By Mr. Chiranjiv Choudhary
Background and Profile of Agriculture sector in India:
The agriculture sector in India plays an important role in the country’s economy, employing a large portion of the workforce besides contributing significantly to the GDP and the national income which is crucial to sustain the economic growth required to achieve Viksit Bharat by 2047 as envisaged by the Government of India. It is evident from the fact that the Agriculture and Allied sector accounted for 18.4 % of India’s GVA at current prices during 2022- 23. (Economic Survey 2024-25)
However, the Indian Agriculture is characterized by small, dispersed and fragmented land holdings predominantly comprising Small/Marginal farmers constituting 85%. As per LUS statistics for 2021-22, 54.8% of the geographical area of India is agricultural land. Further, 141.00 million hectares is the reported net sown area and 219.158 million hectares is the gross cropped area with a cropping intensity of 155.4% (Annual Report, Ministry of Agriculture & Farmers Welfare, 2023-24). The Net area sown accounts for 42.8% of the total geographical area of the country. A staggering 54.6% of the total workforce is engaged in agriculture and allied sector activities (Census 2011). The gross irrigated area in 2021-22 was estimated at 120.3 million hectare, which is 54.9 % of the gross cropped area (Annual Report, Ministry of Agriculture and Farmers Welfare, 2023-24)
The average size of operational land holdings has reduced over the years by almost half from 2.28 ha in 1970-71 to 1.16 ha in 2010-11. Consequently, the number of land holdings in the marginal and small categories have increased by 56 million and 11 million respectively, during the same period. Land holdings in the marginal category (less than1 ha.) constitute 67 per cent of the operational holdings in the country (2010-11). Further, in terms of area operated, the share of marginal holdings has doubled to 22 per cent (2010-11) from a mere 9 per cent (1970-71). Similarly, the share of (operated area under) small farm holdings (1 to 2 ha) increased from 12 per cent to 22 per cent during the same period. The small and marginal holdings together, constitute 85 per cent in terms of number of operational holdings and 44 per cent of the operated area in the country. Thus, over the period, the marginal category has emerged as a distinct and dominant class by itself with its average size dwindling to a mere 0.38 ha (NABARD Rural Pulse, Issue-1, Jan-Feb 2024)
Thus during the last four decades, there has been a sharp decline in the average size of operational land holdings in India that is reflective of the immense population pressure on the limited land resource available for cultivation. The declining average size (1.16 ha.) of land holding raises concerns for viability of such small farm holdings. This aspect gets more pronounced in the case of marginal farms where the average size is a mere 0.38 ha., furthering the concerns of investments, economy of scale for marketing of produce and its viability
The size of the land holdings has implications for investments in agriculture, its productivity, farm mechanization and sustaining farm incomes itself in the light of increasing cost of input and rising cost of production. This doubles up the challenge of making farming on these fragmented pieces of land gainful, if not viable. This is further compounded by the unorganized nature of farming sector. Therefore, the farming sector needs innovative solutions in terms of procurement of input, extension and advisory services, production, marketing and access to various markets
One plausible solution to confront the challenge, is collectivization by organizing farmers into Producer Organization; which could mitigate the problems encountered by Small & Marginal Farmers to a large extent besides improving their income. The role of FPOs (Farmer Producer Organizations) in doubling farmers’ income is crucial as they provide several economic, social, and technological benefits. However, forming and nurturing farmers collectives (Farmers Producer Organizations) has to be done with caution not merely for the costs involved in forming such collectives and groups, but also the scale needed and the process involved in building such community based institutions
