Farmers in the boardroom
E.Kumar Sharma September 29, 2010Next year by this time, two farmers with small landholdings will head for the boardroom of what is becoming India's first farmer-owned cotton-marketing company, Zameen Organic. The two, termed marginal because each has less than five acres, will represent 6,000-odd farmers holding a 51 per cent equity stake in Zameen.
Atul Narania, Zameen's Director & CEO, is busy putting in place a mutual benefit trust or MBT through which the farmers will hold their shares. The farmers, all from Amravati district of Maharashtra and Adilabad in Andhra Pradesh, control 20,000 acres, of which half is already under organic cotton and the rest is being prepared.
"The farmers have to take more responsibility and ownership at all levels," says Narania, 37, who worked in various big companies for 14 years before joining Zameen. He has also appointed APMAS or the Andhra Pradesh Mahila Abhivruddhi Society, a governmentsupported body, to assess the leadership and decision-making skills of the 24-odd clusters formed out of the 6,000-odd farmers.
Zameen's initiative to make farmers the owners of a company is not entirely new. Fabindia, which retails traditional handmade crafts and fabrics in big cities, encourages the community-owned company model. The artisans are shareholders in the regional companies that supply Fabindia. Chetna Organic Agriculture Producer Co Ltd, representing nearly 5,500 cotton farmers in three states, is a farmer-owned producer company.
This model however requires owners to be primary producers and, typically, individuals get just one vote each irrespective of their stake. Such hybrids of the cooperative and limited company model face legal limitations on raising capital. As a private limited company, Zameen Organic can raise funds to scale up.
It is already getting investors. Aavishkaar, a social venture capital firm, has picked up a 30 per cent stake in it.
Arun Chandra Ambatipudi, Executive Director of Chetna Organic, agrees that a farmerowned producer company model may have its problems in terms of being able to raise capital. But then, he says, the supply chain should be robust, with growers committed to supply the company. This, he says, is best possible only in a farmer-owned producer company format.
Zameen's business is a high-risk model since its farmer members will be allowed to sell their cotton to any entity that offers the best price. What they gain by sticking to Zameen is a premium of up to 10 per cent over the price for the genetically-modified Bt cotton grown in the area.
Since its formation in 2007-08, Zameen has paid farmers Rs 1 crore as premium. This includes community development projects apart from the cash down payment for the cotton procured.
Zameen then sells the organic cotton to garment exporters who specialise in eco-friendly textiles meant for the United States and Europe, where customers are ready to pay more for products made the organic way and using fair-trade practices.
"It is a brilliant idea but one only hopes the farmers continue to be major beneficiaries and have a real role in the decision-making process," says Anand Mor, who quit a forex dealer's job to join his father's business, Ecofarms. One of the oldest organic farming entities, Ecofarms began in 1990 with a group of 80 farmers tilling about 100 acres in Maharashtra's Yavatmal district.
Zameen says it engages closely with farmers and helps them get a grip on issues beyond the farm. The Agricultural and Organic Farming Group (AOFG), a non-governmental organisation or NGO that promotes fair trade and organic farming, monitors the practices of Zameen's farmers and also trains them. Says Narania: "Zameen is currently transitioning from a sales representative model (in which representatives or commission agents abroad deal with brands directly) to one in which several stakeholders collaborate to serve specific brands." Ideally, he says, "There should be a farmer CEO doing the talking at Zameen."
Today, textile mills or garment makers buy cotton from Zameen. Various brands then pay the mills for the final products. Zameen earns a commission on the final sale to the brand as well.
Last year was possibly the worst in Zameen's history. It just could not get enough organic cotton, as its farmers found the market price for cotton too lucrative and Zameen could not afford to match it. While organic cotton finds ready buyers, Bt cotton can't be passed off as the organic variety.
Despite the cash crunch, Zameen paid Rs 32 lakh as premium last year. But its turnover slipped from Rs 7.5 crore in 2008-09 to just Rs 2.5 crore in 2009-10. In 2007-08, its first year, Zameen's turnover had been a little over Rs 3 crore. This year it expects turnover to bounce back, to Rs 10 crore.
Zameen's operations have attracted the likes of Rabobank Foundation, the Dutch agency Cordaid and Aavishkaar India Micro Venture Capital Fund. In 2009, Rabobank and Cordaid together committed fund support of around $525,000 (around Rs 2.4 crore) till 2012-13 to AOFG, the NGO, for helping small and marginal farmers build their skills. As for Aavishkaar, it invested $225,000 in the company in September last year.
The investments were meant to help streamline operations at the farm level and Zameen's frontend, build the value chain, and install process automation as well as a system to track and trace origins of the cotton if end-users wanted to check the "organic" bit.
The ownership will entitle farmers dividends that the company decides to pay. The farmers also get the organic premium and gain from community development projects.
Aavishkaar is ready to make way for farmers as Zameen Organic grows and starts making profits. Most importantly, demand for organic cotton has been growing. "We have seen the market pick up since 2006," says Mor of Ecofarms. His company's revenues, for instance, have more than doubled since 2006 to around Rs 50 crore.
However, Mor worries about flyby-night players, even though the government has taken steps to improve traceability and accountability. "There is still a need for regulatory mechanisms to check unscrupulous elements who could cash in on the demand for organic products," says Mor.
For now, Madhukar Sinha, Senior Investment Manager at Aavishkaar and its representative on the Zameen board, is quite upbeat and hopes to exit in the next four to five years by which time he expects Zameen to have revenues of Rs 75-100 crore. That's quite a distance for a company initially rolled out by an NGO for 300 farmers in the Deccan Plateau in June 2006.