Producer Company – An update

Evolution

Producer Company form of cooperative entity has been introduced in the Indian economy by virtue of the Companies (Amendment) Act, 2002 which is effective from February 6, 2003. The roots of producer company form of an entity can be traced to the recommendations of an expert committee led by a reputed economist, Mr. Yoginder K. Alagh. The committee  was asked to frame a legislation that would enable incorporation of cooperatives as companies and conversion of existing cooperatives into companies taking care to ensure  that the proposed legislation accommodated the unique elements of cooperative business with a regulatory framework similar to that of companies.

“Indian Organic Farmers Producer Company Limited” is the first Farmers’ Producer Company incorporated in the year 2004.

Meaning

A Producer Company is a group of people engaged in the production of primary produce or having one or more objectives relating to the primary produce.
A group of ten/more people or two/more producer institutions or a combination of ten/more individuals and producer institutions can register as a Producer Company provided they:

1. Deal with primary produce of its members.Primary Produce means:
   1. Produce of farmers, arising from agriculture (including animal husbandry, horticulture, floriculture, pisciculture, viticulture, forestry, forest products, re-vegetation, bee raising and farming plantation products), or from any other primary activity or service which promotes the interest of the farmers or consumers; or
   2. Produce of persons engaged in handloom, handicraft and other cottage industries;
   3. Any products resulting from any of the above activities, including by-products of such products;
   4. Any product resulting from an ancillary activity that would assist or promote any of the aforesaid activities or anything ancillary thereto;
   5. Any activity which is intended to increase the production of anything referred to above or to improve the quality thereof
2. Engage in any of the following objects:
   1. Production, procurement, harvesting, grading, poling, handling, marketing, selling, export of primary produce of the Members or import of goods or services for their benefit; (these can be undertaken by the Producer Company either by itself or through any other institution)
   2. Processing including preserving, drying, distilling, brewing, venting, canning and packaging of produce of its members;
   3. Manufacture, sale or supply of machinery, equipment or consummables mainly to its members;
   4. Providing education on mutual assistance principles to its members and others;
   5. Rendering technical services, consultancy services, training, research and development and all other activities for the promotion of the interests of its members;
   6. Generation, transmission or distribution of power, revitalization of land and water resources, their use, conservation and communication relatable to primary produce;
   7. Insurance of producers or their primary produce;
   8. Promoting techniques of mutuality and mutual assistance;
   9. Welfare measures or facilities for the benefit of the members as may be decided by the Board;
   10. Any other activity, ancillary or incidental to any of the activities referred to above or other activities which may promote the principles of mutuality and mutual assistance among its members in any other manner
   11. Financing of procurement, processing , marketing or other activities specified above which include extending of credit facilities or any other financial services to its members

 

Salient features of Producer Companies

1. A Producer Company can have only equity share capital
2. The minimum paid-up capital required for incorporating a Producer Company is Rupees Five Lakhs only
3. Minimum ten individuals or two producer institutions or any combination of ten individuals and producer institutions are required for forming a Producer Company.
4. There is no restriction on the maximum number of members of a Producer Company
5. Minimum five directors are required for a Producer Company
6. A Producer Company can have a maximum of fifteen directors
7. The tenure of the directors of a Producer Company shall range from one year to five years subject to the provisions made in the Articles of Association in respect thereof
8. The first directors should be elected by the subscribers to the memorandum and articles of association within ninety days from the date of registration
9. The directors other than the first directors shall be elected or appointed by the members in their Annual General Meeting
10. The Producer Company can under no circumstances become a deemed public company
11. In case of Producer Company comprising only of individual members or combination of individual members and producer institutions, then the voting rights shall be based on one vote per member
12. In case of Producer Company consisting only of producer institutions, then the voting rights shall be based on the participation in the business of the Producer Company in the previous year.
13. The Producer company can restrict the voting rights to only its active members provided it is authorized by its Articles of Association
14. The Board of Directors of the Producer Company should meet at least one in every three months and at least four such meetings should be held in every year
15. The First annual general meeting of the Producer Company should be held within ninety days from the date of its registration
16. A Producer Company is required to appoint a whole-time secretary if its average annual turnover exceeds Rupees Five Crores in each of the three consecutive financial years
17. The maximum amount of dividend (limited return) that can be paid by a Producer Company is determined by its Articles of Association.

 

Benefits available to the members of a Producer Company

1. Pooling of produce which enables the members to have better bargaining position in the market
2. Elimination of intermediaries resulting in reduced costs and enhancement of returns
3. Development of greater command over domain knowledge in the produce, ultimately leading to enhancement of  quality, productivity and returns
4. Aggregation of demand for inputs enabling bulk purchases resulting in availment of greater discounts
5. Producers have the option to partner with corporate entities for floating producer companies without losing control due to the rule of one member one vote
6. Acquisition of better technology resulting in enhanced quality and productivity
7. Timely and easy availability of inputs

Though the concept of Producer Companies was introduced in India in the year 2002 with effect from 2003, the number of Producer Companies registered till date is around 500 which is quiet a low number.This  is due to the lack of  awareness of the incentives available to the Producer Companies, the organizations aiding the formation and promotion of the Producer Companies which are explained below.

