Pitfalls of External Institutional Facilitation of Farmer Organizations: Insights from Farmer Companies in Sri Lanka

Abstract

Farmer companies (FCs) were a form of farmer-owned firms established in Sri Lanka during the mid-1990s. These have been facilitated by state institutions. Maximization of returns through commercial agriculture has been the main objective of FCs. However, no FCs were operating by the year 2010. This article explains that the institutional facilitation is a strong ingredient in the establishment of FCs in Sri Lanka. This article explainfs how the institutional and governance arrangements of FCs were influenced by the facilitating institutions during the institutional facilitation. It also suggests that institutional facilitation affected the performance of FCs. Six failed FCs were studied. Strategic facilitation was responsible for the performance and sustainability of FCs while operative facilitation provided the basis for direction and operations. Results indicate that poor performance and failure of FCs were due to institutional facilitation that has introduced weak institutional and governance arrangements. There was non-shareholder influence on the Boards of Directors; geographically restricted shareholding; democratic voting rights; and shareholder rights not linked to equity or patronage. Governance problems included voting by the raise of hand; managers not reporting to the Boards directly; shareholders did not elect all the directors. Institutional facilitation of FCs in Sri Lanka has been done by the state facilitating institutions. They have been excessively authoritative on their respective FCs. Therefore, changing the label from cooperatives to companies would not result in better performance. Some recommendations are that facilitating institutions empower FCs through capacity-building; participatory approach in facilitation; remove the geographical restriction in shareholding; install variable shareholding; build capacity of managerial staff; use secret ballots at voting, and practice proportional voting. Understanding the role of facilitating institutions and the dynamics of facilitation would be useful to promote farmer collectives in smallholder farmer dominant developing countries.