs suffer from low equity which meeting of the shareholders should be organized.
hinders growth. The efforts should be therefore The basic agenda of this meeting is to get the
to raise equity as much as possible in the initial approval on the Memorandum and Articles of
period. The first option to be tried to mobilise Association as well as select/elect the Board of
members’ equity. It is a must do. Efforts should Directors of the company. However, it is advisable
be made to make the members realise that here for the initiator to avoid election at this stage
without their own capital business cannot be as it can lead to drift amongst members.

6
The amount of capital that a company has been authorized to raise by way of equity shares through the Articles of Association / Memorandum of Association of the PC. This is typically
the capital at the time it has been incorporated.

20
 INCORPORATION OF A PRODUCER COMPANY

However, if the situation is conducive for election proceedings of the meeting should be sent to the
the Initiator can go for it as the process of election Registrar of Company (RoC) within 60 days of the
would enhance the democratic process and meeting along with the list of finalized BoD.
transparency.
j After taking the consent of the members on the What Practitioners say :
selected list of Directors of the company and the
Memorandum and Articles of Association, the The above process might take six to eight months
initiator can go ahead with the registration process. (sometimes more), depending upon the past working
The amount collected through shareholders could experience of the promoting organisation in the area,
be used for registration fees and other processing existence of primary community level institutions and the
related expenditures like fees for Company strategies adopted by the promoting agencies and the
secretary, stationary, travel etc. In the books of quality of human resources deployed for the assignment.
accounts it can be shown as loan taken from the For the promoting agency the assignment of developing PC
share capital. Once the company mobilises is a long term commitment beyond the normal project life
resources through business it can be repaid. of three years and therefore adequate internal investment
in human resources is a necessity.
k After having registration of the company, the first
General meeting of the shareholders should be
conducted within the mandatory 90 days of the 2.5Registration of PC
registration. Other than discussing the business A step-wise basic information for the registration of a
plan, the General Body has to select/elect the ‘Producer Company’ is described as under:
Board of Directors for the next tenure. The

PROCEDURE FOR INCORPORATION OF PRODUCER COMPANIES

1 OBTAIN DIGITAL SIGNATURE CERTIFICATES [DSC] OF PROPOSED DIRECTORS

2 OBTAIN DIRECTOR IDENTIFICATION NUMBER [DIN] OF PROPOSED DIRECTORS

STEPS

3 APPLICATION TO MINISTRY OF CORPORATE AFFAIRS FOR RESERVATION OF NAME IN E-FORM INC-1

4 DRAFT MEMORANDUM OF ASSOCIATION (MOA), ARTICLES OF ASSOCIATION (AOA)

5 DRAFT AND SIGN VARIOUS DOCUMENTS REQUIRED FOR INCORPORATION OF COMPANY

6 FILE VARIOUS DOCUMENTS WITH THE REGISTRAR OF COMPANIES ELECTRONICALLY ON MCA PORTAL
7 PAYMENT OF INCORPORATION FEES AND STAMP DUTY ELECTRONICALLY
8 RECEIPT OF CERTIFCATE OF INCORPORATION FROM ROC

The above mentioned procedure for incorporation will be herein after discussed in detail:

21
 INCORPORATION OF A PRODUCER COMPANY

Step 1: Digital Signature Certificate (DSC)7 : signature who will sign the documents.
The Information Technology Act, 2000 has the provision of The prescribed application form for DSC is available at the
use of Digital Signatures on the documents in order to website of Ministry of Corporate Affairs (henceforth
8
ensure the security and authenticity of the documents filed website of MCA) . After filling the required information, the
electronically. It is now mandatory to have Digital Signature form has to be submitted online to the ‘Certification
9
of minimum one Director or Chairman prior to enter the Agencies . The DSCs are typically issued with one to two
formal registration process. This is the only secure and year validity. These are renewable on expiry of the period of
authentic way that a document can be submitted initial issue. The official fee for issuance of DSC is Rs.1800/-
electronically. As such, all filings done by the companies are In addition, the Certification Agency charges a service fee
required to be filed with the use of Digital Signatures. Thus, which vary from agency to agency.
it is necessary for a company to authorize a person’s

Producer Company Incorporation Process

Incorporation Commence
If MCA is satisfied with Once incorporated. the
Name Approval the incorporation Producer Company can
DIN for Director
Application for Name application, the commence business and
Director
Digital Signature Approval must be filed producer Company will activities.
Identification
Digital Signature Number must be with MCA. be incorporated.
for the proposed obtained for the
Directors. proposed Directors.

Step 2: Director Identification Number (DIN) name up to a maximum of six names, indicative of the
The DIN number can be obtained online only from the main objects of the company.
company affairs cell at Noida, UP with a fee of Rs.500/- by b Ensure that the name does not resemble the name of
providing identification proof number (Only PAN is any other already registered company and also does
accepted) and any one of the following–Voter not violate the provisions of emblems and names
id./AADHAR/Passport/Driving License is accepted for (Prevention of Improper Use Act, 1950) by availing
address proof. The prescribed form is available in the the services of checking name availability on the
website of Ministry of Corporate Affairs and the application portal ( http://www.mca.gov.in).
can be done online. DIN is mandatory for all Directors. c Apply to the concerned Registrar of Companies to
Step 3: Naming of a Producer Company10 ascertain the availability of name in e-Inc-111 by
A Producer Company should be named using the following logging in to the portal (http://www.mca.gov.in). A
suffix“…..Producer Company Limited” appropriately fee of Rs. 1000/-12 has to be paid alongside and the
indicating its status of producer company. The word digital signature of the applicant proposing the
“private” is not used in the name and the absence of which company has to be attached in the form. If all the
does not indicate that the company is a “public”. proposed six names are not available, the applicant
will be intimated by Registrar of Companies (RoC)
The procedures for selecting and applying for the and subsequently the applicant has to apply for a
availability of name for a Producer Company are: fresh name on the same application.
a Select, in order of preference, at least one suitable
7
From September 16, 2006, Ministry of MCA has initiated an electronic mode transaction for all the process of statutory filings under the Companies Act, 1956.
8
http://www.mca.gov.in
9
Certification Agencies are appointed by the office of the Controller of Certification Agencies (CCA) under the provisions of IT Act, 2000. There are a total of seven
Certification Agencies authorised by the CCA to issue the Digital Signature Certificates (DSCs). The details of these Certification Agencies are available on the portal 22
of the Ministry of Corporate Affairs www.mca.gov.in
10
As per the Companies (Amendment) Act, 2002, Section No. 581B
11
Pursuant to Section 20& 21 of the Companies Act 1956
12
Fees should be deposited in the regional bank authorised by the MCA.
 INCORPORATION OF A PRODUCER COMPANY

Moreover, there is further scope of changing the PC’s name, g Many more documents are required like INC-8
if required. However it is not easy to do it frequently. As per Professional Certificate from CA, CS or ICWAI,
the company Act 2013 section 13, an application to RoC with INC-9-Affidavit from subscriber to the
a supporting of a resolutions passed by 2/3 majority of BoD memorandum, KYC– of subscriber, etc.
and 1/3 of General Body and fees of Rs.500 is required to be Please note that all the information and forms are
submitted along with new four proposed names. available on the website of MCA
13
Step 4: Memorandum & Articles of Association (http://www.mca.gov.in) and that the forms can be
After ascertaining the name of the producer company, a directly accessed and filled in on-line.
Memorandum and Articles of Association have to be Step 6: Certificate of Incorporation
prepared. (Refer Annexure no. 1 & 2 for model MoA & • The Registrar of the Companies, on being satisfied
AoA ) that all the documents for the incorporation of a
a After ascertaining the name of the producer company is submitted, s/he is obliged to register
company, a Memorandum and Articles of the memorandum, the articles and other
Association have to be prepared. documents, if any, and issue a ‘certificate of
b Memorandum and Articles of Association should incorporation’ within thirty days, which is a
be printed (preferably a computer print out - conclusive proof of its formation in terms of Part IX
printed on both side of the paper) A. [Section 581C (2)].
c Get the Memorandum and Articles of Association • The incorporation of Producer Company is
duly stamped14 . effective from the date mentioned in the certificate
d Get the Memorandum and Articles of Association of registration granted by the Registrar of
subscribed/signed by the requisite Company.
subscribers/promoters with his/her father's name, • On incorporation, a company becomes a juristic
occupation, address and the number of shares person, i.e. a person in the eyes of law. It has
subscribed for. This information was earlier perpetual succession i.e. its members may come
prescribed to be written by hand by the promoter / and go but the company goes on till it is wound up
subscriber, however this has been now changed. by following the process of law.
This information can be given in typed format. • It has a common seal, which is affixed on all the
Step 5: Documents to be submitted to the RoC for the documents executed on behalf of the company in
15
Incorporation of Producer Company the presence of a Director and be signed by the
16
File the following documents along with the fees payable authorized signatory or signatories. This is
with the Registrar of Companies of the state, where the optional.
Registered Office of the company is to be situated: • It is empowered to hold all properties in its own
a Memorandum and Articles of Association duly name and has its own right. It can sue others and
stamped and signed; can be sued by other and enter into contracts in its
b INC 22 regarding situation (full address) of own name.
Registered Office
17
Power of Attorney
c DIR 12 (in duplicate) regarding particulars of All the work required to incorporate the Producer Company
Directors 18 can be done either by the BoD or alternatively, the General
d INC 7 (on a stamp paper) declaring compliance of Body can authorize anyone of them or any other person to
all and incidental matters regarding formation of follow the matter with the RoC (in most cases the service of a
companies19 Chartered Accounting firm or Company Secretary is
e DIR-2 – consent of the Director acquired for the purpose). In the latter case, they have to
f An affidavit has to be submitted if the execute a power of attorney in favour of the person, who is
Memorandum of Association is submitted in Hindi authorised to act on their behalf.
by subscribers, claiming the understanding of A power of attorney form duly stamped and executed by all
same. the subscribers of Directors have to be submitted to the
13

14
A small write-up on Memorandum of Association and Articles is given in Appendix 2 RoC.
E-stamping is applicable. Please consult your Company Secretary for advise
15
The applicant can apply for registration of the new company within six months of name approval
23
16
The amount of registration fees to be paid will depend upon the authorised share capital kept by the company in the Article of Association.
17
As per the Companies (Amendment) Act, 2002, Section No. 146.
18
As per the Companies (Amendment) Act, 2002, Section No. 303
19
As per the Companies (Amendment) Act, 2002, Section No. 33 (2)
 INCORPORATION OF A PRODUCER COMPANY

Step 7: Tasks to be completed immediately after Department to carry out business. Also, the
incorporation of the PC company has to register itself for Service Tax from
Commercial Tax Department and VAT from Excise
The following tasks have to be completed immediately after department.
incorporation: c Apply for the commercial connection of power
a Open a Bank Account with minimum two officially supply to related agency/board for the office of
nominated signatories in the name of the the PC.
Company. d Establishment of company office means
b Procure PAN number from the Income Tax and arrangement of furniture and fixture along with a
TIN number from the Commercial Tax visible signage board.

2.6 Changes in Company Law according to 2013 Act

Topic New Company Law 2013 Updation
Topic: Publication of name
The company's name shall be painted or affixed outside the registered office and any other business place.
The Company's name, address, CIN, Telephone number, Fax number, email - letter pad
Topic: Allotment of shares:
-Share application form and application money shall be through banking channel.
- Allotment shall be done in 60 days.
-Valuation certificate from CA.
-Filing of returns with ROC.
Topic: Transfer of shares
-Get calculation of NAV of shares.
- Execute Tranfer deed and pay stamp duty.
-Submit the same to company with share certificate with company.
Topic: Nomination of shares
-Nomination for shares can be given by any shareholder in the form SH-13.
Topic: Unsecured loan
-Unsecured loans from Directors are allowed. However, there are many conditions. Please take
appropriate advise from the Company Secretary and Chartered Accountant.
Topic: Loan agreement Registration ( Registration of charge)
- Register all loan agreement with ROC within 30 days.
- Register all satisfaction of loan agreement with ROC within 30 days
Topic: Extra information in Annual Return
- Details of meetings of members, Board of Director along with attendance details.
-Details of transaction with related party.
-Other details as under
Topic: Loans to Directors
No company shall, directly or indirectly, advance any loan or give any guarantee or provide any security in connection with
any loan taken by any of the Directors Partner of any such Director Relative of any such Director. However there are exemption
in case of Managing Director provided there is a loan scheme for all employees. Please take advise from your Company
Secretary before exercising such provision.

24
 INCORPORATION OF A PRODUCER COMPANY

2.7 Roles and Responsibilities of the Board of Directors and Chief

Executive Officer
Roles and Responsibilities of Board of Directors Roles and Responsibilities of the Chief Executive Officer
Creating new shareholders as per the company policy
He/ she shall be the ex-officio Director of the Board
and rules
Enable shareholder / members to participate in the Shall also be responsible for increasing membership of
activities undertaken by the company shareholders as per the policy of the company
Play an active role in the business decisions of the Shall be the part of procurement and marketing
company committee formed by the BOD
Get Approval of decisions taken by the Board of Shall sign all business related documents on behalf of the
Directors in the General Body Meeting, and execute the company. He may exercise the powers as may be
activities as per the decision necessary in the ordinary course of business

To monitor and supervise the activities of the FPC Shall also be responsible for providing timely information
to the company’s members and Board of Directors for
scheduled company meetings or emergency or short
notice meetings.

To appoint, issue orders, and supervise the activities of Furnishes company members with periodic information
the CEO and other FPC employees as per the to appraise them of the operation and function of the
requirements of the FPC. producer company.

To raise the capital as required for FPC business, and Help the Board to raise the capital as required for FPC
then ensure that the raised capital is used for the business
designated business activities.
Cause proper books of account to be maintained; prepare Shall be responsible for maintaining proper books of
annual accounts to be placed before the annual general account, prepare annual accounts and thereof; place
meeting with the auditor’s report and the replies on the audited accounts before the Board and in the
qualifications, if any, made by the auditors. annual general meeting of the members.

Sanction any loan or advance, in connection with the Shall operate the bank accounts with joint signatory of a
business activities of the Producer Company to any member of Board of Director. He / she shall make
Member, not being a Director or his relative; arrangements for safe custody of cash and other assets
of the producer company

Determination of the dividend payable as per the Any other task or responsibility as decided by the Board
policies of the FPC of Directors for the smooth functioning of the company

Determination of the quantum of withheld price and

recommend patronage to be approved at general
meeting

Acquisition or disposal of property, and investment of

the funds of the Producer Company in its ordinary
course of business.

Take such other measures or do such other acts as may

be required in the discharge of its functions or exercise
of its powers
25
 CHAPTER 3

ASSESSING THE CAPITAL REQUIREMENT

OF A FARMER PRODUCER COMPANY
This Chapter elucidates the various factors to be considered and
limitations faced while estimating the working capital
requirement of a FPC. Detail discussion on the methods of
financial assessment is in the following chapter.

26
 ASSESSING THE CAPITAL REQUIREMENT OF A FARMER PRODUCER COMPANY

3 An FPC may require financial assistance for taking up various business

activities as indicated below:
` Infrastructures like
Staff salary, travel, rent, electricity, FPC warehouse, machineries
telephone and other administrative etc.
expenses which can be termed as
management and administration cost

Procurement of Agri. produce,

inputs, Raw materials, etc.
storage, processing,
transportation, insurance etc.
The estimate is determined by the
nature and size of the business.
Furniture, fixtures and
other equipments
like computer, printer etc. Capacity building cost for
BoDs and the
executives of the FPC

While some activities are short term in nature, others have Working capital requirements depend upon the operating
long term credit requirement. FPCs may approach to cycle of the company’s business.
financial institutions for availing term loans (longer
duration loans) for their fixed capital requirements such as
requirement for infrastructure, machinery, warehouses,
3.2 What is Operating Cycle
shops, etc., and they may seek working capital loans (short Operating cycle means the length of time required to
duration loans normally period of 1 year) for their variable convert items like raw material (RM), work in progress
capital requirement. (WIP), finished goods (FG) and receivable into cash. If raw
material/ agri produce, etc., are to be held by and FPC for a
Most of the FPCs require working capital fund support for
longer point before actually selling and getting cash then
initial activities like input trading, trading of agriculture
the operating cycle is longer. On the other hand if the time
produce, etc. Therefore, it calls for an understanding about
gap between procurement and sale is less then the
working capital and its assessment.
operating cycle is shorter.

3.1 What is Working Capital 3.3 Components of Working

Working capital is the capital required by the company Capital
which is used in its day to day operations and managing
business. It includes cash, inventory, accounts receivable, The following components of the day to day business
accounts payable, the portion of debt due within one year, operations require liquid fund and which form the
and other short-term accounts. requirement of working capital when not be met by the
current assets.
In simple words working capital is money available to a
company for its regular operations. • Purchase of agri-inputs to be supplied to its
members
The formula for working capital is:
• Purchase of raw materials in case of processing
Current Assets (cash and other assets that are expected to
be converted to cash within a year) - Current Liabilities • Purchase of agricultural produce in case of simple
(debts or obligations that are due within one year) trading

27
 ASSESSING THE CAPITAL REQUIREMENT OF A FARMER PRODUCER COMPANY

• Storage of raw material/ finished goods/ agri FPOs on their part may learn the following simple methods
produce for estimating their working capital requirements. These
• Processing (food processing/ seed processing, methods are used by the financing institutions for
etc.) calculating working capital loan.
• Transportation of raw material, agri produce,
items for selling, etc. 3.4.1 Operating Cycle Method
• Insurance of goods This method estimates the fund requirement for activities
• Staff salary, travel, rent, electricity, telephone and which begins with acquisition of raw materials and ends
other administrative expenses which can be with collection of receivables.
termed as management and administration cost Stages:
While calculating the requirement of capital for the 1) Raw materials (RM/RM consumption)
above mentioned items the following points are to
be kept in view: 2) Work-in-process (WIP/COP)
• Number of producers/ acreage/number of 3) Finished Goods (FG/COS)
products and its month wise availability 4) Receivables (Debtors/Credit
• Expected amount of inputs to be supplied to
members Less:
• Total expected volume of raw produce to be Creditors (creditors/purchases)
procured (month wise)
• Time of the activity (no. of days from procurement
to sale ) Example:
• Purchase price, selling price Length of operating Cycle:
• Credit limit with the producers and to the buyers a. Procurement of raw material : 30 days
• Monthly cash-in and cash-out projection b. Conversion/process time : 15 days
• Storage duration and cost c. Average time of holding of finished goods: 15 days
• Transportation cost (producers to company and d. Average collection period : 30 days
company store to buyers) e. Total operating cycle : 90 days
• Grading / processing, packaging, if any f. Operating cycle in a year : 4
• Insurance g. Total operating expenses per annum : Rs.60 lacs
• Marketing costs, if any h. Working capital requirement : 60/4= 15 lacs
• Any other costs which is specific to the area
(statutory requirement. For example, in some 3.4.2 Turnover Method:
states buyers for agriculture produce outside the The WC requirements may be worked out on the basis of
APMC has to pay certain levy to the APMC for Nayak Committee recommendations which is popularly
making purchase from the farmers directly) known as Turnover Method. Under this method the
working capital is assessed on the basis of 20% of the
3.4 Different methods for projected annual turnover. In such cases the borrower has
assessment of working capital to bring in minimum of 5% of turnover as margin. Based on
There are various ways in which working capital of a the above, the working capital is assessed as below.
company is assessed based on nature of business and other Example:
related factors. As per the RBI guidelines banks have been (a) Projected sales = Rs. 10,00,000
advised to sanction limits after proper appraisal of the (b) Working capital requirements: 25% of projected
genuine working capital requirements of the borrowers sales i.e. Rs.2,50,000
keeping in mind their business cycle and short term credit (c) Margin (contribution of Owner) : 5% of projected
requirement. For small units operating cycle method and sales i.e. Rs.50,000
turnover method are used to assess the working capital
requirements. (d) Working capital to be funded by bank :
Rs.2,00,000 28
 ASSESSING THE CAPITAL REQUIREMENT OF A FARMER PRODUCER COMPANY

The experience of ASA suggests that the real challenge for FPC is to mobilize initial working
capital. This is due to the following reasons:

• For any financial institution FPC is a commercial entity and therefore they require a margin money contribution in
the credit application from FPCs. This is difficult for any FPC in the initial years.
• FPCs are also required to provide collateral for the loan which is again a constraint for a new business entity like
FPC. However, things have improved significantly in recent years with SFAC providing credit guarantee to the
banks and other selective financial institutions for loan upto rupees one crore. The NBFCs such as NABKISAN,
Friends Women’s World Bank, Ananya Finance, Sammunati Finance and few others have been providing collateral
free loans to the FPCs.
Ÿ Initially FPCs do not have any credentials for doing successful business which also makes the financial institutions
uncomfortable for financing.

However, to overcome these initial challenges the FPCs promoted by ASA, have followed a
business model in the initial years before they have generated reserves and credentials. They
were:
The PCs ventured into a business, which required less or no working capital. Four such examples are given here.
o The business of supplying agriculture inputs like seeds and fertilizers to its members and also non-members. The
FPCs in this case had taken dealership of seeds and fertilizers from the public and private companies and worked
as commission agents on behalf of those companies in supplying materials to the members and also non-
members on cash. Because of the large scale of business the FPCs could make a margin and not the least a
business relationship with those companies which resulted in getting credit limit from those companies in the
subsequent years.

o Similar experiences are in the case of procurement of agriculture produce when the FPCs identify the prospective
buyers and arrange buy back guarantee from them. As the produce is sold at the farm gate level no transportation
and storage cost is involved at the FPC. The working capital flows from the buyer to the producers through the
conduit of the FPC. The FPCs ensure a transparent transaction between the buyers and the sellers and by doing so
they manage to earn a margin from the buyers. Same model is followed for the Government procurement too
which deals with a large volume.

o FPCs have made arrangement with the collateral agencies to provide loan and storage facilities to their member
and non-member farmers against pledging of the materials.

o Loan against Warehouse Receipts (WHR) has been used extensively by many FPCs. As per the scheme the bankers
extend loan upto 70-80% of the value of the produce against the pledging of the WHR. This is used largely for the
seed production activity when the FPCs have to store raw seeds for over six months.

From the above examples some learning that can be drawn are:
• Choose those business activities in the initial years which require very less capital or no capital and which are risk
free.
• It is important for the FPCs to demonstrate success as quickly as possible to build credibility with the shareholders
and other stakeholders. It is imperative therefore for the FPC to start with something small and undertake such
activities which are low in risk and not so complicated for the management.
• Demonstration of fair trade practices is very important for the FPC which is appreciated by both the members and
the trade and industry with whom FPCs do the business.
29
 ASSESSING THE CAPITAL REQUIREMENT OF A FARMER PRODUCER COMPANY

3.5 No t e s on s o me o t he r
of support to the FPCs should be five years instead of three
years with reducing degree of support.
important heads of expenditure
are as under: 3.5.2 Cost of furniture and
fixtures
3.5.1 Management and office FPC will require a minimum office set-up with furniture and
administration cost fixtures like Computer, printer, cupboards, file cabinet,
internet connection etc. It requires about rupees one to one
and half lakh for setting up a small office as experienced by
It is not compulsory for FPC to appoint a team of
ASA. However, what is important to note is that FPC needs a
professional to look after its day to day business. They can
bare minimum office set up for its identity. An office set-up
do it themselves. However, from the experience it is seen
and a formal system contributes in building the identity of
that for the FPC to emerge as a profit making entity the role
the FPC, hence this should not be ignored.
of professional managers cannot be ignored. The most
successful example is the dairy cooperatives in India where
professional managers have contributed immensely to
make it a success. There are many other successful
3.5.3 Cost of Infrastructure and
examples of using professional management viz. ASA’s Machinery
producer companies, PRADAN promoted poultry
cooperatives etc. The role of professionals is immense not For FPC involved in agribusiness the basic infrastructure
only for business development but also for establishing the required are like warehouse, weighing machine, graders,
democratic principles and practices in the FPC and bag closure machines, etc. These infrastructure can be
strengthening its governing system. purchased or can be taken on rent depending upon the
However, how many professionals are required is situations. In normal case, it is advisable to take them on
completely contextual. The number of professional staff rent to reduce the burden of fixed costs. It is possible to get
would depend on the volume of business, diversity of some infrastructure support under the Government
activities and geographical spread of the business schemes. There are plenty of such examples where
operation. infrastructures such as land, warehouse, machinery etc.
Every FPC should have a full time Chief Executive Officer have been accessed by the FPCs from the Government
(CEO)20 who is the ex-officio director of the board. The Act schemes with partial subsidy.
has listed key functions of the CEO in the areas of
administration including bank account operation,
programmatic functions and governance responsibilities. 3.5.4 Training and Capacity
The CEO can be one among the directors or members of the building of BoDs and FPC
FPC or appointed by hiring. functionaries
There is a management team of 2-3 professionals from
agribusiness background, in each FPC promoted by the This is an important aspect for the growth of the FPC and
ASA. The senior most of the management team performs cannot be ignored. The estimation of cost should be based
the duty of CEO while others look after the production, on the annual plan for capacity building including training
marketing and accounting functions. The management and exposure visit events.
team works under the direction of the BoD and report to The requirement of capacity building inputs is again
them on a day to day basis. The Chairman or any other contextual however, as per ASA’s experience, two formal
director of the BoD also works as a full time member in the training and two exposure visits are required for the BoD in
management team and is a co-signatory of the bank the first year. The training are conducted covering the
account. subjects of provisions in the Act, rules and regulations,
The management cost, training and capacity building cost statutory compliances, roles and responsibilities of BoD
of the FPC is estimated at Rs.36 Lakh for three years for and General body, banking operations, while the exposure
1000 shareholders in the national guidelines. From the visits are taken to the successful FPCs where an interactive
experience it is known that although the cost estimation for learning is facilitated.
first three years is somewhat realistic the number of years 30
20
It is mandatory as per article 581W of Producer Companies Act)
 CHAPTER 4

ASSESSMENT OF THE FINANCIAL

VIABILITY OF THE BUSINESS OF
PRODUCER COMPANIES
This chapter deals with various methods of
assessing financial viability of the business of
producer companies

31
 ASSESSMENT OF THE FINANCIAL VIABILITY OF THE BUSINESS OF PRODUCER COMPANIES

4.1 Introduction
The fundamentals of business plan have been explained in
simple terms. Each of these terms is also explained with the
“My business is very small. Do I really need to help of examples and calculations. Effort has been made to
develop a plan like this?" This is the question that is keep the language and applications simple.
often asked by owners of small businesses. The answer The following sections could help in writing the blueprint of
is, “You need a plan, if you don’t want to the business plan of an FPC.
remain in a small business for ever.” Every
business, small or large needs a business plan, more so in
the case of FPC, where for first-time producers are
4.2 The Business Planning
supposed to act as businessmen.
Process
The business planning process starts with Business Ideas
An approach of business plan development has been
Generation, followed by Opportunities and Threats
suggested in this chapter and the methods of assessing
Analysis leading to Identification of Business
financial viability is discussed in an integral manner with
Opportunities. Once the Business Opportunity is
other key components of the business plan development
identified, the Marketing Plan is prepared. The final part of
like marketing plan, etc.
the process deals with the Financial Plan.

Business Ideas Financial Plan

Generation

Shortlist of Business
Business Ideas Planning Process

Opportunities/ Market Plan

Threats Analysis

Business Opportunities
Identification & Selection

32
 ASSESSMENT OF THE FINANCIAL VIABILITY OF THE BUSINESS OF PRODUCER COMPANIES

4.2.1 How to generate business Brainstorming in small groups, is the technique that is
generally used in generating ideas for new businesses.
ideas? This process is done in two phases:
The first step in business planning is to identify the I In the first phase, the emphasis is on generating a
business opportunity. In this case the area of business is large number of ideas, without commenting on
already chosen, i.e. agribusiness for the small producers. the quality of the ideas. The group coordinator
Identification of specific business opportunity is largely a must ensure that ideas are not evaluated, but are
creative process. In the following paragraphs a step by only recorded in detail.
step approach is adopted to discuss various tools of II In the next phase, ideas are evaluated and a
generating business ideas. short-list prepared. The criteria for evaluation
may even be subjective.
Patterns of Creative Business Opportunity Identification
Ÿ Development of problem-solving
products/services: The first step is to hit upon an 4.2.2 Opportunity and Threat
idea that can be a solution to a problem experienced – Analysis & Business Opportunity
by farmers. For instance, collective sale of agriculture
Identification
produce to the bigger market or collective purchase
of agriculture inputs like seeds, fertilizers, pesticides, Once a shortlist of ideas is generated, it must be critically
etc. and selling it to the producers is a creative idea evaluated with respect to the external business
since it reduces the role of middlemen and ensures environment for identifying the business opportunity and
quality products and services to the farmers. threats. This is also called Opportunities and Threats
Analysis (O/T Analysis) and is used to evaluate whether a
Ÿ Exploitation of new technology or material to meet
business idea is worth pursuing any further.
a widely felt need: Millions of Indian farmers use
hand made implements for agriculture like bullock For every idea short-listed write down the Opportunities
driven wooden plough, bullock cart, thrashing by and Threats in terms of:
hands, etc. since they can not afford to own them. An • Size of the market.
idea of introducing the services of mechanized • It’s stability i.e., is the demand for the
implements like tractor, thrasher, etc. on rental basis product/service long term or purely temporary?
to the small farmers can change the way farming is
• The extent to which the market is dissatisfied
done and it can be done in a cost-effective way
with the existing service / solution.
Ÿ Creating a demand for Agriculture extension
• Level of competition, high, medium or low.
services: with the poor quality of State’s agriculture
extension services the idea could be introduction of • Price and quality sensitivity of the market
Agri-clinic where professional extension services can • Degree of profitability
be provided to the farmers on a reasonable price. • Barriers to entry/exit
Similarly, introduction of products like crop insurance
can serve the farmers in a big way. • Changes in government’s policies such as
subsidy, availability of low cost funds, etc
Ÿ Vision: This is the ability to look into the future and
relentlessly pursue the dream. For example
Dr. Verghese Kurien of NDDB, saw the potential of
linking millions of milk producing farmers with the
market.
33
 ASSESSMENT OF THE FINANCIAL VIABILITY OF THE BUSINESS OF PRODUCER COMPANIES

Table-2: At the end of the exercise, the Opportunity and Threats Analysis would look like this:
Opportunities
Threats

Factors

Fairly large. The district APMC

Market Size procures about 10% of the State’s
requirement of food grains.
With increasing population and
Its stability, i.e., is the demand for
growing change in food habit this
the product /service long term or
is unlikely to be affected in the
purely temporary?
next 20 years.

Due to unavailability of options

farmers are dependent on the
The extent to which the market is
middlemen and unhappy about
dissatisfied with the existing
their unscrupulous practices. The
service / solution.
market is sensitive in favour of
procuring directly from the farmers.
Level of competition (high, Low, however, likely to be Medium
medium or low) with the competition from the
middlemen as the business grows
for the PC

Market sensitivity towards price Not very quality conscious, but

and quality price sensitive to a certain extent.

Degree of profitability and Medium in the short term. Barriers

Barriers to entry/exit to entry and exit are very low.

Changes in government’s policies Favourable policy towards small Banks do not provide any
such as subsidy, availability farmers PC, likely to get subsidy relaxation for loan to PC, it is
of low cost funds, etc. and sympathy of the Government. hard to get loan from them.
This can seriously affect the
operations.

Based on the Opportunities and Threats analysis, one can identify an appropriate Business Opportunity which could
be considered for developing a business plan. However, there could be possibility that the identified business opportunity
fails to remain as a potential business opportunity following further analysis, as mentioned further.

