Farmers’ Producer Organisations (FPOs)

Farmers’ Producer Organisations

Context: In recent years, Farmer Producers’ Organisations have countered the challenge of fragmented holdings which prevent economies of scale and discourage investment in agriculture.

What is the Farmers Producer Organisation (FPO)?

  • A Producer Organisation (PO) is a legal entity formed by primary producers such as farmers, milk producers, fishermen, weavers, rural artisans, craftsmen etc. 
  • FPO is a type of PO where the members are farmers. The FPOs can be registered as Cooperatives (under Cooperative Societies Act of the respective State), Farmer Producer Company (Under Companies Act, 2013) or Societies (under Society Registration Act, 1860).

How FPOs Benefit Small and Marginal Farmers?

  • Facilitate land pooling and address problems associated with fragmented landholdings.
  • Reap economies of scale for buying inputs and selling the agricultural produce.
  • Enable sharing of services such as knowledge input, production supervision, storage, transportation, etc and hence reduce the transaction costs.
  • Create opportunities for farmers to get more involved in value addition activities such as input supply, credit, processing, marketing and distribution.
  • Provide interface between the farmer and global market enabling them to export  commodities.
  • Provide access to capital for farmers and manage risk for farmers through diversification.
  • Promote economic democracy at the grass root level.

Initiatives for the Promotion of FPOs

  • The SFAC is the nodal agency at the national level for the creation of FPOs. The SFAC operates a Credit Guarantee Fund to mitigate credit risks of financial institutions which lend to the FPCs without collateral. SFAC also provides matching equity grants up to Rs. 10 lakh to double the share capital of FPCs. 
  • NABARD also provides financial support to the FPOs through two dedicated funds – “Producers Organization Development Fund (PODF)” and PRODUCE Fund (Producers’ Organization Development and Upliftment Corpus) to promote new FPOs and support their initial financial requirements.

Challenges and Issues in Building Robust FPOs

In the last 8-10 years, 5000 FPOs have been formed through initiatives of SFAC (Nodal Agency), NABARD, Government etc. without much success. Hence, to ensure success of a new initiative, the Government needs to acknowledge present weaknesses, analyse their reasons and then take outcome-oriented actions.

  • Promote Collaborative Farming: The FPOs need to be formed on the basis of adjoining land holdings and common produce to ensure higher economies of scale and undertake value addition.
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  • Finances: The reluctance of Banks to give loans has to be countered through enhanced credit support from Government agencies. Further, Just like cooperatives, the FPOs also must be given income tax exemption.
  • Handholding: Need to provide regular training and business level handholding. 
  • Professional Management: It can be improved by enabling the Private sector to invest in FPOs. This will need amendment of Companies Act which currently allows only farmers to be producer members.
  • Market Linkages: Direct procurement by Government; freight subsidy to wholesale buyers; connecting FPOs to online platforms etc.
  • Village Producer Organisations (VPOs): The VPOs can be developed as a joint venture of FPOs such that an entire village region is developed for a predetermined set of agricultural produce with post-production activities. For example, a region having strength in producing fibre crops can be developed as a VPO to include small handloom weavers.

Suggestion for Improved Functioning of FPOs

  • Efficient Selection Mechanism: There is a need for a proper selection mechanism for the promoters/organisation as well as members based on merit to avoid subsidy gouging.
  • Optimal Size Determination: Enables easier monitoring and delivery of attributes like appropriate quality and food safety.
  • Skill and Product Differentiation: Optimal composition with participation of members having different skills is important to reap the gains based on comparative advantage. Further, FPOs can maximise prices for farmers if their products are differentiated.
  • Collaboration with NGOs is essential as they can play a crucial role in the development of FPOs as promoting institutions. Thus, more approaches of social enterprises should be infused to further develop these companies.

Way Forward

The promotion of FPCs should not be seen as a one-time exercise. Though there is sufficient focus on providing financial assistance to FPOs, there is limited hand-holding subsequent to their formation. In this regard, the Government must provide for sustained and continuous support until the time the FPCs become financially viable and independent.

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