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Sampurn Krishi Utthaan Foundation




What is FPO? Why Govt wants 10,000 FPOs? Why it fails?

In the early years, not many farmers will come forward. They have either experienced various other NGO initiatives and have sometimes faced disappointment. However, they have rarely seen an intervention that actually wants them to do business for their own benefit. In reality, the traders buy from well to do farmers on fair terms and try to cheat the smaller and lesser educated ones. Since the well-off farmers are opinion leaders and may not join the cooperative, there is hesitation among the majority to join it. There is also a fear of antagonizing the local trader who is also a source of loans not only for farming but also for personal emergencies and expenses like medical problems, children’s school expenses, weddings and so on. The fear is that not giving the farm produce to the trader and passing it on to the cooperative will cut them off from such loans. Though they know that the terms of trade are exploitative, there is a hesitation, even some fear, and anxiety about moving to a new system. NEED FOR MICROFINANCE AGENCY FOR ELIMINATING THIS NEXUS OF LOCAL TRADER GIVING LOANS (Shudh khori in Hindi). FPOs usually takes three to five years for this to stabilize and the NGO needs to have enough patience to go through with this. To get quick results there is a tendency to provide a healthy dose of subsidies and grants to the cooperative. A classic example is to give a higher purchase price to farmers than the market price. Another is to give input loans for farming. A third is to pay salaries to cooperative functionaries like accountants. All these subsidies no doubt give an initial boost to the fledgling cooperative and attract lots of new members but it is not sustainable. Either the cooperative makes a loss if it is not able to sell properly, or the loans don’t come back, or the subsidy needs to be perpetuated. The best cooperatives, in fact, go against conventional wisdom. They actually insist that farmers save money in their cooperative. Conventional wisdom says that we have to give them loans the best cooperatives, in fact, say that farmers need to save money in the cooperative. The economic logic of this is very simple. Make profits, keep a part of it aside, as savings and as the savings accumulate over the years the farmers no longer have to depend on external usurious money lenders. To be realistic, setting up a business, even a cooperative is difficult. Usually, NGOs and Governments do not have the skill to do that. Businessmen and business houses do have that skill, but they have a little incentive to promote cooperatives since the profits go to the farmers. Therefore, there is a need for in a motivated external facilitator. That facilitator has to first acquire business skill, without that it is not possible to promote cooperatives. Many Government and NGO interventions give operational and decision-making roles to themselves and very little to the farmer-members and their cooperatives. In fact, this is the model in the lakhs of Government run Cooperatives all over India including the well-known Primary Agricultural Cooperatives (PACs) in each gram panchayat. Most are not running well. The reason is simple. These cooperatives get external grants and subsidies which are managed by Government employees. These employees have no incentive to ensure that the cooperative runs profitably, and they are also not answerable to the farmers. Unfortunately, some NGOs also use this model. Why does this model of facilitator run cooperatives persist even today? It is based on a deeply held belief that farmers are not capable of running their own cooperatives. Is it possible to reconsider the bias against farmer-run cooperatives? Let’s take two famous quotes from Dr. Kurien. His response to the then Prime Minister of India on why Amul was successful and others were not was “Because the control, ownership, and management of the cooperatives is with the farmers.” Another of his famous quotes is “Cooperation is an act of faith. For those who have the faith, no explanation is required and to those who do not have the faith, no explanation is possible.” Trust is the very basis of a successful cooperative. What is trust mean? It means several things. It means that the farmers must trust the outside intervener, if you go in as an external facilitator, the farmer must trust you. The farmers must trust each other which is sometimes a problem in caste and faction driven villages. The farmer must trust that the cooperative will deliver sustainable benefits, and finally, the farmer must trust that the cooperative will run in a fair way. Initially, only a few farmers may come forward to join the cooperative. The others usually adopt a wait and watch approach and may join in subsequent years. Even for those who join, the most important way of establishing trust is to put in place a fair and transparent system of assessing the quality and price of the produce. The cooperative in fact, will fail if it pays the same price for good and bad quality. The reason is simple. The farmers who bring good produce feel that they have been cheated and the farmers who bring the bad produce and are getting a price have an incentive to bring more and more bad produce and when you go the market the price realized will be much lower. Therefore, the cooperative must have a fair system of assessing the quality and the price for each farmers produce. This quality assessment