Reforming Farmer Producer Organisations

Reforming Farmer Producer Organisations

News: The article discusses the functioning of FPOs and need for their reform.

Facts:

• Indian farming is predominantly subsistence-oriented with 86% of individual holdings below two hectares which occupy 47% of the country’s total cultivated area.
• The production and productivity of these farms are generally low, with limited marketable surplus and low realizations.
• FPOs are quite effective in addressing above challenges.

FPOs:

• A FPO represents the power of aggregation. Many small farmers come together and form an organisation that collectively purchases inputs required by them and/or sell their produce.
• Initially, only small informal groups of 20-25 farmers are formed and gradually such farmer interest groups or FIGs are, then, aggregated into FPOs.
• The FPOs, in turn, can remain informal groups or be registered societies, cooperatives, trusts and companies.

Allowing formation of Farmer Producer Companies, by amending the Companies Act of 1956, was recommended by Y.K.Alagh Committee which was implemented. But registering FPOs as companies has certain limitations:

• Subjecting farmers to the rigours of company regulations is taxing as they are ill-equipped to handle such issues and have to pay consultants for filing returns.
• Small farmers mostly produce paddy, millets, wheat, pulses, vegetables and other staples which have low margins even if they are aggregated into FPOs, hence there is a need to form FPO for a full value chain.
• FPOs are mostly organized by NGOs who are good at community mobilisation, but whose business acumen is limited, which raises doubts about efficacy of FPOs.
• FPOs are to operate as businesses but the quality of manpower at their member, board and CEO levels is low which are majorly held by NGO members.

Reforms needed:

• FPOs should be created not just for aggregation of produce but for entire value chain of the produce from raw material stage to final processing stage.
• Developing proper training programmes for FPOs, including through producing short videos such as those used in massive open online courses.
• Introducing a system of issuing equity to CEOs or board members of FPCs as a performance incentive.
• FPOs require an enabling ecosystem, through sensitising government officials and bankers to the unique potential of these business entities for improving farmers’ incomes.