Union Budget 2022-23: The best hope for FPOs has been the sensible evolution of the futures market, coupled with additional incentives that address key problems faced by FPOs in participating in futures markets
Indian Union Budget 2022: Farming in India. Image courtesy Ramkumar Radhakrishnan/Wikimedia Commons
With the Union Budget 2022 on the horizon, coming up with a wishlist for agriculture is tricky given the number of factors that need attention. Several suggestions, right or wrong, around issues such as Minimum Support Price (MSP) and ensuring that this serves as a floor for agricultural trade, strengthening the role of warehousing, and improving mandi infrastructure have already been made.
I offer a few suggestions that may otherwise fly under the radar, given that the problems these targets are not widely discussed. These recommendations are principally from the perspective of Farmer Producer Organisations (FPOs) which are aggregates of small and marginal farmers.
Agri Infra Fund, a challenge
The Agri Infrastructure Fund has made it possible for the establishment of infrastructures such as cleaning and sorting plants. However, from an FPOs’ perspective, accessing the fund and putting the infrastructure in place for use twice or thrice a year is a challenge. What may be more accessible is for common infrastructure to be created at the village or Gram Panchayat level which is open to all. This will allow for optimum use of the infrastructure while bringing the benefits of increased prices from even simple cleaning, grading, and sorting to farmers who need them the most.
FPOs need to pay significant deposits to Mandis to obtain licenses, which are a resource drain on poorly capitalized FPOs. A scheme whereby the Central Government can guarantee the performance of FPOs at Mandis, similar to the guarantees provided by SFAC and NABARD for loans made to FPOs, will allow for the capital of FPOs to be used to support physical business, including funding working capital for inputs, outputs, logistics, and soil testing.
New FPOS unable to access funding
When FPOs are formed under the 10,000 FPOs scheme, the new FPOs are unable to access funding until a few years have gone by. This delays the time when the FPOs can start a genuine business as the shareholders’ capital, their only source of funds till that point, is inadequate to meet the needs of several demands. Institutions such as NABARD and NABKISAN should commence lending much earlier in the cycle to make sure that the FPOs start to become impactful and sustainable quickly.
Govt should play coordinator’s role
AgTech is making significant inroads into agriculture, and there are many different models that are contributing to the improvement of agricultural income and productivity on the ground. By their very nature, startups do not have the wherewithal to bring these interventions to scale with FPOs without commercial capital and the support of the government.
While capital for AgTechs is no longer scarce, there is a need for the government to play a coordinator’s role, facilitating the scale introduction of these interventions via the 10,000 FPOs Programme. This will ensure that best-of-breed technologies are utilized and scaled expeditiously and that benefits to agriculture occur at scale using the complementary capabilities of the government and the innovative private sector.
Finally, farmers need mechanisms of price risk hedging. The best hope for FPOs has been the sensible evolution of the futures market, coupled with additional incentives that address key problems faced by FPOs in participating in futures markets. The government has made several attempts in the past, for instance, most recently in the 2017 Budget, where it set up a specific committee for better integration of spot and futures markets in commodities. These attempts have not been holistic, and the latest injunction to ban futures contracts suggests a lack of integrated thinking on the problem.
The issues are several, ranging from common regulation of spot and futures markets, stakeholder participation, contract design, capitalization of FPOs, risk management, logistics, and financing. The Securities and Exchange Board of India (SEBI) needs to be exclusively empowered fully in replicating their success in equity cash and derivatives markets by creating a vibrant commodities market across both cash and futures while allowing for interventions to support the participation of FPOs.
The writer is Founder and CEO, Dvara E-Registry-AgriFinTech startup. Views are personal.
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