Steadying a rocky boat: Towards newer Business Models for FPOs

FPOs need to develop robust business models, to become ‘atmanirbhar’ and survive post-project or promotion activities. An earlier blog argued the case for an alternate design for rainfed FPOs. This article elaborates the possible business model and its limitations for Type 1 FPOs (that are standalone and not federated).

The primary value proposition of Type 1 FPOs typically consists of equipping farmers to become informed players in the market and act as a platform of aggregation. FPOs try to ensure that farmers do not get exploited because of structural constraints of the prevalent value chain. However, a more compelling reason an FPO can offer any farmer to join the organisation is that of acting as a year-round partner for enhancing livelihoods. In Tushaar Shah’s terms, stable FPOs need strong motivators or unique member allegiance propositions (UMAP) to ensure sustained and loyal farmer membership.

Low-risk low-reward business activities

.For smooth operations, standalone FPOs need to establish a collection centre owned or rented with basic facilities like weighing machines, moisture meters, packing facilities including gunny bags and primary processing facilities for cleaning, grading, destoning, storing. These activities add small, but significant value by making the produce market ready and are best done at the village level. Many FPOs purchase the output from farmers and then sell it at different price leading to profit or loss depending on their access to working capital. Can they instead just connect farmers to large buyers and take a commission for services rendered to farmers for aggregation, quality check, weighing, packing etc.? For instance, Taptapani, an FPO in Odisha is involved in many different businesses including public procurement for the Odisha Millet Mission.

A Kiosk set-up by Taptapani FPCL

Similarly, on the input side, can the FPOs solicit advance demand from farmers and then work with wholesale markets instead of buying inputs in anticipation of farmer demand and then sell them to make profit? Can FPOs operate on near zero owned inventory of outputs or inputs? A BAIF promoted FPO in Pratapgarh, Uttar Pradesh practised an activity called common procurement and distribution unit along the same lines. We suggest that Type 1 FPOs are better suited to get into just the first mile connectivity to the output market and a Business-to-Business (B-to-B) model might work better. For example, the BAIF promoted FPO in Sirsi connected with a large arecanut cooperative to sell vermicompost prepared by its members. They also engaged with SAFAL to sell their sapotas (chikus). These FPOs try to establish long-term regular contracts or repetitive business models like farmer markets. In other words, they follow a low-risk low-reward business strategies rather than high-risk high reward strategy.

The government can help Type 1 FPOs minimise their risk by procuring a part of its PDS requirements from them (NAFED has done this for buying pulses and Odisha government has done this for procuring ragi). In Odisha Millets Mission, FPOs acting as procurement agency have leveraged these capabilities for connecting with large private buyers. Whenever MSPs are not available or are very low, the farmers can still use Type 1 FPOs’ services to access larger markets and negotiate a better price.

Ragi Threshing Machine

Yearlong activities to improve member centrality

Thus, the Type 1 FPOs can aggregate farmer needs not only for supplying to the market but also do business with the government. These services will keep the Type 1 FPOs connected to the lives of the farmers and keep the FPO staff meaningfully engaged throughout the year. The sustained engagement also helps in achieving financial viability.

In addition to agriculture inputs and outputs, Type 1 FPOs may also engage with aggregation of animal husbandry inputs like vaccinations, insurance. FPOs in Tamil Nadu promoted by Vrutti have successfully incorporated these activities as part of their portfolio. Such FPOs may also engage in other products like Non-Timber Forest Produce (NTFPs) and act as service providers.

Type 1 FPOs could also help in aggregation of consumables like tarpaulin sheets, solar bulbs, and drudgery reducing equipments, which are not easily accessible to individual households. For instance, Ram Rahim, an FPO supported by Samaj Pragati Sahayog (SPS), supplies items of household consumption to its members. Additionally, they can help farmers efficiently access government schemes and benefits for a nominal service charge. For example, most farmers work as labourers under NREGA in many rainfed areas and Type 1 FPOs can provide services to access benefits of NREGA.

Designing for Viability instead of Profitability

Given multiple compliance related issues with FPCs, as indicated in an earlier blog, not all FPOs need to register as Producer Companies, especially if their turnovers are low. The Self-reliant cooperatives in eight Indian states are potentially a better option for these primary FPOs and in other states, the nodal agency, NCDC can be more active in enabling ease of registration.

Type 1 FPOs that are good at maintaining viability while providing useful services to their target communities are generally incubated by NGOs/ development organisations that have contextual experience of working with the local communities at the ground level.

Observations indicate that women-led FPOs, especially those having women in leadership roles tend to opt for business models that prioritise stability. Women are less likely to take high-risk approaches (like shifting the entire land to a particular cash crop) and are often natural leaders in these FPOs. Thus a pro-active focus on supporting such FPOs can also help engender agriculture in empowering ways.

Running a lean and effective organisation

Type 1 FPOs should be financially viable and work with minimal fixed costs such as a two-member team of CEO and accountant with basic office infrastructure. Given the wide spectrum of work involved, it is better to opt for employees with diverse albeit shallow skills rather than hiring specialised workers. While promoting FPOs, Cluster Based Business Organisations (CBBOs) should ensure that activities like production and sale of bio inputs, renting out agriculture equipment are operated by SHGs, Water User Associations, Kisan clubs etc to reduce the overhead costs of the FPO. In activities needing seasonal support, FPO could hire services of local people or its members on daily wages to keep its expenses variable and direct. FPO needs to ensure that most of the activities create a small surplus, which can contribute to covering the running costs. The pricing of the various services should also cover creation of reserves to replace the assets over a period.

Promoting Agencies and CBBOs need to create simple but robust IT and accounting systems for Type 1 FPOs to aid in efficient management. Examples include Enterprise Resource Planning (ERP) systems developed by the Centre for Sustainable Agriculture that helped FPOs become both smart and sustainable. Unhealthy expectations of high profits can hamper their longer-term growth and ability to build a collaborative ecosystem even as they keep their focus on being member central. They can leverage their links to Type 2 market facing organisations, and provide more value to their members in ways that are financially and ecologically sustainable. In events marked by increasingly precarious markets and climate, the value of steady and secure livelihoods is bound to increase. Type 1 FPOs can potentially meet this challenge, and thrive in it too.

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Shirish Joshi works as an independent consultant for institutions and markets.

C Shambu Prasad is a Professor of Strategic Management and Social Sciences at the Institute of Rural Management Anand and coordinates the LFI project