Farmers Producing Organization – A Need for Improving Rural Economy

An FPO or Farmer Producing Organization is an entity established under legal framework comprises by primary producers, i.e. farmers, milk producers, fishermen, weavers, rural artisans, craftsmen, vegetable vendors etc. The concept of  Farmer Producer Organizations (FPO)' consists of collectivization of producers, especially small and marginal farmers, with the objective to form an effective alliance to collectively address underlying problems associated with agriculture such as improved access to investment, technology, inputs, markets, existing intermediary barriers etc.  

A Producing Organization (PO) can be a production company, a cooperative society or any other legal form which provides for sharing of benefits among the members (in this case farmers). The FPOs are generally managed by promoting institutions/ Resource Agencies (RAs). Small Farmers Agribusiness Consortium (SFAC) provides support for the promotion of FPOs. The resource agencies (RA’s) leverage the support available from governments and agencies like NABARD to promote and nurture FPOs, although a lot needs to streamline the system so as to give the desired results.  

FPO’s are established in the country ensure better income for the producers or the growers through an organization of their own. The major reason for establishing FPO is to enable farmers in reaping the benefits of economies of scale (or enhancing revenue and optimizing operations) which they are unable to do individually. Small scale or medium scale farmers generally do not have adequate finances or resources to run their livelihood/farming operations properly. In agricultural marketing, there is a long chain of intermediaries who very often work with lesser transparency. This often results in farmers receiving only a lesser remuneration, which he would have received. Here lies the advantage of doing business through FPO because through this form of aggregation, the primary producers can avail the benefit of economies of scale.  

The essential features of a Farmers Producing Organization are - It is formed by a group of crop growers for farm or activities. It is a registered body and a legal entity. Farmers are shareholders in the organization. A FPO deals with business activities related to the primary produce/product i.e. the crop which is grown by the farmer members.  The Organization works for the benefit of the farmers. Also, some percentage of the profit is shared amongst the farmers while balance surplus is added to the FPO funds for expanding the business.  

India’s first Farmer Producer Company was the Vanilla India Producer Co. in Kerala, which was established in year 2004. The numbers have increased to nearly 5000 since then. Details are given below  

Source: Business Standard  

There are lots of success stories about FPO’s running operations successfully, apart from addressing rural problems or challenges. According to SFAC report, Paddy produced by farmers in Kuraon block in Allahabad was well known for its quality in UP. But the farmers were facing difficulty in marketing paddy. Several middlemen were engaged in purchasing paddy from farmers’ doorsteps at a price decided by the middlemen, and hardly there was any direct linkage between the farmers and the mandi or the rice millers. These middlemen used to sell them either in mandi or to big rice millers which are 110 in numbers, after buying paddy from the growers. Shri Kuraon Farmer Producer Company Limited owned by small and marginal farmers started collecting paddy from farmers. The company then decided to sell growers’ paddy in mandis and also sell directly to the rice millers.  

The Board of Directors initially decided to explore the buyers, to in order to reduce the risk involved in the process. Afterwards they succeeded in getting some order for paddy from a few rice millers. The FPO then bought paddy of the growers in small quantities and supplied to the rice millers. A total of 120 quintals of paddy was bought from 47 shareholders and sold to the rice millers initially. The company decided to procure paddy directly from the growers’ house and for this purpose, it established four temporary procurement/collection centers. The FPO bought jute bags to carry the paddy. The FPO had procured paddy worth Rs1.74 lakhs during the month of February 2017.  

Similarly involvement of FPO’s in hedging crop risk by participating in futures market has started increasing. In coming weeks, coverage will be on this aspect in details. Stay tuned to the sections of “Commodity Update”/”Featured articles” etc to get further insight on hedging crop risk through futures market/role of FPO’s in futures market etc.  

The first futures trade by an Indian FPO took place in 2014 when the Ram Rahim Pragati Producer Company – an enterprise started by 3,000 women belonging to self-help groups in a tribal area of Madhya Pradesh, was successfully in hedging price risk of soya bean on the National Commodity and Derivates Exchange (NCDEX). By September 2019 NCDEX had successfully added FPO’s, covering nearly 4.6 Lakh farmers from the group. Total states covered were 13 and reportedly most farmers of Madhya Pradesh, Bihar, and Rajasthan were able to receive nearly 20% higher farm-gate prices for wheat, maize, mustard seed, and soybean, which were actively hedged on NCDEX. For further understanding on futures trading in Agriculture, kindly

visit https://krishijagran.com/blog/futures-trading-in-agriculture-key-solution-for-addressing-farmers-problems/ 

Importance of FPO’s is therefore increasing every year in shaping economic activities of rural areas/villages. Since the major objective of FPO’s is to enhance livelihood of farmers/rural area or village residents and it helps individual farmers in improving their financial standards, it is now understood that to improving rural economy there is need to recognize the importance of these organizations by the government and come out with effective measures in order to resolve current issues with the FPO’s and obtain desirable results in longer run. The Centre in February 2020 announced plans to promote 250 new farmer-producer organizations (FPOs) for financial year (2020-21). This is towards meeting its target of creating 10,000 new FPOs in the next five years. According to the new guidelines issued by the government, FPOs will have to have a minimum 300 members, down from the existing requirement of 1,000. Currently, India has roughly 5,000 FPOs/farmer-producer companies (FPCs) of which almost 2,100 have been promoted by the National Bank for Agriculture and Rural Development (NABARD) in the last few years.