Punjab: Unlocking the potential of Farmer Producer Organizations (FPOs)....by KBS Sidhu

With the support of visionary leaders and structured collectives, Punjab’s farming community can unlock the true potential of its resources, creating pathways for greater prosperity in rural Punjab.

Chandigarh: Farmer Producer Organizations (FPOs) are gaining attention across India as a powerful tool to uplift small farmers, improve their incomes, and create resilience against market fluctuations.

The Central Government has heavily promoted FPOs as a means of enabling farmers to consolidate their efforts, reduce individual costs, and negotiate better market deals.

Despite the significant backing, including financial incentives, the adoption of FPOs in Punjab has been limited, reflecting the unique challenges and agricultural culture of the state.

FPOs: A Pathway to Empowerment

An FPO is essentially a collective legal entity formed by primary producers, including farmers, milk producers, and fishermen. Unlike traditional cooperatives, FPOs operate with a business-oriented approach, pooling resources and acting collectively to secure benefits that would be unattainable for individual farmers.

By joining an FPO, members gain access to better-quality seeds, fertilizers, machinery, and market opportunities. This pooling of resources not only reduces the cost per farmer but also increases their collective bargaining power.

In Punjab, where individualistic farming practices are prevalent, FPOs offer an alternative model that aligns well with the growing trend of smaller landholdings.

As farmers face mounting financial pressure, including the high cost of equipment like tractors, FPOs present an opportunity for shared machinery and resources, which is particularly advantageous in the face of shrinking average farm sizes.

Government Support and Financial Benefits

The Indian government’s Central Sector Scheme, launched in 2020, aims to establish 10,000 FPOs across the country by 2027-28, with a budget of ₹6,865 crores. Under this scheme, FPOs receive financial assistance of up to ₹18 lakh over three years, along with matching equity grants and credit guarantees.

This substantial support is intended to incentivize farmers to organize and form FPOs, enabling them to benefit from economies of scale, improved market linkages, and reduced dependency on intermediaries.

For Punjab’s farmers, where traditional reliance on middlemen is strong, these financial and logistical benefits offer a path to greater independence and profitability.

Income Tax Benefits for FPOs

To further incentivize the formation and growth of Farmer Producer Organizations (FPOs), the Finance Minister had announced in February 2018 an income tax exemption specifically for Farmer Producer Companies with an annual turnover of up to Rs. 100 crore, applicable for five years starting from the financial year 2018-19.

Given the positive impact of this exemption on the financial viability of FPOs, it is a strong candidate for inclusion as a permanent feature in the upcoming New Income Tax Code.In the last Budget session, Finance Minister Nirmala Sitharaman announced that this revised tax code would soon be implemented.

Making the FPO tax exemption permanent would allow FPOs to reinvest tax savings into resources, infrastructure, and growth opportunities for farmers, amplifying their collective benefits and reinforcing the government’s commitment to sustainable rural development.

Farmer Producer Organizations (FPOs): Empowering Indian Farmers Through Collective Action

Farmer Producer Organizations (FPOs) are crucial initiatives in India, designed to empower farmers and enhance their economic well-being through collective action.

FPOs are legal entities formed by producers like farmers, milk producers, and fishermen, and they may be registered as producer companies, cooperative societies, or mutually aided cooperatives. With democratic governance, each member has equal voting rights, and operations typically include supplying inputs, establishing market linkages, and providing technical advice.

FPOs help farmers achieve economies of scale, increase bargaining power, reduce intermediaries, and access essential services, including technology and finance.

The Indian government has heavily promoted FPOs, launching a scheme in 2020 to establish 10,000 new FPOs by 2027-28, supported by a budget of ₹6,865 crores and additional financial assistance. Despite their benefits, FPOs face challenges like limited access to finance, market resistance, and management issues.

As of June 2023, 6,319 FPOs have been registered nationwide, and ongoing government support aims to strengthen these organizations as a pathway to improved farmer incomes and sustainable agricultural development.

The FPO Landscape in Punjab: A Limited Spread

While FPOs are thriving in many regions across India, their adoption in Punjab has been relatively sluggish.The state currently less than a thousand registered FPOs, far fewer than other agricultural states. The slow growth can be attributed to several factors, including a strong cultural preference for individual farming, established market intermediaries, and the state’s narrow wheat-paddy crop cycle.

The distribution of FPOs across Punjab is uneven, with some districts having a substantial number while others have minimal or no FPO presence. Faridkot stands out as a notable exception with around 475 registered FPOs—by far the largest concentration in the state.

This high number in Faridkot suggests favorable conditions for FPO growth, potentially due to supportive local administration, a willingness among farmers to collaborate, or strategic opportunities within the local agricultural economy.

Faridkot’s success in fostering FPOs can serve as a valuable example for other districts, demonstrating the viability of collective farming as a means of enhancing income and reducing costs.

Other districts with relatively higher FPO numbers include Bathinda, with around 40 FPOs, and Ferozepur, with 14. These regions show moderate engagement, reflecting some acceptance of the FPO model.

However, in smaller districts like Hoshiarpur, Kapurthala, and Tarn Taran, FPO numbers are starkly low, with only a single FPO registered in each. This disparity highlights the broader reluctance to embrace collective farming models across much of Punjab, where the wheat-paddy rotation has long dominated agricultural practices.

Challenges to FPO Adoption in Punjab

Several unique challenges hinder the growth of FPOs in Punjab. The state’s agricultural landscape is shaped by a deeply ingrained preference for individual farming.

Many farmers view collective models with skepticism, associating them with past cooperative failures in the region. Furthermore, the wheat-paddy rotation system, which requires little diversification, leaves farmers with limited motivation to explore collaborative models that could support varied crops and alternative farming approaches.

Another key obstacle is the presence of established intermediaries in regulated markets. These middlemen often hold significant influence and may resist the introduction of FPOs, which could disrupt traditional supply chains. Finally, the business management skills required to effectively run an FPO can be a barrier.

Many farmers lack prior business experience, and despite government support, they may still struggle with the operational aspects of managing a collective enterprise.

Encouraging a New Agricultural Pathway

As landholdings in Punjab continue to shrink, FPOs offer a promising solution for farmers facing rising input costs and limited economies of scale. By pooling resources, small farmers can access necessary equipment without bearing the full cost, enabling them to continue farming even on small plots.

FPOs also provide a mechanism for diversifying into high-value crops, such as fruits and vegetables, which can command higher market prices than traditional wheat and paddy crops.

To fully realize this potential, Punjab’s farmers and agricultural leaders need to explore the benefits of collaboration. Faridkot’s example demonstrates that with adequate support and a collective spirit, FPOs can thrive in Punjab.

By shifting focus away from the wheat-paddy cycle, farmers can diversify their crops, improve soil health, and expand their income sources, creating a more resilient and adaptable agricultural economy.

November 13, 2024