Farmer Producer Organization (FPO) and Agriculture
Farmer Producer Organization (FPO) and Agriculture

What is a Farmers Producer Organization (FPO)?

It is a type of Producer Organization (PO) where the members are farmers. PO is a generic name for an organization of producers of any produce, e.g., agricultural, non-farm products, artisan products, etc.

  • The ownership of the producer organization is with its members. It is an organization of the producers, by the producers and for the producers.
  • One or more institutions and/or individuals may have promoted the PO by way of assisting in mobilization, registration, business planning and operations. However, ownership control is always with members and management is through the representatives of the members.
  • FPOs in Gujarat, Maharashtra and Madhya Pradesh, Rajasthan and some other states have shown encouraging results and have been able to realise higher returns for their produce.
  • For example, tribal women in the Pali district of Rajasthan formed a producer company and they are getting higher prices for custard apples.

What is a producer organization (PO)?

A Producer Organization (PO) is a legal entity formed by primary producers, viz. farmers, milk producers, fishermen, weavers, rural artisans, craftsmen. A PO can be a producer company, a cooperative society or any other legal form which provides for sharing of profits/benefits among the members. In some forms like producer companies, institutions of primary producers can also become member of PO.

Need for PO

The main aim of PO 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 benefit of economies of scale (When production becomes efficient due to a large spread out operation). 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 vis-à-vis the bulk buyers of produce and bulk
    suppliers of inputs.
  • The idea behind the Farmer Producer Organizations (FPO) was that “Farmers, who are the producers of their agriculture products, can form the groups and can register themselves under the Indian Companies Act”.
  • To facilitate the process, the Small Farmers Agribusiness Consortium (SFAC) was mandated by the Department of Agriculture and Cooperation, Ministry of Agriculture, Government of India, to support the State Government in the formation of the Farmer Producer Organizations (FPOs). The goal is to enhance the farmers’ competitiveness and to increase their advantage in emerging the market opportunities. The major operations of Farmers Producer Organization (FPO) include the supply of seed, machinery, market linkages & fertilizer, training, networking, financial and technical advice.

Farmer Producer Organization (FPO) and Agriculture

The main aim of the Farmer Producer Organization is to ensure a better income for the producers through an organization of their own. Small producers do not have the volume individually to get the benefit of economies of scale. In agricultural marketing, there is a chain of intermediaries, who often work non-transparently leading to the situation, where producer receives only a small part of the value, which the ultimate consumer pays. This will be eliminated. Through accumulation, the primary producers can avail the benefit of the economies of scale. Farmers Producers have better bargaining power in the form of bulk buyers of produce and bulk suppliers of inputs.

 Agricultural Marketing

Key Points of FPO  

  • Initially, the minimum members in Farmer Producer Organization are 100 in North East & Hilly Areas and 300 in plain areas. 
  • The Farmers Producers Organizations are formed and promoted through the Cluster-Based Business Organizations and engaged at the State or Cluster level by implementing the agencies.
  • Farmer Producer Organization is promoted under “One District One Product” to promote the specialization and better branding, marketing, processing and exports by FPO.
  • The Farmers Producer Organization provide adequate training & handholding and the CBBOs provide the initial training. 
  • Priority is given for the formation of Farmer Producer Organization in aspirational districts with at least one FPO in each block of the aspirational districts.
Farmer Producer Organization (FPO) and Agriculture

What benefits will farmers experience through this system?

Providing Services: 

FPO provides a variety of services to their farmers, such as expanding capacity via capacity building services, improving market access through improved market connections, and increasing productivity per crop through higher quality seeds, fertilisers, and growing links with better institutions.

 Better income to farmers: 

Better services supplied by FPO serve to boost farmers’ socioeconomic conditions by increasing net output and enhancing farmer productivity by offering higher quality produce. Procuring inputs in bulk at a lower cost and selling them in bulk at a market would help farmers achieve higher prices for their output, so increasing their revenue.

 Linking farmers to market: 

Connecting farmers to markets is crucial for improving the livelihoods of smallholder farmers while also benefiting consumers. Smallholders are more efficient producers, but they confront significant challenges in marketing their products. Farmer producer groups ensured marketing links and allowed small farmers to participate in marketing more collectively and efficiently. They are in a better position to reduce transaction costs associated with accessing inputs and outputs, acquiring critical market information, gaining access to new technologies, and entering high-value marketplaces, allowing them to compete with larger farmers and agribusinesses.

