Budget may give impetus to small, marginal farmers

Budget is likely to announce creation of a credit guarantee fund for Farmer Producer Organisations along with equity participation by government in such organisations

To give a boost to agriculture activities by small and marginal farmers, the forthcoming budget is likely to announce creation of a credit guarantee fund for Farmer Producer Organisations (FPOs) along with equity participation by government in such organisations.

 

An FPO is typically a company comprising only farmers and producers but formed under the Indian Companies Act. However, an FPO is different from a cooperative society, though in most places they are named as cooperatives. In an FPO, only a producer can become a member, while in a cooperative society even others could be a member. Cooperatives are registered under states cooperative acts.

 

According to a senior official from the department of agriculture, at present there are almost 300 odd FPOs across the country with a combined membership of over 5,00,000 farmers, but their numbers can significantly go up if the Budget support comes.

 

“By June, our target is to have 500 FPOs with a combined membership of almost 10 lakh farmers, but for that we would need some support as there are almost 60 crore farmers in the country, who can be brought under the FPO umbrella,” the official said.

 

The role of FPOs in alleviating the plight of small and marginal farmers has also been recognised by Sonia Gandhi-led National Advisory Council (NAC).

 

A working group of the Council in a recent report said FPOs are a necessity in the Indian scenario, if one has to effectively address issues like shrinking land, difficulty in accessing critical inputs like fertilizer and credit, fragmented value chain, weak bargaining with market agents and low return on investments.

 

An official said said the Small farmers’ Agri-Business Consortium (SFAC), which has been promoted by the department of agriculture, will act as a nodal agency to provide support for creation of FPOs. It also acts as support system for FPOs across the country.

 

“Typical FPOs start with a equity base of Rs 5-10 lakh which can expand if the business expands. In this, the member contribution ranges between Rs 500 to Rs 1,000. The member contribute a minimum amount of their produce and ensure that a fixed quantity of input is purchased so that the organisation does not fail,” the official explained. He said the good part is that farmers who grow diverse crops can also form an FPO because there would be some common produce between them.

 

The FPOs are mobilized through a network of almost 25 grassroots non-governmental organisations. In ideal conditions it takes almost 6-9 months for a FPO to get register.

 

The biggest problem that FPOs have been facing since their inception in the last one decade has been access to funds. This is more acute for new FPOs, officials explained.

 

According to a background note on financing FPOs, which was discussed in a meeting few months back, these organisations suffer from inadequate funding because formal financial institutions like commercial banks are wary of lending to these bodies largely due to their inability to provide adequate collateral to cover risk.

 

Specified agencies like NABARD do have a dedicated corpus to provide loans to producer organizations, but it entertains proposals from mature FPOs with a credit history of at least three years.

 

SFAC’s own venture capital fund (VDF) in-principle remains open to financing FPOs but the condition of clubbing VC with a bank loan has resulted in zero disbursal to producer organizations in the last five years.

 

It is these difficulties that the Budget might help in surmounting. The NAC’s working group in its report too said that the biggest catalyst to bring small farmers together in an FPO would require committing funds for capacity development for at least three years, which is the minimum time required for these organisations to grow.