Farmer Producer Organization (FPO)

By Mayashree Acharya

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Updated on: Jan 21st, 2022

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6 min read

A Farmer Producer Organization (FPO) is a type of Producer Organisation (PO) where farmers are its members. The PO is an organisation of any produce, such as non-farm products, agricultural, artisan products, etc., by producers. The Small Farmers’ Agribusiness Consortium (SFAC) provides support for FPOs promotion.

The aggregation of marginal, small and landless farmers as FPOs has helped increase market linkages to improve farmers’ income and economic strength. It provides end-to-end services and support to the small farmers and covers marketing, technical services, processing, marketing and other aspects of cultivation inputs.

The idea behind the FPOs is that the farmers who are the producers of agricultural products can form groups and register themselves under the Companies Act, 2013.

Goal of FPO

The goal of FPOs is to increase farmers’ advantage in emerging market opportunities and their competitiveness. The primary operations of the FPOs include the supply of seed, market linkages and fertiliser, machinery, training, financial, networking and technical advice. 

The main aim of the FPOs is to increase the income for the producers through an organisation of their own. A small producer does not have the volume to take advantage of economies of scale. A chain of intermediaries in agricultural marketing often works non-transparently, leading to a situation where the producer receives only a small portion of the value that the ultimate consumer pays. The FPOs will help to eliminate the chain of intermediaries in agricultural marketing.

The primary producers can benefit from the economies of scale through accumulation. The farmers’ producers have good bargaining power in the form of bulk suppliers of inputs and buyers of produce.

Features of FPO

  • The FPOs are voluntary organisations controlled by farmer-members who actively participate in making decisions and setting policies.
  • The FPOs are open to persons who are willing to accept the responsibilities of membership without social, gender, political, racial, or religious discrimination.
  • The FPOs provide training and education for their farmer-members, managers, elected representatives, and employees to contribute to the FPOs development effectively.
  • The FPOs are promoted and formed through the Cluster-Based Business Organisations (CBBO) and engaged at the cluster or state level by implementing the agencies.
  • The FPOs are promoted under the ‘One District One Product’ to encourage better branding and specialisation, processing, marketing, and exports by the FPO.
  • The FPOs provide hand-holding, adequate training, and the CBBOs give the initial training.
  • Priority is given for the FPO formation in aspirational districts, with a minimum of one FPO in every block of the aspirational districts.

Benefits of FPO

Declining average land-holding size: The small and marginal farmers share increased from 70% in 1980-81 to 86% in 2015-16. The FPOs can engage farmers in addressing productivity issues, collective farming and emanating from small farm sizes. It may also result in additional employment generation because of the increased intensity of farming.

Negotiating with corporates: The FPOs can benefit farmers to compete with large corporate enterprises in bargaining. It allows farmer members to negotiate as a group and help small farmers in both output and input markets.

Economics of aggregation: The FPOs can provide quality and low-cost inputs to member farmers such as the purchase of machinery, loans for crops, input agri-inputs (pesticides, fertilisers, etc.) and direct marketing after agricultural produce procurement. It will enable members to save time, distress sales, transaction costs, price fluctuations, quality maintenance, transportation, etc.

Social impact: Social capital will develop in FPOs, improving women farmers’ decision-making and gender relations in the FPOs. It will enhance food, reduce social conflicts and nutritional values in the community.

Promotion of FPO by Government

Since 2011, the government has intensively promoted the FPOs under the NABARD, SFAC, NGOs and state governments. There was an announcement of measures for supporting the FPOs in Budget 2018-19, including a five-year tax exemption. The Budget 2019-20 talked of setting up additional 10,000 FPOs in the next five years.

The ongoing support for the FPOs is mainly in the form of a grant of matching equity, i.e. cash infusion of up to Rs.10 lakh to registered FPOs, and providing credit guarantee cover to lending institutions, i.e. maximum guarantee cover 85% of loans not exceeding Rs.100 lakh).

The Ministry of Agriculture and Farmers Welfare stated that the FPOs are developed under ‘One District One Product’ production clusters, where the horticultural produce and agriculture are cultivated or grown to improve market access for members and leverage economies of scale.  

Disclaimer: The materials provided herein are solely for information purposes. No attorney-client relationship is created when you access or use the site or the materials. The information presented on this site does not constitute legal or professional advice and should not be relied upon for such purposes or used as a substitute for legal advice from an attorney licensed in your state.

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A Farmer Producer Organization is a type of Producer Organisation where farmers are members, organized to improve farmers' income by offering support like marketing, technical services, and financial assistance. FPOs aim to eliminate intermediaries, promote collective bargaining, benefit from economies of scale and social impacts. The government supports FPOs through grants, tax exemptions, and credit guarantee cover.

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