Emmanuel V Murray
Caspian Impact Investment Adviser Ltd
On the 30th of August 2019, I had the privilege of attending The Partnership Exchange organised jointly by Rabobank, ThinkAg and Access Development Services.
I also was invited to be on a Panel Session that deliberated on the current FPO landscape, the challenges that may impede their future growth and sustainability and the ecosystem building efforts needed to build the FPO model.
Being the last speaker of the last session, on a programme running overtime was a challenge, considering that a large number who spoke during the course of the day were experts, and people from the ground having rich practical experience & insights. Therefore, I made a few quick points, which I am sharing here with a little more detail, so that it reaches a wider audience.
As per the study of FPOs that we at Caspian are in the midst of, over 90% of the FPOs operate in the sub-INR 10 lakh turnover level. Almost universally, the entry-point activity of FPOs is input supply to members. There is no argument that this is a good starting point. But, input business will not enable growth of the FPO’s business, as there are slender margins. Neither does it help strengthen the Balance Sheet of the FPO. We believe, and there is enough empirical evidence to back this up, that Agricultural Produce Marketing will be the growth engine for an FPO.
However, since most FPOs have not been established de-novo, but emerged out of other development programmes of the promoting institutions, whose strength is in community organisation and social mobilization, they lack business acumen.
This is where emerges the need and the opportunity for Ag-tech Startups to play a role, in bridging the gap between the producers and the consumers. We already see many such partnerships emerging, but there is need for many more players.
Corporates, for all their public pronouncements of readiness to directly deal with FPOs, have three concerns:
a. Quantity – The requirements of corporates is large, and FPOs can at best supply a minuscule quantity of what they require.
b. Timeliness – Since the produce is held by the farmer member of the FPO, and the decision on when to sell is with the farmer, the ability of an FPO to mobilise adequate quantities in time, is a challenge. Equally, FPOs have a challenge to procure from non-members or the trade to fulfill an order in time, unlike a trader.
c. Quality – Since the produce available to an FPO is from a limited catchment - the pool of stock of their members, there may be challenges in getting produce of the desired quality.
The real concern of corporates is that, if the arrangement with an FPO sours, the reputation risk that they may be confronted with and any likely public backlash (like the potato seed controversy a corporate went through recently) far outweighs the goodwill that they may gain from partnering directly with FPOs. We need to appreciate these genuine concerns of the Corporates, and solve this challenge through the inter-mediation of Ag-tech Startups like Arya Collateral, who have the ability to deal seamlessly with both the expectations of the FPOs, and the needs of the Agri Corporates.
Finally, institutions like us, Caspian, understand that growth in the FPO business need not always be linear & incremental. The business can grow from INR 10 lakhs to INR 100 lakhs in a matter of a year, if the right enablers are in place like market linkage. Most conventional lenders especially banks do not understand, nor have the ability to deal with such a situation, but we do. Institutions with a clear FPO mandate like NABKISAN and Samunnati can meet such credit gaps, and take the FPOs into a higher growth trajectory.
We’ve already done that with one FPO, where an initial loan of Re 1 Crore could generate a turnover of Rs. 3 Crore, and with a step-up to a loan of Rs. 5 Crore, and another NBFC pitching-in with Rs. 5 Crore, the Farmer Producer Company could grow turnover to Rs, 25 Crore in just two years, and would have touched Rs. 40 Crore, but for some adverse external market conditions.
Such a collaborative and coordinated effort could easily see the emergence of over a 100 FPOs with over a hundred crore turnover in the next three years.
Do feel free to share your thoughts.
*First Published on LinkedIn on September 2, 2019