Procedure for Formation and Management of Farmer Producer Organizations (FPO ) for Agriculture & Livestock Farmers Prosperity

September 13, 2021

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Procedure for Formation and Management of Farmer Producer Organizations (FPO ) for Agriculture & Livestock Farmers Prosperity

The report of ‘Doubling of Farmer’s Income (DFI)’ has emphasized this fact and recommended the formation of 7,000 FPOs by 2022 towards convergence of efforts for doubling the farmers’ income. In the Union Budget 2019-20, Government has announced the creation of 10,000 new FPOs to ensure economies of scale for farmers over the next five years, for which a dedicated supporting and holistic scheme as Central Sector Scheme is proposed for targeted development of FPOs and its sustainability.

Due to lack of better agricultural technology for small and medium farmers and under the pressure of the moneylenders in the market, farmers were getting poorer. Many developed countries of the world are not only prospering with better technology and management in the agriculture sector, but in some – like in the European Union, Canada, and Israel – there has been significant growth in farmers’ income. India is also on the same path. When we walk together – with one intent, with one thought, and work together on one project – the path to prosperity is paved. Remember, in our childhood, we used to listen to the story of a farmer, its title being “United We Stand”. The moral: In unity there is progress – “bundled together, the sticks could not be broken, but when separated, it could be snapped one by one”. Similarly, smallholding farmers will have to till together, this is the call of the times.

The size of a farmer’s land holdings in India has decreased from 2.3 hectares in 1970 to 1.08 hectares by 2015-16, and the area under cultivation has become much smaller in the last 40 years. According to the Agriculture Census of India, the number of small acreage farmers and landless farmers has reached around 86%, i.e. the number of marginal farmers has increased by more than 16% in the last 40 years.

Due to lack of better agricultural technology for small and medium farmers and under the pressure of the moneylenders in the market, farmers were getting poorer. According to the 2011 census, the number of landless agricultural laborers in India has exceeded the number of farmers. There are two categories dependent on agriculture: the marginal farmer and the middle level farmer, and the other is the landless agricultural labourer.

Having almost crossed over 55% of agricultural labour, the number of landless agricultural labourers is now around 16 crores in the country. And numbering around 12 crores, tenant farmer comprises about 45%.

Reduce the miseries of small marginal farmers, landless agricultural labourers, and medium farmers – this is the vision of Prime Minister Modi. If farmers are organized, they can sell the produce in the market in an organized way. Similarly, they can organize themselves to use crops and certified seeds on the basis of new scientific research.

Together with better irrigation system, use of new agricultural tools, proper arrangement for transportation and qualitative management, they can escape the demonic forces of the market. If they are organized better in the market, they can get better value for produce. If we look at the Modi government’s policies closely, we will find that one hand, there are better strategies developed for farmers’ welfare and on the other, there is government system in place for support. We stand to gain even if after putting everything at stake, we keep the farmer and farming alive. This is what Prime Minister Modi believes.

Israel is one of the smallest countries in the world – barely equal to the area of Haryana – and its population is only nine million. Yet, it holds an important position in agricultural income. The reason is that it implements the best technology, where even with only 20% of its land being naturally arable, Israel has made its place among 10 largest producing countries of the world. This was possible only through cooperative farming, improved techniques, and appropriate use of water, and linkage of farmers to markets through cooperatives. Now marginal farmers in India will have to move ahead with the agricultural policies of the Government of India. Along with traditional farming, we have to adapt to new methods – only then will the farmers progress. The Modi government has formulated certain ambitious schemes for the benefit of marginal farmers. The Modi government has tried to minutely analyse why farmers remain poor even today. The government has now set a target of 2022 to double farmers’ income. Now we have to move ahead with the new set of parameters for progress.

Government of India’s scheme of Farmer Producer Organization (FPO) needs to be properly implemented across the country for betterment of farm and farming in today’s India. This has been taken up with utmost seriousness. And the positive results are showing. The Modi government has set a target of 2022 for better operations and progress by creating of 10,000 FPOs.

