Micro Amul: Are farmer-run companies the next big idea in Indian agriculture?

Five years later, Bhavithra, along with farmer board-of-directors of the company, crafted a remarkable turnaround. In the financial year ending March 2024, the company clocked a turnover of ₹24 crore. It now supplies inputs like seeds and fertilizers to farmers and runs a departmental store, a goat farm, a veterinary medicine store, a cattle feed shop, and an oil mill which processes and markets eight different types of edible oils.

Unwilling to lie low, Bhavithra is now scouting for funds to set up a modern slaughterhouse. Her farmer producer company wants to export native Pattanam breed goat meat, frozen and packed, to consumers in West Asia.

“We would have touched ₹30 lakh annual profit if not for the floods which hit in December when we lost stored onions and maize worth ₹2.6 crore," Bhavithra said during a conversation on the sidelines of a conclave on farmer-run companies in Hyderabad earlier this month. The conclave was organized by Samunnati, a non-banking financial company (NBFC) which provides working capital and marketing support to farmer-run companies.

“For the first two years, I did not take any salary. The board of directors took care of my food and stay," continued Bhavithra, daughter of a bus conductor, now 32. After five years at the helm of a company which now boasts 1,500 shareholder farmers, she speaks with enthusiasm and confidence, a steady smile hanging on her face.

“With our intervention, farmers are getting inputs for cheaper, using them more judiciously which improves the quality of harvest. They no longer lug their produce to wholesale markets. The company takes care of marketing at the farm gate," she said. In the past two years, Vilathikulam Pudur Pulses Producer Company clocked over ₹30 lakh in profit and even paid a nominal dividend to its shareholders ( ₹400 per member).

40,000 and growing

More than a decade back, in 2013, India formulated a policy to set up and promote farmer producer companies, called FPCs in short. The idea was simple. A large majority of farmers are small and marginal landholders, owning less than two hectares of land. They purchase inputs in retail and sell their harvest in wholesale markets, having little or no bargaining power. A company owned by farmers can negotiate better prices for seeds, fertilizers and pesticides. With access to working capital, the company can own or lease warehouses and hold a member-farmers’ produce till it fetches a fair price in the market. It can also engage in primary processing and market members’ produce, either as a business-to-business (B2B) venture or as a retail brand. The idea was to harness the collective bargaining power of an 800-1,000-member company.

This model is similar to India’s hugely successful dairy cooperatives, the likes of Amul (which began its journey from Gujarat) and Nandini (from Karnataka), which are household names. The difference is, most of these new-age farmer producer companies are set up under the Companies Act, 2013, freeing them from the political and bureaucratic interference.

In this model, farmers can set up their own company by contributing equity and becoming shareholders. For example, a 1,000-member group can register the company with ₹1,000 equity contribution from each member. The producer company can then begin its journey with a paid-up capital of ₹10 lakh. It also becomes eligible for a matching equity grant from the government.

In 2020, the government set an ambitious target to create 10,000 farmer producer organizations (FPOs)—either as a cooperative society or under the Companies Act. The terms FPO and FPC are often used interchangeably. Under this scheme, FPOs were provided financial assistance of ₹18 lakh for three years (for staff’s salary, registration and other administrative expenses in the initial years), a matching equity grant (up to ₹15 lakh per FPO), and a credit guarantee facility.

According to Faiz Ahmed Kidwai, additional secretary at the agriculture ministry, more than 9,000 FPOs have been set up under the programme. These have more than 2 million member farmers, and about 28% of them are women. 7,600 FPOs are listed on the government’s Open Network for Digital Commerce (ONDC), an e-commerce platform, where farmers can directly sell their produce to consumers.

Many states have launched their own schemes and policies to support FPOs. A new national policy is on the cards, Kidwai said. Data shared by Kidwai at the Hyderabad conclave provides a snapshot of the journey so far. More than 40,000 FPOs have been registered till date. Of these, about 4,000 have a licence to sell seeds, while 3,500 have a licence to sell fertilizers. In addition, close to 4,000 FPOs have a license from the Food Safety and Standards Authority of India (FSSAI), which allows them to sell processed and packaged food items.

“Licences are only one part of the story… three-four crore small farmers as part of collectives can be a powerful voice for their own rights," Kidwai said.

Early champions

In 2002, the late Verghese Kurien, who crafted India’s dairy revolution and established the iconic Amul brand, was the one who convinced then Prime Minister Atal Bihari Vajpayee to bring in a special law to promote farmer producer companies. Kurien’s insistence that the provision be included in the Companies Act was fiercely opposed at high-level official meetings. But he had his way.

“Vajpayee was impressed by Kurien’s logic that the discipline of the Companies Act and the professional regulation of the Registrar of Companies were necessary to firewall producer companies from bureaucratic and political interference. It would give formal players dealing in finance, marketing, and technology the required confidence to work with FPOs," recounted Pravesh Sharma, former agriculture secretary of Madhya Pradesh and former head of the Small Farmers’ Agribusiness Consortium (SFAC), a specialized agency of the agriculture ministry.

Sharma is credited for putting the FPO movement in motion across India, first in Madhya Pradesh and then during his stint at SFAC. “The FPO ecosystem has established an organization at the farm level and changed how farmers access technology, purchase inputs and access markets. Today, all top agri-business companies have an FPO strategy," Sharma said.

For instance, ITC Ltd—which has Ashirvaad as a popular staples brand—works with 1,650 FPOs in 10 states across commodities like grains, spices, and millets. By 2030, the company has set a target to partner with 4,000 FPOs.

