Key takeaways: CII NCDEX FPO SUMMIT (virtual) – 28th February 2022

FPOs are presently concentrated in a few states. Towards evolving an ecosystem for FPO development, the agencies involved need to focus on promoting FPOs pan India. Identifying the need Ministry of Agriculture & Farmers Welfare, GoI has launched the Central Sector Scheme for “Formation and Promotion of 10,000 Farmer Producer Organizations (FPOs)”. Under the scheme, the formation and promotion of FPO is based on Produce Cluster Area approach and specialized commodity- based approach for development of product specialization.

  1. Further the FPO business model has to be continuously evolving towards scaling and expanding. For example, if as a business model a FPO starts with input business, over a period of time it should also move to procurement & marketing and then add value addition to its portfolio. To support capabilities and infrastructure government schemes are there.
  2. Futures market helps farmers de-risk farmers and provides a price assurance. While for individual farmers trading on futures platform is difficult due to limited scale of output the FPO model through aggregation overcomes this challenge. SEBI sponsored a farmers familiarisation programme on options trading and given the benefit of locking in the price and de-risking farmers, FPOs were interested in leveraging PUT option.
    However, SEBI’s sudden ban on chana and mustard futures and options trading on NCDEX has left FPOs confused. It is suggested that all stakeholders be consulted before any such decision is taken.
  3. Organized buyers are operating in both bulk and niche commodities segments and looking at FPOs for sourcing. There is a huge opportunity for FPOs to meet the sourcing requirement especially in case of niche commodities where quality compliance is critical. Private sector is investing heavily in building capabilities of FPOs in better agronomic practices to help them cater to what the market wants to create market opportunities which are a win-win for both. In bulk commodities, primary value addition like cleaning, sorting, grading, post – harvest management like drying etc becomes important to ensure the quality of the produce is maintained and farmers receive better returns for their prices. It is important for both the parties to stay invested in this development process.
  4. There needs to be a convergence between different value chain partners to build a seamless supply chain. For a serviceable scale for value chain partners FPO clusters are important. The cluster provide enhanced scale for technology deployment which in turn reduces cost of production for FPOs while creating a market for input solutions all of which are necessary to make cultivation more competitive and environmentally relevant.
  5. While FPOs leveraging the platform are benefitting, the challenges being faced include,
    1. Farmers expecting payment upfront while FPOs can pay only after trade happens on the platform towards overcoming the same Government through NABARD or other agencies can support the FPOs with an interim short-term funding before the transaction happens so some upfront payment can be made to farmers.
    2. Need for farm gate infrastructure is another critical requirement where in the Government is already working under the Agriculture Infrastructure Fund (AIF).
  6. FPOs are a critical medium towards improving credit flow into the agriculture as well as allied sector. All schemes of MoFPI focussed on infrastructure creation be it PM Formalisation of Micro food processing Enterprises (PMFME) Scheme, Pradhan Mantri Kisan SAMPADA Yojana have special focus on FPOs as well as special incentives for FPOs. MoFPI has also developed a very strong framework to help FPOs access the benefits of these schemes. It will be relevant that agencies involved with FPOs make them aware of these schemes so they can benefit at large.
  7. FPO financing is gaining focus, with both center and state Government prioritizing access to credit for FPOs. However, FPOs also need to focus on increasing share capital, and CBBO’s PoPI’s, BoD’s, CEO have a critical role to play here. It needs to be farmers that this is a slow evolutionary process, and they will see result in due course.  Secondly, the BoDs should not be a defaulter in any other loan as it impacts FPO lending. Thirdly, CEO should not be a member of FPO as this also impacts lending. Last but not the least, lenders should also provide proper handholding support to FPOs as far as application, DPRs etc are concerned.
  8. Policy recommendations
    1. FPO credit card can be looked at for improving working capital availability for FPOs.
    2. Bank credit is at a higher interest rate for FPOs, they should be made credit available at the rate equivalent to farmers.
    3. Accessing post-harvest credit so far has been a challenge for individual farmers but FPOs are able to meet this challenge. The warehouse receipt system (e-NWR) is another opportunity and at policy level the process of accreditation of FPO warehouses should be fast-tracked.
    4. The credit guarantee scheme under NABSANRAKSHAN is only for agriculture and should look at allied sectors fisheries, poultry, dairy – as well.
    5. Also, a clarity on funding flowing to FPOs is a must and RBI should come up with a MIS reporting system where in these details are provided by the lenders. This will help understand the FPO requirements and develop financing products accordingly.
    6. The compliance requirement should be enforced only after FPOs are able to reach a particular level. Also, a pool of resources of Charter accountants should be created that can help FPOs instead of them running around.
    7. For now, FPO share capital is only through member farmers, however professional organizations should also be allowed to contribute to the FPOs share capital, so it bring more professionalism to run FPOs.
    8. Warehouses are today not present at the farm gate which is a huge challenge. However, this year budget has very positive steps announced towards scaling agri warehouse infrastructure.
  9. As per NABARD survey around 9000 warehouses are defunct and FPOs can lease these warehouses and leverage the existing infrastructure. A model for this needs to be developed. These warehouses can also offer eNWR, one tool offered by WDRA which can be traded for pledge loans.
  10. Infrastructure should be developed in a consolidated model working on multiple revenue streams. They should be used for input sale, output aggregation, storage as well as markets so that maximum benefit can be raised.
  11. Concessions that WDRA has given to PACS, FPOs include rationalization in fee structure to ensure warehousing activity becomes viable, net worth requirement for small warehouses needs only to be positive, concession in security deposits are also provided. More innovative solutions are being developed to reduce the insurance burden on FPOs.
  12. Loans against eNWR are a challenge for FPOs. Some suggestions to overcome the same include
    1. The credit guarantee scheme term should be longer, 7-9 years, especially for warehousing as agri warehousing cannot pay back in 5 years, due to less rental and seasonality.
    2. Also, under AIF for warehouse construction the term should be 7-9 years.
    3. The interest subvention scheme does not cover FPOs, interest subvention for taking loans against eNWR should be applicable for FPOs also
    4. 2% interest subvention is given on Kisan Credit Card and 3% subvention is given on prompt payment but loan against eNWR does for have the 3% subsidy. This should be extended.
    5. For procurement finance FPOs need bridge financing, for around 30 days, which should be easily converted to eNWR loan finance.
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