34
 ASSESSMENT OF THE FINANCIAL VIABILITY OF THE BUSINESS OF PRODUCER COMPANIES

4.2.3 Risk mapping and

to evaluate which responses are most appropriate, it is
necessary to look at the external environment. Some
management risks are beyond the control of the PC like sudden
a Identification of risks and possible safeguards is an change in policy environment due to change of political
integral part of the O/T analysis. The goal is not to parties in the power, etc. But most other risks are
eliminate risk altogether (an impossible proposition) manageable. By gauging the likelihood of various
but to identify them and assess whether they can be events, the PC can evaluate how much to invest for each
managed or minimised through operational resilience. vulnerability. A company’s risk profile is constantly
If the risks or threats seem unmanageable then one changing, economic and market conditions change,
may discard the business idea altogether. However, consumer preference change, the regulatory
the point to be noted that even after starting the environment changes, as will products and processes. It
business the risks continue to remain in the business is essential that the company’s risk map change in
environment, both internally and externally. tandem, implementing an early warning system so
contingency plans can be activated as soon as possible.
b Prioritize earnings drivers. The first step is to identify
Although a detailed development of a PC’s risk
and then map a company’s earnings drivers. These are
management profile is a fairly elaborate process, a
the factors that would have the biggest impact on
simple self-assessment can quickly identify the largest
earnings if disrupted. For example, a PC would depend
gaps.
heavily on the monsoon as a bad monsoonal year

c
might impact its earnings significantly.
Identify critical infrastructure. The next step is to
4.3 Marketing Plan
identify the infrastructure—including processes, Once the business opportunity has been selected, market
relationships, people, regulations, plant, and analysis follows. The data for the analysis may be
equipment that supports the PC’s ability to generate obtained from secondary sources such as procurement
earnings. of the APMC, Policy guidelines, specific studies
d Locate vulnerabilities. The next step is to identify the conducted by others etc. A market research could be
main vulnerabilities. What are the weakest links, the also carried out for this purpose to critically examine
elements on which all of the others depend? It could be the business potential.
a single buyer for all produces, an employee of the PC The market analysis should cover details about:
(say, CEO) on whom the whole operation of the PC is • The overall market
dependent, etc. Vulnerabilities are characterized by:. • Changes in the market
• An element on which many others depend; a • Market segments, their attractiveness, profitability
bo leneck • Target market and customers
• Processes with no alterna ves • Description of customers
• Associa on with high-risk geographic areas • Competitors – Direct and indirect
(e.g. flood zones), and products (eg, Assessment of market opportunities and threats/ risks
p e r i s h a b l e c o m m o d i e s l i ke m i l k ,
Following the market analysis, an analysis of the Strengths
vegetables)
and Weaknesses (S/W Analysis) of the products to be
• Insecure access points to important handled and PC as an organization should be carried out. It
infrastructure would focus on the following:
e Develop responses. After mapping risk profile, a • The uniqueness of the products/services with
company will have detailed knowledge of its respect to competitor’s
operational vulnerabilities and how these relate to its • Payment terms
strategic goals and earnings. Completing a risk profile
• Quality of manpower in PC and their experience
will also bring to light opportunities to reduce risk or
Risk mitigation plan. • Pricing
f Monitor the risk environment. For each vulnerability, • PC’s standing in the market
there will be a number of potential responses. In order 35
 ASSESSMENT OF THE FINANCIAL VIABILITY OF THE BUSINESS OF PRODUCER COMPANIES

The Strengths and Weaknesses analysis (S/W Analysis) internal business environment, i.e., PC’s product, PC as
together with the O/T analysis is called the SWOT Analysis. organization, its competencies, risk bearing ability and
The O/T analysis helps to analyze the external business policies. At the end of the exercise this is how the Strengths
environment, while the S/W analysis focuses on the and Weaknesses analysis would look like:

Table-3: Strength and Weakness Analysis of Marketing of collective produce of small farmers

Factors Strengths Weaknesses

The uniqueness of PC’s product Small farmers’ produce to which

/service with respect to the market has positive sensitivity.
competitor’s
Payment terms No credit terms

Quality of manpower and their Technically qualified and

Not experienced in marketing.
experience experienced in agribusiness

Pricing Same as competitor or less

Being a small producers PC there

Standing in the market Not very well known
is a sympathy in the market

A suggested outline is provided here to write the market

plan. 4.3.2 Positioning Strategy
Once a market has been segmented and a particular
4.3.1Choosing a Marketing Strategy segment chosen, the PC has to position the product in that
After choosing the market segment that the PC market segment. This means the PC has to tell the
management wishes to target and having carried out the customers about what it is offering and how it is different
SWOT analysis, the suitable marketing strategy should be and better than the competitors.
chosen. The choice depends on a variety of factors Positioning is done in three steps:
including the image that the PC wants to project about the • Identifying advantages of the product over the
product and the organization, PC’s sales objectives like competitors,
whether the PC wants rapid penetration or is content with • Selecting the right advantage(s) , and finally
slow penetration of the market etc. • Signalling the adopted position to the market
The PC may choose one or more combinations of strategy,
but needs to strategically plan a right mix of the 4 Ps 4.3.3 Basis of Positioning
(Product, Price, Place and Promotion– called the Marketing It is clear that the same product can then be positioned
Mix) to develop an appropriate marketing strategy. In the differently, depending on the specific needs of the
following sections some of the tools and methodologies customer. To understand the basis of positioning, let us
are discussed which could be referred to while developing look at positioning in terms of a PC’s products in this case
a business strategy. These don’t confirm to a complete list Agri-clinic services which it intends to provide to the
of strategies, but are certainly, the important ones. farmers of a given area:

36
 ASSESSMENT OF THE FINANCIAL VIABILITY OF THE BUSINESS OF PRODUCER COMPANIES

• Specific Product Features: Problem diagnosis and A suggested outline is provided here to write the market
solution, low cost solution, on-farm services, plan.
continuous follow up
• Benefits, problem/solutions or needs: Services
4.3.5 THE PC’s MARKETING PLAN
provided within 24 hours after registration, expert
suggestions, supply of agro-chemicals which are This is the marketing plan of “PC Name”
genuine and at reasonable price,
• Specific Usage Occasions: On-farm services. The I. MARKET ANALYSIS
customer can call the experts to his/her field to 1.Target Market
discuss the problem and solution
• User Category: The services are ideal for small i. Who are the customers? Write a brief description of the
farmers who have small holdings and can not target customers. (You may write about age, sex,
invest much on the farming. education occupations, occasions of use, frequency of
• Against another services: The agri-clinic services use, income levels, geographic location, etc.)
are more reliable than the Government extension ii. We will be targeting customers by:
services
a. Products and Target Customers
Sr.No. Product line Target Customer
4.3.4 St ra te g ie s b a s e d on
Price and Promotion
Price and level of promotional spending are very important
tools in achieving market penetration objectives. For
iii. Geographic area? Which areas? ______________
instance, if the objective is to quickly gain a large market
share, the strategy could be a combination of low price and iv. Expected sales in the coming year
high decibel promotion, leading to large volume of sales. Sl. Product Product Product
The market strategies often have to decide on the level of No. Months line 1 line 2 line 3
quality and price that it can offer to a chosen market
segment as compared to competitors. 1 April
2 May
Based on the strategies chosen, the Marketing Mix (4 P’s of 3 June
Marketing) could be formulated and the marketing plan
4 July
written. It should cover the following:
• Target markets 5 Aug
• Competition 6 Sep
• Environment 7 Oct
• Product /service
• Price 8 Nov
• Place 9 Dec
• Promotion 10 Jan
• Targeted sales in the coming year and projections 11 Feb
for the next two years.
12 March
Total

37
 ASSESSMENT OF THE FINANCIAL VIABILITY OF THE BUSINESS OF PRODUCER COMPANIES

II. COMPETITION
i. Who are our competitors?

Name ..............................................................................................................
Address.........................................................................................................
Years in business ..........................................................................................
Market share .................................................................................................
Price/Strategy.................................................................................................
Product/Service...............................................................................................
Features ..........................................................................................................
(Note: write two more competitors using same template)

ii. How competitive is the market?

High ...........................................................................................................
Medium ..........................................................................................................
Low ...........................................................................................................

iii. List below your strengths and weaknesses compared to your competitor’s (consider such areas as location,
size of resources, reputation, services, personnel, etc.):

Strengths Weaknesses

1.________________________ 1._______________________

2.________________________ 2._______________________

3.________________________ 3._______________________

III. ENVIRONMENT

I. The following are some important economic factors that will affect our product or service (such as natural calamity
leading to failure of agriculture),

...........................................................................................................
...........................................................................................................
...........................................................................................................

38
 ASSESSMENT OF THE FINANCIAL VIABILITY OF THE BUSINESS OF PRODUCER COMPANIES

ii. The following are some important legal factors that will affect our market such as APMC imposes levies for
purchase of agri commodities outside the market yard):
...........................................................................................................
...........................................................................................................
...........................................................................................................

iii. The following are some important government factors (such as, Govt. policies banning inter-state transfer of food
commodities, Govt. provides subsidy to procure directly from the farmers etc.):
...........................................................................................................
...........................................................................................................
...........................................................................................................

IV. PRODUCT OR SERVICE ANALYSIS

i. Description

Describe here what the product/service is and what it does:

...........................................................................................................
...........................................................................................................
...........................................................................................................

ii. Comparison

What advantages does our product/service have over those of the competitor’s (consider such things as unique
features, expertise, guaranteed services, on-farm services, etc.)?
..................................................................................................................
..................................................................................................................

What disadvantages does it have?

.................................................................................................................
................................................................................................................

iii. Some Considerations

Where will you get your materials and supplies?

.........................................................................................................................
List other considerations:
.........................................................................................................................
.........................................................................................................................
.........................................................................................................................

V. MARKETING STRATEGIES - MARKET MIX

i. Image

First, what kind of image do we want to have (such as small producers organization, quality service, professional
management, low price, convenience)
..........................................................................................................................

39
 ASSESSMENT OF THE FINANCIAL VIABILITY OF THE BUSINESS OF PRODUCER COMPANIES

ii. Features
List the features that we will emphasize:

a........................................................................................................

b........................................................................................................

VI. PRICING
i. We will be using the following pricing strategy:
a. Markup on cost21: ____ What % mark up? ______
22
b. Competitive : ____
c. Below competition: ____
e. Other: ____

ii. Are our prices in line with our image?

YES___ NO___

iii. Do our prices cover costs and leave a margin of profit?

YES___ NO___

VII. CUSTOMER SERVICES

i. List the customer services we provide:

a. ____________________________________________
b. ____________________________________________

ii. These are our sales/credit terms:

a. _____________________________________________
b. _____________________________________________

iii. The competition offers the following services:

a. ____________________________________________
b. ______________________________________________

VIII. ADVERTISING/PROMOTION

i. These are the things we wish to say about the business:.....................................................

ii. We will use the following advertising/promotion sources:..................................................

21
Mark up price = Cost price + profit desired
22
40
Competitive price = Follow the competitors in setting your price
 ASSESSMENT OF THE FINANCIAL VIABILITY OF THE BUSINESS OF PRODUCER COMPANIES

4.4 Financial Plan Ÿ Variable costs: Variable costs are those that change
directly with the sales volumes or with the size of the
The last part of the business planning process is the business. For example the cost of inventory or raw
preparation of the financial plan. It is based on the material is a variable cost. The more you sell, the more
marketing plan. The topics covered in this section are: raw material you have to purchase and vice-versa.
A. Concepts of finance Suppose you are in the business of aggregating the
• Budget and its importance agriculture produces and sell it in the bigger market.
• Fixed and Variable costs The more number of farmers you add to aggregate
• Working Capital produce, the more you have to spend on procurement,
B. Financial Analysis grading, transportation, etc.
• Break-even sales and BE Analysis Ÿ Fixed costs: Fixed costs are those which remain
• Interest rates calculations unaffected by the sales volumes. This means that you
• Net Present Value have to incur them, no matter how much is the sales
• Internal Rate of Return volume. Rent or certain number of staff hired for the
• Cash Flow Statement business are good example of fixed costs.
C. Sensitivity Analysis Profits: For any business to be viable in the long run, the
• Acid test ratio sales revenues must always be greater than the costs. This
• Debt service coverage ratio difference in the sales and the costs is called profit. Simply
put,
4.4.1 What is a ‘Budget’? Sales – Costs = Profits
For any entrepreneur or business, or in other words:
‘budget’ is the ultimate tool with Sales = Costs + Profits
which to monitor and keep a control This means that one should target the sales to be of such a
over the business. A budget is a volume that it covers all the costs and also have a
forecast of all cash sources and reasonable amount of profits which is atleast equal to the
expenditures. Budgets help to benchmarked Return on Investment.
determine how much money you
have, where to use it, and whether you can achieve your 4.4.2 What is working capital?
financial targets. It shows the flow of money into, through Working capital is the difference between a business’
and out of the business. The three basic elements of a current assets and its current liabilities. In simple terms
budget are: working capital is the amount of money required by a
• Sales revenue business to cover its short term liabilities. Working capital
• Costs and includes:
• Profits Ÿ Cash
Sales revenue: Sales revenues are the key figures in any Ÿ Marketable securities
budget. One has to estimate the sales revenues that would Ÿ Accounts receivables
accrue to the business as accurately as possible. These Ÿ Inventories
should be based upon the past sales records or the industry Ÿ Accounts payable, and
averages. Once the sales targets have been fixed (as Ÿ Wages/ salaries and taxes
accurately as possible), then the necessary costs can be Since any firm or business has about 40% of its capital tied
estimated which would help in realizing the sales revenues. up in current assets, decisions regarding working capital
Costs: Estimating costs in any business is a complicated greatly impact business success.
procedure. Small changes in the assumptions on which the
costs are estimated can render the whole budgeting
exercise futile. Costs are of two types – ones that change
4.4.3 How to prepare a Budget?
To prepare a good budget, the following three questions
with volumes of sales and ones that do not change. These should be answered:
are called variable costs and fixed costs, respectively. Ÿ How much net profit (i.e. sales minus costs) do I want
the PC’s business to make in the financial year?
41
 ASSESSMENT OF THE FINANCIAL VIABILITY OF THE BUSINESS OF PRODUCER COMPANIES

Ÿ How much it will cost (both fixed and variable agriculture produce Gram to a bigger market. The
costs) to generate that profit? following would be the costs:
Ÿ How much sales revenue is necessary to support • Cost price of Gram = Rs 3000 per quintal
both profit and costs? • Fixed costs per year = Rs 1,00,000 (including
Based upon the answers of the above three questions, the rentals, salaries, communication, promotion, etc.)
budget can be prepared. • Additional variable cost per quintal of produce to
be sold = Rs 250 per quintal (including
4.4.4 Breakeven analysis transportation, waste, insurance, etc.)
The most commonly used budgeting • The sale price of Gram in open market = Rs 3,600
EN
statement is the ‘breakeven analysis’. per quintal
K EV
BR E A
In simple terms, this means that one What would be the breakeven sales for PC-A ?
LOSS PROFIT has to find out using the above three Assuming that the breakeven sales is Vb
answers what should be the sales The breakeven sales for PC-A would be:
revenues so that all the costs incurred 3600 x Vb – 100000 – (3000+250) x Vb = 0
in the business are recovered. This 350 Vb = 100000
volume of sales is called the breakeven Vb = 285.714
sales or the breakeven point. The fixed This means that PC-A will have to sell more than 285
costs that must be recovered from the sales revenues after quintals of Gram in one year to break even.
the deduction of variable costs determines the sales Now if PC-A also wants to recover the depreciation cost of
volume required to breakeven. This also means that any its machinery (grading plant, generators, etc. of about
amount of sales after this would result in profits for the Rs 10,000 per month) and also make a profit of Rs. 140,000
business. At breakeven point, the total variable costs plus per year, then the quantity of Gram it will have to sell will be
the fixed costs is equal to the total sales revenue. This can calculated by this formula:
be expressed as: Total sales – Total costs = (Rs.10,000 x 12) + Rs.140,000 =
F + V (X) = P(X) Rs 2,60,000
Where, F = Fixed costs Applying the same formula:
V = Variable costs per unit 3600 x Vb – 100000 – (3000+250) x Vb = 2,60,000
X = Volume of output (in units) 350 x Vb = 3,60,000
P = Price per unit Vb = 1028.57
Let us take a simple example to illustrate the above This indicates that in order to earn a profit and depreciation
concepts. cost, the PC-A has to sell more than 571 quintals of Gram
Producers company-A (PC-A henceforth) wants to sell per year.

A typical break-even chart would look like this:

Figure 2: A typical Break-even Chart
80
70
Prot
Expenses and revenues

60
50 Break-even point
40
.........x..... Fixed Costs
Variable Cost
30 Loss Revenue

20
........x........x...........x..........x...........x.........x
10
0
1 2 3 4 5 6 7
Sales in volumes (no of boxes)
42
 ASSESSMENT OF THE FINANCIAL VIABILITY OF THE BUSINESS OF PRODUCER COMPANIES

4.4.5 Sources of finance financing for a producer company without

collateral.
In simple terms, ways and means to raise the capital or
money required to be invested in a business is called • Grant support: The PC being a small holders
‘financing’. There are four basic but different ways to raise organization may seek working capital support
capital or funds for investing in any business. These are: from the Government under certain government
schemes (viz. GoMP has a policy for working
• Personal financing: This is the money that PC has capital support, SJSY special scheme can provide
ready access to and the PC does not have to pay infrastructure grant to the PC) and from other
any interest on. It may be sourced from the reserve development agencies.
and surpluses from the previous years. This is the
easiest (but not the best) way to finance the This brings us to the next concept, which is ‘interest’ on
business. However, in case of a new PC this money borrowed or financed.
opportunity will not be there.

• Credit capital: Credit capital can be obtained from

credit companies or from potential buyers who
give a grace period before the amount is due or
interest is charged. The producers who sell their
products to the PC would not hesitate in giving
credit period to the PC if convinced about the
soundness of the business idea. On the other hand
the PC can get part payment in advance from
prospective buyers of certain agriculture produce
that PC has made a deal to supply. It can get
agriculture inputs from the Agro dealers on the
conditions of payment after sales. But mostly this
type of finance is not available for start-up
businesses or a new venture.

• Equity financing: Equity financing does not

require the business to directly repay the money
lent or invested by the investors. In case of PC the
equity comes from the members and no external
financier can participate in the equity investment.
Being a small producers company the equity
contribution is generally less and therefore it
cannot contribute significantly to the total fund
required for establishing a PC.

• Debt financing: This is the most preferred way of

financing a new business. Here it is a direct
obligation to pay the interest on the money lent by
the financier. The biggest advantage is that the
financier does not have control over the business
as opposed to equity financing. The important
point to be noted in this is the rate of interest
charged. However, it is not easy to raise debt
43
 ASSESSMENT OF THE FINANCIAL VIABILITY OF THE BUSINESS OF PRODUCER COMPANIES

An interest calculation based on borrowing Rs 1,000 for

4.4.6 What is interest? What 5 years at 12% interest per year compounded is as follows:
are the various ways of calculating Table-4: Calculation of Interest
interest? Year 0 Rs 1000.00
Interest is the cost or value of money. In debt financing, there
are two main parties – the borrower and the lender. A Add: 12% for Year 1 Rs 120.00
borrower is the one who receives money from the lender. An End of Year 1 Rs 1,120.00
interest rate is the amount, usually stated as a percentage,
demanded by a lender (or an investor) to make an amount of Add 12% for Year 2 Rs 134.40
money available to a borrower to use or invest in his
EOY 2 Rs 1,254.40
business. Following are the examples of some interest
calculations: Add 12% for Year 3 Rs 150.53
If PC-A borrowed Rs 1,000 for 1 year at 12% interest then it
EOY 3 Rs 1,404.93
has to repay Rs 1,120, at the end of the year. Of this, Rs 1,000
is the principal (abbreviated capital or lower case P) and Rs Add 12% for Year 4 Rs 168.59
120 is interest (I or i). Together they are called Principal and
Interest (abbreviated P & I or p + i). EOY 4 Rs 1,573.52
Whereas, if PC-A were to borrow Rs 1,000 for 1 year at 1% Add 12% for Year 5 Rs 188.82
interest per month compounded (meaning paying interest
on interest as well as principal) monthly, then he will have to EOY 5 Rs 1,762.34
repay Rs 1,127 at the end of the year.
EOY = End of Year
Similarly Rs 1,000 borrowed by PC-A for 2 years at 12% per
year, compounded, requires a payment of Rs 1,254 at the Hence if the loan is to be repaid after five years, the payment
end of 2 years. would be Rs 1762.34 of which the principal returned is Rs
1000, whereas the interest is Rs 762.34.

There are three most common methods of loan repayment calculations. These are:
Ÿ Interest only – meaning only interests during the loan duration and the last instalment is paid along with the principal
amount.
Ÿ Equal payments – here the interest and the principal to be repaid are spread evenly for the entire loan term.
Ÿ Equal principal payment – in this case, the principal amount is paid in equal instalments, while the interest decreases
(based upon the balance principal amount).
Let us assume that the PC-A has managed to borrow Rs.150000 from a commercial bank. The bank offers the PC-A about the
three plans of repayment (interest only, equal payments and equal principal payments).

Given below is the repayment plan for each of the three options.
Table-5: Repayment Plan
Year Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr 9 Yr 10 Total
Interest Only 24000 24000 24000 24000 24000 24000 24000 24000 24000 24000 24000
Equal Payment 31035 31035 31035 31035 31035 31035 31035 31035 31035 31035 310350
Equal Principal 39000 36600 34200 31800 29400 27000 24600 22200 19800 17400 282000
Given the three options, which option the PC-A should opt for?
To answer the above question, the PC-A could take recourse to calculating Net Present Value of the future cash
outflows in all the three options.
44
 ASSESSMENT OF THE FINANCIAL VIABILITY OF THE BUSINESS OF PRODUCER COMPANIES

4.4.7 What is Net Present

Where, A1, A2, A3, …., An are the cash flows expected in 1,
2, 3, and nth year respectively and D is the discount rate.
Value (or NPV)? In our example earlier, given the three cash outflow
Present Value or PV is a method to calculate what would be scenarios for PC-A, the NPV for each one of them is given
the value of a future cash flow if it were to happen today. below:
Here a discount rate (similar to interest rate) is used to
calculate the PV. An interest rate looks forward in time. It Table-6: Calculation of NPV
represents what someone expects to earn in the future. A Payment plan NPV
discount rate serves the same function, except that it works Interest Only Rs 150,000.00
backwards in time, taking a future cash flow and giving it a Equal Payment Rs 149,999.21
value today. The Present value is calculated in the following
Equal Principal Rs 150,000.00
manner:
PV = A / (1+D)T
As we can observe, the NPV for all the three payment plans
Where A = Amount expected, is almost same. This means that for PC-A or for the Bank,
D = Discount rate, and the three plans are the same. However, depending upon
T = Time (in years) the paying capacity of PC-A or the money requirement of
the Bank, one of the options can be chosen. For example, in
If PC-A were to earn Rs 10,000 in 1 year from today, its
plan 1– Interest Only, the maximum amount is payable
present value given a discount rate of 12% would be:
only in the 10th year. This may not suit the Bank as it will get
PV = Rs 8928.57 far less money during the initial years to service other
This means that if PC-A were to earn Rs 8928.57 today, it loans. Also the risk is higher for the Bank. Most of the
would be equivalent to getting (cash inflow) Rs 1000 in the repayment plans prefer either plan 2 or 3.
next year. Please note that it would also mean that if PC-A Theoretically, the net present value of a future stream of
were to give Rs 1000 next year (cash outflow), it would be cash flows (outgoing and incoming) must be positive to
equivalent to giving Rs 8928.57 today. justify an investment. In other words, if a project is worth
Similarly, if PC-A were to give Rs1000 in two years time more than it costs (outflows are less than the inflows), its
from now, its present value would be Rs 7971.94. NPV will be positive.
The Net Present Value or NPV is the sum total of present In the example below the NPV has been calculated on three
values of such cash outflows or inflows over a period of different marketing strategies generating three different
time. This is used when calculating the present worth of cash flow although total cash flow is the same. In such case,
future investments or cash inflows or instalment payments. a net present value analysis would help the PC-A to
The formula is as follows: compare among the three choices.
NPV = A1/(1+D/100)1 + A2/(1+D/100)2 + A3/(1+D/100)3
+ …….. + An/(1+D/100)n

Table-7: Cash flow-1

NPV
Year Yr 0 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr 9 Yr 10 Total (at 12%)
Rs
Strategy A (300000) 10000 30000 45000 60000 50000 45000 60000 70000 50000 45000 165000
(9,338)
Rs
Strategy B (300000) 30000 45000 70000 60000 50000 45000 65000 35000 50000 15000 165000
13,944
Strategy C (300000) 20000 40000 65000 70000 60000 30000 50000 40000 60000 30000 165000 Rs
6,467

45
 ASSESSMENT OF THE FINANCIAL VIABILITY OF THE BUSINESS OF PRODUCER COMPANIES

Please note that the outgoing cash (in Year zero) is always these is different and the Strategy with the best NPV
shown as a negative, as it is an investment. (Strategy B in this case) should be normally selected over
Looking at these three choices, only two strategies (B & C) the other two.
have a positive NPV at a 12% discount rate while the third
(Strategy A) is negative. This means that even if the three Now if the discount rate changes, the NPV would also
strategies would cost the same (the sum total of all the change. For example if the discount rate is lowered from
three cash flows is Rs 1,65,000), the net present value of 12% to 8%, the resulting NPV would be:

Table-8: Cash flow-2

NPV
Year Yr 0 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr 9 Yr 10 Total (at 8%)
Rs
Strategy A (300000) 10000 30000 45000 60000 50000 45000 60000 70000 50000 45000 165000 (61,704.20)
Rs
Strategy B (300000) 30000 45000 70000 60000 50000 45000 65000 35000 50000 15000 165000 (81,460.35)
Strategy C (300000) 20000 40000 65000 70000 60000 30000 50000 40000 60000 30000 165000 Rs.
(75,060.21)

Now all the three strategies yield positive net present values.
Now if the discount rate changes to 16%, then NPV for the same streams of cash flow would yield the following result:

Table-9: Cash flow-3

NPV
Year Yr 0 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr 9 Yr 10 Total (at 8%)
Rs
Strategy A (300000) 10000 30000 45000 60000 50000 45000 60000 70000 50000 45000 165000 (57,472.46)
Rs
Strategy B (300000) 30000 45000 70000 60000 50000 45000 65000 35000 50000 15000 165000 (32,732.80)
Strategy C (300000) 20000 40000 65000 70000 60000 30000 50000 40000 60000 30000 165000 Rs.
(40,633.59)

In this case all of the three strategies yield negative NPV adopted. Calculation of discount rate is complicated and
and hence do not appear attractive. requires expert advice.

This exercise demonstrates that in financial analysis, and Is there another, easier and a surer method to compare
especially in net present value (NPV) analysis, the choice of different cash flow streams? Yes, another technique called
discount rate is crucial. However for investments, analysis the Internal Rate of Return or IRR – is used for project
only on the basis of NPV may lead to faulty outcome and analysis or the comparison of cash flow alternatives
decision as its result hinges crucially on the discount rate without having a specific discount rate

46
 ASSESSMENT OF THE FINANCIAL VIABILITY OF THE BUSINESS OF PRODUCER COMPANIES

4.4.8 What is an Internal Rate 4.4.9 Cash Flow Statement

of Return? Cash flow statements show cash inflow and outflow over a
An internal rate of return calculation allows you to period of time and are used for internal planning. If it is an
determine the interest rate that a business will earn on the established business, worksheets can be put together from
original amount of capital invested and the expected future the actual figures of income and expenses of previous years
cash inflows. In other words it provides the discount rate combined with projected changes for the next period. If it is
that a business produces rather than applying a discount a new venture, one will have to project the financial
rate determined from outside the business. It is calculated requirements and disbursements. The profit at the end of
by equating the present value of expected cash outflows the year will depend on the proper balance between cash
with the present value of expected inflows. Mathematically inflow and outflow. The cash flow statement identifies:
it may be represented as: Ÿ When cash is expected to be received.
Ÿ How much cash will be received.
A0 = A1/(1+R/100)1 + A2/(1+R/100)2 + A3/(1+R/100)3 + Ÿ When cash must be spent to pay bills and debts.
…….. + An/(1+R/100)n Ÿ How much cash will be needed to pay expenses.

Where A0 is the initial investment and A1, A2, A3, …., An

It also allows the Manager to identify the source of
are the cash flows expected in 1, 2, 3, and nth year
necessary cash, i.e., will it come from sales and services
respectively and R is the Rate or Internal Rate of Return.
rendered or should it be borrowed? One has to make sure
The Internal Rate of Return – IRR – Requires a computer for
that the projections take into account receivables and how
calculation.
long it will take the customers to pay. The cash flow
statement deals only with actual cash transactions and not
On computer MS Excel programme:
with depreciation or other non-cash expense items.
Enter cash flows in cells
Open f* A cash flow statement can be prepared for any period of
Choose Financial time. It should be prepared on a monthly basis for the next
Choose IRR year and revised not less than quarterly to reflect actual
“OK” performance in the preceding three months of operations.
Highlight values from Year 0 to Year n Preparing Cash Flow Statement
“OK”
The vertical columns of a cash flow statement represent the
In our example of PC-A’s expected cash inflows from the
twelve months, preceded by a total column. Horizontal
three strategies, the IRR as calculated with the help of
rows on the statement contain figures for the sources of
computer is as follows:
cash and cash to be paid out copied from the two previous
worksheets and from individual budgets.
Table-10: Calculation of IRR
The figures are projected for each month, reflecting the
Strategy IRR flow of cash in and out of the business for a one-year
Strategy A 7.74% period. Begin with the first month of the business cycle and
Strategy B 9.29% proceed as follows:
Strategy C 8.73% Ÿ Project the beginning cash balance. Enter under
the first month of the business cycle.
Ÿ Project the cash receipts for the first month.
What do these values mean? Or what should be the Ÿ Add beginning cash balance and cash receipts to
acceptance criteria? determine total cash available.
Here PC-A will have to compare the IRR from the three Ÿ Project the direct, indirect and interest expenses
strategies with the required rate of return. If the IRR is for the first month.
more than the required rate of return, then the proposal Ÿ Project monies due on taxes, long-term assets and
would be accepted. For example, if the required rate of loan repayments. Also project any amounts to be
return is 12% then the IRR has to be equal to or more drawn by owners.
than 12% for consideration.
47
 ASSESSMENT OF THE FINANCIAL VIABILITY OF THE BUSINESS OF PRODUCER COMPANIES

Ÿ Total all expenses and draws. This is total cash paid To complete the total column, proceed as follows:
out. Ÿ Enter the beginning cash balance for the first month
Ÿ Subtract total cash paid out from total cash in the first space of the total column.
available. Enter the result under cash Ÿ Add the monthly figures for each category
balance/deficiency. If the result is negative, be sure horizontally and enter the result in the
to bracket this figure. corresponding total category.
Ÿ Project loans to be received and equity deposits to Ÿ Compute the total column in the same manner as
be made. Add to cash balance/ deficiency to get each of the individual months. If you have been
ending cash balance. accurate in your computations, the December
Ÿ Carry forward the ending cash balance for January ending cash balance will be exactly the same as the
as February's beginning cash balance. total ending cash balance.
Ÿ Repeat the process through the last month of the
business cycle.
Table-11: An example of cash flow statement is given below:
Name of business and PC : _____________________ Projected / Actual Date:________
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total
First Month
Beginning Cash sales
CASH IN
Cash Sales
A/R Collections
Interest income
Sale of Fixed assets
Loans received
Other cash sources
TOTAL CASH IN
CASH OUT
Inventory & Raw mat.
Salaries & Wages
General supplies
Rep & Maintenance
Travel
Shipping & Delivery
Legal & Account. Fees
Telephone, rent
Utilities
Interest Charges
Taxes
Other operating expen.
Loan Repayments
Fixed Asset Payments
Capital Expenditures
TOTAL CASH OUT
End of Month
CASH FLOW
CASH BALANCE
Operating Data
Sales Volume
Accounts receivables
Bad Debts
Inventory on Hand
Accounts Payable 48
Depreciation
 ASSESSMENT OF THE FINANCIAL VIABILITY OF THE BUSINESS OF PRODUCER COMPANIES

4.4.10 Sensitivity analysis the debt service coverage is the lowest as well as the
average DSCR.
After having learnt all these concepts, how can we evaluate
the performance of PC-A’s business? One of the 4.4.11Why is the debt service
measurements of the financial condition and performance coverage ratio important and how
of a business venture is a ratio or index, which relates to
pieces of financial data from the business. There are several
are they used?
indices which can be used, here we would be discussing DSCR is important because they tell a lender what excess
only two of the most commonly used ones, namely, Acid funds exists in the event revenues or expenses are less or
Test Ratio and Debt Service Ratio. greater than estimated in a project. Most lenders have a
specific cut-off ratio that must be met for both average and
a Acid test ratio lowest year debt service coverage. If a business cannot
Acid Test Ratio or Quick Ratio is the measure of the ability meet these tests then the options with the borrower could
of the firm to be able to meet short-term obligations. This is be:
a ratio of the current assets of the firm to its current Ÿ Lowering the amount to be borrowed (and
liabilities. The current assets include cash and bank increasing the amount of equity that needs to be
balance, short-term marketable securities and put in a project).
debtors/receivables. It may be noted that the inventories
Ÿ Setting up reserves or credit agreements to pay the
already lying with the firm are not included in the current
assets. This ratio is the best available measures of the shortfall amount in the specific year.
liquidity position of a firm. Usually an acid test ratio of 1:1 is
considered satisfactory as a firm can quickly meet all its Essentially Debt Service Coverage calculations determine
current or short-term liabilities. how much debt a project can afford. Combined with IRR,
b Debt Service Coverage these two tools assist the entrepreneur to determine the
business viability.
While acid test ratio is a measure of the ability of a firm to
pay off its current liabilities, the Debt Service coverage ratio
is a measure of the firm’s ability to meet long-term 4.5 Writing a Business Plan
obligations. This ratio is expressed as the amount a project Now that we have completed our marketing and financial
pays (or proposes to pay) each year for principal and plans, we are now ready to write out the business plan.
interest on the debt/loan; that is, the amount of debt
service to be paid when compared with the funds available
to pay that debt service.
If PC-A’s income is Rs 100,000 and its operating expenses
are Rs 50,000 it has Rs 50,000 available to pay principal and
interest on loans (debt service). If the PC borrows
FPC
Rs 1,50,000 for 10 years at 16% interest with equal
payments every year, its obligation is Rs 31,035. When
compared to the Rs 50,000 available for debt service the
project has what is called a 1.6 times debt service coverage
or debt service coverage ratio or DSCR (arrived at by
dividing Rs 50,000 by Rs 31,035).
In real life however, the projects do not have such uniform
debt service coverage calculations. For this reason we must
look at what is called Average Debt Service Coverage (the
sum of all the year’s available amounts divided by the sum
of all the debt service payments) and examine the coverage
ratios of each year. We should then focus on the years when
49
 ASSESSMENT OF THE FINANCIAL VIABILITY OF THE BUSINESS OF PRODUCER COMPANIES

