FPO, formed by a group of farm producers, is a registered body with producers as shareholders in the organization. It deals with business activities related to the farm produce and it works for the benefit of the member producers.
A producer company is a body corporate registered as Producer Company under Companies Act, 1956 and carries on or relate to any of the following activities classified broadly:
- production, harvesting, processing, procurement, grading, pooling, handling, marketing, selling, the export of 1 primary produce of the Members or import of goods or services for their benefit:
- rendering technical services, consultancy services, training, education, research and development, and all other activities for the promotion of the interests of its Members;
- generation, transmission and distribution of power, revitalization of land and water resources, their use, conservation, and communications relatable to primary produce;
- promoting mutual assistance, welfare measures, financial services, insurance of producers or their primary produce
Over 83% of Indian farmers are small and marginal (2005-06) and cover nearly 50% of operational holdings. More than 90 % of the small and marginal farmers (SMF) are dependent on rain for their crops.
In absolute numbers, there are about 90-100 million SMF in India who depend on agriculture for income and employment. Due to the continued phenomenon of land fragmentation, the number of SMF is ever increasing.
Some of the constraints faced by the small and marginal farmers are given below:
- Shrinking land assets, the rising per-unit cost of cultivation, and shrinking profit margins.
- Difficulties in accessing critical inputs like credit, water, power as well as quality seeds, fertilizers, pesticides, and appropriate and timely technical assistance
- Fragmented value chain in agriculture marketing, monopoly and /or monopsony conditions, few opportunities for value addition at the bottom of the chain which leads to weak bargaining with market agents and low returns on investment
- Present arrangements for risk mitigation, especially crop insurance instruments, are highly unsatisfactory and do not adequately cover the risks faced by the SMF, leaving them vulnerable to the vagaries of weather and also not being able to withstand the market fluctuations of produce
Department of Agriculture and Cooperation (DAC), Ministry of Agriculture, Government of India launched a pilot programme for promoting member-based Farmer Producer Organisations (FPOs) during 2011- 12, in partnership with state governments, which was implemented through the Small Farmers’ Agribusiness Consortium (SFAC). The pilot involved the mobilisation of approximately 2.50 lakh farmers into 250 FPOs (each with an average membership of 1000 farmers) across the country, under two sub-schemes of the Rashtriya Krishi Vikas Yojana (RKVY), namely National Vegetable Initiative for Urban Clusters and Programme for Pulses Development for 60,000 Rainfed Villages.
Current Status of FPOs in India
Farmers’ Producer Organizations (FPOs) are farmers’ collectives with membership mainly comprising small/marginal farmers (around 70 to 80%). Presently, around 6000 FPOs (including FPCs) are in existence in the country, which were formed under various initiatives of the Govt. of India (including SFAC), State Governments, NABARD and other organizations over the last 8-10 years. Of these, around 3200 FPOs are registered as Producer Companies and the remaining as Cooperatives/ Societies, etc. The majority of these FPOs are in the nascent stage of their operations with shareholder membership ranging from 100 to over 1000 farmers and require not only technical handholding support but also adequate capital and infrastructure facilities, including market linkages for sustaining their business operations.
Schemes of Govt. of India/ SFAC for FPOs
The Union Finance Minister, in the Budget Speech for 2013-14, announced two major initiatives to support Farmer Producer Companies (FPCs) viz., support to the equity base of FPCs by providing matching equity grant and credit guarantee support for facilitating collateral-free lending to FPCs.
- a) Equity Grant Fund Scheme
The main objectives of the Equity Grant Fund of SFAC are as under:
(i) Enhancing viability and sustainability of FPCs
(ii) Increasing creditworthiness of FPCs
(iii) Enhancing the shareholding of members to increase their ownership and participation in the FPC.
The equity grant support to eligible FPCs is provided on a matching basis, subject to a maximum of Rs 10 lakh per FPC, provided the FPC has a minimum shareholder membership of 50 farmers.
