Daily News Analysis

PO and FPOs    

2nd September, 2021 Agriculture


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  • The Tata-Cornell Institute for Agriculture and Nutrition launched a Hub for Farmer Producer Organizations (FPOs) within its Center of Excellence in New Delhi. The Hub features a database of Indian FPOs.


What is a Producer Organisation (PO)?

  • 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.


What is the need for PO?

  • The main aim of PO is to ensure better income for the producers through an organization of their own.
  • Small producers do not have the volume individually (both inputs and produce) to get the benefit of economies of scale.
  • Besides, in agricultural marketing, there is a long chain of intermediaries who very often work non-transparently leading to the situation where the producer receives only a small part of the value that the ultimate consumer pays.
  • Through aggregation, the primary producers can avail the benefit of economies of scale.
  • They will also have better bargaining power vis-à-vis the bulk buyers of produce and bulk suppliers of inputs.


What is a “Farmers Producer Organisation” (FPO)?

  • It 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.


Can there be a PO for non-farmers?

  • The PO is an organization of the primary producers.
  • If the produce in question is a nonfarm item (for example, handloom or handicraft), then the PO will be that of non-farmers.
  • The objective of the PO is to ensure better income realization to its members (who are producers) through aggregation and, if feasible, value addition.


What are the essential features of a PO?

  1. It is formed by a group of producers for either farm or non-farm activities.
  2. It is a registered body and a legal entity.
  3. Producers are shareholders in the organization.
  4. It deals with business activities related to the primary produce/product.
  5. It works for the benefit of the member producers.
  6. A part of the profit is shared amongst the producers.
  7. Rest of the surplus is added to its owned funds for business expansion.


Who owns the PO?

  • The ownership of the PO is with its members. It is an organization of the producers, by the producers and for the producers.


Agrarian Crisis

  • One of the reasons for agrarian distress is the declining average size of farm holdings.
  • Small farmers face several challenges in getting access to inputs and marketing facilities.
  • A number of innovative institutional models are emerging and there are many opportunities for small and marginal farmers in India.
  • group or collective is one of the main institutional mechanisms to help the country’s marginal and small farmers.

The average farm size declined from 2.3 hectares (ha) in 1970-71 to 1.08 ha in 2015-16.

The share of small and marginal farmers increased from 70 per cent in 1980-81 to 86 per cent in 2015-16.

At the state level, the average size of farm holdings in 2015-16 ranged from 3.62 ha in Punjab, 2.73 in Rajasthan and 2.22 in Haryana to 0.75 in Tamil Nadu, 0.73 in Uttar Pradesh, 0.39 in Bihar and 0.18 in Kerala.


Background of FPOs

  • In the last decade, the Centre has encouraged farmer producer organisations (FPOs) to help farmers.
  • Since 2011, it has intensively promoted FPOs under theSmall Farmers’ Agri-Business Consortium (SFAC), NABARD, state governments and NGOs.
  • The membership of an FPO ranges from 100 to over 1,000 farmers. Most of these farmers have small holdings.
  • The ongoing support for FPOs is mainly in the form of, one, a grant of matching equity(cash infusion of up to Rs 10 lakh) to registered FPOs, and two, a credit guarantee cover to lending institutions (maximum guarantee cover 85 percent of loans not exceeding Rs 100 lakh).
  • India has 5,000 to 7,500 such entities as per different estimates and a majority of them are farmer producer companies.
  • The budget for 2018-19 announced supporting measures for FPOs including a five-year tax exemption while the budget for 2019-20 talked of setting up 10,000 more FPOs in the next five years.


Performance of FPOs

  • Experience shows a mixed performance of FPOs in the last decade. Some estimates show that30 percent of these are operating viably while 20 per cent are struggling to survive.
  • The remaining 50 per cent are still in the initial phase of mobilisationand business planning.
  • FPOs in Gujarat, Maharashtra and Madhya Pradesh, Rajasthanand some other states have shown encouraging results and have been able to realise 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.
  • NABARD has undertaken a field study on the benefits of FPOs in Punjab and Madhya Pradesh. The study shows that in nascent FPOs, the proportion of farmer members contributing to FPOs activities is 20-30 per centwhile for the emerging and mature FPOs it is higher at about 40-50 percent.
  • In Maharashtra, some of the FPOs have organically evolved (OFPOs) when farmers have taken the lead to adopt market-oriented practicesdevelop cost-effective solutions in production and marketing.



  • Studies of NABARD show that there are some important challenges for building sustainable FPOs.
  • Some of these are:
  • lack of technical skills,
  • inadequate professional management,
  • weak financials,
  • inadequate access to credit,
  • lack of risk mitigation mechanism and
  • inadequate access to market and infrastructure.





Way Forward

  • Among other things, we emphasise on three issues for the improvement of FPOs in order to help the small farmers.
  • The above issues such as working capital, marketing, infrastructurehave to be addressed while scaling up FPOs.
  • Getting credit is the biggest problem. Banks must have structured products for lending to FPOs. These organisations lack professional management and, therefore, need capacity building.
  • They have to be linked with input companies, technical service providers, marketing/processing companies, retailers They need a lot of data on marketsand prices and other information and competency in information technology.
  • FPOs can be used to augment the size of the landby focusing on grouping contiguous tracts of land as far as possible — they should not be a mere grouping of individualsWomen farmers also can be encouraged to group cultivate for getting better returns. FPOs can also encourage consolidation of holdings.



  • To conclude, FPO seems to be an important institutional mechanismto organise small and marginal farmers. Aggregation can overcome the constraint of small size.
  • The real hope is in farmer producer organisations (FPOs) that allow members to negotiate as a groupand can help small farmers in both input and output markets.
  • The FPOs have to be encouraged by policy makers and other stakeholders apart from scaling up throughout the country to benefit particularly the small holders.
  • While small farmers gain greater bargaining power through FPOsin relation to the purchase of inputs, obtaining credit and selling the produce, the fundamental problem of the small size of holdings giving only a limited income is not resolved.
  • While incomes will rise because of the benefits flowing from FPOs, they may not still be adequate to give a reasonable incometo small and marginal farmers. That issue has to be handled separately.