FPO stands for Farmer Producer Organizations. FPO is an organization, where the members are farmers itself. Farmers Producers Organization provides end-to-end support and services to the small farmers, and cover technical services, marketing, processing, and others aspects of cultivation inputs. The idea behind the Farmer Producer Organizations (FPO) was that “Farmers, who are the producers of their agricultural products, can form the groups and can register themselves under the Indian Companies Act”.

To facilitate the process, the Small Farmers Agribusiness Consortium (SFAC) was mandated by the Department of Agriculture and Cooperation, Ministry of Agriculture, Govt. of India, to support the State Government in the formation of the Farmer Producer Organizations (FPOs). The goal is to enhance the farmers’ competitiveness and to increase their advantage in emerging the market opportunities. The major operations of Farmers Producer Organization (FPO) include the supply of seed, machinery, market linkages & fertilizer, training, networking, financial and technical advice.

The main aim of the Farmer Producer Organization is to ensure a better income for the producers through an organization of their own. Small producers do not have the volume individually to get the benefit of economies of scale. In agricultural marketing, there is a chain of intermediaries, who often work non-transparently leading to the situation, where producer receives only a small part of the value, which the ultimate consumer pays. This will be eliminated. Through accumulation, the primary producers can avail the benefit of the economies of scale. Farmers Producers have better bargaining power in the form of bulk buyers of produce and bulk suppliers of inputs.

Formation and Promotion of 10,000 Farmer Producer Organization (FPO) Scheme

The Ministry of Agriculture and Farmers Welfare released New Guidelines for the Farmer Producer Organization (FPO) as part of the Formation and Promotion of 10,000 Farmer Producer Organization (FPO) Scheme. As per the revised guidelines, FPOs can be registered either under the Companies Act, 2013, or under the Cooperative Societies Act of the States and handholding is to be done for five years by professionally managed Cluster-Based Business Organization (CBBOs). Besides, the Government also assists FPOs in the form of Equity Grant and Credit Guarantee Fund (CGF). The primary objective of the scheme is to provide effective capacity building to FPOs to develop agriculture entrepreneurship skills to become economically viable and self-sustainable. The current article briefs the New Guidelines for Farmer Producer Organization (FPO).

Farmer Producer Organization (FPO)

Farmer Producer Organization (FPO) is a legal entity incorporated under the Companies Act or Co-operative Societies Act of the concerned States and formed to leverage collectives through economies of scale in production and marketing of agricultural and allied sectors.

Formation and Promotion of 10,000 Farmer Producer Organization (FPO) Scheme

The objective of introducing the new guidelines for FPO under the Scheme is as follows:

To provide a holistic and broad-based supportive ecosystem to form new 10,000 FPOs to facilitate the development of vibrant and sustainable income-oriented farming
To enhance productivity through efficient, cost-effective and sustainable resource use and realize higher returns through better liquidity and market linkages for their produce and become sustainable through collective action
To provide handholding and support to new FPOs up to 5 years from the year of creation in all aspects of management of FPO, inputs, production, processing and value addition, market linkages, credit linkages and use of technology, etc

Benefits to Farmer

Through the formation of FPOs, farmers will have better collective strength for better access to quality input and technology. The farmer will also avail better credit and better marketing access through economies of scale for better realization of income.

Activities to be undertaken by FPO

As per the new guidelines, the FPOs may provide and undertake the following relevant major services and activities for the development:

The FPO can supply quality production inputs like seed, fertilizer, pesticides at reasonably lower wholesale rates.
FPO can make available need-based production and post-production machinery and equipment on custom hiring basis for members to reduce the unit production cost
FPO can engage in the process of value addition like cleaning, grading, packing, and also farm level processing facilities at a user charge basis on a reasonably cheaper rate.
The FPO can make the facility for storage and transportation for its members
The FPO must undertake higher income-generating activities like seed production, beekeeping, mushroom cultivation, etc
FPO needs to undertake aggregation of smaller lots of farmer-members’ produce; add value to make them more marketable.
Facilitate logistics services such as storage, transportation, loading/unloading, etc. on a shared cost basis.
FPO can market the aggregated produce with better negotiation strength to the buyers and in the marketing with better and remunerative prices

Implementing Agencies to Form and Promote FPOs

The following three implementing Agencies will form and promote Farmer Producer Organizations

Small Farmers Agri-business Consortium (SFAC)
National Cooperative Development Corporation (NCDC)
National Bank for Agriculture and Rural Development (NABARD)

Note: States may also if so desire, nominate their Implementing Agency in consultation with the Department of Agriculture.

