Finance Minister Nirmala Sitharaman wants 10,000 FPOs to be set up, but this might not be a prudent policy

  • The Finance Minister wants 10,000 farmers producer organisations to be set up over the next five years

  • FPOs will also have to get over the development or welfarist mindset of the NGOs that promote them.

  • While smallholder farmers need to be grouped into collectives, a subsidy-driven, target-oriented programmes is likely to be hijacked by enterprising opportunists

The Finance Minister Nirmala Sitharaman wants 10,000 farmers producer organisations to be set up over the next five years. While smallholder farmers need to be grouped into collectives, a subsidy-driven, target-oriented programme is likely to be hijacked by enterprising opportunists. Here's why:

The Kovai Farmers’ Producer Company (FPC) was formed in August 2013, more than a decade after a dozen vegetable farmers in Navakkarai and Vettaikaranpudur villages on the Tamil Nadu-Kerala border decided to band together. They wanted to get a better deal from traders who shortchanged them on various pretexts. They would buy by the sack full, not by weight. Misshapen gourds would be paid half the price but sold at the full rate. There would be deductions for transportation.

When I met the members of the company in 2015 for a TV documentary, they were producing five truckloads of gourds a day. At that time, the daily turnover in the Coimbatore market was about 200 truckloads. The produce of the 520 members of the Kovai FPC was not market swaying but was enough to compel traders to fall in line. The company fixes the rate at which its members will sell for the next fortnight. A live and let-live policy is on. Traders are allowed a margin that will not put them out of business. The company charges Rs 1 per kg, says its secretary, Senthil Kumar. Its annual turnover in 2018-19, he says, was Rs 50 lakh and profit was a fifth of it.

At Thondamuttur near Coimbatore, it was a foundation of the spiritual leader Jaggi Vasudev, also known as Sadguru, which provided the initial thrust in 2012 for a producer company of coconut growers. Though aware of the gains of collective action, the growers were wary of grand intentions crashing into poor outcomes. It took scores of meetings to win them over.

Individually, the smallholders suffered many indignities. Coconut pluckers would charge more than a rupee per nut or about eighty rupees per tree. (Climbing a coconut palm needs skill). The workers who shelled the nuts were equally demanding as agricultural labour is in short supply in this part of the country. Traders would claim more than their fair share.

The Velliangiri Farmers’ Producer Company has checked these exactions. It has engaged teams of pluckers and shellers. They get regular work and charge lower rates. Traders cannot beat down prices. The company negotiates the rates and the traders pick the produce from farmers’ premises. The payment is made to the company which in turn pays the farmers directly into their bank accounts.

 Finance Minister Nirmala Sitharaman wants 10,000 FPOs to be set up, but this might not be a prudent policy

Representative image. Reuters

From Rs 45,000 crore in 2013-14, the annual sales revenue rose to Rs 7.9 crore in 2017-18 and Rs 11.92 crore in 2018-19, says Venkat Radha, who coordinates the work of the FPC for Vasudev’s Isha Foundation. On average, farmers get Rs 30 per kg, he says. Earlier, it would be Rs 20-22. (The price depends on weather and the international rate competing for cooking oils).

Radha says there were a lot of teething problems. Changing the attitude of farmers was not easy. The motivators had to climb over the wall of scepticism. But now there is a clamour for membership (which has remained at 1,063 for the past couple of years). Farmers want to bring the additional area under coconut and vegetables (which, the FPC has lately ventured into), because they can focus on production without worrying about marketing. The state government has helped by renting out a tomato puree unit and a vegetable processing plant. It has given the FPC licenses to sell fertilisers and pesticides. The FPC also has a dealership for drip irrigation equipment. The FPC has engaged agricultural consultants to advise farmers on agronomy. It has a CEO and marketing manager. These are services that farmers can avail of collectively, not individually.

Farmer producer organisations can be cooperatives or companies. They have been enabled through a 2002 amendment to the Companies Act, so that they do not face the political pulls and pressures that cooperatives are subject to. Like cooperatives they have one member one vote, but unlike them, there is no provision for veto-wielding government representation on the board. This is supposed to assure their autonomy.

“Some form of institutionalisation of farming is important,” says Mihir Shah, a former member of the Planning Commission and co-founder of Samaj Pragati Sahayog (SPS), an NGO set up by some do-gooder students of Jawaharlal Nehru and Delhi Universities in 1990 in Madhya Pradesh’s tribal Dewas district. They were inspired by Muralidhar Devidas ‘Baba’ Amte, to encourage tribal farmers to practice low-input, self-reliant, and sustainably profitable agriculture.

Shah says small and marginal farmers who own less than two hectares or five acres of land will be at a disadvantage individually. They will not have bargaining power while buying inputs or selling their output. He says some form of 'corporate governance' is 'extremely important'. But he also does not agree with target-chasing because it will result in FPCs being set up without regard to profitability. Many of them, he says, have ended up being sub-contractors to pesticide and fertiliser companies. Shah says the FPCs need a viable business model and for that they need not just equity support but also technical guidance.

This is a view endorsed by P V S Surya Kumar, Chief General Manager, Karnataka, of the National Bank for Agriculture and Rural Development (NABARD), a refinance agency. As of August, Nabard has promoted 4,235 FPOs with a total membership of 8.05 lakh. The Small Farmers’ Agribusiness Consortium (SFAC), a society launched in 1994 by Manmohan Singh when he was finance minister has established 822 of them. There are another 346 non-SFAC promoted FPOs. In all, they number about 5,400.

FPOs are good are producing, but marketing is a challenge. Pravesh Sharma, who gave a thrust to them during his five-year stint till 2015 as managing director of SFAC says state governments must take them out of the ambit of the Agricultural Produce Marketing Committee Act (APMC). This Act requires mandi fees to be paid even if produce is sold at the farm gate and not in the regulated mandis. He wants states to also give them infrastructural support like warehouses, and grading and sorting facilities.

Some states have taken these steps. Tamil Nadu has exempt FPOs from the APMC Act, says E Vadivel, former Dean of Horticulture at Tamil Nadu Agricultural University. Vadivel has helped set up 52 FPOs since his retirement. He says the FPOs must be linked to district, state and national marketing federations.

In Madhya Pradesh, traders fought hard to deny Shah’s SPS a place at the local regulated mandi (for maize and soybean). SPS wanted to sell the produced aggregated from many women self-help groups. The traders realised that freedom to sell would give farmers the freedom to borrow as well. (If farmers borrow from traders they will be compelled to sell to them at harvest time when prices are low to settle their dues). SPS had to set up a RamRahim Farmer Producer Company to obtain a license to trade. In some years it incurred losses when the market price for produce fell below the rate at which it bought from its members. These are hazards that FPCs will have to learn to cope with.

The SPS has promoted a brand called ‘Safe Harvest’ to market condiments produced without the use of chemical pesticides. But the cost of centralised processing and packaging was too high. Now it has moved to a decentralised model, where sorting and grading is done at the level of farmers (who also get a better price as a result). “For us, FSSAI [the food standards authority] and the consumer are supreme,” says Shah.

FPOs will also have to get over the development or welfarist mindset of the NGOs that promote them. They need to be business-oriented. The successful ones have committed leadership with the interest of their members above its own. For these reasons, setting ambitious targets might not be prudent policy.

(The author is a senior journalist)

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Updated Date: Nov 14, 2019 13:01:23 IST

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