4.5.1 What is a business plan? iv. Financial Plan: The financial plan underpins this entire
system of plans. Three financial areas are generally
The business plan is a succinct document that specifies the discussed.
components of a strategy with regard to the business Ÿ Financing pattern
mission, external and internal environments and problems Ÿ Cash flow statement
identified in earlier analyses. A business plan is not written
Ÿ Three year income statement
each time a modification to a strategy is made. It should be
written when you develop a new venture or launch a major Usually an appendix is included in a business plan. This
new initiative. The business plan serves several important generally contains supporting information, documents and
purposes: details that would interfere with clear communication in the
Ÿ It helps determine the viability of the venture in a
body of the plan. Examples of this type of information
designated market. include price lists, economic forecasts, demographic data
and market analysis.
Ÿ It provides guidance to the entrepreneur in
organizing his or her planning activities.
Ÿ It serves as an important tool in helping to obtain
4.5.3 Tips on writing a business
financing / funding. plan
A well-written business plan also will provide broad The text of a business plan must be concise and yet must
parameters upon which progress toward goals can be contain as much information as possible. This sounds like a
assessed and control decisions made at a later time. contradiction, but you can solve this dilemma by using the
Key Word Approach. Write the following key words on a
4.5.2 What are the elements of
card and keep it in front of you while writing:
Who / What / Where / When / Why / How / How Much
a business plan?
Answer all these questions (asked by the key words) in one
i. Introduction and Executive Summary: A typical paragraph at the beginning of each section of the business
business plan begins with a brief introduction followed by plan. Then expand on that statement by telling more about
an executive summary. The executive summary is prepared each item in the text that follows.
after the total plan has been written. Its purpose is to
communicate the plan in a convincing way to important There is no set length to a business plan. The average
audiences, such as potential investors, so they will read length seems to be 30 to 40 pages, including the
further. supporting documents section. Break the plan down into
sections. It takes discipline, time and privacy to write an
ii. Industry Analysis: An industry analysis usually follows effective business plan.
the executive summary. This section communicates key
information -- the collection of which was discussed earlier You will save time by compiling your list of supporting
-- that puts the venture or plan into the proper context. documents while writing the text. For example, while
writing about the legal structure of your business, you will
iii. Marketing Plan: The marketing plan is the first step in realize the need to include a copy of your partnership
developing any new strategy. It is developed within the agreement. Write partnership agreement on your list of
context of the PC’s goals and should be based on a realistic supporting documents. When compiling that section of
assessment of the external environment, as discussed your plan, you will already have a list of necessary
earlier. The marketing plan is written first because documents. As you go along, request any information that
marketing decisions typically determine resource needs in you do not have, such as credit reports.
other areas. Obviously, a decision to seek a large share of a
market will require a significant commitment of resources With the previous considerations in mind, you are ready to
of various kinds. How you choose to promote and distribute begin formulating your plan. Read through this entire
your product or service will have clear ramifications for your publication to get an overall view of the business planning
organizational, production, human resource and financial process.
plans.
50
 ASSESSMENT OF THE FINANCIAL VIABILITY OF THE BUSINESS OF PRODUCER COMPANIES

4.5.4 Suggested Outline of a

v Pricing: Pricing will be determined as a result of
market research and costing of the product or
Business Plan service. Tell how the pricing structure has been
I. Cover sheet arrived and back it up with materials from
research.
Serves as the title page of the business plan. It should
contain the following: vi Product: Answer key questions regarding
product design and packaging. Include graphics
• Name of the Producer Company and proprietary rights information.
• Company address vii Timing of market entry: Decide when to enter
• Company phone number (include area code) the market and how this decision has been arrived
• Logo (if any) at.
• Names titles addresses phone numbers (include viii Targeted sales: State the sales targeted for the
area code) of CEO/Board of Director next 3 years. The first year’s sales may be
presented month-wise.
• Month and year of the plan was issued
ix Industry trends: Give current trends about how
• Name of the person/organisation who prepared it the market may change and what is the plan to
II. Brief description of the business adjust with the changing scenario.
This gives a brief description of the business idea. What is V. Financial documents
proposed? Why it will be successful? These are the records used to show past, current and
III. Table of contents projected finances. The following are the major documents
A page listing the major topics and references. that would be required to include in the business plan.
The work is easier if these are done in the order presented.
IV. Marketing Plan
A marketing plan includes information about the total
market with emphasis on the target market. It helps in i Cash flow statement (budget): This document
identifying the target customers and suggest the means to projects what your business plan means in terms
rightly position and supply the products or services to of rupees. It shows cash inflow and outflow over a
them. period of time and is used for internal planning.
Cash flow statements show both how much and
i Target market: Identify characteristics of the
when cash must flow in and out of your business.
customers. Tell how the results have been arrived.
Back up information with demographics ii Three year income projection: A pro forma
questionnaires and surveys. Estimate the market income statement showing your projections for
size. your company for the next three years. Use the pro
forma cash flow statement for the first year's
ii Competition: Evaluate indirect and direct
figures and project the next according to
competition. Show how one can compete.
economic and industry trends.
Evaluate competition in terms of location market
and business history. iii Break even analysis: The break even point is
when a company's expenses exactly match the
iii Place: Tell about the manner in which products
sales or service volume. It can be expressed in total
and services will be made available to the
rupees or revenue exactly offset by total expenses
customer. Back up decisions with statistical
or total units of production (cost of which exactly
reports, rate sheets etc.
equals the income derived by their sales). This
iv Promotion: How the advertising will be tailored analysis can be done either mathematically or
to the target market? Include rate sheets, graphically.
promotional material and time lines for
advertising campaign.
51
 ASSESSMENT OF THE FINANCIAL VIABILITY OF THE BUSINESS OF PRODUCER COMPANIES

iv Debt-service ratio: The Debt Service coverage

ratio is a measure of the firm’s ability to meet long-
term obligations. This ratio is expressed as the
amount a project pays (or proposes to pay) each
year for principal and interest on the debt/loan;
that is, the amount of debt service to be paid when
compared with the funds available to pay that debt
service.

VI. SUPPORTING DOCUMENTS

• Brief profile of the PC and Resumes of the key
Director/CEO
• Copies of Leases, if any
• Letters of Reference
• Contracts / work order / MoU for selling produces
etc.
• Legal Documents (registration, business license,
etc

52
 CHAPTER 5

ASSESSING INSTITUTIONAL
PERFORMANCE OF FARMER
PRODUCER COMPANY
The Chapter describes a practical tool that can be
used to measure the health of the Farmer Producer
Companies

53
 ASSESSING INSTITUTIONAL PERFORMANCE OF FARMER PRODUCER COMPANY

A method of institutional assessment of producer

company, namely, Framework of Participatory Assessment 5.1 Framework of Participatory
of Institutional Performance of FPC, has been discussed in A s s e s s me n t o f I n s t i t ut ion a l
the following section. This method is used frequently by the Performance of FPC
promoting and performance rating organisations to assess
The framework is comprised of a set of Criteria and
the institutional performance of the FPC time to time. The
Institutional Maturity Indicators (IMIs), considered
findings of the assessment can be used to design and
important for quality checks to ensure that the formation
implement the capacity building strategy for the FPC. Point
process and functioning of FPC is such that it contributes
needs mention that the following indicators are more to
towards strengthening of the governing system of the FPC.
gauge the institutional maturity of the FPCs. Financial
A suggestive set of criteria and IMIs are given below:
assessment would require additional set of tools, most of
which have been already discussed in the previous chapter.

Table-12: Criteria and indicators for assessing FPC formation process and functioning
CRITERIA INDICATORS

•Size: Is the size good enough to be economically viable and socially cohesive
•Not dominated by politically / economically powerful members
1. Characteristics
•Poor and women are included (if mandated)

•FPC has a proper work place and compliant to statutory and business requirements
•Majority members know the purpose of forming FPC and can give an account of
2. Identity & structure FPC’s activities including finances
•Single member per household representation norm used

•Leadership roles change, fixed tenure

3. Leadership •Leaders have been elected by the members
•Adherence to the procedure while conducting election of the Office Bearers and Executives

•FPC has a set of rules (bye laws) which has been discussed and agreed and sanctions
for rule breakers
4. Functioning •Regular BOD meeting and AGM takes place with significant attendance.
•The majority of members (X%) contribute to BOD / AGM discussion and decision making.
•Up-to-date maintenance of records, books of accounts, statutory and internal audit, etc.

•Meetings of BOD / AGM regularly take place in the absence of Promoting Institution or
5. Independence with diminishing support
(in proportional to the •Records are maintained without or with little support from the Promoting Institution
age of the PC) •Decisions are taken independent of the Promoting Institution

•FPC raises fund to carry out business

•Overheads expenditure met with the own resources
•Reserve funds
6. Resource mobilization •Mobilisation of specialised skills, information, resources etc. through public and private
sector linkages
54
 ASSESSING INSTITUTIONAL PERFORMANCE OF FARMER PRODUCER COMPANY

•Business plan and its implementation

•FPC has shown ability to negotiate with the various stakeholders
•FPC effectively oversees/manages the work of Executives working as salaried persons
7. Resource Management
•Budget control
•Transparency

•Office Bearers and Executives have attended training programmes (including

8. Skill acquisition & use specialised training)
•Utilisation of acquired skills to identify and solve operational problems.

•Equitable distribution of benefits (dividends and services)

9. Distribution of benefits •Mechanism of benefits sharing developed and adhered to

Points to Note:
F Against each of the criteria and associated indicators the institutional performance of the FPC can be
assessed in different time frame. The timing of the assessment is context specific and therefore difficult to
prescribe. However, it is suggested that it can be used for some criteria in the beginning and repeat exercise
can be conducted once in a year.
F It is desirable that the assessment is done in a participatory manner, especially involving the members of the
BoD, so that they get the maximum benefits by this assessment in the form of discussion, on the spot
analysis, etc. This analysis would help the BoD to identify their strength and limitations for course correction.
Hence, the process of facilitation is crucial.
F Since the assessment is qualitative in nature therefore the facilitator for this assessment may choose to use
different scales viz. 1 to 10 or attributes like very good, good, satisfactory, poor, etc. to bring in some amount
of objectivity to the exercise.

5.2 Apart from the generic rating tool given several would need to get themselves certified by external credit
rating agencies. These agencies provide credit ratings
organisations have for their internal assessment, which are accepted by most banks for their financing.
developed rating tools. The prominent among them being
the one developed by NABARD.
Some of the prominent credit rating agencies include :
http://www.efreshglobal.com/efresh/headers/pdfs/FPOs
Ÿ CRISIL - http://www.crisil.com/index.jsp
/4Rating%20Module%20for%20FPO1.pdf
Ÿ CARE - http://www.careratings.com/
Ÿ ONICRA - http://www.onicra.com/
NABKISAN Finance limited has its own tool for
assessment of health and eligibility of producer Ÿ CREDITMONK - http://www.creditmonk.com/
organisations which may be accessed online at Ÿ 3Ci - https://3ci.in/
http://www.nabkisan.org/fpoonline.php#tab-1

5.3 Advanced Rating Methods

for Producer companies
The producer companies in their evolution to maturity, to
larger and advanced business process including export,
55
 CHAPTER 6

INSTITUTIONAL SUPPORT TO THE FARMER

PRODUCER COMPANIES
The Chapter describes about the stages of
requirement of finance by the FPOs and various
financial services available for the FPCs from the
government and private domain

56
 INSTITUTIONAL SUPPORT TO THE FARMER PRODUCER COMPANIES

6.1 FINANCING THE FPCs 23

center stage. As the FPCs strive to achieve sustainability,
there is an urgent need to reorient the funding eco-system
Given the rapid growth of the FPCs, the issue of access to support the newly formed FPCs based on the stages in
to credit - linking the FPCs to reliable and affordable their life-cycles. The life-cycle stages are broadly
sources of financing to meet their working capital, categorized into three phases and in each of these phases,
infrastructure development and other needs - has assumed the needs are found to be very different as showed in the
figure below.

MATURED STAGE
(BUSINESS EXPANSION)
EMERGING & GROWING Debt Capital
STAGE Term loans
Equity Financing
INCUBATION & EARLY Working Capital
STAGE
Grant Support for training,
exposure & system
development.

6.1.1 Incubation and Early Stage • FPOs cannot access international fund as they do
not have FCRA exemption, thereby making
At this stage, the financial need of the FPOs revolves around Promoting Institutions play a critical role for fund
the cost of mobilizing farmers, registration cost, cost of support.
operations and management, training, exposure visits etc.
Accordingly, the agencies engaged in promotion of FPOs 6.1.2 Emerging and Growing
require grant support to set up FPOs, take them through the Stage
various systems and processes, including most importantly
Once FPOs are incubated with grant support from promoting
governance, for self- management.
institutions, there are 3 ways to raise fund to meet their
Many donors including the Government, Foundations, working capital and investment need. They include - Equity
Bilateral and Multilateral agencies have funded projects for Financing, Credit Capital and Debt Financing
FPO promotion which have accelerated the growth of FPO
Equity Financing – Given the limited investment capacity of
formation in the country.
the small and marginal farmers, limited contributions are
Despite the above said initiatives in terms of grant support to made by individual farmers to raise the FPOs’ equity
incubate FPOs, many promoting institutions face the which often cannot sustain the operations of the FPOs. In
challenges in strengthening the FPOs already set up. Some order to augment the equity base of the FPOs, the SFAC
of the challenges faced by both the promoting institutions provides equity matching grant equivalent in amount to the
and the FPOs include: equity contribution of the shareholders, (subject to a
• Most projects funded by donors are limited to 24 to maximum of 10 Lakhs) is given under this scheme.
36 months life cycle. The experience of most Working Capital – Working capital for FPOs is currently
Promoting Institutions supports that there is a need available through the window of public sector banks and
to provide handholding support to FPOs for a NBFCs. Some commercial banks who offer working capital
minimum period of 5 years so as to stabilize their assistance to FPOs are ICICI Bank, Union Bank of India,
business operations. Canara Bank, Vijaya Bank, Ratnakar Bank etc. The other
• Currently, start-up risks are not covered in FPO examples (of NBFCs) to provide working capital are FWWB,
promotion programmes. Unlike the traditional NABFINS, Ananya Finance, NABKISAN etc. Maanaveeya
livelihood projects, the FPOIs are business entities Holding (Oikocredit),
and so are vulnerable to market factors/fluctuations.
23
Adapted from POLICY PAPER Financing for Farmer Producer Organizations (FPOs) by ACCESS Development Services* www.accessdev.org
57
 INSTITUTIONAL SUPPORT TO THE FARMER PRODUCER COMPANIES

6.1.3 Matured Stage (Business

mobilize approximately 2.85 lakh farmers in over 250 FPOs,
the majority of which have been incorporated as producer
Expansion) companies under Chapter IXA of the Companies Act, 1956.
Recognizing the centrality of FPOs to meet national
agricultural goals, Department of Agriculture and
As the FPOs move towards expanding their businesses, Cooperation, Government of India, has issued detailed
they need finance for quality improvement in products/ Policy and Process Guidelines for Farmer Producer
services. Here, finance is required for quality improvement Organizations, a comprehensive compendium of
along the value chain of the produce. For example, the instructions, methodology and standard costing to
FPOs dealing with pulses would require loan for small dal encourage State Governments to promote FPOs.
mill, cotton ginning units for the FPOs in cotton growing The SFAC has been playing the role of national level nodal
areas, decorticators in ground nut and so on. agency for the FPOs. It has in recent years extended
Capital loans are required to build infrastructure that the marketing support to the FPOs for procurement of pulses
FPOs want to develop, or to set up processing units, from the FPOs, provided market information to the FPOs
processing/grading/ sorting yards, storage godowns, cold and has also supported formation of state level producer
storage, transport facilities, etc. company, a federation of primary producer companies in
few states. SFAC continues to support promotion of FPOs
At present, the availability of capital loans from Banks is low
by mobilising resources from the central and state
as the development of financial products to the FPO sector
governments. There other schemes run by SFAC for FPOs
by Banks is slow. On the contrary, the NBFCs have taken the
which are discussed later in detail.
lead in fulfilling the finance needs of the FPOs. See table for
details.
The window and availability of capital investment loan for 6.2.2. N a t ion a l B a n k Fo r
the FPOs is limited at the moment. Although RBI has Ag r ic u lt u re A n d Ru ra l
included financing upto two crores to FPOs under the Development (NABARD)
Priority Sector Lending, and loans upto five crores to FPOs
under Indirect Agriculture, there has been no movement by
NABARD has set up a fund called “Producers Organization
the public/private sector banks to develop specific loan
Development and Upliftment Corpus (PRODUCE) Fund” of
products for FPOs.
200 crore in to be utilized for the building and promotion of
2000 Farmer Producer Organisations (FPOs) in 2014-15.
6.2 Government Programmes
Broad objectives of “PRODUCE Fund”is to build, promote
and nurture FPOs by way of extending the required
supporting FPO promotion financial and Non-financial support during the nascent/
formative stage. It is critical to support FPOs in terms of
awareness creation, capacity building, technical support,
6.2.1 SFAC (Small Farmers professional management, market access, regulatory
Agribusiness Consortium) requirements, etc. and provide handholding support for a
minimum period of three years and the same is met as
SFAC was mandated by Department of Agriculture and grant under the Fund.
Cooperation, Ministry of Agriculture, Govt. of India, to lead
a national pilot project to promote FPOs as a Under the scheme the Producer Organisation Promoting
demonstration of the benefits of building institutions of Institution (POPI), Resource Support Agencies and the
producers and their integration in agriculture value chains. FPOs are supported. Visit https://www.nabard.org for
SFAC has implemented this project since 2011, in close information and/or contact the NABARD officials in the
collaboration with State Governments, civil society and district (District Development Manager) or Regional Office
technical organisations as well as private sector companies. in the State capital for more information.
Working across 25 states, the project has helped to

58
 INSTITUTIONAL SUPPORT TO THE FARMER PRODUCER COMPANIES

6.3 Schemes for Supporting Farmer Producer Companies/Organisations

–Financial and non-Financial products
6.3.1 Small Farmers’ Agribusiness Consortium - Equity Grant Fund
Scheme Equity Grant Fund

Sponsoring Agency Small Farmers’ Agribusiness Consortium (SFAC)

Legal entity Ministry of Agriculture and Cooperation, Government of India

Scheme description Ÿ The EGF enables eligible FPCs to receive a grant equivalent in amount
to the equity contribution of their shareholder members in the FPC,
thus enhancing the overall capital base of the FPC.
Ÿ The Scheme shall address nascent and emerging FPCs, which have
paid-up capital not exceeding Rs. 30 lakh as on the date of application.
Ÿ EGF is a cash infusion equivalent to the amount of shareholder equity in
the FPC subject to a cap of Rs.10 lakh per FPC.
Ÿ Once approved EGF is directly transferred to the bank account of the
FPC.
For more information visit
Contact :http://www.sfacindia.com/PDFs/Equity-Grant-Scheme-
and-Credit-Guarantee-Fund.pdf

6.3.2 Small Farmers’ Agribusiness Consortium-Credit Guarantee

Fund (CGF)
Scheme Credit Guarantee Fund (CGF)

Sponsoring Agency Small Farmers’ Agribusiness Consortium (SFAC)

Legal entity Ministry of Agriculture and Cooperation, Government of India

Scheme description Ÿ The Fund has been set up with the primary objective of providing a
Credit Guarantee Cover to ELI (Eligible Lending Institutions like
Banks and NBFCs promoted by Government organisations viz.
NABKISAN, NABFIN) to enable them to provide collateral free
credit to FPCs by minimising their lending risks in respect of loans
not exceeding Rs. 100 lakhs.
Ÿ ELI shall be eligible to seek Guarantee cover for a credit facility
sanctioned in respect of a single FPC borrower for a maximum two
times over a period of 5 years.
Ÿ Maximum Guarantee cover shall be restricted to the extent of 85%
of the eligible sanctioned credit facility, or to Rs. 85 Lakh, whichever
is lower.

For more information visit :

Contact http://www.sfacindia.com/PDFs/Equity-Grant-Scheme-and-
Credit-Guarantee-Fund.pdf
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 INSTITUTIONAL SUPPORT TO THE FARMER PRODUCER COMPANIES

6.3.3 Small Farmers’ Agribusiness Consortium - Venture Capital

Assistance (VCA)
Scheme Venture Capital Assistance (VCA)
Sponsoring Agency Small Farmers’ Agribusiness Consortium (SFAC)
Legal entity Ministry of Agriculture and Cooperation, Government of India
Scheme description Ÿ SFAC would provide Venture Capital to qualifying projects on the
recommendations of the Notified Financial Institution financing
the project. This venture capital will be repayable back to SFAC
after the repayment of term loan of lending Notified Financial
Institution as per original repayment schedule or earlier.
Ÿ SFAC would provide venture capital to agribusiness projects by
way of soft loan to supplement the financial gap worked out by the
sanctioning authority of term loan under Means of Finance with
respect to cost of project subject to the fulfilment of the following
conditions:
Ÿ Qualifying projects under Venture Capital:
Ÿ Project should be in agriculture or allied sector or related to
agricultural services. Poultry and dairy projects will also be
covered under the Scheme.
Ÿ Project should provide assured market to farmers/producer
groups.
Ÿ Project should encourage farmers to diversify into high value
crops, to increase farm incomes.
Ÿ Project should be accepted by Notified Financial Institution for
grant of term loan.
Ÿ The quantum of SFAC Venture Capital Assistance will depend on the
project cost and will be 40% of the promoter’s equity or Rs. 50 lakhs,
whichever is lower

For more information and eligibility criteria visit :

Contact http://www.sfacindia.com/PDFs/SFAC_%20VCA_Guidelines-
Hindi-English31-03-2014.pdf

6.3.4 National Bank for Agriculture And Rural Development

(NABARD) –PODF
Scheme Producer Organisation Development Fund (PODF)
Sponsoring Agency National Bank for Agriculture And Rural Development (NABARD)

Legal entity Government

60
 INSTITUTIONAL SUPPORT TO THE FARMER PRODUCER COMPANIES

Scheme description Ÿ Support is in the form of grant, loans, or a combination of these is

available for capacity building and market interventions.
Producers Organization would be eligible for the following types
of loans:
Ÿ Direct lending to Producers Organization for term loans or
Ÿ Composite loans comprising of both working capital and
term loan requirements, or
Ÿ Working Capital as composite loan
Ÿ Subordinated Debt as Tier II capital based on the
requirements of the PO and provided the Memorandum
and Articles of Association/byelaws permit them to accept
such a debt.
Ÿ Institutions eligible for assistance from PODF :
Ÿ Loan Component: Loan is given to registered Producers
Organizations under any statute of law.
Ÿ Grant Component: It is a part of the overall project.
However, fund can be given to either the registered PO or
the implementing agency or both depending on the
situation.
Ÿ Generally projects having duration of around 7 years is
considered under the Fund. Projects can have a moratorium up to
1-2 years.
Ÿ NABARD's assistance is limited to a maximum of 90% of the total
project outlay subject to certain terms and conditions

For more information visit :

Contact
https://www.nabard.org/english/Financing.aspx

6.3.5 State and Central Specific promoted across state of Karnataka till March 2015. For
more details.
schemes for supporting Farmer visit http://horticulture.kar.nic.in/Design_final/PPP-
Producer Companies. IHD.html#Farmer_Producer_organisations(FPO):__
Some State Governments have devised their own schemes
targeting the FPOs. However, it is difficult to collate such The Government of Madhya Pradesh, West-Bengal have
information. The Government of Madhya Pradesh was one sanctioned funding to the SFAC for the promotion of FPOs
of the first states to announce schemes for the FPCs in in the recent past. There are several other state
2007-08 which includes one time working capital grant, governments who are planning to launch schemes
allotment of land and funding for construction of targeting the FPOs. The Government of M.P has also
infrastructures such as warehouse, soil testing mobile van, sanctioned grant recently for infrastructure development
shed for Haat-bazar, allocation of Breeder seeds for at the FPOs level.
multiplication, etc. Recent the Government of Till Sept,
2016, apart from Karnataka, no other state has devised The most notable existing scheme is the Pulses Price
specific schemes for the support and business expansion of Stabilization Scheme under which the Ministry of
producer companies. The scheme is implemented by Agriculture and cooperation, Government of India procure
Horticulture Department of Karnataka for empowering pulses from FPOs across the country. The SFAC is the nodal
farmers to take care of their needs with backward and agency to implement the scheme.
forward linkages. About 58 Horticulture FPOs had been
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 INSTITUTIONAL SUPPORT TO THE FARMER PRODUCER COMPANIES

6.3.6.Maharastra Agricultural 6.3.7 Initiatives of Karnataka

Competitiveness Project (MACP) State Government.

Maharashtra Government has launched Maharashtra The Dept of Horticulture, Govt of Karnataka has initiated
Agricultural Competitiveness Project (MACP) in May 2011 the following measures to support the FPOs in fruits and
with an outlay of Rs. 708.20 Cr of which World Bank vegetable sector.
contribution was Rs. 464.30 Cr (65.36%), Maharashtra state a. Govt. of Karnataka is providing financial support
contribution is Rs. 52.05 Crore (7.19%) and beneficiary for the infrastructural facilities of FPOs upto 90%.
contribution of Rs. 191.85 Cr (27.45%). Under three phases b. Selected Resource Institutions (RI) to assist and
of the project, 410 PCs are targeted of which 346 are organise the working of FPOs and to provide them
registered and 230 PC Business Plans are approved. More management support for 3 years.
details can be accessed at http://macp.gov.in/ c. RI. Engage the Local resource Persons (LRP) to
held the farmers with necessary inputs and keep
The Project Development Objective of the World Bank tracking the progress of the activities in field.
promoted MACP is to increase the Productivity, Profitability d. RIs in turn are provided with technical inputs by
and Market Access of the farming community in the state universities and HR resource persons.
Maharashtra. This would be achieved by providing farmers e. The management support will be provided to FPOs
with technical knowledge, market intelligence and market for 3 years by the state government.
networks to support diversification and intensification of f. FPOs are granted licenses in seeds, fertilizers and
agriculture production aimed at responding to market pesticides for storage and sales.
demand. Farmers will also be assisted in establishing
g. The FPOs are provided with APMC Commission
farmer organizations, developing alternative market
Agent licence and trader licence with priority go-
channels outside of the regulated markets and in
down space in APMCs.
supporting the modernization of promising traditional
wholesale markets. The project has three main
components:

• Intensification and Diversification of Market led

Production
• Improving Farmers Access to Markets
• Project Management Learning & Adjusting.

62
 CHAPTER 7

CREDIT SUPPORT TO THE FARMER

PRODUCER COMPANIES

63
 CREDIT SUPPORT TO THE FARMER PRODUCER COMPANIES

7.1 NABKISAN Finance Limited

commercialization of enterprises engaged in agriculture,
allied and rural non-farm activities. NKFL provides credit for
(NKFL) livelihood/ income generating activities to Panchayat Level
NKFL was incorporated under the Companies Act, 1956 in Federations, Trusts, Societies and Section 25 companies,
year 1997, and is a subsidiary of NABARD with equity MFIs for on-lending to its member SHGs/ JLGs and FPOs.
participation from NABARD, Govt. of Tamilnadu, Several Among the government sponsored NBFC, NKFL is one of
Banks and a few Corporates. The company is notified as a the most active institutions extending credit to the FPOs.
Non-Banking Finance Company (NBFC) by the Reserve Profile of FPCs Financed by NKFL is in Annexure No. 3
Bank of India. The main objective of the company is to The various schemes available with NABKISAN is being
provide credit for promotion, expansion and given below

7.1.1. Loan Products with availability of Collateral/ Guarantee Cover:

Table-13: The broad features of the products that are available with some form of collateral/guarantee cover are as under:
Loan for FPO eligible for SAFC Loan for FPOs/PO not covered Bulk lending to Promoting
Parameter
Guarantee Scheme under SAFC Guarantee Scheme Institutions for on Lending to
POs
Working capital, term loan for Working capital, term loan for For on lending to FPOs/POs for
Purpose creation of infrastructure for creation of infrastructure for working capital, pledge loans
storage, processing, marketing storage, processing, marketing and term loans.
etc. Bulk loan for on-lending, etc. Bulk loan for on-lending,
loan against warehouse receipts. loan against warehouse receipts.

Eligible FPOs existing for 1-2 years with FPOs/POs under any legal form Promoting, Institutions, Resource
Institutions at least one audited balance and existing for 2-3 years with Institutions with good track
sheet for a financial year. at least two audited balance record and experience.
sheets.

Minimum Rs.3 lakhs (minimum) for Rs.3 lakhs (minimum) for

share capital working capital loans and Rs.5 working capital loans and Rs.5
NA
(minimum) lakhs for term loans. (minimum) lakhs for term loans.

Margin Minimum 15% for WC and TC Minimum 15% for WC and TC 15% of the Project Cost
Hypothecation of assets created Hypothecation of assets created Hypothecation of assets
Security out of loan out of loan and also collateral created out of loan and also
to an extent of 50-100% of collateral to an extent of
loan amount. 50-100% of loan amount.
Rate of interest Based on NABARD’s refinance rate. Based on NABARD’s refinance rate. Based on NABARD’s refinance rate.

