Institutional Innovations in India: An Assessment of Producer Companies as New-Generation Co-operative Companies

Abstract

There are many types of innovations such as technological, social, product, process, marketing and organizational, and institutional innovation is one type. The producer companies (PCs), which are a case of legal institutional innovation in the Indian domain of primary producer organization are more market-oriented co-operative companies and can help farmers buy and sell more effectively. They have gained currency across India during the past 15 years since the amendment to the Companies Act made this possible in 2003, and India now has thousands of such PCs, with many of them being supported by state agencies. This article examines the uniqueness of these entities as an institutional form wherein principles of co-operation and corporate entity have been combined so that they could be more relevant entities in a globalized and liberalized market environment. It discusses their competitive edge over other forms of producer organizations like co-operative societies in India and farmer companies in Sri Lanka, and new-generation co-operatives in other parts of the world. After discussing some innovations in their governance and management, it concludes by making suggestions for augmenting this institutional innovation for inclusive and sustainable agricultural and rural development.

(Farmer) Producer Companies in India as new generation cooperatives: Case studies of performance and impact from West Bengal, India

“…The above review shows that these are mostly individual PC case studies of impact or those with only member farmer based assessment. There are others which only assess financial performance of PCs (Singh & Singh, 2014; Kakati & Roy, 2021; Mourya & Mehta, 2021; Trivedi et al., 2022) or report just PC Board members’ and CEOs’ perceptions based analysis of member impact or benefits (Deka et al., 2020; Mourya & Mehta, 2021), or those which only examine a single or a few PCs for impact on member farmers as compared with that on the non‐member farmers (Lalitha et al., 2022; Mukherjee et al., 2022). Some others attribute all gains from the sale of agricultural commodities by the member farmer households to the PCs (Trivedi et al., 2022).…”

“…It gives more freedom to the cooperatives as companies to operate as business entities in a competitive market or to enable smallholders to interface with modern buyers like food supermarkets (Trebbin & Hassler, 2012; Trebbin, 2014). For details of PC features and the structure and their departure from or similarity with cooperatives, see Singh & Singh, 2014; Deka et al., 2020).…”

“…500 million, and a credit guarantee fund of Rs. 1000 million for PCs through the Small Farmers’ Agribusiness Consortium (SFAC, a special purpose vehicle of the MoAFW) (refer Singh & Singh, 2014 for details). NABARD also created its own subsidiary (NABKISAN Finance Ltd) for meeting the credit requirements of POs by adopting a flexible approach.…”

“…Also, they face higher competition as a result of privatization and liberalization policies. The major problems of traditional cooperatives have been the capital constraint arising from the withdrawal of financial support by the government, high competition from other players in the market, and access to credit (capital) and technology, besides free riding by members and horizon problems for investment by members (Singh, 2008). In fact, the internal and external free-riding problems originate in the very nature of the cooperative as an institution because it distributes profits based on patronage, not investment (Giannakas et al, 2016).…”

“…This variant of cooperatives helped them become economically efficient, financially viable, and obtain member loyalty. In practice, though the NGCs were able to raise 30-50% of their total capital through delivery rights, the problems include: (1) off-market purchases to meet contract terms by the growers; (2) leasing of delivery rights by members; and (3) dependence on non-producer member equity and non-member business (Singh, 2008).…”