Farmers Producer Organisation

• 06 May 2025

For Prelims: Farmer Producer Organisations (FPOs), Small Farmers’ Agribusiness Consortium (SFAC), Cooperatives, e-NAM, Agri-tech Startups,  

For Mains: Status, concerns and way forward for farmer producer organisations (FPOs).

Source: BL 

Why in News? 

The development of Farmer Producer Organizations (FPOs) has been a critical step towards empowering small farmers in India. Despite the government's significant investment in FPOs, their progress has been slower than anticipated.

What is a Farmers Producer Organisation?

• About: An FPO is a type of producer organisation (PO) with farmers as its members, and its promotion is supported by the Small Farmers’ Agribusiness Consortium (SFAC). 
  • The FPOs came into existence in 2008, inspired by economist YK Alagh’s recommendation (2002) to amend the Companies Act, 1956. 
  • FPOs can be registered under the Companies Act, 2013, the Societies Registration Act, 1860, or as Public Trusts under the Indian Trusts Act, 1882. 
    • A Producer Organisation is a group of producers, agricultural, non-farm, or artisan, that can take legal forms like producer companies or cooperatives, sharing profits among members. 
• Objectives & Need: Indian agriculture is dominated by small and marginal farmers (87% owning less than 2 hectares), facing weather and market risks, and struggling to get fair prices. 
  • FPOs help small farmers by facilitating bulk input purchases, improving bargaining power, and ensuring better price realization with reduced costs. 
    • They also enhance market access, supporting the goal of doubling incomes and entering global markets. 

• Current Status: 45,000 FPOs are registered as companies, but only 16,000 are compliant with regulatory filings. 
  • Just 4,000 FPOs have received working capital loans for procurement and average net profit per FPO is Rs 3 lakh (too low to significantly boost farmer incomes). 

Success Story of FPOs  

• Indian Successful Story: 
  • Kandhamal Apex Spices Association for Marketing (KASAM) in Odisha promotes Kandhamal turmeric through 61 Spice Development Societies.  
  • It collaborates with Kisan Saathi, helping Gumapadar FPC Ltd. export turmeric to NedSpice Group in the Netherlands, demonstrating FPOs' potential to reach global markets. 
• Global Success Stories: 
  • Mexico (Ejido System): Ejidos are communal farming systems where land is collectively owned and managed by communities, helping farmers access international markets, particularly for crops like avocados and berries. 
  • Thailand: Programs like "One Tambon (Village) One Product" promote unique local agricultural products. 
  • China: Farmer Professional Cooperatives (FPCs) in sectors like tea, fruits, and aquaculture have reached global markets, with platforms like Alibaba enabling direct sales to consumers.

What are the Key Challenges Faced by FPOs in Indian Agriculture? 

• No One Size Fits All Approach: FPOs cannot single-handedly resolve deep-rooted issues like the vulnerability of farmers to climate risks, the lack of robust rural infrastructure, the limited reach of Minimum Support Prices (MSP) for many crops, the volatility of global agricultural prices, and the persistent social inequalities that marginalize certain farming communities. 
• Limited Impact in Market Linkages: Despite 3,500 FPOs being integrated with e-NAM, the traded value (Rs 3.19 lakh crore) is only a fraction of the total agricultural GVA (Rs 50 lakh crore at current prices). 
  • The disparity shows that e-NAM is not fully reaching the broader agricultural economy due to low adoption, market fragmentation, infrastructure gaps, and regional disparities. 
• Thin Margins: Most FPOs operate on thin margins in input/output marketing (3-6%), raising doubts about long-term viability. 
  • With limited profit margins, FPOs may struggle to cover operational costs, invest in growth, and sustain their activities. 
• Challenge of Replacing Middlemen: Farmers rely on middlemen for trust, credit, and payments. FPOs may not fully replace them, especially in regions with feudal systems, making complete elimination unrealistic. 
• Mere Outsourcing Channels: Some FPOs act as procurement agents or custom hiring centers, diluting their original purpose of empowering farmers. 
• Lack of Social Capital: FPOs need social capital and a gestation period to build consensus and thrive, as organizations based on social networks can't take root overnight. 
  • Without social capital, FPOs may face challenges in sustainability, governance, and growth, delaying benefits to farmers and hindering expansion. 

How can FPOs be Strengthened for Sustainable Agriculture? 

• Creating Iconic FPOs: Identify and support high-potential FPOs with capable leadership, active farmer participation, and viable business models. 
  • Partner with Civil Society Organizations (CSOs), philanthropies, and agri-tech startups to nurture these FPOs as model institutions for others to emulate. 
• Develop Knowledge Resources: Create vernacular handbooks on FPO operations covering business models (input supply, marketing, value addition), financial management (profit-sharing, working capital), and digital tools (e-NAM, ONDC, agri-tech) for its smooth functioning. 
• Build Local FPO Professionals: Train rural youth in FPO management through short-term courses at agricultural universities, and deploy them as FPO Promoters, self-employed professionals who help establish and manage FPOs for a fee. 
• Encourage Value Addition: Support FPOs in processing, branding, and certification (e.g., organic, GI tags), facilitate direct retail partnerships (supermarkets, export markets), and promote FPO-led agri-tourism, farmer markets, and subscription-based models (e.g., weekly vegetable boxes). 

Conclusion 

FPOs hold significant potential to empower small farmers by improving market access and bargaining power. However, their success hinges on addressing challenges like thin margins, scalability, and trust-based relationships. Focusing on high-potential FPOs, leveraging digital platforms, and promoting value addition will be key to their long-term sustainability. 

Drishti Mains Question:

Analyze the challenges faced by FPOs and suggest how they can be made economically viable.

 

UPSC Civil Services Examination Previous Year’s Question (PYQs)  

Prelims

Q. With reference to ‘Urban Cooperative Banks’ in India, consider the following statements:

1. They are supervised and regulated by local boards set up by the State Governments. 
2. They can issue equity shares and preference shares. 
3. They were brought under the purview of the Banking Regulation Act, 1949 through an Amendment in 1966. 

Which of the statements given above is/are correct?

(a) 1 only   

(b) 2 and 3 only  

(c) 1 and 3 only   

(d) 1, 2 and 3  

Ans: (b)

Q. Consider the following statements: (2020)

1. In terms of short-term credit delivery to the agriculture sector, District Central Cooperative  
2. Banks (DCCBs) deliver more credit in comparison to Scheduled Commercial Banks and Regional Rural Banks.  
3. One of the most important functions of DCCBs is to provide funds to the Primary Agricultural Credit Societies. 

Which of the statements given above is/are correct?  

(a) 1 only   

(b) 2 only  

(c) Both 1 and 2   

(d) Neither 1 nor 2  

Ans: (b)

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Mains 

Q.  In the villages itself no form of credit organisation will be suitable except the cooperative society.” – All India Rural Credit Survey. Discuss this statement in the background of agricultural finance in India. What constraints and challenges do financial institutions supplying agricultural finance face? How can technology be used to better reach and serve rural clients? (2014)