Samunnati facilitates financial and non-financial solutions to Farmer Producer Organisations (FPOs) across India to add more value to each value chain player. By enabling FPOs to build better market linkages for farmers, Samunnati is strengthening value chains and facilitating value chain players to work with higher equilibrium. Here is one such success story of an FPO trying to expand its aggregation and sales and how Samunnati’s timely market intervention enabled it (FPO) to maximise profits by trading with a strong buyer.

Avantika is a Farmer Producer Organization promoted by Reliance Foundation. It has over 4,600 members from 32 villages across 2 blocks in Agar Malwa district, Madhya Pradesh. Avantika has encouraged Soyabean farmers since 2010 and has sold produce worth ₹4.6 crores to a large-scale Soyabean processor and exporter – Vippy Industries in Dewas district of Madhya Pradesh. Although the FPO was selling an average of 15,000 quintals of Soyabean to Vippy Industries every year, it had huge potential due to capital available in the form of equity and interests earned

This year, the FPO decided to expand its supply to 30,000 quintals but due to the lack of enough working capital, they could not. There is a 10-15 days waiting period for payments to be made by Vippy after the goods are supplied. Avantika could not financially afford this period as small-holders always demand or require money upfront to manage their domestic expenses. Hence, the FPO approached multiple financial institutions including Samunnati to intervene and sanction a market linkage or procurement loan for its farmer members for three months. This would help them procure an additional 15,000 quintals of produce.

Samunnati with AMLA (Aggregation, Market Linkage and Advisory services) approach as one of the strategies to enable FPOs, carried out due diligence processes and appraised the strength of buyer-seller relationship (social and trade capital between Avantika and Vippy Industries). Based on strong cash flows and future (trade) commitments, Samunnati sanctioned a loan of ₹50 lakhs with three months credit period as market linkage/procurement loan in September 2018.

To secure the entire transaction, Samunnati educated the FPO to execute an agreement with Vippy industries and include ESCROW mechanism to carry out Soyabean trading and financial transactions. A mechanism wherein bank account is in the name of FPO, but transaction rights are with the financial institution facilitating procurement loan.

When the season (procurement) approached in October 2018, Avantika started procuring Soyabean directly from farmers. After ensuring both quantity and quality specifications from each farmer, Avantika requested Samunnati to make the payment directly to the farmers’ bank account. Likewise, Avantika FPO aggregated the produce from more than 400 farmers and supplied it to Vippy Industries.

The FPO raised an invoice against the goods supplied by mentioning Escrow bank account details (as specified in the buyer-seller agreement). After 15 to 20 days, Vippy started making the payment to the Escrow account which facilitated Samunnati to deduct the loan amount along with an interest and transfer the remaining amount to FPO’s wholly-owned account. This completely secured the market linkage loan given to the FPO’s farmers by Samunnati.

The financial solutions provided by Samunnati has encouraged Avantika to do relatively better aggregation and sales to Vippy Industries. Avantika has borrowed ₹2 crores in multiple loan cycles and has repaid ₹1.5 crores (as on November 2018). Using the credit option provided by Samunnati, Avantika has increased the supply by an additional 8,000 quintals as on November 2018. Increased aggregation and supply have improved their bargaining power with Vippy Industries and has brought better profits to both farmers and the FPO.

Market linkage solution by Samunnati has resulted in creating a win-win situation for farmers, Avantika FPO and the Vippy industries:

  • For the farmers, quality checks and aggregation of produce were done at their doorsteps. They received better prices for their produce without incurring any additional charges (transportation, labour, time etc.). The net profit earned by each farmer was around ₹150/200 per quintal. Cash for their produce was credited directly to their bank accounts
  • Avantika FPO was able to get better rates for their produce and saw increased profits of upto ₹50/100 per quintal as service fee from Vippy industries which eventually benefitted the farmer members who were shareholders in the FPO.
  • A third Agtech marketplace extends the scientific package of practices coupled with the ability to supply timely quality inputs in the required quantity.
  • For Vippy Industries, direct market linkage from farmers has been relatively profitable as they were able to directly procure fresh produce from the farmers. The produce procured directly from the farm-gate reached the factory-gate at comparatively lower prices.

Samunnati’s intervention, in this case, is reflective of its core values- building on social capital and trade capital in the relationship between the buyer and seller. By extending prompt scalable financial solutions, Samunnati continues to enable Farmer Producer Organisations across the country and creates a huge impact on farmers’ income and participation.