Producer Companies —- (1)

Producer Company is a new format of structure devised to improve the working of agriculture sector. Over next few posts, SRRF Dialogue will look at this structure, its origins, current status and likely future developments. Hope the members would find this useful.


A Producer company is a corporate structure. It allows producers of primary produce (farmers, dairy-products producers, etc.) to organize themselves into a corporate entity.

Inspite of India mainly being an agrarian economy, as we all know that agriculture has become a sector from which a large number of farmers wish to exit. This is ironic considering that a number of corporates have entered into this business seeing the profits[1].One of the reasons for this, is that value addition to a product occurs only after the farmer has already exited after sale of his primary produce, hence s/he cannot share in these profits.

Historical Evolution

Recognising the above need, cooperative option came early into picture and was encouraged by the Govt, however experiment with cooperatives failed (today rather than being a panacea of problems of the farmers, large & successful cooperatives are few & numbered. This happened because one, they were considered more on the lines of welfare rather than undertaking business on commercial lines. Secondly the overpowering control of the state govts through Registrar of Cooperatives over these institutions throttled the growth of the very institutions it was supposed to nurture[1]. Most cooperatives need to take permission from the state govts for a number of activities, sometimes even for opening of offices, investment of surplus funds, issue of bonus shares, appointment of auditors, etc.

Thus the idea of a Producer company came from the felt need for an alternative institutional framework, free from regular interferences and which could easily undertake commercial transactions. Companies (Amendment) Act 2002 gave birth to a legal structure called ‘Producer Company’. It would be unfair, if the name of Dr YK Alagh is not mentioned here, who was the chairman of the Committee which gave recommendations and hence became part of Companies Act.

Legal features of incorporating Producer Company will be covered in the next Post


[1] A Study Paper titled ‘Producer Company Model – Current Status & Future Outlook : Opportunities for Bank Finance’ by EV Murray, Faculty Member, RBI, College of Agricultural Banking, Pune.

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