Editorial. Sort out FPO problems before trying to scale up

Farmer Producer Organisations have been in the news after a draft ‘national FPO policy’ was unveiled about three months back. According to a recent report in this newspaper, the Centre is considering the creation of a ‘national brand’ for FPOs that showcases the quality of their products. However, before embarking on a renewed FPO promotion and ‘branding’ exercise (the policy to create 10K FPOs over four or five years is supposed to have come to an end), the Centre and stakeholders should take stock of the performance of the sector. In fact, Agriculture Minister Shivraj Singh Chouhan struck the right note in July by expressing concern over the performance of ‘some’ FPOs, and called for a review to identify gaps.

Senior government officials have said that close to 9,000 FPOs have come into being over the last four years as part of the 10K policy initiative. Significantly, these FPOs have received on an average ₹210 crore in equity from the government on a matching contribution basis, which works to a meagre ₹2 lakh per FPO. Not surprisingly, private studies point to the sad state of most of these enterprises. The latest policy document emphasises scaling up to a three-tier federated structure to generate membership, scale and capital, citing AMUL as an example — perhaps realising that standalone FPOs will not work in most cases. While this is all very well, it is also important to face up to a central problem with the 10K policy.

To begin with, FPOs need to be a draw over existing systems of input procurement, credit and marketing for them to attract farmers. Farmers will not ditch the status quo for all its problems, only to opt for an alternative idea whose benefits are uncertain. To make this change happen, leadership and professionalism are crucial inputs. The existing policies (10K and its latest avatar which holds out a bigger ambition) have failed to create a skin-in-the-game system for professionals. They funnel ₹18 lakh for three years to a ‘resource institution (RI)’ that is supposed to provide managerial support, besides a sum of up to ₹25 lakh for ‘formation and incubation’, without linking these to outcomes. There are enough anecdotal reports to suggest that RIs removed from farming have climbed on to the FPO bandwagon. Worse, it appears that RIs are able to float quite as many FPOs as they like. Such sums for professionals should be equity-linked so that they grow the business. Capital can also be garnered through social stock exchanges or the CSR route.

At a broader level, there is policy confusion over the very idea of FPOs. Initially conceived as ‘farmer producer companies’ to be registered under the Companies Act to overcome governance hassles in the cooperative sector, FPOs are now registered as cooperatives as well. There are a multiplicity of agencies implementing the FPO programme. So, FPOs are faced with an identity crisis, with the Centre going big on cooperatives as well. These issues must be sorted out through wide-ranging consultations.