India does not need 10,000 new Farmer Producer Organizations. It needs better support for the existing ones.
On 9th Feb 2021, the Ministry of agriculture disclosed the “Promotion and formation of 10000 FPO” and allocated the budget of RS.6865 crores. The question though stands if we need a scheme for formation of 10,000 FPO. A Farmer Producer Organization is setup by Institutions like NABARD, SFAC, etc. by aggregation of small and marginal farmers (300-1000) into and organization that enables them negotiate better in the market and get fair prices both on inputs like seeds, fertilizers etc. and output in form of farm yields.
As of 2021, there are a total of 742 districts in India and as per IndiaSpend report there are around 5000 FPOs that have been developed by institutions like NABARD, SFAC, etc. The government of India’s plan to build 10,000 new FPOs would require a minimum of 13 FPOs in one district. Add that to the list of existing FPOs, the number climbs to 20. The administrative capability required to run FPOs efficiently itself is in short supply in the market often leading to the failure of FPOs, leave alone the process of aggregating people to build one.
Even if the management is outsourced, that problem with having more than 10 FPOs in a single district is that of creating a competition in an already restrictive sector with limited working capital and no corporate backing. While it might succeed in the formation of 10000 FPOs, the income levels of small and marginal farmers for whom the scheme was proposed might not increase much.
While there are no doubts about the role of Farmer Producer Organizations in doubling farmers’ income by cutting input prices, improving market linkages, and enabling collectivization that induces economies of scale. There are questions on the health of existing FPOs. The challenges that an FPO faces are immense, ranging from poor credit and low working capital to lack of risk mitigation strategies in place. While the farmers do get support from government schemes when monsoon fails, an FPO might not get any relief during the same.
To further the distress, limited handholding support and lack of ease of doing business worsens the case for an FPO often leading to shut down of business a year or two after the funds stop from the implementing agency. FPOs like any startup need mentoring and financial support for thriving as an independent company for a period of 10 years. The expectation of the government of India to form an FPO in three years needs to be checked as it might burden the existing systems resulting in formation of FPOs that will go defunct in a year.
While the formation and promotion of 10,000 FPO plan would drive investments into the sector, the plan should be revisited to identify the exact needs of the FPO and enable changes in that direction. The mission mode delivery model might fall on its face when it comes to enabling grassroots community and is not the most efficient way of bringing reforms in FPO functioning. The investment should rather be directed at extending handholding support to the already existing FPOs to 7-10 years, creating marketing linkages, and driving corporates to build storage units capable of functioning under e-NAM scheme and linking them with FPOs. It might be wise to let farmer producer organization work on better input supply and open the market to private players to work on warehousing, packaging, and enabling supply chain.
The views expressed in this article are the author's own.