Farmer collectives (Farmer Producer Organizations and Farmer Producer Companies) have recently received a lot of attention in terms of transforming India’s agri sector. The government of India is giving strong impetus to its foresighted initiative of forming 10,000 FPOs. It is also pursuing other policy measures (like Agristack IDEA and e-NAM) that will help the farmer collectives not only stay alive but also grow into profitable businesses. However, this is easier said than done given the multitude of challenges such as access to credit at the right time, organisational capacity, lack of infrastructure and, importantly, lack of alignment with the market.
While working capital and liquidity are the most obvious of the challenges faced by FPOs, market linkage is one of the key factors for the success of a farmer collective. Supply chains can transform into efficient, demand-driven, and market-oriented value chains only by enabling the market to connect and eliminating inefficient processes and intermediaries. While FPOs can encourage their member farmers to adopt productivity-boosting technologies, with effective market linkages, they can leverage economies of scale by building necessary infrastructure and can partner with markets physically as well as via e-commerce (B2B2C, B2B, and B2C) platforms at the front end. All these can help the commodity value chains become lean, and efficient.
An FPC, ‘all-women’, in Madhya Pradesh, was founded in 2021 with 310 aspirant women members and had an initial turnover of Rs. 14 lakhs. A partnership with a financial service provider that provided financial assistance and other support, such as the digitalization of the FPO’s member database and training to increase its organisational ability, altered the FPC’s fortunes. Kisan Value Hub was essential in connecting the FPC with ecosystem players, such as agri-input businesses, for the purpose of selling the produce it sourced from farmers. As a result, the FPC’s revenue soared to Rs. 84 lakhs in 2021-22. To make its business more diverse, the FPC is trying to move up the value chain into food processing and make more valuable products.
Earlier, we used to travel long distances to sell our wheat at the mandis but now the market is brought to our doorsteps. With financial support at the right time and market connection, we were able to procure more from our farmers, save more on transportation costs, and get better realisation by doing business directly with buyers. We are looking to increase our procurement volumes next season,” said a director of the FPC.
A 2018-founded company in Andhra Pradesh with an initial membership of forty farmers, which procures agricultural inputs for its members and intends to undertake primary processing and distribute them to large food companies, suffered from a lack of market connectivity on both ends—agro inputs and outputs—in addition to the apparent financial constraints. A provider of financial services facilitated the FPC’s integration into the greater agri-ecosystem. As a result, the FPC currently has effective commercial relationships with twelve enterprises at both ends of the value chain. In 2021-22, the company’s revenue increased to Rs. 18 crores from Rs. 15 lakhs in 2018-19, as its farmer membership increased from 40 to over 600.
About 86% of India’s farmers, i.e., about 150 million families, are small and marginal, owning less than 2 hectares of land. Their smaller size of holding, lack of farm level and financial data make conventional methods of credit assessment by financial institutions difficult. Most plain-vanilla financial products are ill-suited to the specific requirements of smallholder farmers. So, they remain underserved or unserved.
Although farmer collectives help mitigate some of these, FPOs need to evolve and mature to ensure the resilience of farming communities, enable and enhance their collective bargaining, and deal with various risks, including climate and market. Hence, their requirements at various stages of growth vary significantly, and specific, tailor-made solutions are needed to help FPOs become profitable enterprises.
There are many cases like the above where market linkage, in addition to other interventions, played a crucial role in ensuring growth and profitability for FPOs and the farmers realised a relatively higher share of the price paid by the consumers.
Currently, India is in a unique position where its economy will not only touch $ 5 trillion but also be self-reliant and resilient. Farmer collectives are all set to play a big role in ensuring food and nutritional security for its 1.3 billion population. But to make it happen, a lot needs to be done, as mentioned in the “The State of Sector Report 2022 on FPOs” to enhance their access to capital, technology, and markets, which are crucial for the evolution of the FPO sector to integrate them into agri-value chains.
Authored by- Raghavan Sampathkumar – Head – Policy Advocacy and External Affairs, Samunnati