Farmer Producer Companies – Gray Areas to Address

 

Farmer Producer Companies – Gray Areas to Address.

By Dinesh K Kapila, CGM (Retd) NABARD

(Published in Business Sandesh on 01/01/2026)

 

There are now enough reasons to think that there is an effective  FPO movement in our nation. It is broadly articulated that FPOs are inherent for a new deal for rural India and to promote entrepreneurship. FPOs also figure as an integral part of discussions in several forums on agrarian issues and deliberations on an appropriate policy and ecosystem to  support them. Despite the unprecedented growth in the number of FPOs (Farmer Producer Organisations) being formed across the country, are there challenges faced by the FPOs? Are these challenges faced by most new organizations or do they need policy changes. Or operational reorientation. Discussions with practitioners (Mr Punit Singh Thind and Mr Kamaljit) were enlightening as with some officials. A moot point, any large movement or drive, by its very nature, is normally bracketed within an overall policy structure, often narrow in bandwidth, its very nature demands this approach. This is both a challenge and a facilitation in the field.  

 

The issue broadly broached was as to why some of the FPOs (FPOs and FPCs being considered as one and the same) fail to achieve their true potential. Why the underperformance. Where is the disconnect. How to overcome it. Any personal insight. The discussions were revealing. A simple response received was that many FPOs underperform because individually farmers find it easier to operate alone than to work collectively within a policy framework that is often inflexible, top-down and process controlled by promoting institutions. This disconnect begins right from the promotion stage and continues through implementation. Some major observations I could discern are, the problem starts with the promotion itself. The promoting institution could have priorities and a focus often at a variance than that of farmers or members. Their goals and target orientation within a timeline at times dilutes the real purpose of building strong, farmer-owned institutions. Secondly, identifying farmers is another challenge, to meet the goals,  farmers are enrolled not on the alignment of their capabilities and interests but on emphasizing access to grants and subsidies. This is the incentive. As a result, many FPOs start without a core group of motivated or business-oriented members. Thirdly, the policies of the Government apparently tend to benefit large, well-funded NGOs and agencies that operate at scale, rather than smaller grassroots organisations that do have a deeper local presence and better farmer relationships.  Fourthly, at the FPO level, a perceptible lack of vision, training, clarity on the fundamental concept of a FPO (the commercial emphasis) and operating them with a focused approach for profitability and group interest is a major challenge. Limited training and the rather lack of clarity and orientation towards profitability make it difficult for FPOs to operate as viable enterprises. Fifthly, In North West India particularly, the MSP dominant and MSP oriented crop regime is another bottleneck, the cropping system is within a narrow product range and system, it does not promote a business orientation and does not provide the necessary incentive to the FPO to reorient itself to a  model which is linked to the market. Lastly, though more region specific, Centre-State relations and cross purposes could be concerns.

Another perspective is that while the Farmer Producer Companies (FPCs) are structured under Company Law, yet in practice they are often handled with emotions, assumptions, and non commercial interventions. As a practitioner put it, he began his association after studying corporate laws as applicable to FPCs and cooperative development models. It was observed that  more emphasis on the legal aspects and compliances was required. The training manuals could ideally have inputs from entrepreneurs and their perspectives, aligning incorporation under the Companies Act with the entrepreneurial spirit required for FPCs. The emphasis on a certain viable number of farmers as members was often an impediment as inculcating the true nature of the concept to a broader mass in a tight time frame was often a major challenge. Some inflation of membership was a reality. The Board of Directors and the farmers, The CEO, The Company Secretary and  The Statutory Auditor (Chartered Accountant) have to function in a coordinated manner; then only the FPC can strive for achieving its potential, possibly a slower approach, fewer members, more share capital, could provide more stability. Trained BoDs and informed farmers initially take the lead and attract more serious members. Slowly, the numbers do add up. With this approach, the scale may vary as regards numbers and profits, but the FPOs are normally self sustaining. Each promoting organization should ideally have a small, capable team and trained thoroughly in company law, rules, and regulations and the realities of markets.

