1. What is a Farmer Producer Organization?

A Farmer Producer Organization has the objective of production, harvesting, procurement,

grading, pooling, handling, marketing, selling, export of primary produce of the members
(producers) or import of goods or services for their benefit. Produce are things that have been
produced or grown, especially by farming.
Therefore, a Producer Organization deals primarily with agriculture and post-harvest
processing activities.

Collectivization of producers, especially small and marginal farmers, into producer

organisations has emerged as one of the most effective pathways to address the many
challenges of agriculture but most importantly, improved access to investments, technology,
inputs and markets.

Need of FPO
 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. 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.

Importance of FPO
 Collective inputs purchase
 Collective marketing
 Processing
 Increasing productivity through better inputs
 Increasing knowledge of farmers
 Ensuring quality
 Marketing assistance
 Technical services
 Saving and credit
 Local development

Why farmers Producers organization

 Farmers Producers Organizations influence policies and demand for required services.
 Farmers can participate in the decision-making process of the developmental
activities.
 Service system becomes more effective and accountable
 They get better access to latest markets and technology
 FPOs can involve in Farmer and market led extension activities
 Build interactions between research, extension and farming systems
  Enable farmers to organize themselves for action or to share resources
 Analyze farmers problems with extension support
 More services can be made available to farmers through

Broad Services and Activities to be undertaken by FPOs

The FPOs may provide and undertake following relevant major services and
activities for their development as may be necessary:-
(i) Supply quality production inputs like seed, fertilizer, pesticides and
such other inputs at reasonably lower wholesale rates.
(ii) Make available need based production and post-production
machinery and equipment like cultivator, tiller, sprinkler set, combine
harvester and such other machinery and equipment on custom hiring
basis for members to reduce the per 2 unit production cost.
(iii) Make available value addition like cleaning, assaying, sorting,
grading, packing and also farm level processing facilities at user
charge basis on reasonably cheaper rate. Storage and transportation
facilities may also be made available.
(iv) Undertake higher income generating activities like seed production,
bee keeping, mushroom cultivation etc.
(v) Undertake aggregation of smaller lots of farmer-members’ produce;
add value to make them more marketable.
(vi) Facilitate market information about the produce for judicious decision
in production and marketing.
(vii) Facilitate logistics services such as storage, transportation, loading/un-
loading etc. on shared cost basis.
(viii) Market the aggregated produce with better negotiation strength to the
buyers and in the marketing channels offering better and remunerative
prices.

http://sfacindia.com/UploadFile/Statistics/Formation%20&%20Promotion%20of%2010,000%20FPOs
%20Scheme%20Operational%20Guidelines%20in%20English.pdf
Why FPOs?

Over 83 per cent of Indian farmers are small and marginal (2005-06) and cover
nearly 50 per cent of operational holdings. More than 90 per cent of the small
and marginal farmers (SMF) are dependent on rain for their crops.
In absolute numbers there are about 90-100 million SMF in India who depend
on agriculture for income and employment. Due to continued phenomenon of
land fragmentation the number of SMF is ever increasing.

Some of the constraints faced by the small and marginal farmers are given
below:
 Shrinking land assets, rising per unit cost of cultivation and shrinking
profit margins.
 Difficulties in accessing critical inputs like credit, water, power as well as
quality seeds, fertilisers, pesticides and appropriate and timely technical
assistance.
 Fragmented value chain in agriculture marketing, monopoly and /or
monopsony conditions, few opportunities for value addition at the bottom
of the chain
 Weak bargaining with market agents and low returns on investment
 Present arrangements for risk mitigation, especially crop insurance
instruments, are highly unsatisfactory and do not adequately cover the
risks faced by the SMF, leaving them vulnerable to the vagaries of
weather.
 Not being able to withstand the market fluctuations of produce
 Forced to dispose-off the produce immediately after harvesting due to
lack of storage space and immediate need of cash for their livelihood
 Finally, there is no special targeting or earmarking of resources for small
and marginal farmers in centrally sponsored agriculture development
programmes.

