Leveraging value chains in farming

Though India’s production of foodgrains is estimated at 314.5 million tonnes during FY2022, due to Green Revolution it resulted in excessive concentration of a few crops namely rice, wheat and sugarcane resulting in deterioration of soil health, over exploitation of ground water and skewed market linkages.

So there is a need to diversify the existing cropping pattern by developing proper ecosystem in terms of agricultural value chains i.e., from farm to fork through Farmers Producers Organizations (FPOs).

The background 

Though value chain activities are expected to enhance income of the farmers in a significant way, a recent study by NIRDPR found that on an average basis, less than or equivalent to 40 per cent of the members of FPOs in five sample States — Telangana, Karnataka, Odisha, Uttar Pradesh, and West Bengal involve in storage, grading, processing, packing, certification, and branding, etc.

Some of the FPOs based in Karnataka, Telangana and West Bengal are engaged in procuring agri-inputs and rendering services to their members at reasonable prices which ultimately reduce the cost of production. Majority of the FPOs in the study States depend on local market for selling their agricultural produce thereby losing on the premium pricing.

Typical challenges faced by farmers in this context are lack of awareness, inadequate agri-value chain infrastructure, and indebtedness of the farmers which force them to resort to distress sales without value addition. Majority of the FPOs work as simple intermediaries by aggregating agri-produce and engaging in primary processing activities: grading and sorting.

While some FPOs engage in value-addition such as pulping or juicing of fruits, chopping and freezing of vegetables, a few FPOs go further and manufacture ready-to-eat or ready-to-cook products such as breakfast cereals and mixes, tomato puree, etc.

The food processing industry, especially ready-to-eat segment, has tremendous potential in India since the extent of processing of agri-produce is not more than 10 per cent as of now. Since value addition requires larger investment in fixed assets, majority of the FPOs are unable to do so.

As per the available data, there are 15,948 registered FPOs in India, out which 92 per cent are farm-based and only 2.4 per cent are exclusively meant for women. Though the FPOs grew exponentially during the period 2014-21, thanks to government for its financial support of ₹68.66 billion, most of them continue to struggle to establish sustainable business models and achieve significant returns for their members. Further, less than 4 per cent of the FPOs have paid up capital of more than ₹1 million (Azim Premji University, 2021).

The way forward

By emulating milk based FPOs of National Dairy Development Board, Poultry FPOs of National Smallholder Poultry Development Trust and FPOs dealing in coconut and spices promoted by the National Horticulture Mission, agri-value chain infrastructure may be built as per cluster/commodity based approach.

As small and marginal farmers are the majority (86.08 per cent as per Agricultural Census 2015-16) in India, they should be encouraged to be members of FPOs to reduce costs, enhance incomes and ensure food, nutritional, and financial security.

Besides, the FPOs need to explore export markets in order to double farmers’ income.

Apart from having access to formal finance, the FPOs must be allowed to list on Social Stock Exchange to mobilise risk capital. Here, compliance framework for the FPOs may be made simple given their capital and capacity constraints.

Hand-holding support from Cluster Based Business Organizations should be extended to the FPOs at least for a period of 5 to 7 years, in order to achieve the latter’s intended objectives.

Through on-line payment gateway, Navyug Producer Company in Uttar Pradesh facilitated direct supply of mangoes during the pandemic to consumers in Delhi. Thus the power of innovation coupled with the power of aggregation is the panacea for most of the problems in agriculture.

With its AMLA approach (Aggregation, Market Linkage, and Advisory) and through its multiple technology-enabled interventions and collaborative partnerships, Samunnati provides collateral-free finance and affordable insurance services to 1,500+ FPOs, which have a membership base of 6 million, spread across 22 States.

In sum, aggregating farmers can improve their collective bargaining power in input, credit and output markets and leads to better price discovery.

Therefore, strengthening the FPOs by ensuring their commercial viability and financial sustainability has the potential to improve lives and livelihoods of 126 million small and marginal farmers across India.

Srikanth is Associate Professor, Registrar, and Director (Finance), DDU-GKY, NIRDPR, Hyderabad; Prakash is Assistant Professor, Goa Institute of Management

COMMENT NOW