During the last five years, Modi – government has implemented measures such as increase in irrigation, issue of soil health cards [SHCs], neem coating of urea, crop insurance [at minimal premium], building rural roads, e-NAM [electronic national agriculture market], increase in credit availability and implementation of Dr Swaminathan committee recommendation to give minimum support price [MSP] equal to 150% of the production cost.
These measures aim at increasing crop output, enhance efficiency of input use, fetch higher price from sale of agricultural produce and do on-farm value addition with the overarching objective of doubling farmers’ income by 2022. Further, to augment the income of small and marginal farmers [land holding < 2 hectare]. in the interim budget for 2019-20, it launched PM-Kisan Samman Nidhi to transfer Rs 6000/- every year directly into their account.
Yet, majority of the farmers continue to be in distress. Even as Dr Swaminathan committee recommendation was implemented towards the fag end of the term [2018-19 budget], other measures take time to bear fruit. As regards, PM-KISAN the amount is too little to make a meaningful impact.
However, a big limitation that small and marginal farmers [they account for over 85% of the total] face has to do with their low land holding size which severely restricts their ability to make best use of improved technologies and substantially reduces their bargaining power in sourcing inputs at low price on the one hand and realizing higher price from sale of output on the other. This also comes in the way of increasing their income vide value addition.
This can be overcome if a group of farmers come together, consolidate land holdings and pool other resources. This helps in achieving aggregate production [albeit from all holdings put together] much higher than if each farmer were to work individually on his/her respective farm. The composite entity will also be much better equipped to negotiate remunerative price from the buyers – the most critical factor having a bearing on farmers’ income.
All of it can be done under the umbrella of a farmers producer organizations [FPOs] – also referred to as farmers producer companies [FPCs]. Individual farmers constitute themselves into a FPO with every member-farmer holding a share in proportion to the land size. Each member has one vote, irrespective of the size of the shareholding, and the shares are not traded in the stock markets which nip in the bud any risk of hostile takeover by way of share purchase.
The Companies Act has been amended by incorporating Section-IXA to provide for creation and registration of FPO under the law.
The FPO is essentially a hybrid of cooperative and private company. While, the participation, organization and membership pattern of these companies are more or less similar to the cooperatives, their day-to-day functioning and business model resembles those of professionally-run private companies.
At present, the FPOs are about 4000 [up from 200 in 2010]. But, considering the scale of poverty gripping millions of small and marginal farmers and the potential offered by this innovative business model in increasing their income, the number is miniscule. If, growth has not happened as expected, this has to do with several speed-breakers created in no small measure, by policy makers.
First, FPOs don’t have access to credit from banks forcing them to borrow money from non-bank finance companies [NBFCs] and micro-finance institutions [MFIs] at high interest rate. It is anomalous that while farmers can get bank finance at concessional @7% [a further 3% reduction is available to those who pay back in time], but their own entity [read: FPO] set up by themselves for effective running of their own business is denied access.
The explanation offered for denying bank credit that ‘the FPOs don’t have collateral to offer’ is naïve. The banks can always work out innovative ways [for instance, a slice of the ‘land pool’ could be used as security] to address the problem. Moreover, when NBFCs/MFIs can find ways of funding, why can’t the banks do? That apart, when the latter can provide loans under MUDRA [Micro Unit Development Refinance Agency] without guarantee, why not for FPOs?
Second, the FPOs face enormous resistance at the regulated mandis/markets – set up under APMC [agriculture produce market committee] Act. These APMCs are cartelized by powerful traders wielding clout with the ruling establishment and get away by paying less to farmers. It is ironical that while on one hand, the government promises minimum support price [MSP] at remunerative level, on the other it allows laws such as APMC to ensure that farmers and their organizations such as FPOs don’t get it.
Third, FPOs get no legal recognition under contract farming regulations. Under contract farming, agro-processing units enter into agreement with farmers to purchase a specified quantity at a pre-agreed price. This can help in stabilizing the revenue stream of farmers especially those growing horticultural crops such as fruits and vegetables. However, operating through FPOs, they won’t get this benefit.
Fourth, unlike the cooperatives, startups and other grass-root farm organizations who get a spate of concessions, tax exemptions, subsidies and other benefits, the FPOs get none. In the budget for 2018-19, the government had announced five-year tax holiday to FPOs and setting up of a small credit guarantee fund of Rs 100 crore.
However, concession under income-tax offers little consolation in a scenario whereby their ability to do business and generate income is constrained by non-availability of credit on the one hand and virtual denial of access to markets. When, an entity can’t make profit, there is no use giving tax exemption.
The government should take urgent steps to remove all the barriers coming in the way of FPOs from realizing their full potential. There is need for a change in the mindset of our policy/law makers and administrators who should work to ensure that farmers actually receives higher price and earn more on ground zero.
They should work to facilitate access of farmers and their organizations viz. FPOs to regulated markets, invest in alternative platforms for selling their produce, put in place a policy framework for availability of bank credit at low interest rate and make necessary amendment in laws on contract farming.