Transforming Indian Agriculture: FPOs as Change Agents

About 86 per cent of operational farm holdings in India are in the small and marginal categories, with farmers practicing subsistence farming, and living in a VUCA (Volatility, Uncertainty, Complexity and Ambiguity) world. Due to fragmentation and disorganisation, farmers face constraints in procuring inputs like seeds, fertilisers and pesticides at reasonable prices, lack bargaining power in the market for   realising better value for their produce, and have inadequate access to technology, extension services, market, credit and crop insurance. As a result, majority of small and marginal farm holders are unable to realise optimal value from their farming operations. In order to address these and other problems encountered by these categories of farmers, farmer producer organisations (FPOs)/ farmer producer companies (FPCs)/ collectives have come into existence in the country. the Y.K. Alagh Committee (2000) constituted by Government of India (GoI), recommended the promotion of producer companies that allow the cooperative spirit to co-exist with the operational flexibility of corporates. Over the years, NABARD, SFAC and state agencies have helped form FPOs/ FPCs.

FPOs need to develop as change agents for evolving subsistence farming to farm enterprises, and developing efficient agri-value chains, for transforming the agriculture sector.  In 2020, GoI launched a Central Sector Scheme (CCS) for the promotion of 10,000 FPOs within a period of five years, with a total budgetary provision of `6,865 crore. The government will provide financial support of up to `18 lakh per FPO in their first three years. It is expected that from the fourth year onwards, the FPOs will be able to manage without this assistance. Although the government has increased hand-holding and financial support for new FPOs, this may be inadequate, as their working capital needs have not been taken care of. Banks are also reluctant to finance FPOs, as they are unsure of their creditworthiness.

The issues and challenges faced by FPOs need to be addressed by the government and all stakeholders in the FPO space, to make them sustainable institutions, enabling a significant improvement in the income and livelihoods of small and marginal farm holders. FPOs will require access to cheap credit and much more for realising their full potential. Enabling member centrality, ownership, good governance, and business planning capabilities are equally important. There also needs to be a focus on infusion of technology; well-developed backward and forward linkages, with focus on export; and improving business orientation, clarity on compliance needs, and assimilation of market preferences.

FPOs/ FPCs provide end-to-end links between farmers and their markets and allow them to improve their productivity through efficient, cost-effective, and sustainable use of resources. Farmers acquire better capacity for and access to technical know-how on crop planning and management, inputs, credit, post-harvest management, value addition, etc. They will also be able to obtain higher returns for their produce through improved access to markets. This can be achieved through fruitful collaboration with government, financial institutions, CSR foundations, civil society organisations, academia, and research agencies. 

There needs to be a policy focus on promoting inclusive agri-value chains, for the benefit of small and marginal farm holders. An effective way to make it possible is through strong and efficient FPOs/FPCs. Linking of FPOs/ FPCs through contract farming arrangements with export-oriented food processing units of food parks created under Pradhan Mantri Krishi Sampada Yojana (PMKSY), for producing processed cereals, fruits, vegetables, fish and marine products, would boost exports of processed food and raise the income of small and marginal landholders and small fish farmers.

It is observed that the larger universe of banking and the rules may not suit the nuanced requirements of FPOs. Therefore, special attention needs to be paid to the aspect of funding arrangement of the collectives in the form of term loan for their investment needs, value chain financing for meeting the credit needs along the FPO value chain, and short-term credit limits for meeting the working capital needs of FPOs/FPCs. The establishment of a social stock exchange by the government may open up the possibility of experimenting with alternative funding opportunities for the FPOs/ FPCs.

The agri-tech start-ups in India have been trying to solve problems of low productivity, sub-optimal efficiency in the supply chain, and lack of access to markets, institutional credit, crop insurance, and quality inputs. The relationship between FPOs and start-ups is symbiotic as most of the challenges faced by FPOs can be solved through partnerships. FPOs truly need to be change agents for transforming Indian agriculture.

Attaining $100 Billion Agriculture and Food Exports: Challenges and Strategies for India

 

India is among the top ten exporting countries of agriculture and food products in the world. The country’s agri-exports grew by a robust 20.4% in 2021-22, to touch a record $50.2 billion.  The importance of India in the international agri-market is continuously increasing and the country has developed export competitiveness in certain specialised products. There has been a rising demand for Indian Basmati rice, non-Basmati rice, spices, and sugar as evident by their rising share of the total agricultural export.

The country needs to significantly enhance agriculture and food exports, while ensuring that agricultural products are globally competitive. However, global headwinds due to the Russia-Ukraine conflict, disruption in global supply chain, unprecedented inflation, and monetary tightening by central banks of the developed countries, have adversely impacted global trade, and growth prospects across countries, including India.

Unstable agri-trade regime in India, reflected by knee-jerk reactions by the government to control prices in the domestic market, by banning exports of major agri-commodities, viz., rice, wheat, sugar, or onion, has been a major factor affecting agri-exports. Imposition of Minimum Export Price (MEP) is another tool often used by the government to tame inflation. Such moves bring relief to domestic consumers, but create uncertainty among importing countries, and deprive farmers of higher returns from their produce, which also discourages them to increase the area under cultivation of the crop in the subsequent season.

