DEESA POTATO PRODUCERS COMPANY LIMITED

BACKGROUND

RECAP
4th most important food crop in India Grown during Rabi season High on nutritional content Fluctuation in prices French Fries Plant Location: Deesa Good facilities for food processing industry ,land, fuel, power & other infrastructure DMIC presents excellent connectivity.

EXISTING BUSINESS MODEL

Producers/Farmers Supply inputs

Transportation

Procurement

Contract Farming

Cold Storage

Processing Plant

Wholesale retailers

PROBLEMS IN CONTRACT FARMING

Undue quality cuts on produce by firms Low Price , Delayed Payments Firms favor large farmers Not following contracts during fluctuation of prices Equity and efficiency problems Little bargaining power for farmer due to monopsony of firms Competition among farmers to get contracts No compensation for crop failure Cheating by company officials and tying of contracts

PROBLEMS IN CO-OPERATIVES
History of failed cooperatives Lack of motivation , dedication and Transparency Ignorance of farmers Farmers satisfied with low returns Limited capital Government depended Outdated co-operative laws Bad record keeping and shortage of supervisory staff Bad leadership and succession problem

PRODUCERS COMPANY

KEY FEATURES
The Companies (Amendment) Act 2002, (1 of 2003) Members have necessarily to be primary producers Production, harvesting, procurement, grading, pooling, handling, marketing, selling, export of primary produce of members or import of goods or services for their benefit

PRODUCERS COMPANY

Features

Co-operatives

Producer Company

Core Philosophy

Co-operation among cooperatives Registration Cooperative Societies Act Membership Open only to individuals and cooperatives Relationship with other Transaction based corporates/ business houses /NGOs Shares Not tradable
Voting Rights

Competitive advantage

Reserves

Companies Act Only those who participate in the activity Producers and corporate entity can together float a producer company Not tradable but transferable One person, one vote, but One person one vote. Government and RCS holds Those not having veto powers transactions with company cant vote Created if there are profits Mandatory to create every year

Features Role of Registering authority Administrative control Borrowing Power Dispute Settlement Area of operation Management Style Government Interface
Extent of Autonomy Patronage Bonus

Co-operatives Significant Overbearing Restricted Through Cooperative mechanism Restricted Democratic/Conventional Highly Patronized
Limited in real world Scenario Not any such provision in the act for motivating active members

Producer Company Minimal None More freedom and alternatives By Arbitration Entire Union of India Democratic/ Professional Limited to Statuary Requirements
Fully Autonomous, Self Ruled Act provides excellent provision of bonus to active members

Proposed activity of the cooperative

Procurement from members by Village Centers

Pooling
Weighing

Grading
Cold Storage Payment to members Potato Processing Marketing & Selling Receiving payment

ACTIVITY PROFILE
Supply Of Seeds, Fertilizer, Stocking, Distribution Technical expertise Crop loans

Procuring, Sorting, grading, Processing, Transport, Selling, Marketing CORE

PERIPHERAL

Activity Mix
First year Second year (Incremental) Fifth year (Incremental) Supply of Inputs Supply inputs for Frozen french fries, Schedule for plant potato Sell to institutional buyers

Grading on quality

Selling in the open market with special emphasis on high return months

Process potato in the plant to produce potato powder, flakes etc.

Size

Membership Profile

Methods of pricing
Cost plus pricing Market trend pricing Competitive pricing Consumers need to find it value for money Emphasis on quality

Cost volume relationship of different activities of Coop

Quality Mechanism

Compliance Mechanisms
Member level Total control over production-if not will lose membership Sense of ownership of the co-operative i.e. stock options. Other benefits to members like crop and personal insurance. Employee Fixed + variable salary on par with those prevailing in the sector. Bonus on special occasions Governing Body Farmers having stake in the business. Only active members from the village can contest for board elections.

Capital Structure
Term Loan Members equity

Operating Cycle
Almost whole procurement is used for processing Payment for procurement at the same time Patronage refund would be paid at the end of financial year.

Locus of control
External in the few years because of external debt Also dependent on relatively soft loans for higher profits Also a price taker. However, after writing off the debt and generating internal capital it will graduate towards internal.

Risk Sharing Mechanisms

Surplus to be shared on an equitable basis, based on patronage Loss incurred last year to be deducted from the profit of the following year

Surplus/Deficit sharing mechanism

Surplus for each activity would be calculated by Multiple pooling concept Distributed on the basis of patronage The risk sensitivity of our coop. is low as the returns are calculated on low estimates

Governance structure
Board 9 (6 + 3)
3 ex-officio includes
Potato researcher Retired IAS officer with agriculture experience Prominent Social worker

Term period 3 years with quarterly board meeting Minimum quorum

1 ex-officio 75% of total members

Organogram

Eligibility criteria
For membership
Should be member of the village Producer of potato Equity in proportion to expected delivery rights Voting based on equity
But cap on large farmers

For Board of Governors

No contestant should have political affiliation Contestant should have been member for past 3 years He should be at least a matriculate

For permanent member Either registered village coop society or an individual Residence, land in area of operations Open membership At least one share, based on potential patronage Approval by Executive Committee Membership fee- Rs 3000 For nominal member Any cotton producer of the region Only for one financial year annual membership fee: Rs 1000

Eligibility criteria for voting All permanent members can vote One member-one vote Should have given produce in the past 3 years

Eligibility criteria for contesting All permanent member who has given produce in previous 3 years can contest.

Separation of Powers

Board of Directors Policy Transparency

Feedback
Operating System

Election Capital Services Members

Checks and balances

GOVERNANCE STRUCTURE

Competition in procurement
SUPPORTIVE

Market fluctuations Legal issues Operating System

Members
TRANSACTION RULES (Secretary, Operators)

Performance Indicators
Member objective Cooperative level Social level Overall performance indicator For cooperative ROI- 111.44% For members Patronage refund- Rs 5876/bigha Equitable distribution-depends on the amount of contribution the member has made

Structure
Taluka Cotton Ginning & Pressing Cooperative Ltd. (Our coop) Village primary cooperative society # 1

Village primary cooperative society # 2

Village primary cooperative society # n

Individual members

Members

Members

Members

Members

Members

30 village societies + 200 individual members

Performance Indicators
Member level Growth in net income Growth of productivity Access to member Community services Cooperative level Timely payment Capacity utilization Growth of Assets Diversification

PERFORMANCE INDICATORS
Financial
Rate of growth of income,

Social
Education/ Training and development

Rate of growth of output/ productivity and development of infrastructure Access to members

Equity and distributive justice and patronage refund

Member entry

Co-operative by laws
General body meeting to be held once in a year Board meeting to be held monthly

Cooperatives financial accounts to be made available to members on their demand to maintain transparency
Annual report will be provided to every member