Key Enablers Driving Growth of FPOs and FPCs
The agriculture sector in India is predominately production-oriented rather than market-oriented. More than 80% of farmers are small and marginal & contribute to more than half of total food production. Due to this skewed nature of the industry, India faces massive challenges in making agriculture a profitable business to all Agri value chain stakeholders, especially small and marginal farmers. Lack of access to institutional credit, low price realization & weak market linkages, unaffordability to opt for technologies & better farming practices, low capital & infrastructure, etc., are a few of the severe problems faced by Indian farmers. This situation calls for a significant structural transformation to revitalize Indian Agriculture.
Farmer Producer Organizations (FPOs) and Farmer Producer Companies (FPC) are considered as an optimal institutional form of aggregating small & marginal farmers where farmers can leverage their collective strength and bargaining power to achieve economies of scale, avail institutional credit as well as have better price realization through collective marketing of their produce. Also, having a common capital pool will further help establish processing infrastructure and avail technologies to upgrade their farming practices by accessing quality inputs and increasing crop productivity and income. There are around 6,000 FPOs in India, out of which around 3000 are registered by Department of Agriculture and Cooperation, Ministry of Agriculture, Govt. as FPC under Company Act. Also, more than 1000 FPOs have registered in the eNAM platform to sell their produce through e-trading and the benefits of direct marketing & transparent price discovery.
There is a significant effort taken by Indian government to achieve doubling of farmer’s income goal by promoting FPOs through attractive schemes. In the Union Budget 2019-20, the government announced the formation of 10,000 new FPOs in the next five years Other initiatives like the Equity grant scheme & Credit Guarantee Fund Scheme for FPCs would further facilitate ease of availing credits. State governments are also contributing towards FPOs’ promotion under Rastriya Krishi Vikas Yojana (RKVY). Government organizations like the SFAC (Small Farmers Agribusiness Consortium), NABKISAN, NAFPO (National Association for Farmer Producer Organisations), NAFED (National Agricultural Cooperative Marketing Federation of India Ltd), FIFA (Farmer Producer Organisations of Federation of Indian FPOs and Aggregators), and NABARD (National Bank for Agriculture and Rural Development) are playing an active role in developing FPOs by providing required skill development training, institutional credit access, incubation programs for handholding of FPOs and FPCs, etc.
In India, FPCs and FPOs are at a nascent stage and therefore require a strategic handholding plan throughout their development process. At this point of time, there is a need for interventions by strong private and public Agribusiness players’ to assist FPOs, right from farm gate to processing and marketing their produce. FPOs face challenges, particularly on four fronts- adequate capital accessibility, infrastructure & processing facilities, market linkages & technical handholding support. ( Fig 1)
Figure 1: Key enablers that can drive growth of FPOs/FPCs
A holistic FPO Business model needs to be developed to cover critical front-end activities like operational efficiency, farming practices, farm services & back-end activities such as accounting, legal compliance support, auditing, etc. Strategic collaborations such as partnering with agribusiness companies, Agri-tech startups, fintech players, insurance companies, NBFCs, Retail chains, etc. are the need of the hour for FPOs to achieve and sustain profitability. (Fig 2)
Figure 2: Value Chain Activities under Farmer Producer Organisation (FPO) Holistic Model
Associate Consultant – Agribusiness & International Development Advisory
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