Promoting FPOs

Farmers' producer organisations need incentives

Farmers’ producer organisations (FPOs), also known as farmers’ producer companies (FPCs), need to be promoted earnestly to alleviate economic distress in rural areas, considering the role they can play in enhancing the earnings of their member-farmers. The way their count has swelled from less than 200 in 2010 to over 4,000 today is an indication of the success of this new model of agri-business. As professionally-managed enterprises conducting business on behalf of the farmers, they enjoy better bargaining power to procure inputs and services and sell the farmers’ output. They are also better equipped to facilitate value-addition of the farm produce to ensure higher returns in almost all fields of agriculture and its allied activities like horticulture, plantations, dairy, poultry, fisheries and others. Even the landless, tribals and those subsisting on collections from the wilds have gained by forming such organisations.

The FPOs are basically the hybrids of cooperatives and private companies which retain the merits but discard the demerits of both of them. The Companies Act has especially been amended by incorporating Section-IX A in it to allow creation and registration of this new category of farmers’ companies under this law. While the participation, organisation and membership pattern of these companies are more or less similar to the cooperatives, their day-to-day functioning and business models resemble those of the professionally-run private companies. Significantly, each shareholder of the FPO has one vote, irrespective of the size of shareholding, and the shares are not traded on the stock markets to forestall any risk of hostile takeover by way of equity acquisition. However, the task of promoting these organisations has been entrusted to parastatals like the National Bank for Agriculture and Rural Development (Nabard) and the Small Farmers Agribusiness Consortium (SFAC) which have their own limitations in ensuring effective hand-holding.

Of the few pro-FPO initiatives taken recently by the government, the most noteworthy are the announcement in the 2018-19 Budget of a five-year tax holiday and setting up of a small credit guarantee fund of Rs 100 crore. The FPOs were taxed at 30 per cent earlier. However, many of the critical woes of this sector still remain unaddressed. These include difficulties in securing institutional finance, inability to operate in the regular agricultural markets and the lack of legal recognition under the contract farming regulations. The banks are usually wary of granting loans to the FPOs as they do not have assets of their own to serve as collaterals. Consequently, the FPOs have to rely on loans from non-banking financial companies or micro-finance companies to raise working capital at very high interest rates. Strangely enough, the facility of cheap bank loans with liberal subvention of interest by the government that is available to individual farmers is denied to the FPOs, though they are purely farmers’ organisations. Worse still, many other kinds of concessions, tax exemptions, subsidies and benefits provided to cooperatives, startups or other grassroots farm bodies have not been extended to the FPOs. They also usually face resistance in operating at the regulated mandis because of the resistance offered by the licensed traders and their cartels who wield significant hold over these markets. These issues need to be addressed expeditiously to enable the FPOs to perform to their full potential for the benefit of the farmers.