need not be very complex — it just needs to mirror what the local market does. Usually, the local trader who buys from the farmer in the village, does not assess quality. He, in fact, makes his money by reducing the weight and the price. The quality assessment, in fact, is done in the nearest semi-urban markets. The method for assessing quality for different crops in different regions may vary, but it is best to simply copy the local market practice. This initial method of intervention is very simple. It does not require much local storage space. During the season, a few farmers’ produce is enough to fill a small truck that can be transported immediately to the local market almost on a daily basis. It does not need any working capital. Usually, the buyer pays in a week and the members can wait that long. In any case, the local traders take much longer to pay them. The traders usually pay farmers after they receive payment from their buyers. Individual bonus motivates new members to join and old members to stay. Savings in the name of each member helps them over time to reduce or even eliminate their dependence on money lenders who charge very high interest rates and some surplus needs to be put aside into general reserves as the cooperative has expenses including transport, gunny bags, honorarium for bookkeepers, and expenses for the meeting that they hold and so on. So the next question we explore is what does the promoting organization do and what does the cooperative do? These are two different entities and their roles and responsibilities should be clear. A basic principle is that ideally, the promoter does facilitation and the cooperative actually runs the operations. This means that the promoter visits the town/urban markets and buyers and establishes market linkages with them. It is when the promoting NGO in its anxiety provides subsidies, incentives and free money or soft loans to each member that the problems start. Money coming in from outside into a cooperative is often considered free and the members don’t worry about what type of leader to elect or select. Often, they go by the local political leaders. The cooperative then flounders. On the other hand, when they understand that there is little free money and that instead, they have to invest their money, no doubt in small amounts, the right leadership invariably emerges. Some clear rules about the leaders need to be openly discussed with the members. So here are some issues that need open discussion in the process of training and social mobilization. First, What do you do with a leader who does not call meetings or does not attend meetings? Next, leaders who are affiliated to one or the other political party? Do we keep them or do we do something else with them? Next question is cooperative leaders who have long outstanding dues and loans. Last question is leaders who do not bring their produce to the cooperative but sell it to outside traders. When such issues are discussed openly, the general body invariably comes to the ‘right’ answers. Similarly, the rights and responsibilities of the leaders are discussed. Is he/she empowered by the general body to take decisions? Usually, there is a small committee of 5 to 7 people elected by the members who are given this authority. Decisions include where to sell and what to do with the sales proceeds and how to use the reserves, as well as how much to pay the volunteers who come to the collection center and weigh each farmer’s produce. So the first question that comes is when the members bring their produce into the cooperative do we pay them or do we not pay them? If we pay them, how much do we pay them? So, in the simple pool and sell model, all the members bring their produce into the cooperative. They are not paid up front, and the pooled produce is taken to a nearby market, sold and the money that is collected there is paid back to the members. This has several advantages in rural parts of India where the commission and the cheating that is done by middlemen is largely cut out and as a result, there is a significant increase in income of the members. The second question that arises here is who is going to take charge of marketing? Now, this is where, in the initial stages, one has to understand the psychology of an ordinary member or an ordinary farmer very clearly. What does he want? He wants that instead of going and giving his produce to the trader, who cheats him, and the farmer is aware that cheats him, he has now found a cooperative which, of course, pays him upfront. So, he is satisfied, and he goes back. Now, who is going to take charge of the produce and take charge of marketing and ensure that the money comes back and the person who has lent the money to the cooperative or the organization gets its loan back. This is where many cooperatives in the initial stages flounder. What happens, in reality, is when you start paying the cooperative members up front, all the money, all the members are very happy, they go home and nobody is bothered about the marketing. It is up to the promoter or the promoting agency, typically an NGO, sometimes a Government agency to take charge of all that produce and start marketing it. So, it is really up to the lender himself or the lending organization to take charge of the produce and market it. Now, this is not a scalable model. In the true spirit of a cooperative, the member should take charge of all operations, own it up and earn profits. The first mistake that promoters often make is that they take complete charge