Hence, there is an urgent need for solutions that mark a break from the past and
significantly improve the terms of smallholder access to the market. The Farmer
Producer Organisation (FPO) is a necessity in Indian scenario if one has to
effectively address the issues mentioned above. Member based FPOs offer a
proven pathway to successfully deal with a range of challenges that confront
small producers, empowering their members in a variety of ways. Several
national experiences in the performance of FPOs suggests that they are able to
leverage their collective strength and bargaining power to access financial and
non-financial inputs and services, technologies, reduce transaction costs, tap
high value markets and enter into partnerships with private and public entities
on more equitable terms.

Farmer Producer Organisation (FPO)

A producer company is basically a body corporate registered as Producer

Company under Companies Act, 1956 and shall carry on or relate to any of
following activities classified broadly:-
 production, harvesting, processing, procurement, grading, pooling,
handling, marketing, selling, export of 1 primary produce of the Members
or import of goods or services for their benefit:
 rendering technical services, consultancy services, training, education,
research and development and all other activities for the promotion of the
interests of its Members;
 generation, transmission and distribution of power, revitalization of land
and water resources, their use, conservation and communications
relatable to primary produce;
 promoting mutual assistance, welfare measures, financial services,
insurance of producers or their primary produce

THE NEED FOR FPO:

The main aim of an FPO is to ensure better income for the producers
through an organisation of their own. Small producers do not have the
volume individually (both inputs and produce) to get the benefit of
economies of scale. 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 ESSENTIAL FEATURES OF AN FPO

 It is formed by a group of producers or involved in production such
as production, harvesting, processing, procurement, grading,
pooling, handling, marketing, selling, export of *primary produce
of the Members or import of goods or services for their benefit.
 It is a registered body and a legal entity.
 Producers are shareholders in the organisation.
 The FPO is owned by farmers themselves
  It deals with business activities related to the primary
produce/product.
 It works for the benefit of the member producers.
 A part of the profit is shared amongst the producers.
 Rest of the surplus is added to its owned funds for business
expansion.
 The FPO can derive multiple benefits for the farmers such as
insurance, fair price, storage space etc., in the long run
Who owns the FPO?

The ownership of the FPO is with its members.

It is an organisation of the producers, by the producers and for the
producers.
One or more institutions and/or individuals may have promoted the FPO
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.
The groups/associations of must have a high degree of trust, which cannot
be manufactured. This is one reason why community groups are often
formed around one strong personality, and due to some immediate issue.

There is an important difference between farmers or communities that

organise themselves to work together and farmers being organised
ingroups by external actors, who see this as a vital step and entry point
for community development.
External agencies often view the creation of organisations as a positive
intervention, a way of increasing impact and sustainability of activities.
Farmers and communities often do benefit from participating in such
projects through gaining access to trainings, information, resources and
further linkages. However, groups formed in this way are typically more
prone to difficulties at the start and there is a risk that they will not
continue if or when the initiating institution withdraws from the project.
Alternatively, where previously established local groups gain the support
of external agencies, this arrangement can be very positive. A key
challenge for facilitating agencies is to act as catalysts and bring out the
self-organising capacities of farmers in the most locally relevant and
useful way. It is critical that there is affinity amongst the members for the
group to sustain and benefit in the long run.
Role of farmer in the journey of an FPO

As said earlier, an individual farmer is limited to his/her own farm and its needs
– from inputs to production.
 Very rarely, some big farmers may also be involved in post-harvest
activities for their own farm.
 Small and marginal farmers normally sell their produce at the farm gate at
whatever prices are quoted to them and are at the mercy of the middle
man and local traders.
Capacity Building of Board of Directors of FPOs - A Trainers’ Guide 35 In the
context of an FPO, a farmer can play many roles

 As a shareholder – once the farmer agrees to be a member of the FPO

and pays up the share, s/he automatically becomes a voting member of
the FPO and is eligible to all rights enjoyed by the FPO.
 As a member of FIG – the farmer is also a member of the local farmer
interest group (FIG) in most places. This enables them to participate
actively in local group meetings and follow up from directives sent from
FPO.
In reverse, decisions made by FPO members, can be communicated to the
FPO board through a representative member who is also in the local FPO.
 Member of the FPO Board of Directors – a farmer can also be
nominated or elevated on to the Board of Directors of the FPO. CEO who
is appointed by the Board cannot be a member of the board and he/she
has no voting rights.

