Reforming Agriculture sector through FPOs

Synopsis – the present market structure is not favorable for marginal farmers, the government should use the model of Farmers Producers Organisations (FPOs) for assisting farmers.


  • A set of three laws passed in September aims to deregulate India’s enormous agriculture sector aimed at “liberating” farmers from the tyranny of middlemen.
  • But many farmers fear that they stand to lose more than they could gain from the new regulations and these are the following concerns of farmers-
      • End of MSP- Their main worry is about a possible withdrawal of the MSP and a dismantling of the public procurement of grains.
      • Promote corporate control– The farmers contend the federal government is making ready to withdraw from the procurement of food grain and hand it over to the company gamers.

Although all of the concerns of farmers are not misplaced, but these concerns have definitely been blown out of proportion for political reasons.

What are the issues in present Agri. Market structure?

Present Agri. Market structure which suffers from the lacunas of MSP system, restrictive Mandi system and APMC market structures, is doing more harm than benefits to the marginalized farmers.

  • First, CRIER-OECD study on agricultural policies showed that over the period 2000-01 to 2016-17, Indian agriculture was implicitly taxed to the tune of almost 14 per cent of its value.
    • What this implies is that Indian farmers have been implicitly taxed heavily through restrictive marketing and trade policies [export controls, stocking limits and restrictive mandi system]
  • Second, the procurement system and MSP mechanism are beneficial particularly for the rich farmers of Punjab and Haryana
      • The NSSO’s Situation Assessment Survey [2012-13] revealed that Only 6 per cent of the farmers in India are fully covered and benefitted by the MSP, and 84 per cent are located in the states of Punjab and Haryana.
      • The MSP and APMC system primarily helps those who have large surpluses, mainly the large farmers.

How FPOs can be helpful for small and marginal farmers?

In India, 86 per cent of farmers are small and marginal (less than 2 ha), who do not get the benefit of MSP system.

  • Farmer’s Producer’s organizations (FPOs) at village level, consisting of small farmers, supplemented by the mechanism of new farm laws will benefit them.
  • The creation of an additional 10,000 FPOs and the promised Agri-infra Fund of Rs.1,00,000 Crore will aid this process.

How government can eliminate the fears of agitating farmers?

  • First, MSP to be continued– The government need to assure farmers in writing that the new laws discontinue APMC and MSP system.
  • Second, Government needs to clarify about the contract farming that that the contract will be for the produce, not the farmers land.
  • Third, farmers can take disputes to district courts.
  • Forth, Government can also approve 25,000 Crore alternate fund under the Price Stabilization Scheme to support market prices in case when prices fall below 10 percent the MSP

However, The Food Corporation of India is already overloaded with grain stocks that are more than 2.5 times the buffer stock norms.

  • To deal with such situation, Government can either limit the quantity of procurement or go for Price deficiency Payment system for those who buy “put options” at MSP to address the gaps in MSP based procurement of crops.
  • An expert committee will have to be set up to look into its operational guidelines and further announcement of a diversification package for the Punjab-Haryana region can be done.


  • On the one hand, repealing of new farmer’s law would be unfair for small and marginal farmers as they never got any benefit from the MSP system. On another hand, High price to farmers also mean high food prices for consumer.
  • Thus, there is a requirement to strike a balance between the interest of various stakeholders of Indian farming system and its consumers.
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