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There has been a continuous policy discussion by the current Union Government on doubling the farmers’ income by 2022. On the contrary, evidences of farmers’ distress due to declining/stagnant income have been observed in the recent times in the form of farmers’ protests and agitations in various parts of the country. To address these challenges, the union government is announcing policy measures to cater farmer distress every now and then. Since agricultural marketing has been considered as one of the major impediments in income enhancement of the farmers, Farmer Producers’ Organisations (FPOs) among others were given much emphasis in various policy documents of the Union Government. Since the formation of NDA-I government, it has been repeatedly mentioned that a favourable ecosystem will be provided to boost FPOs in India. Even in the last budget speech by the Finance Minister, Nirmala Sitharaman, it was mentioned that 10,000 new FPOs would be formed in the next five years.

In this backdrop, it is crucial to assess the policy framework designed to promote FPOs and key policy impediments in the growth of FPOs in the country.  

1. Why FPOs are gaining importance?

Farmers who are primary producers can form a group and register themselves as FPO. Both producer company (PC) as well as cooperative society can register as FPO. Initially, Small Farmers’ Agribusiness Consortium (SFAC) was the nodal agency to facilitate the formation of FPOs under the Department of Agriculture and Cooperation (GOI, 2013). In addition, National Bank for Agriculture and Rural Development (NABARD) is also promoting FPOs in the states and has so far promoted 2154 FPOs as on 31 March 2019 (GOI, 2019). The prime objective is to enhance farmers’ competitiveness and increase their advantage in emerging market opportunities. The FPO’s major operations include supply of seed, fertilizer, machinery, market linkages, processing, and financial and technical advice. Majority of land holdings belong to small and marginal farmers. Being unorganised, they are unable to realise desired value from their produce. The basic philosophy behind emergence of FPOs is to organise farmers and make them avail benefits from economies of scale in purchase of inputs, processing and marketing of their produce (GOI, 2013).

2. Propaganda versus Actions

Union Government has repeatedly mentioned on various occasions about the importance of FPOs to boost the income levels of small and marginal farmers. The emphasis is laid much on increasing the number of FPOs and visualising the number as development strategy for agriculture. A number of studies show that there has been a drastic increase in the number of PCs registered since 2012 onwards. Most of these FPOs are still at embryonic stage and sustaining on three-year establishment grants. Instead of increasing the numbers, the focus should be shifted to making the existing FPOs self-sustainable by providing continuous handholding and financial support.

Several schemes have been designed to provide financial support to FPOs, especially to aid them in their initial years. Government is providing assistance to FPOs through Equity Grant Scheme and Credit Guarantee Fund Scheme through SFAC. In addition, Agricultural Marketing Infrastructure (AMI), Venture Capital Assistance (VCA) and Mission for Integrated Development of Horticulture (MIDH) are schemes to promote agri-business activities (NABARD, 2019). However, the eligibility criteria to get equity grant is complex and lacks rationality e.g. minimum number of persons required (i.e. 50) (see SFAC guidelines for more detail) which become difficult to mobilise at the initial stages of FPO formation. Secondly, the provision of establishment grant by SFAC or NABARD is for two to three years which is not sufficient. FPOs have to bear fixed costs regardless of their turnover such as expenses to hire personnel (chief executive officer (CEO), charted accountants (CA), local resource persons (LRP) to conduct various operations) and rent (Singh et al., 2018). Such costs during the initial years are difficult to meet. Therefore, government support is required at least for five to seven years to make FPOs self-sustained.

Union government also provides institutional support in establishing FPOs through assigning Non-Government Organisations (NGOs) as resource institutions (RIs) which can mobilise farmers, help in registering farmers for membership in FPOs, provide market linkages and help in documentation. The support provided by RIs is one of the key factors for FPO’s success. However, the selection process of RIs does not reflect much professionalism. A number of case studies (i.e. Singh et al., 2018) have reported that some of the RIs have no experience in mobilising the farmers and also lack organisational skills which are necessary to establish FPOs. Such RIs fulfil mere formality and after completion of establishment grant, they disassociated themselves from the farmers. For example, in Punjab, some of the FPO associated farmers do not even know about their respective RIs and the motive to establish their FPOs. Such a poor institutional setup raises questions on seriousness of the policy implementation.

Lack of background work is one of the factors behind poor implementation of the programme. Diagnostic studies, feasibility analysis and baseline assessment is missing while developing the farmer clusters. Most of the FPOs are formed without strategizing the market linkages. For example, to promote crop diversification in Punjab, FPOs were mandated to grow horticulture crops. But due to lack of market safety nets, farmers had to sell their produce at throw-away prices in the open market. Secondly, the target of crop diversification was not visualised considering the minimum support price (MSP) for paddy and wheat. As a result, farmers are reluctant to shift from paddy-wheat (which are covered under MSP) to horticulture crops.

It is difficult for FPOs to operate independently in the market. FPOs require APMC (Agricultural Produce Market Committee) licenses to purchase produce directly from farmers outside the market yard. PCs currently face difficulties in getting APMC licenses for processing and trading, which acts as a significant market entry barrier.

What should be the policy focus?

The operations of FPOs can roughly be divided in to production- (provisioning of inputs, machinery, technical knowhow, extension services etc.) and post-production (processing, storage, aggregation, branding, marketing etc.) activities. Most of the farmers become FPO members for the later part of the operations which provides assured market and possibility of remunerative prices. But a significant number of FPOs have failed to operationalise these activities and instead restrict themselves to production-related activities. Governments’ failure to provide conducive environment for FPOs to excel in post-production activities is among the most important reason for farmers losing interest in FPOs within one or two years of membership. FPOs with limited technical knowhow of processing, branding and marketing, and without sufficient capital are unable to compete with established local/national/multi-national brands in the open market. There is no effective policy that supports brand development, sophisticated processing, product specification, traceability and marketing strategy for FPOs. Therefore, FPOs find it difficult to compete in the open market. Although equity grant is available with SFAC for the FPOs to develop processing units, branding and storage, however, it is not sufficient to develop competitive services. Limitations to these services make FPOs’ efforts to compete in the open market nearly futile.

There can be two possible ways to address the challenges discussed above, either policies should be guided to address the post-production operations effectively or FPOs should be restricted only to production and aggregation activities. Assured market and price for their produce should be promised if the government really wants to promote FPOs on sustainable basis.

References

1.Government of India (2019). Setting up of Farmer Producer Organizations (FPOs). Press Information Bureau (PIB), Ministry of Agriculture & Farmers Welfare, 16^th

2.Singh G., P. Budhiraja and K. Vatta) (2018). Sustainability of Farmer Producer Organisations under Agricultural Value Networks in India: A Case of Punjab and Gujarat. Indian Journal of Agricultural Economics, 73(3), pp. 370-385.

3.Government of India (2013). Policy and Process Guidelines for Farmer Producer Organisations. Department of Agriculture and Cooperation, Ministry of Agriculture.

4.NABARD (2019). Farmer Producers’ Organizations (FPOs): Status, Issues & Suggested Policy Reform. National Paper - PLP 2019-20.

The views expressed in this piece are those of the author, and don’t necessarily reflect the position of CBGA. You can reach Gurpreet Singh at gurpreet@cbgaindia.org.