Mr. Vasanth Rao, an expert and enthusiast in setting up Farmer Producer Company (FPO), a recent corporate structure for creating companies with farmers as members/shareholders.
Please tell us about yourself
I started my career with IDBI Bank and was with them for 23 years. Later, I got the opportunity to set up my own organization in Chennai – an HR consulting work organization. At that time, we got an opportunity from Sri Lanka.
An agriculture senior and business head, from Sri Lanka came over to Chennai looking for partners to assist him in his agricultural venture. Our promoters, from the Tirupati area, had agricultural background. And so, we got the opportunity to visit Sri Lanka and started learning the business from him.
We learned right from farm to fork from him. He goes to villages, collects vegetables, imports it from Thailand and other countries and grows it in Sri Lanka. He has set up a small unit where he does the sorting, grading and processing. Then, it gets neatly packed and exported to the overseas market in Singapore and Maldives.
This was my first stint with the farming sector. It was that experience that seeded my thoughts with the possibilities of replicating it in India. I find our farming activities very fragmented or we are dependent on large organizations, like Reliance, etc. Farmers themselves are most often not aware of the entire chain of produce. I mean, about the path through which the produce goes to get from farms to consumers. Here, we have started barcoding the produce, so that we could understand where it comes from.
When working in Sri Lanka for three years, when they were looking for greenhouse cultivation. I became a member of your firm, agriculturalinformation.com and with that I got contacts of technical personnel at Pune. I contacted them and put them over to Sri Lanka. Through that exercise, we also understood the entire set up for a greenhouse. We had to export all the things needed from Navi Mumbai to Sri Lanka. That was a great eye opener for me.
Later, a gentleman who adopted this got an award from the National Chamber of Commerce, Sri Lanka. Our company also got the award for supporting him. This helped our company to bag an investor from Oman and the company was sold.
I then came back to Chennai and relocated to Udupi in 2013. The more I thought about it, I realized that all the activities our Sri Lankan friend was doing could be replicated in Udupi because Sri Lanka and Udupi have a lot in common.
Fortunately, there was a small greenhouse that was set up here at Kolavur by Tejavur Swamiji. The person who set it up had come to know about me through agriculturalinformation.com, as a consultant. She contacted me, and got introduced to Swamiji. But then, we didn’t get the financial support from the Swamiji’s Trust.
My friend from Pune also used to assist me in this. We had a lot of enquiries for green house cultivation in Udupi. The issue was we didn’t have a set up here. People had to come from outside and generally there are many farms available, but the climate didn’t suit greenhouse cultivation. Green house cultivation is best suited in dry climates – like Bangalore, Hyderabad, Pune, etc. These are places you can have a controlled environment. Water is not a problem in terms of greenhouse cultivation because it is supplied through sprinklers in very less quantities. We have large quantities water during the monsoons and no water during Oct to march. We found that there were lot of fungus growing due to the humidity and change in climate. Sometimes, it gets sunny and then suddenly there will be rain all over.
While working on it, I realized that green houses are quite expensive. Not just that, the inputs should be readily available, and farmers should also have knowledge on how to use the nutrients and mix them in the right proportion to get the best produce. For small-time farmers this can prove difficult. That is how we thought of setting up a Farmer Producer Organisation (FPO) in Udupi.
The company is now set up and is called Karavali Integrated and Agro Production Company Ltd. (KIAPCL). We are now looking at green houses and many other things – setting up marketing for the local farmers here, and a host of other activities.
When did you leave IDBI bank?
I left IDBI in 1999, at the age of 47. I didn’t want to go back to a 9-5 job. I had left for family reasons and at that time there were a lot of changes coming up in terms of economy. Earlier there were physical shares, which got demated and so I had to advise everybody how to demat their physical shares and how to apply for mutual funds.
It was in 1999-2000 that that came into picture. I had to advise people how to generate wealth and in the area that I was serving there were a lot of senior citizens. So, I used to go around assisting them with all these.
