Moving up the value chain to offer high-value products is vital for FPOs’ success

According to John F Kennedy, the farmer is the only person in the economy who pays higher cost for his inputs and receives lower price for his output, thereby losing on both counts. This statement mirrors the current state of Indian agriculture.

Besides, the Indian farmer takes higher risk compared to any other entrepreneur, given escalating water stress, natural disasters, uncertainty in yields, etc.

To address these issues, the concept of Farmers Producer Organization (FPO) was introduced in 2003 as a magic bullet in the Indian agricultural landscape. The main objectives of the FPO are to reduce cost of cultivation by procuring inputs in bulk and enhance collective bargaining power and income of farmers by leveraging the entire agricultural value chain.

FPOs: The challenges

Low capital base: According to a report from Azim Premji University (2022), less than 4 per cent of the FPOs have paid up capital of more than ₹10 lakh. Further, many FPOs are unable to access required financial support from banks/financial institutions for want of collateral security and credit history. Credit guarantee cover from Small Farmers Agri-Business Consortium (SFAC) in respect of collateral free-lending is available only to the FPOs with a minimum membership of 500 and above. Therefore, very few FPOs have adequate equity capital base to obtain matching grant of ₹15 lakh from the government.

Poor human resources: Majority of the FPOs struggle to comply with statutory norms viz., audited financials and filing Goods and Services Tax returns due to lack of skilled manpower, expertise and other resources. Most of the FPOs are not in a position to hire talent from the market for this purpose, for which they depend on Cluster Based Business Organisations (CBBOs)/Promoting organisations.

Lack of commercial viability: Commercial viability refers to procurement of inputs at reasonable rates and marketing of output at remunerative prices. As Indian farmers’ share is not more than 25 per cent of consumers’ Rupee of expenditure, as against 70 per cent in case of the US and Europe, commercial viability of FPOs is less than satisfactory.

Absence of market linkages: According to a recent study conducted by NIRDPR, most of the FPOs depend on local market without exploring the export market. Apni Saheli, an FPO based in Dholpur, Rajasthan is a case in point; it is working with NCDEX in commodity derivatives/futures market (wheat and bajra) for better price realisation for its members.

Infrequent patronage of members: Field survey indicates that a significant portion of members of FPOs are largely unaware of operations of the collectives, their responsibilities, and exhibit insignificant levels of ownership. While seasonal crops will have infrequent cash flows as well as interaction with the group members, dairy, small ruminants, and vegetables will have regular cash flows which enable the members’ continuous patronage and the group’s solidarity.

Obsolete technology: As most of the FPOs are unable to mobilise requisite funds for mechanisation of farming, good agricultural practices, through advanced technologies (drones and nano technology), are yet to be replicated.

Negligible value addition to agri-produce: It is observed from the field survey that less than or equivalent to 40 per cent of the farmer members in five sample States avail themselves of agricultural value chain activities from FPOs. Besides, majority of the FPOs sell their produce without value addition due to inadequate working capital, information asymmetry on demand-supply gaps, and lack of post-harvest infrastructure facilities.

Possible policy options

Agriculture in India has been focusing on production without giving due weightage to business strategy. So FPOs may be linked to agri-export zones/e-commerce (Big Basket and Sabziwala) to supply sanitary and phyto sanitary-compliant agri-products.

FPOs have to diversify their cropping pattern (power shift to high value crops like kiwi, and roses) and adopt integrated farming along with dairy, poultry, and fisheries, without compromising on food security.

Promoting agencies should nurture and build FPOs in order to educate them on enhancement of product quality, reduction of wastage, aspects of (business) management with a laser focus on value addition. Free access to institutional finance for FPOs should be made available to enable them to invest in agri-value chains from ‘farm to fork’.

In sum, FPOs suffer from lack of commercial viability and financial sustainability. Since agriculture is the key to fulfil half of the 17 Sustainable Development Goals (SDGs), strengthening FPOs is the key to achieve SDGs.

Srikanth is Associate Professor, Registrar, and Director (Finance), DDU-GKY, NIRDPR, Hyderabad; and Syamala Rao is Research Officer, NIRDPR, Hyderabad