In India agriculture is the main sector contributing to the national gross domestic product with more than 14 crore farmers contributing almost 18% of GDP. Nevertheless, the small and marginal farmer is still facing problems of low bargaining power, marginalized market, price volatility and institutional finance. The Government of India recognized the structural challenges through the introduction of the concept of Farmer Producer Company (FPC), wherein it was believed that the Company structure with an efficiency vibe, can be suitably combined with the co-operation ethos.

 

A Farmer Producer Company empowers farmers to function as an organization under a company and participate in value addition, share risks and avail better market and finance. FPCs, as governed by Part IXA (Sections 378A-378ZT) of the Companies Act, 2013 amended by the Companies (Amendment) Act, 2020, are becoming an effective approach towards achieving rural prosperity.

 

What is Farmer Producer Company (FPC)?

 

The definition of a Farmer Producer Company given in the Companies Act, 2013 under Section 378A(b), defines it as a body corporate established by primary producers with limited objects as provided in Section 378C.

 

An FPC is a business:

 

Farmers and/or producer institutions own the crop.Crops belong to farmers/ producer institutions.

Registered under the Companies Act, 2013 -

To work cooperatively

Offering limited liability and professional management.

It operates in a similar fashion to a private limited company, but has a main aim of helping farmers and boosting their income and sustainable farming.

 

Objects of a Farmer Producer Company (Section 378C)

 

Individuals taking part in FPC can do one or more of the following activities:

 

Production & Marketing

Production, harvest, procurement, grading, pooling and handling of plants.

Make strategies and effective communication them before selling the primary products to export.

Processing & Value Addition

Processing, preservation, packaging

Equipment purchases, sale and supply, and inputs (such as seeds and fertilizers)

Import & Services

The provision of goods and/or services which are imported for the benefit of a member

Power & Infrastructure

Co-generation and dissemination of electricity (particularly Rural/Agricultural context)

Insurance & Risk Management

Crop insurance, risk mitigation and member mutual assistance.

Action: Inducing Good Management of the Cooperative Principles

Farmers training, capacity building and mutual support.

Qualitative Remotely Sensed Data: A Farmer Producer Company (FPC) is distinguished by the following features.

 

The first norm is democratic governance, or One Member, One Vote.The first norm is democratic governance or Open Member, One Vote.

 

While the private firms have voting rights based on the amount of capital invested in the firm, every producer-member to an FPC has the identical voting rights regardless of the amount of capital contribution. This will ensure the equality of treatment and ensure no domination by large shareholders.

 

Membership Criteria (Section 378H) 2.

 

Only primary producers can become members

Minimum requirement:

10 individual farmers, or

2 Producer Institutions

3. Share Capital Structure (Section 378J)

 

Only equity shares are allowed

Only other producer members can have shares transferable to them.

No external equity issue or exposure.

Governance & Management (Sections 378O–378V)

 

At least five Directors (who are all producers)

Board elections will be every 1 year, with a maximum of 1 year terms.

Appoint a CEO and internal auditor required.

FPCs offer numerous advantages to farmers.Farmer Producer Company has great benefits to farmers.

 

1. Better Market Access

 

FPCs prevent the intermediaries, and the farmers sell directly to the middlemen which are bulk buyers, processors, exporters and organized retail, thus allowing the farmers to get better price realization.

 

2. Lower Input Costs

 

Bulk ordering seed, fertilisers, pesticides and machinery achieves a 20-30% reduction in the unit cost and saves money.

 

3. Risk Sharing

 

If there is a loss on crop failure, price fluctuation or logistics, farmers share the losses, minimizing the burden on each farmer.

 

4. Limited Liability

 

Financial protection is provided by limited liability where the members' liability is in the form of return of unpaid capital.

 

5. Access to Finance

 

FPCs are favored by banks and NBFCs because of their governance structure and governmental guarantees.

 

This chapter discusses Government Subsidies & Schemes for the FPCs.

 

RWUP No. – Equity Grant & Credit Guarantee Scheme

 

Small Farmers' Agribusiness Consortium (SFAC) administers.

Equalizing Share Premium: Any amount of equity premium, a maximum of 35 per cent of share capital.

Collateral Free loans up to ? 1 crore are called credit guarantee.

Crop Insurance: Up to 85% of the value of the crop.

B. Agri-Infrastructure Fund (AIF)

 

Provide loans of up to Rs. 2 crore to each project.

3% interest subvention

CGTMSE credit guarantee

Colorimetric storage containers.Colorimetric cold storage devices, silos, pack houses, etc.

C. PMFME Scheme

 

35% capital subsidy

The maximum amount each of them can contribute is of Rs. 1 Lakh.

Provide assistance to food processors and value addition (FPCs)

The Dairy Processing & Infrastructure Development Fund (DIDF) funds this project.

 

Loans up to up to ?100 crore.

2.5% interest subvention

Suitable for dairy based FPCs

Income Tax & GST benefits

 

Income Tax Benefits

 

Deductible on:

Advertising for agricultural produce (100%)

Cottage industry profits

Eligible for presumptive taxation under Section 44AD

Lower the effective tax burden as compared to private companies

GST & TDS Relief

 

Intra-member transactions will be exempt from these taxes filing requirements.

The majority of supplies of agri-produce are exempt from GST.

Eligibility for Incorporation of FPC

 

CA Dhiraj Ostwal can help you with this.

 

At CA Dhiraj Ostwal – The Business Strategist, we offer the entire gamut of FPC services, such as:

 

To register farmer producer companies will also be started by the department.

This indicates the drafting of MOA and AOA as per Section 378C

Advisory services on Government subsidy for various Schemes.

Compliance with taxes, such as income tax, GST, ROC etc.Income tax, GST & ROC compliance

However, financial planning and business structuring is a key issue that must be addressed first.

Looking for a CA near me? Looking for a CA in Pune? Looking for a Best CA in Pune for FPC advisory, our expertise works well in both cases and provides for smooth compliance and sustainability.

 

Conclusion

 

The Farmer Producer Company is one of India's most effective institutional initiatives to uplift the farmers; having the attributes of ‘collective strength’, ‘corporate discipline' and ‘strong government support'. In the hands of farmers, with adequate legal configurations, professional compliance, and planning, an FPC provides considerable potential for income growth (20-30%, contributing to farmers' profitability), minimization of the risks associated with farmers' operations, and access to farmers' national and global markets. While creating or running a Farmer Producer Company, it is crucial to get proper expert guidance from any experienced Chartered Accountant or near me to achieve a timely registration, regulatory compliance and sustained financial success.