10,000 FPOs is not too many, but implementation challenges persist

The government’s ambitious scheme to create 10,000 Farmers Producer Organisations (FPOs), initiated in 2020 with an allocation of ₹6,865 crore, has achieved its target – at least numerically, and on paper. The Ami-Gramvikas FPO, registered in Khagaria (Bihar) on February 24, has become the 10,000th FPO under this programme. If the FPOs set up earlier, and outside this central-sector scheme, are also taken into account, the tally of such grassroots-level rural business enterprises amounts to over 44,400. However, not all of them are doing well. Many are struggling for survival because of issues on commercial viability, or exist only in records. Yet, the net count of successful FPOs is fairly large. Some of the well-managed ones are reporting annual turnovers of over ₹1 crore, which, given the small-scale ecosystem in which they operate, can be deemed akin to the unicorns among the startups in the other sectors. Around three million farmers are estimated to be associated with these bodies. Nearly 40 per cent of them are women.

 

The prime objective of forming FPOs, some of which are called Farmers Producer Companies (FPCs), is to bolster the member-farmers’ income by leveraging economies of scale and enhanced bargaining power. They are able to negotiate better deals for procuring inputs, and marketing the produce, in bulk. Unsurprisingly, therefore, the trend of formation of such collectives of small producers is not confined to crop farmers alone. Those engaged in animal husbandry, fisheries, and other rural occupations are also doing so. The official scheme for promoting FPOs provides them financial assistance of up to ₹18 lakh for three years, equity grant of up to ₹2,000 per member and credit guarantee for project loans from select lending institutions.

 

The genesis of the formation of farmers’ collectives can be traced to the advent of the cooperative movement in India in 1904. However, most cooperatives barring those in sectors like milk, sugar, and fertiliser have generally failed to serve the intended purpose due chiefly to meddling by politicians. But FPOs, despite embodying the spirit of cooperation, function like private companies. In fact, the Companies Act was amended in 2013 specifically to incorporate a provision for the formation of FPOs as “Producer Companies” to collectively manage their produce. This has allowed FPOs to operate more like companies than cooperatives.

 

Potentially, well-run FPOs can offer a slew of benefits to their member farmers. Apart from the scale-related gains, these organisations help boost the profitability of the business ventures of their members by providing them technical support and skill training, and facilitating better access to financial and credit services. They also help them to establish forward and backward linkages, including direct links with input suppliers, consumers of their products, and other related agribusinesses. Besides, they help improve logistics to reduce transportation expenses. Moreover, they let farmers pool their resources, such as knowledge, equipment, or self-produced seeds, to make farming more efficient, ensure optimal use of farm machinery through sharing it with other members, and improve the marketability of the produce through value addition, brand building, and product promotion. Such measures ultimately contribute to reducing the costs and increasing returns, leading to higher profits and better socio-economic status for FPO members.

 

However, FPOs are also beset with some formidable challenges, which adversely affect their performance and impede their progress and growth. The problem of securing adequate finance to scale up their business is the most critical among them. Financial institutions are generally wary of lending to FPOs because of the latter’s poor asset base and high perceived risks. FPOs cannot raise equity to any significant extent because of the limited paying capacity of their members, who are usually smallholders or landless people. The lack of professional expertise and managerial skills is another major constraint. Paucity of resources does not allow them to hire, and retain, professionally capable and experienced managerial staff to look after marketing, accounting, legal, and other matters, as also to formulate effective strategies to upgrade, expand, and diversify their business. Moreover, they lack avenues of risk mitigation to cope with commercial contingencies, and hedge against production and financial losses.

 

To be successful, FPOs need well-judged, and professionally conceptualised, business models with scope for boosting profitability through various modes of value addition, including processing, packaging, and quality improvement. There is also a need for capacity building by improving leadership and administrative skills of those managing FPOs. Greater deployment of modern technologies, especially the use of digital techniques, in production, quality control, brand building, product promotion, and marketing, is imperative to ensure the longer-term sustainability and growth of FPOs.

 

Given the relevance of collectivisation as the institutional framework for the uplift of resource-poor ruralites, the campaign for the promotion of FPOs should not cease at 10,000. It needs to be carried on.

 

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surinder.sud@gmail.com