Value chain addition:

FPO features a more efficient value chain addition processing unit. Value addition of produce at the farmer’s level would allow farmers to do business more easily and keep more money by performing beyond the farm level. Value addition through branding, sorting, and processing improves skills and knowledge, aids in produce procurement, and provides farmers with reasonable prices, facilitating marketing options, reducing post-harvest loss, and providing tremendous employment generation potential for rural poor in general, and women in particular.

Constraints of FPOs-

  1. Access to flexible capital in the form of joint-equity, like the equity grant scheme of the government, and allowing for private investment from foundations can help meet the minimum requirement bar for direct participation in commodity exchanges and allow for a risk buffer which cannot be maintained by any debt-based instrument.
  2. Aggregating and holding raw produce carries severe market risks, and logistical overheads of storage and transport which when not performed to their most efficient level, do not result in a profitable business. This is because the risk involved in procurement and output related activities is far more than that of the input side of the market. While dealing with output related risks, the FPOs have to manage risks related to price volatility, cost of storage and interest costs among many others.
  3. Local agri-market environments are controlled strongly by a network of traders, middlemen and other rent-seekers who have entrenched relationships with farmers. The relationship intensity facilitates strong networks of reciprocity and manifests as a power relationship making smallholder farmers bound to these traders in many ways. This apart, they also offer flexible lending terms, albeit at high rates of interest which interlocks the produce making it unavailable for free transactions on the market platform or for procurement by the FPO.

Success FPO/FPC

Sahyadri Farms (MH)

Payash Dairy ( RJ)

Sahaj Dairy (UP )

Banni Dairy (MP)

Recommendations for FPOs

The potential of Indian agriculture is something that cannot be ignored. FPOs have the ability to operate as a change agent in India’s rural economy.

Farmers are taking up farming as their profession for subsistence, but there is a serious lack of support from government institutions, which leads to failure of crops and heavy indebtedness. FPOs can provide this much-needed support in terms of loans or guidance for farmers.

The future of farming is bright, and FPOs have a big role to play in this. FPOs have the potential to increase farmers’ incomes, improve food security, and promote sustainable agriculture. But to realize these benefits, FPOs need the right policies and support from governments, donors, and other stakeholders.

objectives and have an influence on Indian agriculture.

  1. To begin, FPOs should concentrate on commodities that are not sensitive in terms of food security or government action. Market interventions through programmes that secure high MSPs, if properly implemented, are likely to render futures obsolete, as the government will cover all market risks with no risk to the farmers. 
  2. Determine agricultural producing centres and develop targeted measures to promote futures trading in these areas. In the futures markets, there is a mismatch between producing areas and trading districts. The focus should be on places that are in the commodity-producing districts. The construction of delivery centres is the next priority. Producing districts must be structured around delivery centres. More location-based contracts should be offered because this may not be possible in all circumstances. The Commodity Exchange (NCDEX) can take the lead in this area.
  3. Resource Institutions are the organisations on the ground that help the FPOs operate, and they must be taught, educated, and acquainted with ideas like futures markets and pre-harvest hedging. In exchange, they may train FPOs and assist with scaling up. Given the resource institutions’ on-the-ground presence, their participation in the connecting process is critical. 
  4. FPOs need an enabling policy environment. Governments should provide preferential treatment to FPOs and create an enabling environment for farmer-led innovation. Government agencies such as NAFED, NABARD, SFAC, PACS, and others can all help by giving training or engaging in the market, or both. The presence of government agencies will help to develop confidence and encourage farmers to participate in the market, as well as help to remove the market’s poor reputation.

How FPO will benefit marginal farmers

Agriculture and farming community should have overall benefit, it should be made entrepreneurial along with farming. Government of India has a plan to develop them economically by making 10,000 FPOs.

By getting organized through FPO, small and marginal farmers will not only get a market for their produce, but it will become very easy for them to buy better fertilizers, advanced seeds, certified medicines, new technology agricultural equipment etc.

Other services like transportation etc. will also be available at cheaper rates and they can be freed from the web of middlemen.

When a farmer with a normal small holding goes to the market with his produce and is alone, he does not wield power to buy and sell; he has to sell his produce under the pressure of middlemen in the market.

For example, if a farmer with small land holdings produces maize, and he takes it to the market, he has to sell it under pressure at a price offered by traders, middlemen, moneylenders and companies sitting in the market and that’s it! The companies and traders have varied used for maize by making corn flakes, flour etc. through processing unit and market it thus making huge profits.

Arun Kumar
Sardar Vallabhbhai Patel University of Agriculture & Technology,
Meerut 250110
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