GoI circular on FPO

GoI had issued a circular for Farmers producer organisations (FPOs) on 11th February 2014. As per circular, FPOs may be treated at par with cooperatives and other quasi- governmental institutions providing common service facilities to the farmers/users in Rashtriya Krishi vikas yojana (RKVY). Please check the circular on the government website.

Young Professional @ Odisha Livelihood Mission--- 2

Young Professional (YP) is a short-term work opportunity (three years) to experience development and gain exposure to government operations and policies. Panchayati Raj Department, Odisha is the agency in implementing National Rural Livelihood Mission (NRLM) program delivery and interface in Odisha serving to the marginalized section of the population. While the government is always reluctant to share or de-valuate power to the community, NRLM has tried to build sustainable community institutions at the Panchayat level. YPs served either at the district or block administration level. In simpler words, YP is just another name of Management Trainee in a government agency doing the contractual job without any power.

Why I joined Odisha Livelihood Mission?  One can't have the right to voice their disappointments unless one understands the functionality of the government. I have also considered the government as the biggest development agency in India. Hence, it is of utmost importance to understand governance in India. Corporate look into so many people as consumers and term them as "Bottom of Pyramid". In contrast, OLM was trying to build the capacity of people without throwing away subsidized schemes. These are a few of the many reasons why I was able to work with the state.

I always wanted to have a balance between theoretical and practical work. It is different to know the name of something and actually observe or experience it. A course in rural management doesn't offer subjects that make their students ‘understand’ the rural people. Even with a bit of knowledge acquired in the college, I was looking for a job as a practitioner, not a professor. I have written in detail on this topic previously Young Professional @ Odisha Livelihood Mission.

I worked as YP in OLM from April 2013 to January 2014. This work gave me the opportunity to work with the Government and the community jointly. This time span has good, bad, and even ugly moments. I was able to show true character and talent by taking up the challenge and worked with a zeal to learn.

The Good:

The single strongest predictor of group effectiveness is the amount of help that peers do to each other. A bunch of YPs was no exception to the rules. Our workplace has qualified men and women with diverse professional, academic and cultural backgrounds from educational institutions like TISS, NIRD, IIFM, XIMB, XISS, & KSRM recruited as YPs. Diversity is reflected in our inclusive environment that embraces all sorts of values and ideas; The best part was having people who weren't sycophants rooting for their college brand rather than cross-engaging for new collaborations.

I developed a decent understanding of the Odiya language. Rural India has been transformed over the last half-century, the people are freer and filled with aspirations, but the old values continue to extract a toll. What I saw was how significantly social networks influence people’s decision-making. There are people out there who didn't get the option to graduate or study in regional medium alone but have sound knowledge on development. There is also a feeling of powerlessness and an inability to make themselves heard in the corridors of power.

To counter the dimension of being voiceless, I tried to reach out to many people as possible and ask tons of questions. Typically, people don’t like to be questioned, but it is essential to engage with people in a friendly way and listen to them. It's a bit like an investigative journalist checking narratives of the beneficiaries, non - beneficiaries, government officials, & elected representatives. I was also lucky to interact with Dr. H.K. Pradhan, a senior faculty member of XLRI spearheading an initiative in Balasore. And yes, there are government officials doing honest work in a thankless job.

Our simple assumptions like simplifying schemes, running awareness campaigns, and make the public goods widely available were critically assessed in the light of new evidence. There is a wide gap between community, market, and government - like coordination problems and inequality in access to power and information. I was able to oversee as an insider working of Indira Awas Yojana, Mo Kudia, Mo Pokhari, MGNREGS, Gramsabha, social audit of government programs, and Panchayat administration. I learned two lessons on public policy and government.

1. Efficiency isn’t always the goal of policy as one has to give attention to social and cultural complexity. Public policy requires fairness, which doesn't lend to the most efficient policy but is virtuous nonetheless.

2. Government is anything but well-tuned, acting coherently and consistently in pursuit of a well-defined set of objectives, captured by a single social welfare function. Government is a crucible of interest groups, rather than a black box of noble intentions.

The Bad:

It is necessary to get the first step right to reach the solution to the problem. Once the first step is incorrect and the entire problem gets way too complicated. A sharp glance at the old schemes of the central and state government shows more tweaking rather than the innovative design of new programs. Hence, the failure rate of the government is of utmost high. There was quite a low emphasis on Monitoring & Evaluation (M&E) job. Too much emphasis was given on the framework of old government programs; I have written in detail on this topic: Why Government Schemes Fail? and Why Government Schemes Fail? -2

Even Lord Curzon has complained, "Round and Round like the .... revolutions of the earth goes file after file in the bureaucratic & daily dance, stately, solemn, sure and slow". Guidelines, plans, programs, or projects tend to be neatly prepared for submission, but agencies and individuals return to business as usual once it comes to implementation. Meetings are important as they give part of the thought process of various govt departments. But in short, there was more time wasted in aligning the process than measuring qualitative results.

