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Financial performance and evaluation of some Farmer

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Conference Paper · March 2019

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 Financial Performance and Evaluation
of Some Farmer Producer Companies
in South India

Swati Chauhan1 and Emmanuel V. Murray2

ABSTRACT
Purpose: The primary objective of this study is to assess the financial performance
of a few select producer companies (PC) in South India.
Design/Methodology/Approach: Financial ratio analysis of PCs has been done
on various parameters such as liquidity, inventory, solvency, turnover, profitability &
efficiency and financial strength of the firm for the financial years 2013-14 to 2016-17.
Findings: Financial ratio analysis shows that in all the PCs, liquidity position
is good, and adequate to manage their expenses. Companies are not very sound
financially except EPFPCL and COAPCL. Profitability and efficiency position
of MPCL, IOFPCL, IMDPCL, and KOFPCL is not very good while COAPCL and
EPFPCL are in profit. Overall findings are that while PCs are trying hard to make
their presence in the market, they have a long way to go.
Research Limitation/Implications:
Originality/Value:
Keywords: Producer Company, Financial Performance, Financial Ratio Analysis,
Liquidity, Solvency, Profitability

INTRODUCTION
India is an agrarian economy, where 70% of the population depends on
agriculture for survival. Agriculture is a key sector in terms of employment and
contribution to GDP. As per OECD/ICRIER (2018) report, agriculture production
has been growing at an average of 3.6% annually since 2011. India has noted a
significant fall in the proportion of the undernourished population from around
24% in 1990-92 to 15% in 2014-16. India has also emerged as a major exporter
of various agricultural commodities, and globally, the largest exporter of rice and
second largest of cotton. Despite these achievements, several challenges persist in
the agricultural sector like the very large number of smallholders, small marketable
surplus, low productivity, lack of information on improved agriculture practices,
climate change, scarcity of warehousing, food insecurity, and underdeveloped
food processing and retail sector. To mitigate these challenges, the concept of
farmer Producer Company (PC) emerged.
The Producer Company concept was introduced in the year 2002 by insertion of a
new part IX A into the Companies Act 1956 (in section 581) under the chairmanship

Assistant Professor, IPER, Bhopal, India

1

Senior Advisor, Caspian Impact, Hyderabad, India

2

37
 Farmer Producer Companies in India: Issues and Challenges

of economist Dr. Yoginder K Alagh. The members of a PC necessarily need to be

primary producers i.e. engaged in any activity related to primary produce. Only
primary producers can participate in the ownership of such a company. Primary
produce has been defined as a produce of farmers arising from agriculture and
allied activities including animal husbandry, horticulture, floriculture, pisciculture,
viticulture, forestry, forest products, re-vegetation, bee raising and farming
plantation products: produce of persons engaged in handloom, handicraft and
other cottage industries: by-products of such products; and products arising out of
ancillary industries.

PCs are helping make smallholder farming viable and sustainable. Collective
approach of PCs helps farmers in accessing land, water, inputs, credit,
technology and market. There are different models of collective agribusiness
like a cooperative, contract farming, small producer association, self-help groups
and Producer Company. PCs are providing the right input at the right time at a
lower price to farmers. In Madhya Pradesh, PCs have linkages for marketing of
produce, procurement and distribution of agricultural inputs. Knowledge linkages
help farmers to access and adopt better agricultural practices through advisory
and training services at different levels. Financial linkage with banks and other
financial institutions helps access credit for working capital and other operational
purposes. Similar linkages if adopted by other producer companies will make this
model successful.

This study is an attempt at analyzing the financial performance of Farmer’s

Producer Companies (FPCs) in South India. Various studies in the past have
discussed the concept, status, model of producer companies in India but no study
has covered the financial performance/viability/ sustainability, which is a very
crucial aspect. Various studies focused on states of Madhya Pradesh, Gujarat,
and Maharashtra but few studies have covered South India. There are 640 PCs
working in various states of South India engaged in sectors like flower production,
seed production, dairy and poultry. The scope of this study is limited to examine
the financial performance of select PCs in South. The results cannot, however, be
generalized to all PCs.

