SEIFAC Disbursement: Understanding Agro Production Cluster – Ahead of SEIFAC Loan disbursement to applicants. Applicants needs to understand Agro Production Cluster. This is very relevant to disbursement of the loan.
How to Understand Agro Production Cluster
Common Questions Asked!
1. What is an Agro Production Cluster (Agro-PC)
An Agricultural Production Cluster (Agro-PC) is a legal entity formed by primary producers, and farmer. An Agro-PC can be a producer company, a cooperative society or any other legal form which provides for sharing of profits/benefits among the members. In some forms like producer companies, institutions of primary producers can also become member of Agro-PC.
2. What is the need for Agro-PC?
The main aim of an Agro-PC is to ensure better income for the producers through an organization of their own. Smallholder Farmers do not have the volume individually (both inputs and produce) to get the benefit of economies of scale. Besides, in agricultural marketing, there is a long chain of intermediaries who very often work non-transparently leading to the situation where the producer receives only a small part of the value that the ultimate consumer pays. Through aggregation, the primary producers can avail the benefit of economies of scale. They will also have better bargaining power vis-à-vis the bulk buyers of produce and bulk suppliers of inputs.
3. What are the essential features of an Agro-PC?
- It is formed by a group of producers for either farm.
- It is a registered body and a legal entity.
- Producers are shareholders in the organization.
- It deals with business activities related to the primary produce/product.
- It works for the benefit of the member producers.
- A part of the profit is shared amongst the producers.
- Rest of the surplus is added to its owned funds for business expansion.
4. Who owns the Agro-PC?
The ownership of the Agro-PC is with its members. It is an organization of the Smallholder Farmers, by the Smallholder Farmers and for the Smallholder Farmers. One or more institutions and/or individuals may have promoted the AGRO-PC by way of assisting in mobilization, registration, business planning and operations. However, ownership control is always with members and management is through the representatives of the members.
5. Who can promote an Agro-PC?
Any individual or institution can promote an Agro-PC. Individual persons or institutions may promote Agro-PC using their own resources out of goodwill or with the noble objective of socioeconomic development of producers. If, however, the facilitating agency wishes to seek financial and other support, then they have to meet the requirements of the donor/financing agency – SEIFAC Disbursement: Understanding Agro Production Cluster
6. Can NGO promote Agro-PC?
Yes, it can. The NGO may be a non-profit organization, but not the Agro-PC. The NGO can promote Agro-PC which will provide better income to the members. Sharing of profit among members is an important objective of the Agro-PC.
7. Which legal form is preferable for Agro-PC?
Institutions registered as cooperative societies and producer companies have legal provisions for sharing of profit earned by the Agro-PC by way of dividend. Other legal forms do not explicitly provide for profit sharing. However, the Agro-PC can offer better price for the produce it procures from the members, thus, benefiting the latter. Similarly, it can procure inputs/raw material in bulk and sell to members with low margin. Such activities are permissible for Agro-PCs under all legal forms.
6. What are the important activities of an Agro-PC?
The primary producers have skill and expertise in producing. However, they generally need support for marketing of what they produce. The Agro-PC will basically bridge this gap. The Agro-PC will take over the responsibility of any one or more activities in the value chain of the produce right from procurement of raw material to delivery of the final product at the ultimate consumers’ doorstep. In brief, the Agro-PC could undertake the following activities:
- Procurement of inputs
- Disseminating market information
- Dissemination of technology and innovations
- Facilitating finance for inputs
- Aggregation and storage of produce
- Primary processing like drying, cleaning and grading
- Brand building, Packaging, Labeling and Standardization
- Quality control
- Marketing to institutional buyers
- Participation in commodity exchanges
9. How would an Agro-PC help the members?
An Agro-PC will support the members in getting more income by undertaking the activities of the Agro-PC by aggregating the demand for inputs, the Agro-PC can buy in bulk, thus procuring at cheaper price compared to individual purchase. Besides, by transporting in bulk, cost of transportation is reduced. Thus, reducing the overall cost of production. Similarly, the Agro-PC may aggregate the produce of all members and market in bulk, thus, fetching better price per unit of produce. The Agro-PC can also provide market information to the producers to enable them hold on to their produce till the market price become favourable. All these interventions will result in more income to the Smallholder Farmers.
