Collectivization of Small Holder Farmers (SHF)

What is the issue?

• Innovative thinking on smallholder farmer empowerment is needed in the context of the Indian government’s push to double farm income by 2022.

What are the problems faced by Small holder farmers?

• They are forced to face a cycle of low investment, poor productivity, low value addition, weak market orientation and low margins.
• Decreasing landholdings due to fragmentation adds oil to burning fire.
•  Further a post-harvest value chain coupled with inefficiencies, causes post-harvest losses (PHL) to stack up throughout the value chain.
• These stacking up or ‘hoarding’ causes inflationary effect on the economy and strikes a blow again upon the smallholder farmer as consumers.

• As per latest estimates by the Associated Chambers of Commerce of India, India loses around Rs. 92,600 crore ($14.3 billion) on account of PHL.

What are the different Models of Collectivization of Famers?

• There are two  Small Holder Farmers collectivization models in India: farmer producer organizations (FPOs) and agricultural entrepreneurs (AEs).
• The concept behind Farmer Producer Organizations is that farmers, who are the producers of agricultural products, can form groups and register themselves under the Indian Companies Act.
• The FPO model creates value across different post-harvest phases, including harvesting, primary processing, storage, secondary processing, and market linkages.
• The aim is to enhance farmers’ competitiveness and increase their advantage in emerging market opportunities.
• The Agricultural Entrepreneur model is predominantly buyer and intermediary driven, with a strong profit orientation.
• AEs are usually from the village and work independently or through contracts with companies that provide farmers inputs, equipment or procure produce from farmers.

How can these models mitigate the problems faced by SHF?

• Efficient farmer collectivization confers

1. greater bargaining power
2.  better market and price discovery
3. access to credit and insurance and
4. sharing of assets and costs

• It encourages private sector interest and builds the ability of farmers to invest in storage, crop protection and value addition infrastructure.
• It also provides better access to market linkages and information through partnerships which enables farmers to reduce demand/supply imbalances and Post Harvest Losses.
• AEs link farmers with the market, minimizing damage to their produce before delivery to buyers.

What are the challenges associated with these models?

• The FPO model faces challenges with respect to community mobilization, effective decision-making and governance, efficiency of promoting agency, and access to capital.
• Constraints associated with the AE model include vastly different individual entrepreneur capabilities and lack of capital.

What can be done to strengthen them?

• A multi-pronged approach encompassing a series of interventions can significantly strengthen the SHF collectivisation ecosystem in the long run.
• Technical support facility: can help build transition FPOs from a production-oriented model to a more value-addition and agribusiness focussed model.
• It will offer farmers access to a range of services, including training, sourcing of inputs, mechanisation, value addition, market information and linkages.
• Innovative capital infusion mechanisms : Currently, direct equity investments not being permitted in FPOs limit their capital access and growth potential.
• Potential alternative financing structures such as guarantee fund, results-based finance and insurance structures to facilitate capital infusion into FPOs need to be explored.
• Diagnostics and credit rating mechanism :Formal financial institutions are wary of lending to FPOs, largely due to the latter’s inability to provide adequate collateral to cover the lender’s risk.
• An FPO diagnostics and credit-rating mechanism can encourage financiers unlock credit flow.
• Apex body for FPOs : A self-regulatory body designed to protect the interest of FPOs and farmer members is needed.
• Example: Microfinance Institutions Network (MFIN) to regulate the businesses of member-MFIs in India.
• Data analytics platform :An FPO data analytics platform can capture the data virtually through mobile and computer interfaces, analyse them and provide decision support to FPOs and their promoters.

What is the way-forward?

• According to the Department of Agriculture and Cooperation, the FPO has emerged as the most appropriate institutional model.
• Practitioners estimate that there are over 3,000 FPOs in India
• Strengthening FPOs would enhance the robustness of the AE model since vital complementary roles of AEs can be carved out as FPOs become successful.

Quick Facts

Smallholder farmers

• According to Food and Agriculture Organization (FAO), Small-holder farmers are defined as those marginal and sub-marginal farm households that own or/and cultivate less than 2.0 hectare of land.

• Smallholder farmers (SHFs) represent 80 per cent of India’s farming community.