I became a contingent auditor for a private bank and then got an IP opportunity. All these helped me to understand how these secretarial practices are done in an organization.
After that, I was setting up organizations. I set up HDFC Global services in Chennai for my Singapore plant. It was basically IT related, but we also took up this agricultural project in Sri Lanka.
Now, I set up this here all by myself.
Were the promoters for the Sri Lankan project, Sri Lankans?
Yes, they were Sri Lankans and he was a leading Chairman of many institutions in Sri Lanka. He used to recommend the government to look for businesses to create opportunities etc. He also had a link with the local agricultural University. We used to go there and give lectures and all. These were all, to be honest, challenging for me.
I was from an industrial background with nil experience in agriculture. The organization set up and coordination were what was required to support farmers because the farming part is his job and he knows how to do that.
What he doesn’t know is how to set up an organization, how the organization can care for him and support him, etc.
Tell us about farmer producer companies
The FPO was first conceptualized in the 1956 Companies Act and got modified in 2002. At that time, the FPO was first conceptualized under Section 465. It was to support farmers, and, in many States, it is implemented very well.
Chhattisgarh is an example. If you go to NABARD, they have a mention about the FPOI set up in Chhattisgarh and how it helped the farmers over there. In Maharashtra it has come up in a very successful way.
We focus on coconuts and other horticulture food. Moreover, we are focusing on marketing; we needn’t be product specific.
If you take the case of Udupi. The place is well connected to Bangalore and right up to Mumbai. Now, we have a lot of opportunity because the Mangalore seaport – the new one – is developed to a large extent. Also, Mangalore airport is the closest to the Gulf. This gives us a big opportunity in the Gulf as well. Logistically we are well connected.
If you look at Bangalore, for instance, they can’t have export arrangements anywhere in Karnataka. To send their produce, they must first send it to Chennai.
So, you bought all the farmers in your area together with the aim to source their produce and export it.
Yes, and supply it in the local markets of Bangalore and Mumbai. We export it too because now we have a facility called eNAM, which is a portal through which we can get in touch with global buyers. It is very easy to send your produce through the source here in bulk quantity or if you have horticulture or agriculture produce, you can send it through them within 3 hours to the Gulf.
How do farmer producer companies compare with societies?
The problem with society is that, to a large extent, it became politicized. This makes the scope of societies go minimal. Unlike a company, they can offer only limited support like buying goods or offering loans to farmers. They cannot market your product.
On the other hand, a company has a comprehensive packaging pattern. They can do anything including financial inclusion, loan, export etc., because they fall under the Companies Act.
Once a person becomes a member of the FPO, let us assume that a farmer puts Rs.1000/-every share capital and you have about 1000 members. This totals the share capital to about Rs.10,00,000/-. An equal contribution will be given by SFAC (Small Famers Agriculture Consortium) into the account of each of the farmers. This is a grant by SFAC.
Also, because we are a corporate entity, they also give us a lot of other facilities like venture capital assistance, etc. There are various subsidies available and can be availed; like, support in setting up agri-based infrastructure, warehousing, logistics, etc.
One of the biggest advantages for a farmer to be in this company, unlike in a private company is that in a private firm the promoter puts in 40% investment and the others pitch in 5%. Now, when they are voting on any issue, the promoter gets an upper hand.
Here, irrespective of investment, each person gets one vote. There are advantages like they can always change the Director, anyone can become a Director, etc. This has been well conceived. Also, we conduct a lot of training programmes.
The farm labors come under a corporate entity. So, he gets all the benefits like the one government has recently announced like, annuated benefits, pension, salaries, loans – everything comes in the form of cash to the bank.
Most importantly, the farmer members enjoy benefits with participation in the company activities. For example, suppose I buy units through the company and decide to sell my produce back to the company. The company, in turn, will sell it in the market.
