On Saturday (29 February), Prime Minister Narendra Modi launched an ambitious programme to form 10,000 Farmers Producers Organisations (FPOs) across the country aimed primarily to help small and marginal farmers.

The 10,000 FPOs will be set up over a five-year period (till 2024) and the Centre has made a budgetary allocation of Rs 4,496 crore for the five years. The FPOs scheme is aimed at benefiting some 86 per cent of the farmers in the country, who have a landholding of less than one hectare.

A Press Information Bureau statement on 19 February said that the Cabinet Committee on Economic Affairs has given its approval for the programme and pointed to the 2019-20 Budget announcement of creation of 10,000 FPOs.

The concept of FPO begun during 2011-12 when a pilot project was launched in partnerships with State governments. The project was implemented through the Small Farmers Agri-Business Consortium (SFAC).

The pilot scheme roped in 2.5 lakh farmers into 250 FPOs for the Rashtriya Krishi Vikas Yojana, National Vegetable Initiative for Urban Clusters, and Programme for Pulses Development in 60,000 rain-fed villages. The pilot programme showed encouraging results and over three lakh farmers were mobilised under village-level farmer interest groups.

Till 31 October last year, 8.28 lakh small and marginal farmers have been identified and aggregated into 822 FPOs.

What are FPOs?

FPOs are member-based organisations which means farmers will be the members. The FPOs will have elected leaders who will be accountable to the members.

The FPOs will comprise societies and trusts, cooperatives, mutually-aided societies and farmer producer companies. The FPOs could be registered under Companies Act 2013 and will be an effective tool of aggregation.

Three agencies have been short-listed to form and promote the FPOs. They are SFAB, National Cooperative Development Corporation (NCDC) and National Bank for Agriculture and Rural Development (NABARD).



States can also nominate their Implementing Agency, if they want, in consultation with the Department of Agriculture Cooperation and Farmers Welfare (DACFW).

The DACFW will decide the cluster and States for these three agencies. They will then set up cluster-based business organisations.

These cluster-based organisations will include specialists from crop husbandry, agri-marketing, value-addition and processing, social mobilisation, law and accounts, and Information technology to provide end-to-end solution on all issues.

What is the Government objective in setting them up?

First and foremost, the plan to set up 10,000 FPOs is part of the Modi Government’s efforts to double farmers’ income. Initially, the Government had planned to set up 7,000 FPOs by 2022.

More importantly, the Centre wants to empower farmers with the “economies of scale”. Small and marginal farmers do not have economic strength to apply production technology, services and marketing including value addition.

The setting up of FPOs will provide better collective strength for improved access to quality input, technology, mechanisation, credit and better marketing access. This will help growers to cut their farm production costs, while enhancing their returns as the FPOs will collectively bargain for them.

The government will promote the FPOs under “One District One Product” cluster to promote specialisation and better processing, marketing, branding and exports. Finance Minister Nirmala Sitharaman made the announcement on “One District One Product” in her Budget presentation in Parliament on 1 February.

The Government will also make provisions of equity grant to strengthen the financial base of these FPOs. It will also set up a Credit Guarantee Fund of up to Rs 1,000 crore in NABARD with equal contribution by DACFW and NABARD

Another credit guarantee fund of Rs 500 crore will be provided in NCDC with equal contribution by DACFW and NCDC for extending credit guarantee cover to FPOs. This will minimise the risk of financial institutions granting loans to these FPOs.

Similarly, States and Union Territories can avail of loans at concessional rate under the Agri-Market Infrastructure Fund. Besides, the Government will hand-hold the FPOs and cluster-based business organisations in providing training.

How will the farmers benefit?

First, farmers will benefit from lower production costs as all inputs - seeds, insecticides, pesticides and fertilisers - will be purchased in bulk at wholesale prices. Hiring of equipment, including for tilling, sowing, planting and harvest, will also be done on a bulk basis, thus lower their expenditure further.

This means, the per hour rates for engaging the services of say, a mechanical harvester, will be decided for the entire group than an individual farmer. This will help them lower the cost for mechanical operations on their farms.

Growers can minimise post-harvest losses as they can jointly opt as a group for better joint storage or avail of value-addition facilities. The FPOs can also help them avoid distress sale when prices crash.

The FPOs can help growers enter into contract farming as a group to ensure an assured return even before they plant their crop and keep farmers informed on price and demand-supply.

The FPOs can also help farmers, as a group, to avail of credit against their harvested produce. This will ensure that the growers can sell their produce during lean arrivals and get higher prices.

Also, the FPOs can hedge the produce of its members on commodities exchanges or even offer them on sale through the electronic National Agriculture Market. In fact, organically grown farm produce are marketed through FPOs.

These are on the lines of farmers organisations in developed countries such as the US and Australia. In these countries, these organisations help farmers to get various products, including vehicles, at discount while ensuring a good price for their produce.

However, FPOs face various challenges such as mobilising farmers, proper management, problems every incubation project faces, limited membership, policies, autonomy and credit restrictions without offering collateral.

Currently, there are over 5,000 FPOs in the country with 30 per cent of them operating viably, while another 20 per cent are struggling to survive. The rest are in the mobilisation stage.

The objective to set up the FPOs is also to give a filip to the rural economy since better returns to farmers will leave them with extra cash in their hands that can be spent on various purchases from vehicles to consumer goods to jewels.