THEOPTIMISTICJOURNALIST

“The 10,000 FPOs being formed across the country will turn small farmers into businessmen and make them a major force in the market”. – Prime Minister MODI

“More than 85% of farmers in India are small or marginal… FPOs are designed to strengthen these stakeholders and make them self-reliant”. – Prime Minister MODI

WHAT IS A FARMER PRODUCER ORGANISATION

A Producer Organisation (PO) is a legal entity formed by primary producers, viz. farmers, milk producers, fishermen, weavers, rural artisans, craftsmen. A PO can be a producer company,a cooperative society or any other legal form which provides for sharing of profits/benefits among the members. In some forms like producer companies, institutions of primary producers can also become member of PO.

(https://farmerconnect.apeda.gov.in/Home/ForGroups?PaccessID=1)

Farmers Producer Organisation (FPO) is one type of PO where the members are farmers. Small Farmers’ Agribusiness Consortium (SFAC) is providing support for promotion of FPOs. PO is a generic name for an organization of producers of any produce, e.g., agricultural, non-farm products, artisan products, etc.

(https://farmerconnect.apeda.gov.in/Home/ForGroups?PaccessID=1)

An FPO preserves the private ownership of farms by the farmers and strengthens farmers by collectivising market power. The FPOs were formed because 86% of India’s farmers own lands of less than 2 hectares. To empower this overwhelming number of small and marginal farmers, the FPOs came into picture.

WHAT AN FPO ACTUALLY MEANS:

Many small, private farmers pooling their economic power — not their land ownership — to operate like a large enterprise.

Key point:

• Land stays with individual farmers
• Decisions are collective
• Purpose is market power, not state control

How it works

• Each farmer keeps full ownership of land
• Farmers become shareholders
• Profits are:
  • Reinvested, or
  • Distributed among farmer-members
• Board of Directors = farmers themselves

Although the FPOs were formed to economically empower the small and marginal farmers by scaling the farmers’ produce without dispossessing them of their land, they are failing despite their good intentions.

WHY DO THE FPOs FAIL

Lack of professional management (the biggest reason)

FPOs are enterprises run by farmers. Usually, farmers have no prior exposure to business operations. The FPOs are faced with poor inventory management and lack accounting discipline. Since these are enterprises run by farmers (who usually do not have prior business experience) they end up doing weak negotiations.

Lack of Working Capital

Also, FPOs need cash to buy produce from member farmers, store and transport the agricultural produce, and process the agricultural products. But Banks see FPOs as high risk as the FPOs have seasonal cash flows and weak collateral.

It is easy to produce agricultural products but difficult to access markets

As a result, the FPOs can produce well but struggle to:

• Find reliable buyers
• Meet quality standards
• Maintain consistent supply

Large buyers want:

• Uniform quality
• Predictable volumes
• Compliance paperwork

Small FPOs cannot guarantee this.

Weak Trust Among Farmers

Indian farmers often:

• Join because of subsidies
• Exit when prices rise outside
• Suspect leaders of corruption

Without trust:

• Collective selling breaks
• Volume disappears
• Buyers walk away

Cooperation fails before economics does.

Elite capture and local politics

Often:

• Wealthy farmers dominate boards of the FPOs
• Marginal farmers end up as silent members
• Benefits get skewed

This destroys:

• Democratic legitimacy
• Participation
• Long-term unity

Value Addition is missing

Most FPOs:

• Sell raw produce
• Compete on price alone
• Face the same traders as individuals

Without:

• Storage
• Processing
• Branding

They cannot escape price volatility.

Too much bureaucracy, too little handholding

Government support is:

• Heavy on registration
• Light on mentorship

After incorporation:

• NGOs exit
• Officers rotate
• FPOs are left alone

THE STEPS TAKEN BY MODI GOVERNMENT TO MAKE FPOs SUCCESSFUL AT EMPOWERING SMALL AND MARGINAL FARMERS IN INDIA

1. THE PROFESSIONAL MANAGEMENT OF FPOs: The FPOs must hire professional management for running the Enterprise side of the FPOs under performance linked contracts. The Youth at Agricultural Universities must be trained with running the FPOs as Enterprise.
2. GOVERNMENT AS THE UNDERWRITER: The government must work as underwriter in case there is loss for the farmers.
3. Farmers must frame the strategy of the FPOs instead of focussing on the business operations of the FPOs.

The distribution of profits of the FPOs is in proportion to the quantity of agricultural produce delivered by the farmers.

Capital: government as risk absorber

Government should:

• Provide first-loss capital
• Guarantee working capital loans
• Facilitate the construction of facilities for storage, grading and processing by building rural infrastructure.

The government should not fix prices for the agri-produce and should not influence daily operations of the FPOs

To ensure value addition to the agricultural produce and ensure processing of the agricultural products, the Government is also promoting FOOD PARKS in the rural areas, with FPOs owning processing unit inside the Food Park. Some Food Parks have signed buyer MOUs as well.

What are Food Parks?

Food Parks are cluster-based agro-processing zones where:

• Processing units
• Cold chains
• Warehousing
• Logistics
  exist in one location.

India promotes these through the Mega Food Park Scheme.

THE FOOD PARKS have FOOD PROCESSING COMPANIES as EQUITY PARTNERS with a significant percentage of equity while majority shares stay with the FPOs and the farmers. However, guidelines allow diverse SPV composition (state entities, private investors), but buyer-equity as a standard requirement is not a statutory requirement. Buyer-equity is present in case of some food parks, which is a good sign.

Food Park governance mandates procurement through FPOs as the primary suppliers. The food processing companies must build their facility inside the food park, buy the agricultural products based on Pre-agreed pricing formula (not fixed price) and they must offer Quality-based premiums to the FPOs. In the early years, Government must provide minimum utilisation guarantee and viability gap funding linked to throughput. The government support must decline over a period of time.

For facilitating the exports of horticulture, spices, marine products from the food parks.

• Park must have export aggregator firms
• Certification support (GlobalGAP, HACCP)
• Customs/logistics facilitation

Banks like NABARD/SIDBI are make lending decisions based on anchor buyer MoUs.

Food parks are being connected to freight corridors leading to airports, seaports, etc.

As per latest budget dated February 1, 2026, The Modi Government is also considering creation of Livestock FPOs.

Overall, the FPOs are being used effectively to help farmers raise their incomes. In future, it can be expected that more FPOs will be created and even greater number of Food Parks will be created compared to the 41 Food Parks available at present.