So, the company determines a rate and if the company sells it at a higher price, the profit goes to the farmer. Also, the profit made through inputs are given back to the farmer by way of bonuses. At the end of the year, profits are shared in the form of dividends.
Since, the company gets the produce from the farmer and sells it, GST doesn’t come into the picture. We get GST benefits.
You started in 2002. But I think it picked up momentum in the last few years, is that correct?
Yes, it picked up momentum in 2010-2011 in Maharashtra and all. Now, it has picked up in a very good way.
In Karnataka, what’s happening?
Nothing is happening in Karnataka. Unless we have a good government, nothing will happen. Having said that, it is happening in the northern part of Karnataka, but not in the South.
What is your role in the FPO? I understand that you conceived the idea, you advised and got a group of people together and formed the whole structure.
Yes, and all the paper works. We identified that we need a company secretary to certify and get the company registered with Registrar of Corporate Affairs (RCA). We didn’t get anyone in Udupi. So, we identified one person from Mangalore. We gave him all the information. Now, all our numbers are having a Director Identification Number (DIN) and digital signatures. We have our corporate meetings, general body meetings, board meetings etc. I record the minutes of these meetings and send it across to all the members. I call the next agenda. We prepare our business plan, budget, etc.
We have a produce /year called Mattu Gulla. Gulla is a type of brinjal. Legend says that one of the swamijis had given it as a boon to the local fisherman during a drought season when they had nothing to grow. That grows in a place called Mattu, near Katpadi. The taste of Mattu Gulla is unique. So, it has a GI tag.
Do the farmers in your FPO have any binding agreement with the company?
No, there is no binding commitment involved. We are, however, trying to create an awareness among farmers that if they try to grow one produce at a time, then he can aim for a better market. As of now, the farming activity in Udupi is highly fragmented. Each one growing something on their own. It looks like it is not their main source of income. Retired people, teachers etc. produce something on the land that they own. In fact, most of the land is barren.
We are trying to bring about a system where we provide the management and you do the farming. We are coming up with a scheme called Adopt a Farm Scheme. This is like what has been done in the Philippines.
In The Philippines, a major part of their population works in the Gulf, but they are not in the higher job strata. the Philippines government is taking measures to ensure that the government doesn’t get over burdened once all these people get back to The Philippines. So, what they did is, in consultation with the Qatar government, they opened up the possibility of investing money in the Philippines’ farms. They will be given a guaranteed return of 30%. This way, when the locals get back they can enjoy the good returns they get from wherever they are working in the Gulf. This has worked out very well. The farming activity in the Philippines picked up very well because farmers started getting money and the produce, basically rice, gets exported to the Gulf.
I am thinking of bringing about a similar scheme here. There are a lot of retired people who are interested in farming. So, my take is to get people to invest their money and we will take care of the management.
We are not intending to take their rights away. What we intend to do is have an agreement through the company, between the land owner and somebody who wants to spend some time in a farm house.
The investor will also be engaged with the cultivation in some form. He/she can enjoy whatever produce is created but won’t have any right on the land whatsoever. Whatever income we generate, we will give partly to that person. He can come and be a guest of the farmer. We try to improve the infrastructure there, just like resorts. So, we will set up a beautiful farmland where they can spend some time.
We must look at things differently. We don’t have to invest much money. Even Karnataka tourism is trying to develop this idea of homestays. This is very similar in thought. People can come stay there, get involved a bit in farming activities, eat fresh food. It will be a great rejuvenation for people who come from the city and looking for a change.
Are you originally from Udupi, Mr Vasanth?
I am originally from Udupi. I was brought up in Mumbai. Did my schooling and all there. i got a job then in IDBI in Mumbai. I was the first direct recruit there. All the other had come from RBI.
You are doing such a good job, Now, you would not be having any regrets leaving IDBI at the age of 47, do you?
No, absolutely no regrets, I never had any regrets even for a day – not then, not now.