Propelling the farming sector

The Government of India has approved a programme for the promotion of 10,000 FPOs to be formed in the next five years to ensure higher price realisation by channelising the benefits of economies of scale through agglomerated action by farmers. Financial and technical support will be available to each of these FPOs for 5 years from the year of inception under a new and improved implementation architecture approved by the Government.

A Farmer Producer Organisation (FPO) is an entity formed by primary agricultural producers that is farmers, engaged in the production of any commodity, be it food or plantation crop, cereals and pulses or horticulture, spices or oilseeds for that matter, to achieve higher economic returns for themselves. The concept of FPO development involves collectivisation of primary producers, especially small and marginal farmers, into producer organisations/companies to help them efficiently manage available resources and secure higher value and share in the price of the produce. In this context, the GOI has identified FPOs, registered under the special provisions of the 'Companies Act', 1956, as potentially the most suitable institutional form around which the mobilisation and aggregation of farmers should be attempted, for enhancing and utilising their traditional knowledge and adding to their technical capacities to derive greater value through collectively leveraging their production and marketing strengths.

Typically, farmers confront constraints which inhibit farming stakeholders from getting remunerative prices. These include the fragmented and uneconomic size of land holdings, lack of economies of scale, limited bargaining power, high costs and erratic supply as well as poor quality of inputs, information asymmetries on prices and lack of access to formalised marketing linkages due to near-total dependence on traditional linkages with commission agents or 'adhatiyas' in the local mandis. At times, farmers are compelled to stick to these informal networks in a virtually captive mode, as these networks serve a monetary purpose and meet multiple social and economic requirements of farmers through the year, which the institutional finance system in rural areas is constrained to accommodate.

While solutions to the gamut of issues faced by farmers in reducing the cost of production and increasing value accruals to farmers would work best with cross-sectoral structural reforms, many of the critical issues such as reduction on post-harvest losses due to infrastructure and logistical constraints can be addressed by FPOs which have emerged as a critical institutional mechanism to address age-old problems of non-remunerative farming. FPOs, for their farmer members, can help in reducing wastage at several levels. The requirement of volumes and consistent supply required by large retailers and the discerning export market could also be met through them. At another level, FPOs or their confederations can assume the function of lobbyists and advocacy groups to help create an enabling policy ecosystem for facilitating direct trade, both domestic and international and leveraging cheaper institutional credit.

FPOs offer multiple end-to-end services to their members. These may encompass almost all the stages in a value chain with the overall objective of maximising value accruals and incomes of member farmers. These services include:

Providing access to agricultural equipment or technical services to help members improve the productivity and quality of their produce. Emerging areas for FPOs to tap could be custom hiring centres, thereby preventing the blocking of high-cost capital in invariably under-utilised assets like tractors, harvesters, etc.

Facilitating input supplies to members at competitive prices. These could include the business of producing, procuring or distributing seeds, fertilisers, pesticides, etc.

Provide training in numeracy, basic accounting and book-keeping, business planning and management to help members make informed decisions, manage their business activities better and improve the overall capacity of members to run the FPOs effectively and efficiently.

Facilitating access to cash loans and input credit as they can better negotiate with banks because of their collective bargaining strength.

Reducing asymmetries of information, analysing market information, identifying and capitalising on market opportunities, negotiating contracts, collecting, storing, primarily processing and transporting produce efficiently, thereby optimising costs further.

Coordinating production by member farmers to take advantage of demand forecasts and market opportunities to match required delivery schedules, deriving maximum benefit from the process.

Taking on the role of trader or intermediary, at times even taking on the mantle of obtaining a licence and running mandi sub-yards.

Undertaking primary and secondary processing of produce to add value, develop brands and address residue and traceability issues and thus, securing access to complex and premium markets.

Performing functions of lobbying and advocacy services to promote and defend the rights of members and helping influence the creation of a conducive environment for the growth of FPCs.

Despite the tangible benefits that FPOs (including FPCs) can bring to farmers, the movement to organise farmers' collectives had been tedious in the past. The existing FPCs numbering about 5,000 in the country, with 900 having been promoted by SFAC alone, face many challenges in realising their full potential and deriving optimum benefits. Many factors have contributed to this. Typically, resource institutions that are mandated to mobilise and educate the farmers on the advantages of collectivisation themselves face issues of limited capacities and capabilities in their cadres. While their efforts at mobilisation are by and large commendable, their ability to handhold and forge credit and marketing linkages are limited. Simple things like mandatory legal and statutory compliances as per FPO registration pre-requisites are not carried out, creating problems of default and penalty, including criminal liability for the board of directors.

While CEOs of FPCs are provided basic training, broad-basing the pool of trained professionals to account for high rates of attrition is a sine qua non for bringing sustainability in the FPO ecosystem. Simultaneously, even the Board of Directors of FPOs, who are farmers themselves, require specialised capacity building inputs from formal institutions to be able to make strategic business decisions for the efficient running of their 'enterprises'. It is further perceived that trained and aware CEOs and BoDs will be more able in canvassing for credit linkages with banks who typically remain reluctant to finance infant (and even growing) FPOs given their perceived gaps in management capabilities and, feeble finances.

In this setting, importantly, no dedicated plan funds were hitherto available for promotion of FPOs and some last dregs of funds in on-going schemes like NFSM, RKVY and the MIDH were sporadically channelled for creation and promotion of FPCs. To lend FPC formation and promotion the necessary boost, dedicated and direct budgetary funds were therefore deemed critical to pushing the agenda. Therefore, the new initiative of promoting 10,000 FPOs through different implementing agencies like SFAC, NABARD and NCDC with committed funds of over Rs 6,000 crore over the next 5 years is a welcome step in the right direction for providing the necessary fillip to the movement for the promotion of FPOs, even while contributing significantly to the Government's agenda of doubling farmers' income by 2022.

The writer is the MD, Small Farmer Agribusiness Consortium, GoI. Views expressed are strictly personal