Characteristics of Farmer Producer Organization

An Organization will be called a Farmer Producer Organization, if

 It is formed by a group of primary producers
 It is a registered body and a legal entity
 Producers are primary shareholders in the organization
 It deals with business activities related to the primary produce/product/
related inputs
 It works for the benefit of the member producers
 Portions of profit are shared amongst the producers and the balance goes
to the share capital or reserves.
 It has minimum shareholding members numbering 500 at the time of
registration. However, the
 Shareholding membership will have to be increased up to 1000 members
over a period of 3 years to a sustainable level.
https://coefpo.org/publications/1overview-of-fpo-eng.pdf

BENEFITS OF FPO’S

• FPOs/ FPCs can act as an aggregator for its member and sell through e-
trading as one/ multiple lot depending upon requirement.
• Payment will be done directly to the FPO/ FPCs bank account. In turn FPO/
FPCs can distribute among members.
• Union budget 2017-18 made provision to install collection/ sorting/ grading/
packing facilities at their premises.
• Provision for personalised dashboard and real time information on arrival,
quality and price of commodities.

• FPOs can be involved across the value chain in delivering the desired
results viz. pre-harvest, harvest, and post-harvest. In the pre-harvest, FPOs
can be involved in setting up of seed and soil testing laboratories, DNA
fingerprinting laboratories as a hub-and-spoke model in PPP mode, and
extension of Seed Bank scheme for benefitting FPOs.
• FPOs on their own may not be able to perform these activities and hence, a
nodal agency like SFAC, and other key stakeholders at apex level like
National Bank for Agriculture and Rural Development (NABARD), and
National Cooperative Development Corporation (NCDC) may develop
common frameworks, business plans, standard operating procedures
(SoPs), and capacity-building tools.
Identification of such activities to be performed by the nodal agency needs to be
based on the economies of scale & scope, and principles of natural monopoly.
• FPOs play an instrumental role in increasing farm mechanisation where India
lags far behind countries like the USA, China, or even Brazil. For example,
there are various apps available using which FPOs/farmers can get farm
equipment for harvesting and post-harvesting on rent and pay as per the
usage.
• FPOs can be both the purchaser and the provider of these services. Some of
the implementing agencies may also be able to act as facilitators to catalyse
the interoperability across apps as well as penetration among farmers
through awareness generation and facilitated adoption.
• FPOs can also be the quality assaying agencies and part of the logistics
provider network in terms of ensuring last-mile connectivity, including the
role of freight forwarding and loading/unloading.
• Further, nodal agencies could provide the know-how, standard operating
procedures and capacity building training to FPOs for running the quality
assaying labs. These labs can be started with commodities like oilseeds
which are easier to assay with instantly visible benefit, thereby contributing
to enhanced credibility of the system.
• Further, development and expansion of these centres on the franchise model
for a wide-ranging set of commodities would not only provide necessary
back-up for demanding premium prices but also create a brand value with
improved credibility.
• Development of new mandis would be another area for State /regional level
consortium of FPOs to participate in. Electronic software, standard operating
procedure, and capacity building required in this regard can be developed by
a nodal agency and shared with the federation of FPOs. Recently, one such
mandi has become operational in Pune with the support of the National
Agricultural Cooperative Marketing Federation of India Ltd. (NAFED).
• FPOs can also be instrumental in introducing new technologies. Many of the
technology firms are already working and need to be connected with farmer
groups for availing benefits. Nodal agencies can make use of already
existing schemes like Sub Mission on Agricultural Mechanization (SMAM)
and devise a plan to provide both technical and financial assistance to FPOs
in adopting these technologies and make it cost-efficient.
 Therefore, FPOs may be at the forefront of the business opportunities
germinating out of these reforms. We expect that appropriate implementation
shall lead to leapfrogging towards doubling farmers income. It will also lead to
the development of an entirely innovative and technology-driven eco-system
(assaying, logistics, weighing, loading-unloading, freight forwarding, among
others.) when FPOs are partners in implementation. 
Concept of FPO 
The concept behind Farmer Producer Organizations is that farmers, who are the
producers of agricultural products, can form groups and register themselves
under the Indian Companies Act. To facilitate this process, the Small Farmers’
Agribusiness Consortium (SFAC) was mandated by the Department of
Agriculture and Cooperation, Ministry of Agriculture, Govt. of India, to support
the State Governments in the formation of Farmer Producer Organizations
(FPOs). The aim is to enhance farmers’ competitiveness and increase their
advantage in emerging market opportunities.
The FPO’s major operations will include the supply of seed, fertilizer and
machinery, market linkages, training and networking and financial and technical
advice.

