Last updated: July 23rd, 2020 1:07 PM

Formation and Promotion of 10,000 Farmer Producer Organization (FPO) Scheme

The Ministry of Agriculture and Farmers Welfare released New Guidelines for the Farmer Producer Organization (FPO) as part of the Formation and Promotion of 10,000 Farmer Producer Organization (FPO) Scheme. As per the revised guidelines, FPOs can be registered either under the Companies Act, 2013, or under the Cooperative Societies Act of the States and handholding is to be done for five years by professionally managed Cluster-Based Business Organization (CBBOs). Besides, the Government also assists FPOs in the form of Equity Grant and Credit Guarantee Fund (CGF). The primary objective of the scheme is to provide effective capacity building to FPOs to develop agriculture entrepreneurship skills to become economically viable and self-sustainable. The current article briefs the New Guidelines for Farmer Producer Organization (FPO).

Farmer Producer Organization (FPO)

Farmer Producer Organization (FPO) is a legal entity incorporated under the Companies Act or Co-operative Societies Act of the concerned States and formed to leverage collectives through economies of scale in production and marketing of agricultural and allied sectors.

Formation and Promotion of 10,000 Farmer Producer Organization (FPO) Scheme

The objective of introducing the new guidelines for FPO under the Scheme is as follows:

• To provide a holistic and broad-based supportive ecosystem to form new 10,000 FPOs to facilitate the development of vibrant and sustainable income-oriented farming
• To enhance productivity through efficient, cost-effective and sustainable resource use and realize higher returns through better liquidity and market linkages for their produce and become sustainable through collective action
• To provide handholding and support to new FPOs up to 5 years from the year of creation in all aspects of management of FPO, inputs, production, processing and value addition, market linkages, credit linkages and use of technology, etc

Benefits to Farmer

Through the formation of FPOs, farmers will have better collective strength for better access to quality input and technology.  The farmer will also avail better credit and better marketing access through economies of scale for better realization of income.

Activities to be undertaken by FPO

As per the new guidelines, the FPOs may provide and undertake the following relevant major services and activities for the development:

• The FPO can supply quality production inputs like seed, fertilizer, pesticides at reasonably lower wholesale rates.
• FPO can make available need-based production and post-production machinery and equipment on custom hiring basis for members to reduce the unit production cost
• FPO can engage in the process of value addition like cleaning, grading, packing, and also farm level processing facilities at a user charge basis on a reasonably cheaper rate.
• The FPO can make the facility for storage and transportation for its members
• The FPO must undertake higher income-generating activities like seed production, beekeeping, mushroom cultivation, etc
• FPO needs to undertake aggregation of smaller lots of farmer-members’ produce; add value to make them more marketable.
• Facilitate logistics services such as storage, transportation, loading/unloading, etc. on a shared cost basis.
• FPO can market the aggregated produce with better negotiation strength to the buyers and in the marketing with better and remunerative prices

Implementing Agencies to Form and Promote FPOs

The following three implementing Agencies will form and promote Farmer Producer Organizations

• Small Farmers Agri-business Consortium (SFAC)
• National Cooperative Development Corporation (NCDC)
• National Bank for Agriculture and Rural Development (NABARD)

Note: States may also if so desire, nominate their Implementing Agency in consultation with the Department of Agriculture.

Cluster-Based Business Organizations (CBBOs)

The Department of Agriculture and Farmer Welfare will allocate Cluster to Implementing Agencies which in turn will form the Cluster-Based Business Organization in the States. FPOs will be formed and promoted through these Cluster-Based Business Organizations (CBBOs) and it will be a platform for an end to end knowledge for all issues in FPO promotion. The CBBOs will have five categories of specialists such as,

• The domain of Crop husbandry
• Agri marketing or Value addition and processing
• Social mobilization
• Law & Accounts and
• IT/MIS.

Support by the National Project Management Agency (NPMA)

There will be a National Project Management Agency (NPMA) at SFAC for providing overall project guidance, data compilation, and maintenance of FPO through integrated portal and Information management and monitoring.

Members of FPO

Initially, the minimum number of members in FPO will be 300 in plain area and 100 in the North East and hilly areas. However, the Department of Agriculture and Farmers Welfare may revise the minimum number of membership-based on experience.

Priority for Aspirational Districts FPO

According to the new guidelines, priority will provide for the formation of FPOs in aspirational districts in India with at least one FPO in each block of aspirational districts. FPOs will be promoted under the “One District One Product” cluster to promote specialization and better processing, marketing, branding and export by FPOs.

Equity Grant for FPO

To strengthen the financial base of FPOs and help them to get credit from financial institutions for the projects and working capital requirements for business development, the Government is providing Equity Grant to FPO.

Objectives of Equity Grant

The objectives of providing Equity Grant to FPO are as follows:

• To enhance the viability and sustainability of FPOs
• To increase the creditworthiness of FPOs
• To enhance the shareholding of members to increase the ownership and participation in the FPO.

Equity Grant Details

Equity Grant will be in the form of a matching grant up to Rs. 2000 per farmer member of FPO subject to a maximum limit of Rs. 15 lakh fixed per FPO.