Given the importance of the agriculture sector, Government of India has taken several steps for its development in a sustainable manner. One such initiative is to organize farmers collectives namely the Farmers Producer Organizations (FPOs) to help them to gain economies of scale and improve market standing through collective bargaining & negotiation, access to quality inputs & technology, risk mitigation, strengthening social capital, Government support and policy advocacy and so on and so forth. In pursuance to this and buoyed by the initial success of Farmers Collectives pioneered by Small Farmers Agribusiness Consortium (SFAC) and NABARD in early 2000s the Ministry of Agriculture & Farmers Welfare, Govt. of India has formulated the policy and implementation guidelines for formation, capacity building and funding of 10,000 FPOs in the country
Activities/Functions performed by FPOs:
The FPOs can take up various activities which could help in timely supply of required inputs at a competitive price to reduce the cost of cultivation, aggregation of produce at a common facility centre, primary processing and creating supply chain for better market access etc.which would contribute to increase in farmers income. Some of the activities successfully demonstrated by performing FPOs contributing to increased income are as under:
1. Input Business: The biggest challenge faced by the Small & Marginal Farmers is timely supply of certified inputs at a competitive price due to limited information and poor cash flow. Further, after 1991 due to economic liberalization, there has been proliferation of private companies and vendors in manufacture of agriculture inputs in the country with network of retail outlets and salesman even in the rural India. Due to lack of information about the quality inputs and cash, most of the SF & MF are dependent on the local input vendors/retailers/traders for procurement of inputs on credit. This problem is further exacerbated by the high price of agriculture inputs charged by the retailers/vendors due to lack of access extension services
The performing FPOs are already playing the role of wholesalers/ dealers of quality agriculture inputs by establishing direct tie up with the wholesalers and the manufacturers in bulk by pooling the individual requirements at a discounted price which is upto 20-25% less than the price charged by the local retailers/vendors. Due to this intervention, the FPOs are able to supply certified agriculture inputs such as seeds, pesticides, animal feeds, small agriculture implements and equipment, fertilizers etc. at a competitive price to their members as well as others in time. The part of the margin generated by the FPO is passed on to the buyers and the remaining is utilized towards administrative cost of input business. This has ensured overall reduction in their cost of input and increased net income. The manufacturers of agriculture inputs and their wholesalers are evincing keen interest in inking MoU with the FPOs as it helps in creation of market linkage of their products with improved out reach and less transaction cost. Therefore, this creates a win-win model for the manufacturers and the FPOs. Many FPOs in Andhra Pradesh have been able to achieve an annual turn over of Rs. 3-4 crores and generating surplus from the input business besides ensuring timely availability of quality inputs at cost effective price
2. Enhanced Credit Access: The large scale dependence of SF/MF on the local money lenders for the working capital at exorbitant rate of interest is a well known serious problem in the country. Due to this dependency, they get trapped into the vicious cycle of debt trap which makes agriculture nonviable. The SHGs and their federations in several states in the country with their strong social capital and corpus generated through savings & business have successfully demonstrated their ability to establish direct interface with the financial institutions i.e. Banks and other NBFIs in the country to mobilize credit and have been able to create successful business enterprises. On the similar lines, the FPOs with their strong social capital, transparency in documentation and record keeping, business plan and less transaction cost have been able to leverage required credit from the financial institutions which has brought them out of the clutches of money lenders besides ensuring availability of credit in time critical for timely operation of seasonal activities. The FPOs have created their own corpus consisting of their share capital and equity grants under various Govt. Schemes which has helped them to convince the lending institutions. Lenders are more willing to offer loans to a group with established financial discipline than to individual farmers. The FPOs and their Federations can also avail collateral free credit up to Rs. 2 crores ( Rs. Two Crores) from Banks under Credit Guarantee Scheme launched by NABARD under NABSanrakshan.