Farmers Producers Organisation – Key Points

1. Farmers Producers Organisations will be formed and promoted through

Cluster-Based Business Organizations (CBBOs) engaged at the
State/Cluster level by implementing agencies.
2. FPOs will be promoted under “One District One Product” cluster to
promote specialization and better processing, marketing, branding &
export by FPOs.
3. Initially, the minimum number of members in FPO will be 300 in plain
areas and 100 in North East & hilly areas.
4. There will be a National Project Management Agency (NPMA) at SFAC
for providing overall project guidance, data compilation, and maintenance
through integrated portal and Information management and monitoring.
5. States/UTs will be allowed to avail loan at prescribed concessional rate of
interest under Agri-Market Infrastructure Fund (AMIF) approved for
setting up in NABARD for developing agriculture marketing and allied
infrastructure.
 6. Adequate training and handholding will be provided to FPOs. CBBOs
will provide initial training. 
7. Priority will be given for the formation of FPOs in aspirational districts
with at least one FPO in each block of aspirational districts

What is the Need of an FPO for Farmers?

Farmers in India face tremendous hardships which include the following – 

1. Small Size of landholdings. Nearly 86% of farmers are small and

marginal with average land holdings in the country being less than 1.1
hectares.
2. Good quality seeds are out of reach of small and marginal farmers mainly
because of exorbitant prices of better seeds. 
3. Depletion and exhaustion of soils resulting in the low productivity
demand good fertilizers, manures, biocides etc.
4. Lack of proper irrigation facilities.
5. Less or no accessibility to large scale mechanisation of agriculture.
6. Challenges in marketing their products due to lack of economic strength.
In the absence of sound agricultural marketing facilities, the farmers have
to depend upon local traders and middlemen for selling their farm
produce which is disposed of at an extremely low price. 
7. Scarcity of capital for agricultural activity forces farmers to borrow
money for stimulating the production. 

FPOs help in the collectivization of such small, marginal and landless farmers
in order to give them the collective strength to deal with such issues.

Aim of Farmer Producers Organisation

 The main aim of FPO 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. 
 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. This will be eliminated.
 Through aggregation, the primary producers can avail the benefit of
economies of scale.
 Farmers Producers will also have better bargaining power in the form of
the bulk buyers of produce and bulk suppliers of inputs. 
Concerns to an FPO
Many of the problems accrue to FPOs remain untapped which includes a few
mentioned below-

1. Difficulty in securing institutional finance. The banks are usually wary of

granting loans to the FPOs as they do not have assets of their own to
serve as collaterals. Consequently, the FPOs have to rely on loans from
non-banking financial companies or micro-finance companies.
2. They are forced to raise their working capital at very high-interest rates.
3. Inability to operate in the regular agricultural markets. Farmers Producers
Organisation usually faces difficulties in operating at the regulated
Mandis because of the resistance offered by the licensed traders. It is
because these traders have a significant hold over the markets.
4. Lack of legal recognition under the contract farming regulations.
5. Even the facility of cheap bank loans with liberal interest subvention by
the government that is available to individual farmers is denied to the
FPOs.
6. Moreover, many other concessions, tax exemptions, subsidies and
benefits provided to cooperatives, startups and the like have not been
extended to the FPOs.

