Enabling farmers

New policy on FPOs should improve returns

The Department of Agriculture and Farmers’ Welfare recently released a draft National Policy on Farmer Producer Organisations (FPOs), with the aim to consolidate existing FPOs and facilitate the formation and promotion of new ones. The intention is to create an ecosystem to facilitate income-oriented farming and improve the overall well-being of farmers. The idea must be welcomed because it will benefit about 25 million farmers in the country. The policy aims to facilitate the creation of seven-eight active primary-level FPOs in each of the 7,256 blocks in the country, with an average of 500 farmer-members per FPO. It seeks to enhance farmers’ net income through ease of doing agribusiness, promoting cost-efficient production, and market-oriented value addition.

Similar to the model of value chains for milk adopted by Amul, the policy aims to create a three-tiered supply-chain model for agricultural and horticultural produce for value addition, processing, and domestic and export marketing. It also aims to ease access to credit and financing for FPOs by continuing the FPO equity grant fund and FPO formation fund. FPOs may continue to get interest subvention and credit guarantees under the Agriculture Infrastructure Fund scheme. At the same time, the policy also seeks to address the long-standing problem of inefficient management plaguing these organisations such as the inability to access, afford, attract and retain quality managers.

Indian agriculture has long been constrained by fragmented land holdings. The data from the National Bank for Agriculture and Rural Development (Nabard) suggests that some 85 per cent of the land holdings belong to small and marginal farmers. The use of the latest farm machinery is limited in small land parcels and, more importantly, unorganised farmers are unable to realise good value for their limited produce. Small farmers do not have any bargaining power, nor do they have the capacity to store the produce to be sold in the lean season. Small producers do not possess enough inputs or produce as much to benefit from economies of scale. In agricultural marketing, there is a long chain of intermediaries who very often work non-transparently, leading to the situation where farmers receive only a small part of the value that the ultimate consumer pays. This has limited farmers’ earnings.

This is where FPOs can make a difference. Each FPO, with an elected board of directors, is owned by farmers and the profits are shared among the shareholders. Moreover, Nabard, government departments, and other financial institutions provide financial and technical support to these cooperatives. FPOs can eliminate many layers that tend to go against farmers. Through aggregation, farmers benefit in every aspect — from fetching better yield to getting higher prices for the produce. They also have better bargaining power vis-à-vis the bulk buyers of produce and bulk suppliers of inputs. FPOs procure inputs, provide market information to the members, and help them get access to finance, and they typically have storage and processing facilities, along with helping in brand building, packaging and marketing the produce to large buyers. While farmers are mostly confined to production, much of the profit is not in production but in processing and marketing, where farmers play a minimal role. Thus, there is also a need to invest in training and capacity building among farmers.