The main objective of FPO is to ensure better income for the producers through an organization of their own. Small producers do not have the volume individually (both inputs and produce) to get the benefits. Besides, in agricultural marketing, there is a long chain of intermediaries who very often work non-transparently leading to the situation where the producer receives only a small part of the value that the ultimate consumer pays. Through aggregation, the primary producers can avail the benefit of economies of scale. They will also have better bargaining power.
It is preferable for the FPO to work as a legal entity. Register entity can enter into legally valid contracts including mobilization of funds from other institutions. While choosing a legal form, the following factors may be kept in view:
a) Primary producers should benefit from the surplus generated by the FPO.
b) Process of registration should not be too demanding in terms of time and resources.
c) The legal form needs to fit into its business needs, organizational priorities, social capital, and management capacity.
The primary producers have skill and expertise in producing. However, they generally need support for marketing of what they produce. The FPO will basically bridge this gap. The FPO will take over the responsibility of any one or more activities in the value chain of the produce right from procurement of raw material to delivery of the final product at the ultimate consumers’ doorstep. In brief, the FPO could undertake the following activities:
a) Procurement of inputs;
b) Disseminating market information;
c) Dissemination of technology and innovations;
d) Facilitating finance for inputs;
e) Aggregation and storage of produce;
f) Primary processing like drying, cleaning and grading, sorting;
g) Brand building, Packaging, Labeling and Standardization;
h) Quality control i.e. marketing to institutional buyers;
i) Participation in commodity exchanges;
j) Sales including export.
An FPO will support the members in getting more income by undertaking any/many/all of the activities listed under above. By aggregating the demand for inputs, the FPO can buy in bulk, thus procuring at cheaper price compared to individual purchase. Besides, by transporting in bulk, cost of transportation is reduced. Thus, reducing the overall cost of production. Similarly, the FPO may aggregate the produce of all members and market in bulk, thus, fetching better price per unit of produce. The FPO can also provide market information to the producers to enable them hold on to their produce till the market price become favorable. All these interventions will result in more income to the primary producers.
An FPO is a group of farmers (and non-farmers) who are the primary producers of a product (an agricultural produce or a manufactured product). It, therefore, can work as a platform to facilitate better access to government services, like MNREGA, Scholarships and Pensions, etc. It can liaison with the Government Departments for convergence of programs, like drinking water, sanitation, health and hygiene etc.
Each FPO will have an elected Board of Management / Board of Directors (BoD) as per the by-laws. The Board can engage professionals to manage its affairs. Officers of an FPO include a Chairman, Secretary, Treasurer, Members of Committee, or other persons empowered under rules or by-laws to give directions in regard to business of society.
Yes, FPO can engage professional and other employees as per its requirements and their compensation will depend upon the business plan, ensuring a positive surplus.
The members should be actively involved from the very beginning.
a) Vision and Mission: The vision and mission of the FPO is very important for the Board Directors as well as other staff. Creating value to the members by solving existing problems in the value chain, marketing, and reasonable share of price realization in the rupee spent by the consumer on the members’ produce, should be the focus. All other activities / services should be to engage the members comprehensively throughout the year and to reduce their expenditures and increase their welfare.
b) Good Governance: Governance, which is responsible, transparent, and keeping the interest of the members of the FPO above all the considerations is a must for the success of an FPO. Various aspects of good governance to be covered in the training sessions for BODs.
c) Sustainability: Another most important aspect to be covered in the training is that the FPO should not venture into unsustainable ventures which may create short term profits and harm the long-term interests / welfare of the community.
d) Networking: The success of an FPO depends on the networking and continuous interactions with various stakeholders. The BODs and staff should have the understanding on the importance of networking to obtain maximum benefits.
f) Statutory Requirements: The BoDs and staff should have an understanding of the constitution of the FPO, statutory provisions under which it is formed, various other requirements under the statute and compliance thereof.
g) Business Planning: The training should cover aspects of business planning to maximize benefits as well as to reduce the business risks. The aspects like accounts preparation, Balance Sheet Analysis, simple financial ratios for profitability, ratios that are seen by banks for financing, need to be covered.
h) Financial Management: The training also should cover management of the finances like maintenance of books of account, Management Information System, share capital, borrowings, savings, loans, cash flow, funds flow, receivables management, payables management, investments etc.
i) Monitoring: The BODs should have understanding on the various aspects of monitoring to ensure that the business goals are achieved, and the business is carried out in a professional manner.
The Board must ensure that the following is fulfilled:
a) Legal Obligations- The BoDs must ensure that the FPO is maintaining the legal status throughout of its tenure. The board must also ensure that the FPO complies with government rules, regulations, applicable laws.
b) Strategic Direction- The BoDs must ensure that the FPO’s mission is well defined, reviewed periodically and respected over time. BoDs shall be responsible to invest their personal time and networks in promoting the FPOs and image building.
c) The BoD serves as a highest authority within the FPO and is responsible to monitor operations and performance through the frequent and transparent reports, meetings, periodic internal and external audits.
d) Assessment and respond to the internal and external risk including Govt. policies, schemes, laws, inflation, market conditions, weather conditions, transport logistic, funding, frauds, etc.
e) Appoint the staff and employees as per the plan and requirements of the FPO.
f) Assign responsibilities for the daily operations to the employees, staff, and associates with clear goals to be achieved.
g) BoDs should time to time carry out the self-assessment of the organization to identify the strengths and weaknesses. Board should also identify and work on the ways to overcome the problems and challenges.
h) BoDs should be supportive, encouraging, facilitating, and promoting fundraising efforts. For example, BoD may help the organization and member to hold and run fund raising drive yearly.
i) Advertising management and providing technical inputs according to the board member’s individual experience and professional capabilities.
