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• GS 3 || Economy || Agriculture || Agricultural Production & Productivity

Why in the news?

In the last decade, the Centre has encouraged farmer producer organisations (FPOs) to help small farmers. Since 2011, it has intensively promoted FPOs under the Small Farmers’ Agri-Business Consortium (SFAC), NABARD, state governments and NGOs.

Present context:

• Presently, around 5000 FPOs 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.

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

• It is a type of producer organization. Most of the members of this organization are small farmers.
• It aims to promote farmers and provide the right assistance.
• Objective: The main aim of an FPO is to ensure better income for the producers through an organization of their own.
  • Small producers do not have the large marketable surplus individually (both inputs and produce) to get the benefit of economies of scale.
  • Besides, in agricultural marketing, there is a long chain of intermediaries who very often work non-transparently leading to the situation where the producer receives only a small part of the value that the ultimate consumer pays.
• Hybrid: The FPOs are basically the hybrids of cooperatives and private companies which retain the merits but discard the demerits of both of them.
  • the participation, organisation and membership pattern of these companies are more or less similar to the cooperatives,
  • their day-to-day functioning and business models resemble those of the professionally-run private companies.
• Section-IXA: The Companies Act has especially been amended by incorporating Section-IX A in it to allow creation and registration of this new category of farmers’ companies under this law. Many organizations associated with it.

What are the different supporting organizations of FPOs?

• Various organizations across the nation are helping the FPOs.
• It includes names like NABARD, Government Department, Ministry of Rural Development’s DeendayalAntyodayaYojana- National Rural Livelihood Mission (DAY-NRLM) are few of the

Significance:

• Enhance income: Considering the role they can play in enhancing the earnings of their member-farmers, FPOs need to be earnestly promoted.
  • The way their count has swelled from less than 200 in 2010 to over 4,000 today is an indication of the success of this new model of agri-business.
• Bargaining power: As professionally-managed enterprises conducting business on behalf of the farmers, they enjoy better bargaining power to procure inputs and services and sell the farmers’ output.
• Value-addition: They are also better equipped to facilitate value-addition of the farm produce to ensure higher returns in almost all fields of agriculture and its allied activities like horticulture, plantations, dairy, poultry, fisheries and others.
  • Even the landless, tribals and those subsisting on collections from the wilds have gained by forming such organisations.
• Of the few pro-FPO initiatives taken recently by the government, the most noteworthy are the announcement in the 2018-19 Budget of a five-year tax holiday and setting up of a small credit guarantee fund of Rs. 100 crore.
  • The FPOs were taxed at 30% earlier.
• Significantly, each shareholder of the FPO has one vote, irrespective of the size of shareholding, and the shares are not traded on the stock markets to forestall any risk of hostile takeover by way of equity acquisition.

Benefits of FPO:

• Cost of production can be reduced
  • Bulk input order
  • Aggregation of produce
  • Bulk transport reduces marketing cost
  • Post-harvest losses can be minimized
• Easy Access to modern technologies
• Easy communication for dissemination of information
• Easy Access to financial resources
• Advantage of economies of scale for farmers as well as traders
• FPOs may take up activities for value addition which fetch a higher price for the farmers’
• FPO formation facilitates utilization of pre and post-harvest infrastructure like green houses, mechanized farming, etc.
• FPO can expand its business activities by opening of input stores, custom centres etc. Improved bargaining power and social capital building

Concerns:

• Many of the critical woes of this sector still remain unaddressed. These include –
  • difficulties in securing institutional finance,
  • inability to operate in the regular agricultural markets and
  • the lack of legal recognition under the contract farming regulations.
• Moreover, the task of promoting these organisations has been entrusted to parastatals like the National Bank for Agriculture and Rural Development (Nabard) and the Small Farmers Agribusiness Consortium (SFAC) which have their own limitations in ensuring effective hand-holding.
• The banks are usually wary of granting loans to the FPOs as they do not have assets of their own to serve as collaterals.
  • Consequently, the FPOs have to rely on loans from non-banking financial companies or microfinance companies to raise working capital at very high interest rates.
  • The facility of cheap bank loans with liberal subvention of interest by the government that is available to individual farmers is denied to the FPOs, though they are purely farmers’ organisations.
  • Worse still, many other kinds of concessions, tax exemptions, subsidies and benefits provided to cooperatives, startups or other grassroots farm bodies have not been extended to the FPOs.
• They also usually face resistance in operating at the regulated mandis because of the resistance offered by the licensed traders and their cartels who wield significant hold over these markets.
• These issues need to be addressed expeditiously to enable the FPOs to perform to their full potential for the benefit of the farmers.

What has been done till now?

• NABARD’s:
  • Producers Organization Development Fund (PODF)
  • Producers’ Organization Development and Upliftment Corpus (PRODUCE) Fund
• GOI Central Sector Scheme :
  • “Formation and Promotion of Farmer Producer Organizations (FPOs)” with a clear strategy and committed resources to form and promote 10,000 new FPOs
• C Rangarajan:
  • FPOs have to be encouraged by policy makers and other stakeholders apart from scaling up throughout the country to benefit particularly the small holders.
• National Commodity and Derivatives Exchange (NCDEX), and the various State Governments and NGOs are part of FPO.
• Several of these FPOs have been successful in making agriculture profitable for thousands of farmers. The Indian Government introduced a new Central Sector Scheme that aims to create and promote 10,000 FPOs.
• Under the new scheme, the members of FPOs can avail relevant benefits such as Credit Guarantee Fund and advisory services from Cluster Based Business Organization (CBBO) and the National Project Management Agency (NPMA).

Road ahead for FPO:

• While FPOs continue to face several setbacks and are struggling to operate viably in many countries, continued support from governments and other organizations can ensure their sustainability in the long run.
• Their survival and prosperity are also highly crucial to bring about transformation in the food and agriculture sector in developing and underdeveloped countries, which is imperative to guarantee food security for future generations.
• With the implementation of the right policies, and with the support of all actors in the ecosystem, FPOs will soon be able to achieve sustainability and reap optimal benefits for its shareholders.

Additional info:

Small Farmers Agri-Business Consortium (SFAC):

• The Government established Small Farmers’ Agri-Business Consortium (SFAC) as a Society in 1994 to facilitate agri-business ventures by catalyzing private investment through Venture Capital Assistance (VCA) Scheme in close association with financial institutions.
• The setting up of State level SFAC as counterpart agency of Central SFAC for agribusiness projects was part of the Scheme.
• The Scheme envisaged a corpus contribution from Central SFAC of 50 lakh to each State which establishes a State Level SFAC.
• The role of State SFACs is to aggressively promote agribusiness project development in their respective States. The main functions of SFAC are:

1. Promotion of development of small agribusiness through VCA scheme;
2. Helping formation and growth of Farmer Producer Organizations (FPOs) / Farmer Producer Companies (FPCs);

• Improving availability of working capital and development of business activities of FPOs/FPCs through Equity Grant and Credit Guarantee Fund Scheme;

1. Implementation of National Agriculture Market (e-NAM) Electronic Trading platform.

• SFAC is one of the Central Procurement Agencies for pulses and oilseeds under Price Stabilization Fund of Department of Consumer Affairs.

Mains oriented question:

What are farmer producer organizations (FPOs)? Can FPOs help alleviate rural distress? (200 words)