FPOs need their very own Amul
Instead of encouraging them on paper, the government must create a few model FPOs and provide institutional support to them
The Narendra Modi-led government has been tirelessly claiming that it would double farmers' income by 2022. There is a lot of evidence to show that in the pursuance of this target, the income of farmers has not increased, but has rather stalled or decreased. Consequently, for the past three years, farmers have been protesting across India, demanding favourable policies or concrete initiatives that would get them a fair price for their produce.
Economists and agriculture experts say that market reforms can ensure farmers a fair price. The Modi government has tried to bring in some policy reforms like e-market, farmer producer organisations (FPOs) and the Model Contract Farming Act, 2018. Let me add a rider though: This government has given a "half-hearted" push to all these reforms that were started in the previous United Progressive Alliance (UPA) regime. Unsurprisingly, farmers are boiling with rage.
Indian farmers have the smallest landholding on the planet. Consequently, they lose individual bargaining capacity in the open market for their small produce. In such a scenario, the aggregation of their produce on a large scale can be a solution.
The UPA government had started promoting FPOs from 2011-12 and put them on priority in the 12th Five Year Plan (2012-17). The current government gave tax holidays for five years. But FPOs have not taken off.
Last week in New Delhi, experts on FPOs met and raised a number of pertinent issues like credit facilitation from government banks, competing in marketing and training of manpower to study market behaviour of commodities and the Contract Farming Act.
I have travelled in a number of states where FPOs have created some assets in very remote areas—for instance, godown facilities and installation of cleaning and grading machines in the tribal areas of Madhya Pradesh's Mandla district. All these asset creations in remote areas have been due to facility of loans on high-interest rates (18-24 per cent) from non-banking financial companies or micro-finance companies. However, such high rates of interest for asset creation can neither help small or marginal farmers nor can they be sustainable in the long run.
They all are doing well either due to the support of non-profits working in these areas (like in Madhya Pradesh) or young and enthusiastic agriculture entrepreneurs like in Maharashtra. There are other hundreds of FPOs in different parts of India that have created bargaining powers because of the scale of produce, maintenance of quality products and storage facilities.
Another new initiative of the Modi government is the electronic marketing system (e-NAM). It was introduced in 2015 but its success is yet to be assessed. There are reports of local traders in mandis (wholesale markets) manipulating success data. They do not allow farmers to do trading on e-NAM platform but force them to go through traditional spot trading. Here too, FPOs are not allowed to sell their produce in the nearest mandis. There is no support from the government to break the monopoly of the traders who fix or manipulate mandi/market price in their favour. There are a number of instnaces where FPO produce was not allowed to enter mandis in Maharashtra, Madhya Pradesh, and Uttar Pradesh. FPOs have the potential to break the stranglehold of local traders on price fixation. There are a number of examples from Maharashtra, Telangana, Gujarat, and Karnataka which illustrate that the prices of agri-produce go up in local mandis whenever FPOs enter the market. This is why FPOs face so much resistance from the traders' lobby that does not allow them to sell produce in a designated mandi.
The current Model Contract Farming Act, 2018, doesn't recognise group farmers' contracts. This, though, has been in practice since many years in Modi's home state of Gujarat. A group of farmers in Gujarat has been engaging with industries on contract for bulk and quality productions which ensures them better and assured income. But the current Act doesn't even mention this. IIM Ahmedabad Professor Sukhpal Singh, who has studied the Act, says currently, FPOs/FPCs do not get legal recognition under the Act when they get into any contract with industries. It means there is no legal safeguard for them.
Instead of encouraging FPOs on paper, the government has to create a few model FPOs in the country. It could be a stepping stone on the lines of the famous milk cooperative brand Amul which inspired more than a dozen successful milk cooperative in India that ensured better milk price with accountability. Young agri-entrepreneurs are looking for some role models.
FPOs need a helping hand from the government to stand on their feet. Today, many milk cooperatives do not need support from the government. They are competing in the open market. They have institutional support in the form of the National Dairy Development Board. On similar lines, the government needs to create an institution for the benefit of FPOs instead of showing ad-hocism.
(The views expressed are strictly personal)
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