Revisting FPOs to Mitigate Farmer Distress

Govt forms Irrigation Schedule Committee to facilitate farmers

The last few decades have witnessed a shrinking of employment in rural India. Rural-to-urban migration is an inevitable socio-economic reality, especially for those unable to generate a meaningful livelihood from rural resources. Rural areas typically face several developmental impediments: Small land holdings, low savings and capital formation, limited market access, low levels of human development and a young population alienated from farming and other rural occupations. They need solutions tailored to their needs and problems.

Small farmers are the key to promoting sustainable development. But they have been among the most underserved population and are highly susceptible to food and nutrition insecurity. They often lack essential tools and new technologies and don’t have networks to access them, the financial services to afford them, or the markets to profit from investments. They are plagued by low productivity and lack access to quality farm inputs such as good seeds and fertilisers, training and capital and technology and knowledge that can make their enterprises commercially viable.

Fragmentation of land holdings has left growers with shrinking farms that are too small to be remunerative. They have poor access to credit and irrigation, making it difficult to make their scanty land yield a decent income. A tenth of our farmers are landless. They are forced to contend with a cycle of low investment, poor productivity, low value-addition, weak market orientation and depressed margins.

One of the ways to mitigate this rural distress and promote a farm revolution was to design a livelihood and development strategy that entails collectivising and strengthening primary producers among small farmers through Food Producer Organisations (FPOs) and integrating them into an inclusive value chain to provide end-to-end support. This mutual aid organisation, whose members pool their expertise and part of their savings, helps the members achieve more together than they can alone and becomes self-propagating over time. It confers greater bargaining power, better market and price discovery, access to credit and insurance and sharing of assets and costs.

After the amendment of the Companies Act in 2003, FPOs emerged as a new form of aggregation model in India. Last year the government mentioned its intent to create 10,000 more FPOs. These are to be owned, governed by shareholder farmers, and administered by professional managers. They adopt all the good principles of cooperatives, efficient business practices of companies and seek to address inadequacies of the cooperative structure. The best way for these organisations to leverage their collective strength is through an entire value chain from the farm to the fork. The value chain’s underlying principle is similar to that of the full-stack approach. This approach makes the sponsor, catalyst or promoter responsible for every part of the experience.

In agriculture, the complete stack approach includes helping farmers identify what to grow and how to grow it, what technology to use and when and where to sell at what price. The farm-to-market initiative encourages smallholder farmers to use technology to transport and sell their produce collectively. Collectivising significantly reduces transportation costs, saves farmers from travelling to the market and consolidates their selling power. Moreover, the whole value chain needs to have a business approach to make it viable.

Agricultural business companies, private sector financial institutions, primary producer organisations and other stakeholders must collaborate to structure such functional full value chains to make greater benefits accrue to individual members. It is a sustainable, market-based approach to systematically and incrementally address the barriers that prevent individuals from accessing necessary services. Small producers need to reach the scale required for sourcing inputs and services. Apart from the collective strength that group synergy generates, the support structures help build producers’ capacities to deal with input suppliers, buyers, bankers, technical service providers, development promoting agencies and the Government (for their entitlements), among others.

The sponsor of the value chain provides a gateway for primary producers to access resources, information and markets. One of its important roles is linking them to reliable and affordable sources of financing to meet their working capital, infrastructure, development and other needs. The collective works to reorient the development and funding ecosystem to make it more responsive and relevant to the needs of small producers. It also strengthens an enabling environment by influencing and orienting policies in this direction.

The extension services include lengthening farmer capacity through agricultural best practices for enhanced productivity, agronomic advice, fostering connections to local farm financial services, training on methods of application of bio-fertilisers and pesticides, modern harvesting techniques, appropriate integrated pest management, integrated nutrient management and access to optimal environmental practices and regionally-appropriate crops for planting. However, questions regarding the FPOs status and characteristics such as geographical spread, membership patterns, and financial attributes remain largely unanswered.

The key benefit in the FPOs is the marketing support that links producers to mainstream markets through the aggregation of subsistence-level produce into economic lots that can significantly raise the share that peasants get of the money people pay for their food. The success of collective hinges on many actors: The technical support it receives, its institutional base, composition, land access and cropping patterns of members and adaptation of the model to the local context. The elite farmers are significantly more likely to participate than the less privileged.

Moreover, the better-off often become administrative members and use services substantially more to them than rank-and-file members. The collectives, therefore, positively affect household welfare for elite members, but the impact is lower for rank-and-file members. It is, thus, necessary to strengthen democratic processes in these institutions.

Evelyn Huang, a celebrated design thinking trainer in American financial sector, who believed in ‘reimagining the way 60 million people interact with their money’, implicitly suggested that the design of cooperative enterprises should be about constantly reimagining how thousands of potential members interact with their cooperative so that the process imparts strength and vitality to the latter. It found that the failure of cooperatives is often rooted in the inability of their promoters to understand this interaction.

While FPOs remain the most trusted allies for farmers, they need to be revitalised by infusing modern design features without diluting their traditional ethos and philosophy. In light of our learning, we need to revisit the model and harness the basics, tweaking designs of traditional structures instead of reinventing the wheel. Experience tells us that continuous training, capacity-building and member-awareness programmes can reinforce the design features and help solidify the relationship between members, field staff, professional managers, financial institutions and directors and build a strong bond that can equip the collectives with the will to fight adversities and exploit opportunities.

FPOs can continue to grow as viable, member-controlled, self-sustaining farmer businesses if they constantly work on reshaping the interaction of their members with themselves. A self-regulatory body designed to protect the interest of FPOs and farmer members can serve a useful purpose. We don’t have to throw the baby out with the bathwater. The ecosystem has improved for the performing FPOs, but many emerging and dormant FPOs need care. Members need to have faith in their FPOs so that others can trust the FPOs.—INFA


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Moin Qazi

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