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THE GIST of Editorial for UPSC Exams : 29 MARCH 2019 (To Promoting FPOs (Indian Express)

To Promoting FPOs (Indian Express)

Mains Paper 3: Economy
Prelims level: FPOs
Mains level: Agriculture related issues and constraints

There is a need to promote Farmers’ producer organisations (FPOs) to raise farmers' income and alleviate economic distress in rural areas.

Farmers’ Producer Organisation (FPO), also known as farmers’ producer company (FPC), is an entity formed by primary producers.
These include farmers, milk producers, fishermen, weavers, rural artisans, and craftsmen.
An FPO can be a Producer Company, a Cooperative Society or any other legal form.
FPOs are basically the hybrids of cooperatives and private companies.
The participation, organisation and membership pattern of these companies are more or less similar to the cooperatives.
But their day-to-day functioning and business models resemble those of the professionally-run private companies.
The Companies Act was amended by incorporating Section-IX A in it to allow creation and registration of FPOs under it.

FPOs play a significant role in enhancing the earnings of their member-farmers.
Small producers do not have the large marketable surplus individually to get the benefit of economies of scale.
So the main aim of an FPO is to ensure better income for the producers through an organization of their own.
It provides for sharing of profits/benefits among the members.
FPOs count has increased from less than 200 in 2010 to over 4,000 at present, speaking for the success of this agri-business model.
As professionally-managed enterprises, working on behalf of the farmers, FPOs enjoy better bargaining power.
They hence procure inputs and services and sell the farmers’ output at best prices possible.
They are also better equipped to facilitate value-addition of the farm produce.
So they ensure higher returns in almost all fields of agriculture and its allied activities - horticulture, plantations, dairy, poultry, fisheries, etc.
Even the landless, tribals and those subsisting on collections from the wilds have gained by forming such organisations.
Union Budget 2018-19 made announcements on a five-year tax holiday and setting up of a small credit guarantee fund of Rs 100 crore as pro-FPO measures.

Many of the critical woes of this sector still remain unaddressed, including; difficulties in securing institutional finance, inability to operate in the regular agricultural markets, lack of legal recognition under the contract farming regulations.
The banks are usually wary of granting loans to the FPOs as they do not have assets of their own to serve as collaterals.
Consequently, the FPOs have to rely on loans from non-banking financial companies or micro-finance companies.
They are forced to raise their working capital at very high interest rates.
Even the facility of cheap bank loans with liberal interest subvention by the government that is available to individual farmers is denied to the FPOs.

Moreover, many other concessions, tax exemptions, subsidies and benefits provided to cooperatives, startups and the like have not been extended to the FPOs.
They also usually face difficulties in operating at the regulated mandis because of the resistance offered by the licensed traders.
It's because these traders have significant hold over the markets.
All these issues need to be addressed expeditiously to enable the FPOs to perform to their full potential for the benefit of the farmers.