Repayment 12 months for WC and 3-5 years 12 months for WC and 3-5 years 12 months for WC and 3-5 years
period for term loans. for term loans. for term loans.
Up to 6 times of the net worth of Up to 6 times of the net worth of Depending on the project cost and
Loan Amount the FPO or Rs.1 crore whichever is the FPO or Rs.1 crore whichever is merit of the proposal.
lower. lower.
Processing Fee 1% of loan amount 1% of loan amount 1% of loan amount
Insurance Assets acquired out of the loan Assets acquired out of the loan Assets acquired out of the loan
will be insured. will be insured. will be insured. 64
 CREDIT SUPPORT TO THE FARMER PRODUCER COMPANIES

7.1.2 Loan Products without

institution. Demonstration of active business
activities by the FPOs even on a low scale, would
Collateral facilitate the FPOs to enlarge membership and
also increase equity participation by existing
members. Taking these aspects into account,
a. Emerging FPOs/POs with promising prospects: initial loan based on the capital of the FPO/PO will
Besides the POs which are established and have be provided on select basis without any collateral
required infrastructure and other forms of support as per the following norms:
to be able to provide adequate collateral, there are
• PO/FPOs promoted by promoting
organisations which are emerging and in nascent
institutes of high repute
stage but with promising prospects but may not be
in a position to provide any collateral. To • To have a minimum net worth ofRs.
encourage such organisations and to demonstrate one lakh
to various stakeholders about their viability with • A debt equity ratio of 1:4
required support, lending to such organisations is
considered essential. Proposals of such For more details visit
organizations depending purely on the merits and :http://www.nabkisan.org/products.php
prospects of the proposal will also be supported up
to loan amount of Rs.50 lakh. Such organizations Tata Trusts and NABKISAN have entered into an
may comply with following minimum norms: agreement for workin together for furthering common
Ÿ PO/FPOs generating surplus through objectives in the field of promoting Rural Livelihoods
operations. and by way of financing a greater number of FPOs. Tata
Ÿ PO/FPOs having professional management Trusts has created a risk fund known titled as Tata
team. Nabkisan First Loss Guarantee Fund, which would
Ÿ Active involvement of members provide credit risk coverage to NABKISAN for the loans
Ÿ PO/FPOs promoted by promoting institutes extended by it. Under this fund, the Trusts would
of high repute provide Guarantee coverage for any loss to NABKISAN
Ÿ PO/FPOs with sound business plan based on up to 15% of the entire loan portfolio lent to Producers
market linkages. Organisations/ Collectives etc.

b. Start-up FPOs/POs: Normally it is expected that NABKISAN also has an arrangement with RABO
the FPOs/POs have to mobilise a minimum capital Foundation to extend guarantee cover all types of
of Rs.3-5 lakhs to enable them to take up a Producer Collectives who are in nascent stage and have
business activity with an investment of Rs.15-20 credit requirements of small size. Two FPOs in the state
lakhs so that they can meet the requirements of of Madhya Pradesh have already been covered under
their members. The newly formed FPOs plan initial the scheme.
activities on a low scale covering the requirements
of a few active members. This activity by the FPO
would enable them in subsequent seasons to seek
involvement of more members as also enhance
the confidence of the existing/new members in the

65
 CREDIT SUPPORT TO THE FARMER PRODUCER COMPANIES

7.2 NABARD Financial Services planning and performance analysis training are provided to
select FPOs to help them have their yearly business plans
Limited (NABFINS) and strategies in place. FWWB is one of the most caring
NABFINS is a subsidiary of National Bank for Agriculture organisations for credit and other business support to the
and Rural Development (NABARD) with equity FPOs especially in their young age.
participation from NABARD, Government of Karnataka and For more information visit:
several Banks. It is a Non-Banking Finance Company :http://www.fwwbindia.org/index.html
(NBFC) registered with the Reserve Bank of India and
operates throughout India. The main objectives are to
provide financial services in two broad areas of agriculture
and microfinance. NABFINS provides credit and other
7.4 Ananya Finance
facilities for promotion, expansion, commercialization and Ananya Finance for Inclusive Growth Pvt. Ltd (Ananya) is a
modernization of agriculture and allied activities in both registered NBFC. It is among the most responsible NBFCs in
rural and urban areas. India with the urge and ability to serve socially motivated
NABFINS extends loans to SHGs, JLGs, micro and small double bottom line enterprises.
enterprises; SHG Federations, Producers' Companies; Ananya was promoted by Friends of Women’s World
Cooperative Societies, Trusts, Societies or other Banking, India (FWWB) and was set up in 2009. The NBFC
Organizations that support production / aggregation has come a long way, withstanding the Andhra Pradesh
/marketing in sectors like agriculture, sericulture, etc. with Microfinance crisis of 2010 and has a robust lending
focus on poor / disadvantaged sections of the population, portfolio today diversified across Microfinance Wholesale,
remote geographies etc. Microfinance Retail and Agribusiness segments.
Loans are extended either directly through Today, Ananya extends credit support to Agribusinesses
Branches/Financial Service Officers or through agents, including Farmer Producer Organizations (FPOs), Dairy
known as Business Correspondents and Business Cooperatives and Agri-enterprises. Ananya offers the
Facilitators engaged on commission basis for services following credit products depending upon the requirement
rendered. of the borrower:
For more information visit : http://nabfins.org/ Ÿ Working capital demand loans with flexi draw-down
and repayment options. The tenor of the loans
ranges from 1 month to 12 months.
7.3 FWWB (Friends of Women’s Ÿ Cattle-loans for farmer members.

World Banking) Ÿ Medium Term loans for financing Equipment

purchases.
FWWB was promoted in 1981, as an affiliate of Women’s
World Banking, a global network created to focus on the Ÿ Long Term loans for meeting Capital expenditure
need for women’s direct access to financial services and needs.
recognizing women’s role in building a nation’s economy. Ÿ Warehouse receipt financing, through partnership
FWWB combined its loans with technical assistance to with IDBI Bank.
ensure sustainable growth and from 1989 to 2010 it has Ÿ Cash Credit facilities, through partnership with IDBI
reached out to more than 300 Micro Finance Institutions Bank.
(MFIs) with technical assistance and nearly 200 with loan Ÿ Kisan Credit Cards to farmer members, through
support. For last five years, FWWB has been successfully partnership with IDBI Bank.
nurturing and strengthening Farmer Producer
For more details visit : http:/ananyafinance.com/
Organizations which are of young age through loan support
and capacity building. Along with credit support, business

66
 CREDIT SUPPORT TO THE FARMER PRODUCER COMPANIES

7.5 Maanaveeya Development

and Finance Private Limited
(Maanaveeya)
It is an Indian subsidiary of Oikocredit, a 40 year old Global
Development Financing Institution that responds to the
needs of businesses that create jobs and income for
disadvantaged people. Maanaveeya operates throughout
India. Maanaveeya provides loans that stimulate
sustainable development that benefit the poor and
disadvantaged people by creation of employment.
For more information visit : http://www.maanaveeya.org/

7.6 Public and private sector

bank
As of now, Public and Private Sector Banks have not
developed exclusive financial products for FPCs except few
although the Credit Guarantee Fund from the SFAC has
been available for sometime. However there are cases of
banks financing FPCs sporadically under the conventional
loan products including credit against pledging of stocks.
One interesting experience is that of Bank of Maharashtra
who has financed Panchakroshi Pashusamvardhan
Produce Company Limited in Satara District for stall-fed
goat rearing by small farmers. In this project, bank finance
of Rs. 50,000 per farmer is directly extended to100 farmers
who are the members of the producer company. The
producer company has been promoted by two reputed
NGOs with long years of field experience in the sector,
Maharashtra Goat and Sheep Research Development
Institute (MGSRD) and the Animal Husbandry Division of
Nimbalkar Agricultural Research Institute (NARI). The main
role of the producer company is envisaged to be provision
of backward and forward linkages such as technical
assistance and market access to the producer members to
profitably rear goats. The company plans in the long term
are to have a slaughter facility when the total number of
goats available to the company reaches around 20,000. The
experience of the bank with this project is being studied by
other banks who are venturing into financing producer
companies

67
 CHAPTER 8

POST INCORPORATION
COMPLIANCE FOR FARMER
PRODUCER COMPANIES
(The Chapter deals with various post incorporation
requirement for compliance to various statutory
authorities to avoid future complication in running
business smoothly)

68
 POST INCORPORATION COMPLIANCE FOR FARMER PRODUCER COMPANIES

In general, compliance means conforming to a rule, such ü To appoint chairman of the meeting: All the
as a specification, policy, standard or law. Regulatory Directors will appoint any Director as
compliance describes the goal that organisations aspire to Chairman to chair the meeting of the Board
achieve in their efforts to ensure that they are aware of and of Directors of the company.
take steps to comply with relevant laws and regulations. In ü To note the Certification of Incorporation
most cases, a law comes to light only after its of the company: Board of Directors is
contravention, resulting in severe penalties. Compliances is required to take note of the certificate of
a must in keeping you away from the long arm of the law! incorporation of the newly incorporated
CLASSIFICATION OF COMPLIANCES company issued by the Registrar of
Companies.
a. One Time Compliance
ü To take note of the Memorandum and
b. Annual compliance
Articles of Association of the company, as
c. Event Based Compliance registered: Board of Directors of the
All the above mentioned compliances are hereinafter company is required to take note of the
discussed in detail. Memorandum of Association & Articles of
Association of the company duly registered
8 .1P O S T I N C O R P O R AT I ON with the office of the Registrar of Companies
and authorize printing thereof.
COMPLIANCES ü To note the situation of the registered
Post incorporation compliances office of the company: Board of Directors is
means the compliances required to required to take note of the situation of the
be done immediately after registered office of the company and ratify
incorporation of a company and one the registered document of the title of the
time compliance. These are : premises of the registered office in the name
of the company or a notarized copy of
lease/rent agreement in the name of the
company.
8.1.1 FIRST MEETING OF THE ü To note the first Directors of the company
BOARD OF DIRECTORS OF THE ü To read and record the notices of disclosure
COMPANY of interest given by Directors
Ÿ Applicable Act: Companies Act, 2013 and its ü To consider the appointment of additional
Rules. Directors
Ÿ Nature of compliance: Conducting First Board ü To consider appointment of first auditors
meeting for transaction of various business of the company: Pursuant to Section 139(6)
Ÿ Time limit allowed for compliance: In order to of the Companies Act, 2013, the first auditor
comply with the provisions of Section 139(6) of the of the company other than a Government
Companies Act, 2013, the Board of Directors of the company shall be appointed by the Board of
company has to hold Board meeting within one Directors within 30 days from the date of
month from the date of incorporation of the registration of the company and in case of
company. failure of the Board to appoint such auditor, it
Ÿ Agenda of Meeting: There are several important shall inform the members of the company
business to be completed in the first meeting of who shall within 90 days at an extra-ordinary
the Board of Directors of the company after the general meeting appoint such auditor and
incorporation. Below is the Illustrative list of items such auditor shall hold office till the
of business for the first meeting however strongly conclusion of the first annual general
recommended that the agenda should be meeting. Who can be appointed? According
prepared with the help of a Company Secretary in to Companies Act, 2013, only a Chartered
pursuant to the requirement of the law. Accountant in practice can be appointed as
first auditor of the company. 69
 POST INCORPORATION COMPLIANCE FOR FARMER PRODUCER COMPANIES

ü To appoint bankers and to open bank any recognized PAN Facilitation centre.
accounts of the company. ü Apply for Tax Deduction and Collection Account
ü To authorize issue of share certificates to the Number TAN
subscribers to the memorandum of TAN is applied through "Form No. 49B" (prescribed
association and articles of association of the under Indian Income Tax Law). A completed form
company can be submitted online at the NSDL website or at
ü Printing of Share Certificate: Date of the "Tax Information Network Facilitation Center"
allotment to subscribers will be the date of (TIN-FC). Application form: https://www.tin-
incorporation of the company and the same nsdl.com/download/tan/form49b.pdf
date will also be used for printing on share ü Apply for Registration for Shop License
certificate to be issued to subscribers. Stamp Shop license is required to be obtained from state/
Duty is to be paid on Issue of Share municipal bodies. For more details refer to the
Certificates. Stamp Duty varies from State to applicable law of the particular state.
State. ü Apply for Registration under VAT/CST
ü Issue of Share Certificates: Share Any entity engaged in trading of goods is required
Certificates are to be issued to the to register itself under the State VAT Tax Act.
Subscribers only after payment of Stamp Applicability of such registration is subject to the
Duty. nature of business in which the company is
ü To approve and ratify preliminary engaged.
expenses and preliminary arrangements: ü Apply for Service Tax Registration
All the expenses incurred for and on behalf Applicability of service tax registration depends on
and in connection with the incorporation of nature of service provided, value of service
the company required to be approved and provided and other aspects. Portal for service tax
ratified registration: https://www.aces.gov.in/
ü To approve the appointment of other
senior officials of the company: Pursuant to
Section 581 (R) (e), Board of Directors of
8.1.3 A R R A N G E M E N T FO R
Producer Company shall exercise the power
CORPORATE STATIONARY
for appointment of a Chief Executive and ü Publication of name of Company
such other officers of the Producer Company, Section 12(3) states that every company shall paint
as may be specified in the articles. or affix its name, and the address of its registered
ü Any other matter as may be necessary for office, and keep the same painted or affixed, on the
the management and administration of the outside of every office or place in which its
company business is carried on, in a conspicuous position, in
legible letters, and if the characters employed
there for are not those of the language or of one of
8.1.2 OBTAIN CERTIFICATE OF the languages in general use in that locality, also in
the characters of that language or of one of those
REGISTRATION UNDER VARIOUS languages.
ACTS TO BEGIN BUSINESS
ü Apply for a Permanent Account Number (PAN): ü Common seal
Following form have been notified by the Income Every company shall have its name engraved in
Tax department for submitting applications for legible characters on its seal. However, vide
allotment of new PAN https://www.tin- Companies Amendment Act, 2015; use of
nsdl.com/download/pan/form49a.pdf. The common seal is now optional.
application can be made either online or through

70
 POST INCORPORATION COMPLIANCE FOR FARMER PRODUCER COMPANIES

ü Compliance regarding mode of communications http://www.mca.gov.in/MinistryV2/Download_eF

Every company shall get its name, address of its orm_choose.html. Annual Return will be for the
registered office and the Corporate Identity period of 1st April to 31st March.
Number along with telephone number, fax ü Filing of Financial statements (e-form AOC-4)
number, if any, e-mail and website addresses, if Every Company is required to file its Financial
any, printed in all its business letters, billheads, statements, Auditor report along with Director’s
letter papers and in all its notices and other official report by uploading on MCA portal e-form AOC-
publications; and have its name printed on hundies, 4 within 30 days of holding of Annual General
promissory notes, bills of exchange and such other Meeting. E- form AOC- 4 can be downloaded
documents as may be prescribed. from the below link:
ü Maintain Statutory Registers http://www.mca.gov.in/MinistryV2/Download_eF
The Companies Act, 2013 (the Act) and the rules orm_choose.html
made there under (“the Rules”) lays down that ü Holding Annual General Meeting
every Company incorporated under the Act has to Companies are required to hold their AGM within a
maintain Statutory Registers (“the Registers”). period of six months, from the date of closing of the
List of Registers to be maintained by the Financial Year and not more than fifteen months
Company is given in Serial no. 8.4. shall elapse between the date of one annual
ü Minutes book general meeting of a Producer Company and that
Every company shall maintain Minutes of meeting of the next. The primary agenda of an AGM
of Board of Directors, General Meetings, and includes approval of financial statements,
Committee Meetings in Minute Book. Minutes are declaration of dividends, appointment or re-
required to be maintained, signed as per appointment of auditors, appointment and
Companies Act, 2013. remuneration of Directors etc.

8.2 MANDATORY COMPLIANCE/ ü Preparation of Directors’ Report

Directors’ Report will be prepared with a mention of
ANNUAL COMPLIANCE: all the information required under Section 134.
ü Board meetings
ü Appointment of Auditor Frequency of Meetings: There should be at least
Pursuant to Section 139 of the Companies Act, four Board Meetings in a year having one Board
2013, every company shall, at the first annual Meeting in every quarter of the year. As per
general meeting, appoint an individual or a firm as Secretarial Standard on Meetings of the Board of
an auditor as per advise by the Company Secretary. Directors (SS-1) maximum interval between two
ü Statutory Audit of Accounts Meetings should not exceed 120 days.
Every Company shall prepare its Accounts and get Minimum Attendance: The quorum of a Board
the same audited by a Chartered Accountant at the Meeting shall be one third of its total strength of
end of the Financial Year compulsorily. The Auditor the Board or two directors, whichever is higher.
shall provide an Audit Report and the Audited ü Filing Income Tax returns
Financial Statements for the purpose of filing it Filing of Income Tax Returns (Tax will be payable at
with the Registrar. The same will be filed with the a flat rate of 30% plus Education Cess).It is to be
Income Tax authority by the Chartered Accountant. noted that though the IT Act does not per-se give
ü Filing of Annual Return (e-form MGT-7) any special benefits or exemptions to Producer
Pursuant to Section 581ZA (9) of the Companies Act Companies as such, but depending upon the kind
the proceedings of every annual general meeting of agricultural activity it carries on, certain tax
along with the Directors' Report, the audited benefits can be availed. For this consult your
balance sheet and the profit and loss account shall Chartered Accountant
be filed with the Registrar within sixty days of the ü Internal audit
date on which the annual general meeting is held, Every Producer Company shall have internal audit
with an annual return along with the filing fees as of its accounts carried out, at such interval and in
applicable under the Act.E-form MGT-7 can be such manner as may be specified in articles, by a
Chartered Accountant. 71
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 POST INCORPORATION COMPLIANCE FOR FARMER PRODUCER COMPANIES

8.3 EVENT BASED COMPLIANCE • Appointment or change of the Statutory Auditors

of the Company
Besides Annual Filings, there are various other Every agreement, resolution passed at any
compliances which need to be done as and when meeting or between any stakeholders of the
any event takes place in the Company. Instances company should be filed to Registrar of
of such events are: Companies (ROC) through form MGT 14. This has
• Change in Authorised or Paid-up Capital of the to be filed with the ROC otherwise every resolution
Company which is not filed will render it invalid.
• Allotment of new shares or transfer of shares Different forms are required to be filed with the
• Giving Loans to other Companies Registrar for all such events within specified time
• Giving Loans to Directors periods. In case, the same is not done, additional
• Appointment of Managing or whole time Director fees or penalty might be levied. Hence, it is
and payment of remuneration necessary that such compliances are met on time.
• Loans to Directors
• Opening or closing of bank accounts or change in
signatories of Bank account

8.4- List of Registers required to be maintained by the FPC

Table-14
Sr.no. Relevant Section & Rules Register
Section 88 (1) and Rule 3 (1) of the Companies
01 MGT-1: Register of Members
(Management and Administration) Rules, 2014

02 Section 88 (1) and Rule 4 of the Companies MGT-2: Register of Debenture holders
(Management and Administration) Rules, 2014
Section 88 (2) and Rule 6 of the Companies
03 (Management and Administration) Rules, 2014 Index of Members

04 Section 88 (2) Index of Debenture Holders

05 Section 88(3) Register and Index of Beneficial Owner
Section 88(4) and Rule 7 of the Companies MGT-3:
(Management and Administration) Rules, 2014 Foreign Register of Members, Debenture holders,
06
other security holders or beneficial owners residing
outside India
Rule 6 of the Companies Form SH-2:
07 Register of Renewed and Duplicate Share Certificate
(Share Capital and Debentures) Rules, 2014
Section 54 and Rule 8 (14) of the Companies Form SH-3:
08 (Share Capital and Debentures) Rules, 2014 Register of Sweat Equity Shares
Form SH-6:
09 Section 62 and Rule 12 (10)
Register of Employee Stock Options

Section 68 and Rule 17 (12) of the Companies Form SH-10:

10 Register of Shares or Securities Bought Back
(Share Capital and Debentures) Rules, 2014
Section 170(1) and Rule 17 of the Companies
11 Register of Directors and KMPs
(Appointment and Qualification of Directors) Rules, 2014
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 POST INCORPORATION COMPLIANCE FOR FARMER PRODUCER COMPANIES

Section 73 and Rule 14 of the Companies Register of Deposits

12
(Acceptance of Deposits) Rules, 2014

13 Section 85 and Rule 7 of the Companies Form CH-7: Register of Charges

(Registration of Charges) Rules, 2014
Form MBP-2:
14 Section 186 and Rule 12 of the Companies Register of Loans/Guarantee/Security and Acquisition
(Meeting of Board and its Powers) Rules, 2014 by Company
Section 187 and Rule 14 of the Companies Form MBP-3:
15 Register of Investments not held in its own name
(Meeting of Board and its Powers) Rules, 2014
Section 189 and Rule 16 of the Companies Form MBP-4:
16 Register of Contracts or Arrangements in which
(Meeting of Board and its Powers) Rules, 2014 Directors are interested

ANNUAL RETURN 8.5- Calendar Of Returns returned to be filed by

the Farmer Producer Companies

8.5.1 Annual Returns

Months Events Remark Last Date
Procure disclosure from all
April – June

Hold Board meeting for the quarter. Directors file Relevant form
Noting of Disclosure by Directors with ROC. Within 30 days from
Section 184. Keep records of dispatch of date of Board meeting
Authorization u/s 179, if any notice and minute book duly
signed by chairman.
Hold Board meeting for quarter File relevant form for approval Within 30 days from
July – September

Approval of Directors report & financial of Directors report and Balance date of Board meeting.
statement. sheet.
Keep records of dispatch of
notice and minute book
duly signed by Chairman
Within 30 days from
Hold Annual general meeting on or before File Annual forms date of Annual general
30th September meeting
December

Hold Board meeting for quarter Keep records of dispatch of

January - October –

notice and minute book duly

signed by Chairman

Keep records of dispatch of

March

Hold Board meeting for quarter notice and minute book duly
signed by chairman

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 POST INCORPORATION COMPLIANCE FOR FARMER PRODUCER COMPANIES

8.5.2 Specific Event Based Returns

Months Events Remark Last Date

01 Resolution passed by Board of Directors for following File relevant Within 30 days
matters. form with ROC from date of Board
Ÿ Any resolution of the Board of Directors or meeting.
agreement relating to the appointment, re-
appointment or renewal of the appointment, of
a Managing Director;
Ÿ Resolutions passed by a company U/s 180
-Sell/ lease undertaking of the company
-Borrowing more than paid up capital and
free reserve.
Ÿ To borrow monies;
Ÿ To invest the funds of the company;
Ÿ To grant loans or give guarantee or provide
security in respect of loans;
Ÿ To diversify the business of the company;
Ÿ To take over a company or acquire a controlling
or substantial stake in another company;
Ÿ To appoint internal auditors and secretarial
auditor;
Ÿ To buy, sell investments held by the company
(other than trade investments), constituting five
percent or more of the paid-up share capital and
free reserves of the investee company

02 Allotment of shares File relevant Within 30 days

Ÿ The share application money shall be through form with ROC from date of Board
banking channel only. meeting.
Ÿ Required to Prepare Offer Letter.
Ÿ Either offer shares to existing shareholder on
proportionate basis or pass special resolution
( filing with ROC)
Ÿ Collect share application.
Ÿ Allotment shall be done in 60 days.
Ÿ File return of allotment
Ÿ Issue Share Certificates- pay stamp duty.
Ÿ The price of the security is required to calculated
by Registered Valuer (can be a company
secretary, chartered accountant or a cost
accountant).

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 POST INCORPORATION COMPLIANCE FOR FARMER PRODUCER COMPANIES

Months Events Remark Last Date

03 Transfer of shares Filing is not required Note in next Annual

• Get calculation of NAV of shares. return
• Execute SH-4 and pay stamp duty.
• Submit the SH-4 with share certificate with
company and get share transfer

04 Nomination of shares Filing is not required Note in register of

Nomination for shares can be given by any members
shareholder in the form SH-13.

05 REGISTRATION OF CHARGE CREATION OF CHARGE Relevant form Within 30 days

Every company creating charge on its property require with ROC from date of loan
to register the particulars of the charge signed agreement.
together with the instruments with ROC within thirty
days of its creation:
Provided registration to be made within a period of
three hundred days of such creation on payment of
such additional fees as may be prescribed.

MODIFICATION OF CHARGE.
On modification of charge: the same shall be filed
within 30 days from date of agreement with ROC.
SATISFACTION OF CHARGE
Within 30 days of satisfaction, the satisfaction of
charge requires to file with ROC.

06 Consolidation of financial statement. AOC-1

Where a company has one or more subsidiaries/
associates company , it shall prepare a consolidated
financial statement of the company and of all the
subsidiaries/ associates company in the same form
and manner as that of its own which shall also be
laid before the annual general meeting of the
company along with the laying of its financial
statement under sub-section

07 Appointment / Ceasement of Directors

Appointment
• Procure Din No. ( Dir-3)
• Check the Provision in AOA.

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 POST INCORPORATION COMPLIANCE FOR FARMER PRODUCER COMPANIES

Months Events Remark Last Date

07 • Procure Dir 2 ( consent to act as Director from File relevant form Within 30 days from
person) with ROC date of appointment
• Pass the resolution in Board meeting/general
meeting .
• Procure Dir 8 from Director ( Intimation of other
Directorship and declaration of Non
Disqualification)
• Company shall File DIR-12 ( attachment
Ceasement
• Get the proof of Ceasement: Death certificate,
Resignation etc.
• Hold a Board meeting: note such ceasement and
authorized Director to Sign form
• Company shall File DIR-12 ( attachment )
• Ceased Director shall file DIR-11 with reasons
and other papers.

08 SUBJECT MATTER FOR SHAREHOLDERS APPROVAL File relevant form File a copy of special
• to sell, lease or otherwise dispose of the whole with ROC resolution with ROC
or substantially the whole of the undertaking of within 30 days.
the company
(i) “undertaking” shall mean an undertaking in
which the investment of the company exceeds
twenty per cent. of its net worth as per the
audited balance sheet of the preceding
financial year or an undertaking
which generates twenty per cent. of the total
income of the company during the previous
financial year;
(ii) the expression “substantially the whole of the
undertaking” in any financial year shall mean
twenty per cent. or more of the value of the
undertaking as per the audited balance sheet of
the preceding financial year;
• to borrow money, where the money to be
borrowed, together with the money• already
borrowed by the company will exceed
aggregate of its paid-up share capital and free
reserves, apart from temporary loans obtained
from the company’s bankers in the ordinary
course of business:

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 POST INCORPORATION COMPLIANCE FOR FARMER PRODUCER COMPANIES

Months Events Remark Last Date

08 Explanation- For the purposes of this clause, the

expression “temporary loans” means loans
repayable on demand or within six months from
the date of the loan such as short-term, cash
credit arrangements, the discounting of bills
and the issue of other short-term loans of a
seasonal character, but does not include loans
raised for the purpose of financial expenditure
of a capital nature;
• The company proposes to give
• Loan, giving guarantee, provide security or
acquire shares
• More than 60% of Paid-up+ reserve ( profits)+
share premium or More than 100% of free
reserve + share premium

09 Related party transaction ( BOD approval) No specific filing, NA

only enter the data
Following requires Board of Directors approval in register of contract
a) sale, purchase or supply of any goods or and specify in
materials; Directors report.
b) selling or otherwise disposing of, or buying,
property of any kind;
c) leasing of property of any kind;
d) availing or rendering of any services;
e) appointment of any agent for purchase
f) or sale of goods, materials, services or property;
g) such related party's appointment to any office
or place of profit in the company.

10 Related party transaction ( Shareholders approval) File relevant form File the same within
with ROC 30 days from date of
In case of following approval of shareholder by way of passing.
special resolution is required for above related party
transaction.
a) If the paid-up capital is Rs. 10 crores or more.
b) Transaction of sale, purchase or supply of
goods or services exceeding 25% of annual
turnover.
c) Buy, sell, lease of any property more than 10%
of net worth.
d) Appointment of related party on remuneration
more than Rs. 2.5 lakhs per month.

77
 CHAPTER 9

EMERGING MARKETING MODELS AND

AVENUES FOR FPCS: FIELD EXPERIENCES
(This Chapter deals with issues and opportunities for backward and forward
integration with market by the FPCs; issues with the regulated agriculture markets,
emerging marketing mechanisms, etc.)

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 EMERGING MARKETING MODELS AND AVENUES FOR FPCS: FIELD EXPERIENCES

In India the marketing of agriculture inputs as well as the has not been adopted by many state governments. And
produce is largely regulated through various laws and where adopted it has been either adopted partially or the
Government orders. The sale of agriculture inputs like rules make the changes ineffective. The role of organized
seeds, fertilisers, agro-chemicals, etc. is governed by the private sector in the primary agriculture market is thus very
state specific laws meant to control quality of materials, limited. Corporate and other bulk buyers of agriculture
prices, distribution of materials and so on so forth. To enter commodities find the transaction costs of dealing with a
into the business of inputs manufacturing or marketing large number of small producers prohibitively high and
requires licenses issued by the State Authority, normally the prefer dealing with bigger farmers and mandi aggregators
State’s Department of Agriculture and Cooperation. Many (Agents). The middlemen fill the gap by making significant
cases the licences are issued by district authorities. This margin.
means that for an FPC operating in multiple districts To overcome the limitations of the multiple levy of mandi
requires to obtain licences from each district of their fees, requirement for multiple license for trading in
operation. In some states there is a system of unified different APMCs, licensing barriers leading to conditions of
licenses issued by the State authorities applicable for the monopoly, poor quality of infrastructure and low use of
whole state. technology, information asymmetry, opaque process for
The chemical fertilisers, especially those which are price discovery, high level of market charges, movement
subsidised by the Government(viz. Urea), are mainly sold controls, etc. the Government of India in 2015-16
through the channels of Primary Agricultural Cooperative introduced the National Agriculture Market (NAM) scheme,
Societies or similar institutions promoted by the a pan-India electronic trading portal which networks the
Government. Fertilisers sold through the channels of existing APMC Mandis to create a unified national market
cooperatives are meant for the members of the for agricultural commodities. The scheme will be
cooperatives. Not necessarily all farmers, especially the implemented by the Department of Agriculture and
small and marginal farmers, are the members of the Cooperation through Small Farmers Agribusiness
cooperatives for varieties of reasons ranging from lack of Consortium (SFAC) in selected 585 regulated wholesale
reach of the PACs to the defaulter of bank/Coop. loans, etc.. markets in States /UTs desirous of joining the e-platform.
For sale of agriculture produce the State Act. APMC The scheme will be implemented in 3 phases covering 250,
(Agricultural Produce Market Committees) comes into play. 200 and 135 mandis during 2015-16, 2016-17 and 2017-18
According to the APMC it is mandatory of all buying and respectively. For integration with the e-platform the
selling of agriculture commodities to happen only in the States/UTs will need to undertake prior reforms in respect
authorised Mandis (Markets). The authorised broker will of (i) a single license to be valid across the State, (ii) single
mediate the transaction between the seller (farmers) and point levy of market fee and (iii) provision for electronic
the buyers (processors / retailers or their authorised auction as a mode for price discovery. Only those
agents). This means that no buyer can buy directly from the States/UTs that have completed these three pre-requisites
sellers (farmers) directly outside the authorised Mandi. The will be eligible for assistance under the scheme. The
APMC Act was put in place with the objective of scheme is in its nascent stage and yet to be fully functional.
safeguarding farmers from exploitation, however, over the (http://enam.gov.in/NAM/home/)
years it has restricted competitiveness in the market, added So, in short for the FPOs to enter into the agriculture
too many layers of middlemen and encourage dcollusion in commodity marketing is challenging given the existing
fixing prices. Also it could not expand its reach to the regulatory framework. States like Karnataka, Maharastra
remote areas. There is one regulated market per 450 sq. made significant reforms in APMC Act. to remove some of
km. Perhaps, not even one third of Indian farmers, the barriers of the APMCs mentioned above. Private
especially the Small and Marginal Farmers, have access to mandis, e-auction, etc. are some of the key reforms
the formal agriculture marketing system leaving the rest introduced. Many States are also introducing reforms in the
dependent on the informal service providers which are APMC Act. gradually. However, there are successful model
exploitative and non-remunerative. The Model APMC Act. of FPOs entering into the agriculture marketing space.
2003 by the Central Government, which advocates open
trade between buyers and sellers outside the market yard,

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 EMERGING MARKETING MODELS AND AVENUES FOR FPCS: FIELD EXPERIENCES

Some of the models practised in recent times has been of the country. This model was the most preferred
discussed. model for farmers as vendors reach the farmer’s
door, purchase and lift the produce from their
9.1 G o ve r n me n t s up p o r te d home/ farm. Some part of the payment is made
immediately and the remaining after sales of the
pulses price stabilisation scheme: produce which normally takes 1-2 weeks for the
Central Government is doing pulse procurement through completion of the transaction. However, some
SFAC under Pulses Price Stabilisation Scheme (PPSS) of pilferages exist in this model, particularly on
Government of India. SFAC does the procurement in weighing and price aspects where farmers loose.
partnership with the FPCs working in different pulses The FPCs came up with a revised version of this
growing area of various States of India, either directly model with some variation from place to place
through FPC or through state federation of farmer’s which is as following :
producer Companies who is coordinating the procurement • Farmers are informed about the quality
activities in partnership with different member FPC. This parameters and procurement schedule in
programme benefits the farmers in terms of better price advance. This is normally based on crop
realization, timely payment and also provides a branding harvesting and arrival
for the FPCs through coverage of maximum farmers of the
area without any restrictions and any risk of market price • Daily highest and modal prices are communicated
fluctuation. There are two mechanisms through which the to the farmers (Wall display in the common place
FPCs can participate in the scheme. First, the FPC can be through village resource person or lead farmer)
directly contracted by the SFAC for the procurement of pre- • Third Party Quality Verification Agency is hired by
decided quantity and quality. All arrangements including the FPC (or arranged by the State Federation) for
registration of farmers, verification of KYC, management of quality verification as per quality parameters pre-
procurement centre, quality control, payment of Mandi or decided.
other taxes, transportation of the materials to the SFAC • The trade happens when farmers agree to the
designated warehouse and obtaining Warehouse Receipts price offered by the FPC in accordance to the
are the responsibility of the FPC. The claim for settlement is quality. This happens at the village level.
sent to the SFAC electronically to receive payments in the
• Once the trade is executed the FPC takes the
FPC account, which in turn paid to the farmers by account
materials in their custody and send to the
payee cheque, a compulsory requirement. The farmers
warehouse or to the party with whom it has selling
must get their payment within 3-5 days of the trade. The
agreement.
FPCs receive 1.5–2 percent commission on the volume of
transaction. The Promoting Institution of the FPC can be a • Farmers are paid usually on the same day through
party to this arrangement to support the FPC. The second cheque or cash in some cases. At the most delay
mechanism is procurement through the State Level can happen for three days.
Federation of FPCs where such apex body is established. In • The FPCs pay the Mandi and other taxes
this case the State Level Federation is contracted by the
• The whole process is done very transparently and
SFAC and they in turn do the procurement through their
the weighing, etc. is done to the satisfaction of the
member FPCs. The State Federation takes responsibility of
farmers.
quality control, claim settlement, training to the FPCs, IT
support for smooth operation, and manage overall
operation. The commission is shared between the FPCs and This is a very good model of spot procurement where
the State Federation. farmers get better price and save transportation cost.
However, this requires a forward marketing tie up for the
9.2.On-door procurement model FPCs. Also requires good amount of working capital. The
State Federation can provide market linkage, working
This is a traditional, but the most popular model of capital and logistical support to the FPCs especially where
commodity trading being practiced in most parts the FPCs are in the nascent stage.
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 EMERGING MARKETING MODELS AND AVENUES FOR FPCS: FIELD EXPERIENCES

