Liquidity crunch likely to hit farm gate level procurement by FPOs

Experts say banks are still hesitant to lend to producers as there is no collateral

Shubendhu Dash, a project director working with a couple of farmer-producer organisations (FPOs) and companies in Nabarangpur district of Odisha, was trying to facilitate the sale of maize procured from farmers to starch and feed meal factories in Chhattisgarh sometime back. Dash says despite his best efforts, the produce did not find many takers as it was costlier than locally produced maize.
 
The reason was simple.
 
While Dash had to pay one per cent mandi tax in Odisha to transport the crop to Chhattisgarh, another 2.2 per cent was levied for selling it there as local tax.
 
“This additional expenditure of 3.2 per cent naturally made my maize costlier than that of local producers, which is why companies weren’t keen on purchasing the maize, though our quality was far better,” Dash, who works at Access Develop­ment Services, a resource centre that supports and mentors FPOs, told Business Standard over the phone.
 
For FPOs, the recently passed farm laws, particularly the one allowing out-of-mandi trade without restriction or tax, has opened a new window of opportunity. Though FPOs were allowed to procure from mandis earlier in states like Madhya Pradesh and Rajasthan, the purchasing process wasn’t smooth.
 
“Few years back, we tried purchasing chana from Rajasthan mandis for few of our FPOs located there, but found that though the mandi committee gave us trading licence we faced several hidden barriers like no separate trading space for FPOs,” he said.
 
The reforms, Dash says, will help FPOs procure directly from farmers, something that they have been pressing for long.
 
However, questions remain on whether this will provide a boost to the FPO ecosystem.

 
Pravesh Sharma, former managing director of Small Farmers Agribusiness Consortium (SFAC), an agency floated by the government to promote and guide FPOs, says the law on agriculture trading has the potential to change the FPO landscape and boost farm gate level procurement, provided the right ecosystem is provided.
 
Already, in Madhya Pradesh, Sharma’s firm, Kamatan FarmTech, has set up eight procurement centres outside mandis with its partner FPOs to procure directly from farmers in the ongoing kharif season, all after the Acts were passed by Parliament last month. “We hope to increase the number to 15 in two weeks and move into Rajasthan and Gujarat in the rabi season,” he said.
 
“In states such as Madhya Pradesh, FPOs were earlier also allowed to get trading and procurement licences at fairly liberal terms, but the condition was all members of FPOs need to bring their produce to the mandi to enable the FPO to procure, which naturally subjected them to taxes and levies.” The new Act does away with this.
 
 Reports said some big corporate houses that deal in soybean and maize have started procuring through FPOs in MP and Maharashtra.
 
“We have information about some FPOs already stationing vehicles in villages to procure directly from farmers on behalf of corporates, which gives them the right price and cuts down on mandi taxes and other levies because small farmers in any case relied on middlemen,” Sharma said.
 
But, to ensure that the farm-gate procurement is sustainable FPOs need access to dedicated finance for procurement, he said. “Banks are hesitant to lend to FPOs as there is no collateral, loans from NBFCs are at a very high interest rate, so FPOs need some mechanism to finance their working capital needs,” Sharma said.
 
G V Ramanjaneyulu, executive director from the Centre for Sustainable Agriculture (CSA), which has promoted over 200 FPOs in Andhra Pradesh and Telangana, concurs. He said farm-gate aggregation by FPOs will only be sustainable if there is capital and some mechanism through which quality manpower could be made available.
 
Shriram Gandhave of Maha FPC said the laws are welcome, but some checks and balances, particularly on auctioning produce, should be there or else small farmers could get cheated. “My experience in Pune and Mumbai shows that,” Gandhave said.