Making FPOs viable

Financing remains a big constraint

Prime Minister Narendra Modi was well on the mark when he observed during his recent interaction with Farmer Producer Organisations (FPOs) that these bodies were empowering the farmers with collective strength. He also aptly spelt out the key benefits that the FPOs offered small and marginal landholders and other rural entrepreneurs. These include greater bargaining power, economies of scale, better risk management, capacity to innovate, and adaptability to market conditions. But these gains, in reality, are available only in the case of well-run FPOs, which, unfortunately, are not too many. Most of the 10,000 FPOs that have come up in recent years are struggling to survive. They face numerous challenges, many of which they find hard to surmount. A study of these collectives by Azim Premji University has identified several disabilities of these organisations which stand in the way of their development into strong business entities to thrive in a competitive market. The noteworthy among these are the absence of a feeling of ownership among producer-shareholders, under-capitalisation, inadequate business skills, poor governance and want of a favourable local ecosystem.

However, the most crippling constraint is the financial crunch, which mars their capacity to hire professionally qualified and skilled managers to run them efficiently and make them economically viable. Their paid-up capital collected as shares from their members, who are mostly resource-starved small and marginal farmers, is generally quite meagre, less than Rs 5 lakh in most cases. This is insufficient to meet even the administrative costs, leave alone providing the needed working capital for a viable business. The banks are usually wary of lending to the FPOs because they do not have any assets of their own to offer as collateral. Nor do they have any long-term, well-documented business plans to establish their credit-worthiness. The paucity of resources affects their ability to buy the inputs in bulk or offer good prices to the growers for their produce. Nor can they set up processing units for value-addition of the farm produce.

True, the government has come up with schemes to provide financial assistance amounting to Rs 18 lakh per FPO for the initial three-year period. But only a small proportion of these organisations have managed to draw these funds. The State of India’s Livelihood report, 2021, shows that less than 5 per cent of the FPOs have received any government funding. The credit-guarantee scheme launched by the government to facilitate collateral-free institutional credit to the FPOs is of not much avail to them, either. Most of the farmers’ collectives are registered under Part IX-A of the Companies Act or the Cooperative Societies Act. But they are treated neither as companies nor as cooperative societies. Even some of the tax concessions and interest subvention available to the individual farmers are not provided to the FPOs though these are owned exclusively by the farmers. Moreover, the official handholding, in the form of financial aid or other facilities, is available only for the first three years though it is actually needed for a much longer period to enable them to grow to a stage where they can fend for themselves. These issues need to be addressed holistically to let the farmers’ collectives perform to their potential.