The math for how FPOs contribute towards doubling farmers incomes

From the policy perspective, the Government of India is virtually on a war footing towards enhancing farmer livelihood. This is also apparent from the recent” Farming Produce Trade and Commerce (Promotion & Facilitation) Ordinance, 2020”. This ordinance is expected to break monopolistic tendencies in agri-business markets. However, in this context, and on a cautionary note, it is necessary to ensure that market regulation prevails, and hence ideally, the Agriculture Produce Marketing Committees (APMCs) operating under the aegis of state governments should remain as one channel or aggregator, Farmer Producer Organisations (FPOs) may serve as an alternative, as may also private market yards, and large processors and retailers.

There are a range of other welcome policy initiatives introduced by the Centre as well as several state governments, namely, the encouragement of private market yards, non-necessity to pay mandi charges for transactions outside the APMC, liberalized issue of Direct Purchase or Direct Marketing Licence, promotion of a unified market eco-system, as well as more efficient price discovery for farmers through e-market platforms. All these are also, in effect, best practices in terms of an enabling policy and regulatory environment for the promotion of FPOs. This complements earlier initiatives such as Income Tax holiday for FPOs. In the context of the latter, global best practice calls for a perpetual holiday, particularly when surpluses are not distributed as dividends but are retained for furthering the objectives of a producer company.

In addition, it is also noteworthy that many schemes of the Ministry of Micro Small and Medium Enterprises are now aggressively accommodating FPOs. Likewise, the Ministry of Food Processing Industries (MoFPI) has also compromised on Net Worth related norms and eligibility criteria with respect to the minimum scale of investment in its schemes to make them more FPO friendly. All these reflect the conducive policy environment being evolved for the promotion of FPOs.

However, a favorable policy environment alone will not suffice. There is a need for field-level action, and the Government of India programme for the formation and promotion of 10,000 new Farmer Producer Organisations (FPOs) may be considered in this light. This programme deviates from the erstwhile structuring of the institutional mechanism for the formation and promotion of FPOs and envisages a professional National Project Management Agency at the Centre, as well as Cluster-Based Business Organisations working at the state and cluster levels to facilitate effective implementation. The re-oriented institutional mechanism for implementation is an attempt to introduce a greater degree of professionalism and expertise in interventions and enhanced thrust on for-business orientation in the operation of FPOs. This apparently also draws upon learnings from programmes of the SFAC as well as other organizations, including that of multi-lateral developmental agencies.

In this setting, it is pertinent for all stakeholders to understand the role of an FPO in capacity building of member farmers and in also contributing towards outcomes and impact at the level of the member farmer. The best practices in this context has reference to the range of services offered. By way of illustration, and in terms of best practices, a typical well-performing FP0 in the cereals and pulses sub-sectors may provide the following revenue yielding and value-accrual enhancing services to member farmers:

  • A typical well-performing FPO annually undertakes between INR 1.5 to 2 Crore of input business. Essentially, with a lower input cost by between 3 to 20 percent for fertilizers as against pesticides, a production cost reduction of 11 -13 percent is witnessed for each member. FPOs typically retain only a 5 percent gross margin or about INR 10 Lakh per annum to cover annual operating overheads.
  • Custom hiring services provided by an FPO also helps many FPOs earn a gross annual income of INR 7 lakh from such services, and helps member farmers conveniently avail related facilities like tractors and harvester combines at discounts of over 30 percent compared to market rates, and subsequently enjoy a cost reduction of even 2 -3 percent on the cost of production per acre.
  • In terms of primary processing which is necessary to also directly access markets, cleaning, grading and packaging of about 2000 Tonnes per annum of the output of members in a common facility, an FPO could earn about INR 20 Lakh as user charge (which is typically pegged at INR 100 per quintal), and member farmers at least an 8-10 percent higher realization on sale.
  • Developing alternate market channels including the NCDEX futures option is critical and so is moving into value-added commodities. Often, large buying firms play an over-arching role in complementing value-added diversification as they also typically provide quality seed, and also crop advisory services in terms of Good Agricultural Practices (GAP), facilitating even a 30 percent increase in yield per acre and value realization.
  • Facilitating credit linkages by way of working capital helps farmer members avoid distress sale of their produce during harvest. Well performing FPOs avail of up to even INR 1 Crore as working capital often with credit guarantee cover from SFAC or NABARD. With this outlay, between 1000-1500 Tonnes or a significant extent of produce of member farmers of an FPO may be stored, and subsequently sold at a net income gain of between 15 to 20 percent per farmer
  • Similarly, seed production activity, and partly open field or protected cultivation of horticulture crops leveraging fiscal assistance is a means to optimize cost and quality of seed inputs, as well as augment member incomes through partly diversifying into more often more rewarding horticulture.
  • MSP facilitation of even to the tune of INR 20 Crore by many successful FPCs has helped member farmers derive higher prices and hence incomes for at least part of their output, and a 1 percent service charge or about INR 20 Lakh for an FPO.

Apparently, adoption of many, or all the initiatives of well-performing FPOs delineated above could jointly contribute towards the de-facto realization of FPOs complementing and pivoting the Government of India’s objective of doubling farmer’s income by 2024.

In a grand ceremony, an FPO manual was released by the earlier Union minister of State for Agri and Farmers welfare, Shri Radha Mohan Singh, accompanied by Padmanand V. and Kunal Sood at Vigyan Bhawan in the presence of 30 Ministers of State for Agriculture.

Get your copy of the two manuals published by the World Bank supported Maharashtra Agriculture Competitiveness Project, authored by V. Padmanand, Sushil Khodwekar (IAS Officer, Maharashtra), and Kunal Sood:

Intrapreneurship and Management for Farmer Producer Companies

Agripreneur Start-Ups

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top