9.3. FPC led localised seeds

progressive farmers (constituting a small minority) can be
covered under this programme
production and marketing model
Seeds production and marketing has emerged as one of the 9.4. Credit linked Production and
potential business activity for the FPC, particularly in States Procurement Model
where seeds replacement rate is poor and/or farmers are
using composite and synthetic crop varieties. In this model- This is an emerging model, which helps both farmers and
FPC by involving a Micro Finance Institution in the process.
• FPC registers farmers who are progressive, having The model works like as following :
irrigation facility, and be able to invest on crop
health management. The FPC arranges credit for its member producers for
agriculture inputs (seeds, fertilisers, farm machinery
• Registered farmers are provided parent seeds for services and insurance, etc.) by linking members to an MFI.
multiplication The FPC provides recommendation to the MFI for lending
• The farmers are also registered with the State to a particular member without taking any legal
Seed Certification Agency for ‘on field’ and process responsibility of recovery of the loan. However, it provides
verification audit and provide third party buy-back guarantee to the producer borrower of his
guarantee for the quality of the seeds produce after harvest at the market rate. This is in a way an
assurance to the MFI of the recovery of loan at the end of
• Continuous training is provided to the farmers on the season. The loan by the MFI is given in kind i.e. the
crop husbandry and quality maintenance agriculture inputs and services which farmer needs should
• After harvest, seed is procured by the FPC on the be procured from the FPC outlet. Once the borrower farmer
rate of Mandi Modal Price for grain. A Top-up has received inputs and services the FPC would raise
amount is paid as premium. invoice to the MFI for reimbursement of the amount on
behalf of the borrower farmer.
• The FPC does the processing of raw seeds and
marketing on their own- local sale as well as After production, FPC procure the produces of the
through the outlets of other FPCs under their own borrower farmer in market rate, FPC sells it in the open
brand name. market or process it as required and pays the farmer after
adjustment of the credit amount directly or facilitates the
• There is another model where the FPC works as repayment to the MFI through collection of cheque from
organiser of seed production for State the farmer. Since this finance is made against a well
Federation/Private and Public companies for a planned production and marketing plan hence possibility
volume and quality pre-decided. The FPC after of failure is very less. Several such pilots are being
processing, handover the unpacked seeds to the continued in Madhya Pradesh.
party for whom it has produced. The branding and
marketing is done in this case by the other entity. This is a very good model provides end-to-end solution to
the farmers from inputs and field preparation to crop
In this model the farmers get higher yield due to practice of husbandry service to the buy-back guarantee. On the other
Good Agricultural Practices (GAP) taught during the hand it expands the scope and importance of the FPC for its
programme. They also get premium price upfront. In members and in the local context. It increases business
Madhya Pradesh, most of the FPCs are involved in localised several folds of the FPCs. The relevance of FPCs becomes
seeds production and marketing which has benefitted their very important among the members in this model. The FPC
farmers significantly and also helped them to achieve ensures that inputs and services supplied by it are of good
financial sustainability. The only limitation of this quality and competitive in price.
programme is that, the outreach would be always limited,
and due to operational and technical reasons, only the

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 EMERGING MARKETING MODELS AND AVENUES FOR FPCS: FIELD EXPERIENCES

9.5. Accessing financial market

commodities and derivatives products are traded. Through
commodities exchanges spot transaction as well as future
by leveraging collective strength trading of commodities can be done. There are various
In Madhya Pradesh, the apex body or Federation of Farmer services provided by these commodities exchanges for
Producer Companies was formed with the objective of hedging of prices for future trading of commodities,
thereby minimising the risks of price volatility. In India
leveraging the benefits of the economy of scale and
National Commodity and Derivatives Exchange (NCDEX)
transfer the benefits to the farmers through their producer
and MCX are professionally managed on-line multi
companies. It has been working in the ground for two years commodity exchange. The NCDEX in the recent past has
since formed. MBCFPCL has a team of financial linkage offered the services of their platform to the FPCs for
support cell, which assess the credit needs of the member varieties of services such as- spot selling of commodity,
FPCs based on their business plan and brings it to the future selling, price hedging, etc. Few FPCs in M.P and Bihar
negotiating table through networking with different have used the services with success. For FPCs to get
financial agencies, and then obtain a customised loan exposure to the wider market the NCDEX is a very good
package as per local need. This helps them to get the best platform. However, it has limitations of not having trading
deal with competitive interest rate, which is then disbursed spots in the remote rural areas, restrictions by the APMC
to the FPC. The State federation does only the facilitation Act. for not having operation outside the Mandi premises in
between the FPC and the financing agencies without any many states, etc. As of March 31, 2015, the Exchange
financial intermediation. This model is now being practiced offered trading in 26 commodities, which included 21
with more than 25 FPCs in Madhya Pradesh. The State agricultural commodities.
federation also provides handholding and business For more information on the membership process visit :
management support to the FPC for finalization of business http://ncdex.com/Membership/MembershipIntro.aspx
plan, real assessment of credit, finalization of loan product https://www.mcxindia.com/membership
for FPCs, timely disbursement of loan to the FPC and also
for timely repayment of loan from FPC to financial agency. 9.8. Warehouse Receipts (WHR)
Some financial agencies have appointed the State Warehouse Receipt scheme facilitate farmers for storage of
federation as their Business Facilitation Agency for their produce in warehouses and enabling them to sell their
facilitation of loan to the FPCs in Mdhya Pradesh. produce at remunerative price. It discourages distress sale
of produce by farmers and to facilitate farmers for storage
9.6. Peer group marketing of their produce in warehouses for enabling them to sell
their produce at remunerative price at a future date.
A good marketing opportunity exists in the sector where
Financing by WHR is an excellent option for farmer
one FPC aggregates and supplies the raw material to producer companies for obtaining short term working
another FPC who is in need of particular raw material for capital loans. Producer companies can get short term loans
their processing plant or manufacturing unit. A good at concessional interest rates by pledging the commodities
example of this marketing arrangement is working in kept in the warehouse using the Warehouse receipt as a
Madhya Pradesh where the State federation in negotiable instrument. With the short term loan FPCs can
arrangement with many member FPCs are gearing up to meet credit obligations for its members and store the
supply maize to another State level producer company of commodities for a longer period for getting best prices in
poultry farmers who is in need of large quantity of maize as future. In Madhya Pradesh the FPCs have taken full benefits
raw material for their poultry feed plant. The same model is of this scheme especially for the seed production activity
being worked out for other commodities like organic which needs significant working capital locked in for seven
cotton, etc. where the State federation of FPCs would run to eight months in a year.
the ginning facility while the member FPCs would supply For more information visit :
raw materials. http://www.prsindia.org/uploads/media/1167471035/bill
67_2007010167_Report_ofRBI_working_group_on_wareh
9.7. Commodities Exchanges ouse_receipts_and_commodity_futures.pdf
A commodities exchange is an exchange where various 82
 EMERGING MARKETING MODELS AND AVENUES FOR FPCS: FIELD EXPERIENCES

9.9. e-Kisan Mandi

e-KisanMandi.com is an online platform for buying or
selling of Fruits and Vegetables directly from
farmers/sellers. e-KisanMandi.com is one of the first online
Agri Store in India. Producer companies can become the
franchisee of e-Kisan Mandi and undertake business of
supplying fruits and vegetables in their area and nearby
cities. This portal is open to the FPCs.
For more information visit : http://www.e-kisanmandi.com/

83
 CHAPTER 10

Success Stories of Farmer

Producer Companies

84
 Aggregation Of Finer
Cotton From Small-Holders

Name of Farmer Producer Organisation (FPO): Cotton is a high-paying cash crop, but in spite of increasing
investments in this sector, the farmers are not getting
(1) Nimad Farmer Producer Company Ltd.
adequate returns from cotton production and have even
(2) Barwani Farmer Producer Company Ltd. incurred losses in numerous cases. Madhya Pradesh is
(3) Khargone Farmer Producer Company Ltd. known as the cotton belt and even though cotton is a cash
crop, the farmers are usually smallholders from tribal
Supporting Resource Institution (RI): communities. Due to the unavailability of supporting
Action for Social Advancement (ASA) infrastructure, they face various problems right from the
growth stage to the sale of crops.
“Action for Social Advancement (ASA) (www.asaindia.org) a
The baseline survey showed that more than 90% of the
not for profit voluntary organisation established in 1996, has
target farmers sell cotton to local vendors or middlemen
been working for the development of rural livelihoods
working for bulk procurers, who not only quote low prices
through agriculture based interventions mainly Land &
but also subject the farmers to the hazards of improper
Water Resource Development, Agriculture productivity
weighing. Add to it the fact that each producer has a small
enhancement, Small holders’ Agribusiness Promotion and
quantum of produce further hampers their bargaining
Community Institution Building. The organisation works
power, thus, resulting in the cotton being priced low. The
intensively in Madhya Pradesh, Bihar, Chhattisgarh and
NGO, Action for Social Advancement (ASA), introduced a
Jharkhand covering about 1500 villages and about 1,40,00
way to address this issue by linking small cotton producers
lakh small holders mainly in the tribal dominated areas.
with the better cotton value chain in a manner that they get
Through around 50 Farmer Producer Companies and a
better prices. This has resulted in the elimination of the
State level Producer Company Federation, ASA has further
middlemen, and fair pricing and trade practices. The
outreach to another 1,50,000 lakh families."
producers in these areas were the members of the farmer

01
producer companies (FPCs) who motivated the FPCs to step
in as aggregators to overcome the various problems.

Success stories of FPC

85
The mediation is being actively implemented for both stakeholders.
by FPCs and facilitated by ASA in the Barwani The farmers save time and money in
and Khargone districts, through the Barwani transportation, their produce is correctly
Farmer Producer Company Ltd, Nimad Farmer weighed and they are paid timely and since no
Producer Company Ltd and Khargone middlemen are involved, while the ginners get
Producer Company Ltd, which are legal entities bulk produce in small lots and at one place
located in the general region of the state where which ensures quality. This aggregation of
most of the farmers are traditionally involved in producers in FPCs also provides farmers with a
cotton cropping. The FPCs have entered into platform to address the issues of backward and
formal agreements with nine ginners in forward marketing linkages. For instance, the
addition to establishing village-wise timely availability of agricultural inputs such as
procurement centres where the farmers bring fertilizers and seeds, etc.
the produce. The farmers are required to grow At present, these services are restricted to the
the cotton under certain scientific guidelines, members of the company but there are plans to
and the cotton thus produced is said to be more extend it to include non-members who reside
fine in quality, in terms of the fibre length and in the vicinity. Similar services can also be
strength. The cotton quality is checked at the started for other producers in different
procurement centres, and weighed. The locations. One of the hindrances for the
farmers are given a receipt for the goods, and process is the lack of availability of the working
the payment can be collected from the FPC capital with the FPC. If this problem is resolved,
office the following day. Sometimes, in a few FPC would not be dependent on the ginners
bigger villages, the sale proceeds are directly and could make direct payments to the farmers
transferred to the farmer’s account. This at enhanced prices. This is one way of ensuring
process has innumerable economic, social and that finer cotton fetches better prices.
professional benefits since it’s a good bargain

Success stories of FPC 86

86
 Scaling The Value Chain
Through Quality Seed Production

Name of Farmer Producer Organisation (FPO): It is a well known fact that the availability of quality seeds is
not only critical but a basic and mandatory factor that affects
Bijawar Farmer Producer Company Limited
the increase in production of a particular crop, and if efforts
are not made to ensure the quality of seeds, it could lead to a
Supporting Resource Institution (RI): decline in the overall productivity. Therefore, many
Action for Social Advancement (ASA) smallholders under the aegis of farmer producer companies
(FPCs) have taken the initiative to produce certified soy
“Action for Social Advancement (ASA) (www.asaindia.org) a seeds through a buyback arrangement with apex
not for profit voluntary organisation established in 1996, has government agencies that deal with seed players like the
been working for the development of rural livelihoods National Seeds Corporation Ltd, etc. On-date seed
through agriculture based interventions mainly Land & production is one of the main business activities of more
Water Resource Development, Agriculture productivity than 25 FPCs in Madhya Pradesh and Bihar. However, the
enhancement, Small holders’ Agribusiness Promotion and FPC ownership lies with smallholders, who are poorly
Community Institution Building. The organisation works catered to agriculture extension services. This results in a
intensively in Madhya Pradesh, Bihar, Chhattisgarh and low- or no-profit making proposition for them. The state is,
Jharkhand covering about 1500 villages and about 1,40,00 thus, characterized by a low-seed replacement rate for
lakh small holders mainly in the tribal dominated areas. almost all crops. In order to address these issues, steps have
Through around 50 Farmer Producer Companies and a been taken to connect smallholders to a bigger arena
State level Producer Company Federation, ASA has further through the FPCs. These companies have formally entered
outreach to another 1,50,000 lakh families." into an agreement with national-level seed players like the
National Seeds Corporation Ltd and State Farms
Corporation of India Ltd for the production of 2870 million

02
tonnes (mt) of certified soy seeds. Seeds is a niche product
that fetches a premium price in addition to the ordinary
grain.

Success stories of FPC

87
This entails an extra income that is generally in GAP. Social benefits are linked with producer’s
the range of Rs. 3,000-5,000 per acre. Besides memberships with the FPC, where they can
this, through the facilitating agency, farmers learn and expand their skills. Professional
receive capacity-enhancement inputs, such as benefits accrue in terms of capacity building
good agriculture practices (GAPs), which interventions, such as training, exposures, etc.
reduce production cost and, thus, result in Till date, around 1,000 MT. soy seeds have been
various economic benefits. This initiative has successfully procured, and the process is still
been extremely beneficial to the farmers from under way. The model is suitable for other
economic and social to professional. Economic regions as well. It may be applied to any crop,
benefits accrue in terms of an extra income that and can be adopted by any community.
ranges from Rs. 3,000 to Rs. 5,000 per acre, due
to the category of the product (seed) and
reduction in the cost of cultivation Thanks to

Success stories of FPC

88
88
 Electronic Trading Platform for
Small and Marginal Women
Farmers in Bihar, India

Background
Purnia district falls under the maize belt of Bihar, and is
known to have the highest productivity of rabi (winter crop)
maize in the nation . As a result, maize is the primary cash
crop for farmers in the district. While the marketable surplus
Name of Farmer Producer Organisation (FPO): of these farmers is nearly 90%, they themselves have limited
Aryanyak Agri Producer Company Limited (AAPCL) access to sell their produce in mandis as most of them are
small and marginal farmers (with an average land holding of
Supporting Resource Institution (RI): 1.39 acres). In the absence of an alternate solution, they
Techno Serve have to depend on multiple intermediaries for sale of their
produce. The intermediary chain is very big and wide
About Techno Serve ranging from collection agents at the village level to brokers
Techno Serve is a leader in harnessing the power of the at each mandi to large traders who eventually sell the
private sector to help people lift themselves out of poverty. A produce to institutional buyers across the country. Each
non profit organization operating in 29 countries, Techno intermediary charges a commission, reducing the final price
Serve works with enterprising men and women in the the farmer receives. In addition to this, collection agents in
developing world to build competitive farms, businesses villages follow manual grading processes and are known for
and industries. By linking people to information, capital and weighing malpractices that lead to significant losses
markets, Techno Serve has helped millions to create lasting (approximately Rs.60 – Rs.80 on each quintal of produce
prosperity for their families and communities. In India, procured from farmers). Repealing of the Agricultural
Techno Serve has 10 projects across 5 states, covering Produce Marketing Committee (APMC) Act has also
agriculture, youth employability and entrepreneurship worsened the market infrastructure and trading
development. regulations. Price is now decided by a few big traders and
grain quality is judged by its look and feel, without the use of
moisture meters. This combination of an unorganised trade

03
network consisting of multiple market intermediaries with
weighing and grading malpractices significantly reduces the
final price farmers get for their produce.

Success stories of FPC

89
 Success Stories of Farmer Producer Companies

The Birth of Aryanyak Agri Producer Company Limited Bill and Melinda Gates Foundation (BMGF), was to build the
Keeping in mind the above mentioned issues faced by small and capacity of the JEEViKA team on value chain development,
marginal farmers in Bihar, JEEViKA , a World Bank supported provide technical assistance to producer groups in Bihar and
program for poverty alleviation in rural Bihar, floated a develop a multi-year roadmap to facilitate producer group
producer company called Aryanyak Agri Producer Company formation and strengthen the broader producer group
Limited (AAPCL) in November, 2009 under the Companies ecosystem in the state. To achieve these objectives, Techno
(Amendment) Act 2002, with its registered office at district Serve initiated a pilot in Purnia district to demonstrate higher
Purnia. Initially, AAPCL had an authorized share capital of INR 5 price realization to farmers through collective aggregation and
Lakhs and could issue 50,000 shares, each worth Rs. 10 to the marketing of produce, reducing information asymmetry and
small and marginal farmers, categorically the target families of reaching out to national buyers through commodity exchange
JEEViKA. The shareholders belonged primarily to the platforms.
Dhamdaha block of the district. Here, 500 target families had Based on an initial assessment of the producer groups in Purnia,
subscribed to the shares, each opting for a minimum 20 shares their crop profile and existing post-harvest challenges faced,
worth Rs. 200. The shareholders of the company were spread TechnoServe India recommended the AAPCL to adopt an
out over two clusters, and so the shareholding amount was aggregation and market linkage business model which
collected through Village Organizations (VOs) and then the eliminates multiple layers of intermediaries and thus ensures
same was transferred to the company’s bank account. Since the better price realization and also allows farmers to benefit from
authorized share capital was already five lakhs, there was no off season price increase. The project further recommended the
issue of increasing share portfolio with recommendation from producer company to sell their produce on an electronic trading
BoDs and approval from AGM. platform to minimize risk.
Scope of Business of AAPCL Leveraging JEEViKA’s institutional mechanism, AAPCL raised
AAPCL deals in agri commodity trading and fertiliser wholesale approx. INR 60 Lakhs working capital through internal sources
business. It is planning to do maize processing in the future as a Producer Groups (gap funding) and Cluster Level Federations
part of feed business line. Apart from this, rent based farm (loan @ 0.6% per month) to do maize procurement and
mechanization services will also be rolled out soon. marketing. AAPCL members were trained on the post-harvest
practices of maize Standard weighing and grading practices
The Main Success Story (electronic weighing machines, digital moisture meters etc.) to
Even though AAPCL came into being in 2009, it was not active as ensure transparency during collection and sales. An electronic
most producer groups under it were defunct. A majority of the trading platform (NCDEX e-Markets Ltd - NeML) was used to
women producer groups in Bihar largely represent small and reach out to major buyers across India. Farmers’ produce was
marginal farmers with little capacity to directly market their stored in NeML certified warehouses after quality checks and
produce themselves or hold back the produce to gain lean sold to institutional buyers in both the spot market (NeML) as
season premium. The management of these producer groups well as futures markets (NCDEX) to maximize returns. With this
lacks an understanding of the various marketing tools and does process, the producer company became the first farmer
not have the skill to negotiate with buyers, leading to higher producer company in India to be registered under the NCDEX
risks and losses. As a result of this, the members have never platform for forward trading in maize.
realised the potential of collective aggregation and marketing. In 2015, 300 women from AAPCL sold their maize online, and in
To address this need, JEEViKA, in partnership with TechnoServe 2016, this number went up to 818 women. The main business
India, launched a year-long technical assistance project in Bihar figures of the producer company for the last two maize seasons
in December, 2014. The objective of the project, funded by the are detailed in the table below:
Highlights – Maize Procurement
2014-15 Season 2015-16 Season
1014 MT of maize procured 3064 MT of maize procured
AAPCL revenue 1.28 cr; net profit 0.09 cr Total revenue earned by the PC till end July is 75 Lacs
11.46% incremental revenue to farmers Average price offered to PG members who sold maize
to AAPCL 13.6% higher than the previous year
70% profit distributed as patronage bonus to members INR 3.49 Crore transferred in account of 818 members from 27 PGs
Additional return of INR 109 per quintal due to 138% increase in the member’s participation in maize
patronage bonus selling to AAPCL compared to last year
Success stories of FPC 90
 Success Stories of Farmer Producer Companies

In addition to the benefits mentioned above, the revival of the producer company made
the members aware of how transparent the business should be, and they have thus
started asking for better prices from the local collection agents. They are also pressurizing
the agents to replace their uncalibrated manual weighing scales and hand based grading
practices with industry standard equipment and practices. The use of an electronic trading
platform helped the producer company to get connected with nationwide buyers while
preventing the risk of delay in payment and any breach of contract by the buyers. Also,
with the members receiving the payment for their produce within 3-5 days of sale, they
have been able to ensure timely repayment of crop/ other loans.
The producer company sold maize under the brand name ‘JEEViKA Maize’ and has earned
a lot of traction from the buyers because of the higher quality produce. The availability of
moisture meter with every producer group helped the members to dry and clean the
maize before sale, thus making it Grade A maize.
All the members of AAPCL have acknowledged the power of negotiation through
collective marketing. They feel proud to be a part of AAPCL and have already started making plans for its expansion.
Way Forward
Moving forward, AAPCL will focus not only on maize but also other commodities like potato and banana. It will also undertake
input (fertiliser) supply business as there is a great demand from the members for the same. AAPCL aims to expand its
shareholder base to 10,000 farmers in the next 3 years and plans to reach a turnover of 100 crore.

A Beneficiary Speaks
“I will always sell my produce to the producer company from now on!”
Shakila Khatun is a native resident of Kukrun east village in Purnia district. She is 40 years old and stays in a
joint family of 11 members. Having 8 acres of land, the family’s major income comes from agriculture.
Maize is grown on 95% of the land, while wheat is grown for self-consumption. Rice is grown during kharif
season, 50% of which is sold in the local market. Even after the cyclonic-wind in the month of May, her
production of maize was 27.7 MT this year. Till last year, she used to sell her maize produce to Mr. Mustaq, a
village-level-aggregator-cum-trader who picked the maize from her door-step and offered a price based
on hand grading practice. Weighing was done on a handmade wooden weighing machine on which the
adhatiyas (intermediaries) always take 7-8 Kg per quintal higher produce showing the reason as moisture
loss. Like many others, Shakila doesn’t have a say to negotiate with Mr. Mustaq, as she has also taken a loan
during the period of crop sowing.

During the first week of March 2015, Shakila participated in the Annapurna producer group meeting, of
which she is a member, and came to know that the producer groups will procure maize and sell to AAPCL
this season. She participated in all the meetings organised by JEEViKA and Techno Serve team,
understood the procedure, and spread the information to all the members of the groups.

She took extra care on the post-harvest practices of maize suggested by the project team,
and as a result 100% of her maize was sold as Grade-A produce to the producer group.
She herself used the moisture meter to measure the moisture content of her grain.
Accurate weight of the produce was measured through the electronic weighing scale and
payment was credited directly to her bank account within 3 days of procurement. Such
level of transparency convinced her to sell 100% of her produce to the producer group.
She earned an average price of INR 1003 per quintal, 6% higher than what she would have
got had she sold her produce to Mr. Mustaq. Being a shareholder of the producer
company, she will also receive patronage bonus if the company makes enough profit at
the end of the financial year, taking her increased price realization to 11.3%.
91
91
Success stories of FPC
 From Droplets to Ocean

Genesis
DSC initiated watershed development works in rain fed
villages in Dhari block of Amreli District in Gujarat in 1995
and formed 10 Watershed Users’ Association (WUA). The
WUAs later formed a federation. With enactment of Act on
Name of Farmer Producer Organisation (FPO): Producer Company under Companies Act 1956 in 2002 in
Krushidhan Producer Company Ltd (KPCL) India, late Shri Anil Shah, Founder Chairman, DSC initiated
transforming Dhari Federation into this unique structure,
Supporting Resource Institution (RI): taking the advantage that watershed plus program was
Development Support Centre already implemented in Dhari region and watershed
federation already existed. After various consultations and
Development Support Centre sensitization of farmers, federation at Dhari was
Development Support Centre (DSC), Ahmedabad transformed into Dhari Krushak Vikas Producer Company
www.dscindia.org is a resource organization established in Ltd (DKVPCL) on 23rd June 2005, which was first registered
1994. It provides knowledge based support required by Producer Company in India.
facilitating agencies on Participatory Natural Resource Though in initial phase it had smooth functioning, there
Management especially with focus on Participatory were serious issues to be addressed for its effective
Irrigation Management (PIM), Watershed Management, functioning and sustainability. The company had
Joint Forest Management and Agriculture Enhancement, institutional shareholding and thus lacked ownership of
Policy Research and Advocacy, etc. farmers. Moreover, it has limited coverage, mainly in Dhari
region, which led to issues of lower share capital and scaling
up for financial viability. Though it was a producer’s
institution, it required handholding and continuous
guidance from support agency like DSC for initial period.
But remote support of DSC in initial period led to de-

04
mobilization of the initiative. Due to lack of enabling
environment, appropriate business plan, and local support
Hence the company became non-functional at later stage.

Success stories of FPC

92
 Success Stories of Farmer Producer Companies
Table-1
Details of Company Transformation
Details Origin Reformed
Company Name Dhari Krushak Vikas Producer
Krushidhan Producer Company
Company Ltd. (DKVPCL)
Ltd (KPCL)
Registration 23rd June 2005 2nd December 2013
Authorised Share Capital Rs. 1 lakh Rs. 25 lakh
Registered Office Dhari Ahmedabad
Share Holder (M/F) 10 2035 (M-1655/F380)
Operational Areas
Cluster 1 7
Villages 18 172
District 1 (Amreli) 4 (Amreli, Ahmedabad, Sabarkantha,
Mehsana)
Blocks 1 11

Revival creation of new entity through reformed structure, increased

While reviewing project phase-I of LEPNRM (Livelihood leadership and ownership of farmers and increased region
Enhancement through participatory Natural Resource coverage across Gujarat for enhanced benefits to farmers.
Management) Project under financial support of RBS (Royal Series of meetings were held within DSC board members and
Bank of Scotland) Foundation, need was felt for collective input Kisan Clubs in various blocks and legal consultants. DKVPCL
supply and value addition of agricultural products, marketing was then revived on 2nd December 2013, comprising of 12
support as well as structuring of farmers’ organizations for Board of Directors from 7 clusters/regions of Gujarat. The
collective benefits. Hence under phase II of the project, the DSC reformation evolved new company termed as “Krushidhan
team decided to revive existing producer company rather than Producer Company Ltd” (KPCL).

Board Of Directors -12

Meghraj Dhari
(Cluster Committee) (Cluster Committee)
201 shareholders 210 shareholders from
from 33 Kisan club 30 Kisan club
General Board
2035 Farmers
including male &
female from
198 Kisan Clubs
Visnagar
Hlmmatnagar
(Cluster Committee)
(Cluster Committee)
1044
279 shareholders from
shareholders
37 Kisan club
from 60 Kisan club

Modasa
(Cluster Committee)
301 shareholders
from 38 Kisan club
Management at Head Quarter (Ahmedabad) Board of Directors- 12
•12 Primary Producers/BODs •10 Men + 2 Women
•2 Non Producers (Coopera ve business Visnagar Cluster-4, Modasa Cluster-1
expert and NGO leader) Meghraj Cluster-1, Kujad Cluster-1
•2 Managerial Staff Dhari Cluster-1, Himmatnagar Cluster-2
•10 Field supervisors/ agro center in charge External -2

93
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Success stories of FPC
Objectives Services Offered:
• Promote Farmers’ led and demand driven value chain • Input Supply of seeds, pesticides, fertilizers, culture
for input supply and marketing. and vermi compost, affordable tools and goods.
• Carry on the business of production, harvesting, • Marketing & Distribution Support:
procurement, grading, pooling, handling, marketing, ü Assisting collective sale of major crops like wheat,
selling, export of primary produce e.g. groundnuts, castor seed, cotton and groundnut.
oilseeds, grains, and other agro products of the
members or import goods or services for their benefit. ü Support and liasoning with APMC (Agricultural
Produce Market Committee), NCDEX (National
• To provide for mutual assistance and technical Commodity & Derivatives Exchange Limited),
consultancy services. SFAC (Small Farmers’ Agri-business Consortium)
• To provide insurance cover and credit facilities to the ü Retail/bulk supply outlet centres- 3 (Vadnagar,
farmers in a profitable manner. Himmatnagar, Modasa).
• To provide for welfare measures or facilities for the • Aggregation of products and production of organic
benefit of members. fertilizers and pesticides and its sale.
Outreach and Membership: • Technical assistance to farmers
• 2035 members across 5 districts of Gujarat. ü Technical Assistance Centre (Gyan Jyoti Kendra)- 2
• Total capital available Rs. 25 lakhs including grant (Visnagar and Modasa cluster)
support for business by DSC. ü Seminars, trainings and tours

Success stories of FPC

94
 Success Stories of Farmer Producer Companies

Financial Achievements (Rs. in Lakh)

Table-2
Year Equity/Share Other support Total Available Turnover Profit/Surplus Financial Support
Capital working Capital by DSC For admin
in lakh in lakh in lakh in lakh in lakh in lakh

2013-14 5.38 10 15.38 27.47 (151) 3.81 7.65

2014-15 7.8 10 17.8 51.74 1.67 18.45
2015-16 10.17 10 20.17 114.36 7.22 22.21

(Note:- In year 2013-14 Krushidhan producer company in support SFAC Jointly procured Groundnut from Dhari block of
Amreli District .The total volume was 379 MT worth R.s 150 lakhs.)

• The company has served 14000 farmers in three years and self-sustained
through input and output supply. • To increase the paid up capital from the current level of
• The company has last three year turn over Rs.200 lakhs. Rs. 10 lakhs to Rs. 45 lakhs by means of matching equity
• The company could achieve maximum turnover of Rs. 114. grant and increasing strength of share holders from 2000
lakhs with limited available funds of Rs. 35 lakhs (including to 4500. The company has to scale up its reach to male and
equity capital, revolving fund and surplus generated from female farmers in about 200 villages through input supply
two years business) in the financial year of 2015-16. Their services ensuring a fine balanced representation from all
business turnover is growing steadily from Rs. 27.14 Lakh the existing geographical areas
in 2013-14 to Rs. 51.74 Lakh in 2014-15 and Rs. 114.36 • To increase the approximate turn over to Rs.800 lakhs in
Lakh in year 2015-16 leaving a cumulative surplus of Rs.12 next three year.
lakhs (The detail are give in annexure Table-2)*
Learnings:
Future Planning: • Focus on enterprise development rather than mere bulk
• Phase 1(Start Up Phase): Producer company in nascent business, ensuring need based model rather than project
stage where RBS Foundation is patronizing and providing based interventions, women’s ownership and
grant. entrepreneurship model as well as addressing market
• Phase 2 (Evolution Phase): Company development where risks are key to sustainability of farmers’ based
financial support would be given for administrative works organizations.
only and support for programmatic development would • The FPC need at least 5 year incubation support and also
be withdrawn. HR & admin support
• Phase 3 (Maturity Phase): Company will be self-sufficient

Success stories of FPC

95
95
 Success through Self-discipline
and Perseverance

In India, Techno Serve has 10 projects across 5 states,

covering agriculture, youth employability and
Name of Farmer Producer Organisation (FPO): entrepreneurship development.
In Madhya Pradesh, Techno Serve has been working with
Neshkala Crop Producer Company Private Limited
five Farmer Producer Organizations (FPOs) to help them
(NCPCPL), Guna
scale-up their business processes and community linkages.
Supporting Resource Institution (RI): One among them is Neshkala Crop Producer Company
Techno Serve Private Limited (NCPCPL), Guna with which Techno Serve
has been working since 2013-14. Techno Serve has a three
About Techno Serve tier approach for supporting the NCPCPL and the farming
community. To begin with, 1700 farmers are being trained
Techno Serve is a leader in harnessing the power of the by Techno Serve’s field team on a fortnightly basis on
private sector to help people lift themselves out of poverty. A building climate change resilience through improved
non profit organization operating in 29 countries, Techno agriculture techniques. As a result of the training, demand
Serve works with enterprising men and women in the for products and services related to improved agriculture
developing world to build competitive farms, businesses increases, and this is being met with by a pool of local
and industries. By linking people to information, capital and entrepreneurs named as Centres of Excellence (CoE). These
markets, TechnoServe has helped millions to create lasting CoEs are connected with the producer company for supply
prosperity for their families and communities. of agri inputs. Both CoEs and the producer company are
provided business planning and hand holding support for
smooth running of the business.

