An insight into Aapka Family Farmer (AFF)– FPC - Success and Failures – A personal account.

 

An insight into Aapka Family Farmer (AFF)– FPC - Success and Failures – A personal account. 

Dinesh K Kapila and Ashish Gupta

(Dinesh K Kapila, CGM (Retd) NABARD and Ashish Gupta, MBA IIM Indore, Entrepreneur and a former FPC Founder in HP). 

The idea came one day, that we ought to work out in detail as to why FPCs fail. To be assessed dispassionately by someone who has passed through the stages himself. From the concept to the ideation, planning, execution, operations and withdrawal. A sort of direct sharing of the hands on experience. The thought always was that Ashish was ideal for the sharing, he had the credentials and had undertaken a wide range of activities including tying up with markets (mandis) and setting up a functional website with real time pricing of the products. The interaction began with this message and thought after a discussion on the phone.

 

Hi Ashish, I know I am troubling you but even withdrawing from a project / FPC has reasons from which lessons can be drawn. On Community Mobilisation, Community Ethics, Market Players, Market Forces, Market Support and Undercutting, Credit Support and quantum, backing  absence of major partner, Business Planning, Vision and Direction, Local barriers including topography, CEO and related issues, Compliance issues, Grant support and related aspects, taxation issues, competition, Awareness and empowerment of Members and a reduced dependency syndrome, ignorance of bankers about the concept, lack of corporate buyers, limited contact with Agri start ups, lack of mentors and consultants, compliance issues and lack of understanding of a company.   FPCs or FPOs are used as one though we feel a FPC is better suited for entrepreneurship. 

 

Then we discussed while making up our minds about developing such an article about any thoughts on issues  such as the Board of Directors of the FPC and their training and its actual impact. Plus, How to train farmers on their rights and duties. Banking assistance and experience if any. We sort of agreed that for training, well, the participants wanted real life practical inputs and the current course  content is much more theoretical and not much relevant as regards current market needs and the material needs a lot of changes as per current demand and trends. It’s generally tailored more for faculty or policy makers rather than agripreneurs. Another point we agreed upon was that the institutions used as a medium to organize FPCs / FPOs were themselves lacking in domain knowledge as regards the markets and a commercial orientation. Thus the passing of knowledge to FPCs was more theoretical rather than practical.  

 

One part we did discuss is that if a corporate can adopt such FPOs or FPCs as part of its Corporate Social Responsibility (CSR), then such FPOs, that is without astute backers or  funding, can evolve to perform much better. We do feel that a few successful FPOs, when interacted with,  then all of them have one thing in common.. strong backing. And a strong leader at the field within its Board. Shaydri, Vellangiri, Safe Harvest, Ram Rahim, most such are winners for last four to five years and clearly strong management and strong backing is the key, generally  with support by some external party like the Isha foundation, Akshaypatra etc or capital from abroad. Nudge Foundation from Bangalore is one such strong foundation too. If we can ensure such tie ups for best performing FPOs then success rate may increase. A reality is that the North West lacks such foundations or CSR funding.

 

As regards the training of farmers, this a problem logistically, even otherwise it’s a concern. Choose farmers carefully who are progressive and willing to contribute would be a first step. In any case embedding the concept of a company across a cross section of farmers, this when commercial awareness is limited, becomes rather an abstract exercise at times.  Ashish in fact is of the view that farmers by culture are not made for a strong commercial orientation through a company, mostly they know how to grow food and that's their expertise. Many farmers were found to be unwilling to learn. The Board could be better composed with a few members who are experienced in business, but then the hijacking of the group is a concern. We agreed based on our discussions that normally only an outside management can help in market linkages, everyone is made for a specific job or sector so expecting farmers to do management work is wishful thinking, with some exceptions. Or the learning curve would be rather extended before this would come about, after protracted mentoring and handholding.

 

Our main concern is we just want many passionate individuals to give up this romantic vision of a FPC, It’s hard hard work on multiple fronts, and the entire ecosystem has to come together for success. The FPC is just another name, in many ways, for a functional profit oriented corporate,  and that's the key, understanding this intrinsically. It is not a pure social enterprise.

 

Ashish says he withdrew though he knew If he and his team would have continued for an year more, their revenue would have hit Rs 1.5 cr for sure, actually much more. Now to come to the basics and the earning.

 

Idea building – while working on the business model of the AFF, Ashish and his team discussed the issues with industry experts, people already in the ecosystem and could figure out two to three  major issues due to which FPOs/FPCs were working with limited success. Below were the major outcomes from such discussions -

1.     FPOs were lacking variety as most of them were working in a cluster which gave a limited output of a specific crop only. Markets wanted to work with such suppliers who could ensure round the year supply and have a broad base of products so that it becomes easier for the buyer to coordinate and also to club smaller loads to make large  loads. In fact, a meeting with Heads of Purchase of known Hotel Chains at Shimla  indicated their business orientation is only to buy as per short term forecasts / indents from their hotels with the storage and required quantity being out sourced, be it the FPC or a private player.