Producer Companies in South India

Producer companies are also known as hybrid-company, combine the
characteristics of a private limited company and cooperative society (Dwivedi and
Joshi 2007). The Act of Producer Company came to retain the desirable structure
of cooperatives while at the same time empowering the primary producers to have
flexibility, freedom and efficiency of a private limited company (Singh 2008). In
a Producer Company, only persons engaged in an activity related to primary
produce can participate in the ownership. Primary produce can be understood
as produce of farmers arising from agriculture and allied activities. The primary
objective of these companies can be production, procurement, harvesting, grading,
handling, pooling, storage, marketing, selling, export of primary produce of the
members or import of goods or services for their benefit, processing the produce

38
 Financial Performance and Evaluation of Some Farmer Producer Companies in South India

of members, manufacture, sale or supply of machinery, consumables, etc. to

members (ASA 2009). Producer companies address value chain management
in sectors like seeds, food and non-food crops, and other perishables. Any ten or
more producer, engaged in any activity related with primary produce or any two
or more producer institutions, i.e. producer companies or any other institution
having only producers or producer companies as its members or a combination
of ten or more individuals and producer institutions, can get incorporated as a
producer company (Murray 2008).

Table 1 shows the number of producer companies in south India. It includes 5

states, having 109 districts and 640 farmer producer organization benefitting
2,79,215 farmers.

Table 1: No. of Farmer Producer Companies in South India

Sl. No. State District No. of FPOs Shareholders

1 Karnataka 30 187 63370
2 Tamil Nadu 31 170 104912
3 Kerala 14 105 50207
4 Andhra Pradesh 13 104 37803
5 Telangana 21 74 22923
  Total 109 640 279,215
Source: NABARD Portal on FPOs

Fig. 1: Change brought by KPFCL in Telangana

Telangana is amongst the top three states in farmer suicides in India. A majority of small and marginal
farmers here are unable to get quality seeds and fertilizers, resulting in low crop productivity, and
due to the domination of the market by intermediaries, are unable to get optimum price for their
produce. Low income forces farmers to take a loan from banks, trapping them in a vicious cycle,
resulting in farmer distress and farmer suicides.
Farmers of a small newly formed district in Telangana, Kamareddy present a model to overcome the
problems faced by farmers. In 2013, 914 farmers collected Rs. 18.5 lakh and formed the Kamareddy
Progressive Farmers Producer Company Limited (KPFCL). The Company is helping farmers by
providing combine harvesting and irrigation equipment at a lower rent, good quality seeds and
fertilizers, and providing a market for their produce so no intermediary cost is incurred. Income of
farmers has increased and debt reduced. KPFCL’s sales revenue in 2018-19 is projected to touch
Rs. 25 crore and the target is to reach Rs. 50 crore by 2025.
5300 farmers of 43 villages have benefitted from this initiative. 1600 farmers with landholdings
of 2.5 to 3.5 acre are getting an income of Rs. 1 lakh net of expenses. The company manages
marketing and sales of farmers produce on their own. Reliance Foundation is helping farmers run
the organization on their own.
Due to the presence of KPFCL, no farmer suicide has been reported from the last five years (2013-2018)
in Kamareddy. No doubt PCs are bringing change in the livelihood of small farmers by collective action.
Source: News item in Dainik Bhaskar newspaper of 28th January, 2019, translated from Hindi

Role of Small Farmer Agriculture Consortium (SFAC)

SFAC is an autonomous society promoted by Ministry of Agriculture, Cooperation,
and Farmers Welfare, Government of India, registered under Society Registration

39
 Farmer Producer Companies in India: Issues and Challenges

Act XXI of 1860 on 18th January, 1994. SFAC is helping small and marginal
farmers in forming Famers Interest Groups, Farmers Producer Organization, and
Farmer Producer Company. It is focused on increasing incomes of small farmers
through collective action.

REVIEW OF LITERATURE
In India, a very limited number of studies are available for producer companies.
Authors tried to compile the literature related to origin and performance of PCs.
Marden (1992) highlighted the key factors for the growth of the Danish and Irish
processing industries. Dutta (2005) observed the challenges faced by PCs under
the Cooperative Act. Pradan (2007) suggested the market linkages model for PCs
which provide better market access. Dwivedi and Joshi (2007) discussed the role
of Producer Company in ensuring food security, creating a marketable surplus,
better income leading to livelihood improvement in the life of farmers. Authors
also analyzed future strategies of these companies and identified various issues
which companies are facing. Singh (2008) described the producer companies as
new generation cooperatives. In this article, the author discussed how producer
companies as new generation cooperative turn out to be different over traditional
cooperatives. Murray (2008) discussed the present condition and future scenario
of the producer company model and provide detail analysis over producer
companies and discussed how value addition in agricultural commodities change
the life of farmers.