The learnings that do sort of indicate themselves are that the farmers as members must first have a deep conceptual clarity about what an FPC truly is. Banks should be associated once a FPC develops its own roots and establishes a proven business model. Furthermore, bankers too need a deeper understanding of cash flow based  lending and the domain knowledge of Farmer Producer Companies. Most practitioners do believe that a higher amount of paid up share capital, drawn upon in phases, ideally around Rs 25,000 per member would be more effective, fewer members with a higher paid-up capital could give the company more operational strength. Farmer–FPC transactions must be actively encouraged to build internal business volume.  The basic criterion for becoming a director should be the candidate’s demonstrated willingness and ability to attend Board meetings regularly. Directors must be paid for attending Board meetings to ensure accountability and professionalism.  The CEO should preferably not be a relative of any Board member. The FPC must have an independent office and dedicated staff. Board members and farmers should not be involved in executing operational tasks; execution must be handled solely by the CEO and staff. This reduces chances of conflicts and politics.

The crux is that to nurture and scale individual FPOs, the emphasis of the policy should be the adoption of a phased approach, start with incubation, mainly member awareness and trust building, registration, basic training and systems development, growth/acceleration, maturity, more market linkages, and expanding operations at a larger scale. Each phase should include FPC focused support systems, clear goals, and appropriate financial instruments. The transition from one stage to the next could depend on demonstrated governance maturity and member engagement. A phased calibrated approach would allow ownership and risk appetite to grow.  

 

The emphasis on Horticulture for FPOs has its own challenges. Fruits and vegetables have a different challenge. Unlike milk, there are limits to their processing, preservation or value-added products. The demand for processed products is less and needs investments in branding. Vegetables and fruits vary so much in supply and demand even within a state. Mass aggregation and quality control, packaging and grading are all major challenges. Supply chain interventions are problematic and farmers running their own supply chains is often not viable. Farmers need to be organized but supply chains work the year around, production is cyclical.

 

A very successful Agritech oriented start up on this region has reoriented the model in that it  associates closely from the entry point with extension and support by way of inputs and products (crop variety) to take up and then closely aligns it with the processing or supply chains. The governance model works largely with support from a central node and close monitoring.  Branding has been ensured for varied products with its own name (the start up).  With robust quality control. The inherent entrepreneurial drive of the CEO of the Start up has aligned smoothly with the FPCs and driven growth, with suitable pivots (based on field realities) along the journey. The main learning is that without an enabling environment of supportive markets and infrastructure to strengthen backward and forward linkages, FPOs may not be able to achieve their full potential. Market realities and the actual practical working modalities are often not conveyed as a part of training.  The consensus broadly is that Farmer Producer Organisations (FPOs) can significantly improve their performance and sustainability by focusing on strengthening internal governance, adopting professional business practices, securing tailored financial access, and enhancing market linkages.

Another pertinent issue, FPOs follow the principle of ‘one member, one vote’, giving even smaller producers an equal voice. The awareness of their rights and duties as members is crucial for good governance. Without engaged and informed shareholders, an FPO’s decisions can reflect the individual interests, while undermining the collective interests of the farmers. The board, thus, needs to hold regular meetings with the management team and the larger group of shareholders for mission alignment and conflict resolution. When decisions emerge from shared deliberation, they strengthen the sense of ownership and the social fabric of the enterprise.

The interests of the producers can sometimes also conflict with those of the enterprise. For example, farmers might want varied branded inputs, but for the FPO it could be financially viable to procure a large quantity of a single brand. In such instances, consensus building cannot be rushed. Producers must trust that collective choices will not disadvantage them, and leaders must balance efficiency with fairness, which builds trust among farmers

The drive for forming a large number of FPOs has often resulted in the formation of many of them  without prior preparation for compliance and returns. Feedback suggests that a reasonable number of FPOs currently lack systemic capacities for maintaining records, filing returns, and developing viable business plans. This is important because FPOs can face fines and heavy penalties if they fail to pay taxes or submit the minutes from board meetings on time. GST and MAT etc continue to befuddle many FPOs. The investments for infrastructure and services that FPOs need to do business relies heavily on market forces and convergence with other government schemes. Often not feasible.

 

FPOs, especially FPCs, are essentially registered as private limited companies. This subjects them to compliance requirements designed for large, sophisticated commercial entities, which small, nascent farmer groups find extremely challenging. This legal and administrative complexity diverts limited financial and human resources away from core business operations and strategic expansion. Additionally, a focus on targets risks undermining what makes FPOs truly viable—community ownership, infrastructure, and capacity building with a pronounced commercial focus.  A viable and productive agriculture sector enhances the resilience of both farmers and farming, Well structured FPOs are an important vehicle for promoting them. This is the essence.  

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