05 Success stories of FPC

96
Background with 10 Board of Directors and 5 shareholders. Thereafter, the
A detailed analysis done by the Madhya Pradesh District company has taken great strides towards becoming a self-
Poverty Initiatives Project (MPDPIP) revealed that despite sustaining organization capable of empowering small and
receiving initial financial support from the project, the marginal farmers. The use of self-help principles to create
livelihoods of the target farmers did not show an improvement. Farmer interest Groups (FIGs) has helped facilitate savings,
A number of reasons were identified for this issue, the main enhance the aggregation of farmer surpluses to generate more
being the unavailability of and inaccessibility to quality inputs. marketing power, and allowed for training and capacity
The market was flooded with spurious seeds, and farmers could building sessions to directly benefit well over 2035 farmers in
not afford the price of fertilizers and pesticides. more than 50 villages in Guna, Aron and Bamori blocks of Guna
To overcome these issues of low quality and expensive inputs, district.
MPDPIP followed the recommendations of the Y K Alagh
committee to pave the way for creating Farmer Producer Scope of Business of NCPCPL
Companies (FPCs) in Madhya Pradesh. Neshkala Crop Producer NCPCPL was largely dependent on seed production and inputs
Company Private Limited (NCPCPL) was one of the 14 FPCs supply in the initial years. With support from Techno Serve, it
incorporated for seed production by MPDPIP. started trading in Soyabean from FY 2015-16 and is now
FPCs enable farmers and producers to function in a formal supplying to large companies like Ruchi Soya and Bansal Soya.
business environment while still retaining the essential The FPC has also participated in a large scale pulses
strengths of a cooperative. The core idea is to empower procurement program for Small Farmers’ Agribusiness
smallholder farmers to get better access to modern agriculture Consortium (SFAC), GoI.
technologies and participate in well-coordinated value chains,
breaking their isolation and dependency on middlemen. By The Main Success Story
aggregating smallholder farmers, FPCs enable timely and With support from DPIP and other state government
accurate dissemination of information and provide economies functionaries in Madhya Pradesh, NCPCPL had achieved a
of scale for market activities as well as training and capacity- turnover of INR 70 - 80 lakh till 2011-12 and had nearly reached
building. business saturation with seed production. More than 80% of the
The birth of Neshkala Crop Producer Company Private portfolio was of seed production and the company needed to
Limited Neshkala Crop Producer Company Private Limited diversify to reduce future business risks.
started its operations in 2006 from a village named Neshkala in
Chachoda block of Guna district. It was registered in this village
97
Success stories of FPC
 Success Stories of Farmer Producer Companies

Year on Year Performance 2006-07 to 2016-17

700
600
500
400
300
200
100
0
-100
0 6 -07 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 16-17
20 20 20 20 20 20 20 20 20 20 20
Total Turnover Profit

This is when TechnoServe came in, and undertook a detailed were incorporated as a three year business plan.
diagnostic study to understand the bottlenecks inhibiting the On the market linkage side, inefficient market and financial
FPC to become sustainable. Through multi stage training and linkages were key bottlenecks. To address this, Techno Serve
capacity building of member farmers and CoEs, TechnoServe facilitated partnerships with companies for fertilizers, seeds and
helped NCPCPL move its foot towards agri output trading other farm inputs. Systems were also established for the FPC to
business from FY 2014-15. procure farm produce from FPC shareholders. A partnership
First among the many changes made to improve the FPC’s was established with FWWB for institutional funding of Rs.40
business was to put in place a strong team, led by a capable and lakh. As a result, the company did a business of 45 lakhs from
professional CEO. The CEO and his team were provided with selling fertilizers in 2013-14, as against a business of only INR 7
complete hand holding support including business planning, lakhs the previous year.
market development and good governance principles so that Before the intervention, the company was running into losses,
they could enhance the business from below Rs. 1 Crore mark to and it was only because of subsidies and grants from the
a higher scale. government that it was in business. Techno Serve helped the
Secondly, the awareness of the Board members on FPO company to strategize its operations, create market linkages
management was enhanced, with a number of training sessions and develop a business plan. As a result, NCPCL not only
conducted to capacitate the Board on FPC governance. Techno attained a turnover of 2.5 crores in the year 2013-14 (a jump
Serve brought on board a chairperson and an independent of 66% from the year 2012-13), but also made a profit of
Director as well. 17 lakhs with no support of grants and subsidies. In
Thirdly, with increase in business volume, it was observed that 2015-16, the company stabilised the business
the gap between the FPC and the shareholders was increasing volume to 2.5 crore. In 2016-17, NCPCL
year after year and the number of active members remained has overshot its target of 6 crore and
limited to 300 farmers. This bottleneck was countered by has already done a business of 8
building the capacity of the management and Directors through crore by procuring 1328 MT of
training sessions so that they could develop a vision for the pulses for a contract with SFAC
company’s future. This helped the FPC in mobilizing and (August, 2016). This has been a big
touching base with new farmers which eventually translated to achievement for the company as
increased farmer shareholders. well as the member farmers who
have greatly benefited. The Rs. 10
It was also identified that there was no formal business plan and crore target is not far, and when it is
hence lots of ad-hoc business decisions were made, resulting in reached, NCPCL will become one of
losses. Techno Serve conducted brainstorming sessions with the biggest FPCs in the State of Success stories of FPC
the management and the Board to outline business ideas, which Madhya Pradesh. 98
98
 Success Stories of Farmer Producer Companies

Way Forward to promote and sell its products. It plans to link itself
further with other input companies and supply other
NCPCL, through extended deliberations among its Board and inputs not available with the current companies so that
management, has realised the need to shift gears. They hope to it can cater to all input requirements of the FPC
do so by strengthening supply chain and creating more members.
aggregation centres. Some of the concrete steps envisaged to
make use of opportunities are described below: Ÿ Forward Linkages
Ÿ Backward Linkages F NCPCL, with support from TechnoServe, will identify
F Creation of Mini Retailers (MRs) – These are the local buyers for Soyabean, Maize and Wheat and will
people who have interest to pursue business with the undergo association or establish relationship with
FPC. Starting in 2016, NCPCL will appoint at least 6 MRs these buyers.
to strengthen its supply chain of agri and other inputs. F The FPC will establish collection centres in different
F Seeds Trading – As the FPC on its own is not able to clusters to reduce farmers’ transportation cost,
cater to the demand, it plans to trade seeds from pilferage loss and other losses by giving the farmer the
registered producers and ensure seed supply to its optimum price for quality produce.
members. Over the years, this trading would be further F The FPC will leverage its relation and strong base of its
complemented by increase in its own seed production. members for procurement of above commodities and
F Addition of new input companies to its portfolio – As of sell them at a competitive price with the aim to create a
now, NCPCL holds sdistributorship of Syngenta and IPL separate identity.

A Beneficiary’s Story

Hemant Lodha is a farmer who resides in village Hirnauda in Bamori block, district Guna. In 2006, his
family was categorized under BPL, and was registered in a livestock group by MPDPIP. Under this,
Hemant himself went and bought a cow and started his dairy business.

In the same year, the NCPCL came into being, and Hemant joined it as a shareholder. In the very first
year of NCPCL’s operation, Hemant took part in its seed production activity and earned an income of INR
10,000. He also got an additional 15 quintal of yield from his Soyabean crop, from which he earned INR
24,000. Satisfied with this benefit, Hemant has been participating in the company’s seed production
business in both seasons – Rabi and Kharif – every year. Hemant also acts as a lead farmer by
showcasing different varieties of crops on his field and encourages other farmers to join the company. In
addition, Hemant owns 15-20 cows whose dung he uses to produce biogas and natural fertilizer.

Today, Hemant is known as a well aware farmer of the producer company, and he is constantly informing
other farmers about the availability of seeds, fertilizers and pesticides with NCPCL. Hemant has inspired
all the farmers in his village to join the responsible Soyabean program run by the company. He is now a
member of the Board of Directors of NCPCL, and his efforts for adopting a progressive attitude towards
agriculture will go a long way in making NCPCL a huge success.

Success stories of FPC

99
 MBCFPCL has a vision of Transforming
agriculture of small & marginal farmers
of the Madhya Pradesh

Objective of MBCFPCL is to create an umbrella support to

member FPOs Particularly on market, brand development,
Name of Farmer Producer Organisation (FPO): financial linkages, value adding, Insurances and leverage
the benefits of the economy of scale.
Madhya Bharat Consortium of Farmer Producer
Company Limited (MBCFPCL) MBCFPCL has a vision of Transforming agriculture of small
& marginal farmers of the Madhya Pradesh from means of
Supporting Resource Institution (RI): subsistence to profitable livelihood enterprises through
Action for Social Advancement (ASA) promotion of Collectivization, branding and better
positioning in the supply/value chain.
Introduction:
MBCFPCL works towards garnering the collective strength
of the FPCs in the market place, providing larger capacity
The state level federation of FPCs in Madhya Pradesh was
building support in all aspects especially financial to
formed in September 2014 as Madhya Bharat Consortium of
member FPCs , in order to contribute to the FPC eco system
Farmer Producer Company Limited (MBCFPCL). It is based at
in the state and country. MBCFPCL currently has 57 FPCs (16
Bhopal. MBCFPCL, is jointly promoted by Action for Social more have applied) share holders + 47 cooperatives
Advancement (ASA) , Small Farmers Agribusiness business member working in over 33 districts of Madhya
Consortium (SFAC), Rajya Ajeevika Forum, Rabo Bank Pradesh. They are covering more than 1.64 Lakh small and
Foundation & Other Dev. Organisations. like Vrutti, ADS, IGS. marginal farmers. Current equity base, Rs. 24.87 Lakhs.
It has state wide coverage, with present reach upto 33
Within a very short span of time, MBCFPCL became whole
districts.
sale supplier/distributor for most of agriculture inputs and
services and started delivering best services to their

06
member FPOs in very competitive market price both in cash
and credit terms

Success stories of FPC

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 Success Stories of Farmer Producer Companies

Scope of business of FPO, commodities dealt in, etc. partnership with member FPOs,
Ÿ Responsible business and delighted customers Ÿ Backward integration for agriculture inputs to member
Ÿ Provide win to win business proposition to business FPOs for sustainable farming,
partners Ÿ Extending linkages for farm mechanization & custom hire
Ÿ Produce, market & deliver best quality seeds, Agri inputs / centers
produces and other Agri services in most competitive Ÿ Niches based processing-packing/ value additions
price.
Ÿ Horizontal business development by sharing maximum Dimensions of success of MBCFPCL:
profit to the partners Out of the whole spectrum of activities that MBCFPCL is
Ÿ Aggregation, primary processing & trading of farm involved in, there are many outstanding achievements of it, in
produces support of the FPOs of the state. Some of the major ones are
Ÿ Support for production & marketing of seeds in given as follows:

Benefits to the farmers: Per quintal additional price realized by the farmers ranged from Rs. 100 to 300 and the
benefits ranged between Rs 2500-15000/-.
Incentive to FPOs: - Incentive distributed up to 30.00 Lakh to member FPOs.

• Trading of Agri Produces: Blackgram, pigeon pea were procured through 18 FPOs from
Small Farmers Agribusiness Consortium (SFAC) designated Districts like Panna, Chhatarpur, Damoh, Jabalpur, Guna,
MBCFPCL as their nodal agency for procurement for creation of Shivpuri, Vidisha, Dewas, Tikamgarh, Hoshangabad, and
buffer stock under pulses price stabilization scheme (PSF) of Narsinghpur of Madhya Pradesh. Brief of the procurement is as
Government of India. Procurement was done directly from the under:
farmers with help of local farmer producer companies. More Ÿ Total no. of farmers participated in the procurement:-
than 8000 farmers participated in the procurement. All 6500
payments were made through their bank accounts only. Ÿ Total No. of FPOs participated in the programme 15
MBCFPCL has made payment to the concerned producer Ÿ No. of procurement centres operated: 20
company based on the material procured by them from farmers Ÿ Name of pulses procured - Blackgram, pigeon pea,
and same is deposited in the designated warehouse. Pulses like blackgram 101
Success stories of FPC
 Success Stories of Farmer Producer Companies

• Financial Linkages & Credit Linkages to FPOs Lessons learned.

The details of support provided for Financial Linkages & Rigorous follow up, continuous meeting and communication
Credit Linkages to FPOs are here with concerned authorities with whom help is required,
ü Provided SFAC equity grant – Rs. 90 .00 Lakh, and approaching higher level authorities, apprising them about our
credit guarantee scheme to 300 lakh, works and mandate, creating awareness amongst all
ü Provided SBI CC limit to 4 FPOs – Rs. 181.00 Lakh, stakeholders through using all communication channels
FWWB working capital loan – Rs. 23.50 Lakh / FWWB including meeting with senior officials and by organizing
Warehouse Loan – Rs. 12.00 Lakh / Nabkisan regional awareness events might help to resolve such
Working Capital Loan – Rs. 12.50 Lakh / Ananya problems.
Finance Sanctioned -Rs. 150 Lakh for 5 FPOs
ü Infrastructure Development Funds Mobilized for
We realized that agri produce trading activity is the most
FPOs under RKVY: Rs. 324 Lakh- for 15 FPOs for promising and important activity for all FPOs - however for
development of grading, processing, storage, making it successful, FPO must have capacity to purchase all
marketing and Farm machineries custom hire kinds of produce supplied by farmers, then only required
facilities volume can be generated. During this year plan for trading of
• MIS management and business management support: Maize was done but due to higher moisture rate were unable to
Support was provided for compliances of all statutory procure the material during the beginning of the season when
requirements as per norms. Training to Member FPOs - price was less as it cannot be stored in higher moisture due to
BoDs & Staff for governance & Accounting System & chances of fungus infection but when moisture reduced and we
procedure entered into the market, price of maize was increased up to 30%
Exposure Visit to BoDs and Other Staff were organised – and then we were not able to purchase it. While on the other
within State and one out side hand local merchant who had drying facilities, purchased raw
seeds at a very low price, dried it and sold it on very high market
The challenges faced. price. So for better standing with our competitors, we need to be
MBCFPCL has encountered several challenges within a short equipped properly otherwise probability of failure would be
span of time particularly regarding arrangement of working higher.
capital and getting APMC licenses. Every business needs capital
particularly for advance booking of agri inputs, arrangement of Future Plans:
parent material required for seeds production to be done by MBCFPCL intends for future activities in year 2016-17, as under:
member FPOs, procurement of farm produces and all this is
must for getting it timely on reasonable prices. Bankers do not Ÿ Business Target Total - ` 100 Crore
approve to give loan without any collateral. Therefore, Ÿ Seeds Business- ` 10 Crore,
MBCFPCL has tried to link with other unconventional financial Ÿ Trading of agi inputs- ` 5 Crore, Aggregation
institutes like Ananya Finance who have finally provided loan of Ÿ Trading of farm produces- ` 85 Crore
2 crore without collateral and one core by IDBI with SFAC under Ÿ Extended outreach up to min 80% members FPOs
their credit guarantee scheme. and increased members up to 100 FPOs with
Due to poor outside market demand of normal and BCI cotton minimum equity base of ` 50 - 100 lacs
trading activities of MBCFPCL & partner FPCs were affected Ÿ Strengthening of MIS and increased use of IT in
adversely as overall trading of cotton was very less as compared monitoring, business & finance management
to our plan, yet it was compensated with pulses which were Ÿ Exploring new corporate tie up for trading
done in big scale. of farm produces-as per annual plan
Erratic, and untimely rainfall has also affected overall seeds of 2016-17
production plan as many of the crops failed (not suitable for Ÿ Creation of regional storage
seeds quality) in both Bundelkhand and Malwa regions. & processing/ value
Therefore we are extending our operation in all other regions adding infrastructures
(different agro climate) so that impact of adverse climate can be for FPOs
mitigated in the overall business plan and execution. Ÿ Explore possibilities for
e-trade or e-commerce
business for MBCFPCL

Success stories of FPC

102
102
 CHAPTER 11

Frequently Asked Questions (FAQs)

of
Producer Companies Act

Q & A

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 Frequently Asked Questions (FAQs) of Producer Companies Act

11.1 DEFINITIONS, INCORPORATION OF PRODUCER

COMPANIES AND OTHER MATTERS

DEFINITION:

Q1: What is a Producer Company?

A1: A Producer Company is a body corporate and is a kind of company limited by shares. The unique aspect of
a Producer Company is that it contains important elements of a private limited company and also borrows
some of the principles of cooperative societies including mutual assistance principles. Only primary
producers can be members/shareholders in a Producer Company. It was introduced by an amendment to
the Companies Act in the year 2002 by insertion of Chapter IX-A.

PRODUCER COMPANY (FPC)

RESPONSIBLE PRODUCER GROUP WATER USER GROUP (WUG) SELF HELP GROUP (SHG)

HOUSEHOLD

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 Frequently Asked Questions (FAQs) of Producer Companies Act

OBJECTS:
Q2: What are the matters a Producer Company can deal with?
A2: A Producer Company can deal with the following:
• Production, harvesting, procurement, grading, pooling, handling, marketing, selling, export of primary
produce of the Members or import of goods or services for their benefit;
• Processing including preserving, drying, distilling, brewing, canning and packaging of produce of its
Members.
• Manufacture, sale or supply of machinery, equipment or consumables mainly to its Members.
• Providing education on the mutual assistance principles to its Members and others.
• Rendering technical services, consultancy services, training, research and development and all other
activities for the promotion of the interests of its Members;
• Generation, transmission and distribution of power, revitalization of land and water resources, their use,
conservation and communications relatable to primary produce;
• Insurance of produces or their primary produce;
• Promoting techniques of mutuality mutual assistance;
• Welfare measures or facilities for the benefit of Members as may be decided by the Board.
• Any other activity, which may promote the principle of mutuality and mutual assistance amongst the
Members in any other manner;
• Financing of procurement, processing, marketing or other activities which include extending of credit
facilities or any other financial services to its Members.

FORMATION AND REGISTRATION:

Q3: How many people are required to form a Producer Company? Should all of them be individuals or
can institutions also be involved?
A3: A Producer Company can be formed by:
• 10 or more individuals who are producers.
• Two or more producer institutions.
• Combination of both.

Q4: Who is an initiator/promoter of a Producer Company?

A4: This is usually a term given to an NGO or an external agency which assists a group of individual producers
or producer institutions in the formation and Registration of a Producer Company. In the Companies Act,
1956 a promoter is the term given to a person who is involved in the incorporation of the company. Once
the Company is registered, the promoters will be termed as BOD-The terms "promoters" and "BOD" are
used in the pre and post registration phase of the FPC

Q5: Should the initiator/promoters necessarily be a primary producer?

A5: If the initiator/promoter is looking to be a member of the Producer Company then they would have to be
a primary producer.

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 Frequently Asked Questions (FAQs) of Producer Companies Act

Q6: Who are the types of initiators?

A6: The following are the types of initiators:
• Any individual person or group of persons;
• Any Non-Governmental Organization or any organization working with producers and who are
interested in helping the producers set up a Producer Company;
• Any existing Multi-Sate Cooperative Society;
• Any governmental organization as well.

INDIVIDUAL GROUP
INITIATORS INITIATORS

MULTI-STATE
COOPERATIVE SOCITY

NGO

Govt.

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 Frequently Asked Questions (FAQs) of Producer Companies Act

Q7: Who will bear the cost incurred to incorporate the company?
A7: The promoters shall initially bear the costs incurred in incorporating the Company. The Producer
Company may reimburse the direct costs associated with the promotions and registration of the company
including the registration costs, legal fees, printing of the memorandum and articles etc. This payment will
be subject to the approval of the members of the Producer Company at the first general meeting.

Q8: What are the responsibilities an initiator has to take before incorporation?
A8: The initiator is responsible for the incorporation of the company She/he, along with other promoters,
have to get drafted the ‘Memorandum and Articles of Association’, file them with ‘the Registrar of
Companies’ along with other documents and papers, carry out corrections, if any, required by the ‘Office
of the Registrar’ and finally collect the ‘Certificate of Incorporation’. Initiator also has to mobilize as well as
invite people to be shareholders of the company.

FPC

Board of Director

AAAOOA
AOOAAA
MOA

Q9: What is Memorandum of Association (MoA)?

A9: Memorandum of Association of a company is a fundamental document in its formation. It sets out the
constitution and charter of the company. It defines the scope of its activity and the extend of its power it
could exercise.

Q10: Can the objects mentioned in the MoA be changed according to the needs?
A10: To change the objects in the MoA there are certain procedures. They are explained in detail in the Act. It is
not possible to change the objects without the permission of the Registrar of Companies.

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 Frequently Asked Questions (FAQs) of Producer Companies Act

Q11: What are the important things that any MoA should contain?
A11: The MOA should contain the name of company, the State in which the registered office is situated and the
main and the ancillary objects of the company. Besides this, it should also contain the names and
addresses of the promoters. The authorized share capital with division into shares should be mentioned.
The names of the first Directors, their address, occupation, number of shares taken by each subscriber and
also the jurisdiction of the company should find a mention in MoA.

Q12: What is Article of Association (AoA)?

A12: The Articles of Association (AoA) are the rules and regulations for managing the company’s internal
affairs. It defines the relationship between the subscribers and the management. Generally, it brings
about clarification on anything contained in the memorandum.

Q13: Can the rules and regulations mentioned in the AoA be amended?
A13: Amendment of rules and regulations mentioned in the AoA can be done by passing a special resolution.
However, when an amendment is made care has to be taken to make sure that it does not have any conflict
with the company law and the MoA of the company.

Q14: What are the important matters that should find place in AoA?
A14: The AoA of a company should provide for the qualifications for membership, the conditions for
continuance or cancellation of membership and the terms, conditions and procedure for transfer of
shares. It should also contain information and procedure for transfer of shares. It should also contain
information on the voting rights of the subscribers. Election of Directors, dividend on shares and method
of cooperation with other Producer Companies. Details of other matters that should find place in the AoA
are mentioned in detail in the Act.

Q15: Within how many days will a company be registered after submission of documents?
A15: If the Registrar is satisfied that all the requirements under the Act have been complied with respect to the
registration and all the documents submitted are intact, he has to issue the certificate of incorporation
within 30 days of receipt of all the documents.

Q16: What is a round seal? Should all Producer Companies have one compulsorily?
A16: There is no specific definition for a round seal. It is a seal which is round in shape. All Producer Companies
should have one compulsorily. The seal should be made in a such way that the name of the company is
clearly visible in this.

Q17: Is digital signature required for all Directors and not CEO?
A17: Yes. Various documents need to be filed online through the website of the ROC. For this filing digital
signature is required. The CEO and Directors file this on behalf of the company. Hence, digital signatures
are compulsorily required.

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 Frequently Asked Questions (FAQs) of Producer Companies Act

Q18: What are the important documents required for obtaining PAN card and DIN card?
A18a: Documents required for obtaining PAN card:
• To obtain a Pan card for an individual proof of address, proof of identity, proof of date of birth has to be
submitted to the income tax department along with other details in the prescribed form.
• To obtain the PAN card for a company the certificate of incorporation alone is required to be submitted
along with the prescribed form filled up.

REGISTRAR OFFICE

AGM

A18b: Documents required for obtaining DIN card:

• Full name of the applicant, father’s name and nationality.
• Applicant’s PAN card.
• Permanent address and current address. If the permanent address and the current address are the same,
that should be clearly mentioned. Proof of address should be produced. It could be bank pass book,
driving licence or voter’s ID. If the telephone bill is given the bill should have been paid within less than 2
months.
• Recent passport photograph.
• Details regarding occupation of the applicant.
• Details regarding educational qualification of the applicant.
• Applicant’s email ID and phone number.

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 Frequently Asked Questions (FAQs) of Producer Companies Act

Q19: What are the methods to change the registered office of a company? What is the method to inform
the registrar?
A19: • If the registered office of the company is shifted from one address to the other in the same town
or village a resolution has to be passed by the Board of Directors. This resolution has to be filed
with the ROC, and after getting acceptance the registered office will be considered as shifted.

• If the registered office is to be shifted from one town to the other or from one village to the other
within the same jurisdiction of the ROC, a resolution has to be passed in the AGM with 75% votes.
This resolution has to be filed with ROC and after getting acceptance the registered office will be
considered as shifted.

• If the registered office is to be shifted from one town to the other or from one village to the other
which comes under different jurisdiction of the ROC, a resolution has to be passed in the AGM
with 75% votes. This resolution has to be filed with ROC and after getting acceptance the
registered office will be considered as shifted.

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 Frequently Asked Questions (FAQs) of Producer Companies Act

SOME EXPLANATIONS:

Q20: Who is a producer ?

A20: A producer is any person who is engaged in any activity connected with or relatable to primary produce.

Q21: Who is a primary producer ?

A21:
• Primary Produce essentially means the procedure of farmers which arises from agriculture.
• The term agriculture includes animal husbandry, horticulture, floriculture, pisciculture, viticulture,
forestry, forest products, re-vegetation, bee keeping and farming plantation products.
• It also includes any other primary activity or service which promotes the interests of farmers or
consumers.
• It includes the produce of persons who are engaged in handloom, handicraft or other cottage industries.
• It also includes any product resulting from any of the above activities including by-products of such
products.
• It also includes products from an ancillary activity that would assist or promote any of the aforesaid
activities.

BEE KEEPING

AGRICULTURE PRODUCTS

Dairy

HANDLOOM HANDICRAFT etc.

Q22: Who is a member of a Producer Company?

A22: Members can mean persons or producer institutions. The Producer institutions need not be necessarily
incorporated. The AoA of the Company may list the qualifications necessary for a member. The most
important qualification is that they should be producers.

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 Frequently Asked Questions (FAQs) of Producer Companies Act

Q23: What is withheld price? Is it a must that the Company should pay a defined percentage of the value of
the product as soon as it receives the products from its members or can it vary from company to
company? Who determines it?
A23: When a Company procures goods from its members it may not pay the entire amount of consideration for
the same at the time of procurement. A percentage of the same may be paid immediately and the rest may
be withheld by the Producer Company for payment at a subsequent date. The amount that is withheld in
this manner is called the ‘withheld price’. There is no defined percentage prescribed under the Act. The
Board of Directors and General Body of every company have the powers to determine this. Some
companies may define a cap on the percentage that can be withheld by providing for the same in their
AoA.

11.2 SHARE CAPITAL AND MEMBERS’ RIGHTS:

SHARE CAPTITAL:

Q24: What is the definition of shares ?

A24: A Company requires money to run the business and this capital which is required to run the company is
raised through various means. Shares are a kind of movable property which is transferrable in a manner
provided by the AoA of the company or by the Companies Act itself. A share is basically a right to a
specified amount of share capital of the Company. It carries with it certain rights and liabilities. It
represents the intersect of the holder which is measured for the purpose of liability and dividend by a sum
of money.

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 Frequently Asked Questions (FAQs) of Producer Companies Act

Q25: How does the share differ from membership ?

A25: In the context of Producer Companies, all members have to be shareholders. Hence there is no difference.

Q26: What is the meaning of authorised share capital?

A26: Authorized share capital of a company is the maximum amount of share capital that is fixed for a
particular Company as per the MoA of a Company.

Q27: What is paid up share capital?

A27: Paid up share capital means the aggregate amount of money credited as paid-up and is equivalent to the
amount received as paid-up in respect of the shares issued.
For example, the Authorized share capital of a Company may be 1,00,000/- (Rupees One Lakh). The
Company might have issued shares worth Rs. 50,000/- in the form of 5,000 shares at the rate of Rs.10/-
each. A and B are the shareholders, each holding 2,500 shares each and have paid only Rs.8/- per share.
The paid up share capital is Rs.40,000/-only (2,500x8x2). The liability of A and B is only to the extent of the
amount unpaid on the shares ie. Rs. 5,000/- each. (2,500x2).

Q28: What should be the minimum paid up capital at the time of incorporation?
A28: The minimum paid up capital at the time of incorporation of a Producer Company is Rs.1,00,000/- (Rupees
One Lakh only).

Q29: Is there a cap on the maximum share capital that can be raised?
A29: There is no cap on the maximum share capital that can be raised by a Producer Company.

Q30: What are the different categories of shares that a Producer Company can issue?
A30: There is only one kind of share issued in a Producer Company. They are equity shares. There are no
different categories of shares as is the case in certain kinds of Companies.

Q31: How many shares can a member have?

A31: There is no such limit under the Act. The Producer Company may restrict the same through its AoA.

Q32: How is the shareholding by the members determined?

A32: The shareholding is determined as per the rules laid down in that regard in the MoA of the Company.
Subsequent decision regarding the issuance of shares etc., is taken by the Board of Directors.

Q33: Is the voting right proportional to the number of shares held?

A33:
•If the membership of the Company is only made up of individual members then voting is on the basis of
one vote per member and not one vote per share.
• If the membership of the Company is only made up of Producer Institutions, then the voting is based on
their participation in the business of the Producer Company in the previous year and the details of this
may be specified in the AoA of the company.
• If the membership consists of both individual members as well as producer institutions, then voting is on
the basis of one vote per member.
• Unless expressly provided otherwise, every member has only one single vote.

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 Frequently Asked Questions (FAQs) of Producer Companies Act

Q34: Can a producer trade his share?

A34: The shares of a Producer Company cannot be traded publicly. They can be transferred only to an existing
active member with the approval of the Board.

Q35: What are the differences between the shares held by producers and that of a private limited
company?
A35:
• Producer Companies have only one kind of shares i.e. equity shares; private limited companies can have
both equity shares as well as preference shares. In addition, in the preference shares there are various
kinds that can be issued by a private company.
• Only producers can be members; not anyone else.

Q36: Can a member hold shares in more than one Producer Company? Is there any restriction on the
same?
A36: A member can hold shares in more than one Producer Company. There is no restriction posed by the Act
of this. However when the AoA for a company is formulated it can be defined that a member cannot hold
shares in more than one Producer Company.

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 Frequently Asked Questions (FAQs) of Producer Companies Act

SPECIAL USER RIGHTS:

Q37: Do active members have special rights ?

A37: Active Members of the producer company have special rights if the AoA provide for the same.

Q38: Are the special rights transferable to another active members ?

A38: Yes, special rights are transferrable to another active member.

Q39: What is an example of a special right ?

A39: Special right may mean any right relating to the supply of additional produce by the active member ex:
the right may be in the form of a better procurement price or some additional services can be provided by
the Producer Company to those active members for whom special rights have been granted.

TRANSFER OF SHARES AND OTHER RIGHTS:

Q40: Can the shares of a member transferred to another member ?

A40: A member, only with the previous consent of the board, can transfer whole or part of his shares along with
special rights to an active member at par value.

Q41: Can the shares be sold?

A41: Shares cannot be sold to outsiders. Shares can only be transferred to an active member in the company at
par value.

Q42: Whose approval is required for the transfer of shares?

A42: Prior approval of the Board of Directors is required for the transfer of shares.

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 Frequently Asked Questions (FAQs) of Producer Companies Act

Q43: Is a nomination of shareholding possible in the event of the death of the member?
A43: Yes, nomination is possible and is required under the Act.

Q44: What are the rights of the nominee?

A44: Nominee shall become entitled to all the rights in the shares of the Producer Company which were held by
the deceased member.

Q45: Can a member who was a primary producer at the time of joining and ceases to be one in due course
continue to be a member?
A45: In such cases. the Board can direct the surrender of shares along with special rights at par value or such
other value as determined by it.

Q46: Can a Producer Company issue bonus shares?

A46: Yes.

Q47: How is this done?

A47: Upon recommendation of the Board, and passing of the resolution in the general meeting, bonus shares
can be issued by the capitalisation of amounts from general reserves. Bonus shares should be issued in
proportion to the shares held by the members on the date of issue of such shares. Capitalisation of profits
or reserves refer to converting a company's retained earnings which represent the profits held in the
business over time to capital.

Q48: What is the criteria for deciding the bonus shares to members?
A48: It is issued in proportion to the shares held by the members on the date of issue of such bonus shares.
Criteria are decided by BOD and it is approved by GB.

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 Frequently Asked Questions (FAQs) of Producer Companies Act

11.3 BOARD OF DIRECTORS

CONSTITUTION:

Q49: Who constitute the Board of Directors of a Company?

