New FPO policy seeks to transform farming with Amul model

FPO policy
The draft FPO policy looks to empower farmers by establishing an ecosystem of financial support, market access, and management.

New draft FPO policy: The Union government is developing a new national policy for farmer producer organisations after an 11-year hiatus. Modelled on the successful Amul cooperative, the policy seeks to provide various supports such as cheaper institutional loans and a three-tier system to benefit millions of farmers. To facilitate lending to FPOs, the draft policy proposes creating a special category within primary sector lending norms for banks.

The draft policy seeks to establish around 50,000 FPOs to benefit 2.5 crore farmers over the next five years. The original policy, introduced in 2013, required a significant update due to the substantial growth in the number of FPOs. Currently, FPOs formed under the Union government’s financial assistance scheme enjoy advantages compared with those established independently before the scheme. Consequently, the government decided it was time to introduce a more inclusive and updated policy framework. The draft policy is currently open for stakeholder feedback. 

READ | Tax breaks key to affordable insurance policies in India

What are farmer producer organisations

FPOs are groups of farmers who unite to enhance their bargaining power and access to resources. By acting collectively, FPOs can negotiate better prices for their produce and connect directly to larger markets, bypassing middlemen and reducing unnecessary costs. These organisations also pool resources for bulk purchases of seeds, fertilisers, and other agricultural inputs, often at lower prices due to their combined buying power. The Indian government actively promotes the formation of FPOs through various schemes and policies, recognising them as a key driver for improving the lives and livelihoods of farmers in India.

To support this initiative, the draft policy suggests attracting corporate investment by offering tax breaks to companies that financially support FPOs. FPOs may also be given priority access to sell their produce to government-run institutions, provided they remain competitive on price. This could address concerns about organisations like state-owned Kendriya Bhandar currently favouring private companies over FPOs. The policy also aims to create stronger linkages between FPOs and large retailers and exporters. 

Govt eyes financial inclusion

The policy also focuses on enhancing financial inclusion and digital integration for FPOs. It proposes the development of a dedicated digital platform that will provide FPOs with access to financial services, including credit, insurance, and payment solutions. This platform will integrate with existing agricultural digital initiatives like eNAM, enabling FPOs to participate more effectively in the digital economy. Furthermore, the policy encourages the use of blockchain technology to ensure transparency and traceability in FPO transactions.

To further strengthen market linkages, the draft policy recommends the creation of dedicated market intelligence cells within FPOs. These cells will gather and analyse market data, helping FPOs make informed decisions regarding crop selection, pricing, and market trends. Additionally, the policy advocates for the establishment of export facilitation centres to assist FPOs in accessing international markets, thus broadening their customer base and increasing revenue opportunities.

The policy emphasises the need for professional management and proposes a scheme to incentivise the hiring of qualified CEOs and managers. It also encourages the establishment of “deemed mandis” operated by FPOs. These marketplaces would function similarly to traditional mandis but with additional benefits like quality control and farmer training. Importantly, these FPO mandis would have the authority to grant trading licenses and integrate seamlessly with existing national platforms like eNAM and ONDC, expanding their reach and market access.

The draft policy also emphasises the importance of capacity building and training programs for FPO members. These programs will cover various aspects such as financial management, marketing strategies, and sustainable farming practices. By equipping farmers with the necessary skills and knowledge, the policy aims to enhance the overall efficiency and productivity of FPOs. Partnerships with agricultural universities and research institutions will be encouraged to provide technical support and training to FPO members.

To enhance the governance of FPOs, the draft policy suggests implementing robust monitoring and evaluation mechanisms. These mechanisms aim to ensure transparency and accountability in FPO operations. Regular audits and performance reviews will be mandated, allowing for timely interventions and support. Additionally, the policy proposes establishing a national FPO registry, which will maintain a comprehensive database of all FPOs, facilitating better coordination and oversight. 

Amul model for draft FPO policy

The Gujarat-based Amul cooperative has been identified as a successful model for the milk value chain, ensuring efficient back-end operations and providing remunerative markets to milk producers. The cooperative has also succeeded in reducing transactional losses and developing a robust supply chain in both domestic and foreign markets. With its three-tiered approach, Amul serves as an exemplary model for policymakers and the government to develop other FPOs in the country. The policy is designed to boost farmers’ income through an end-to-end value chain concept.

While there are significant differences between milk and agricultural produce, cooperatives in the European Union (EU) have achieved similar success with various products such as fruits, vegetables, cereals, and meat. By adapting the Amul model, necessary impetus can be provided to agriculture, fisheries, horticulture, and livestock sectors.

The draft FPO policy is one of the first documents to outline a structured policy statement on the FPO ecosystem in over a decade. It prioritises the development of primary-level FPOs across all 7,256 blocks in India over the next five years, aiming to empower approximately 25 million of the nation’s 126 million small and marginal farmers. While over 7,000 FPOs are already operational, many established under a central scheme to create 10,000 in total, the draft emphasises a comprehensive assessment of all FPOs. This evaluation, alongside collaboration between relevant ministries and departments, seeks to streamline the incorporation process for future FPOs.

The draft also highlights the need for state-level policies and continued funding of FPOs through the Equity Grant Fund and Formation Fund. The agriculture ministry, which will be the central nodal department (CND) for all FPOs, is suggested to engage with concerned ministries and departments to simplify the incorporation process of FPOs.

As with any policy implementation, the government’s commitment will be crucial in determining the policy’s effectiveness rather than its written provisions. The previous policy, despite having commendable suggestions, saw limited implementation due to a lack of effort from the agriculture ministry. For instance, the 2013 policy recommended involving FPOs in procurement at Minimum Support Prices (MSPs) on behalf of the government, but this was never realised. The policy had also advised the Ministry of Agriculture to collaborate with the Food Corporation of India (FCI) and state governments to include FPOs as procurement agents within the MSP procurement scheme. Without sincere government efforts, any policy risks remaining merely a good plan on paper.