Nayak (2009) analyzed the underlying imbalance in design, structure and

objective between the traditional firm and Producer Company and it would lead
to exploitation of marginal producer under the current structure of production and
trade relations between the two. The author suggested that any enterprise system
or model to be sustainable for all in a community has to ensure the sustainability
of the poorest in the community. Lanting (2010) highlighted the problem of low
literacy amongst farmers which affect their performance. Venkattakumar and
Sontakki (2012) discussed the experience and implication of producer companies
in India. They analyzed the role of cooperatives vs. Producer companies. They
found a cooperative system in India is infected by several inadequacies while
producer company model in India is scaling up and changing the lives of farmers.
They also discussed various challenges faced by producer companies in India.
Hassler and Trebbin (2012) suggested PCs can help enhance the competitiveness
of farmers and increase advantages in emerging market opportunities.

Sukhpal (unpublished study) examined the experience of producer companies in

India where they have been in existence from a long time. Under this study author
compare and contrast the producer companies with co-operative structure in India
and then compare the process of setting up PCs and their performance, promotion
and management of PCs based on case studies of 24 PCs in four different states
of India. The author found that PCs model in Madhya Pradesh is doing better
than in other states. Similarly, Chauhan (2015) evaluated the performance of 18
producer companies in Madhya Pradesh and found them showing good growth.

40
 Financial Performance and Evaluation of Some Farmer Producer Companies in South India

Shah (2016) argues about the structure of producer companies in India; although
a very old concept, but why it didn’t grow at a faster pace. He also suggested
focussing on logic and process of promoting new farmer cooperatives to improve
their success rate. Chauhan (2016) discussed the model of Lav Kush Crop
Producer Company Limited (LCPCL) in Madhya Pradesh and analyzed how this
company is bringing change in the livelihood of small and marginal farmers by
collective action in the districts of Raisen in Gairatganj (M.P).

The above studies presented the PCs model, their formation, linkages with
markets, financial institutions and technical institutions. Studies also highlighted
the benefits and challenges of PCs. No study found in India which measured the
performance of PCs. Performance evaluation plays a very important role in the
growth and success of any organization and for making future strategies. Good
performance also shows the sustainability of the institutions, as sustainability
of PCs is important for a developing country like India where agriculture is a
dominant sector. With the help of this study authors are contributing to the scarce
literature of PCs related to financial performance.

RESEARCH OBJECTIVES
The major objective of this study is to analyze and assess the financial performance
on various parameters of a few producer companies in south India and using their
financial data.

RESEARCH METHODS
The study is based on secondary data. Financial Ratio Analysis (FRA) is done for
assessing the financial performance of select PCs in south India. Audited Annual
Financial Statements of six producer companies for four years from 2013-14
to 2016-17 have been used. FRA is an appropriate tool providing a concrete
summary of the performance of a business organization. The ratios used are
described in Table 2.

Table 3 shows the list of six producer companies taken up for study. Mediflora
Producer Company in Ernakulum is engaged in agriculture and animal
husbandry activities since 2004. Indian Organic Farmers Producers Company is
Kerala-based first and largest organic producer company deals in organic farm
produce of pepper, coffee, ginger, turmeric, vanilla, cocoa, coconut etc. IOFCPL
established in 2004 to resolve the challenges faced by farmers in the production
and marketing of organic and fair-trade certified products in the domestic and
International markets.

Chetna Organic Agriculture Producer Company Ltd and Intivelugu Mahila Dairy
Producer Company established in 2009 in Telangana. COAPCL deals in technical
and social extension, capacity building, promotion of CSR investment in farmer
communities and also policy and advocacy work of rain-fed agriculture. IMDPCL
deals in various dairy products such as liquid milk, ghee, butter and cheese.

