Cooperatives faltered, but FPOs must succeed

December 17, 2020 6:00 AM

For greater viability, Revisit the provision on minimum membership for setting up FPos; ensure access to cheaper credit than is available through MFis

Fourth, forging market linkages may be quite challenging for the capacity of the FPOs. The markets in India are quite complex and entrenched.Fourth, forging market linkages may be quite challenging for the capacity of the FPOs. The markets in India are quite complex and entrenched.

By Nagendra Nath Sinha
Over the last five years, the farm sector has seen marked shifts from traditional methods to modern, technology-oriented production and marketing system involving ICT tools, AI and big data. This transition has resulted from proactive government reforms (the most recent being the three historic farm laws) in almost all the segments. One of the latest reforms actively promotes Farmer Producers Organisations (FPOs).

Eighty-six percent of farmers in the country are small and marginal farmers. The rural sector hasn’t performed as well as other sectors, and this has had an adverse impact on these farmers. A possible and very promising way out of this dismal scene is the initiative of the government to actively promote FPOs, as collective action may compensate for lack of scale in their engagement with the market, public agencies and production systems. In fact, similar hopes had been pinned on cooperatives for a few decades after Independence. However, this approach had somewhat mixed results in terms of leveraging farm capacity vis-à-vis the market. How did cooperatives fail to redeem the promise? What can FPOs do differently? These are the questions this article probes.

The idea of organising farmers in the form of cooperatives dates back to the early 20th century. As the idea of economic democracy gained root, in 1945, the Saraiya Committee recommended bringing 50% of all villages and 30% of the rural population within the ambit of cooperatives over 10 years. Cooperatives took the shape of a mass movement amongst the farming community, but faced setbacks. Against this backdrop, came the clarion call of AD Gorwala, “Cooperation has failed, but cooperation must succeed”. In addition, the National Five-Year Plans (FYP), recognised cooperatives as key institutions for organising rural economic life and protect the interest of the poor and the disadvantaged in rural communities.

However, the government’s push did not translate into more vigorous functioning of these institutions for lack of managerial capacity and stifling regulatory control by the registrar and his associates. In this context, the 7th FYP broke new ground by encouraging the development of managerial capacity, self-regulation and self-management of the societies, including training and dedicated resources via NABARD and other agencies. But, the basic weakness emanated from the fact that the cooperative movement was a government-led initiative rather than a voluntary enterprise. It, thus, failed to create and nurture grassroots energy and imagination. Moreover, the powers continued to be concentrated with registrars and the officials, who actively promoted rent-seeking. this ate into the economic viability of cooperatives and lowered their credibility amongst people.

With liberalisation of the economy and institutional reforms, cooperative societies, in general, fell out of favour. Even then, cooperatives in several areas, like dairy or housing, continued to do well as these were better organised, interacted regularly with members, had separated management from leadership and government control. Later, the Vaidyanathan Committee tried to revive cooperatives but had limited success because of legacy problems, and the evolution of new specialised institutions, viz SHGs and their higher-order organisations, JLGs, MFIs, etc, gradually cornered traditional cooperatives.

In this context, the only suitable organisation to fill the space vacated by cooperatives appears to be FPOs due to their outreach to small and marginal farmers. They also have the potential of enhancing the farmers’ bargaining power and income levels. This sounds similar to the goals of the cooperative movement and also raises the question of survival of cooperatives when FPOs take root.

But, one must understand the difference between FPOs and cooperatives. First, FPOs are form-agnostic, ie, they could be Part IX-A companies or cooperatives. However, it has been provided in the 2013 FPO Policy (SFAC) that they need to be insulated from interference in elections and day-to-day management. Second, by design, they are market-centric, both from the perspective of inputs and sale and processing of produce, so as to capture the maximum value for the farmer by leveraging technology and actively using market intelligence. They seek to become viable by bringing in professionalisation in management.

Third, assurance of production support, adequate capital availability, bulk marketing of produce, higher returns are default design considerations for FPOs. In a steady-state, we visualise the FPOs to become the main ‘assurers’ for the producers.

Pain points
The first concern, however, is with the size of memberships of the FPOs. For viability, they require a turnover of about Rs 5 crore, a net profit of about Rs 30-50 lakh in the initial 2-3 years for distributing a fair amount of profit and hiring of strong professional managers. Thus, they require membership of about 2,000-3,000. The current guidelines, that permit FPO formation with a minimum membership of 300 (100-150 in NE and hilly areas) need to be revisited.

Second, the lack of availability of capital at a reasonable cost is constraining. It is ironic that while agricultural loans are available at 7-9%, the FPOs have to seek credit largely from MFIs at interest rates of ~18%. The credit guarantee under the scheme, of up to Rs 2 crore, helps but there is a need to do more, especially for working capital and on lowering the interest rate. Third, good quality managerial manpower is crucial for FPOs. In fact, Amul is a giant because it had Verghese Kurien and other titans as its managers. If we promote humble and ambitious managers with the best interest of farmers in mind, then FPOs will succeed. We should devise measures to attract such talent to the sector. Seniors may drive a suitable talent hunt from among the likes of NDDB, SFAC, NCDC, etc.

Fourth, forging market linkages may be quite challenging for the capacity of the FPOs. The markets in India are quite complex and entrenched. However, these, too, are evolving. Commodity exchanges, eNAM, futures markets, rating agencies, regulated warehouses, e-commerce are new market formats, and FPOs need to align with and tap into them, thereby compensating for their lack of penetration in traditional market channels. This will help replace the old trade model.

Brand-building is another key area, which will serve them in their quest for markets and quality. Further, federations of FPOs working in similar spaces may bring new dimension by leveraging their synergy; SFAC, NAFED, NCDC, etc, may decisively intervene in these areas. Last, supporting FPOs in their nascency through government policies, overarching governance framework and exclusive agencies like a National FPOs Development Agency (NFDA), as also treating them on a par with startups, offering similar treatment in public procurement and support to their members in development schemes are some areas that need further work.

An acute focus on FPOs is a bright spark for revitalisation of the farm sector. However, the goal of forming 10,000 FPOs is modest as compared to the need of over a lakh FPOs in the country. We could correct the anti-farmer skew through the successful functioning of FPOs. However, we must ensure that FPOs capture the wide diversity of agricultural production in different parts of the country in a more balanced way. To rephrase Gorwala’s famous words, “Cooperatives have failed, but FPOs mustn’t fail”.

Secretary, Ministry of Rural Development, Govt of India. Views are personal

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