Cluster-Based Business Organizations (CBBOs)

The Department of Agriculture and Farmer Welfare will allocate Cluster to Implementing Agencies which in turn will form the Cluster-Based Business Organization in the States. FPOs will be formed and promoted through these Cluster-Based Business Organizations (CBBOs) and it will be a platform for an end to end knowledge for all issues in FPO promotion. The CBBOs will have five categories of specialists such as,

The domain of Crop husbandry
Agri marketing or Value addition and processing
Social mobilization
Law & Accounts and
IT/MIS.

Support by the National Project Management Agency (NPMA)

There will be a National Project Management Agency (NPMA) at SFAC for providing overall project guidance, data compilation, and maintenance of FPO through integrated portal and Information management and monitoring.

Members of FPO

Initially, the minimum number of members in FPO will be 300 in plain area and 100 in the North East and hilly areas. However, the Department of Agriculture and Farmers Welfare may revise the minimum number of membership-based on experience.

Priority for Aspirational Districts FPO

According to the new guidelines, priority will provide for the formation of FPOs in aspirational districts in India with at least one FPO in each block of aspirational districts. FPOs will be promoted under the “One District One Product” cluster to promote specialization and better processing, marketing, branding and export by FPOs.

Equity Grant for FPO

To strengthen the financial base of FPOs and help them to get credit from financial institutions for the projects and working capital requirements for business development, the Government is providing Equity Grant to FPO.

Objectives of Equity Grant

The objectives of providing Equity Grant to FPO are as follows:

To enhance the viability and sustainability of FPOs
To increase the creditworthiness of FPOs
To enhance the shareholding of members to increase the ownership and participation in the FPO.

Equity Grant Details

Equity Grant will be in the form of a matching grant up to Rs. 2000 per farmer member of FPO subject to a maximum limit of Rs. 15 lakh fixed per FPO.

Eligibility criteria of FPO

An FPO fulfilling the following criteria are eligible to apply for equity grant under the Formation and Promotion of 10,000 Farmer Producer Organization (FPO) Scheme

The FPO should be a legal entity as mentioned above
FPO has raised equity from its Members as laid down in its Articles of Association/ Bye-laws
Minimum 50% of the FPO’s shareholders are small, marginal, and landless tenant farmers and Women farmers’ as shareholders are to be preferred.
The maximum shareholding of the members should not be above 10% of the total equity of the FPO.
A farmer can be a member in more than one FPO with different produce clusters but he/she will be eligible only once for the matching equity grant up to his/her share.

Documents Required for Equity Grant

The following are the mandatory documents required to be submitted along with the application to get Equity Grant:

Shareholder List and Share Capital contribution by each member and it should be verified and certified by a Chartered Accountant (CA) or Co-operative Auditors
Resolution of the Board of Directors or Governing Body
Consent of shareholders
If the FPO is in operation for more than one financial year then it shall provide a copy of the Audited Financial Statements of FPO for all years of existence of the FPO, verified and certified by a Chartered Accountant (CA) or Cooperative Auditors
In case FPO is in operation for less than one financial year, Photocopy of Bank Account Statement for last six months authenticated by the Branch Manager of the “Bank” is required
Business Plan of FPO and budget for the next 18 months
Names, photographs, and identity proof (ration card, Aadhaar card, election identification card or passport) of Representatives/ Directors authorized by the Board

Application Procedure

Eligible FPOs shall apply for the Equity Grant in the prescribed Application Form to the Implementing Agencies. After the application of due diligence by Implementing Agencies, the proposal may be approved for the sanction of Equity Grant.