India’s Agriculture Export Policy (AEP), 2018, aims at promoting a stable trade regime, while setting an export target of $60 billion by 2022 and $100 billion within a few years, thereafter. Considering the strong agri-export growth during 2021-22, and the urgency of doubling farmers’ income, a target of $100 billion agri-exports from India could be set for 2026-27. However, this would be a daunting task, considering the present global economic situation.

In order to catch up with Brazil and China in agri-exports, India needs to bring about comprehensive structural reforms in the agriculture sector, with a focus on agriculture and food exports. The prerequisite for achieving the agriculture export target of $100 billion should be a well-calibrated, comprehensive, strategic, and result-oriented agri-export policy and action plan, along with overall reforms in the agriculture and allied sector. Agriculture export reforms, free trade agreements (FTAs)/ comprehensive economic partnership agreements (CEPAs) with major trading partners, agriculture marketing reforms, developing efficient agri-value chains, and building agriculture export infrastructure, are some of the major reform measures that could be expedited.

Primary products constitute about 75 per cent of APEDA products exported from India, in terms of value (USD). Therefore, the agriculture export strategy should prioritise the development of export-oriented value chains in respect of dairy products, processed marine products, processed fruits and vegetables, cereal preparations, and organic food. As India moves towards the exports of semi-processed, processed, and specialised food products, more value addition will happen in the country leading to more employment creation and the growth of the food processing sector.

The agriculture export strategy should include the integration of value-added agriculture produce with global value chains (GVC), by adopting the best agricultural practices involving productivity gains and cost competitiveness, while enhancing farmers’ income. Export-oriented production through the development of clusters, viz., “One District One Product (ODOP)”, and dedicated supply chains will help to enhance the global image of Indian products.  

In recent years, several Indian agricultural products have been facing rejection and export bans in the EU, a key export destination for India’s agricultural exports, due to sanitary and phytosanitary (SPS) and technical barriers to trade (TBT) measures. To counter rejection by a partner country in forums like the WTO’s SPS Committee or TBT Committee, there is a need for data collection and scientific evidence-based reports. Further, it is important to build the capacity of our small, marginal, and medium farmers and processors and educate them about the export market requirements. It is, therefore, eminently important to sensitise and educate farmer producer organisations (FPOs) and other stakeholders in the agri-export value chains, on ways to address SPS/TBT-related issues. If domestic standards are aligned to international standards, there is less likelihood of product rejections, and it is easier to earn a premium price for certified products such as organic food products.

A key concern for both India and the UK, with respect to the agro-foods sector would be the removal of non-tariff barriers (NTBs). For India, for example, removal of NTBs in the form of less stringent Sanitary and Phytosanitary Requirements with respect to limits of pesticide residues, while for the UK, removal of NTBs in the form of easier labelling and registration procedures, customs requirements, etc., would be beneficial. Therefore, the India-UK negotiations for CEPA need to take note of this issue.

Growing protectionism across major economies is a serious threat to raising exports. This would require intense diplomatic efforts with India’s trading partners to finalise trade deals. Efforts to upgrade Economic Cooperation and Trade Agreement (ECTA) to CEPA with Australia, and finalise CEPAs with the UK, the EU, the US and Canada, need to gather momentum.

The strategy for promotion of agri-exports should include investments in agri-export zones (AEZs), dairy export zones (DEZ), agro-processing clusters/zones, marketing infrastructure, cold chains, warehouses, roads, railways, and logistics along the export-oriented agri-value chains, connecting to ports and airports through public, private, and Public Private Partnership (PPP) modes.

Investments in R&D, climate smart agriculture, and technology in the form of IoT, AI, and blockchain, through a well-defined start-up ecosystem, supporting pre- and post-harvest activities for agri-exports, also need focused attention for stimulating agri-exports.

Reducing food loss and waste is a solution to reduce food and nutrition insecurity and Greenhouse Gas (GHG) emissions, without impinging on activities related to core economic development. Therefore, GoI should formulate a comprehensive national policy on ‘Achieving SDG 12.3 Targets by Minimising Food Loss’, to focus not only on minimising food loss but also on leveraging the potential to increase agro-based exports, resulting in augmented farm level income.

It has been observed that there is a strong impact of export financing on agricultural exports. Availability and affordability of export credit through lesser-explored mechanisms such as factoring, commodity exchange-facilitated financing, and value chain financing, would be critical for the achievement of the ambitious target for agricultural exports.

Concerted and coordinated efforts by GoI, state governments, APEDA, MPEDA, FIEO, TPCI, NDDB, GCMMF, food and agro-processing industry, RBI, NABARD, EXIM Bank, banks, agri-tech start-ups, FPOs/FPCs, and other stakeholders in the agri-export sector, would address a whole range of issues pertaining to the promotion of agriculture and food exports.

Finally, comprehensive reforms in the agriculture sector could propel India into the top bracket of agricultural exporters in the world, while attaining $100 billion in exports of agriculture and food products by 2026-27.

(The contents of this blog have been drawn from the book India’s Agriculture and Food Exports: Opportunities and Challenges, edited by Debesh Roy & Bijetri Roy and published by Bloomsbury India, 2022)