Rising of FPCs: A Possible Historical Moment for the Broking Community

Announcements of the unprecedented agri reforms by the Finance Minister in June this year have opened up a whole new world of business opportunities for value-chain participants. Different aspects of agri reforms, including warehousing services, establishing private mandis, providing micro financing services or filling up the gap in input supplies, will definitely fuel up each segment of the agro ecosystem.

The premise for the above hypothesis is that the agri reforms are set to free up markets for individual farmers and farmer groups. With such augmentation of market scope, those best positioned to reap the benefits of the agri reforms are farmer groups popularly known as Farmer Producer Companies (FPCs) and Primary Agriculture Cooperative Societies (PACS). One of the most important aspects of this benefit would be searching for new markets. With the Government’s thrust on creating relevant infrastructural support for online marketing, there is little doubt that the futures market will grab a major share of the renaissance that Indian agriculture will witness in the coming months and years.

What’s in store?

The Government has already announced a fund worth Rs 100,000 crore dedicated to establishing agriculture infrastructure for farm gate quality improvement as its prime focus. Secondly, a flooding of private investment in warehousing space is anticipated after the landmark change in the Essential Commodities Act (ECA). Lastly, the FPCs and PACS can use the cementing of contract farming laws to benefit their farmer members by getting into collaborations with corporates to produce quality crops in large volumes. All these conditions are supportive of creating conducive atmosphere for the farmer groups to come on agri futures platforms, in which they can discover better prices for their goods.

The Prime Minister kick-starting the process of setting up 10,000 new Farmer Producer Organisations (FPOs) across the country over the next five years will hasten the process of futures market coming into the mainstream marketing for these farmer groups.

With the new guidelines of forming FPCs clearly providing a thrust on the appointment of professional Chief Executive Officers (CEOs) at the helm of these companies, regulated agri commodity exchanges would certainly be a preferred destination for the FPCs to sell crops. Also, when such large numbers of FPCs join the bandwagon, it is assumed that they will themselves form a lucrative business opportunity for commodity market brokers.

As of now, the trading community has mostly been found around city centres. However, soon, with more FPCs reaching out to brokers to be a part of futures market platforms these entities will penetrate deep inside the hinterlands. This may create a new structure of market function, in which broker entities could replace the traditional commission agents as partners to more powerful FPCs.

Collaboration advantages

The new collaboration has the potential to rewrite the rules of agri marketing, where broker entities may guide and train the FPCs to use the regulated state-of-the-art products where on one hand, they have options for hedging their price risk and on the other, they can be instrumental in fulfilling the dream of financial inclusion. These entities may even aid in connecting the FPCs with new-age agri fin-tech companies for exploring more avenues of funding.

In fact, with the concept of electronic-Negotiable Warehousing Receipts (eNWR) gaining momentum, funding is going to be a lot easier for FPCs in the days to come. When more and more warehouses are built with corporate investments, the number of warehouses with accreditation by Warehousing Development and Regulatory Authority (WDRA) will certainly increase accordingly. FPCs using these warehouses for delivering through commodity exchanges shall naturally be authorised to receive eNWR in the process. With the embedded facilities of eNWR, these FPCs can easily reach out to regulated financial sources for funding apart from trading of the commodity.

However, FPCs will need proper handholding for fully enjoying the services of this new instrument, and broker entities are expected to bring in their expertise and bandwidth to help FPCs benefit from this moment. This will not only strengthen the bonding between them and the FPCs, but also can create revenues for them as it would bring them valuable networking opportunities with corporates and other stakeholders.

Overall, the coming days may prove to be not only challenging but also fulfilling from the brokers’ point of view. Perhaps for the first time, brokers will get a chance to claim their role in a socioeconomic transformation. The best part of it would be that the transformation would bring them ample business enhancement opportunities.

This is a partnered post