Tackling India’s structural vulnerabilities in agriculture

Sushma Vasudevan/Aparna Bijapurkar | Updated on August 03, 2021

A sustainable collectivisation of agri produce and marketing, through Farmer Producer Organisations, will help the highly fragmented agriculture sector realise its full revenue potential

It is widely known that India’s agriculture sector has a challenge of lack of scale. Around 80 per cent of our farmers are small and marginal, with less than two hectares of land. Farmer Producer Organisations (FPOs) have been posed for years as the solution to this scale problem, enabling small farmers to act as a large farm unit. They can collectively bargain for better prices on both inputs and outputs, pool together to buy machinery, transport crops and, thereby realise economies of scale. To this end, the government has even announced the formation of 10,000 new FPOs by 2023-24 with budgetary provision of ₹6,865 crore. A win-win solution for all?

Unfortunately, despite the seemingly perfect solution and significant will, FPOs have been far from a silver bullet. As per a study by SFAC, there are around 5,000 FPOs in the country, with almost half of them in development stages of mobilisation and business planning. About 30 per cent of these are operating viably, while some 20 per cent are still struggling to survive. So why, despite the collective wisdom, have we failed to stand up 1000s or even 100s of successful FPOs?

There are a few challenges limiting the potential of FPOs today, and here are three ideas to transform this.

Upgrade the quality of talent

Running a successful FPO requires a set of market-facing and organisation skills. On the market-side, FPOs need to manage procurement, sales and marketing, supply chain and logistics, amongst others. Internally, the CEO of an FPO needs to manage 300-500 farmers, each of whom has an equal say in decision-making, and meet financial and legal requirements. To address this, it is important to evaluate the following:

A fellowship programme with certification and on-ground experience to support the need for upcoming 10,000 FPO CEOs and functional managers. The programme can be set up in partnership with multiple agriculture universities across the country. The curriculum can be structured over 3-4 years to include classroom training on business fundamentals, on-ground experience with CBBO/RI from Day 1 of mobilisation, practical experience on building market linkages, negotiation and investment planning.

Overhaul CEO leadership team selection and on-boarding process to set up a strong functional team working with the CEO. For instance, Viruthai Millets (an FPC) appoints local agri graduates in its team.

Training support including access to mentorship and business plans should be in place for proper functioning of FPOs. Similar to how we have incubators for start-ups, we can consider deploying multiple incubators at State/district level, based on their expertise in technology, marketing to help FPOs attain self sufficiency

Ensure access to markets

FPOs have historically failed due to lack of access to market channels. However, a few FPOs have been able to successfully build these linkages such as Sahayadri Farmer Producer Company Ltd. For Sahayadri, it has been possible because of their state-of-art infrastructure (processing, storage and packing facility) and international grade food certifications (through Global Gap Program certified farmers) that allowed smallest of farmers to be a part of global supply chain.

A national FPO platform with access to buyers, suppliers of inputs, credit should be launched for monitoring and enabling market linkages, scheme access and financing, access to services for FPOs (example, accounting, legal). The platform should also offer a virtual marketplace to help establish connections with agribusinesses including processors, exporters, modern retails, input providers for buying and selling.

Enable access to working capital.

Most farmers sell at farmgate to traders to unlock cash immediately to meet consumption, future sowing needs. FPOs need to be able to offer attractive terms of trade to farmers, paying them immediately for produce. This requires working capital but, unfortunately, FPOs face challenges in accessing government funds or raising loans.

It is imperative to take learnings from successful NBFCs/cooperatives to build a viable working capital ecosystem for FPOs. Amul’s model to raise financial resources in the form of equity is a benchmark model to bridge capital gap. Similarly, Samunnati’s value-chain finance model and customised working capital solutions to FPOs to provide with three-month, six-month, or one-year loan, depending on the requirement, is another successful example to build upon.

A sustainable collectivisation of agri produce and marketing is an answer to India’s highly fragmented agriculture sector to help realise its full revenue potential. This can be achieved through FPOs. With the government’s plan to more than double the number of FPOs in the coming years, it’s zero hour for the sector to bring in transformational initiatives to revitalise themselves and, therefore, India’s agriculture market.

Sushma is Managing Director & Partner, and Aparna is Partner, BCG

Published on August 03, 2021

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor

You May Also Like