 

Incentives available to Producer companies

The Producer Companies are being provided with a variety of incentives by National Bank for Agricultural and Rural Development (NABARD) which are as follows:

1. Establishment of the Farmers’ Technology Transfer Fund (FTTF):The NABARD has set up the FTTF with effect from 1^st April, 2008 with a corpus of Rs. Twenty Five Crores, with the objectives of providing financial assistance to various institutions including Farmers clubs for:
   1. facilitating adoption of appropriate technologies by the agriculturists through the provision of training cum exposure visits, organizing for demonstrations on the use of the various technologies
   2. organizing financial credit counselling
   3. providing support for financial literacy
   4. dissemination of appropriate technologies to the various people in need thereof.
2. Establishment of Producers Organization Development Fund (PODF)The NABARD has established the PODF in order to support Producer Organizations in forming Producer Companies across the country. Though this fund, the NABARD provides credit facilities directly to the Producer Companies for term loans or composite loans for long term and short term requirements. It also provides funds for promoting organizational and skill building exercises, organizing meetings of the experts, organizing for tie-ups with the various agricultural universities, etc. It also provides finance for marketing of the produce of the Producer Companies and also provides support for the setting up of marketing facilities for the sale of the produce by the Producer companies.However, the above referred facilities of the PODF can be availed by the Producer Company either directly or through promoting or implementing organizations.If the Producer Company directly wants to approach the NABARD for  assistance, then Producer Company should be in existence for a period of at least three years

   If the Producer Company would like to avail the assistance through a promoting or an implementing organization, then such organization should be in existence for at least three years.

3. Recently the NABARD has come up with a proposal for the establishment of 100 farmers clubs which would be provided financial assistance to be utilized towards the formation, maintenance and organizing awareness meets for the development of the agricultural sector.The main roles of the farmers clubs created would be the dissemination of appropriate technology, linkages with banks, markets, credit counselling, recovery of loans and development of skills for enhancement of production and productivity in rural areas.

 

Taxation of Producer Companies

The Producer Companies are taxable on par with the Private Limited Companies and Public Limited Companies. However, the following are some of the various tax incentives available to the Producer Companies:

1. The Income derived by a Producer Company through agricultural activities as defined in Income Tax Act, 1961 as amended from time to time, is treated as agricultural income and is exempted from taxation.
2. The government of India has vide the Finance Act, 2012, reduced the customs duty on the import of agricultural equipment and their parts which would benefit the Producer Companies engaged in agricultural activities to a great extent.
3. Producer Companies engaged in the business of growing and manufacturing tea or coffee or rubber are eligible for deduction in respect of deposit of any amount with a National Bank or any other bank in accordance with scheme as approved between the Company and the respective Board.

 

Institutes promoting the establishment and management of the Producer Companies

The establishment and the management of the Producer Companies are being promoted by various institutions which are as follows:

1. Small Farmers Agribusiness Consortium (SFAC): This organization provides facilities to the agriculturists in the following manner:
   1. It links the agriculturist with the banks which in turn provide the requisite financial assistance.
   2. It provides training to the farmers on the various aspects of their activity viz., use of various technologies, selection of the appropriate fertilizers, etc
2. The various non Government Organizations which have promoted the establishment and management of the Producer Companies  are:
   

   Promoting Organization	Name of the Producer Company	Activity of the Producer Company
   Professional Assistance for Development Action  (PRADAN)	Masuta Producer Company Limited	Reeling and spinning tasar yarn from tropical tasar cocoons.
   Indian Farmers Movement (Infarm)	Vanilla India Producer Company Limited	Promoting vanilla production;   Production and marketing the best and choice vanilla beans and extracts;  processing vanilla as per international standards.
   Evangelical Social Action Forum (ESAF)	ESAF Swasraya Producers Company Limited (ESPCL)	Empowering small rural producers of Handicrafts, Herbal Products, Agri-Food, Dairy and Meat Products, in capacity building, production, value addition, quality assurance and marketing.
   Maharashtra Goat and Sheep Research Development Institute (MGSRD) and Nimbalkar Agricultural Research Institute (NARI)	Panchakroshi Pashusamvardhan Producer Company Limited	Stall-fed goat rearing by small farmers

    

 

In addition to the above organizations which have promoted the establishment and management of the Producer Companies, Action for Social Advancement (ASA) has assisted in the establishment of sixteen Producer Companies in Madhya Pradesh and Bihar.

 

Conclusion

Of the number of the Producer Companies formed, there are only a few Producer Companies which have been successful viz., India Organic Farmers Producer Company Limited, Vanilla India Producer Company Limited, Rangsutra Craft Duniya Producer Company Limited, Masuta Producer Company Limited, ESAF Swasraya Producer Company Limited, etc.

 

The awareness among the rural population regarding this form of an enterprise has been increasing of late leading to the establishment of increased number of Producer Companies. However, the various incentives provided to the Producer companies need to be enhanced by the Aiding Agencies, both Governmental as well as Non-Governmental, in order to encourage the establishment of more and more number of Producer Companies,  leading to the establishment of an environment of self sufficiency in agricultural, handloom, cottage and other industries which would provide  a booster to the development of the country.

Disclaimer: The entire contents of this document have been developed on the basis of relevant provisions and are purely the views of the authors. Though the author has made utmost efforts to provide authentic information however, the authors and the company expressly disclaim all and any liability to any person who has read this document, or otherwise, in respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance upon the contents of this document