A49: The members of the Producer Company who sign the MoA and AoA for the 1st time designate the Board
of Directors. There should be a minimum of 15 Directors and there can be a maximum of 15 Directors
designated.

Q50: What happens if the Annual General body Meeting (AGM) of a producer company is not conducted
within 90 days of incorporation ? Is there a fine that would be levied for the same?
A50: If the AGM is not conducted within 90 days of incorporation the registration can be cancelled. If proper
reasons are cited the registrar may give additional time for conducting the AGM. Even after providing this
additional time if the AGM is not conducted a fine of Rs. 1 lakh can be levied. Besides this for every
additional day of default a fine of Rs. 5,000 can be levied.

BOD MEETING AGM 1

AGM 2
BOD 1

BOD 2

EVERY 3 MONTH BOD 3

Q51: Should the names of the BoD form part of the original MoA of the Company or can it be added at a
later stage?
A51: Yes, it should form part of the original MoA of the Company.

Q52: Who selects and appoints the Board of Directors?

A52: The first BoD are designated by the Members who sign the MoA and AoA. But within 90 days of
registration of the Producer Company, elections are to be conducted for the BoD. All the members of the
Producer Company participate in this voting. There is no restriction on the first board of members also
being elected as directors. In addition, since the directors are being appointed at the general meeting of
the Producer company there is nothing that prevents either the replacement of the entire board and
bringing in of a totally new set of directors. Alternatively, certain forming directors can be retained by the
members and certain new directors can also be brought in.

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 Frequently Asked Questions (FAQs) of Producer Companies Act

Q53: Are they appointed by selection or election?

A53: After the first BoD, the appointment is through elections at the AGM of the Company.

QUALIFICATION AND TERMS:

Q54: What is the term of the Board of Directors?

A54: Every Director shall hold office for a minimum period of 1 year and a maximum period of 5 years. The AoA
of the Producer Company can fix the term as anything between these two frames.

Q55: Can the same person be a member on the BoD of different companies? What are the rules regarding
this?
A55: The same person can be a Board of Director in more than one Company. The Companies Act provides that
the same person can be on the Board of a maximum of 20 companies. The limit is 10 in case of Public
Companies. However, every Company can specify a lower limit for it's Directors by including the requisite
provision in the AoA.
Q56: Under what conditions can a member of the BoD resign or be removed?
A56: A Director can resign of his own free will at any point of time. The circumstances in which a Director would
be asked to resign from the board or would be removed from the board are:
• The Director is convicted by a Court of any offence involving moral turpitude and sentenced to
imprisonment for not less than six months;
• The Producer Company in which he is a Director has defaulted in the repayment of any advances or loans
taken from any company or institution or any other person and such default continues for ninety days;
• The Director himself has defaulted in repayment of any advances or loans taken from the Producer
Company in which he is a Director;
• The Producer Company, in which he is a Director
(i) has not filed the annual accounts and annual return for any continuous three financial years.
(ii) for a period of one year or more has failed to, repay its deposit or withheld price or patronage
bonus or interest on due date, or pay dividend.
• There is a failure in holding the election for the office of a Director as per the provisions of the Companies
Act and AoA and
• The AGM or the extraordinary general meeting of the Producer Company in which a person is a Director is
not held in accordance with the Companies Act.

Q57: Is there a salary for the members of the BoD?

A57: Remuneration may be fixed for the BoD and the same has to be approved by the shareholders at the GB
meeting.

FUNCTIONS:

Q58: Who are the other functionaries of the Company appointed by the Board and how do they select
them and supervise them?
A58: The Chief Executive Officer is the functionary who is appointed by the Board of Directors. He/she is chosen
among people other than the members of the Producer Company. A shareholder/member cannot be the
CEO.
The AoA may specify the list of other functionaries to be appointed by the BoD. The BoD can also delegate
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 Frequently Asked Questions (FAQs) of Producer Companies Act

Q59: What are the functions to be performed by the BoD which require the resolution by Members at the
AGMs of the Company?
A59: The Board of Directors shall exercise the following powers on behalf of the Company only after resolutions
are passed at the AGM of its members:
• Approval of the budget and adopting the annual accounts of the Producer Company.
• Approval of Patronage bonus.
• Issue of bonus shares.
• Declaration of limited return and decision on distribution of Patronage.
• Specifying the conditions and limits of the loans that may be given by the Board to any Director.
• Any other transaction which requires the approval of the Members as specified in the Articles of
Association of the Company.
Thus, while the Board can ordinarily do all acts that a Company is authorized to do, the above listed
activities require the express approval of the Members of the Company through a resolution at the AGM.
MEETINGS:

Q60: What is the frequency in which the BoD has to meet?

A60: The BoD has to meet at least once in every 3 months and at least four times a year. Frequency can be
increased.

Q61: What is the procedure for giving notice to the members Of the BoD to attend the meeting? Whose
responsibility is it to issue such notice?
A61: The notice of the meeting must be:
• In writing
• Sent to every Director who is in India and for those who are not in India, it should be sent to their usual
address in India.
• Sent at least 7 days prior to the date of meeting.
The responsibility of sending this notice as per the specifications listed above is on the Chief Executive
Officer. If the CEO fails to give notice within the 7 day period, he/she can be fined up to Rs. 1,000/-.

Q62: Are there circumstances under which the notice period can be waived?
A62: If the reasons for shorter notice are recorded in writing by the BoD, then the meeting can be called with
shorter notice.

Q63: What is the required quorum for such meetings?

A63: The quorum for such meetings is one-third of the total strength of Directors and is subject to a minimum
of three Directors being present.

GENERAL MEETINGS:

Q64: What are the categories of general meetings?

A64: General meetings are classified into two categories. They are Annual General body Meeting (AGM) and
special AGM.

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 Frequently Asked Questions (FAQs) of Producer Companies Act

Q65: When should the first AGM be conducted?

A65: The first AGM should be conducted within 90 days of incorporation.

Q66: What is the interval permitted between two AGMs?

A66: Not more than 15 months shall elapse between the date of one AGM and the other.

Q67: If it is not possible to conduct the AGM within this period will the Registrar provide grace time?
A67: If the ROC is convinced that the AGM cannot be conducted for reasons beyond control he may provide a
grace period of three month.. However, this shall not apply for the first AGM.

Q68: How should the notice for the AGM be prepared ?

Q68: The AGM should be called by the Board giving at least 14 days notice. This notice should specify the date'
time' venue and the agenda. The notice should be sent to all members and the auditors. The agenda,
minutes of the previous AGM names of the candidate and qualifications for the Board of Directors election
(if it is being conducted in the AGM), audited balance sheet and profit and loss account of Producer
Company should be sent along with the notice.

Q69: What is the quorum for an AGM?

A69: It is l/4th of the total shareholders or as specified in AoA MoA.

Q70: What is a special AGM?

A70: A special AGM is an AGM conducted under the basis of the request by members of the Producer Company
to discuss certain specific issues for which action can be taken only in a AGM.

Q71: What is required to be done after an AGM?

A71: The minutes of the meeting, audited stock register, profit and loss statements, annual income along with
the Director’s report should be filed with the Registrar with the prescribed fee within 60 days of
conducting the AGM.

COMMITTEES:

Q72: What are committees of Directors?

A72: The Board can constitute committees for assisting the Board in the discharge of its functions. The Board
cannot delegate any of its powers or assign the powers of the CEO to any Committee.

Q73: How many members can such Committees have?

A73: There is no specification as to the number of members who can be on such Committees. The CEO or any
one of the Directors has to be a member on the committee compulsorily. In addition, the committee can
co-opt such number of persons as it deems fit as members of the Committee.

Q74: What are the functions of these Committees?

A74: These Committees have to function under the superintendence, direction and control of the Board. The
Board will also duration the duration of its functioning and the manner of functioning. The committees
can be given a specific mandate for its operation by the Board. The committees have to maintain regular
minutes of meetings and the same have to be placed before the Board regularly.
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 Frequently Asked Questions (FAQs) of Producer Companies Act

Q75: Is there any salary/fee/allowance to the members of the Committee?

A75: The BoD can fix the fee and allowance to be paid to the members of the Committee.

LIABILITY:

Q76: Who is the BoD accountable to? Who do they report to?
A76: The BoD is accountable to the entire company and their responsibility is to all the members of the
Company and they report about their functioning at the AGM of the Company.

Q77: What is the liability of the Directors?

A77: If the Directors vote for a resolution or approve by any other means anything done in contravention of the
law or the AoA and if the company suffers loss or damage because of the same, the Directors are held
liable jointly and severally for the loss.

Q78: What can the Company recover from the Directors?

A78: The Company can recover:
• If a Director makes any profit as a result of a contravention of law as detailed above, the Company can
recover an amount equal to that Profit made.
• If the Company has suffered loss or damage as a result of such an act, the Company can recover an
amount equal to the loss or damage.

Q79: Do the members of the BoD have any special privileges with respect to procurement of their
own produce by the Company?
A79: No.

Q80: Do members of the BoD get preferential treatment with respect to loans?
A80: No.

Q81: Where do disputes regarding the selection, appointment, functioning and liability of the Directors
get decided? Which is the appropriate forum?
A81: All disputes in this regard shall be settled through Arbitration under the Arbitration and Conciliation Act as
if the parties to the dispute had consented to the same in writing.

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 Frequently Asked Questions (FAQs) of Producer Companies Act

11.4 FUNCTIONARIES/STAFF OF PRODUCER COMPANY

CHIEF EXECUTIVE:

Q82: Who is the chief functionary of the Producer Company?

A82: The Chief Executive is the chief functionary of a Producer Company. He/She should be outsider not from
BOD family.

Q83: Is he / she responsible for carrying out the day to day functioning of the company?
A83: Yes. He / she is responsible for carrying out the day to day functioning of the company.

Q84: Who appoints the Chief Executive?

A84: The Chief Executive is appointed is appointed by the Board of Director of the Producer Company.

Q85: Can the Chief Executive be one of the members of the Producer Company?
A85: No. The Chief Executive is appointed from among those who are not members of a Producer Company.

Q86: Is the Chief Executive a Director of the Board?

A86: The Chief Executive is not initially chosen from among the Board of Directors. But on appointment, the
Chief Executive becomes a member of the Board in an ex-officio manner.

Q87: Should the Chief Executive also retire by rotation?

A87: No, the Chief Executive need not to retire by rotation like other members of the Board of Directors.

Q88: Who determines the criteria for the selection and appointment of the Chief Executive?
A88: The qualifications, experience, terms and condition of service of the Chief Executive may be provided in
the AoA of the company. If it is not provided in the Articles, it can be determined by the Board of Directors
from time to time.

Q89: What powers does the Chief Executive have?

A89: The Chief Executive has substantial powers of management of the company.

Q90: Who determine the power of the Chief Executive?

A90: The powers of the Chief Executive are determined by the Board.

Q91: What are the functions of the Chief Executive with respect to administration and finance?
A91a. Administration
• The Chief Executive has to perform administrative acts of a routine nature which includes managing the
day to day affairs of the Producer Company.
• Sign documents for and behalf of the Company as authorized by the Board.

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 Frequently Asked Questions (FAQs) of Producer Companies Act

A91b. Finance
• The Chief Executive has to operate the bank account or authorize any other persons to operate the bank
account. Such other person needs to have the approval of the Board of Directors.
• The Chief Executive also has to make arrangements for the safe custody of cash and other assets of the
Producer Company.
• Maintain proper books of accounts prepare annual accounts and audits of the same and also place the
audited accounts before the Board and also before the AGM of the members.

Q92: Is it essential for the Chief Executive to provide information to the members about the operation and
function of the Company?
A92: Yes. This is one of the main functions of the Chief Executive. He/She has to provide the members with
periodic information to appraise them about the operation and functions of the Producer Company.

Q93: Who appoints various other staff of the Producer Company and what are the guidelines for
appointment?
A93. The Chief Executive can appoint people to various other posts of the Company to the extent of powers
delegated by the Board.

Q94: Does the Chief Executive have a role in formulation of goals, objectives, strategic plan and policies?
A94: Yes. The Chief Executive has to assist the Board of Directors in the formulation of goals, objectives,
strategies, plans, and policies.

Q95: Who advises the Board with respect to legal and regulatory matters?
A95: The Chief Executive s supposed to advise the Board with respect to legal and regulatory matters
concerning both the proposed and ingoing activities of the Producer Company. If any action is required to
be taken in respect of these matters the responsibility of the same is also on the Chief Executive.

Q96: What other roles does the Chief Executive have?

A96: The Chief Executive can exercise other powers which may be necessary in the ordinary course of business.
He/She can also discharge other functions and exercise other powers which may be delegated by the
Board of Directors.

Q97: Can the Chief Executive function independently?

A97: The Chief Executive can function independently- but he/she works under the general superintendence,
direction and control of the Board of Directors. The Chief Executive is accountable for the performance of
the Producer Company.

Q98: Can a person be appointed as a CEO for more than one company? What are the regulations regarding
this?
A98: A person can be appointed as a CEO for more than one Company. If both the companies for which he is a
CEO have any business transaction with each other it will be considered as related party transaction
according to the law. Hence, all precautionary measures have to be taken why such transitions are made
and all Directors have to be kept informed about it. Such transactions can be made after special
resolutions by the Board of Directors.

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 Frequently Asked Questions (FAQs) of Producer Companies Act

11.5 FINANCE, ACCOUNTS AND AUDIT

RECORDS/BOOKS OF ACCOUNTS:

Q99: What are the records / books that a Producer Company should maintain?
A99: Every producer company has to maintain proper books of account with respect to:
• All sums of money received and spent by the Company including details of the matters with respect to
which they took place;
• All sales and purchase of goods;
• Instruments of liability executed by or on behalf of the Company;
• Assets and liabilities of the Company and
• Particulars relating to utilization of material and other items of costs in case the Company is engaged in
production, processing and manufacturing.

Q100: If a Producer Company is also engaged in production, processing and manufacturing does it need to
maintain any additional records?
A100: In case the Producer Company is engaged in production, processing and manufacturing, the Company in
its books of accounts needs to maintain details relating to utilization of materials or labour or other items
of costs.

Q101: Is it necessary for a Producer Company to prepare a balance sheet and profit and loss of accounts?
A101: Yes, it is necessary for a Producer Company to prepare a balance sheet and profit and loss accounts.

Q102: If so, what is the guideline for preparing the same?

A102: They shall be prepared in accordance with the provisions of Section 2Il of the Companies Act, 1956
(Section 129 of the Companies Act,20l3) which lays down the detailed procedure regarding preparing the
same.

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INTERNAL AUIDIT:

Q103: Should a Producer Company undertake an internal audit of its accounts?

A103: Yes. A Producer Company has to undertake an internal audit of its accounts.

AUDIT

AUDITOR AUDITOR

Q104: What is the frequency of such audits?

A104: Frequency shall be prescribed by the AoA of the Producer Company.

Q105: Who should do the internal audit?

A105: Chartered Accountant as defined under Section 2 (t) (b) of the Institute of Chartered Accountants Act,
1949 has to do the audit.

Q106: What are the guidelines?

A106: The manner of carrying out the internal audit shall also be prescribed by the AoA of the Company.

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 Frequently Asked Questions (FAQs) of Producer Companies Act

DUTIES OF THE AUDITOR:

Q107: What are the duties of the Auditor of a Producer Company?

A107: The auditor of a Producer Company is required to comply with the statutory requirements of Section22T
of the Companies Act, 1956 (Section 143 of the Companies Act,2013). In addition to those requirements,
the auditor of a Producer Company is duty bound to report on the following:
• Amount of debts due along with particulars of bad debts if any
• Verification of cash balance and securities
• Details of assets and liabilities
• Transactions which are contrary to (against) what is permitted for Producer Companies
• Loans given by the Producer Company to its directors
• Donations or subscriptions given by the Producer Company
• Other matters which may be considered necessary by him/her.

Q108: Is it essential that the Auditor should be a Chartered Accountant?

A108: Yes. The auditor has to be a Chartered Accountant as defined Under Section2(1)(b) of the institute of
Chartered Accountants Act,1949 has to do the audit.

DONATIONS OR SUBSCRIPTIONS BY PRODUCER COMPANY:

Q109: Can a Producer Company make donation or subscription?

A109: Yes. This can be done by a special resolution passed at a meeting of the Members of a Producer Company'
At the said meeting, at least 3/4th of the Members present and must vote in favour of the resolution to
make a donation.

Q110: Should this donation be limited to an institution or individuals?

A110: No. It can be either to an institution or an individual.

Q111: For what purposes can the producer company make such donations or subscriptions?
A111: It can be for the following purposes:
• Promoting social and economic welfare of producer members or producers or general public
• Promoting mutual assistance principles

Q112: Is there a limit to the donation or subscription and if so what is it?

A112: Yes. The aggregate amount of all such and subscriptions in any financial year should three percent of it.
net profit of the Producer n the financial year immediately preceding the financial year in which the
donation or subscription was made.

Q113: Can a Producer Company make a contribution to a political Party?

A113: No. A Producer Company cannot make a contribution or subscription either directly or indirectly to a
political party or to any person for a political purpose. It shall also not make available any facilities
including personal or material to any Political Party.

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 Frequently Asked Questions (FAQs) of Producer Companies Act

Q114: Can a Producer Company take donations from individuals? Can the donations be both in cash and
kind? Is there a limit to which a donation can be taken in a particular year?
A114: A Producer Company can take donations from individuals both in cash and kind. There is no limit to the
amount that can be taken in a particular year. However, individuals cannot claim tax exemption like they
do when donations are made to non-profit organisations. These donations will still be considered as
“income” for the individual and taxes would be levied.

GENERAL AND OTHER RESERVES

Q115: What are the reserves a Producer Company has to maintain?

A115: Producer Company has to maintain a general reserve which will be in addition to any other reserve which
may be specified in the articles.

Q116: What is a general reserve?

A116: The word general reserve is not defined in the Act. The word free reserves is defined as those reserves
which, as per the latest audited balance sheet of the Company, are free for distribution as dividend and
shall include balance to the credit of the securities premium account but shall not include share
application money.
Ÿ A Producer Company is required to maintain a general reserve in addition to any other reserve that seeks
to maintain as required by its articles.
Ÿ In the context of a Producer Company, a general reserve, would be an amount that is set aside after
payment of limited return on share capital and the amount proposed to be disbursed as patronage
bonus.

Q117: How often should a general reserve be maintained?

A117: A general reserve should be maintained every financial year.

Q118: How do members contribute this reserve?

A118: If the Producer Company is required to ask its members to contribute to the reserve, it would do so after
ascertaining the amounts that are required to be paid by the respective members and ask them to make
the requisite contribution.

Q119: Can credit facilities be made available to members?

A119: Yes, it can be made available to the members of a producer Company.

Q120: If so, for what purpose can these credit facilities be made available?
A120: It can be made available only in connection with the business of the Producer Company.

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 Frequently Asked Questions (FAQs) of Producer Companies Act

9.6 LOANS AND INVESTMENTS

LOANS TO MEMBERS

Q121: What is the period of the credit?

A121: The period of credit cannot exceed 6 months or as decided by Board.

Q122: Can loans and advances be provided against security?

A122: Both loans and advances can be provided to the members against security. The nature and extent of
security required has to be provided in the articles.

Q123: What is the repayment period of the above mentioned loan?

A123: The repayment period should be more than 3 months but less than a maximum limit of seven years.

Q124: Can loans and advances be provided to Directors?

A124: Yes, it can be provided to Directors of a Producer Company.

Q125: If so, what are the additional requirements that are needed to be fulfilled?
A125: The members of the Producer Company must approve of such loans and advances in a general meeting.
This is the additional requirement for grant of such loan or advance to a Director. Only after this approval
has been given can the loan be extended to the said Director.

BORROWING FROM MEMBERS, DIRECTORS AND OUTSIDERS

Q126: Can the general reserves of the Company be invested?

A126: Yes, the general reserves of the Company have to be invested compulsorily.

Q127: If so, where should it be invested?

A127: It has to be invested in such a manner that the highest returns are available.

Q128: Can a Producer Company acquire shares of another Producer Company?

A128: Yes, a Producer Company may acquire the shares of another Producer Company.

Q129: Should the other Company also have similar objectives?

A129: Though it is not specifically mentioned that the other Company should also have similar objectives, the
reason for acquiring shares has to be for the promotion of the objectives of the main Producer Company.

Q130: What are the other ways of investing in another Producer Company apart from acquiring shares?
A130: The following are the other ways. The Producer Company can
(i) Subscribe to the share capital of another Producer Company
(ii) Enter into any agreement or any other arrangement which can be
• By formation of subsidiary
• Formation of joint venture
• In any other manner with anybody corporate in order to promote the objects of the Producer Company.
These methods require a special resolution of the members in order to be executed.
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 Frequently Asked Questions (FAQs) of Producer Companies Act

Q131: What are the records that have to be maintained regarding such investments?
A131: The Producer Company has to maintain a register containing particulars of all investments. This register
should contain the following information.
• Name of the Companies in which shares have been acquired
• Number and value of shares
• Date of acquisition
• Manner and price at which the shares have been subsequently disposed of

Q132: Where should the registers be kept?

A132: The register shall be kept in the registered office of the producer Company.

Q133: Are the registers open to inspection by other members? What are their rights?
A133: Yes, the registers are open to inspection by any member of the Producer Company.
The members can take extracts from such registers.

Additional Resources

Tool Kit for Financial Analysis

For the convenience of the practitioners and others an Excel programme based software has been developed for
the financial analysis. This will be useful for appraising different variables while doing the financial analysis. The
softcopy of the Tool kit is attached in a CD separately.

129
Annexure no. 1

COMPANIES ACT 2013

COMPANY LIMITED BY SHARES
MEMORANDUM OF ASSOCIATION
OF
MA MACHNA CROP PRODUCER COMPANY LIMITED

1. The name of the company is MA MACHNA CROP PRODUCER COMPANY LIMITED

2. The Registered Office of the Company will be situated in the State of MADHYA PRADESH

3. A) The objects to be pursued by the company on its incorporation are:

1. To carry on the business of production, harvesting, procurement, grading, pooling, handling, marketing,
selling, export, storage, packing, distribution, trading of wheat, rice, vegetables, crops including of
cereals, pulses, oilseeds, fibre crops, and soybean, spices crops, seeds, fertilizers, pesticides, for benefit to
the members of the company

2. Processing including preserving, drying, distilling, brewing, venting, canning and packaging of produce
of its Members

3. To manufacture, sale or supply of machinery, equipment or consumables mainly to its members

4. To provide education on the mutual assistance principles to its Members and others;

5. To rendering technical services, consultancy services, training, research and development and all other
activities for the promotion of the interests of its Members;

6. To ensure insurance of producers or their primary produce;

7. To promoting techniques of mutuality and mutual assistance;

8. To undertake welfare measures or facilities for the benefit of Members as may be decided by the Board;

9. To finance procurement, processing, marketing or other activities specified in clauses 1 to 8 which include
extending of credit facilities or any other financial services to its Members.

The objects of the producer company are not confined to the state of Madhya Pradesh and it will
extend to the whole of India.

130
B) Matters which are necessary for furtherance of the objects specified in
clause 3A are: NIL

4. Subscribers clause (name and address of subscribers to the emorandum):

Sr. Name of subscribers Address of subscribers

No
1 Mr. Haran Deshawadi, Shahpur, Betul--460440
Madhya Pradesh

2 Mrs. Manisha Puware Gram Daudi, Shahpur, Betul-460440

Madhya Pradesh

3 Mrs. Parvati Gram Deshawadi, Shahpur, Betul-460440

Madhya Pradesh

4 Mrs. Sharda Dhurvey Mokhamal, Shahpur, Betul-460440

Madhya Pradesh

5 Mr. Tulceram Chore 18, Shahpur, Betul-460440

Madhya Pradesh
6 Mr. Jivan Village Daudi, Shahpur, Betul-460440
Madhya Pradesh

7 Mr. Sampatrao Pavare Gram Daudi, Shahpur, Betul-460440

Madhya Pradesh

8 Mrs. Shivpyari Gram Mardanpur, Shahpur, Betul-460440

Madhya Pradesh

9 Mrs. Laxmi Barse Desawari, Shahpur, Betul-460440

Madhya Pradesh

10 Mr. Champa Lal Gram Mokhamal, Shahpur, Betul-460440

Madhya Pradesh

5. The authorised share capital of the company is Rs.1,00,000/- (Rupees

One Lakh only), divided into 10,000 equity shares of Rs. 10/- (Rupee Ten
only) each.
6. The liability of the member(s) is limited and this liability is limited to the
amount unpaid, if any, on the shares held by them.

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141
Annexure no. 2

THE COMPANIES ACT, 2013

AND
PART IXA OF COMPANIES ACT, 1956
(COMPANY LIMITED BY SHARES)
ARTICLES OF ASSOCIATION
OF
PRODUCER COMPANY LTD
1. PRELIMINARY

The regulations contained in table ‘F’ in the first schedule to the Companies Act, 2013 shall not apply to this
producer company.

2. INTERPRETATIONS
In these Articles unless there be anything repugnant to the subject or context the following words shall have the
meaning written against them:

a) “The Act” or “The Companies Act” means the Companies Act, 1956 otherwise specifically provided the
words “Companies Act 2013” and its statutory modifications from time to time and all rules made there
under.

b) “Companies Act, 2013”- is an Act of Parliament of India effected from 1st April, 2014 which regulates the
Company and has replaced the old Companies Act, 1956 except the Part IXA which relates to the
Producer Company.

c) “The Company” or “this company” when used with reference to this company shall mean the “________
PRODUCER COMPANY LIMITED”.

d) “Articles of Association” means these articles, which may be altered, from time to time, by the Company
with approval by a General Meeting and filed with the Registrar of Companies.

e) “Active Member” means a member who is involved in any of the operations mentioned in the
Memorandum of Association and who fulfills the qualifications as laid down in the Articles.

f) “ABGs/FGs/PGs/SHGs” means Activity based Groups/ Farmers Groups, Producers Groups, and Self Help
Groups respectively formed at community level.

g) “Auditors” shall mean and includes those persons appointed as such for the time being by the company as
per the provisions of the Companies Act, 2013.

h) “Board” means the Board of Directors (BoD) constituted under the provisions of these Articles.

I) “Chairman” means a member of the Board who has been elected as Chairman by the Directors of the
Board under the provisions of these Articles.
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j) “Commodity” includes all agricultural, horticultural, medicinal, spices, forestry; their allied products, raw
or processed.

k) “Chief Executive Officer (CEO)/Managing Director” means an individual, by whatever name called and has
been appointed/approved by the Board as chief executive/Managing Director for the overall
management of the affairs of the Company, from amongst persons, other than Members of the
Company.

l) “General Meeting” includes annual and extra ordinary or special general meetings.

m) “Limited return” means the maximum dividend as may be specified by the articles.

n) “Member” means a person admitted as a member of the Company and who retains the qualification
which are specified under these articles and Part IX of the Companies Act, 1956.

o) “Mutual Assistance Principles” means the principles set out in sub-section (2) of 581G of the Act and which
are also described under these Articles.

p) “Person” shall include any Association, Corporation, Company as well as individual.

q) “Patronage” means the use of services offered by the Company to its Members by participation in its
business activities;

r) “Patronage Bonus” means payments made by the Company out of the resultant surplus income to the
Members in proportion to their contribution/participation in the promotion of business of the company

s) “Proxy” includes attorney duly constituted under a power of attorney.

t) “Promoting NGO/Project” means promoting agency may be government or non-government

organization promoting this producer company for the interest of the farmers/ producers only.

u) “Special Resolution”, “Ordinary Resolution” and “Resolution requiring Special Notice” respectively by the
Act shall have the meaning assigned thereto.

v) “The Seal” shall mean the Common Seal of the company approved by the Board of Directors from time to
time.

w) “The Office” means the Registered Office for time being of the company.

x) “The Registrar” means the Registrar of Companies to which the Company is registered for the time being
under section 2(75) of the Companies Act, 2013

y) “Withheld price” means part of the price due and payable for goods supplied by any Member to the
Company; and withheld by the Company for payment on a subsequent date.

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 z) Words importing the singular shall include the plural and the words importing the plural shall include the
singular. Words importing the masculine gender include the feminine gender and vice versa.

3. Unless the context otherwise requires, words or expressions contained in these Regulations shall bear the
same meaning as in the Act or any statutory modification thereof in force.

4. THE COMPANY TO BE A PRIVATE COMPANY:

a. The Company is a Private limited Company by virtue of provisions of sub-section 5 of Section 581C of the
Act to which the provisions of Part IXA shall apply. However, there shall not be any limit to the number of
members.

b. The right to transfer shares of the company is restricted in the manner and to the extent hereinafter
provided.

c. No invitation shall be issued to the public to subscribe for any share or debenture of the Producer
Company.

d. No deposits shall be accepted from the public by the Company except from the members, directors or
their relatives.

5. MUTUAL ASSISTANCE PRINCIPLES:

The company shall adopt the following mutual assistance principles, namely: -
a. The membership shall be voluntary and is available to all eligible members or non-members of
CIGS/SHGs who can participate and avail the facilities or services of the Producer Company and who are
willing to accept the duties of membership;

b. Each Member shall, save as otherwise provided in the Part IX A of the Act, have only a single vote
irrespective of the shareholding;

c. The Producer Company shall be administered by a Board consisting of persons elected or appointed as
directors in the manner consistent with the provisions of the Part IX A of the Companies Act and the
Board shall be accountable to the Members;

d. Save as provided in the Part IX A of the Companies Act, there shall be limited return on share capital;
e. The surplus arising out of the operations of the Producer Company shall be distributed in an equitable
manner by-

(i) Providing for the development of the business of the Producer Company;
(ii) Providing for common facilities; and
(iii) Distributing amongst the Members, as may be admissible in proportion to their respective
participation in the business;

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 f. Provision shall be made for the education of Members, employees and others, on the principles of
mutuality and techniques of mutual assistance ;

g. The Producer Company shall actively co-operate with other Producer Companies (and other
organizations following similar principles) at local, national or international level so as to best serve the
interest of their Members and the communities it purports to serve.

6. FUNDS:

Funds may be raised by:

a) Shares from new members;

b) Additional shares issued in proportion to the business transacted with the Producer Company from time
to time on the terms and conditions as decided by the Board of the Producer Company and
communicated to the members;

c) Deposits and/or Debentures received from members;

d) Loans from any financial institution;

e) Grants, aids and subsidies from any Government and Non-Government Organization;

f) Donations from any individual or organization.

g) The Producer Company may accept funds from any development agency or any other financing
institution in the form of loans or grants or in any other forms except equity capital, as per the terms and
conditions prescribed by such institutions as may be mutually agreed upon.

7. SHARE CAPITAL

7.1 The Share capital of the Company shall consist of Equity shares only.

7.2 The Authorized Share Capital of the Company is such that stated in clause V of the Memorandum of
Association of the company.

7.3 The shares shall be under the control of the Board of Directors who may allot or otherwise dispose of the
same to such members on such terms as the Board of Directors think fit and to give any persons any
shares whether at par or at premium and for such consideration as the Board of Directors think fit and
proper, may also allot and issue shares in capital of the Company in payment or part payment for any
property sold or transferred to or for service rendered to the Company in or about the conduct of its
business and the shares which may be so allotted may be issued as fully paid up shares and if so issued
deemed to be fully paid up shares.

7.4 Every person whose name is entered as a member in the register of members shall be entitled to receive
share certificate-
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 i. Within 2 months after incorporation, in case of subscriber to the memorandum;
ii. Within 2 months after the allotment, in case of allotment of any further shares;
iii. Within 1 month after the application of registration of transfer or intimation of transmission.

7.5 Every Share certificate shall be under the seal and shall specify the number of shares to which it relates
and the amount paid-up.
7.6. ALTERATION OF SHARE CAPITAL

7.6 The Company may, from time to time, by ordinary resolution alter such share capital by such sum, to be
divided into shares of such amount, as may be specified in the resolution.

7.6.1 Subject to the provisions of section 61 of the Companies Act, 2013,the Company has the power-

7.6.2 To increase or reduce the capital;

7.6.3 To consolidate and divide all or any of its share capital;

7.6.4 To convert its fully paid-up shares into stock, and reconvert the stock into fully paid-up shares of
any denomination;

7.6.5 To sub-divide its shares, or any of them, into shares of smaller amount than is fixed by the
memorandum, so, however, that in the sub-division the proportion between the amount paid and
the amount, if any, unpaid oneach reduced share shall be the same as it was in the case of the
share from which the reduced share is derived;

7.6.6 To cancel shares which, at the date of the passing the resolution in that behalf, have not been taken
or agreed to be taken by any person, and diminish the amount of its share capital by the amount of
the shares so cancelled.

