Farmer Producer Organisations (FPOs) UPSC

Farmer Producer Organization (FPOs)

The Indian agriculture is dominated by small and marginal farmers who account for almost 86% of the farming community. These small and marginal farmers are at great disadvantage as compared to large farmers with respect to access to inputs and marketing of their agricultural produce. 

The Banks are usually reluctant to give loans to small and marginal farmers due to their small land holdings. The efficiency of the smaller agricultural lands also tends to belower. These farmers also have lower marketable surplus and hence are usually exploited by the middlemen and intermediaries in the APMCs. These multi-faceted problems faced by the farmers can be solved by organizing them into farmer producer organizations (FPOs). The FPOs can indeed emerge as a panacea for the present agrarian distress. 

In this regard, recently, PM has launched a campaign to set up 10,000 FPOs across India in the next 5 years. Let us understand as to what are FPOs and how they will benefit the Indian Agriculture. 

What is Farmers Producer Organisation (FPO)? 

A Producer Organisation (PO) is a legal entity formed by primary producers such as farmers, milk producers, fishermen, weavers, rural artisans, craftsmen etc. It can be in the form of Producer Company, a cooperative society or any other legal form which provides for sharing of profits/benefits among the members. It is to be noted that PO is a generic name for an organization of producers of any produce, for example, agricultural, non-farm products, artisan products, etc. On the other hand, FPO is a type of PO where the members are farmers. The FPOs can be registered as Cooperatives (under Cooperative Societies Act of the respective State), Farmer Producer Company (Under Companies Act, 2013) or Societies (under Society Registration Act, 1860). 

Let us understand some of the essential features of Farmer Producer Organisations (FPOs). 

• First, it is formed by a group of farmers who act as shareholders in the organisation. 

• Second, it is a registered legal entity in the form of Cooperatives, Famer Producer companies (FPCs) or Societies. 

• Third, it works for the benefit of the farmers and deals with various business activities related to agriculture such as procurement of agricultural inputs, marketing of agricultural commodities etc. 

• Fourth, a certain part of the profits of the organisation is shared among the farmers and rest of the funds is used for business expansion of the organisation. 

How are Farmer Producer Companies (FPCS) different from Cooperative ? 

The farmer producer companies (FPCs) are considered to be much better than farmer cooperatives. Some of the salient features that provide the FPCs a competitive edge is: 

• First, the cooperatives are registered under the Cooperative Societies Act and hence Registrar of Cooperatives and the Government hold veto power over the decisions of the cooperative society. This gives scope for political interference by the Government leading to bureaucratic delays and inefficiencies. On the other hand, the FPCs are registered under the Companies Act and only those members having transactions with the company can vote. Thus, the FPCs rule out political interference and it leads to efficient management of the company. 

• Second, the FPC is a hybrid between a cooperative and a private limited company. It combines cooperative values of mutual benefit and professional style of functioning. The FPCs are allowed to appoint professionals to its Board of Directors. This enables the small and marginal farmers to avail inputs from the professional managers. 

• Third, the FPCs allow registered and non-registered groups such as self-help groups (SHGs) to become members in a FPC. This enabling provision is a distinct improvement over the cooperatives, which allows only individual producers to be members. 

• Fourth, the FPCs allow only those people who are engaged in an activity connected with or related to primary produce to be enrolled as members of FPC. This ensures that outsiders do not capture the control of the company. 

• Finally, unlike the cooperatives, FPCs have stronger regulation which demands regular disclosure and reporting. This empowers the farmers to demand operational and fiscal discipline and thus promote greater accountability of the FPCs. 

Initiatives for the Promotion of FPOs 

The co-operative movement in India got fillip through the Anand model or AMUL. However, subsequently, the cooperatives across India failed to live up to the expectation due to multiple challenges such as political interference, exclusion of small and marginal farmers, growing bureaucratisation etc. Accordingly, the Indian Government constituted a High Powered Committee under the leadership of Yogendra Alagh. On the basis of recommendations of this committee, the government amended the Companies Act, 1956 in 2012-13 to provide for "Producer Companies" in India. 

• The Small Farmers Agribusiness Consortium (SFAC) is the nodal agency at the national level for the creation of FPOs. The SFAC operates a Credit Guarantee Fund to mitigate credit risks of financial institutions which lend to the FPCs without collateral. This helps the FPCs to access credit from financial institutions for establishing and operating businesses. Further, SFAC also provides matching equity grant up to Rs. 10 lakhs to double the share capital of FPCs. 

• NABARD also provides financial support to the FPOs through two dedicated funds. It has created “Producers Organization Development Fund (PODF)” in 2011, to support the FPOs through credit facilitation, capacity building and market linkage support. Further, the Government of India has set up PRODUCE Fund (Producers’ Organization Development and Upliftment Corpus) under the NABARD in 2014-15 for building of 2000 Farmer Producer Organizations (FPOs) in the country. The aim of the PRODUCE Fund is to promote new FPOs and support their initial financial requirements, to make them credit worthy, commercially vibrant and sustainable business enterprise of farmers. 

Challenges and Issues in building robust FPCs 

• Lack of Professional Management of FPCs: As discussed before, the FPCs have been allowed to appoint professional experts to the Board of directors in order to efficiently manage their operations. However, such trained manpower is presently not available in the rural areas to manage FPO business professionally. 

• Poor Financial Resources: FPCs are mostly owned by Small and Marginal Farmers with poor resource base and hence they are not financially strong enough to support the members. This reduces the ability of the FPCs to cater to the needs of the farmers such as access to inputs and market. 

• Inadequate Access to credit: It has been observed that banks and financial institutions tend to refuse to lend to FPCs due to disaggregated land holdings and lack of collateral. Small and marginal farmers, who may not hold formal land titles, are unable to access institutionalised credit. 

• Inadequate Access to Infrastructure: The FPCs have inadequate access to basic infrastructure required for aggregation like transport facilities, storage, value addition (cleaning, grading, sorting, etc.) and processing, brand building and marketing. 

• Lack of technical Skills/ Awareness: Presently, there is lack of awareness among the farmers about the potential benefits of joining FPCs. Further, most of the farmers are not aware about the legal and technical knowledge about various acts and regulations related to formation of FPCs. 

Way Forward 

Thus, as discussed, the FPCs can indeed emerge as game changer in order to alleviate the present agrarian distress. 

However, the Government and all the stakeholders need to create a right ecosystem in order to nurture and develop the FPCs. 

The promotion of FPCs should not to be seen as a one-time exercise. Though there is sufficient focus on providing financial assistance to FPCs, there is limited hand-holding subsequent to their formation. After mobilisation of farmers into FPC, there is very little support in marketing, value addition etc. In this regard, the Government must provide for sustained and continuous support until the time the FPCs become financially viable and independent.