The Nobel Prize-winning behavioral economist Daniel Kahneman has established that unfairness is a larger motivator for action than fairness. YPs were assigned different salaries even with the same job profile that is unfair and the issue was pushed down under carpets. It puts the act of cohesion and coordination in jeopardy.

The Ugly:

Appointing consultants on a contractual basis, instead of employees on the rolls, is a common practice adopted by companies but most NGOs as well. It is done to evade the responsibility of providing PF benefits which are mandatory under labor law. And, this was done to YPs by an agency working on behalf of a government department.

The problem isn't that the staff don't contribute, it's that the official who takes feedback don't think of themselves as ignorant enough to learn something new in face of new proofs. Even officials are not cold to the problems faced by them but they are more tied in the tight framework of government norms. But, it was indeed a hierarchical institution with less space given to honest feedback as it may undermine the authority and raise questions. Shooting from the hip in presentation is an easy way out, but do dig a little deeper people will tell the real stories on the field. There was more tendency of risk aversion than performance in the staff.

Why I left Odisha Livelihood Mission? Personal reason to work close to home was the primary factor behind the decision. Due to being vocal initially, a lot of negative images was build in the central team. Yet, lack of mentorship, no clarity on the role, and working without powers was a frustrating experience to be as professional. Hence, the scope to take any concrete work was quite limited. I am a work in progress and don't want to stifle in starting phase of my career. Hence, I shifted to another grass-roots organization.

Funding Mechanism for Farmer Producer Organizations

Progressing with the previous discussion of FPO: Public Policy & Value Chain Development, we are looking into credit accessibility of Farmer Producer Organizations (FPOs). India is successful despite the government because of the entrepreneurship, energy, and ingenuity of the Indian people. Our smallholder farmers are not marginal recipients of charity but instead customer entrepreneurs. Even with the linking of small and marginal farmers to FPOs, the question of reliable and affordable sources of financing for the capital requirement of Infrastructure and operation always lingers for the farmers. There is always the issue of access to credit in the agrarian sector. There are many donor agencies like International foundations, Domestic Foundations, Business related CSR, and government schemes for financing credit to FPOs. But the search for such donors with big pockets for solving the problem is elusive and unsustainable way.

Formal financial institutions (FIs) are wary of lending to these bodies, largely due to the absence of collective land titles (for collateralization) and credit tools for customer assessment. For a nascent FPO, FIs require collateral and three-year balance sheets. That sums up the tragedy of the situation. There are proposed funds coming up for the support of FPOs. I am enlisting them as per my knowledge. But the author is not legally liable for the information provided here. This is collected through various online sources and workshops.

Grants:

1. Equity Guarantee Fund- The Equity Grant Fund enables eligible FPOs to receive a grant equivalent in amount to the equity contribution of their shareholder members in the FPO, thus enhancing the overall capital base of the FPO. The Scheme shall address eligible FPOs, which have paid up capital not exceeding Rs. 30 lahks as of the date of application. Equity Grant shall be a cash infusion equivalent to the amount of shareholder equity in the FPO subject to a cap of Rs. 10 lahks per FPO.

2. Sectoral Fund- Under NRLM, there is a provision that states agencies (SRLM) develop partnerships with major government programmes and build synergies to address different dimensions of poverty and deprivation. Every Producer Organization will receive Sectoral Fund (SF) up to Rs. 20 Lac, in two installments, to invest in value chain development for livelihood promotion. The first installment of SF will be given to the PO within two months of its formation (mini. 100 members) with minimum paperwork. This installment can be up to Rs. 5 Lac. On completion of the establishment phase, the PO will submit a Business Strategy Report to RRLP together with a requisition for release of next installment. The second installment can go up to a maximum of Rs. 15 lac.

Loan Product:

1. With Collateral- NABARD has created a dedicated corpus to provide loans to producer organizations. Yet, NABARD demands FPO to offer collateral (15%of  loan amount) at the interest rate of 10.5~ 11.5 %. There is a clear impact on collateral offered over the interest rate. Since most of the FPOs are formed by small and marginal farmers, they lack collateral.

2. Without Collateral- Interest computation on daily principal outstanding of drawn amount. Flexibility to use the funds only when required thereby leading to huge savings on interest cost of (13.5-14.5) %. The agency (mostly NBFC) will take a 1% upfront processing fee and SFAC will charge 0.85% of guarantor fees. There is NO collateral required for the loan. Through the setting up of the Credit Guarantee Fund, SFAC has enabled a few credit institutions to provide collateral-free credit to FPOs by minimizing their lending risks in respect of loans not exceeding Rs. 100.00 lakhs. The lending institution shall be bound to comply with such directions as SFAC may deem fit to issue from time to time, for facilitating recoveries of the guaranteed account or safeguarding its interest as a guarantor.

