NAC panel charts rescue plan for small farmers

Calls for allocation of about Rs 3,200 crore during the 12th 5-year plan period for supporting at least a crore such Farmer-Producer Organizations

In a parallel development to the recent approval for Foreign Direct Investment in multi brand retail, a National Advisory Council working group has called for aggregating small and marginal farmers into producer organizations to link them to the markets and finance.

It has called for allocation of about Rs 3,200 crore during the 12th Five Year Plan period for supporting at least a crore such Farmer-Producer Organizations through the ministries of Agriculture and Rural Development.

The report titled "Enhancing Farm Income for Small Holders through Market Integration" says "there is an urgent need for solutions that mark a break from the past and significantly improve the terms of smallholder access to the market."

Calling FPOs "a necessity," it says these can leverage their collective strength and bargaining power to access financial and non-financial inputs and services, technologies, reduce transaction costs, tap high value markets and enter into partnerships with private and public entities on more equitable terms.

The FPOs proposed by the NAC would differ from the primary agricultural cooperative societies in that FPO membership  would not be based on ownership of land, but on the concept of shareholding. This would make them open to tenant and landless farmers, women, dalits and tribals, without any need to prove title to land.

Typically, FPO members contribute some cash shareholding into the organisation and enjoy the benefits of one-member-one-vote. The  NAC committee has called for complimenting the investment made by the farmer member by payment of an equal amount.

The FPOs are to be formed with the help of an external catalyst or a mentor organization who will build their capacities to govern the institutions in a self-sustaining manner. This role could be played by NGOs, private sector, universities, cooperatives and would require grant funds from the Government for the first three years.

It proposes matching  grant to FPOs to double member equity, subject to Rs.10 lakh per FPO.

It also calls for relaxing Priority Sector Lending  norms by RBI for FPOs to drop collateral requirement upto Rs.25 lakh.  It says that FPOs should be made eligible for collateral free loan similar to the  Self Help Groups who can get up to Rs. 5 lakh and to be made eligible for loans from the Guarantee Fund for Banks that lend to SMEs.
 
The report also suggests measures to increase market access of FPOs like inclusion   as a recognized category  under the APMC Act  to be allowed to market members’ produce directly to buyers of their choice, through all platforms, physical and electronic.
 
Small and marginal farmers numbering about nine to ten crore,  comprise 83% of all agriculturists in the country and cover nearly 50% of operational holdings. 

More than 90% of  SMF are dependent on rain for their crops.
 
While one lakh crore is spent annually in research and extension these do not reach 90% of farmers.

Similarly bank credits and other institutional credit go to just ten% of SMF, leaving the rest at the mercy of money lenders.
The SMF also do not have access to the formal markets and hence do not benefit from the prices available in them thus making their activities mostly unremunerative .

The recent approval for foreign direct investment in retail had raised concerns about the implications it may have on small farmers. The working group hints at these concerns as it says that ''while globalization, an expanding domestic middle class and diversification of the food basket are driving growing corporate interest in agriculture as a source for raw material for agriculture value,  linkages between the corporate sector and farmers   involve mostly large and medium farmers.’’ 
 

NAC road map to help small and marginal farmers

Form farmer producer organizations

NGOs, others could mentor each FPO

A farmer without land can also be member of FPO

Set aside Rs 3200 crore  to create  FPOs

Treat FPOs on par with SMEs for loans