Context: The Centre's project to doubling farmers income by 2022 appears to be making very slow progress.
- Most small farmers have a monthly household income of less than ₹6,000, fragmented landholdings and a 30 per cent probability of buying seeds and pesticides.
- They are facing the challenges of changing patterns of the monsoons.
- Possible solutions to these challenges include collectivisation, increasing the price the farmer receives, improved practices to reduce inputs, value addition at farm gate, insurance, and credit models that are farmer-friendly.
But there is one issue that underlies all these solutions and that is of reach. There is a practical challenge of reaching these small and marginal farmers, who number around 70 million today and the costs involved in such an effort. Farmer Producer Organisations provide a way of addressing this, while also giving them more ‘bargaining’ power as a group.
Farmer Producer Organisations
- A Farmer Producer Organisation (FPO), formed by a group of farm producers, is a registered body with producers as shareholders of the organisation.
- It is an entity formed by primary producers, like farmers, milk producers, fishermen, weavers, rural artisans, craftsmen, etc.
- It deals with business activities related to farm produce and works for the benefit of member producers.
- It can be established in the form of a Producer Company, a Cooperative Society or any other legal form which provides systems for sharing of profits/benefits among the members.
- These institutions are registered under the Company's act and are governed by a set of bye-laws and rules.
- The membership of an FPO ranges from 100 to over 1,000 farmers. Most of these farmers have small holdings.
- India has 5,000 to 7,500 such entities as per different estimates and a majority of them are farmer producer companies.
Advantages of FPOs
- The main objective of an FPO is to ensure better income for the producers through an organized system of their own.
- Small producers do not have the large marketable surplus individually (both inputs and produce) to get the benefit of economies of scale.
- These farmer members own agricultural land in the range of 0.5 to 1 hectare, hence have little to no bargaining power for their input and output supplies.
- Declining average size of farm holdings: The average farm size declined from 2.3 hectares (ha) in 1970-71 to 1.08 ha in 2015-16. The share of small and marginal farmers increased from 70 per cent in 1980-81 to 86 per cent in 2015-16.
- Small farmers face several challenges in getting access to inputs and marketing facilities.
- FPOs can engage farmers in collective farming and address productivity issues emanating from small farm sizes.
- Women empowerment: For example, tribal women in the Pali district of Rajasthan formed a producer company and they are getting higher prices for custard apples.
- Since 2011, the government has intensively promoted FPOs under
- the Small Farmers’ Agri-Business Consortium (SFAC),
- state governments and NGOs.
- The National Bank for Agriculture and Rural Development (NABARD) began promotion of 2,000 Farmer Producer Organisations (FPOs) in 2014-15.
- The government also realized the potential of the FPO in the context of doubling farmer incomes and in 2019 launched a 10,000 FPO scheme.
- The ongoing support for FPOs is mainly in the form of, one,
- a grant of matching equity (cash infusion of up to Rs 10 lakh) to registered FPOs, and
- two, a credit guarantee cover to lending institutions (maximum guarantee cover 85 per cent of loans not exceeding Rs 100 lakh).
- The budget for 2018-19 announced supporting measures for FPOs including a five-year tax exemption.
Studies of NABARD show that there are some important challenges for building sustainable FPOs. Some of these are lack of technical skills, inadequate professional management, weak financials, inadequate access to credit, lack of risk mitigation mechanism and inadequate access to market and infrastructure.
- Mixed performance of FPOs: Some estimates show that 30 per cent of these are operating viably while 20 per cent are struggling to survive.
- The remaining 50 per cent are still in the initial phase of mobilisation and business planning.
- Far less in numbers: Some studies show that we need more than one lakh FPOs for a large country like India while we currently have less than 10,000.
- Inactive FPOs: While over 7,500 FPOs have been registered so far, only 15 per cent of these are active. Most of them only provide inputs to farmers. The real value of an FPO, to help farmers get credit or better prices for their produce is not happening.
- Overburdened FPOs: An FPO should help grow the farmer base, provide inputs, buy output, give them advice on crops, give them credit and insurance, facilitate post processing, etc. The breadth of activities becomes a key challenge here.
- Negotiating with big business groups: In addition to working with the farmers, the FPO also has to engage with the broader farming ecosystem to set up and manage post processing activities to increase value for the farmers.
- An FPO Support Unit (FPOSU) should be set up to help with non-farming activities.
- FPO should focus solely on farmer engagement and the FPOSU can aggregate demand from millions of farmers to get larger discounts, negotiate with large buyers, source appropriate advisory, credit, insurance and other products and services.
- This will also give it the perspective of scale, to invest in understanding how partner FPOs are supporting their farmers and help build best practices to help them provide more value to their farmers.
- Allowing private equity, angel investor and venture capital support to FPOs as the lines of support for start-ups can be introduced.
- Suitable amendments in the APMC Act can be brought to treat the country as a single, unified market for agri-produce with no restrictions on commodity movement as also to enable FPOs market their produce directly to the consumers/ bulk-buyers, without payment of Mandi Fee.
- Convergence of delivering various farmer and agriculture related schemes through FPOs.
- A single window for licensing can be introduced for issuance of all licenses to FPOs, to ease the process of doing business.
- Amendments in Food Grain Procurement policy is required to allow procurement of produce directly from FPOs under Minimum Support Price scheme.
- Liberal statutory compliances may be provided for FPOs during the initial 10 years, to help them stabilize (operationally and legally) in the business environment.
- Awareness and capacity building of farmers and position holders in FPOs should be done on regular interval to help them understand the real benefit of institution.
To conclude, FPO seems to be an important institutional mechanism to organise small and marginal farmers. Aggregation can overcome the constraint of small size. They can’t compete with large corporate enterprises in bargaining. The real hope is in farmer producer organisations (FPOs) that allow members to negotiate as a group and can help small farmers in both input and output markets. The FPOs have to be encouraged by policy makers and other stakeholders apart from scaling up throughout the country to benefit particularly the small holders.