STATE OF INDIA’S LIVELIHOOD (SOIL) REPORT 2021: FPOS

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Context

Just 1-5 per cent of FPOs have received funding under central government schemes introduced to promote them in the last seven years, the The State of India’s Livelihood (SOIL) Report 2021 stated.

About the SOIL Report

Access Development Services, a national livelihoods support organization has prepared the report.
It has only analyzed farmer producer companies (FCP — FPOs registered under The Companies Act, 2013) since they make up a large majority of the organisations started in recent years.
The number of FPOs registered as cooperatives or societies is very small.

What is a Producer Organisation (PO)?

A Producer Organisation (PO) is a legal entity formed by primary producers, viz. farmers, milk producers, fishermen, weavers, rural artisans, craftsmen.
A PO can be a producer company, a cooperative society or any other legal form which provides for sharing of profits/benefits among the members.

What is a “Farmers Producer Organisation” (FPO)?

It is one type of PO where the members are farmers.
Small Farmers’ Agribusiness Consortium (SFAC) is providing support for promotion of FPOs.

About FPOs

In the last decade, the Centre has encouraged farmer producer organisations (FPOs) to help farmers.
Since 2011, it has intensively promoted FPOs under the Small Farmers’ Agri-Business Consortium (SFAC), NABARD, state governments and NGOs.
The membership of an FPO ranges from 100 to over 1,000 farmers. Most of these farmers have small holdings.
The ongoing support for FPOs is mainly in the form of, one, a grant of matching equity(cash infusion of up to Rs 10 lakh) to registered FPOs, and two, a credit guarantee cover to lending institutions(maximum guarantee cover 85 percent of loans not exceeding Rs 100 lakh).
India has 5,000 to 7,500 such entities as per different estimates and a majority of them are farmer producer companies.
The budget for 2018-19 announced supporting measures for FPOs including a five-year tax exemption while the budget for 2019-20 talked of setting up 10,000 more FPOs in the next five years.
In 2019, Prime Minister Narendra Modi announced that about 10,000 FPOs will come up in India.

Financial Support and other support to FPOs

Equity Grant Scheme: Under the Equity Grant Scheme, Small Farmers’ Agri-business Consortium (SFAC), promoted by the Ministry of Agriculture and Farmers Welfare, has been offering equity grants up to a maximum of Rs 15 lakh in two tranches within a period of three years since 2014.
Credit Guarantee Scheme: It provides risk cover to banks that advance collateral-free loans to FPCs up to Rs 1 crore.

Organizations

Various organizations viz. SFAC, NABARD & DAY-NRLM have been promoting FPOs.
Government of India through Small Farmers’ Agribusiness Consortium (SFAC), a registered society under Department of Agriculture, Cooperation & Farmers Welfare, had been promoting Farmer Producer Organizations (FPOs) by mobilizing the farmers, helping them in registering as companies and giving them training for improvement of their income and sustainability.
Under Deendayal Antyodaya Yojana- National Rural Livelihood Mission (DAY-NRLM), Ministry of Rural Development, had been promoting FPOs by mobilizing farmers, building market linkages through a value chain development approach for farm based livelihood is an important strategy under this mission.

Performance of FPOs

Experience shows a mixed performance of FPOs in the last decade.
Some estimates show that 30 percent of these are operating viablywhile 20 per cent are struggling to survive.
The remaining 50 per cent are still in the initial phase of mobilisationand business planning.
FPOs in Gujarat, Maharashtra and Madhya Pradesh, Rajasthanand some other states have shown encouraging results and have been able to realise higher returns for their produce.
For example, tribal women in the Pali district of Rajasthan formed a producer company and they are getting higher prices for custard apples.
NABARD has undertaken a field study on the benefits of FPOs in Punjab and Madhya Pradesh. The study shows that in nascent FPOs, the proportion of farmer members contributing to FPOs activities is 20-30 per cent while for theemerging and mature FPOs it is higher at about 40-50 percent.
In Maharashtra, some of the FPOs have organically evolved (OFPOs) when farmers have taken the lead to adopt market-oriented practices, develop cost-effective solutions in production and marketing.

Challenges

Studies of NABARD show that there are some important challenges for building sustainable FPOs.
Some of these are:
lack of technical skills,
inadequate professional management,
weak financials,
inadequate access to credit,
lack of risk mitigation mechanism
inadequate access to market and infrastructure.
Lack of Business Skills
Missing Supply Chain
Lack of Transparency

Finances

A minuscule number of FPOs have been able to secure the grants from Equity Grant Scheme.
Over the past seven years, only 735 organisations have been given grants as of September 2021— just 5 per cent of the total producer companies (PCs) currently registered in the country.
In the Credit Guarantee Scheme only about 1 per cent of registered producer companies have been able to avail the benefits.

Final Thoughts and Way Ahead

Capacity Building

FPOs need to secure funding, identify and establish relations with customers, establish internal governance processes.
For this, they need capacity building to be able to move from start-up phase to growth and eventually to maturity. This is a gap that has not been addressed yet.

Availing Schemes

There is a need to make it easier for FPOs to avail government programmes and schemes for providing equity grants and loans. This can be achieved either by reducing the threshold for eligibility or by supporting FPOs to reach the eligibility criteria, or both.

Addressing structural issues

Issues such as working capital, marketing, infrastructure have to be addressed while scaling up FPOs.

Finances and Competency

Getting credit is the biggest problem. Banks must have structured products for lending to FPOs. These organisations lack professional management and, therefore, need capacity building.
They have to be linked with input companies, technical service providers, marketing/processing companies, retailers.
They need a lot of data on markets and prices and other information and competency in information technology.

Land Consolidation to benefit small and marginal farmers

FPOs can be used to augment the size of the land by focusing on grouping contiguous tracts of land as far as possible — they should not be a mere grouping of individuals.
Women farmers also can be encouraged to group cultivate for getting better returns. FPOs can also encourage consolidation of holdings.
The FPOs have to be encouraged by policy makers and other stakeholders apart from scaling up throughout the country to benefit particularly the small land holders.
FPOs negotiate as a group to help small farmers in both input and output markets.
While small farmers gain greater bargaining power through FPOs in relation to the purchase of inputs, obtaining credit and selling the produce, the fundamental problem of the small size of land holdings that gives only a limited income is not resolved.
While incomes will rise because of the benefits flowing from FPOs, they may not still be adequate to give a reasonable income to small and marginal farmers. That issue has to be handled separately.