Role of Farmer Producer Organizations (FPOs) in Doubling Farmers' Income

Agriculture has always been a lifeline of the Indian economy, providing livelihood to millions of farmers; However high production costs, and low access to credit, as well as poor market linkages hinder the sector’s growth. This adversely impacts India’s ranks of small and marginal farmers, which comprises around 85% of the sector. Aggregation and consolidation provide a means for these farmers to unite and reap the benefits of economies of scale, making this a critical means to create new growth paradigms.

Farmer Producer Organizations (FPOs) are one such farmers’ aggregate, an organizational mechanism mobilizing farmers’ collective that seeks to improve their own economic and social situation and that of their communities. Although still nascent, they have come a long way in the past several years and are fast becoming a critical component of the agricultural value chain in India.

This Article deals with How Farmer Producer Organizations (FPOs) can help Doubling Farmers' Income. Learn About Farmer Producer Organizations (FPOs), how they are formed, major benefits of Forming FPOs and How it can help India in economics of Scale.

Role of Farmer Producer Organizations (FPOs) in Doubling Farmers' Income

One of the reasons for agrarian distress is the declining average size of farm holdings. 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.

Recognizing the problems of small and marginal farmers in India, the government is actively promoting Farmers Producer Organization (FPO). The aggregation of small, marginal, and landless farmers in FPOs has helped enhance the farmers’ economic strength and market linkages for improving their income.

What are FPOs?

  • A Farmer Producer Organization (PO) is a legal entity formed by primary producers, viz. farmers, milk producers, fishermen, weavers, rural artisans, craftsmen. 

    The concept of 'Farmer Producer Organizations, (FPO)' consists of collectivization of producers especially small and marginal farmers so as to form an effective alliance to collectively address many challenges of agriculture such as improved access to investment, technology, inputs, and markets. FPO is one type of PO where the members are farmers.

    The FPOs are generally mobilized by promoting institutions/resource agencies (RAs). Small Farmers’ Agribusiness Consortium (SFAC) is providing support for the promotion of FPOs.

  • The membership of an FPO ranges from 100 to over 1,000 farmers, most of these farmers have small holdings.
  • FPOs operatives provide education and training for their farmer-members, elected representatives, managers, and employees so that they can contribute effectively to the development of their FPOs.
  • FPOs in Gujarat, Maharashtra and Madhya Pradesh, Rajasthan and some other states have shown encouraging results and have been able to realize higher returns for their produce.
  • FPOs are promoted by Small Farmers’ Agri-Business Consortium (SFAC), NABARD, state governments and NGOs.

Farmer Producer Organizations (FPOs)

Benefits of Forming FPO

Declining Average Land Holding Size : As mentioned above the average farm size have been declining continuously with the increase in population. FPOs can engage farmers in collective farming and address productivity issues emanating from small farm sizes.

Negotiating With Corporates: FPO can help farmers compete with large corporate enterprises in bargaining, as it allows members to negotiate as a group and can help small farmers in both input and output markets.

Economics of Aggregation: The FPO can provide low-cost and quality inputs to member farmers. For example, loans for crops, purchase of machinery, input agri-inputs (fertilizers, pesticides, etc.) and direct marketing after procurement of agricultural produce.

Social Impact: Social capital will develop in the form of FPOs, as it may increase women participation in Agriculture and reduce social conflicts and improved food and nutritional values in the community.

Challenges Faced by FPO

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.

Steps taken by Government to Promote FPO

Government of India has launched a new Central Sector Scheme titled "Formation and Promotion of 10,000 Farmer Produce Organizations (FPOs)" with a clear strategy and committed resources to form and promote 10,000 new FPOs in the country with budgetary provision of Rs 6865 crore.

FPOs are to be developed in produce clusters, wherein agricultural and horticultural produces are grown / cultivated for leveraging economies of scale and improving market access for members. “One District One Product” cluster to promote specialization and better processing, marketing, branding & export. 

Under this Central Sector Scheme with funding from Government of India, formation & Promotion of FPOs are to be done through the Implementing Agencies (IAs). Presently 09 Implementing Agencies (IAs) have been finalized for formation and promotion of FPOs SFAC, NAFED, NABARD, NCDC, NERAMAC, TN-SFAC, SFACH, WDD-Karnataka, FDRVC of MoRD.

  • Implementing Agencies (IAs) will engage Cluster Based Business Organizations (CBBOs) to aggregate, registered & provide professional handholding support to each FPO for a period of 5 years

During 2020-21, a total of 2200 FPO produce clusters have been allocated for formation of FPOs, which also include specialized FPO produce clusters such as 100 FPOs for Organic, 100 FPOs for Oil seeds etc

Funding to FPO

  • FPOs will be provided financial assistance upto Rs 18.00 lakh per FPO for a period of 03 years. 
  • In addition to this, provision has been made for matching equity grant upto Rs. 2,000 per farmer member of FPO with a limit of Rs. 15.00 lakh per FPO and 
  • A credit guarantee facility upto Rs. 2 crore of project loan per FPO from eligible lending institution to ensure institutional credit accessibility to FPOs.

In addition to above, under Deendayal Antyodaya Yojana- National Rural Livelihood Mission (DAY-NRLM), Ministry of Rural Development, Government of India, had been promoting FPOs by mobilizing farmers, building market linkages through a value chain development approach for farm based livelihood is an important strategy under this mission. 
  • DAY-NRLM has promoted 177 FPOs in the country out of which 15 FPOs are promoted in Jharkhand and 20 FPOs in Odisha.

Way Forward

Some studies show that we need more than one lakh FPOs for a large country like India while we currently have less than 10,000.

First, the above issues such as working capital, marketing, infrastructure have to be addressed while scaling up FPOs. Getting credit is the biggest problem. Banks must have structured products for lending to FPOs

These organizations lack professional management and, therefore, need capacity building. Second, they have to be linked with input companies, technical service providers, marketing/processing companies, retailers etc.


To conclude, FPO seems to be an important institutional mechanism to organize small and marginal farmers. Aggregation can overcome the constraint of small size. They can’t compete with large corporate enterprises in bargaining. The real hope is in farmer producer organizations (FPOs) that allow members to negotiate as a group and 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 to double the income of Farmers.

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