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As federations of FPOs grow their business newer governance challenges emerge in trying to ensure greater benefit to active members while ensuring inclusion. This article is the first in a two-part series exploring the governance challenges of a fast growing FPC Federation, namely MahaFPC in Maharashtra.
A ten-year journey from 45 to over 600 FPCs
The Maharashtra Consortium of FPOs, MahaFPC is now in 10th year of its functioning. Having realised the limitations of an individual FPC, the promoters of MahaFPC were conscious of the need to organise themselves in a federation. Over the years, its functioning both in terms of membership and business activities has grown manifold. In December 2023, it had a membership base of 620. The membership is spread across all the regions of the state namely Konkan, Western Maharashtra, Marathwada and Vidarbha, with its head office in Pune. The Western Maharashtra region has maximum number of FPCs whose main business is in onion, for Marathwada and Vidarbha based FPCs, pulses and soyabean are the two major crops.
This success and the growth of the federation has posed several interesting, second order, challenges for the leadership of the FPC that the Board of Directors (BODs) and the management are grappling with.
A three-layered framework of governance
The framework of governance is governed by the regulatory framework of an FPC. Within this overarching framework, each FPC is empowered with a flexibility to define its own governing processes. Thus, while the Act states one vote for every member, the act also empowers the FPCs to determine patronage-based voting rights, rights decided based on extent of participation in the business of the producer company in the previous years.
With more than 600 members, the challenge is ensuring a governance system that is cognisant of both the regional representation and related diversity. This is also manifested in the varied business interests of the individual FPC members. At the three consultation meetings held in Sagroli (Nanded), Akola and Rahuri in November 2023, many suggestions were received from the members. One of the members proposed regional presentation on the Board of Directors. However, some other members did not accept this suggestion. They felt that the need to have regional diversity must be balanced with the business performance of member FPCs in the region. The western Maharashtra based FPCs are engaged mostly in onion and vegetables. The Marathwada and Vidarbha based FPC members’ dominant business is pulses and soyabean. MahaFPC business model is focussed on commodity clusters that are geographically based. It procures and facilitates business mostly for the public procurement at the minimum support price announced by the government. For instance, while onion is the dominant crop for western Maharashtra, it is not the crop for other regions. Another member shared his anguish at a consultation meeting held in Pune in December 2023, “We were ready to transact business but were not given a chance!”. Being given a chance meant having a procurement centre within that FPC. Since MahaFPC had been given an annually decided fixed target of procuring pulses through several procurement centres, it could not procure from ALL member FPCs. Many FPCs were thus left out. “Your Board members (from other regions) do not understand our situation and our problems” complained another FPC member in the meeting.
Distinguishing between active and passive members in MSP procurement
Another challenge for the MahaFPC leadership is to distinguish between active and passive members. The overall membership strength is somewhat misleading because not all members are ‘actively’ transacting business with the federation. According to Yogesh Thorat, the General Manager, in January 2024, not more than 247 are active members! MahaFPC’s board and the Article of Association (AoA) has defined who is an active member.
There are many reasons for many FPCs being dormant. Many are unable to transact business with their farmer members, and subsequently can’t contribute to any of the business of the federation for MSP procurement in pulses or other commodities. MahaFPC has been doing business with NAFED and the Food Corporation of India. It is the agency designated for pulses procurement under MSP operations and for Price Support Scheme (PSS) of the government. If the government of India decides not to procure pulses or onion in a particular year, those FPCs engaged in these commodities have no other market linkages established. Despite persistent efforts of the federation, even after nine years, most of the FPCs have more than 95 percent of their business with the government (FPC2G- FPC to government).
Secondly, many of the FPCs enrolled in the federation out of a wrong notion thinking that being a member of MahaFPC will make them eligible to avail grants and subsidies under some of the government schemes. This was partly due to government’s campaign of formation of 10000 FPC across the country without adequate time being spent in educating the individual farmers about associated duties, and responsibilities as also the difference between a cooperative and an FPC. A few also thought that being a federation member will automatically ensure in they being allotted a procurement centre under the MSP. However, the state government in consultation with the Central agency allocates procurement centres in a region and MahaFPC has no control over this allocation. There were allegations that some traders and middlemen also promoted FPCs under the disguise of being farmers, often ‘borrowing’ identity documents of small and marginal farmers to procure. To avoid this, the AoA of MahaFPC has provisions to check credentials of joining members.
“If you have voluntarily decided to take membership in a golf club, you should not complain later on that the club is not providing you sports facilities for cricket!”- these were the observations of Mr Yogesh Thorat when he commented on some members not participating in the business of the MahaFPC.
Operationalising patronage, and its reflection in governance
MahaFPC is also facing another interesting challenge; that of incentivising active members by granting additional voting rights based on their patronage. Who is an active member and how do those members have more voice in the governance of the federation? How to translate ‘business engagement’ into democratic practices mainly voting rights? How to calculate patronage through a voting mechanism so that their patronage is reflected in the number of votes as the members elect BoDs? Should it be based on volume of procurement or the value of business transacted? ‘FPC A’ doing 5000 tons of onions, ‘FPC B’ doing 5000 tons of pulses and ‘FPC C’ transacting 5000 tons of Soyabean have different balance sheets given the price of onions, pulses and soyabean at the time procurement. How do these three FPCs get additional voting rights compared to say ‘FPC D’ who has just 400 tons of commodity business.
Managing inclusion in the Board
Another dilemma confronting MahaFPC involves the terms of the composition of the board and its tenure. MahaFPC needed to have adequate women representation on the board. In the current board, they have none. Also, should the board have regional ‘quota’ assigned where board members are proportional to the member FPCs in the region? According to the AoA, the term of a director is for three years and no director will continue to hold the office beyond three terms (i.e. a total of nine years). This provision, if implemented will mean that the original promoters, most of whom have completed nine years, will have to retire as they are not eligible to contest elections. While the organisation needs stability and the benefit of experience of senior directors, it also needs to include new persons in the positions of leadership. As the business activities become complex, will a new team of Board members be capable to direct the future of the federation?
The AoA has provision to appoint an Expert Director. Who should that person be? Another interesting aspect was to maintain full transparency in the entire process of consultation unlike in a cooperative where the Registrar of Cooperatives has the authority to convene meetings. In a federation, who has the authority to initiate such consultations and take it to a logical conclusion? A subsequent blog with will discuss some ways in which the FPC is grappling with these issues and coming up with some solutions.
Ajit Kanitkar is a senior development consultant and an ex-faculty at the Institute of Rural Management Anand