The un-realized potential of Farmer Producer Organizations

A group of farmers from Nanded district in Maharashtra have come together to form FPO and have adopted collective farming and collective marketing

Farmer Producer Organizations (FPOs) in various forms whether Producer Companies or SHG federations or Cooperative societies are all types of legal forms of a Farmer Collective.

FPO has become a buzzword that means many things to many people. FPOs in essence represent power of collectivization and aggregation to achieve economies of scale and scope thereby enabling the member farmers improve their productivity and overall profitability. Earlier based on principles of cooperative movements, farmer cooperatives and credit cooperative societies were established in India. Since enactment of new Company Act in 2013, the FPOs were also allowed to register as companies to function as professionally run grassroot organizations with support of capacity building by Government.

NABARD and Small Farmers Agribusiness Consortium (SFAC) have been the two key institutions involved in mobilization, capacity building and development of FPOs in India. In addition to NABARD and SFAC, State Governments, NGOs, etc., have also been promoting FPOs. Whatever is the legal constitution, the FPOs have been positioned as key engines of rural development. However the functioning of FPC as an independent legal entity managed by farmers is the key differentiator which not only professionalizes the business but also positions agriculture as a profitable enterprise. In the present article the challenges and potential of FPOs registered in the form of companies shall be discussed.

When farmers associate and come together as members of a profitable rural enterprise, their bargaining power improves manifold in terms of collective purchase of agri-inputs, aggregated sales of agri-output, market information, market linkages and also access to advisory services, capital , technology and investments. Further the issues of improvement of productivity and profitability of small and marginal farmers can also be comprehensively addressed through adopting FPO centric models and integrating with local processing and value addition. Process standardization is the key and FPCs can achieve sustainable business growth through adoption of standard business processes and best practices related to digital farmer engagement.

However there are several challenges which need to be addressed to help FPOs realize their potential. Although there are close to 10,000 registered FPCs, only less than 5% of them have been able to obtain regular institutional credit. Surprisingly, a total of 79 agencies have extended credit to FPOs, the major among them being only four NBFCs: NABKISAN (135 FPOs), Samunnati (@400 FPOs), Ananya Finance (50 FPOs) and FWWB. Commercial banks, including SBI and some private banks, Regional Rural Banks, and Cooperative Banks have also lent in a sporadic and scattered way. 80% of the funding in terms of amount has been done by only three agencies; NABKISAN, Samunnati and Ananya. The encouraging part of this data is the large number of formal lending institutions who have shown interest and entered into the market. They are looking for opportunities to do more business with FPOs. The National Association of FPOs (NAFPO) has been providing policy and advocacy support for strengthening the FPO ecosystem in India.

As the FPO promotional programmes of SFAC and NABARD tapered-off a few years ago, it resulted in the slowdown of credit flow. This was despite the fact that overall FPO loan portfolio having an overall good repayment grade. One of the reasons is that Bankers are enthused by two things a) building their book - balance sheet or b) interest income. On both these counts, FPO lending do not have much to offer. There is need to build institutions so that the risk sharing is also embedded along with financing. Lending has to be based on the intrinsic worth of the company and not the strength of external agency offering guarantee.

FPOs also need to work on market linkage and scale-up plans to run as successful commercial entity. There is urgent need of an enabling ecosystem to be nurtured for the FPOs.

Keeping in view these insights, Kamatan Farm Tech Pvt. Ltd (Kamatan) is working towards a model of developing KrishiValue Hubs that act as critical bridge between FPOs and markets by providing access to capital, technology and information. Kamatan with its unique farmer engagement approach and professional expertise aims to build a inclusive agri value chain where direct business is enabled between FPOs and the market in an organized and transparent manner. The key value proposition of Kamatan is to position itself as the key orchestrator of the agri-value chain to help FPOs realize their true potential. At Kamatan we work with FPOs to strengthen their innate potential to scale-up, while managing local and systemic risks. The key activities of Kamatan are as follows.

  1. Development of market linkages: Direct purchase of Agricultural produce from FPOs

  2. Transparent transactions and working with FPOs on a profit-sharing model

  3. Assessment and management of working capital requirements of FPOs

  4. Providing Digitization support to FPOs through its ERP solution Kamatan Turbo

  5. Providing advisory support to FPOs through the Kamatan Farmer App.

  6. Working with FPOs for capacity building and training, Quality compliance,

  7. Working with FPOs for supply of Agri-inputs, technical and advisory services

  8. Collaborating with institutional partners for value addition, High value products and brands of rural origin.

To know more or to collaborate with us, do write to us at:

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