- b) Credit Guarantee Fund Scheme
The main objective of the Credit Guarantee Fund Scheme is to provide a credit guarantee cover to eligible lending institutions to enable them to provide collateral-free credit to FPCs by minimizing their lending risks in respect of loans not exceeding Rs. 100 lakhs. Under the schemes, only FPCs having a minimum of 500 individual shareholders are eligible for credit guarantee cover. The Cooperatives Financed by NCDC also eligible for guarantee cover. The guarantee cover is restricted to the extent of 85% of the eligible sanctioned credit facility or Rs. 85 lakhs, whichever is lower.
Benefits of FPO’S
- FPOs/ FPCs can act as an aggregator for its member and sell through e-trading as one/ multiple lots depending upon the requirement.
- Payment will be done directly to the FPO/ FPCs bank account. In turn, FPO/ FPCs can distribute among members.
- Union budget 2017-18 made provision to install collection/ sorting/ grading/ packing facilities at their premises.
- Provision for the personalized dashboard and real-time information on arrival, quality, and price of commodities.
- FPOs/farmers can get farm equipment for harvesting and post-harvesting on rent and pay as per the usage.
- FPOs can also be the quality assaying agencies and part of the logistics provider network in terms of ensuring last-mile connectivity, including the role of freight forwarding and loading/unloading.
- FPOs can be involved across the value chain in delivering the desired results viz. pre-harvest, harvest, and post-harvest. In the pre-harvest, FPOs can be involved in setting up seed and soil testing laboratories and extension of Seed Bank scheme
Challenges and Issues in Building Robust FPOs
There are challenges and policy gaps in the ecosystem. The important challenges and confronting issues in building sustainable FPOs are as under:
- Lack of/ Inadequate Professional Management: Trained manpower is presently not available in the rural space to manage FPO business professionally.
- Weak Financials: FPOs are mostly represented by SF/MF with a poor resource base and hence, initially they are not financially strong enough to deliver vibrant products and services to their members and build confidence.
- Inadequate Access to credit: Lack of access to affordable credit for want of collaterals and credit history is one of the major constraints, the FPOs are facing today. Further, the credit guarantee cover being offered by SFAC for collateral-free lending is available only to Producer Companies (other forms of FPOs are not covered) having a minimum of 500 shareholder membership. Due to this, a large number of FPOs particularly those, which are registered under other legal statutes as also small size FPOs are not able to access the benefits of the credit guarantee scheme.
- Inadequate Access to Market: Marketing of produce at remunerative prices is the most critical requirement for the success of FPOs. The input prices are largely fixed by corporate producers. The cultivators lose through the complex gamut of market processes in the input and output prices.
- Inadequate Access to Infrastructure: The producers’ collectives have inadequate access to the basic infrastructure required for aggregation like transport facilities, storage, value addition (cleaning, grading, sorting, etc.) and processing, brand building, and marketing. Further, in most of the commercial farming models, the primary producers are generally excluded from the value chain.
Future aspects of FPO:
FPOs have the potential to act as a catalyst of change in the economic system of our country. FPOs can perform as expected, only when their management systems, governance, and capital structure are strong. Other external factors like infrastructure development, market, and financial accessibility, credit affordability, efficient commodity pricing mechanism, etc. need to be managed by the government at an equitable pace. Here are few steps which can make a difference in the medium to long term.
- Regular capacity building of FPO board members and other key appointments on Management Practices
- To come out with a standardized scoring method of FPO; including financial, management, social and environmental score
- Converging rural, agriculture, and farmer development policies with FPOs
- Improvement of risk management systems in FPO
- Suggest capital structure of FPO in a different phase, and support it in financial linkages
- Intra FPO learning and development platform to be started
- Increase the role of FPO in social development activities
- Integrating role of FPOs in strengthening the rural entrepreneurial ecosystem.
- Link FPO with nearby agriculture university and management institute
These above-mentioned steps are guided towards developing FPO as a centre of integrated development institution for the rural population, especially producers. These steps will increase their capacity to consume more capital and help it in playing an important role in economic development.
For success stories you can visit: https://enam.gov.in/web/success-stories
National Paper – PLP 2020-21 NABARD
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