Farmers Producer Organizations (FPOs) in India- Explained, pointwise

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Introduction

Recently, the State of India’s Livelihood (SOIL) Report 2021 has been released by Access Development Services, a national livelihoods support organisation. The report ​​analysed Farmers Producer Organizations (FPOs) registered under The Companies Act, 2013. FPOs make up a large majority of the organisations started in recent years.

The aggregation of small, marginal, and landless farmers in the FPOs has helped to enhance farmers’ economic strength and market linkages for improving their income. But, the report found that just 1-5% of FPOs have received funding under central government schemes introduced to promote them in the last seven years.

What is a Farmers Producer Organization (FPO)?

It is a type of Producer Organization (PO) where the members are farmers.

Note: A Producer Organization (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. In some forms like producer companies, institutions of primary producers can also become members of PO.

A few key features of the FPO’s are

– The ownership of the organization is with its members. It is an organization of the producers, by the producers and for the producers.

-One or more institutions and/or individuals may promote the FPO by way of assisting in mobilization, registration, business planning and operations. However, ownership control is always with members and management is through the representatives of the members.

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What are the benefits emanating from FPOs?

FPOs can yield a variety of benefits, especially for marginal and small farmers. These include,

Provide greater bargaining power: Since FPOs allow its members to negotiate as a group, it will provide greater bargaining power in the purchase of inputs, obtaining credit, and selling the produce.

With the FPOs, small and marginal farmers can get low-cost and quality inputs to members. Hence, they were able to realize higher returns for their produce, in turn, help India to double its farmer’s income.

For example, tribal women in the Pali district of Rajasthan formed a producer company, and they are getting higher prices for custard apples. Similarly, FPOs in Gujarat, Maharashtra and Madhya Pradesh, Rajasthan and some other states have realised higher returns for their produce.

The International Food Policy Research Institute’s comparative study of FPOs in Maharashtra and Bihar has revealed that FPO farmers are doing better than non-FPO farmers. Also, within FPOs, Organically evolved FPOs (OFPOs) are more beneficial than pushed or Promoted FPOs (PFPOs).

According to the survey, OFPOs resulted in an increase in gross income while only 2% indicate a decline in the same. On the other hand, only 32% of the non-members indicate an increase in gross income.

Engage farmers in collective farming: The average farm size declined from 2.3 hectares (ha) in 1970-71 to 1.08 ha in 2015-16. So, promoting FPOs can result in farmers engaging in collective farming and addressing productivity issues emanating from small farm sizes. Further, they may also generate additional employment due to the increased intensity of farming under FPOs.

Development of Social capital: FPOs can lead to 1. Improved gender relations and decision-making of women farmers, 2. Enhance members’ health and nutritional outcomes as they are realising higher returns, 3. Realise the power of working in cooperation instead of an individual level.  All these will improve the social capital of farmers.

Read more: FPO’s Can Revitalize Indian Agriculture Using New Agri Reforms
What are the government initiatives to promote FPOs and its performance?
Equity Grant Scheme

The Scheme is operated by the Small Farmers’ Agri-Business Consortium (SFAC). It aims to extend support to the equity base of Farmer Producer Companies (FPCs) by providing matching equity grants up to a maximum of Rs 15 lakh in two tranches.

Performance: Over the past seven years, only 735 organisations have been given grants which is just 5% of the total FPCs currently registered in the country. Maharashtra has received the highest number of grants sanctioned, followed by Tamil Nadu and Uttar Pradesh.

Credit Guarantee Scheme

The scheme provides risk cover to banks that advance collateral-free loans to FPCs up to Rs 1 crore. Only about 1% of registered producer companies have been able to avail the benefits.

Central Sector Scheme of Formation and Promotion of 10,000 FPOs

The scheme was launched by the Ministry of Agriculture & Farmers Welfare to form and promote 10,000 new FPOs till 2027-28. The scheme is being implemented by the SFAC, National Cooperative Development Corporation (NCDC), NABARD, NAFED among others.

Under the scheme, the formation and promotion of FPOs are based on the Produce Cluster Area approach and specialized commodity-based approach. While adopting a cluster-based approach, the formation of FPOs will be focussed on “One District One Product” for the development of product specialization.

Read more: Reforming Agriculture sector through FPOs
What are the challenges faced by FPOs?

FPOs face the following challenges,

1. Structural issues: These include issues such as inadequate professional management, lack of technical skills, weak financial status, lack of risk mitigation mechanism, and inadequate access to market and infrastructure, 2. Getting institutional credit is another big problem for FPOs, 3. Fragmented land holding in India, 4. Poor women participation, 5. Isolation of FPOs with various service providers, etc.

What needs to be done to improve the FPOs?

Implement the recommendations of State of India’s Livelihood (SOIL) Report 2021: The report recommends, 1. 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, 2. Enhance Capacity building of FPO members to establish relations with customers, establish internal governance processes among other things.

Apart from that, the following steps can be undertaken,

1. Address the Structural Issues: The Government should address working capital, marketing, infrastructure issues while scaling them, 2. Land consolidation of FPO members can overcome the constraint of small farm size, 3. Encourage Women farmers to group cultivate for getting better returns. 4. Banks must frame structured products for lending to FPOs, 5. Link FPOs with various essential service providers like technical service providers, input companies, marketing companies, retailers, etc. This will enable them to access data on markets and prices and other information and competency in information technology.

Some studies show that a large country like India needs more than one lakh FPOs, but currently, India has less than 10,000. So, India should take active steps to not only promote them but also take steps to reap their full potential.

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