FPOs, just like the cooperatives, are farmer collectives, but hobbled by the absence of scale. If the ultimate objective of this collective effort is value capture for the farmers managing upstream activities, it is best achieved with scale.
This is not quite possible under the present scheme of things where individual FPOs in isolation go to the market.
Success of co-ops
Farmers’ collective action in the dairy sector has been a success under the cooperatives format. The success is attributable to a focus on a specific value chain. The dairy sector pursues a total value chain strategy, with activity and responsibility defined clearly at the three levels — village/district/state. These segments work towards a business goal.
FPOs’ growth strategy needs to pursue goals of evolving as large businesses. The strategy for this would need to be different from the present approach. It has to be a tiered structure with a federated entity driving the business.
Large Corporate FPOs
Farmer-owned organisations must have a vision to target a high share of the market. Just as in the case of cooperatives, the FPOs’ focus and drive should be on developing a specific value chain in a group of commodities, with the strategy and execution to be done through second and third tier farmer organisations.
This effectively means that individual FPOs would limit their activities to production, aggregation and some post harvest management, under a business plan driven by a federated entity managing all functions of business, run by a professional team.
The present support scheme for FPOs includes matching capital contribution, expenses reimbursement, credit guarantees, and fees to cluster based business organisations meant to promote FPOs.
Instead, FPOs should be capitalised in the initial years till the business turns cash positive. Funds would also need to be issued upfront, an impossible ask for a government agency; hence an alternative mechanism is needed.
Instead of Small Farmers’ Agri Consortium or any other implementing government agency, an alternative mechanism is to route it through project funding agencies such as NAB Ventures or similar agencies with expertise in appraising business investment proposals.
These agencies could invite and assess business proposals from interested entities such as a federated FPO, business consulting firms/NGOs in alliance with FPOs, a JV of an FPO federation with a private enterprise (start-ups or industries) and so on. Funds under the scheme would be investments and not expenditure as is the case mostly at present.
Funds under the Scheme could be vested with NAB Ventures (and/or the likes) with a mandate to screen business proposals based on a detailed guideline to meet the objective of developing large scale business owned entirely/in majority by FPOs. Immense opportunities would open up for such large FPOs/JVs of FPOs in tapping capital markets, equity and debt on competitive terms.
Business Focus
Farmers are vendors for every agribusiness industry; hence in the interest of securing the quality required, the latter train their vendor farmers on farming and post harvest techniques. For instance, the hybrid seed industry trains farmers on hybrid seed production techniques. It is one of the highly successful businesses in the country, as several lakhs of farmers benefit from contract production.
Such technology transfer has paid off in potato, tomato, white onions processing and so on. In dairy cooperatives, training and business happens alongside, not as two disjointed activities as is noted in the case of FPOs.
In summary, FPOs need to federate and pursue ambition to become large business managed by a professional team.
The writer is founder, FPO Market Linkages Foundation, Bengaluru