Back to the drawing board on FPOs?

We have been producing crops with multiple risks. We will be very happy when we get a fair price for our produce.” This is the refrain of almost any farmer.

Indian agriculture is predominantly small farmer led. Eighty seven per cent operate less than 2 ha holdings (average 1 ha) and cultivate 47 per cent of our land. The late YK Alagh suggested amending the Companies Act of 1956 to enable formation of Farmer Producer Companies/Organisations (FPCs/FPOs), probably to address this intractable issue of agriculture marketing. Has the situation improved since FPOs came into existence around 2008?

It is important to keep two aspects in mind with respect to development of the FPO space. First, there should be clarity on basic goals.

The other crucial policy takeaway is the benefit of focusing on a few FPOs which have the necessary attributes to be successful, thereby setting an example for the rest — rather than spraying money across a number of them.

Every type of organisation — be it Civil Society Organisations (CSOs), governments, private sector companies, start-ups — either wants to promote or be involved with FPOs. The expectations are rather high. FPOs are expected to aggregate members’ produce, pay them and secure better prices by becoming market-makers. But expecting them to adopt refined practices, such as fair trade, gender-sensitivity, climate smart agriculture, regenerative agriculture, even before stabilisation of this basic process, is being unrealistic.

Activities such as input supplies, licences for fertilizers/pesticides, PDS procurement, custom hiring centres, acquiring fixed assets for processing and convergence with government schemes, is another big ask. So, the basic foundation should first be in place.

Status of FPOs

Per available estimates (Tata-Cornell Institute and others), about 45,000 FPOs are registered as companies; about 16,000 are compliant with all their filings and 4,000 have received working capital loans for procuring members’ produce. Average membership of FPOs is 500 members. About 15-18 per cent have about ₹10 lakh equity.

Working capital limits are hovering around ₹18 lakh/year/FPO. Average net-profit is ₹3 lakh/FPO. Further, around 20,000 FPOs are registered under cooperative laws.

What is a good metric to assess our FPOs? Availability and quantum of working capital reflects FPOs well-being and could be a basic metric. Farmers’ income enhancement could be another, but that is not feasible with just ₹3 lakh net-profit/FPO. Niche NBFCs provide most working capital loans. Some NBFCs go all the way from the advisory stage, doing entire value chain financing to markets. This is the best way forward.

The development of the FPO sector raises certain key issues:

(i) Can FPOs be a one-stop solution for agriculture?

(ii) GVA of agriculture and allied sectors is about ₹23 lakh crore at constant prices and over ₹50 lakh crore at current prices. e-NAM’s traded value is just ₹3.19 lakh crore (with 1.8 crore farmers, 2.6 lakh traders, 3,500 FPOs and volume of 89.6 million tonnes). What can we infer from these numbers on the role and performance of FPOs?

(iii) Can we expect all FPOs to be sustainable when margins from input and output marketing are thin (about 3-6 per cent)? Is the FPO business model robust enough, generally speaking, or is it contextual?

(iv) Farmers have been cultivating and marketing through middlemen through the ages. FPOs too are marketing through them. Farmer-middlemen relationships are intricate. Many villages still function based on trust based systems. Some exhibit feudal and paternalistic characteristics also. Expecting FPOs to replace nimble middlemen is overambitious.

(v) The government has committed ₹6,865 crore for creating 10,000 FPOs. If we consider 500-members/FPO, coverage would be 50 lakh farmers. Is it possible to bring our 11 crore farmers on an FPO platform? Or can fewer, exemplar FPOs create a catalytic effect?

(vi) Did the multitude of FPO stakeholders, contribute to increasing 3.25 crore farmer members’ income (65000x500=3.25cr)?

(vii) Are we turning FPOs into mere outsourcing channels, for procuring, selling and custom hiring centres?

(viii) Social capital (existence of a social consensus, thanks to capacity building, to work for a common cause) is a must for FPOs to thrive and hence, there is a necessity for a gestation period to create such social capital. FPOs, or any organisation that runs on social networks, cannot take root overnight. This implies prudent use of existing resources, rather its distribution over a number of units.

What Next?

Successful FPOs do exist, because of their capable and charismatic leaders, trusted members, catalytic CSOs and a good business model. FPOs are successful in pockets, where farmers are well organised with supportive systems and markets. That is an ecosystem success story.

The government can concentrate on creating iconic FPOs, working with CSOs and philanthropies. Further steps are needed, such as literature on: easy to understand and actionable know/do-how; learning management solutions and how to place unique FPO products on ONDC/digital marketing platforms, may be kept in public domain, in all languages.

The effort should be to create exemplar FPOs for others to emulate, which can emerge organically through genuine and felt need. A cadre of local, self-employed, young professionals can make that happen, by building village level institutions like FPOs, which will pay them. These selected wo/men, after their 12th standard, may be trained at select universities through specially designed courses.

The writer is former Deputy Managing Director, NABARD. Views are personal

Published on May 1, 2025