41
 Farmer Producer Companies in India: Issues and Challenges
Table 2: Financial Ratios, Definitions and Formulae
Ratio
A. Liquidity Ratios
i. Current Ratio (CR)
ii. Liquid asset to Total
asset ratio (LATA)
iii. Acid-Test Ratio (ATR)
B. Inventory Ratio
C. Solvency Ratio
i. Debt-Equity Ratio (DER) Known as leverage ratio.
ii. Fixed assets to owned
funds Ratio (FAOF)
iii. Total Liabilities to owned
funds Ratio (TLOF)
D. Turnover Ratio
i. Total sales turnover
(TST)
ii. Working capital turnover Assess the efficiency of total
(WCT) WC employed in the business.
E. Profitability and
Efficiency Ratio
i. Net profit to total asset
ratio (NPTA)
ii. Net profit to own fund
ratio (NPOF)
iii. Net profit to fixed asset
ratio (NPFA)
iv. Gross Ratio (GR)
v. Efficiency of capital ratio
(ECR)
F. Financial Strength
Net worth (NW)
Net Capital Ratio (NCR)
Equity Capital Ratio
Source: Compiled by the Authors
Definition Formula
Measure the ability of the PC to
possess adequate cash to meet
immediate obligations.
Measures the short-term
Current assets/ Current Liabilities
liquidity of the company.
Measure liquidity in terms of
Liquid Assets/ Total Assets
total assets.
Quick ratio or near money
Quick Assets/Current Liabilities
ratio.
Measures the extent to which
the net working capital Inventory/Net working capital
financing the current assets.
Measures the financial
soundness of the company.
Long term liability/Net worth
Fixed Assets/Owned Fund
Total Liabilities/Owned Fund
Shows effectiveness of the
assets utilized in the business.
Number of times assets turned
Total Sales/Total Assets
over into sales.
Total Sales/Total Working
Capital
Shows overall efficiency of the
Net Profit/Total Assets
company
Shows whether profitability is
Net Profit/Net Worth
maintained or not
Shows the contribution of fixed
Net Profit/Fixed Assets
assets for profitability
Shows how efficiently the gross
Total expenses/gross income
income is earned
Evaluate the efficiency of PC in Paid up share capital/Annual
terms of capital utilization sales value
Shows financial soundness of
Total Assets-Total Liabilities
the company
Shows degree of liquidity to
Total Assets/Total Liabilities
pay off long term liabilities
Owner equity/Paid up share
capital.
42
 Financial Performance and Evaluation of Some Farmer Producer Companies in South India

Table 3: List of Producer Companies Analyzed

Establishment
S. No. Name of Company State
Year

1. Mediflora Producer Company Ltd. (MPCL) 2004 Kerala

Indian Organic Farmers Producer Company Ltd.

2. 2004 Kerala
(IOFPCL)
Chetna Organic Agriculture Producer Company Ltd.
3. 2009 Telangana
(COAPCL)
Erode Precision Farm Producer Company Ltd.
4. 2008 Tamil Nadu
(EPFPCL)
Intivelugu Mahila Dairy Producer Company Ltd.
5. 2009 Telangana
(IMDPCL)
Kabini Organics Farmers producer Company Ltd.
6. 2010 Karnataka
(KOFPCL)
Source: Compiled by the Authors

Erode Precision Farm Producer Company established in 2008 in Tamil Nadu,

deals in agri produce sales, and production of toxic free cereals, millets, honey,
jiggery and value-added products of pomegranate. It also provides various kinds
of fertilizers, pesticides, fungicides, weedicides and plants growth promoter
at a lesser price to the farmers. Kabini Organic Farmers Producer Company is
Karnataka based, established in 2010 and deals in various agricultural crops,
market gardening and horticulture.

All these companies are dealing in different commodities, but the objective of
formation is the same; to serve farmers community.

ANALYSIS AND DISCUSSION

This section presents the financial ratio analysis of producer companies. All the
six companies financial performance are individually assessed on six financial
parameters: liquidity, inventory, solvency, turnover, profitability & efficiency and
financial strength ratio. Total of 16 ratios are used for measuring performance.
The analysis is presented in tabular form from Table numbers 4 to 9.