2.     No professional management to run FPOs/FPCs – with the help of NABARD grant of Rs 15k (as it was then) for the CEO as a salary, it was becoming next to impossible to bring in the right kind of professional management to run a FPO. The entire team hiring for sales/marketing work would require a significant spend and FPOs were short on capital to work like a full-fledged organization, specially with members unwilling to pool in resources. 

3.     All the schemes were based on the number of farmers associated with FPOs / FPCs  which was causing a concern as it was becoming difficult to manage with a limited administrative team and exploring actively for quantity was seriously impacting the quality of farmers that were getting associated with FPOs. None of the farmers had a common vision or any interest in running FPOs, even after holding camps Ashish and his team could also see that farmers were lured to join just for grants while in reality none of the farmers were contributing to running the FPOs. This was found in Haryana in the Morni Hills too, farmers were associating with multiple FPCs as they explored for subsidies.

4.     To summarize honestly, the farmer base was existing only on papers and wherever the  base was active; infighting was frequent which was a barrier in making any meaningful decision and drive for the FPC towards a common meaningful goal, specially commercially.

5.     Due to all farmers belonging to same cluster, everyone was following the same agricultural practice and there was no cross learnings on best practices as regards the crop or product or in agricultural practices. Nor were farmers willing to take a risk on trying different crops due to lack of knowledge and no live examples of success.

After observing above issues, Ashish and his team, working from Sirmaur District in HP, thought of a very different business model for Aapka family farmer so that they could eliminate the multiple blockers highlighted above and try to run it like a corporate organization. They finalized the points as below as the core of their business models and started building the organization around this – (we / they would mean Ashish and his team) -

1.     Instead of registering as a FPO as was common in HP, they opted for FPC as they wanted to join farmers across country which would ultimately help in learning of best practices and building a farmer base across the country which could also enable  with more cross selling opportunities

2.     As Ashish says, we opted to chase quality farmers and target revenue rather than building on quantity. We wanted to be very careful while onboarding farmers and would like to judge them for at least for six months on their drive to work on something new and help the FPC in moving forward.

3.     As a USP, they decided they would restrict the FPC to working only on natural/organic farming as they wanted to have a motto of chemical free living as a long-term vision and this would also provide a USP to ask for higher price in market negotiations.

4.     We (the team) started to onboard five farmers from five different regions of district Sirmaur so that there was a variety of produce and we could harness the produce from different altitudes to provide supply for a longer duration to customers. (for example – lower altitude crop will come early and higher altitude later which will help in prolonging supply to market and reduce the supply glut as well).

5.     We decided to build upon the existing work done by the government (Agriculture / Horticulture Dept, KVK) to identify the first five progressive farmers and using the government network would ensure credibility amongst the farming community since we were not from same village /community and also at the same time, it would reduce the ground work / time to initiate and the chances of selecting farmers with a mismatched profile would be reduced since the Govt had already done significant work in this regard.

6.     We wanted to play on unique products produced in Himalayas as that would command a higher market price and demand especially in southern / western  Indian markets.

7.     Interactions revealed FPCs suffer from credibility issues in the market as markets and major buyers associate them with poor governance or a lack if effective cohesion. To counter this, the FPC developed a proper educational catalogue of it’s products and developed a website to communicate that they were a genuine organization, a social media presence was ensured to increase visibility and target new markets.

8.     One salient point, at the planning phase they observed that most of the FPCs were concerned with the supply side only as farmers are very familiar with this subject matter, as a counterpoint they decided to focus on the creation of a FPO/FPC with a deep insight and expertise on the market side because that is where all FPOs and FPCs were lacking and providing a gap. Getting a premium to farmers (15-20%, to farmers as members  of the FPC) was the main intent.

Success

1.     Through govt intervention and support, the FPC was quick in establishing credibility amongst the farming community of different regions. Incidentally, the varied arms of the Government did facilitate their working once assured about the concept. 

2.     We were one of the rare FPOs who had a broad supply range and had listed close to 50 products on the website and markets.

3.     During the first financial year, they did a business of close to Rs 60 lakh and that too starting after September.

4.     We had more than 30 clients spread across all metros and the majority of business (more than 60%) coming from South India.

5.     Payment clearance for all the farmers were either on spot or a clearly transparently stated maximum credit of 15-20 days.

6.     We tried to keep a 15-30% margin for the FPC since we wanted it to become an independent entity and manage its own expense without relying on grants/subsidies. For this a corpus had to be built up.

