Farmer Producer Organisations (FPOs) : Importance and Challenges – UPSC GS3

What is a “Farmers Producer Organization” (FPO)?
  • FPO is a group of farmers that come together to achieve synergy in their activities for reducing cost and increasing income.
  • Small Farmers’ Agribusiness Consortium (SFAC) is providing support for the promotion of FPOs.
  • It is a registered entity where farmers are shareholders.
What are the main reasons for farmer’s distress?
  • Small Farm Holdings:
    • Declining average size of farm holdings is one of the reasons for agrarian distress.
    • The average farm size declined from 2.3 hectares (ha) in 1970-71 to 1.08 ha in 2015-16.
    • This resulted in a further increase in small and marginal farmers from 70 percent in 1980-81 to 86 percent in 2015-16.
  • Lack of access to credit: Getting access to inputs and marketing facilities is another main challenge faced by Small Farmers.
How FPOs can help small and marginal farmers?
  • Institutionalizing FPOs can help marginal and small farmers to overcome their challenges.
  • FPOs will allow members to gain greater bargaining power in the purchase of inputs, obtaining credit, and selling the produce. For example,
    • FPOs in Gujarat, Maharashtra, and Madhya Pradesh, Rajasthan have shown positive outcomes. Farmers through FPOs were able to realize 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.
How can FPOs help achieve the target of “Doubling Farmers’ Income”?
  • FPOs have the potential to act as a catalyst of change in the economic system of our country.
  • Using this FPO model, farmers are in a position to fix the price of their production.
  • Well-organized FPOs engage in providing a range of assistance to farmers like imparting better farm practices, collectivisation of input purchases, transportation, linkage with markets, and better price realization as they do away with the intermediaries.
Steps taken by the government in this regard?
  • Since 2011, Centre has intensively promoted FPOs under the Small Farmers’ Agri-Business Consortium (SFAC), NABARD, state governments, and NGOs.
  • The FPO is supported through,
    • Capital infusion: up to Rs 10 lakh to registered FPOs
    • Credit guarantee cover to lending institutions: maximum guarantee covers 85 per cent of loans not exceeding Rs 100 lakh.
    • Budgetary support: Budget 2018-19 gave a five-year tax exemption for FPO’s. Budget 2019-20 targetted to set up 10,000 more FPOs in the next five years.
    • State support: In Tamil Nadu, under collective farming, six lakh small and marginal farmers have been integrated into 6,000 farmer producer groups.
What are the Challenges for building sustainable FPO’s?
Studies of NABARD shown the following challenges for building sustainable FPOs:
  1. Lack of technical skills,
  2. Inadequate professional management,
  3. Weak financials, inadequate access to credit,
  4. Lack of risk mitigation mechanism and
  5. inadequate access to market and infrastructure
Recommendations to Enhance Efficiency of  FPOs: 
  • Regular capacity building of FPO board members.
  • To come out with a standardized scoring method of FPO; including financial, management, social and environmental score.
  • Converging rural, agriculture and farmer development policies with FPOs.
  • Improvement of risk management systems in FPO.
  • Suggest capital structure of FPO in different phases, and support it in financial linkages.
  • Intra FPO learning and development platform to be started.
  • Increase the role of FPO in social development activities.
  • Integrating role of FPOs in strengthening the rural entrepreneurial ecosystem.
  • Link FPO with nearby agriculture university and management institute.
Scroll to Top