How Farmer Producer Organisations Can Become a Recipe for Success

By Ravinder Kumar, TechnoServe India

How Farmer Producer Organisations Can Become a Recipe for Success

Besides some notable exceptions, Farmer Producer Organisations (FPOs) are born prodded by someone else than the producers themselves having realised the need. These top down nature of formation of FPOs is necessary as otherwise these organisation may not come into being.

The associated rationality of economy of scale, bargaining power to the producers and higher value creation at producers end is strong enough justification for Govt. and development agencies to go on (a rampage!) promoting more and more producer organisations. India’s 12th five year plan is targeting 10 million small and marginal farmers under the umbrella of FPOs. So we may see close to 5000 FPOs being promoted besides the already existing (approx.) 500 FPOs in the country.

This 10x increase in FPOs can be a recipe for success for integrating poor with markets i.e. using business models to address poverty or it can simply turn out to be a case of chasing an economic mirage (a costly experiment therefore as these FPOs are holding on to the crutches of subsidies and grants)…As we are on it, can we do something which makes this huge socio-economic experiment currently on in India a success. I think it is not insurmountably difficult to create commercial entities owned and governed by farmers, run by professional managers.

To get there, we may possibly need to do 5 things right in next few years:

1. As much as possible, create the necessary ground so that FPOs are born organically, with the commercial intent: The manner in which FPOs are born and propped up will decide the fate of these entities and also of the efficacy of the policy objective of promoting such organisations in large numbers. It is possible for FPOs to be promoted organically i.e. for the producers to realise the market opportunities and few ‘entrepreneurial lot’ among them to respond with formation of a company to tap these opportunities. They can well be guided /facilitated by development agencies in the process. All too often, FPOs are thrusted on to the producers without member shareholders knowing the ABC of it (I have noticed that just too many producer shareholders are even not aware of the name of their company and what it does). All too often, receiving grants and subsidies are the motivations for forming producer organisation. This clearly is the fundamental (and monumental) problem besetting the sector of FPOs. There is a very strong economic logic for FPOs. The development agencies can surely ensure that producers understand that logic and are capable to exploiting the power of ‘bulking up’, the power of negotiation that FPO platform provide and myriad business opportunities that it opens up. Creating that groundswell before forming FPOs may increase the lead time to formation of FPOs, but the FPOs so formed are much more likely the survive the topsy-turvy world of agri-business. Clearly business has to be the primary objective of forming FPOs, not solidarity, not social cohesion, not social change agents etc. These objectives are secondary and can well be achieved if the primary objective is well served.

2. As far as possible, run FPOs as businesses, with attraction of doles kept to one side: As FPOs are formed, they are flooded with offers of subsidies and grants from the Govt. (from schemes related to FPOs and from various other agriculture development schemes) and soft financial assistance from development agencies and financial institutions. I am saying this as the enabling environment for FPOs to flourish is favourable to them now, with everyone (read support organisations) wanting to have their own pie of the sector. Its so easy to get attracted to grants, subsidies, easy terms loans, free capacity building, free human resources (read NGO staff) available to run the FPOs. While it is undeniable that it is indeed needed as FPOs vis a vis other agri-business companies are not on level playing field, nonetheless heavy dose of subsidies and grants can actually kill the very organisation whom it intends to support. Striking an early balance in the growth of the FPO will be wiser in providing a clearer perspective and direction to Board of Directors of FPOs as to what it takes to run the organisation on commercial basis. As is seen, this realisation is very hard to come as even after 5-6 years, many FPOs keeps on surviving on doles. FPOs have to have a business plan, based on market realities (rather than FPO consultant’s imaginations), which is truly understood and owned by FPO management. The plan should undergo many changes as it get into implementation (i firmly believe that there is no such thing as a perfect plan). We have to be responsive each day to emerging reality and/or shifting grounds. Clearly this needs a professional FPO management which runs the company as if it is their own. It then means that FPO management have to be given a stake in the profits of the company. Post identification and capacitation of management team, creating a stake of that management can potentially be a game changer. I must state here that CEO of the FPO can make or break the company and therefore this position has to be assigned to someone with the necessary qualifications and the passion. Further the position has to be appropriately remunerated and incentivised (with share of profits) for the arrangement to run optimally. This is what the businesses normally do, isn’t it.

2. Be opportunistic in creating partnerships and leveraging the good times: Agriculture department and various other Govt. /semi Govt. organisation want to support FPOs. Private sector /Agri-business SMEs and large corporation want to partner with FPOs. NGOs sees a vehicle in FPOs to carry forward their development agenda. These are good times for FPOs to function and prosper. Being opportunistic requires understanding the opportunities and capabilities to tap them. Board of Directors and FPO management need to continuously look out, hear and see when these opportunities are literally knocking on the doors. More so, as one thing lead to another. One successful partnership with a seed corporation can potentially attract more seed players to the farmers’ company. Cautious experimentations with new partnerships and aggressive leveraging of existing partnerships is the way to go. This requires capabilities among FPO promoters and managers of which we talk about in the next point.

4. Develop an FPO ecosystem which support capability creation and strengthening: At some point or other, all of us in this space of supporting FPOs have felt the lack of pipeline capacities in the sector e.g. where are the dynamic CEOs who can come forward and take on the exciting roles? similarly how difficult is it to recruit FPO management (finding a production manager who understand high quality seed production skills has been a challenge to us) capable to deliver on the promise? Further more, how much NGOs, financial consultants, auditors, marketing specialists are available with the requisite willingness and expertise to serve the sector? To admit, the sector has not yet become ‘tempting’ to whole range of service providers that are required. But it needs to, in due course of time, if the ecosystem of support to FPOS is to become efficient and effective. Herein host of Govt. /autonomous agencies (including SFAC, NSDC et al), bi-lateral /multi-lateral organisations and varied platforms incubating FPOs have to come forward to design and deliver sectoral invigoration.

5. Measure performance of FPOs, periodically and objectively: Running a business is a serious business. You can not leave it to chance. You can not leave it to a standard excuse of ‘development complexity’ for not delivering impact. FPOs can take time but it is nobody’s case that they will not deliver profits to their shareholders ultimately and within first few years. Of course, measurement of progression of FPOs towards sustained profitability is as important as forming the FPOs. We need not create a false sense of hope and appreciative data to pat our backs, unless it is objectively done. We and many others have tried to develop FPO measurement tools and matrices. These are to say it plainly,sine qua non for any successful FPO endeavour.

As you will notice, I have not mentioned working capital worries, market linkage needs etc. which are expounded in any discussion on this topic as the main problems affecting FPOs growth. I believe the roots of the problem lies somewhere else (as explained above), while shortage of working capital and market linkages are only the symptoms of ‘not so well run’ FPOs. Only time will tell, how much we imbibe above and how correctly we steer the course of building FPOs as commercial driven entities to prevent them from becoming economic mirage…

Ravinder KumarWikipedia: Ravinder Kumar was a Kashmiri historian of India who wrote several books.

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