7.     All the in-transit damages were borne by the FPC and farmers were paid as per the  quantity bought from them.

8.     They diligently guided farmers on packaging/storage as per the requirements and specifications of the markets. They conducted training at the PAU Ludhiana on packaging of perishables and even made customized corrugated boxes / punnets for long distance packaging and to minimize losses.

9.     Cold storage expenses/material damage were borne by the FPC.

10.  They pushed for certifications of all farmers to build authenticity. They approached the SPNF department of Govt of HP to issue customized certificates since not all farmers were being covered under formal organic farming certification and markets need proof to label the produce as natural/organic. Ashish says even after he and his team and the FPC exited from the market, the farmers are using it as a base to sell their produce in far off markets and farmers have understood the importance of such certificates.

11.  We started a You Tube channel by the name of Aapka Family Farmer where we had uploaded a lot of videos to educate consumers on organic/natural produce and making them aware about the environment and the production process as to where the product was being sourced from.

12.  Within 3 months of launching the FPC, we spread our farmer base from Sirmaur to Shimla and Kinnaur touching over 100 farmers but we didn’t make them formally part of FPO as wanted to observe farmers for first six months and include genuine farmers only as a part of the FPC.

13.  Ashish says, even after our exit from market, we gave passed on all client information  to different farmers so that they can directly sell their produce and earn a premium.

Failures

We could not sustain the momentum and exited the market after the second year due to multiple reasons. Some of the key issues we faced were -

1.     Having farmers from different areas / altitudes proved to be a boon but at the same time, we couldn’t meet often and hence, that created an issue of not being able to create sense of unity amongst farmers and they could never truly feel part of FPO. Logistics, rather its cost, became a major concern.

2.     Since we were operating with minimal manpower and  the supply was from different areas of Himachal, we relied on Farmer’s honesty to do a proper product qc and packaging before dispatch. This backfired and there were lot of quality complaints in some of the consignments that were borne by FPC only and lead to huge losses.

3.     Most of the schemes launched by the Govt were focused on having a minimum number of farmers and there was no deviation even if revenue was high for a FPC. We couldn’t raise funds to sustain losses and the additional investment required on packaging/storage was not available.

4.     There was lack of market related guidance and whatever information the government’s agencies were sharing was not really actionable. The need was sorely felt for a mentor from corporates in related fields, retired or serving, or as a part of their CSR initiative, then the FPO/FPC has a real of chance of making it big in markets.

5.     The team felt the FPO/FPC should be allowed to raise fund from market, Ashish is still  not sure if that is already allowed but even then, guidelines are not readily available.

6.     Most of the schemes were available on paper, the team, to use their words, ran post to pillar to avail the benefits of central govt schemes on transportation subsidy for air freight for cherries but states that nobody from the state govt or even from the central govt had clarity on implementation.

7.     Speed in clarifications or in information flow is of the essence from the government agencies and institutions as the commercial world penalizes delays heavily.

8.     Organic is a very niche market and clients were not ordering in bulk. As a result, they  could not lift the majority of the produce from farmers and low volumes also lead to increased transportation cost. If they had to sell the rest of the crop at the mandi/ market, well they never had the manpower and expertise to sell the additional produce at the mandi and the commission agent treated them just like individual farmers as regards the terms of trade.

9.     Moreover the norms at markets of minimum quantity would often vary and also with them, this mismatch impacted sales of the additional produce.

10.  The Organic market is highly selective in terms of the look and feel of the product and hence we never had an answer to the problem that where farmer would sell the rest of the crop which was not as per specifications.  Since they were buying only selectively  from the farmer (product as per specifications), many farmers started to command an extra premium which made us uncompetitive in terms of pricing in the market.

11.  Even if farmers were suggested by government, sad to say, the team experienced  that  almost every farmer in the initial days cheated them (their words) with sub standard quality and over pricing. None of the government official could help out in engaging in  financial transactions with farmers and in understanding whether prices are as per market. Their reluctance is understood but this lead to huge losses as the FPC and the Team had limited working capital and hence a limited capacity to bear losses.

12.  There was no assurance or support from govt where if a farmer deliberately cheats or defaults to the FPC in terms of quality then there would be some insurance /support from govt over the same or an effective and quick dispute resolution mechanism, preferably at the tehsil level. Basically, the farmer is never worried about the implication post supply of sub standard material, this was a reality check.

13.  Some of the farmers took loans from the FPC / Team once the engagement deepened, but never repaid the money. Even after protracted follow up, Rs two to three lakh is still stuck with farmers who have stopped picking up calls.