All these issues need to be addressed expeditiously to enable the FPOs to

perform to their full potential for the benefit of the farmers.

Government’s Support to Farmers Producers Organisation

The government has launched a new dedicated Central Sector Scheme titled
“Formation and Promotion of Farmer Producer Organizations (FPOs)” with a
clear strategy and committed resources to form and promote 10,000 new FPOs
to ensure economies of scale for farmers over the next five years. Support for
each FPO is continued for 5 years from its year of inception.
Initially, there will be three implementing Agencies to form and promote FPOs,
namely 

1. Small Farmers Agri-business Consortium (SFAC)

2. National Cooperative Development Corporation (NCDC)
3. National Bank for Agriculture and Rural Development (NABARD). 
4. States may also if so desire, nominate their Implementing Agency in
consultation with DAC&FW.
Department of Agriculture, Cooperation & Farmers Welfare (DAC&FW) will
allocate Cluster/States to Implementing Agencies which in turn will form the
Cluster-Based Business Organization in the States.

Farmers Producers Organizations (FPOs) are a legalized form of farmer-owned

institutions, which consists of farmer members with common interests and concerns. It
is an entity formed by primary producers, like farmers, milk producers, fishermen,
weavers, rural artisans, craftsmen, etc. It can be established in the form of Producer
Company, a Cooperative Society or any other legal form which provides systems for
sharing of profits/benefits among the members.

These institutions are registered under company’s act and are governed by a set of
bye-laws and rules. The structure of these FPCs starts with mobilizing farmers into
groups of between 15-20 members at the village level (called Farmer Interest Groups
or FIGs) and building up their associations as Farmer Producer Organizations (FPOs),
where members can go up to 1,000 in some cases. FPOs are groups of rural
producers coming together on the principle of membership, to pursue specific common
interests to harness technical and economic benefit.

FPOs were evolved as new generation producer-led organization, to help them receive
benefits of aggregation and economies of scale. Organized systems and institutions
are required to help small producers aggregate their demand and supply and receive
competitive prices for their input materials and commodities produced, to increase their
benefits. The commodity value chain has various enablers ad supporters, all these
share profit margins and finally reduces the overall profits of the producer itself. These
intermediaries are inseparable part of value chain, who work very often in a non-
transparent way to receive their own benefits. All this is possible due to absence of
systems and institutions.

The main objective of an FPO is to ensure better income for the producers through an
organized system of their own. Small producers do not have the large marketable
surplus individually (both inputs and produce) to get the benefit of economies of scale.
These farmer members own agricultural land in the range of 0.5 to 1 hectare, hence
have little to no bargaining power for their input and output supplies.

Less than 4% of these farmers possess Kisan Credit Card. According to the latest
published reports by NABARD, the number of FPOs in India are little more than 5,000.
This number is quite large if seen as farmer-owned institutions and in terms of outreach
of any vulnerable section of the rural population. Of these around 3200 FPOs are
registered as Producer Companies and the remaining as Cooperatives/Societies etc.
Majority of the PCs are very new and have a shareholder membership base in the
range of 100 to 1000 farmers.

The farmer producer companies do require technical and managerial expertise to carry
on their requisite work, including forward-backwards linkages, best agriculture
practices, seed production, value addition, branding etc. to make their business
operation sustainable and more profitable for all shareholders. An inclusive yet affable
ecosystem is required for any producer organizations to develop and nurture, because
they have to deal with issues starting from farm till far-away markets. This ecosystem
must comprise of various services like emergency credit, consumer credit, production
credit, retail services of inputs for agriculture, storage, transportation and other
agricultural production services required by the small and marginal farmers. This
ecosystem can be strengthened with various types of services made available for
farmer members at the right time and at affordable price. These services provided by
POs are capable of diverting surplus produce from the local trader to the producer
organization and can help maximize the profit margins of the company. Additionally,
the producer organizations can take up other services related to facilitating linkage with
the banks and line departments for ensuring the infrastructure access for the business.
Farmer producer companies can be strengthened more through various policy and
structural reforms, including technology support, financial support through customized
services and loan products and marketing support in various markets available (retail,
spot and futures).

