Opinion

New FPO plan bets on quantity over quality

Rajalakshmi Nirmal | Updated on September 15, 2020 Published on September 15, 2020

Creating 10,000 new farmer producer bodies should not detract from policy gaps, such as pushing a single-crop regime

The Centre’s latest plan to promote 10,000 new Farmer Producer Organisations (FPOs) by 2023-24 is well intended as it aims to help small farmers reap benefits of collective selling. But blindly chasing numbers could compromise quality. There are already more than 5,000 FPOs in the country, and many of them are non-functional. Evidently, when farmers pursue entrepreneurship only to avail themselves of funding, chances are such producer bodies become inactive once the funds dry up. The FPOs are dogged by problems such as a weak sense of ownership and members continuing to transact outside the FPO. But the new FPO policy has not tried to address these critical issues.

Also, the new policy places needless emphasis on building cluster-based, single-commodity FPOs, which will introduce risks of monoculture. The policy also ignores the role of ground-level institutions in mobilising FPOs. The success of the SHG movements can be attributed to the work of the localised resource institutions.

Even though the Centre has been incentivising FPOs through various schemes for over a decade, the efforts have not yielded great results. The Small farmers’ Agri-Business Consortium (SFAC), which has been running FPO funding schemes, has seen only limited success. Since 2014-15, only 640 FPOs have received funding under its Equity Grant Scheme (EGS). Similarly, only 113 FPOs have been funded so far through its Credit Guarantee Scheme (CGS). Reasons? Stiff conditions for eligibility and the ‘one size fits all’ approach of banks.

For EGS, an FPO needs to have a minimum of 50 members (and a paid-up share capital not exceeding ₹30 lakh). CGS necessitated a minimum number of 500 members. In both cases, at least 33 per cent need to be small, marginal and tenant farmers. The new policy has made the criteria for EGS as well as CGS more stringent: a minimum of 300 members, with at least 50 per cent being small, marginal and landless tenant farmers.

Also, an institution needs AAA rating to be eligible to lend to FPOs under CGS. This means NBFCs specialising in agri-credit are out of the ambit. Demanding credit ratings from the lender doesn’t make sense at all; it is the borrower’s credit position that can be vulnerable. Also, why ask for the highest rating for NBFCs when unrated credit co-operative societies are eligible to lend to FPOs?

Another matter of concern is the fact that the SFAC and resource institutions that mobilise FPOs often fail to attach importance to the credibility of the members in selection of FPOs. Instead of member strength, the emphasis should be on the credentials of the members.

Also, given that each crop is unique, banks should give up on their ‘one-size fits all approach’ and offer customised loan products for FPOs. The RBI and NABARD should instruct banks to avoid stressing on the financials alone, when lending to FPOs. The success of the FPO movement depends on how farmers are made a part of the formal credit line, and weaned away from the clutches of moneylenders. An RBI directive to banks asking them to consider FPOs in priority sector lending can help improve ground-level credit reach.

Risk of single commodity

The new FPO policy promotes the concept of ‘one-district, one-product’ in order to encourage product specialisation. This can impact the Centre’s objective of increasing farmers’ income. The concept will result in monoculture upsetting the ecosystem and making plants less resistant to climate change.

These practices will see the soil lose fertility resulting in higher usage of chemical supplements, adding to the cost of farming. Single-commodity FPOs have been a limited success across the country, with the exception of Amul in milk. In India, farmers usually sow at least two crops a year.

Where will the farmer sell his other crop if he is part of a single commodity FPO? If he lets the land fallow for one season because his FPO doesn’t support a particular crop that too will result in loss for the farmer. It will reduce productivity of land and see all the infrastructure created being idle for a portion of the year. A multicrop regime is India’s best bet against climate change risks.

Give infra support

The new policy is silent on funds for infrastructure building at the FPO level. While it promises funds for running the FPO and in staff pay, it has failed to link the Agriculture Infrastructure Fund (AIF) to FPOs. Ideally, at least 25 per cent of the ₹1 lakh crore in the AIF should have been set aside for FPOs. The six months to two-year moratorium the AIF facility promises won’t be sufficient for FPOs especially if they are setting up, say, a warehouse where project breakeven time is between three and five years.

Also, the three per cent interest subvention under AIF is not enough, given that FPOs get to borrow only 12-18 per cent from banks. The Centre should increase the subvention on interest rate. In sum, the FPO promotion policies can do with some tweaking.

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Published on September 15, 2020
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