3. Custom Hiring Services: Farm mechanization in Indian agriculture is at low level due to high cost, lack of customized solution, poor access etc. This is further aggravated by the small and fragmented size of land holding which makes it uneconomical. Therefore, farm mechanization suited to the needs and requirements of marginal and small farmers is required. Obviously, this calls for supporting farm mechanization which is in tune with the needs of small farm implements, machines, etc., and encouraging joint use or custom hiring of machinery. This is perhaps a way to make farm investments viable in a scenario of reducing average size of agricultural holdings. The FPOs in various states have been successfully operating custom hiring centres comprising small Tractors, Power tillers, Seed drillers, Spraying machines, Threshers etc. This has helped them to reduce their cost of cultivation, increased productivity and yield and consequent increase in net income. FPOs can also leverage financial assistance under the on going scheme of Sub Mission on Agricultural Mechanization (SMAM) being implemented by Ministry of Agriculture & Farmers Welfare, Govt of India
4. Seed Production and Nursery: Access to quality seed and planting materials is a serious constraints faced by the farmers. Traditionally the Indian farmers were producing and using their own seeds which ensured timely and cost effective availability of seeds. However, the green revolution and the focus on high yielding hybrid seed/ variety and consequent privatization and entry of a large number of national and multinational companies in seed production have created a monopoly besides increase in the cost of seeds contributing to high cost of cultivation. This current situation can be reversed to a large extent by FPOs by taking up seed production and processing of major crops and Nursery for horticulture crops. The production of seed and planting materials can be operated as a business which besides reducing the cost of input would also generate surplus and additional income
5. Output Marketing with direct Market access: As stated in the beginning, the small, fragmented and scattered land holdings with about 85% of cultivators being Small and Marginal Farmers and being unorganized does not allow them to achieve the desired scale of operation to have direct market access and to negotiate the price of their produce. As a consequence they are forced to depend on the local traders, middlemen and layers of intermediaries to sale their produce at low price besides being subjected to various malpractices. The aggregation of produce by the FPOs and proper post harvest management has helped them to establish efficient supply chain, improve the quality of produce, achieve desired scale of operation which gives them the opportunity of price negotiation through collective bargaining. This has contributed to increase in their net income by 15-20% at a conservative estimate
6. Post Harvest Infrastructure, Primary Processing and value addition: Post harvest losses due to obsolete harvesting method/technology, lack of storage and drying infrastructure, unscientific transportation etc. is very high besides contributing to poor quality of produce. The post harvest losses in particular of fruits, vegetables and livestock produce which are perishable in nature with low shelf-life is very high ranging from 25-30% (NABCONS REPORT, 2022). This causes huge drain on the farmers expected income. However, the individual farmers does not have access to the infrastructure, lacks information and have limited access to credit for individual operations besides high cost of investment required to create and manage PH infrastructure. The FPOs and their Federation at appropriate level can establish basic Pack houses with storage, drying, grading/sorting yard, bagging/ packaging, cooling and pre-cooling infrastructure by accessing funds under AIF and other ongoing schemes such as MIDH, RKVY etc. Similarly, they can establish paddy and pulses processing units, mustard, coconut and groundnut oil milling units, and other value added products such as turmeric powder, desiccated Coconut flakes & powder, Chilli powder and other horticulture processing facilities which could enhance their income by 20-25%
7. Policy Advocacy and Government Support: FPOs as organized group with strong social capital can better advocate for farmers’ needs and influence agricultural policy. They can push for better support from the government, including subsidies, infrastructure development, and policy reforms
Road map for Future: Organizing farmers into Producer Organization and creating enabling environment through appropriate policy and implementation guidelines is a good beginning to make agriculture and allied sector economically viable and sustainable. However, the individual FPOs operating at the village level or a cluster of villages will not be able to achieve the economies of scale, improve market access and enhance their bargaining power, share resources etc. necessary to increase their income and achieve sustainability
Therefore, to harness the full potential of Producer Organization and to realize optimum desired benefits, horizontal and vertical expansion through consolidation of existing and new FPOs and federating them at appropriate level by creating institutional framework should be the future road map to sustainability. In this regard, the various successful models of Federations and apex level institutions operating in different parts of the country could be studied and customized for implementation. The success story from Maharashtra is cited below as a case to adopt similar strategy
Success Story
Empowering Farmers through Farmers Collectives:
The Success Story of Maha Farmers Producer Company Limited (MAHAFPC), a state-level producer company in Maharashtra, has empowered 646 FPOs to procure and sell agricultural products, including pulses and perishable items. It has helped farmers by providing multiple procurement centres, reducing transportation costs, and ensuring timely payment at MSP. In 2022, MAHAFPC became Maharashtra’s largest procurement channel, benefiting over 1.7 lakh farmers. The company has also assisted FPOs in developing infrastructure like storage facilities and processing units. By connecting FPOs with private players and using digital technology, MAHAFPC has created employment opportunities and strengthened the agricultural value chain.
Therefore, one of the plausible solution to empower the farming community and transform the existing crisis ridden agriculture sector into a sustainable business model is to organize them and create enabling ecosystem for their self development. This model has the potentiality to achieve the stated objective of “doubling farmers Income” as envisaged by the Govt
Therefore, one of the plausible solution to empower the farming community and transform the existing crisis ridden agriculture sector into a sustainable business model is to organize them and create enabling ecosystem for their self development. This model has the potentiality to achieve the stated objective of “doubling farmers Income” as envisaged by the Govt
The writer is IFS is a former PCCF & HoFF, Andhra Pradesh. Views are personal