The various government-supported agencies and NABARD has provided initial funds
to build capacities, technical assistance and develop innovative financial systems for
sustainability of FPCs. NABARD created its own subsidiary (NABKISAN Finance Ltd.)
for meeting the credit requirements of FPOs by adopting a flexible approach based on
life cycle needs, while it continues to provide promotional support towards capacity
building, market linkages and other incubation services to FPOs out of grant fund.

There are various schemes launched by the Government of India for the support of
FPOs; these include:

1. Equity Grant Fund Scheme

2. Credit Guarantee Fund Scheme
3. Scheme for Creation of Backward and Forward Linkages
4. National Rural Livelihoods Mission (NLRM)

The union budget 2018-19 was much focused on promoting and strengthening Farmer
Producer Organizations. These measures will help promote FPOs towards prosperous
and sustainable agriculture sector with increased agriculture productivity through
efficient, cost-effective and sustainable resource utilization. Some of the examples
were launch of “Operations Green” for onion, potato and tomato crops with an
allocation of Rs. 500 crores. The initiative aims to address price fluctuation in
vegetables for the benefit of farmers and consumers. Another step taken by the
Government was 100% tax deduction for FPOs with an annual turnover of up to Rs.
100 crores, this step is expected to encourage enabling an environment for
aggregation of farmers into FPOs.

Some of the challenges faced by these new generation institutions are linked with its
basic design, i.e. farmers’ inefficiency to act as managers or CEOs of the organization,
understanding of various resource optimization techniques, update with best agri-
practices and representation of farmers as a group in organized market. This calls for a
strong handholding and capacity building initiatives, which can be governed by local
 authorities but delivered through local institutional development civil society
organizations or other capable institutions working with farmers.

Farmers do face challenges related to customized and affordable financial services,

which currently are not provided as per their future cash flows. They also face a
problem in selecting the CEO, whether from inside or outside there is always a risk.

The FPOs have come a long way in past some years, success and failure cases shows
that these institutions require some policy changes to attain sustainability and reap
optimal benefits for its shareholder.

Some of the policy reforms which can be thought of are mentioned below:

 Allowing private equity, angel investor and venture capital support to FPOs as the lines
of support for start-ups can be introduced.
 Amendments in Food Grain Procurement policy is required to allow procurement of
produce directly from FPOs under Minimum Support Price scheme.
 Specified funds can be created or diverted from Government to build infrastructure at
FPO level, including facilities for grading, sorting, packing, branding, storage,
transportation and marketing.
 Proper changes can be brought in under Equity Grant & Credit Guarantee Fund
schemes to include a large number of FPOs having less than 500 farmer members.
 Liberal statutory compliances may be provided for FPOs during the initial 10 years, to
help them stabilize (operationally and legally) in business environment.  
 Suitable amendments in the APMC Act can be brought to treat the country as a single,
unified market for agri-produce with no restrictions on commodity movement as also to
enable FPOs market their produce directly to the consumers/ bulk-buyers, without
payment of Mandi Fee.
 Convergence of delivering various farmer and agriculture related schemes through
FPOs.
 A single window can be introduced for issuance of all licenses to FPOs, to ease the
process of doing business.
 Awareness and capacity building of farmers and position holders in FPCs should be
done on regular interval to help them understand the real benefit of institution.

FIG – Farmer Interest Groups

FPC – Farmer Producer Company

FPO – Farmer Producer Organization

NABARD – National Bank for Agriculture and Rural Development

PO – Producer Organization

SFAC – Small Farmers’ Agri-Business Consortium   

https://timesofindia.indiatimes.com/blogs/agyeya/farmer-producer-companies-benefits-are-still-away/