Table 4: Financial Ratio Analysis of MPCL

Mediflora Producer Company Ltd. (MPCL)

Ratios 2013-14 2014-15 2015-16 2016-17

Liquidity Ratio

CR 9.36 4.54 2.86 3.50

LATA 0.06 0.25 0.21 0.12

ATR 8.80 4.54 2.86 3.50

IR 0 0 0 0

43
 Farmer Producer Companies in India: Issues and Challenges

Mediflora Producer Company Ltd. (MPCL)

Ratios 2013-14 2014-15 2015-16 2016-17

Solvency Ratio

DER 0.15 0.12 0.12 0.13

FAOF 9.59 9.30 9.07 0.89

TLOF 1.41 1.40 0.09 0.00

Turnover Ratio

TST .26 .37 .25 0.07

WCT 4.16 1.50 1.17 0.57

Profitability & Efficiency Ratio

NPTA 0.07 0.17 0.04 -0.13

NPOF 0.08 0.20 0.04 -0.14

NPFA 0.08 0.23 0.06 -0.15

GR 0.75 0.53 0.83 2.95

ECR 3.83 2.19 3.48 14.31

Financial Strength Ratio

NW 2953113 3666983 3834587 3377264

NCR 7.27 8.79 134.38 287.21

Source: Compiled by the Authors

Table 4 presents the financial performance of MPCL. Liquidity measures the

cash position of the firm, as cash is very important for managing working capital
expenses. CR measures the short term liquidity of the company. Optimum ratio
for the firm should be 1.5:1 or 2:1, higher the ratio better the liquidity position.
Year on year liquidity position is fluctuating, CR was highest in 2014-15 and
lower in 2013-14. As CR is very high, it shows the company had current assets
3.5 times more than current liability in 2017-18. Liquidity in term of cash and
cash equivalents is less and presented in LATA ratio. Solvency ratio measures
the financial soundness of the company. DER shows the proportion of debt over
owned fund. This ratio is very low and it shows the company does not have
a high debt obligation. Fixed assets over funds were similar in all three years
from 2013-14 to 2015-16 while it decreased in 2016-17, it shows owned fund
is increasing and larger shareholder participation. The company has no liability
over the owned fund in 2016-17. Turnover ratio is not very good in this company
as total sales to total turnover ratio is low and shows assets ineffective utilization.
Working capital turnover was higher in 2013-14 while it reported lower in 2016-
17. Profitability of this company is not very good and the situation is worse in
2016-17 as a loss is reported. The gross ratio is also high in 2016-17 and it shows
the company had high expenditure in that year. The net worth of the company

44
 Financial Performance and Evaluation of Some Farmer Producer Companies in South India

is increasing year on year from 2013-14 to 2015-16 and lowest in 2016-17. The
net capital ratio of the firm shows that the company’s assets were seven times of
liabilities in 2013-14 while in 2017 it increased 287 times. This is also the reason
the profit of the firm is not high.

Table 5: Financial Ratio Analysis of IOFPCL

Indian Organic Farmers Producer Company Ltd. (IOFPCL)

Ratios 2013-14 2014-15 2015-16 2016-17
Liquidity Ratio
CR 1.53 0.96 1.66 1.30
LATA 0.12 0.04 0.09 10.11

ATR 0.86 0.04 0.16 0.00

IR 0.36 -5.04 0.18 0.01

Solvency Ratio
DER 1.65 2.76 1.55 3.24
FAOF 32.03 13.27 6.31 0.09
TLOF 238.7 379.6 234.65 5.10
Turnover Ratio
TST 0.03 2.33 2.73 1.34
WCT 0.03 2.42 2.82 0.01
Profitability & Efficiency Ratio
NPTA 0.00 -0.01 0.09 0
NPOF 0.00 -0.04 0.24 0.01
NPFA 0.01 -0.39 5.74 0.11
GR 0.99 1.00 0.97 1.00
ECR 0.09 0.00 0.00 0.11
Financial Strength Ratio
NW 202935038 192943904 316844134 3289757.53
NCR 1.61 1.36 1.65 1.31
Source: Compiled by the Authors

Table 5 shows the financial ratio analysis of IOFPCL. Liquidity ratio shows the
short term liquidity position and the company’s liquidity position is satisfactory,
as the current ratio is lying in the optimal range it is more than one. LATA ratio
is higher in the year 2016-17 and shows high liquidity in this year in comparison
to other years. Solvency ratio presents long term financial soundness of the
company. DER is higher in the year 2016-17 while FAOF is lower but TLOF
is five times and it shows that company’s raised debt for the operation purpose
because no increment is found in fixed assets while the total liability of the firm
has increased. Turnover ratio in term of TST shows that assets are turned over
1.34 times into sales in the year 2016-17 while in previous years it was more than
two times. WCT ratio is also lower as TST is low and shows total sales are low in

45
 Farmer Producer Companies in India: Issues and Challenges

respect of total working capital, the company is unable to handle the utilization
of the assets in a proper way. Company’s profitable situation was not good in
2014-15 as figures are negative while in other years it is less than one. As the
company is 14 years old but still struggling to attain a reasonable level of profit.
Company’s net worth in total asset is found lower in 2016-17 while in other years
it was increasing. NCR in respect of total asset to total liability is more than one
and shows long term capability of the company.

