FPOs a hope for small farmers, institutional financing a worry

Tribal men and women, mostly belonging to the Garasia tribe around Pali district of Rajasthan, collected custard apples (sitaphal) from forests for years and sold them along the Udaipur-Ahmedabad highway for a paltry sum of Rs 2-3 a kg.

However, the same custard apple was sold at much steeper rates in cities and towns several kilometres away, leaving the collectors in the lurch because there was no functioning mechanism to process and aggregate their produce near the collection centres. The pulp of custard apples was even more valuable. 

However, things started changing around 2015, when tribal women collectors of villages adjoining Pali formed a farmer-producer company (FPC) and started a processing unit for extracting the pulp and set up village-level collection centres. 

Gradually their operations expanded and today the company, named Ghoomar Mahila Producer Company, sells custard apple pulp to big ice-cream makers, sweet shops, and squash and jam manufacturers in several states.

For the women tribal custard apple collectors of Pali and its adjoining villages, the produce, which fetched them barely Rs 1-2 a kg, now earns Rs 10-12 and, more importantly, many of them don’t have travel 10-12 km villages and sit on the highway for hours, waiting for buyers.

Ghoomar Mahila Producer Company now has almost 1,600 shareholders on its rolls, who joined with a nominal share capital of Rs 1,000 per member and is among the successful women-led business operations.

The work done by the company featured in an interaction Prime Minister Narendra Modi with women entrepreneurs had a few months ago. In its first year of operation, the company processed 10 tonnes of custard apples, and the amount in 2018-19 grew to almost 100 tonnes of processing and pulp extraction. 

The operation — from collecting custard apples to its grading, sorting, processing and even marketing — is done by tribal women.

Similarly, almost 900 km away, the fortunes changed for Birju Lal Parte, a 39-year-old farmer from Doudi village, Betul district, Madhya Pradesh. For the past two-three years, he is selling his maize grown in 8 acres (one acre = 43,560 square feet) through Maa Machna Crop Producer Company Ltd.

The farmer-producer organisation (FPO), named after a local river that flows through the region, not only ensured that Birju got agricultural inputs at rates lower than market prices, but also bought all the maize produced by him and sold it to poultry firms in Punjab and Haryana, where maize is used as feed.

Birju says in these hard times, when most crop prices have plummeted owing to over production and low demand, joining the FPO has helped him stay afloat.

“First we start working with villagers on water- and agriculture-related projects and once a significant number of people join us we try to form an FPO, which also helps in getting them linked to the market,” said Amit Kumar Dwivedi, the young chief executive officer of Maa Machna.

Sitting in his humble office near the Shahpur Mandi, Betul district, Amit says it is because of their efforts and the collective strength of farmers that the local mandi, which was closed for almost 18 years, resumed operations. 

Starting on a small scale, today India has around 4,000 FPOs, of which the National Bank for Agriculture and Rural Development (Nabard) has promoted around 2,000.

Most of these are incorporated as farmer-producer companies (FPCs) under the special provisions of the Indian Companies Act, 2013.

FPOs came into the picture more than a decade ago, but got a fresh impetus when the agriculture department in 2013 issued a national policy and guidelines for them, recognising them as the most appropriate institutional form around which farmers could be mobilised and their capacity built. 

This was followed by setting up a credit guarantee fund of Rs 100 crore for FPOs in the Small Farmers’ Agribusiness Consortium (SFAC) and an equity grant of Rs 15 lakh to all registered FPOs was announced by the UPA government in 2013-14.

The second big push came in 2015, when Nabard issued guidelines for the promotion of FPOs, while the Modi government in the 2018-19 Budget announced a tax holiday for the first five years for FPOs with an annual turnover of Rs 100 crore. 

Till then, FPOs were taxed at 30 per cent. However, despite all the push, FPOs still haven’t managed to replace cooperatives as the main instrument of farmer collectives and a main reason for it seems to lack of easy financing solutions, restrictions on their operations in mandis, and an absence of proper guidelines for growth.

“Though there is broad understanding among the top bank managements about FPOs and their financing needs, it is lack of awareness in middle and junior bank management which hampers them from extending proper credit facilities to FPOs,” said Neel Kamal Darbari, managing director of the Small Farmers Agribusiness Consortium (SFAC), the nodal agency to promote FPOs.

Ashish Mandal, director of Action for Social Advancement (ASA), a resource organisation working as promoter for FPOs, says that unless someone or some organisation champions the cause of FPOs, the concept will take longer time to settle down. But senior government officials feel engaging FPOs in procurement operations could diminish their role. 

“I understand that procurement operations are lucrative, but they could divert them from their objectives,” a senior agriculture ministry official said.

A ray of hope

• 4,000 FPOs in India, most of which are incorporated as Farmer Producer Companies (FPCs) 

• 2000 number of FPOs in the last few years

• 60,000 FPOs required in India to cover all farmers, through collectives

• UPA as well as NDA governments have announced several measures to boost FPOs, but several problems remain

• FPOs aren’t allowed to participate in price support operations in several places, states too don’t create an enabling environment

• Financing remains a big issue as banks don’t have structured products for them and many don’t consider FPOs under their priority sector lending obligation