8. TRANSFER OF SHARES

8.1 Subject to the provisions of Section 581ZD (2) of the Companies Amendment Act) 1956, a member of the
Producer Company may, after obtaining the previous approval of the Board , transfer the whole or part of
his shares along with any special rights to an active member at par value.

8.2 There is no such holding period requires for transfer of share and may transfer the whole or part of his
shares along with any special rights, must notify to the Board of Directors of the number of shares and
the value.

8.3 The Board of Directors must offer to the other active members, the shares offered at the fair value and if
the offer is accepted, the shares shall be transferred to the acceptors. In case of any dispute, regarding
the fair value of the share it shall be decided and fixed by the experts appointed by the Board for this
purpose, whose decision shall be final.

8.4 The Board of Directors may refuse to register any transfer of shares (1) where the Company has a lien on
the share, or (2) where the share is not a fully paid up share, subject to Section 58 of the Companies Act,
2013.
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9. FORFEITURE OF SHARES

9.1 If a member fails to pay any call, or installment of a call, on the day appointed for payment thereof, the
Board may, at any time thereafter during such time as any part of the call or installment remains unpaid,
serve a notice on him requiring payment of so much of the call or installment as is unpaid, together with
any interest which may have accrued.

9.2 The notice aforesaid shall --(a) name a further day (not being earlier than the expiry of fourteen days from
the date of service of the notice) on or before which the payment required by the notice is to be made;
and(b) state that, in the event of non-payment on or before the day so named, the shares in respect of
which the call was made shall be liable to be forfeited.

9.3 If the requirements of any such notice as aforesaid are not complied with, any share in respect of which the
notice has been given may, at any time thereafter, before the payment required by the notice has been
made, be forfeited by a resolution of the Board to that effect.

9.4 (i) A forfeited share may be sold or otherwise disposed of on such terms and in such
manner as the Board thinks fit.

(ii) At any time before a sale or disposal as aforesaid, the Board may cancel the forfeiture on such terms as
it thinks fit.

9.5 (i) A person whose shares have been forfeited shall cease to be a member in respect
of the forfeited shares, but shall, notwithstanding the forfeiture, remain liable to pay to the company all
monies which, at the date of forfeiture, were presently payable by him to the company in respect of the
shares.

(iii) The liability of such person shall cease if and when the company shall have received payment in full of
all such monies in respect of the shares.

9.6 (i) A duly verified declaration in writing that the declarant is a director, the manager or
the secretary, of the company, and that a share in the company has been duly forfeited on a date stated in
the declaration, shall be conclusive evidence of the facts therein stated as against all persons claiming to
be entitled to the share;

(ii) The company may receive the consideration, if any, given for the share on any sale or disposal thereof
and may execute a transfer of the share in favour of the person to whom the share is sold or disposed of;

(iii) The transferee shall thereupon be registered as the holder of the share; and

(iv) The transferee shall not be bound to see to the application of the purchase money, if any, nor shall his
title to the share be affected by any irregularity or invalidity in the proceedings in reference to the
forfeiture, sale or disposal of the share.

(v) The provisions of these regulations as to forfeiture shall apply in the case of non-payment of any sum
which, by the terms of issue of a share, becomes payable at a fixed time, whether on account of the
nominal value of the share or by way of premium, as if the same had been payable by virtue of a call duly
made and notified.
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10. MEMBERSHIP

10.1 The Producer Company shall consist of members of FGs/PGs/SHGs or any type of producer’s
group/individual producers whether incorporated or not and to any producer person sincerely engaged
in providing any organizational, technical or financial assistance to above producers groups.

10.2 An individual who, or a producer institution which, fulfills eligibility conditions under the provisions of
these Articles, and as decided by the Board in the Board meeting by way of unanimous Board resolution,
may apply for membership in the prescribed form to the Board of the Company undertaking to carry out
the responsibilities of membership in writing. Such form shall be called as Share Application form.

10.3 Where admission is refused by the Board, the decision with the reasons for refusal shall be communicated
to the concerned person by registered post or delivered by hand within fifteen days of the date of the
decision, or within thirty days from the date of application for membership, whichever is earlier.

10.a. Qualifications for Obtaining Membership:

10.3.1 A member of any Producer Groups/Farmers Groups / Self Help Groups or any non-member/individual
belongs to the above category of producer or farmers and desirous to becoming a member shall
subscribe at least one share to the Producer Company.

10.3.2 Member who is not declared as defaulter in repayment of any advances or loans or services taken from the
Producers Company or similar institutions and don’t have the possibility to repeat such act again and
same guaranteed by the any member of the producer company, if already exists in the same area.

10.3.3 No person who was convicted by the Board/Committee formed by the Board or any court in producer
company matter and membership seized.

10.3.4 No person who has any business interest which is in conflicts with business of the producer company shall
become a member of that company.

10.b. Qualifications of Active Member

10.3.5 “Active member” a member/ members who will actively participate in activities /business/ services offered
by the company like crop production, procurement, purchases or sales of agriculture inputs and supply of
produces, organize certified crop production, procurement, crop supervision or inspection or taking any
other responsibility given by the BoDs for the interest of the Producer Company shall be considered as
active member of the company and same should be declared by the Board of the Directors. (We could not
define active members with EXACTITUDE, because every producer company may have different
objectives)

10.3.6 A member who is willing and participating in all company’s affairs, meetings and programs and not to
absent in most meeting or programs (like, production, procurement and sales, if qualifies the criteria of
that activity and invited) so far without prior information or any beyond control or unavoidable reason,
shall be considered as an active member of the company.

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10.c. Cancellation of membership

10.3.7 If any member has ceased to be a producer institution, or has failed to retain qualifications to continue as a
member as specified, the Board shall serve a written notice to the concerned member/s and provide an
opportunity of being heard in the next Board meeting.

10.3.8 If the Board is satisfied it may direct the member for surrender of shares together with special rights, if any
to the Producer Company, at par value or the Board may determine such other value.

11.a. BENEFITS TO MEMBERS

11.1 Every Member shall initially receive only such value for the produces supplied to the Producer Company
as the Board may determine, and the withheld price may be disbursed at a later date during the financial
year, in cash or in kind or by allotment of equity shares, in proportion to the value of various produces
supplied to the Producer Company to such extent and in such manner and subject to such conditions as
may be decided by the Board.

11.2 The surplus, if any, arising after setting aside provision for payment of limited return and after making
provisions for reserves as per the provisions of Article No. 19 may be disbursed as patronage bonus
amongst the Members, in proportion to their participation in the business of the Producer Company,
either in cash or by way of allotment of equity share or both, as may be decided by the general meeting as
a special services or facilities like group health/crop insurance, soil sample test, use of company’s tools
and machineries with subsidized or without cost etc .

11.b. Provisions for special user rights:

The Board of the Producer Company may from time to time, based on measurable criteria, issue special user rights
valid for a specific duration to the active members, to promote the business interests of the Producer Company.
Such user rights shall be issued in the form of appropriate instruments.

The instruments so issued shall, subject to the approval of the Board in that behalf, be transferable to any other
active member of the Producer Company.

11.c. Voting Rights

11.3 All members can cast their vote during the voting. However newly admitted members may be restricted to
exercise voting rights for at least such period as may be decided by the Board for the election of the
chairman or the Board of the directors unless he/she has very actively participated in the business activity
of the company.

11.4 Same as otherwise provided in subsections (1) and (3) of section 581D, every active member shall have
only one vote irrespective his/her shareholding or patronage.

11.5 There shall be no allocation of additional votes to any type of member irrespective of anything. However
patronage bonus and additional share can be issued as a bonus or reward against his active participation
in the business of the company.

11.6 During voting, in the case of equality of votes, the chair person or the presiding shall have a casting vote
except in the case of election of the chairman.
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11.7 Member who earned additional share as a patronage bonus/rewarded or eligible for maximum
patronage bonus on the basis of his/her performance in terms of participation/contribution in the growth
and business promotion of the company and same is declared by the BoD or AGM, shall be given
preference for contesting in the election of BoD member or chairman.

11.8 After completion of the restricted period (given in clause 11.3) as an active member, he/she can contest
the election of Chairman/BoD.

11.9 In a case of mixed membership consists of individuals and producer institutions, the voting rights for each
member shall be single vote.

11.10 The producer institution shall be represented by their leader as authorized in a special meeting and the
same is recorded in their meeting register, signed by all members of such institution.

12.a. GENERAL MEETINGS

12.1 The first general meeting is a Special General meeting which shall be held within 90 days from the date of
incorporation of the company.

12.2 The special general meeting shall be held only for following purposes:-
a) Adoption of Memorandum of Association
b) Adoption of Articles of Association and
c) Election of first director.

12.3 All general meetings other than annual general meeting and first general meeting shall be called
extraordinary general meeting.

12.4 The Annual General Meeting shall be called once in every year but not more than 15 months shall elapse
between the date of one general meeting and that of the next. It shall be held within 6 months from the
end of each financial year.

12.5 Every General meeting shall be held by serving a proper notice for not less than 14 days to every
Shareholder, all directors and Auditors.

12.6 The notice calling the annual general meeting shall be accompanied by the following documents, namely :

(a) The agenda of the annual general meeting;

(b) The minutes of the previous annual general meeting or the extraordinary general meeting;

(c) The names of candidates for election, if any, to the office of director including a statement of
qualifications in respect of each candidate;

(d) The audited balance-sheet and profit and loss accounts of the Producer Company and its subsidiary, if
any, together with a report of the Board of directors of such Company with respect to:

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 (i) The state of affairs of the Producer Company;
(ii) The amount proposed to be carried to reserve;
(iv) The amount to be paid as limited return on share capital;
(v) The amount proposed to be disbursed as patronage bonus;
(vi) The material changes and commitments, if any, affecting the financial position of the Producer
Company and its subsidiary, which have occurred in between the date of the annual accounts of
the Producer Company to which the balance sheet relates and the date of the report of the Board;
(vii) Any other matter of importance relating to energy conservation, environmental protection,
expenditure or earnings in foreign exchanges;
(viii) Any other matter which is required to be, or may be, specified by the Board ;

(e) The text of the draft resolution for appointment of auditors ;the text of any draft resolution proposing
amendment to the memorandum or articles to be considered at the general meeting, along with the
recommendations of the Board

12.7 The Chief Executive Officer or any director duly authorized by the Board is responsible to serve such
notice.

12. b. Proceedings at General meeting

12.8 Attendance of one-fourth of the total number of members shall form a quorum for the general meeting.

12.9 The Chairperson, if any, of the Board shall preside as Chairperson in every general meeting of the
Company.

12.10 If there is no such Chairperson, or if he is not present within fifteen minutes after the time appointed for
holding the meeting, the directors present shall elect one them to be Chairperson of the meeting.

12.11 If no director is willing to act as Chairperson or if no director is present within fifteen minutes after the time
appointed for holding the meeting, the members present shall choose one of their members to be
Chairperson of the meeting.

12.12 MATTERS TO BE TRANSACTED AT ANNUAL GENERAL MEETING

The Board of directors of a Producer Company shall exercise the following powers on behalf of that company, and
it shall do so only by means of resolutions passed at the annual general meeting of its Members, namely : -

(a) Approval of budget and adoption of annual accounts of the Producer Company;
(b) approval of patronage bonus;
(c) Issue of bonus shares;
(d) Declaration of limited return and decision on the distribution of patronage;
(e) Specify the conditions and limits of loans that may be given by the Board to any director; and
(f) Approval of any transaction of the nature as is to be reserved in these articles as follows:
• Confirm the proceedings of the previous General Meeting.
• Consideration and adoption of report of Board of Directors and Profit & loss account and Balance
sheet as on 31st March of preceding financial year of the Company and sanction the
appropriation of profits.
• Appointment/Reappointment of Auditor.
• Appointment of Directors in place of those retiring. 151
 13. ADJOURNMENT OF MEETING

13.1 The Chairperson may, with the consent of any meeting at which a quorum is present, and shall, if so
directed by the meeting, adjourn the meeting from time to time and from place to place.

13.2 No business shall be transacted at any adjourned meeting other than the business left unfinished at the
meeting from which the adjournment took place.

13.3 When a meeting is adjourned for thirty days or more, notice of the adjourned meeting shall be given as in
the case of an original meeting.

13.4 Save as aforesaid, and as provided in section 103 of the Companies Act, 2013, it shall not be necessary to
give any notice of an adjournment or of the business to be transacted at an adjourned meeting

14. BOARD OF DIRECTORS

14.1 Board of Directors of the Producer Company shall consist of not more than 15 members as follows: i.e.

a) Initially, minimum 5 members shall be acted as Directors who have subscribed to the Memorandum
and Articles of the Company, until the directors are elected in accordance with the provision of section
581P from amongst the members or other than members;
b) The Board may co-opt one or more expert directors or an additional director. The total number of such
co-opted directors shall not exceed one-fifth of the total strength of the Board.
c) The Expert directors shall not have any right to vote in the election of the chairman, although, but
would be eligible for being elected as a chairman of the producer company;
d) Chief Executive Officer shall be the ex-officio director of the board;
e) The Minimum and the Maximum number of Directors of the Company shall be 5 (five) and 15 (Fifteen)
respectively. The First Directors of the Company shall be:

1.
2.
3
4
5.

14.2 The conduct of elections of directors to the board of the Producer Company shall be the responsibility of
the incumbent board of the producer company, in the manner specified in these articles of association.

14.3 The election must be held at least 10 days before the term of office of the outgoing directors comes to an
end. The outgoing directors shall cease just after the expiry of the term and new directors shall take over
from the very next day.

14.4 Election of directors shall normally take place at the Annual General meeting. The first election shall be
held within 3 months from the date of incorporation of the company.

14.5 The election rules shall be formulated by the Board and approved by the general meeting.

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 14.6 Where the Board fails to conduct elections before the expiry of the term of the directors or where there are
no directors remaining on the board, the chief executive of the company shall call an extra ordinary
general meeting, within twenty days after the expiry of the terms of the directors for the purpose. If the
board is not constituted in the meeting, three members ad-hoc board shall be appointed among the
members for the specific purpose of conducting elections and to abide by the articles of association.

14.7 The term and the ad-hoc board so appointed shall not exceed three months and the ad-hoc board shall
cease to function as soon as a regular board is elected in accordance with the articles of association.

14.8 The term of the elected board shall be minimum 1 year and maximum 5 years from the date of assumption
of office, except for the first Board.

15. MEETINGS OF BOARD

15.1 The chairman shall preside over the meeting of the board. In case of his absence, the directors present
shall elect one of the directors as the Chairman of the meeting.

15.2 The Board may meet as often as it may consider necessary for transaction of the business. However it shall
meet at least once in every four months.

15.3 The Board meeting shall be called generally with seven days’ notice, but in case of Exigencies it can be
called at a shorter notice.

15.4 The Chief Executive officer is responsible to serve the notice.

15.5 The Presence of at least three Directors or one third of its total strength, whichever is higher, shall form the
quorum for the Board’s meeting.

15.6 Each member of the Board shall have one vote.

15.7 Decision at the meeting of Board shall be arrived at by majority votes of the directors present. In case of a
tie the Chairman of the meeting shall have a casting vote in addition to his usual vote except in case of
election of the Chairman. Tie in case of election of chairman, the matter shall be decided by draw of lots.

15.8 A person competent to represent a CIG/SHGs, shall not be eligible for election/Continuance as a director
of the Board unless the CIG/SHGs, which he is representing:

15.8.1 Has fulfilled all the obligations as mentioned in the articles of association as on 31st March of the
preceding year;

15.8.2 Is an active member of the Producer Company as on the day of election.

15.8.3 Has not withdrawn / cancelled the authority in writing given to him to represent in the general meeting.

15.9 Any individual or the person representing the CIG/SHGs farmers group shall also not be eligible for
election and continue as such, if –

I. He is convicted by a Court of any offence involving moral turpitude and sentenced in respect
thereof imprisonment for not less than six months.
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 ii. 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 institutions or any other person and such defaults
continues for ninety days.
iii. He has made a default in repayment of any advances or loans taken from the Producer company
in which he is a director;
iv. He has direct or indirect interest in any contract made with the Producer Company or any
property sold or purchased by the Producer Company or any other transaction of the Producer
Company except in any investment made in or in any loan taken from the Producer Company.
v. He is engaged directly or indirectly indulging in running the same type of business as that of the
Producer Company or is having direct or indirect interest in such activities.

16.a. VACATION OF OFFICE BY THE DIRECTORS

16.1 The office of the director of a Producer Company shall become vacant if

a. He is convicted by a Court of any offence involving moral turpitude and sentenced in respect thereof to
imprisonment for not less than six months;
b. 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 ninety
days;
c. He has made default in repayment of any advances or loans taken from the Producer Company in
which he is a director;
d. The Producer Company in which he is a director –
i. Has not filed the annual accounts and annual returns for any continuous three financial years or
ii. Has failed to, repay its deposit or withheld price or patronage bonus or interest thereon on due date, or
pay dividend and such failure continues for one year or more.
e. Has defaulted in holding election for the office of directors in accordance with the provision of this Act
and articles.
f. Has failed to convene the annual general meeting or extraordinary general meeting in accordance of
the provision of this Act except due to natural calamities or such other reasons.

16.b. Powers and Functions of the Board of Directors:

16.2 Subject to the provisions of the Companies Act, 2013 and Section 581R of the Act, the Board of directors
shall exercise the following powers:
i. To admit members;
II. To formulate corporate mission;
III. To establish specific long-term annual objectives to be achieved, consistent with the mission and
the goals;
IV. To formulate and approve corporate strategies and financial plans;
V. To make periodic appraisal of operations of the Producer Company in relation to its mission and
objectives;
VI. To formulate, approve and periodically review corporate policies related to major functional
activities of the Producer Company;
VII. To appoint Managing Director/ Chief Executive Officer as per the provisions of Articles.
VIII. To finalize the proposed annual budget and supplementary budget, if any for approval at the
General Meeting;
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IX. To cause
a) Proper books of accounts to be maintained by the Producer Company, including in computerized
form as permitted by the Companies Act
b) The annual accounts to be prepared for the financial year,
c) The annual accounts to be duly audited by a qualified chartered accountant appointed for that
purpose by the General Meeting, and the duly audited accounts to be placed before members at
an annual general meeting.
X. To ensure the calling of annual and other meetings of the General Meeting including the delivery of
formal notice; the agenda of the meeting; the names of candidates for election to the board and a
statement of their qualifications; the text of any amendment proposed to the Memorandum of
Association and / or articles of association and the rationale for such amendment; and the audited
statement of accounts with comments on the auditor’s qualification or adverse remarks; and the
proposed annual or supplementary budget to be considered by the General Meeting;
XI. To ensure that elections are conducted as provided in the articles of association;
XII. To determine the quantum of withheld price to be disbursed at the end of any year;
XIII. To acquire or dispose property in the ordinary course of business;
XIV. To raise funds as provided in these articles.
XV. To cause adequate security, insurance of the assets of the producer company;
XVI. If required, the Board may constitute committee/s for specific duration in farming policies or seeking
suggestions in any matter that Board may deem fit under section 581 U of the Act. The advisory
committee shall cease to exist after finalizing its suggestions and recommendations in the matter for
the Board.
XVII. The committee/s may be formed of the following members;

1. Up to two members of the board provided that the Chief Executive Officer or a director shall be the
member of the committee.
2. Expert/s in concerned field from outside as decided by the Board.
3. The Managing Director of the Producer Company as member secretary.
XVIII. Institute conduct, defend, compound or abandon any legal proceedings by or against the Producer
Company or its officer or otherwise concerning the affairs of the Producer Company and also allow
time for payment or settlement of any debt due settle any claims and / or demands by or against the
Producer Company any arbitration or otherwise.
XIX. Delegate to the Chief Executive Officer any of its powers under these articles of association of the
Producer Company.
XX. To ensure compliance, terms and conditions of agreement with the financing institutions for loan and
grant as mutuality agreed upon.
XXI. The Directors shall exercise their power regarding the affairs of the Producer Company only at
meetings of the Board.
XXII. Borrowing powers:- Subject to Section 2(31), 73, 74, 76A 179, 180 of the Companies Act 2013 and the
Regulations made there under and directions issued by the RBI the Board of Directors shall have the
power, from time to time and at their discretion to borrow, raise or to secure the payment of any sum
of money for the purpose of the Company in such manner and upon terms and conditions in all
respects as they think fit and in particular by the issue of debentures or bonds of the Company or by
mortgage charged upon all or any of the properties of the company both present and future including
its uncalled capital for the time being.
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17. a. RETRIREMENT OF DIRECTORS
17.1 Each director shall be liable to retire by rotation at Annual General meeting.

17.2 Every director shall retire after pre-determined period decided by the Board and shall be eligible for re-
appointment subject to the clause 17.8 of these Articles.

17.3 Directors who are longest in office since their appointment shall retire first.

17.4 If directors were appointed on same day, then retirement shall be

• By agreement between them; or
• By draw of lots.

17. b. CHIEF EXECUTIVE OFFICER

17.5 The Producer Company shall have a full time Chief Executive Officer who shall functions as chief executive
and shall be appointed by the Board from amongst persons other than Members.

17.6 The Chief Executive Officer shall be ex officio director of the Board having voting rights equals to any other
Director, but he shall not vote in the election of the Directors or Chairman or on any matter in which he is an
interested party. He shall not retire by rotation.

17.7 Save as otherwise provided in these articles, the qualifications, experience and the terms and conditions of
service of the Chief Executive Officer shall be such as may be determined by the Board.
17.8 The Chief Executive Officer shall be the regular and paid employee of the company entrusted with substantial
powers of management as the Board may determine. The amount of remuneration/ salary and other
facilities shall be decided by the BoDs (can take help of outside consultant, if not capable to decide) based on
the outside market rate, experience, qualification and market value of the person.
17.9 Subject to the substantial powers of management entrusted by the Board the Chief Executive Officer may
exercise the powers and discharge the functions namely:-
i. Do administrative acts of a routine nature including managing the day-to-day affairs of the
Producer Company.
ii. Operate bank accounts or authorize any person, subject to the general or special approval of the
Board in this behalf, to operate the bank account;
iii. Make arrangement for safe custody of cash and other assets of the Producer Company;
iv. Sign such documents as may be authorized by the Board, for and on behalf of the company;
v. Maintain proper books of account, prepare annual accounts and audit thereof; place the audited
accounts before the Board and in the annual general meeting of the Members;
vi. Furnish Members with periodic information to appraise them of the operation and functions to the
Producer Company;
vii. Make appointments to posts in accordance with the powers delegated to him by the Board;
viii. Assist the Board in the formulation of goals, objective, strategies, plans and policies;
ix. Advise the Board with respect to legal and regulatory matters concerning the proposed and ongoing
activities and take necessary action in respect thereof;
x. Exercise the powers as may be necessary in the ordinary course of business;
xi. Discharge such other functions, and exercise such other powers, as may be delegated by the Board;

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 17.10 The Chief Executive Officer shall manage the affairs of the Producer Company under the general
superintendence, direction and control of the Board and be accountable for the performance of the
Producer Company.

18. APPOINTMENT OF COMPANY SECRETARY

18.1 If the average annual turnover exceeds Five Crore rupees in each of three consecutive financial years, the
Producer Company shall have a whole-time secretary.

18.2 No individual shall be appointed as whole time secretary unless he/she possesses membership of Institute
of Company Secretaries of India Constituted under the Company Secretaries Act, 1980.

19. APPROPRIATION OF NET PROFIT

19.1 The Producer Company shall maintain a general reserve fund, which shall be decided by the Board, in
every financial year.

19.2 In case of insufficient funds in any financial year, the contributing to reserve shall be shared amongst the
members in proportion to their patronage in the business of that company in that year.

19.3 There shall be a limited return per annum which shall be specified by the Board and approved by the
General Body from time to time, on fully paid share capital;

20. ACCOUNTS

20.1 The Company shall keep at its registered office proper books of account.

20.2 The Board shall from time to time determine whether and to what extent and at what times under what
conditions or regulations, the accounts and books of the company, or any of them, shall be open to the
inspection of members not being directors.
20.3 The Balance-sheet and profit & loss account shall be prepared as far as may be, in accordance with the
provision of section 129 of the Companies Act,2013.

21. MISCELLANEOUS

21.1 In addition to the sum as provided in the provision of these articles of association all subsidies, entrance
fees, receipts on account of forfeited shares and fines other than those collected from the employees shall
be carried to the Reserve Fund.

21.2 Any other income other than normal trading income, excess provision and reserves, donations other than
those for specific purpose etc. can be carried to a General Reserve Fund and shall be utilized with the
permission of the Board from time to time.

21.3 The accounting year of the Producer Company shall be from 1st April to 31st March. The books of
accounts of accounts and other records shall be maintained as prescribed.

21.4 The Producer Company shall not alter the conditions contained in its memorandum except in the cases, by
the mode and to the extent for which express provision is made in the Companies Act, 2013.
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 21.5 The Company may, by special resolution, not inconsistent with section 581B, alter its objects specified in its
memorandum. A copy of the amended memorandum, together with a copy of the special resolution duly
certified by two directors, shall be filed with the Registrar within thirty days from the date of adoption of any
resolution.

22. AMENDMENT OF ARTICLES

22.1 Any amendment of the articles shall be proposed by not less than two-thirds of the elected directors or by not
less than one-third of the Members of the Producer Company, and adopted by the Members by a special
resolution.

22.2 A copy of the amended articles together with the copy of the special resolution both duly certified by two
directors, shall be filed with the Registrar within thirty days from the date of its adoption.

22.3 THE SEAL: The Board of Directors shall select a seal for the Company and provide by resolution for the safe
custody and affixing thereof. Unless otherwise determined, the Director may use and affix the seal of the
company to any document and the Director in accordance with these articles sign every document to which
the seal is so affixed.

23. SECRECY CLAUSE

23.1 Subject to the provisions of the Act no member shall be entitled to visit or inspect works of the Company
without the permission of the Director or Managing Director or Chief Executive Officer or of the officer
authorized by the Director to grant such permission or to require inspection of any books of accounts or
documents of the Company or any discovery of any information or any detail of the Company’s business or
trading or any other matter which is or may be in the nature of a trade secret, mystery of trade or secrete
processor which may relate to the conduct of business of the company and which in the opinion of the
Managing Director or the Directors will not be expedient in the collective interest of the members of the
Company to communicate to the public or any member.

23.2 If in any case the company wants to go for amalgamation, merger or any division it can do so by passing by
necessary resolution in the General meeting subject to the provisions of the Section 581ZN of the Act.

23.3 The Companies Act, 2013 and the Part IXA of the Companies Act, 1956 shall override these articles if in any of
discrepancy.

24. INDEMNITY

Every officer of the company shall be indemnified out of the assets of the company against any liability incurred by him
in defending any proceedings, whether civil or criminal, in which judgment is given in his favour or in which he is
acquitted or in which relief is granted to him by the court or the Tribunal.

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Annexure no. 3

“Foreseeing a Bright Future with Adoption of Good Agricultural

Practices”

Narmadanchal Farmer Producer Company Ltd. promoted by Vrutti Livelihoods

Resource Centre

Estd: September 2013; Location: Sehore, MP; NKFL Loan: Rs 11 lakh

The activities of this FPC, located in the interior and backward areas of Sehore district, have been able to benefit
796 farmers and generate surplus and sustain the business operations. The company has been set up in an area
wherein the access to services for the farming community is difficult. The company is being managed by the Board
of Directors elected by the members. At present, NFPCL has 10 member board with due representation to villages
in their area of operation and women members. The community is sensitised on the roles and responsibilities of
directors before they are elected. The company has designed a business plan to meet its emerging requirements
with long term perspective. Accordingly, the FPC plans to establish a spice grinding unit to cater to the market
demand and establish market linkages with Walmart for vegetable marketing which will contribute to the
enhancement in income of the farmers. The FPC is working towards enterprise promotion of high value crops and
organic farming in the operational area and has also introduced good agricultural practices amongst the farmers.

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 “Tribal Women Farmer Collective in the interiors of Ranapur”

Ranapur Tribal Mahila Farmers ProducerCompany Ltd. promoted by Action for

Social Advancement (ASA)

Estd: June 2012; Location: Jhabua, MP; NKFL Loan: Rs 30 lakh

This FPC comprises of 1,131 women shareholders in the backward district of Jhabua. It has been set up in an area
which is backward and wherein the access to services for the farming community is difficult. The main objective of
the company is to function as ‘One Window Service Provider’ for all crop inputs such as seeds, crop protection
measures, farm implements, advisory services for members and non-members as well. The company is engaged
in input supply and procurement operations and it proposes to expand their operations in the ensuing seasons.
Taking into account the requirements of members, local needs, the company in future proposes to take up
activities like seed processing, procurement and sale of agricultural produce like Soyabean, Cotton, Wheat, Maize,
Pulses etc. and supply of inputs required for agricultural operations.

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 “Tribal Farmers Organise into FPC and Take up Business Activities”

Mandla Tribal Farmers Producer Company Ltd. promoted by Action for Social
Advancement (ASA)

Estd: January 2012; Location: Mandla, MP; NKFL Loan: Rs 25 lakh

Mandla Tribal Farmer’s Producer Company Limited (MTFPCL) is a farmer producer company promoted by
experienced farmers belonging to the tribal block Binjhiya of Mandla district. The company is mainly into the
business of trading, input supply and seed production. The 1085 shareholders of this FPC belong to the tribal and
Other Backward Castes in 22 villages of Mandla district. The company has endeavored to enable the small farmers
to have better access to markets through collectivization and promote a culture of entrepreneurship. A sum of Rs.
4.54 Lakh has been received from SFAC as matching equity grant to support the equity base of the FPC to increase
the credit worthiness of the FPC and enhancing the shareholding of members to increase their ownership and
participation in their FPC. The FPC is presently engaged in Agro inputs sale, Procurement and Trading of agri
produce from farmers, Seed Production etc.

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 “Agro Advisory, Fruits and Vegetable Trading Services”

Green Vision Farmers Producer Company Ltd. promoted by Yuva Mitra

Estd: January 2014; Location: Nasik, Maharashtra ; NKFL Loan: Rs 28

lakh
The Green Vision Farmer’s Producer Company, Vadangali was formed by a group of farmers to address the
multiple issues like execution agricultural Imput & Extension services for the members of the FPO through Agri
mall, establishment of market linkages to undertake the sale of pomegranate & maize on behalf of member
farmers. The Company was established at NABARD’s initiative with regards to Pilot Project on Onion value chain
management and NABARD has provided Rs 9 lakh as grant for establishment of Storage, Grading, and packaging
house.
The FPC has setup an agri-input shop cum agri-mall and involved in procuring fruits, vegetables and pulses from
about 950 farmers. The Company has started a 2200 sq. ft. agri-input shop which is well stocked with insecticides,
pesticides, seeds. Also, a 2000 sq ft grading and packing house has been constructed for onion procurement,
sorting, grading and packing. Majority of their activities of purchasing of insecticide, pesticide and seeds are
carried out in colloboration with other FPCs promoted by Yuva Mitra. GVFPCL also has a technology solution for
recording day to day operations and reports generation.

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“A Move towards Sustainability: Income Diversification through Allied Activities”

Valanadu Sustainable Agriculture Producer Company Ltd promoted by Centre

for Indian Knowledge Systems

Estd: November 2013; Location: Nagapattinam, TN; NKFL Loan: Rs.40.40 lakh

Valanadu Sustainable Agriculture Producer Company Limited (VSAPCL) is a farmer producer company promoted
by experienced farmers belonging to Sirkazhi, Mayiladuthurai and Vedharanyam of Nagapattinam district. The
Company has a robust membership of 2640 shareholders covering 42 villages and reaps the benefit of economies
of scale for enhancing income of its members. VSAPCL has got the necessary licenses from the competent
authorities to undertake dealing in seeds and fertilizers. The company has built rapport with the line departments
of the state government, which would help in running their operations smoothly and explore convergence. The
company supported its members by providing quality inputs, ensuring better margins through crop procurement.
The Company has marketed over 113 tonnes of paddy, 4.4 tonnes of pulses, 6.4 tonnes of gingelly and 1.7 tonnes
of groundnut during last year. The company was also instrumental in providing credit linkages to the member
farmers for purchase of milch animals, thus achieving the income diversification to allied activities. Company has
facilitated in marketing of about 7500 litres of milk each month for its members thereby enhancing the members’
income.

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NABKISAN Finance Ltd. (NKFL) Action for Social Advancement (ASA), Bhopal
(A subsidiary of NABARD) E-5/A, GirishKunj, Above State Bank of India
C/o. NABARD Head Office, 5th Floor, "B" Wing Shahpura Branch, Bhopal, M.P-462016
C-24, 'G' Block BandraKurla Complex, [email protected]
Bandra (East), Mumbai- 400 051
[email protected] 164