Table 6: Financial Ratio Analysis of COAPCL

Chetna Organic Agriculture Producer Company Ltd. (COAPCL)

Ratios 2013-14 2014-15 2015-16 2016-17
Liquidity Ratio
CR 1.29 1.23 1.16 1.39
LATA 0.14 0.10 0.40 0.21

ATR 0.08 0.44 0.82 0.90

IR 0.03 2.43 1.65 0.17

Solvency Ratio
DER 2.66 3.55 5.32 33.29
FAOF 0.15 0.13 0.11 0.20
TLOF 12.28 18.00 40.02 31.96
Turnover Ratio
TST 1.61 1.18 1.94 2.47
WCT 1.71 1.23 1.99 2.54
Profitability & Efficiency Ratio
NPTA 0.02 0.02 0.05 0.07
NPOF 0.08 0.09 0.33 2.44
NPFA 2.58 3.54 21.88 11.74
GR 1.04 1.02 1.00 1.00
ECR 0.04 0.04 0.01 0.01
Financial Strength Ratio
NW 7311958 8038528 11927849 1724632
NCR 1.38 1.28 1.19 1.03
Source: Compiled by the Authors

Table 6 presents the FRA of COAPCL. Short term liquidity in term of CR is more
than one and shows good position while LATA is lower than one and shows
that the company engages it all funds in the operation. ATR is increasing from
2013-14 to 2016-17 and Shows Company’s operation is going good. Company
store less inventory as IR is lower in the year 2016-17 while in other years it was
higher than two and minimal in 2013-14. DER of the firm is gradually increasing
from 2013-14 and reported higher in 2016-17 it shows the firm has long term
financial obligations. TLOF is also increasing year on year basis and it is due to

46
 Financial Performance and Evaluation of Some Farmer Producer Companies in South India

high DER ratio. The turnover position of the company is also good as TST and
WCT both are performing in a similar way and company effectively utilizing the
assets. Profitability situation of the company is good. NPOF is increasing and it
is 2.44 times than owned funds. NPFA is higher in 2015-16 (21.88) and lower in
2103-14 (2.58) while in 2016-17 net profit is 11.74 times of fixed asset which is
a good condition. GR is up to one and it shows that the firm is keeping a balance
between expenditure and income. The financial strength of the firm is good as the
net worth of the firm is gradually increasing from the year 2013-14 to 2015-16
while it is decreased in 2016-17 due to the increased liability of the firm. NCR of
the firm is more than one and it shows assets are more than a liability.

Table 7: Financial Ratio Analysis of EPFPCL

Erode Precision Farm Producer Company Ltd. (EPFPCL)

Ratios 2013-14 2014-15 2015-16 2016-17
Liquidity Ratio
CR 2.55 2.39 1.56 1.14
LATA 0.21 0.18 0.06 0.18

ATR 1.21 0.88 0.27 0.53

IR 0.81 0.99 1.93 3.97

Solvency Ratio
DER 0.55 0.47 0.37 0.72
FAOF 0.37 0.34 0.96 1.16
TLOF 0.64 0.57 0.46 0.94
Turnover Ratio
TST 8.59 8.71 5.24 4.50
WCT 10.97 11.32 12.53 9.45
Profitability & Efficiency Ratio
NPTA 0.05 0.03 0.03 0.03
NPOF 0.08 .04 0.04 0.05
NPFA 0.24 0.14 0.05 0.06
GR 1.00 1.00 1.00 1.00
ECR 0.06 0.06 0.11 0.10
Financial Strength Ratio
NW 6542825.41 6811733.72 11801901.37 12421953.5
NCR 2.80 3.11 3.72 2.40
Source: Compiled by the Authors

Financial performance of the EPFPCL is presented in Table 7. The liquidity

position of the company is good as CR is more than one and the firm is not
keeping much cash idle as LATA is lesser than one. ATR of the company is also
low and shows that the company keep less liquidity and invested most of the
funds. Inventory ratio is gradually increasing from the year 2013-14 (.81) to 2016-

47
 Farmer Producer Companies in India: Issues and Challenges

17 (3.97) and it shows the company’s inventory is 3.97 times than net working
capital. Financial soundness of the company is good as DER is less than one and
it shows that the company has low long term liability due to that TLOF is also low.
FAOF is 1.16 times of owned funds in the year 2016-17.

