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State of the Sector Report on FPOs (SoFPO)
Context: According to the latest State of the Sector Report on FPOs (SoFPO) released by the National Association for FPOs (NAFPO), Samunnati, and the Rabo Foundation, Maharashtra has emerged as the state with the most favourable ecosystem for Farmer Producer Organisations (FPOs) in 2024.
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- It replaced Madhya Pradesh, which slipped to the second rank in the Ease of Doing Business for FPOs (EoDBF) ranking. Uttar Pradesh consistently held the third position.
- The report, however, highlights a critical challenge: out of nearly 44,000 registered FPOs, only about 6,100 have accessed formal credit, indicating a vast majority remain outside the ambit of institutional finance due to issues like poor business practices and complex regulations.
What are Farmer Producers’ Organisations (FPOs)?
- Definition: Farmer Producers’ Organisations (FPOs) are collective entities formed by farmers, primarily small and marginal, to improve their bargaining power and economies of scale.
- Legal Structure: They are typically registered as cooperative societies under the respective state acts or as Producer Companies under the Companies Act, 2013.
- The Producer Company model is increasingly popular as it combines the cooperative principles of member-benefit with the corporate advantages of better governance and access to capital.
- Objective: The primary purpose of an FPO is to leverage collective strength to reduce input costs, access better technology, add value to produce, and secure better prices in the market by eliminating intermediaries.
- Composition: An FPO is owned and governed by its farmer-members, with a democratically elected Board of Directors from among themselves.
How are they significant?
FPOs are a critical tool for transforming Indian agriculture and improving farmer incomes. Their significance lies in:
- Enhancing Bargaining Power: By aggregating both demand (for inputs like seeds, fertilizers) and supply (of farm produce), FPOs give small farmers the collective strength to negotiate better rates, both for purchases and sales.
- Economies of Scale: FPOs enable activities that are unviable for an individual small farmer, such as bulk transportation, processing, branding, and direct marketing to retailers or exporters.
- Access to Credit and Technology: As a formal entity, an FPO finds it easier to secure loans from banks for working capital and infrastructure. They can also be effective channels for disseminating new agricultural technologies and best practices to a large member base.
- Risk Mitigation: By diversifying into value-added activities like processing, FPOs can help farmers hedge against the risks of price volatility in raw agricultural commodities.
- Improving Market Linkages: FPOs can establish direct connections with modern retail chains, food processing industries, and export markets, ensuring better price realisation for farmers.
What efforts have been taken to boost FPOs?
The government and other institutions have launched several initiatives to promote and strengthen FPOs:
- Central Sector Scheme: Formation and Promotion of 10,000 FPOs: This is the flagship scheme of the Ministry of Agriculture and Farmers’ Welfare. It aims to form and promote 10,000 new FPOs by 2027-28. Implementing Agencies (like NABARD, NCDC, SFAC) provide handholding support for the initial 5 years.
- Credit Guarantee Fund: The government has set up a Credit Guarantee Fund to cover the default risk for loans up to ~2 crore extended to FPOs by banks, thereby encouraging financial institutions to lend to them.
- Mission for Integrated Development of Horticulture (MIDH): Provides support for FPOs involved in horticulture produce for infrastructure like pack houses, cold storage, and processing units.
- Role of NABARD and SFAC: Institutions like the National Bank for Agriculture and Rural Development (NABARD) and the Small Farmers’ Agribusiness Consortium (SFAC) play a pivotal role in providing financial support, capacity building, and facilitating market linkages for FPOs.
- State Government Initiatives: As highlighted by the EoDBF ranking, states are competing to create a supportive policy environment through single-window clearances, subsidies, and tailored support services to boost FPO growth.