Eligibility criteria of FPO

An FPO fulfilling the following criteria are eligible to apply for equity grant under the Formation and Promotion of 10,000 Farmer Producer Organization (FPO) Scheme

• The FPO should be a legal entity as mentioned above
• FPO has raised equity from its Members as laid down in its Articles of Association/ Bye-laws
• Minimum 50% of the FPO’s shareholders are small, marginal, and landless tenant farmers and Women farmers’ as shareholders are to be preferred.
• The maximum shareholding of the members should not be above 10% of the total equity of the FPO.
• A farmer can be a member in more than one FPO with different produce clusters but he/she will be eligible only once for the matching equity grant up to his/her share.

Documents Required for Equity Grant

The following are the mandatory documents required to be submitted along with the application to get Equity Grant:

• Shareholder List and Share Capital contribution by each member and it should be verified and certified by a Chartered Accountant (CA) or Co-operative Auditors
• Resolution of the Board of Directors or Governing Body
• Consent of shareholders
• If the FPO is in operation for more than one financial year then it shall provide a copy of the Audited Financial Statements of FPO for all years of existence of the FPO, verified and certified by a Chartered Accountant (CA) or Cooperative Auditors
• In case FPO is in operation for less than one financial year, Photocopy of Bank Account Statement for last six months authenticated by the Branch Manager of the “Bank” is required
• Business Plan of FPO and budget for the next 18 months
• Names, photographs, and identity proof (ration card, Aadhaar card, election identification card or passport) of Representatives/ Directors authorized by the Board

Application Procedure

Eligible FPOs shall apply for the Equity Grant in the prescribed Application Form to the Implementing Agencies. After the application of due diligence by Implementing Agencies, the proposal may be approved for the sanction of Equity Grant. [pdf-embedder url="https://www.indiafilings.com/learn/wp-content/uploads/2020/07/English-FPO-Scheme-Guidelines-FINAL_0-54-56.pdf" title="English FPO Scheme Guidelines FINAL_0-54-56"] The Implementing Agency will make a demand for funds for disbursement under the Scheme as per their Annual Action Plan (AAP) to DAC&FW. After accepting the terms of sanction, the FPO shall enter into Agreement with Implementing Agencies and implementing Agencies shall transfer sanctioned funds to the FPO Account.

Credit Guarantee Facility to FPO

The Government is providing credit guarantee cover to accelerate the flow of institutional credit to FPOs by minimizing the risk of financial institutions for granting loans to FPOs and to improve their financial ability to execute better business plans leading increased profits.

The objective of the Credit Guarantee Facility

The primary objective of CGF is to provide a Credit Guarantee Cover to Eligible Lending Institution (ELI) to enable them to provide collateral-free credit to Farmer Producer Organizations by minimizing the lending risks in respect of loans.

Eligibility Criteria

An ELI can avail Credit Guarantee for the FPO or Federation of FPOs, which are covered under the Scheme. Further, it should be ensured that the ELI has sanctioned within six months of the date of application for the Guarantee.

Eligible project loan amount for Credit Guarantee Cover

The credit guarantee cover per FPO will be limited to the project loan of Rs. 2 Crores.

Sl.No	Project Loan	Credit Guarantee Cover
1	Up to Rs. 1 crore	85% of bankable project loans with a ceiling of Rs. 85 lakh
2	Above Rs.1 crore and up to Rs. 2 Crores	75% of bankable project loan with a maximum ceiling of Rs. 150 lakh
3	Over Rs. 2 Crores of bankable project loan	Maximum up to Rs.2.0 crore only

Other Condition

•  ELI shall be eligible to seek Credit Guarantee Cover for a single FPO borrower for a maximum of 2 times over 5 years.
• In case of default, claims will be settled up to 85% or 75 % of the amount in default subject to maximum cover.
• Other charges such as penal interest, commitment charge, service charge, or any other expenses, debited to the account of FPO by the ELI other than the contracted interest shall not qualify for Credit Guarantee Cover.
•  The Credit Guarantee Cover will only be granted after the ELI agrees with NABARD or NCDC and shall be granted or delivered following the Terms and Conditions.

Procedure to avail Guarantee Cover

The Eligible Lending Institutions need to apply to NABARD or NCDC for Guarantee Cover in the specified form for credit proposals sanctioned by them during any quarter before the expiry of the following quarter viz., application concerning credit facility sanctioned in April–June Quarter must be submitted by the ensuing quarter, that is, July-September to qualify under the Scheme. [pdf-embedder url="https://www.indiafilings.com/learn/wp-content/uploads/2020/07/English-FPO-Scheme-Guidelines-FINAL_0-61-64.pdf" title="English FPO Scheme Guidelines FINAL_0-61-64"]

Loan to FPO

States or union territories will be allowed to avail loan at prescribed concessional rate of interest under Agri-Market Infrastructure Fund (AMIF) approved for setting up in NABARD for developing agriculture marketing and allied infrastructure in Gramin Agriculture Markets, by marketing and allied infrastructure including Common Facilitation Centre / Custom Hiring Centre for FPOs as the eligible category for assisting States / UTs.

Training and Capacity Building for Promotion of FPOs

CBBOs will provide adequate training and handholding to FPO. Professional training of Board of Directors, CEO, Accountant of FPOs will be provided in organizational training, resource planning, accounting, management, marketing, processing in reputed National / Regional training Institutes.