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Farmer producer companies (FPC)

GS Paper 3

Syllabus: Agriculture and related issues

 

Source: DTE

 Context: ITC Limited has helped form 78 farmer-producer companies (FPC) between November 2022 and February 2023.

 

FPC:

  • It is a hybrid between cooperative societies and private limited companies, registered under the Companies Act 2013, owned and operated by farmers.
  • It is a type of farmer producer organisation (FPO) that –
    • Deals in aggregated produce of a large number of member-owner farmers,
    • Helping them achieve economies of scale,
    • Increase their farm-level efficiency as well as the ability to negotiate prices in the market.
  • Creating an FPC is a long-drawn process (usually it takes months to start an FPC), involving mobilisation and training of farmers to run a company.

 

How did ITC achieve the feat?

  • By reaching out to farmers already registered on its e-Choupal website for selling produce.
  • ITC acted as a Cluster-Based Business Organisation (CBBO).

 

How CBBO helped in the formation of FPCs?

  • CBBO is a concept introduced in the Union Budget 2019-20 under Formation and Promotion of 10,000 FPOs – a Central scheme to provide hand-holding to FPCs and to create 10,000 FPOs by 2024.
  • Any legal entity registered in India can be a CBBO, and receives Rs 25 lakh over a period of five years for every FPC it helps create or run.
  • With the announcement of CBBOs, the formation of FPCs has seen a huge rise (5,000 in 2018 to over 16,000 in 2023 as per the Union Ministry of Corporate Affairs).

 

This increase has come at a cost:

  • Most big organisations (have no local stakes.) are able to qualify for the role of a CBBO.
    • This is because of the flawed criteria – such an organisation needs to meet a minimum annual turnover of Rs 2/1 crore in the plains/hilly
    • FPCs lack the bargaining power against big companies.
  • FPCs are often unable to act independently in decision-making or be farmer-centric.
    • For example, ITC’s FPCs are likely to sell their produce, even if they are offered a higher price elsewhere → squeezing the margin of FPCs.
  • FPCs were organised just to meet the target and there was no owner-member involvement in their functioning.
  • Financing woes: Just 1-5% of FPCs have received funds under Central schemes introduced to promote them in the last seven years.
  • Less survival prospects: 79% of the FPCs registered in 2020-2021 had a paid-up capital of Rs 1 lakh or less, which is far too little to survive in the long run.

 

Steps taken by the govt:

  • The government has introduced two schemes to fund FPOs – Equity Grant Scheme and Credit Guarantee Scheme.
  • Under the Equity Grant Scheme, Small Farmers’ Agribusiness Consortium (SFAC) offers equity grants up to a maximum of Rs 15 lakh within a period of three years.
  • The Credit Guarantee Scheme provides risk cover to banks that advance collateral-free loans up to Rs 1 crore.

 

Way ahead:

  • CBBOs should train FPC members, the CEO and the board of directors and impart business knowledge.
  • For an FPC to succeed it should
    • Be designed according to local, community-owned food system perspective (as opposed to commodity orientation),
    • Provide free ecosystem services (for example, soil formation, pollination, predation) and
    • Be independent of corporations for the procurement of seeds and synthetic inputs.
  • Civil society organisations which are community-based, must be given priority to form FPCs.

 

Insta Links:

Farmer Producer Organizations

 

Mains Links:

“In the villages itself, no form of credit organization will be suitable except the cooperative society.” – All Indian rural credit survey. Discuss this statement in the background of agriculture finance in India. What constraints and challenges do financial institutions supply agricultural finances? How can technology be used to better reach and serve rural clients? (UPSC 2014)