Table 8: Financial Ratio Analysis of IMDPCL

Intivelugu Mahila Dairy Producer Company Ltd. (IMDPCL)

Ratios 2013-14 2014-15 2015-16 2016-17
Liquidity Ratio
CR 1.10 0.95 2.51 3.90
LATA 0.09 0.04 0.04 0.05
ATR 1.10 0.14 .20 3.81
IR 0.92 (2.48) 0.04 0.00
Solvency Ratio
DER 4.42 8.07 8.76 4.21
FAOF 1.56 7.38 4.91 .52
TLOF 6.83 11.06 11.05 5.46
Turnover Ratio
TST 4.05 5.74 5.01 4.47
WCT 20.20 24.38 10.54 5.95
Profitability & Efficiency Ratio
NPTA (.002) (.093) .00 (.008)
NPOF (.018) (1.12) .001 (.056)
NPFA (.011) (.151) .00 (.108)
GR 0.98 1.02 1.00 1.02
ECR 0.07 0.07 0.08 0.18
Financial Strength Ratio
NW 3109872 1208376 1210644 1145394
NCR 1.17 1.09 1.09 1.18
Source: Compiled by the Authors

The turnover ratio of the firm shows that the resources of the firm are effectively
utilized. Profitability of the firm is low as NPTA, NPOF and NPFA are less than
one. GR shows the balance between expenditure and income. The financial
strength of the firm in terms of net worth is also increasing on year on year basis
form 2013-14 to 2016-17 while NCR is lower in 2016-17 due to increased liability
in that year.
Table 8 presents the financial performance of IMDPCL. Liquidity measures the
cash position of the firm, as cash is very important in forms for managing working
capital expenses. CR measures the short term liquidity of the company. Optimum

48
 Financial Performance and Evaluation of Some Farmer Producer Companies in South India

ratio for the firm should be 1.5:1 or 2:1, higher the ratio better the liquidity
position. Year on year liquidity position is improving, better cash position is found
in 2016-17. LATA is found lowest in 2014-15 and 15-16 and improving in 2016-
17. ATR is a better measure over CR because inventories are deducted from
current assets. The ratio is high for the year 2016-17. Inventory ratio measures
the extent to which the net working capital financing the current assets. Less than
1 value of this ratio shows NWC of the PC is not tied up in the inventory and used
for other purposes.

Solvency ratio measures the financial soundness of the company. DER shows
the proportion of debt over owned fund. The ratio was higher in 2014-15 and
2015-16 as liquidity position of the firm was not good in these years (refer CR,
LATA, and ATR), and in 2016-17 it gets reduced to 4.41 as liquidity position get
improved so no need to take debt. FAOF was higher (7.38) in 2014-15 and lowest
(.52) in 2016-17. TLOF ratio must be lower as every company wants to minimize
its liability. It is found higher (11.05 &11.06) in 2014-15 and 2015-16 while it
gets reduced (5.46) in 2016-17. Liability was higher during these years as found
in DER. Turnover ratios show that assets are effectively utilizing in this company.
Profitability and efficiency is an issue in this company as NPTA, NPOF and NPFA
ratios are negative because of heavy expenses which result in very low net profit.
GR must be lower than one but is found slightly higher. ECR shows the efficiency
of PC in capital utilization, it should be greater than one for better efficiency.

Financial strength ratio shows that net worth of the PC reduced from 31 lakh in
the year 2013-14 to 11 lakh in 2016-17. It shows that the company is reducing
its liabilities over the years. NCR shows a degree of liquidity to pay long term
liabilities. This ratio is more than one and shows that IMDPCL is able to reduce
its liabilities.

