Farmer producer organisations proliferate but most lack economies of scale

According to officials, FPOs, who have farmers as the share- holders, would leverage economies of scale which would lead to reduction in cost of production and enhance farmers’ incomes. The government has an ambitious target to add another 10,000 farmer producer organisations (FPOs) to the current count of 6,000-plus such bodies by financial year 2027-28. However, a review of the functioning of existing FPOs would reveal if these organisations were to make a meaningful difference to farmers’ income, their operations would have to be scaled up. FPOs need to set up agriculture-processing facilities and other infrastructure in order to perform their role assigned to them. Most FPOs in the country are, however, hamstrung by lack of access to low-cost institutional credit. Jay Sardar Farmer Producer Company, founded by Ashish Nafade, is based out of Buldhana district of Maharashtra and has been into aggregation of agricultural commodities such as maize, soybean and wheat and has, in its fold, as many as 5,000 farmers since its formation 2016. Besides procuring crops under government schemes, the farmer producer organisations also undertakes commercial operations for the benefit of its members.Thanks to infusion of working capital of Rs 35 lakh by ‘Friends of Women World Banking’ (FWWB) in the beginning, Jay Sardar Farmer Producer Company has expanded its activities over the years. Last year, it paid a bonus of Rs 45 lakh to its members. However, accessing institutional finance for expanding activities remains a challenge. “It was difficult to raise funds from banks since most farmers at one point or the other default on their loan payments and banks go by CIBIL scores,” Nafade told FE. Inderpal Singh, CEO of Honey Fed Farmer Producer Company, an FPO with 300 members based in Bharatpur (Rajasthan) has received a modest grant of Rs 3 lakh since its formation about a year ago as management cost and Rs 2 lakh as equity matching grant from farmers’ cooperative Nafed, one of the agencies entrusted by government in FPO formation. But in the absence of bank credits, this FPO is yet to set up a honey processing facility which would have given better returns for the farmers. According to officials, FPOs, who have farmers as the share- holders, would leverage economies of scale which would lead to reduction in cost of production and enhance farmers’ incomes. “Factors behind challenges faced by FPOs include low capital base, absence of credit history, non-availability of collateral, inadequate capacity building of board members and CEO, and lack of professionalism in management,” G R Chintala, chairman, Nabard said. He said that he supports institutional finance support to FPOs as most of the shareholders belong to the small and marginal holders segment. Earlier this month, a report by CII and NABCONS had stated while the financial institutions have been extending credit facilities to expand activities of FPOs, close to 90% of the lending is by Non-Banking Financial Companies (NBFCs). The report on FPOs has urged RBI to issue a directive requesting banks to report their lending to FPOs and provide those NBFCs who have shown that FPOs are bankable to get priority sector lending status thus reducing the cost of credit. According to Suseela Chintala, MD & CEO, of NABMISAN, a subsidiary of Nabard, which offers financial products to FPOs, the mainstream financial institutions are yet to draw comfort with the FPOs. While launching the new central sector scheme for formation and promotion of FPOs, in February, 2020, Prime Minister Narendra Modi had stated that the collectivization power of the farmers will be utilised in order to get better prices for their produce. According to the Nabard database, there are 6,328 FPOs in total which have been formed as of March 2021. There are 900-odd FPOs registered with the Small Farmers Agri-Business Consortium.

Farmer producer organisations proliferate but most lack economies of scale

According to officials, FPOs, who have farmers as the share- holders, would leverage economies of scale which would lead to reduction in cost of production and enhance farmers’ incomes.

The government has an ambitious target to add another 10,000 farmer producer organisations (FPOs) to the current count of 6,000-plus such bodies by financial year 2027-28. However, a review of the functioning of existing FPOs would reveal if these organisations were to make a meaningful difference to farmers’ income, their operations would have to be scaled up.

FPOs need to set up agriculture-processing facilities and other infrastructure in order to perform their role assigned to them. Most FPOs in the country are, however, hamstrung by lack of access to low-cost institutional credit.

Jay Sardar Farmer Producer Company, founded by Ashish Nafade, is based out of Buldhana district of Maharashtra and has been into aggregation of agricultural commodities such as maize, soybean and wheat and has, in its fold, as many as 5,000 farmers since its formation 2016.

Besides procuring crops under government schemes, the farmer producer organisations also undertakes commercial operations for the benefit of its members.
Thanks to infusion of working capital of Rs 35 lakh by ‘Friends of Women World Banking’ (FWWB) in the beginning, Jay Sardar Farmer Producer Company has expanded its activities over the years. Last year, it paid a bonus of Rs 45 lakh to its members.

However, accessing institutional finance for expanding activities remains a challenge. “It was difficult to raise funds from banks since most farmers at one point or the other default on their loan payments and banks go by CIBIL scores,” Nafade told FE.

Inderpal Singh, CEO of Honey Fed Farmer Producer Company, an FPO with 300 members based in Bharatpur (Rajasthan) has received a modest grant of Rs 3 lakh since its formation about a year ago as management cost and Rs 2 lakh as equity matching grant from farmers’ cooperative Nafed, one of the agencies entrusted by government in FPO formation. But in the absence of bank credits, this FPO is yet to set up a honey processing facility which would have given better returns for the farmers.

According to officials, FPOs, who have farmers as the share- holders, would leverage economies of scale which would lead to reduction in cost of production and enhance farmers’ incomes.

“Factors behind challenges faced by FPOs include low capital base, absence of credit history, non-availability of collateral, inadequate capacity building of board members and CEO, and lack of professionalism in management,” G R Chintala, chairman, Nabard said. He said that he supports institutional finance support to FPOs as most of the shareholders belong to the small and marginal holders segment.

Earlier this month, a report by CII and NABCONS had stated while the financial institutions have been extending credit facilities to expand activities of FPOs, close to 90% of the lending is by Non-Banking Financial Companies (NBFCs).

The report on FPOs has urged RBI to issue a directive requesting banks to report their lending to FPOs and provide those NBFCs who have shown that FPOs are bankable to get priority sector lending status thus reducing the cost of credit.

According to Suseela Chintala, MD & CEO, of NABMISAN, a subsidiary of Nabard, which offers financial products to FPOs, the mainstream financial institutions are yet to draw comfort with the FPOs.

While launching the new central sector scheme for formation and promotion of FPOs, in February, 2020, Prime Minister Narendra Modi had stated that the collectivization power of the farmers will be utilised in order to get better prices for their produce.

According to the Nabard database, there are 6,328 FPOs in total which have been formed as of March 2021. There are 900-odd FPOs registered with the Small Farmers Agri-Business Consortium.