of all the operations. They should be avoided at all costs because this is not a scalable model and the mindset of the promoter is not of doing service to the members of the cooperative. The mindset of the promoter is to enable members to come together and run their own business. So, if the promoter is not to take charge, then in the initial stages itself, the promoter has to ensure that members are very much engaged in all aspects of the operations. For instance, when the produce is brought into the village cooperative, the members and their representatives have to take charge of: weighing the produce, assessing the quality, doing the financial transactions, issuing the receipts to the members, loading it into a godown or onto the transport, taking it to the markets, negotiating with the buyers, and taking the payment from the buyers, bringing it back to the village and disposing it to each and every member. These cycle of operations, the promoters task, is to ensure that members are capable of doing it. The second mistake that’s often made is that you allow the costs to build up. You see examples again and again of promoters investing a lot of money in fixed costs: land, buildings, equipment, transport sometimes, and borrowing huge amounts of money from various financial institutions to pay the members. All this adds up to the costs, and eventually, you know, you end up sometimes making big losses, and then you say, ‘well, this is not working’, and then you try to close it down. If you want to really reach a very, very large number of farmers, this idea of providing some incentive or inducement to get people to join is very difficult. And lastly, I would say, what is it that we’re trying to do? We’re trying to build a cooperative, not for one year. We’re trying to build a cooperative that will run for twenty, fifty or hundred years. So, that can only happen if the members take charge and they own up the cooperative and they run the business with your help initially and later on, on their own. But once you make them habituated to inducements, the guys who already got it will expect it next year. When you go to the nearby villages, they’ll say, “Well, you give them all these inducements, why don’t you give it to us?’, and you’re stuck in a catch 22 situation.” So, therefore, another mistake, to be avoided is that somehow or the other, we must provide some inducements to attract a large number of members. So, it all boils down finally to one simple thing, who owns a cooperative in the long run? In the long run, it is very clear it is owned by the members. We should build that principle of owned by the members from day one, and that can be done by giving them charge of operations, by ensuring that they invest not only their time and effort but also their money into the cooperative. That gives real ownership to the members and to the cooperative as a whole. So, there are some low hanging fruit which a cooperative can immediately handle, and one is jointly providing seed, fertilizer, and pesticide, which can considerably reduce the cost of farming for each individual member. So, a typical thing that a cooperative would do is negotiate with a large company which can either provide good quality seeds or fertilizer in bulk or even pesticides, so that, the cost of marketing and production come down. One thing that is often not understood is the quality of seed available to an average farmer in India, is a very questionable quality. So, if the cooperative can make good quality seed available, not only do the cost of the seed come down, but the value of the output goes up considerably because the yields increase. So, this is one thing that the power of numbers, the power of collectivization can do and this is rather easily done, and many FPOs (Farmer Producer Organizations) today actually are doing a reasonably good job of this. There is a later stage in the input where one can actually move towards organic fertilizers and now technology has available all over the country where the cost of organic fertilizer has come down considerably. At the same time, there was a fear earlier up to a few years ago, that using organic fertilizers would actually reduce the yield as well. But now fertilizers are available which are fully organic and which also, in fact, marginally increase the yield. So, the power of collectivization can actually make that happen and an added bonus is that organic foods today are picking up and there is a premium in the market for such foods. There is something unique about the agriculture sector where the capital investment may be very small but the working capital requirements are very large. BULLET POINTS Agrarian economy is based on TRUST, not hierarchy. Savings should be promoted over Incentives. If there is no surplus, there is no cooperative which can build Capital. The community where frictions are there within the members, there is no need to work hard choose better communities and strong leadership (of course they are not political leaders). FPO is not like it is helping to build market linkages done by few people in the marketing department. It includes up gradation from growing of quality produce to sorting, grading to accounting skills and so on. FPO is not just an entity which came to increase the farmers income. It should involve as many as members to add value to the group which of course has bargaining power from input to output side. Ravi Singh Choudhary Director Sampurn Krishi Utthaan Foundation


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