Farmer Producers Organisations - Small and Marginal Farmers

What is the issue?

• One of the reasons for agrarian distress is the declining average size of farm holdings.
• In this context, here is how farmer producer organisations (FPOs) could help deal with it.

How have farm holdings nature changed?

• The average farm size declined from 2.3 hectares (ha) in 1970-71 to 1.08 ha in 2015-16.
• The share of small and marginal farmers increased from 70% in 1980-81 to 86% in 2015-16.
• At the state level, the average size of farm holdings in 2015-16 ranged from 3.62 ha in Punjab, 2.73 in Rajasthan to 0.75 in Tamil Nadu, 0.73 in Uttar Pradesh, 0.39 in Bihar and 0.18 in Kerala.

What are FPOs?

• Small farmers face several challenges in getting access to inputs and marketing facilities.
• A group or collective is one of the main institutional mechanisms to help such marginal and small farmers.
• In the last decade, the Centre has encouraged farmer producer organisations (FPOs) to help farmers.
• The membership of an FPO ranges from 100 to over 1,000 farmers.
• Most of these farmers have small holdings.
• Aggregation helps them overcome the constraint of small size.
• Small farmers gain greater bargaining power through FPOs in relation to the purchase of inputs, obtaining credit and selling the produce.

What are the government measures in this regard?

• Since 2011, it has intensively promoted FPOs under the Small Farmers’ Agri-Business Consortium (SFAC), NABARD, state governments and NGOs.
• The ongoing support for FPOs is mainly in the form of –
  1. a grant of matching equity (cash infusion of up to Rs 10 lakh) to registered FPOs
  2. a credit guarantee cover to lending institutions (maximum guarantee cover 85% of loans not exceeding Rs 100 lakh)
• India has 5,000 to 7,500 such entities as per different estimates.
• A majority of them are farmer producer companies.
• The budget for 2018-19 announced supporting measures for FPOs including a five-year tax exemption.
• The budget for 2019-20 talked of setting up 10,000 more FPOs in the next 5 years.

How have FPOs performed so far?

• Experience shows a mixed performance of FPOs in the last decade.
• Some estimates show that 30% of these are operating viably while 20% are struggling to survive.
• The remaining 50% are still in the initial phase of mobilisation and business planning.
• FPOs in Gujarat, Maharashtra, Madhya Pradesh, Rajasthan and some other states have shown encouraging results.
• They have been able to realise higher returns for their produce.

What are the concerns to be addressed?

• Studies of NABARD show that there are some important challenges for building sustainable FPOs.
• Some of these are -
  1. lack of technical skills
  2. inadequate professional management
  3. weak financials, inadequate access to credit
  4. lack of risk mitigation mechanism
  5. inadequate access to market and infrastructure
• Some studies highlight the need for more than one lakh FPOs for a large country like India while currently there are less than 10,000.

• FPO seems to be an important institutional mechanism to organise small and marginal farmers.
• However, the fundamental problem of the small size of holdings giving only a limited income is not resolved.
• Incomes will rise because of the benefits flowing from FPOs.
• But they may not still be adequate to give a reasonable income to small and marginal farmers. That issue has to be handled separately.

What are the possible measures?

• The above issues such as working capital, marketing, infrastructure have to be addressed while scaling up FPOs.
• Getting credit is the biggest problem. Banks must thus have structured products for lending to FPOs.
• These organisations lack professional management and, therefore, need capacity building.
• Also, they have to be linked with input companies, technical service providers, marketing/processing companies, retailers etc.
• They need a lot of data on markets and prices and other information and competency in information technology.
• FPOs can be used to augment the size of the land by focusing on grouping contiguous tracts of land as far as possible; they should not be a mere grouping of individuals.
• Women farmers can also be encouraged to group cultivate for getting better returns.
• FPOs can also encourage consolidation of holdings.

Source: The Indian Express