“Climate change being a clear threat, we work with farmer groups to introduce climate-resilient varieties, improve agronomic practices and provide timely advisories (on weather and pests)," said Ganesh Sundaraman, divisional chief executive of agri-business at ITC.

The rough edges

A large majority of the 40,000 FPOs created so far, about 70% or so, are estimated to be less than three years old. And just about a tenth, around 4,000 FPOs, are actively servicing member farmers, according to industry insiders. These numbers are expected to improve as FPOs mature and expand operations.

But for that to happen, some glitches must be removed. States like Madhya Pradesh and Punjab still do not allow FPOs to aggregate farmers’ produce at the back-end. Farmers must cart their produce to state-regulated market yards, often 30-50 km away. State marketing laws specify that any buying and selling of farm produce has to happen in mandis; the trade cannot happen at the farm gate. This raises transaction costs for FPOs while purchasing produce from members. According to Sharma, warehouses at the farm gate should be allowed to function as marketing centres. This will give FPOs the flexibility to store and sell as they wish.

Access to working capital continues to be a major challenge. A 1,000-member FPO of small and marginal farmers need at least ₹2 crore annually—this capital is rotated multiple times in a year while trading in inputs and crops. In addition, they may require term loans to purchase machinery (say, for processing of farm produce) and build infrastructure like warehouses. But banks are reluctant to lend and working capital requirements are serviced mostly by NBFCs which charge more than 15% interest.

FPOs often find it difficult to access institutional credit due to low capital base, absence of credit history and lack of any collateral, and just about 10-12% of the FPOs have access to formal credit, according to the 2023 State of the Sector Report by the National Association for Farmer Producer Organisations.

“Credit flow to FPOs can increase substantially if banks get into co-lending arrangements with specialised agri-NBFCs. If such credit is counted under the priority sector lending target of commercial banks (set by the Reserve Bank of India), FPOs will have access to ₹3,500- ₹4,000 crore of working capital," said Anil Kumar S.G., founder and CEO of Samunnati. The NBFC lent about ₹1,500 crore in working capital loans to 3,300 FPOs in the previous two financial years (FY23 and FY24).

Low residue, high value

With a sustained growth in the number of FPOs many state-level federations have emerged. These federations help in the marketing and branding of produce—taking cues from successful dairy cooperatives. In the Amul model, village-level cooperatives collect milk from farmers daily while district-level unions process this milk and make value-added products. The state-level Gujarat Cooperative Milk Marketing Federation then markets these products manufactured by member unions under an umbrella brand.

Federations are critical because individual collectives cannot afford to hire professionals and deal with multiple agents—be financial institutions or large corporations looking to purchase produce of a certain quality. Currently, states like Maharashtra, Madhya Pradesh, Gujarat, Bihar, Haryana and Telangana, among others, have functional FPO federations.

Some of these produce certified seeds (potato, wheat, soybean, castor) and supply low-pesticide residue grains for exports.

For instance, Northern Farmers’ Mega FPO in Ambala, Haryana, grows seed potato for McCain Foods, supplies premium Basmati rice for exports, and aggregates paddy stubble (burning which is a major source of air pollution in north India during winters) for biofuel plants. It is also introducing zero-till technology (a more sustainable and cost-effective way to grow wheat) to farmers and required farm machinery. In 2023-24, the federation of 43 FPOs did a business of ₹40 crore.

Similarly, Madhya Bharat Consortium, a federation of 211 FPOs from Madhya Pradesh, set up back in 2014, is a supplier of wheat to fast-moving consumer goods (FMCG) companies. It also manages a ₹120 crore certified seed business, producing wheat, paddy and pulses seeds. “We are now focusing on supplying low-residue rice, wheat and soybeans to large corporate buyers. Product differentiation is key to unlocking the value of farm produce," said Yogesh Dwivedi, CEO of the federation.

While most FPO federations are centred around non-perishable staples, Be’nishan, which borrowed its name from a popular mango variety, offered a unique model to farmers of Telangana. It helped them adopt the best possible practices to improve both the quality and yield of fruits and vegetables they grow. Comprising 56 FPOs with over 100,000 farmer members, the federation clocked a revenue of ₹155 crore in 2023-24. It supplies to both modern retail (like Reliance Fresh) and e-commerce players (like Big Basket and Swiggy).

“Be’nishan was able to tap the market demand for residue-free produce especially in crops like chili where chemical pesticides are used heavily. In mangoes, farmers were trained in good harvesting practices which reduced losses and improved the quality of harvest. These interventions helped farmers receive a 20-30% price premium," said G. V. Ramanjaneyulu, executive director at Centre for Sustainable Agriculture, Hyderabad, and a director at the FPO federation.

It’s still early days, but the FPO ecosystem is yet to throw up a pan-India brand. Insiders say that getting into retail is not easy as that involves significant marketing costs and would mean competing with large food brands. What was successful in dairy, is yet to be replicated in staples and perishables.

Some individual FPOs have branded products but for now they have a limited footprint. For instance, Indore-based Kamdars Organic Producer Company, a 1,400-member strong FPO, sells hand-ground chemical-free staples under a retail brand named Satvik. It supplies to 300 local stores and its revenue was a modest ₹1 crore in FY24.

There are also social barriers to growth. Bhavithra J. is wary of increasing the member base of the FPO she leads. “Being a woman, it is not easy to manage a 1,500-member group. Because I speak in a firm and loud voice, a (male) farmer-member once asked: why are you raising your voice? You think you are Jayalalithaa (referring to the late Tamil Nadu chief minister)?" she said, laughing.