3. Warehouse Receipt Finance- This seems a feasible option when the working capital crunch is over. FPO is targeting commodities like Soya bean, Cotton (including bales), Mustard, Maize, Wheat, Sugar, Paddy, Cashew, Castor, Chilli, and Turmeric only.

All the grant and loan appraisal process is designed with various parameters depending on the policies of FIs. They all focus on the high representation of women in membership as well as in the Board of Directors(BoDs). Hence, a small step in the direction of empowerment of women is taken. Thus enabling women's participation increases the chance of wealth ownership and leadership. Structural discrimination against Women, Dalits, and Adivasis can be prevented by giving voices in such forums linking business with social change.

It is the right time for financial institutions to come up with innovative financial products targeted at FPOs. On banking parameters, if not adopted, FPO policy can't be scaled up. The transformation of FPO can only happen in phases from Grants, Soft loans, and then linkage to mainstream banking institutions. Banking institutions and the rural community have a lot of ground to cover for implementing FPO policy on the ground. Even with so much of changing policies, the FPO model deserves tax holidays in the initial years to build surplus and reserves. The taxation policy of FPO (30%), insurance, and, license issues are more complex topics to be discussed in upcoming blog posts.

Sources ---

1) Equity Grant and Credit Guarantee Fund Scheme For Farmer Producer Companies

2) Financing and supporting Producer Organisations

3) Project Implementation Plan(PIP) Manual of Rajasthan Grameen Ajeevika Vikas Parishad (RGAVP)

FPO: Public Policy & Value Chain Development

A basic concept can be read here:2014 - Year of Farmer Producer Organizations (FPOs) before going further ahead in this topic.

Public Policy: There is always so much talk on FDI in retail, so it seems a good state to channel the same money for farmers’ producers’ cooperatives and ensure they get good margins and market access. The government of India (GoI) already invest Rs 275,000 crore in an agricultural subsidy budget that is constantly touted and needs to be unpacked. Who is the real beneficiary of these subsidies, farmers, or seeds, fertilizer manufacturers, and agricultural banks? That is where good public policy comes into play.

The government of India (GoI) is promoting the concept of Farmer Producer Organizations going in the right step to engage and adapt agriculture to the market system. The primary objective of the collective mobilization of farmers into FPOs is to enhance the production, productivity, and profitability of especially small farmers in the country. FPO will be positioned as a gateway agency between the farmers and markets. The complete Policy and Process Guidelines for Farmer Producer Organizations; is a good framework. FPO policy will give auxiliary advantages like women’s empowerment.

Policy guidelines are the first step but we need awareness of this novel concept among a diverse range of stakeholders: the farming community, State Governments, Banks and other financial institutions, Civil society organizations, the media, and elected representatives of the people. Policies that impede the growth of FPOs, such as APMC laws, tenancy provisions, cold storage, etc. must be amended with changing times.

Value Chain Development: With the below diagram, we see how Value Chain is different from Supply Chain.

 Value chain development interventions focus on improving business operations and relationships (even contractual) at the level of primary producers, processors, and other actors in the chain. Production, harvesting, procurement, grading, pooling, handling, marketing, selling, and exporting of primary produce comes under the scope of the value chain. It can also include preserving, drying, distilling, brewing, venting, canning, and packaging the produce of its members.

Value chain analysis starts with mapping the volume of products, the number of people engaged, the geographical flow of products, and value at different levels of value chains. The supply and demand side of the business can be understood with the result of analysis only. Only then, we can start with the business planning of the enterprise. All the members of FPO are primarily farmers only but we need to build their capacities on trading, accounting, and hoarding practices over time. Farmer Producer Organizations can only result in more sustainable and better-performing business plans when farmers have a good understanding of value chain systems.

FPOs are nee steps towards organizations having higher financial autonomy and lesser government subsidy. Possibly the biggest failure of GoI is the promotion and formation of good organizations in the agriculture sector. Let us look for the big question in the livelihood sector: Is a full-fledged value chain development project through FPO the best way to bring about development? If not, then what is an alternative!

Development Sector

Salary is one of the most critical components of a human resources strategy even in development sector. It is unreal, and perhaps even unfair, to expect that a development professional is going to do good to society at a loss to himself. This path has produced few rare exceptional people, but its not a sustainable way of growth. I think job anywhere is very simple; to work with the best of our ability, and inspire younger generation to excel given standards. Compensation, Experience , Commitment and Skill set creates the Job Profile. But there is always huge gap between supply and demand in development sector. The reason is below: