The programme to promote 10,000 farmer producer organisations (FPOs), launched formally by Prime Minister Narendra Modi
last week, can prove a game changer for agriculture if they are given a favourable economic and legal environment to function as professionally managed business enterprises. With cooperatives having, by and large, failed to live up to the expectations, the FPOs — virtually the hybrids of cooperative and joint stock companies — are being envisaged as the implicit third sector of the economy other than the private and public sectors. They are supposed to possess the virtues of both the cooperatives and the private companies but without inheriting their vices.
However, the experience of their functioning over the past decade indicates that they face formidable constraints in accessing institutional finance, marketing farm produce, and entering into contract farming deals. They, therefore, need the government’s backing but without bureaucratic and political interference of the kind that has proved the nemesis of several cooperative organisations and parastatals. Banks are usually wary of lending to FPOs because they do not have any assets of their own to offer as collateral. Most of the assets belong to their member farmers. However, the way the government seeks to tackle this issue under the new scheme does not inspire much confidence in its outcome. The two main measures mooted for this purpose are equity infusion and creating a Credit Guarantee Fund of up to Rs 1,000 crore under the National Bank for Agriculture and Rural Development. Both of these are marred by imperfections. The government equity participation can potentially pave the way for unwarranted official, as also political, meddling in their affairs, which can be ruinous for them. The proposed credit fund, on the other hand, is too meagre to meet the needs of around 5,500 existing and 10,000 proposed FPOs.
The FPOs are supposed to help farmers in procuring farm inputs and selling the produce at the collectively bargained best prices. But they find it hard to do so in the mandis of the same state. More agricultural marketing reforms are, thus, imperative to enable the FPOs to perform their legitimate task.
The FPOs face handicaps also in striking contract farming deals on behalf of their member farmers. The contract farming laws of most states, including the Model Bill drafted by the Centre, provide only for agreements with individual farmers and not with their groups or FPOs. This lacuna needs to be rectified to enable the FPOs negotiate better deals with agro-industries and ensure fulfilling commitments. The government also needs to create infrastructure and facilities for capacity building and professional training of human resource for manning the FPOs. Unless these issues are suitably addressed, the FPOs might find it hard to survive, let alone help raise the income of their member farmers.