14.  Multiple vendors also defaulted where they could never recover money from them. The team was looking for some special legal assistance for FPCs where such cases can be resolved quickly but there no such provisions within the law. As Ashish says, every lawyer suggested us to forego money as pursuing case would have meant more wastage of time and further financial burden with no line of sight on recovering money.

15.  They were not able to build a capable team with financial constraints. For example -Rs 15000 as salary (the norm then) can only bring a clerk and not a motivated CEO to run an FPO. And the farmers as members are not keen to invest additional amounts to the corpus. Also, there is no assistance on hiring further manpower. Since all the farmers were from different region, nobody was willing to put their money at risk and invest more in terms of shareholding. Farmers were willing to invest a maximum of Rs 5000- to Rs 10000 as shareholder money which was found to be just about never sufficient to run operations.

16.  A considered suggestion after this experience by the Team is that instead of giving set standard schemes for FPOs; the govt could consider to give an option with an upper budget cap to performing FPOs and asking them to propose on how they would like to utilize the funds. For example – Ashish says we were getting a scheme to buy a display vehicle but there was no scheme or subsidy to purchase a transportation vehicle. Also, paper work is too complicated for most of the schemes and there is no fast track approval for good performing FPOs. Having a dedicated manpower just to follow up with govt on schemes is very difficult with limited funds.

17.  Last but not the least, since Ashish was coming from a corporate background and staying all time with farmers and with no one else to discuss ideas; he sort of lost mental strength to carry on this FPO/FPC and make it successful. A Sense of loneliness started impacting decision making and from govt side as well, people were listening but not able to solve problems. He really feels now that if he and his team would have got incubation programs from industry, maybe things would have been different now.

 

As regards start ups or such clones, the reference point for pricing was the local Mandi rates with Rs 1/- to Rs 2-/ added to the price. The FPC has to build the linkages by itself or in coordination with other FPCs, then they can manage better. Let us not build a halo around building linkages with start ups but rather focus on better margins between them and the FPOs. This should also include tie ups with processors, but a reality check is most start ups are themselves in losses. Get startups to listen to farmers! Do not solve the problem which they imagine but solve the ones that matter to FPOs and farmers.

We however do see opportunity to grow and scale up for both start ups and FPCs. Start ups can identify potential group of customers or producers with a lower cost of acquisition. FPCs and its farmer members can get the benefit of collective bargaining for input cost and produce price points. Start ups can communicate and educate their vendors and consumers faster at a lower cost. The main sectors to enhance partnerships with start ups or corporate bodies could be
Market Linkages, Input Supply, Credit and Credit Facilitation, Digitization, Advisory Services, Capacity Building, Accounting & Legal Services etc.

 

Ashish observed during the operational phase that farmers do incur losses at times in crops like onion, tomato and Potato etc. These crops are generally grown in cluster of farms having common linkages. But farmers regularly post a loss due to a glut in market in seasonal production seasonal. Commodity specific FPOs could be a way out.  The link between producers and the end consumer is normally intermediaries, such as wholesalers, retailers, or brokers. The intermediaries can be natural persons or businesses. Distribution channels, well Ashish and his team realized they are not concerned with either farmers or consumers but actually  revenues.
At present due to a limited understanding of forecasting for Agriculture and the balancing of production , if prices are high in the market all the farmers take up the sowing next season. maybe in future area wise crop cultivation may need to restrict varied commodities. If a farmer is earning well from paddy, the whole community will run for it!  Which may be one of the reason for the failure of a FPO , why can’t a FPC, essentially a small community of farmers decide to diversify the crops within their own area and keep rotating the crops with other farmers to maintain health for soil as well.

 

Another observation is that it would be interesting to learn how many FPCs have had success in getting loans sanctioned for 1) Working Capital under the  Govt’s Credit Guarantee Fund Scheme under NABSanrakshan and 2) Infrastructure Finance under Govt’s Agri Infra Fund? This would be a first step towards understanding the challenges as regards credit and funding options and the issues or concerns as regards Banks.  

One learning around the FPC is that there has been generally less focus and resources dedicated to building up the output crop/produce quality assessment and grading.
As a result, institutional commodity buyers (including large unorganized traders) rely on an additional set of middlemen to ensure reliability in supply and quality assessment.

 

These are the main personal experiences which we thought ought to be shared to maybe start a debate or discussion or to enable the evolution of a better model.

 

Tailpiece – by DKK - A special thanks to Ashish for stepping up and sharing his experiences and so honestly. It takes sincerity and courage to step out and share such an experience. Ashish has not withdrawn from the world of FPCs, to use the language of cricket, he is retired hurt, but would surely return fitter and more resolute.   And no aspersions are there on any organization or institution. It is simply a sharing of a personal experience during an intense professional engagement.

 

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