10. Can a person become member of more than one Agro-PC under SEIFAC?
One Smallholder Farmer cannot become the member of any t Agro-PC wo Agro-PCs operating either within the same location or producing the same primary product. BVN is the basis for registration and as there is no way out to use the same BVN twice for different persons on the SEIFAC database that is prohibited by the terms and conditions of SEIFAC.
11. Who will manage the Agro-PC?
Each Agro-PC will have an elected Board of Management / Board of Directors as per the bye-laws. The Board can engage professionals to manage its affairs. In the initial years, professional and managerial assistance is usually extended by SEIFAC/APCPI. As the leaders of the Agro-PC gain experience, they should take over the affairs of the Agro-PC completely.
12. How much expenses will be incurred for registration of an Agro-PC under SEIFAC?
Expenditure towards registration fee, stamp duty, preparation of documents and facilitation charges etc., will depend on the legal structure of the AGRO-PC. In general, establishment of a producer company is more expensive than other legal forms. The estimated cost of incorporating a producer company is below:
13. What critical areas could be covered during training/capacity building of BOD of Agro-PCs/other staff?
The critical areas to be covered under training /capacity building of Board of Directors of an Agro-PC and staff of an Agro-PC are as follows:
- Vision and Mission: The vision and mission of the Agro-PC is very important for the Board Directors as well as other staff. Creating value to the members by solving existing problems in the value chain, marketing and reasonable share of price realization in the rupee spent by the consumer on the members’ produce, should be the focus. All other activities / services should be to engage the members comprehensively throughout the year and to reduce their expenditures and increase their welfare.
- Good Governance: Governance which is responsible, transparent and keeping the interest of the members of the Agro-PC above all the considerations is a must for the success of an Agro-PC. Various aspects of good governance to be covered.
- Sustainability: Another most important aspect to be covered in the training is that the Agro-PC should not venture into unsustainable ventures which may create short term profits and harm the long-term interests/welfare of the community.
- Networking: The success of an Agro-PC depends on the networking and continuous interactions with various stakeholders. The BODs and staff should have the understanding and importance of networking to obtain maximum benefits to their members under convergence mode.
- Social Capital: The training should concentrate on making the Agro-PC relevant to the members at all times, which creates social capital and trust.
- Statutory Requirements: The BoD and staff should have an understanding of the constitution of the Agro-PC, statutory provisions under which it is formed, various other requirements under the statute and compliance thereof.
- Business Planning: The training covers aspects of business planning to maximize benefits as well as to reduce the business risks. The aspects like SWOT analysis, Balance Sheet Analysis, simple financial ratios for profitability, ratios that are seen by banks for financing, need to be covered – SEIFAC Disbursement: Understanding Agro Production Cluster
- Financial Management: The training also should cover management of the finances like maintenance of books of account, Management Information System, share capital, borrowings, savings, loans, cash flow, funds flow, receivables management, payables management, investments etc.
- Monitoring: The BOD module should have various aspects of monitoring to ensure that the business goals are achieved and the business is carried out in a professional manner.
14. What support is available for Agro-PC from SEIFAC?
Mainly three types of supports are available to the Agro-PCs from the Smallholder Economic Interest Farmers Agricultural Cooperative (SEIFAC).
- SEIFAC coordinates the formation of Agro-PC under her watch and lead them through to access support from the Federal Government of Nigeria CBN Anchor Borrowers Programme at single digit interest rate without collateral and facilitate the payback from proceeds from the Agro-PC produce sales.
- SEIFAC operates a Credit Guarantee Fund to mitigate credit risks of financial institutions
which lend to the Agro-PC without collateral. This helps the Agro-PCs to access credit from mainstream financial institutions for establishing and operating businesses. SEIFAC Disbursement: Understanding Agro Production Cluster
c. SEIFAC provides matching equity grant up to NGN10m at 9.9% per annum to the Agro-PCs to enhance their borrowing power, and thus enables the entities to access bank finance.
15. What type of financial support is available for Agro-PC from FGN?
The Central Bank of Nigeria (CBN) in line with its developmental function established the Anchor Borrowers’ Programme (ABP). The programme thrust of the ABP is provision of farm inputs in kind and cash (for farm labour) to Smallholder Farmers to address the country’s negative balance of payments on food. The loan is targeted at Smallholder Farmers engaged in the production of identified commodities across the country. The Farmers are to be in organized into groups/cooperative(s) of between 5 and 20 for ease of administration.