Formation and Promotion of 10,000 Farmer Producer Organization (FPO) Scheme

Farmer Producer Organization (FPO)

Formation and Promotion of 10,000 Farmer Producer Organization (FPO) Scheme

The objective of introducing the new guidelines for FPO under the Scheme is as follows:

To provide a holistic and broad-based supportive ecosystem to form new 10,000 FPOs to facilitate the development of vibrant and sustainable income-oriented farming
To enhance productivity through efficient, cost-effective and sustainable resource use and realize higher returns through better liquidity and market linkages for their produce and become sustainable through collective action
To provide handholding and support to new FPOs up to 5 years from the year of creation in all aspects of management of FPO, inputs, production, processing and value addition, market linkages, credit linkages and use of technology, etc

Benefits to Farmer

Activities to be undertaken by FPO

As per the new guidelines, the FPOs may provide and undertake the following relevant major services and activities for the development:

The FPO can supply quality production inputs like seed, fertilizer, pesticides at reasonably lower wholesale rates.
FPO can make available need-based production and post-production machinery and equipment on custom hiring basis for members to reduce the unit production cost
FPO can engage in the process of value addition like cleaning, grading, packing, and also farm level processing facilities at a user charge basis on a reasonably cheaper rate.
The FPO can make the facility for storage and transportation for its members
The FPO must undertake higher income-generating activities like seed production, beekeeping, mushroom cultivation, etc
FPO needs to undertake aggregation of smaller lots of farmer-members’ produce; add value to make them more marketable.
Facilitate logistics services such as storage, transportation, loading/unloading, etc. on a shared cost basis.
FPO can market the aggregated produce with better negotiation strength to the buyers and in the marketing with better and remunerative prices

Implementing Agencies to Form and Promote FPOs

The following three implementing Agencies will form and promote Farmer Producer Organizations

Small Farmers Agri-business Consortium (SFAC)
National Cooperative Development Corporation (NCDC)
National Bank for Agriculture and Rural Development (NABARD)

Note: States may also if so desire, nominate their Implementing Agency in consultation with the Department of Agriculture.

Cluster-Based Business Organizations (CBBOs)

The domain of Crop husbandry
Agri marketing or Value addition and processing
Social mobilization
Law & Accounts and
IT/MIS.

Support by the National Project Management Agency (NPMA)

Members of FPO

Priority for Aspirational Districts FPO

Equity Grant for FPO

Objectives of Equity Grant

The objectives of providing Equity Grant to FPO are as follows:

To enhance the viability and sustainability of FPOs
To increase the creditworthiness of FPOs
To enhance the shareholding of members to increase the ownership and participation in the FPO.

Equity Grant Details

Equity Grant will be in the form of a matching grant up to Rs. 2000 per farmer member of FPO subject to a maximum limit of Rs. 15 lakh fixed per FPO.

Eligibility criteria of FPO

An FPO fulfilling the following criteria are eligible to apply for equity grant under the Formation and Promotion of 10,000 Farmer Producer Organization (FPO) Scheme

The FPO should be a legal entity as mentioned above
FPO has raised equity from its Members as laid down in its Articles of Association/ Bye-laws
Minimum 50% of the FPO’s shareholders are small, marginal, and landless tenant farmers and Women farmers’ as shareholders are to be preferred.
The maximum shareholding of the members should not be above 10% of the total equity of the FPO.
A farmer can be a member in more than one FPO with different produce clusters but he/she will be eligible only once for the matching equity grant up to his/her share.

