As per our study of Farmer Producer Organisations (FPOs) at Caspian Impact Investment Adviser Ltd, Venture capital company in Hyderabad, Telangana, over 90% of the FPOs operate in the sub-INR 10 lakh turnover level. Almost universally, the entry-point activity of FPOs is input supply to members. There is no argument that this is a good starting point. But, input business will not enable growth of the FPO’s business, as there are slender margins. Neither does it help strengthen the Balance Sheet of the FPO. We believe, and there is enough empirical evidence to back this up, that Agricultural Produce Marketing will be the growth engine for an FPO.
Farmer Producer Organisations (FPOs), formed by a group of farm producers, is a registered body with producers as shareholders in the organisation. It deals with business activities related to the farm produce and it works for the benefit of the member producers.
Almost universally, the entry-point activity of FPOs is input supply to members. But, input business will not enable growth of the FPO’s business, as there are slender margins.
However, since most FPOs have not been established de-novo, but emerged out of other development programmes of the promoting institutions, whose strength is in community organisation and social mobilisation, but they lack business acumen.
This is where emerges the need and the opportunity for Agtech Startups to play a role, in bridging the gap between the producers and the consumers. We already see many such partnerships emerging, but there is need for many more players.
Corporates, for all their public pronouncements of readiness to directly deal with FPOs, have three concerns:
- Quantity – The requirements of corporates is large, and FPOs can at best supply a miniscule quantity of what they require.
- Timeliness – Since the produce is held by the farmer member of the FPO, and the decision on when to sell is with the farmer, the ability of an FPO to mobilise adequate quantities in time, is a challenge. Equally, FPOs have a challenge to procure from non-members or the trade to fulfill an order in time, unlike a trader.
- Quality – Since the produce available to an FPO is from a limited catchment – the pool of stock of their members, there may be challenges in getting produce of the desired quality.
The real concern of corporates is that, if the arrangement with an FPO sours, the reputation risk that they may be confronted with and any likely public backlash (like the PepsiCo’s seed potato controversy in Gujarat) far outweighs the goodwill that they may gain from partnering directly with FPOs. We need to appreciate these genuine concerns of the Corporates, and solve this challenge through the intermediation of Agtech Startups like Arya Collateral Warehousing Services based in Noida, UP – who have the ability to deal seamlessly with both the expectations of the FPOs, and the needs of the Agri Corporates.
Institutions with a clear FPO mandate like NABKISAN and Samunnati can meet such credit gaps, and take the FPOs into a higher growth trajectory.
Finally, institutions like us, Caspian, understand that growth in the FPO business need not always be linear & incremental. The business can grow from INR 10 lakhs to INR 100 lakhs in a matter of a year, if the right enablers are in place like market linkage. Most conventional lenders especially banks do not understand, nor have the ability to deal with such a situation, but we do. Institutions with a clear FPO mandate like Nabkisan Finance Limited and Samunnati Financial Intermediation and Services Private Limited can meet such credit gaps, and take the FPOs into a higher growth trajectory.
We’ve already done that with one FPO, where an initial loan of Rs. 1 Crore could generate a turnover of Rs. 3 Crore, and with a step-up to a loan of Rs. 5 Crore, and another NBFC pitching-in with Rs. 5 Crore, the Farmer Producer Company could grow turnover to Rs, 25 Crore in just two years, and would have touched Rs. 40 Crore, but for some adverse external market conditions.
Such a collaborative and co-ordinated effort could easily see the emergence of over a 100 FPOs with over a hundred crore turnover in the next three years.
The author Emmanuel V Murray works as Senior Advisor at Caspian Impact Investment Adviser Ltd, with a focus on Food & Agriculture space. He also worked for 25 years with NABARD. Emmanuel has over a hundred publications and articles to his credit. His Article, Producer Company Model – Current Status and Future Outlook: Opportunities for Bank Finance (CAB Calling April-June 2008) was a pioneering work that is widely cited in FPO space. Connect with him at LinkedIn www.linkedin.com/in/emmanuel-murray
*First Published on LinkedIn on September 2, 2019 https://www.linkedin.com/feed/update/urn:li:article:6994847030526220633/