Farmer Producer
Organizations (FPOs): Can they deliver?
By S.R.Asokan and C.
Shambu Prasad[1]
The Finance Minister,
in her budget speech has placed lot of faith in the emerging institution of
farmers by announcing that the Government hoped “to form 10,000 new farmer
producers organization in the next five years”. This is in line with the Dalwai
committee recommendations of doubling farmers’ income which proposed setting up
of minimum 7000 FPOs by 2022-23. The committee felt if each FPO covers 1000
farmers it would cover around 7 million farmers.
The Economic Survey
states that there are 14.6 crore operational holding in 2015-16 of which 68.5
percent are marginal that is having less than one hectare of land. Small
unconsolidated holdings put farmers at the mercy of dealers while buying seed,
fertilizer, pesticide etc and also while selling their output in the mandi. The logic of FPOs is based on
better member benefits through collective bargaining for lower-priced and
quality inputs and reduced transaction costs through pooling their outputs for
better price realization. FPOs benefit members by reducing the information
asymmetry by providing timely market intelligence. FPOs can enable farmers to
cope with market and price fluctuations and not leave it to the mere hope that
markets would clear their produce at a good price. The Dalwai Committee rightly
states that prior knowledge about the consumer demand across regions is
critical to improve efficiency in marketing agricultural produce. FPOs can play a significant role by providing
this information. If organized well they could become a key point of sourcing
for processors or organized retail chains. The dependence of farmers on the
vagaries of the market or dependence of the mandi
can be avoided. Some companies like Bigbasket, Grofers etc are exploring such
possibility for fruits and vegetable sourcing. Companies like Bunge are also
trying to promote such initiatives for Soybean in Madhya Pradesh.
To realize the true
potential of FPOs needs considerable work on building the ecosystem. The spurt
of FPOs in the last 7-8 years has been enabled through a policy push. However
of the close to 3500 FPOs formally registered so far, many are not in good shape.
The lack of support beyond the project period has led to the Board of Directors
from villages being served notices for non-compliance from the Registrar of
Companies. While some state governments like Madhya Pradesh, Karnataka, Andhra
Pradesh, Odisha, Maharashtra and Bihar have come out explicit policies to
support FPOs and enable them to get the requisite licenses, many FPOs face
significant challenges due to absence of ‘ease of doing business’. The FPO
movement is unlikely to spread without significant investments in capacity
building of office bearers and CEOs akin to the efforts made for
the SHG movements and a pro-active policy environment where the state bats for
these institutions by creating an enabling business environment.
Apart from the policy
initiative the FPOs should have right business model to ensure loyalty of
different stake holders. For example, typically farmers have cash flow twice a
year during harvest in kharif and rabi. However, they need working capital
for farming operations such as ploughing, weeding, irrigation apart from
purchase of material inputs. They also need money to run their households
besides meeting any contingencies. Even though the formal credit system such as
commercial banks, Micro Finance Institutions has penetrated farmers prefer to
borrow from the commission agent in the mandi. The agent lends to the farmers
without much paperwork or collateral. The farmer dutifully takes the produce at
the end of the season to the agent to be auctioned off. This “credit commodity
linkage” is pretty much the picture in most of the mandies. Even in agriculturally prosperous state like Punjab
according to a study an estimated 90 percent of the farmers are indebted the
scenario is no different. Therefore, FPOs should ensure credit to the farmers
to encourage routing more of the output through them. However, the fear is that
farmers may take loan and would side sell the produce that is outside the FPO
then how to recover the money. This is a real challenge and there is no easy answer
to nudge the farmers to bring about the behavioural change.
FPOs may also face
problems from purchasers. For example, if an agro processor such as a potato
wafer manufacturer or branded atta
maker having committed to purchase renege on their commitments the FPO would
face the ire of the farmers. There are
several instances of the processor or retailer going back on their commitment
from purchasing from the farmers under the contract farming arrangement on one
pretext or other. FPOs are still at a
nascent stage and cannot take on the companies when they fail to honour their
side of the bargain. The challenge is to ensure the loyalty of the agro
processors to whatever arrangement they have with the FPOs.
Studies have shown some
of the FPOs are doing well in input marketing. This is largely due to the input
companies transferring the last mile delivery to the FPOs. This has helped the
companies to shorten their channel length and save on cost of retailing closer
to the farmers. Similarly, the procurement cost of the processors and retailers
can be reduced provided they allay the fear of FPOs and build a strong and long
term relationship.
Cooperative form of
organizations which also ensure collective bargaining power have not succeeded
in many parts of the country with few notable exceptions. Amul is often cited as an example of a
successful collective and quite rightly so. However, what made it a success, is
it the nature of the commodity (milk) that is dealing in? is it its governance
structure right from the village to the apex? is it the local leaders like
Tribhuvandas Patel who ensured farmers loyalty to the organization etc.
Cooperatives in oilseeds failed despite the legendary Verghese Kurien at the
helm. The genesis of the idea of farmer producer organization can be traced to
the interference of the registrar in the functioning of the cooperative. As new
generation cooperatives FPOs are now free from such beauracratic stranglehold.
However, the viability of FPO for different crops depends on the commitment of
different stakeholders such as farmers, the management and the partners in
supplying inputs and purchasing outputs. If these can be ensured, the Indian
agriculture can be transformed.
