Fostering steady growth of an FPO through a 3-Fold model of Technical, Financial and Market linkage
Pallavi GL, Gayatri Lal, Balakrishnan S, Parthsarathy T
Sep 21, 2021
Vrutti’s innovative Business Acceleration Unit (BAU) has played a crucial role in providing Chitravathi FPC with ecosystem-enabling services such as backward linkages, account maintenance and financial linkages. These parameters have helped increase farmers’ incomes almost threefold and provide important insights into the kind of support necessary to sustain FPOs.
Turning a constraint into an opportunity
Chikkaballapura district in Karnataka, around 60 kms from Bengaluru, is a drought-prone area with an average and erratic annual rainfall of 677 mm. Groundnut and maize are two important crops grown on these drylands. Fruits and vegetables have huge potential to improve the lives of the farmers in this cluster if any institutional mechanism could ensure better price realisation of the produce for small and marginal farmers. Farmers, though, have limited access to alternative channels to sell their produce, especially when the local market prices are low. The perishable nature of horticultural produce presents an additional challenge, especially without cold-storage facilities. To overcome this problem, farmers were collectivised and mobilised under Chitravathi Farmers’ Producer Company Limited (CFPCL), registered in 2016 at Thimmampalli village, Chikkaballapura district, Karnataka, with the funding support of NABARD and Vrutti Livelihood Impact Partners as the promoting institution. CFPCL has a geographical spread of 44 villages, 9 panchayats and 68 Joint Liability Groups (JLGs), covering 1503 farmers with a share capital of Rs. 11.2 lakhs. The primary goal of CFPCL is to reduce the role of intermediaries in agricultural produce marketing while lowering the risk and cost of cultivation for farmers.
Creating trust through transparent governance
Focussed Group Discussion with primary stakeholder of CFPCL (from right) – Jagadeep (Assistant BAU Head, Vrutti), Shashikala (Activator, Vrutti), Nagaraj (CEO, CFPCL), Manjunath (member, CFPCL), Narayan Samy (Director, CFPCL), Parthasarathy (Skill Green), Anjana Reddy (member CFPCL), Balakrishnan (CEO, Vrutti)
The FPC is mainly involved in promotion of Good Agricultural Practices (GAP), technical training, capacity building, financial services (facilitating Kisan Credit Cards, enterprise loans), promotion of Agri Allied Enterprises, supply of agricultural inputs and output business – vegetable, Maize marketing (forward and backward integration) and farm gate procurement. The services provided to members by the FPC are part of the 3-Fold model, which is about building wealthy, resilient and responsible farmers.
Inputs are directly procured from input dealers and sold at relatively low prices to the farmer members, thus reducing the transaction cost for them. A significant increase in the revenue (98.2%) of FPC was reported during 2019–20 (from Rs 40,000 to Rs 23 lakhs). The spike in business revenue can be attributed to its access to three retail outlets and CFPCL’s partnership with major players like Big Basket, Way Cool, Big Bazaar, etc., which has also provided opportunities for expanding its business activities. Transparency in the governance of the FPC has built the trust of farmers in the long run. For instance, during board meetings, financial statements—receipts and payments, receivables and payables, profit and loss statements for the period—are discussed along with key updates to the FPO. Besides, the team and BOD are part of a WhatsApp group for regular updates, such as daily sales in each outlet.
Nagaraj (CEO, CFPCL) conducting a monthly board meeting of CFPCL. Ventateshawamy, seated left, is chairman of FPO. BAU staff are seated in an outer circle.
Developing market linkage for perishables
Fresh horticultural produce is highly perishable, with some estimates suggesting a post-harvest loss of 30 to 50% in fruits and vegetables. The loss occurs due to poor pre-production and post-harvest management, as well as a lack of appropriate processing, storage and marketing facilities. But CFPCL has its own strategy for dealing with vegetables throughout the year without any cold storage facilities. CFPCL has made associations with seven corporate companies for its output business, and farmers receive a higher price than the market rate for the quality produce. BAU is established by Vrutti at the district/cluster level to develop a strong ecosystem in the agricultural sector so that farming enterprises in these clusters become sustainable. Mr. Nagaraju, CEO of the FPC, is of the opinion that the producer’s share in consumer rupee has marginally increased through direct marketing and the FPC enjoys better bargaining power. More importantly, the FPC’s intervention saves the farmer time in travelling to the market, as the produce is procured by the FPC at the farmgate and payment is ensured on time.
Activators as rural entrepreneurs key for servicing orders from corporates
Quantity, timely delivery and quality produce are the needs of corporations. To comply with these needs, CFPCL facilitated the training of ‘Activators’. Activators are field level staff who coordinate the activities of FPC with BAU for smooth conduct of the operations. The demand aggregation of produce is done by the activators, and one activator takes responsibility for five villages. Activators are actively engaged with farmers and provide guidance on crops to be grown, better farming practices, market information and other farming-related information at the village level. These activators predict the yield of any crop before 3 days of the harvest and communicate it to the buyers through FPC. The harvested produce is then supplied to the buyers. The price for the product is fixed based on open market prices in every indent (always higher than the market price).
Harish (member, CFPCL), with his sweet potato crop, for which CFPCL has entered into a contract farming agreement with Heinz Futures for supply of Orange Flesh Sweet potato throughout the year for processing
Communicating quality parameters to farmers
Maintaining a farmers’ database has helped in the better communication of quality parameters of the produce, market-related issues and extending timely service to the farmers. Regular field visits by the FPC staff are required for monitoring standing crops/produce, and there should be a minimum of 80% match with the quality parameters as prescribed by the buyers. Mr. Jagadeep, personnel from Vrutti mentioned that the proportion of farmers participating in output business is around 30%. Out of the total produce procured, prescribed-quality produce is sent to the buyers, and the remaining produce is sold in the local market. Payment is made to farmers regularly and farmers expect higher prices from the company for their produce as they are providing high-quality produce.
Figure 4: Ramadevi (Agri Business Advisor), Shashikala (earlier ABA, now Activator), at the CFPCL outlet which supplies inputs in a cluster of 16 surrounding villages
Leveraging greater institutional support
FPC has received good institutional support from Vrutti, NABARD, APEDA, ICAR-IIHR, and KVK. IIHR and KVK Chintamani provided training support to the FPC. Vrutti has supported desilting activities in the villages through its CSR fund. NABARD provided a Business Development Assistance (BDA) fund of Rs. 5 lakhs and training related to market and financial linkages. APEDA and Karnataka State Agricultural Produce Processing and Export Corporation Limited (KAPPEC) extended support for the export of the Rose onion variety, which has a Geographical Indication (GI) tag from the Chikkaballapura district. CFPCL is aiming to supply more than 1,000 to 1,500 tons of rose onions every year, starting with this season.
Future line of business
Procurement and marketing of produce with reduced transaction costs are the major achievements of the FPC as perceived by the farmers, says Mr. Venkateshappa, Chairman of the FPC. Chitravathi has performed well in marketing their produce, contract farming, and adding value to a few commodities. Two acres of land are being purchased by the FPC to expand its business activities, including the establishment of a sheep/goat value chain. The value addition of tomato, tamarind processing, and sauce preparation is perceived as creating employment opportunities and a future line of business for the growth and development of the FPC. Chitravathi is confident about sustaining its business even if Vrutti’s support is withdrawn and it grows organically over the years with the greater contribution of various stakeholders involved in the growth and development of FPC.
Pallavi GL is an FPRM student at IRMA. She can be reached at [email protected], Gayatri is associated with MYRADA, Balakrishnan S is the CEO of Vrutti and Parthasarathy T is the CEO of SkillGreen.
