Survival and growth of FPOs

With around 7,600 farmer producer organisations (FPOs) having already come up, the government’s target of extending their tally to 10,000 by 2024 seems within reach. This would be a significant achievement, considering the usefulness of these unique business enterprises for the member-farmers. The FPOs have been found to boost farmers’ income by enabling them to get higher prices for their produce and procuring inputs and services at lower costs, thanks largely to enhanced bargaining power and economies of scale, as also value-addition of the products. However, the long-term socioeconomic impact of these institutions on rural economy would depend on how many of them manage to survive and grow, especially after the government’s financial incentives and handholding stop after the initial phase.
 

The advantages of the FPOs have been borne out and quantified by a study conducted by the National Bank for Agriculture and Rural Development (Nabard) in 2020-21 and 2021-22. It revealed that the FPOs helped raise farm productivity by 18.75 per cent to 31.75 per cent and slash procurement costs of inputs like seeds and fertilisers by Rs 50-100 per bag. The increase in net per-acre annual income was estimated at between Rs 4,000 and Rs 30,500 in absolute terms, and 14 per cent to 60 per cent in relative terms. The study attributed these gains also to the reduction in post-harvest losses due to better handling, transportation and storage of the output, and realisation of higher prices through produce aggregation and bulk sale. The small and marginal farmers, who constitute over 85 per cent of all farmers, were found to benefit the most from the FPOs which served as aggregators of their produce for wholesaling and buyers of inputs in bulk on their behalf.
 

The concept of FPOs, also called farmer producer companies in some cases, was originally mooted way back in 2000 as a means of enabling farmers to come together, pool their resources, collect their produce, trade in large quantities, and draw advantages of collectivisation. These organisations were deemed better alternatives to cooperatives, which have failed to serve their objectives chiefly because of rampant political interference, incompetent management, and financial irregularities. The FPOs, for all practical purposes, are hybrids of cooperative societies and private limited companies, but without the unwanted features of either of them. Their membership is restricted to primary producers who also contribute to the working capital and have equal voting rights and say in the management. But their shares are not tradable on the stock markets, so any hostile takeover by business houses is ruled out.
 

However, not much headway could be made in the expansion of the FPOs sector for several years, despite amendment in 2002 of the Companies Act, 1956, to make specific provision for their registration. The modified law provided for the formation of company-like business enterprises not only by farmers but also by small producers in other rural sectors, such as animal husbandry, fisheries, beekeeping, spinning, weaving, and handicraft. The proliferation of FPOs began largely after 2010, when the Centre and some state governments started taking active interest in promoting these organisations by offering financial incentives. The real shot in the arm came in 2020 with the launch of the Centre-sponsored scheme for promoting 10,000 FPOs with a budgetary allocation of Rs 6,865 crore. 
 

This scheme involves provision of Rs 18 lakh to every FPO, and Rs 25 lakh to cluster-based business bodies, for the first three years. The promotional work and implementation of the programme has been assigned to several national-level agencies, including the Small Farmers Agri-business Consortium (SFAC), the National Cooperative Development Corporation (NCDC) and the Nabard. Many state governments and non-government organisations are also now promoting FPOs.
 

The bulk of the existing FPOs are located in six states where appropriate policy framework and ecosystem have been created. These are Maharashtra, Bihar, Odisha, Tamil Nadu, West Bengal and Uttar Pradesh. The Odisha government is, in fact, encouraging even foreign agencies to promote FPOs. The Uttar Pradesh government has decided to have at least one FPO in every block.
 

However, not all FPOs turn out to be successful, or economically viable. Many of them are struggling to survive or have gone defunct. One of the most challenging tasks for FPOs is to secure adequate funding to meet operational expenses and expand the business, especially after the withdrawal of government support. Banks are usually wary of lending to FPOs, which generally do not have enough owned assets to offer as collateral. Besides, many FPOs lose members’ loyalty, especially if their performance is below par in the early stages. Dominance of large farmers, who tend to prefer looking after their own interests rather than of all members, has also proved to be the bane of many FPOs. These issues need to be looked into, and suitably addressed, to improve the performance of the FPOs and their utility for the small and marginal farmers, who need their 

services the most.

surinder.sud@gmail.com