Table 9: Financial Ratio Analysis of KOFPCL

Kabini Organics Farmers producer Company Ltd. (KOFPCL)

Ratios 2013-14 2014-15 2015-16 2016-17
Liquidity Ratio
CR 1.09 1.13 .93 0.82
LATA 0.09 0.01 0.01 0.21

ATR 0.42 1.13 0.64 0.66

IR 0.18 0.36 -2.34 -0.68

Solvency Ratio
DER 7.47 4.50 -49.80 -6.08
FAOF 0.20 0.37 -2.01 -0.01
TLOF 2.56 4.50 -49.80 -6.08
Turnover Ratio
TST 2.67 3.47 2.11 5.23
WCT 2.87 3.74 2.22 5.30

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 Farmer Producer Companies in India: Issues and Challenges

Kabini Organics Farmers producer Company Ltd. (KOFPCL)

Ratios 2013-14 2014-15 2015-16 2016-17
Profitability & Efficiency Ratio
NPTA 0.01 0.01 -0.19 -0.17
NPOF 0.07 0.04 9.30 0.84
NPFA 0.13 0.11 -4.63 -57.89
GR 1.05 1.07 1.18 1.04
ECR 0.04 0.05 0.07 0.04
Financial Strength Ratio
NW 158378 1650848 -198779 -1232352
NCR 1.13 1.22 0.98 0.84
Source: Compiled by the Authors

Table 9 shows the financial performance of KOFPCL, CR measures the short

term liquidity of the company and it is not very good as CR is less than one.
Optimum ratio for the firm should be 1.5:1 or 2:1, higher the ratio better the
liquidity position. Year on year liquidity position is declining, better cash position
is found in 2013-14 and 2014-15. LATA is found lowest in 2014-15 and 15-16
and improving in 2016-17. ATR is a better measure over CR because inventories
are deducted from current assets. The ratio is high for the year 2014-15. Less than
1 value of inventory ratio shows NWC of the PC is not tied up in the inventory
and used for other purposes.
DER shows the proportion of debt over owned fund. The ratio was higher in
2013-14 and in subsequent years it reduced and reported negative figures, the
reason is the net worth of the firm is also reduced due to the increased liability
of the firm. Similarly, NAOF and TLOF are also very low. Turnover ratios show
that assets are effectively utilizing in this company. Profitability and efficiency is
an issue in this company as NPTA, NPOF and NPFA ratios are negative because
of heavy expenses which result in very low net profit. GR must be lower than one
but is found slightly higher. ECR shows the efficiency of PC in capital utilization, it
should be greater than one for better efficiency.
Financial strength ratio shows that net worth of the PC reported in negative figures
in 2015-16 and in 2016-17 due to increased liability. NCR shows a degree of
liquidity to pay long term liabilities. This ratio is more than one in the financial
years 2013-14 and 2014-15 while in other years it is negative and shows that
KOFPCL is struggling in reducing reduce its liabilities.

CONCLUSION
Producer companies are playing a very important role in transforming the lives
of the farmers. While several studies are available for PCs, no study to assess the
financial performance of PCs has been done. Sustainability of these companies is
very important for the livelihood of the farmers in the long run. With the help of
this study authors tried to measure the financial sustainability of these companies.

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 Financial Performance and Evaluation of Some Farmer Producer Companies in South India

In this study authors tried to individually assess the financial performance of

the PCs on six parameters using 20 ratios. Short term liquidity position of all
the companies are good but long term solvency position of MPCL, IMDPCL,
KOFPCL and EOFPCL is not very sound. Profitability and efficiency position of
MPCL, IOFPCL, IMDPCL, and KOFPCL is not very good while COAPCL and
EPFPCL are earning profits. Turnover of all the companies are good and shows
PCs effectiveness in assets utilization. The financial strength of the companies is
good, net worth and net working capital of the companies are increasing except
KOFPCL due to huge long term liabilities. Overall analysis shows that PCs are
trying hard to make their presence in the market and benefit farmers. Major
challenges for these companies is the availability of funds and management of
funds. The study is useful for PCs for self-evaluation, for Government in policy
making, for funders for continuing support, and for researchers.

We plan to extend this study further by analyzing the efficiency of the PCs and
compare their performance and rank them. For this study, individual performance
is assessed, and no comparisons are done. Data availability was the major
limitation for the study due to which authors restricted to only six PCs.

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