For smooth running of day to day operations an FPO should have below departments which are leading by the individual board members:
a) Procurement- This department will take care all purchase and procurement related activities of the FPO.
b) Production- This department will take care all production related activities, planning of the FPO.
c) Finance & Accounts- This department shall take care all finance, accounts related activities of the FPO.
d) Sales and Marketing- This department shall take care sales, marketing and customer relations related activities of the FPO.
e) Transport and logistic- This department shall take care all transport, logistic and product delivery relates activities of the FPO.
f) Public relations- This department shall take care FPO’s relationship with Government, Corporates, NGOs and other stakeholders to get the benefit of schemes, policies from time to time.
g) Legal Department- This department shall be responsible for compliance management at FPO.
h) HR Department- This department shall be responsible to recruit and manage the human resource at FPO.
Business plan is a succinct document that specifies the components of a strategy with regard to the business mission, external and internal environments and problems identified in earlier analysis. The business plan must contain answers to the questions i.e. “Who/What/Where/When/Why/How/How Much”. The business planning process starts with
Generation of business ideas
Opportunities & threats analysis leading to identification of suitable business opportunities.
Marketing plan is prepared.
The business plan provides broad parameters for achieving the goals of the FPO. A typical business plan will contain the following:
a) Executive summary
b) Business Description
c) Industry/Sector analysis
d) Marketing plan
e) Operations plan
f) Financial plan
a) Share Capital
b) Loan from Bank
c) NABARD Grant
f) Other Matching Grants
g) Donation, Grants and Support from corporates under their CSR Programs.
Share capital or equity means the total of the payments made to the company/society by all the shareholders Members (farmer producers/ institutions of farmer producers) on their shares. It represents a form of member commitment to the group and it defines each member’s stake in the group. In a Producer Company it shall consist of only equity shares.
Below is the list of common certificate or registrations for an FPO:
1) Permanent Account Number (PAN)
4) Import Export Certificate (IEC) – This is required if FPO is engaged in any import and export.
5) Shops and establishment – This is required to set-up an office if number of employees exceed the certain limit as specified in the Shop and establishment Act of the respective state.
6) ESI- Required where 10 or more persons are employed.
7) PF- Required where 20 or more persons are employed.
8) FSSAI- for all processed and packaged food.
Each organization must maintain ‘books of Account’ for all the transactions. BODs, every officer, employees and agent of the company is responsible for keeping of ‘Books of Accounts’.
Each organization should prepare a balance-sheet and profit and loss account (along with needed annexure) of each financial year, which will be laid before the shareholders at the AGM of the organization. The balance sheet and ‘profit and loss’ account should be signed by two Directors (on behalf of BoDs).
Yes, it is compulsory to conduct Audit of accounts of an organization. Audit of its accounts should be carried out by a chartered accountant.
Fixed cost is the expenditure which will normally be a one-time expenditure. The expenses on minimum office setup with furniture, fixtures and other equipment like computer, printer, Almirahs, Internet/ telephone connections are fixed cost. Normally the FPOs are engaged in the activities of procurement, aggregation, and grading of raw produce before sale. In such cases, Infrastructure like warehouse, weighing machine, graders/ sorters, etc. will be required for any FPO, which is also a fixed cost. These infrastructures can be purchased or can be taken on rent depending upon the situation.
Long term loans, required to meet the fixed cost, like buying machinery or setting up infrastructure.
The cost required by an FPO for its day to day business is called ‘running cost’ or working capital requirement. The working capital of any business unit is calculated based on the following criteria:
a) Procurement of Raw material, storage cost, processing, transportation, insurance, etc.
b) Management and administration cost for day to day activity, which may include Staff salary, (Manager/CEO, Production Officer, Accountant, Marketing officer, etc.) travel, rent, electricity, water, telecommunication, phone /fax, stationary, cleaning, meeting expenses of BoDs, license fee, insurance & other statutory fee and other miscellaneous expenses.
c) Training and capacity building of BoDs and FPO functionaries: training on subjects, like provisions in the act, rules and regulations, statutory compliances, roles and responsibilities of BoDs, banking operations, and by exposure visits to the successful FPO.
The quantum of working capital requirement depends on various unit specific internal factors, like, operating efficiency, technology employed and the level of quality control and external factors, like, demand and supply gap, nature of activity, availability of production inputs (raw material, labour, power & fuel), and availability of credit, etc. Thus, the working capital would depend on the prevailing conditions, level and type of business. It may change with time. The banks, therefore, review and reassess the working capital requirements of borrowing enterprises on a regular basis.