Documents Required for Equity Grant

The following are the mandatory documents required to be submitted along with the application to get Equity Grant:

Shareholder List and Share Capital contribution by each member and it should be verified and certified by a Chartered Accountant (CA) or Co-operative Auditors
Resolution of the Board of Directors or Governing Body
Consent of shareholders
If the FPO is in operation for more than one financial year then it shall provide a copy of the Audited Financial Statements of FPO for all years of existence of the FPO, verified and certified by a Chartered Accountant (CA) or Cooperative Auditors
In case FPO is in operation for less than one financial year, Photocopy of Bank Account Statement for last six months authenticated by the Branch Manager of the “Bank” is required
Business Plan of FPO and budget for the next 18 months
Names, photographs, and identity proof (ration card, Aadhaar card, election identification card or passport) of Representatives/ Directors authorized by the Board

Application Procedure

The Implementing Agency will make a demand for funds for disbursement under the Scheme as per their Annual Action Plan (AAP) to DAC&FW.

After accepting the terms of sanction, the FPO shall enter into Agreement with Implementing Agencies and implementing Agencies shall transfer sanctioned funds to the FPO Account.

Credit Guarantee Facility to FPO

The Government is providing credit guarantee cover to accelerate the flow of institutional credit to FPOs by minimizing the risk of financial institutions for granting loans to FPOs and to improve their financial ability to execute better business plans leading increased profits.

The objective of the Credit Guarantee Facility

The primary objective of CGF is to provide a Credit Guarantee Cover to Eligible Lending Institution (ELI) to enable them to provide collateral-free credit to Farmer Producer Organizations by minimizing the lending risks in respect of loans.

Eligibility Criteria

An ELI can avail Credit Guarantee for the FPO or Federation of FPOs, which are covered under the Scheme. Further, it should be ensured that the ELI has sanctioned within six months of the date of application for the Guarantee.

Eligible project loan amount for Credit Guarantee Cover

The credit guarantee cover per FPO will be limited to the project loan of Rs. 2 Crores.

Sl.No	Project Loan	Credit Guarantee Cover
1	Up to Rs. 1 crore	85% of bankable project loans with a ceiling of Rs. 85 lakh
2	Above Rs.1 crore and up to Rs. 2 Crores	75% of bankable project loan with a maximum ceiling of Rs. 150 lakh
3	Over Rs. 2 Crores of bankable project loan	Maximum up to Rs.2.0 crore only

Other Condition

ELI shall be eligible to seek Credit Guarantee Cover for a single FPO borrower for a maximum of 2 times over 5 years.
In case of default, claims will be settled up to 85% or 75 % of the amount in default subject to maximum cover.
Other charges such as penal interest, commitment charge, service charge, or any other expenses, debited to the account of FPO by the ELI other than the contracted interest shall not qualify for Credit Guarantee Cover.
The Credit Guarantee Cover will only be granted after the ELI agrees with NABARD or NCDC and shall be granted or delivered following the Terms and Conditions.

Procedure to avail Guarantee Cover

The Eligible Lending Institutions need to apply to NABARD or NCDC for Guarantee Cover in the specified form for credit proposals sanctioned by them during any quarter before the expiry of the following quarter viz., application concerning credit facility sanctioned in April–June Quarter must be submitted by the ensuing quarter, that is, July-September to qualify under the Scheme.

Loan to FPO

States or union territories will be allowed to avail loan at prescribed concessional rate of interest under Agri-Market Infrastructure Fund (AMIF) approved for setting up in NABARD for developing agriculture marketing and allied infrastructure in Gramin Agriculture Markets, by marketing and allied infrastructure including Common Facilitation Centre / Custom Hiring Centre for FPOs as the eligible category for assisting States / UTs.

Training and Capacity Building for Promotion of FPOs

CBBOs will provide adequate training and handholding to FPO. Professional training of Board of Directors, CEO, Accountant of FPOs will be provided in organizational training, resource planning, accounting, management, marketing, processing in reputed National / Regional training Institutes.

POLICY & PROCESS GUIDELINES FOR FARMER PRODUCER ORGANISATIONS YOU CAN VISIT:

https://mofpi.nic.in/sites/default/files/fpo_policy_process_guidelines_1_april_2013.pdf

FAQ ON FPO & COMPLETE KNOWHOW OF FPO CAN BE DOWNLOADED IN PDF FORMATE FROM HERE: