India’s small and marginal farmers are at the centre of a paradox in agrarian economy. They are the backbone of the food economy, but they are the most vulnerable stakeholders within agricultural economy. Among the 126 million farmers in India today, nearly makes 86% operate on small and marginal holdings. Farmers are an important force in making the country’s food secure, yet their circumstances of life are becoming increasingly insecure, estimated by the Agriculture Census (2015-16).

The increasing variability of the climate is a characteristic that defines the scenario. The frequency of extreme weather occurrences in 2023 registered a 23% increase in the Indian context, and minor changes in rainfall patterns can wipe out the revenue earned in a season, according to the ministry of earth science data. On the other hand, the cost of farming has sharply increased. The prices of fertilizers, seeds and fuel have escalated much more rapidly than the prices of farm produce, where the inflation rate of inputs is nearly 30 percent higher than the inflation rate on farm produce in the last ten years (going by Reserve Bank of India and NABARD studies). 

Market access further adds to the challenges. Without cold chain facilities, efficient transport and transparent pricing systems, almost 70% of small farmers are left with no choice but to sell their produce within the first 48 hours of production, often at distress prices dictated by intermediaries. Even in the wake of the fast digitization of agri-markets, only 12-15% of small farmers are using digital or agritech solutions in their production or marketing activities (World Bank, 2022)

This reflects not a productive gap but an institutional gap. It shows the failure to have robust, farmer-owned institutions to absorb shocks, access markets and bargain overvalue in a contemporary food system.

Structural Constraints
The causes of these problems have been traced back to the inherent gaps that exist on a structural level within the rural ecosystem. The most alarming is the ever-increasing fragmentation of farmland. This is because the average landholding per farm in India is down to 1.08 hectares, making it the smallest in the country’s history (Agriculture Census 2015–16).

Likewise, the mandi system in India has traditionally had no scope in the present-day value chains that are prevalent in the food industry. With over 4,700 markets in the APMC markets, many in rudimentary stages of grading, sorting, and technology-based infrastructural setups, the small farmers fail to reach the standards demanded by the massive purchasing outfits.

This is compounded by the institutional vulnerability of Farmer Producer Organizations (FPOs). Even though thousands of such bodies have been established across the country, research suggests that over 70% of them have been non-functional or performing sub-optimally due to governance issues, lack of professional managers and inadequate capitalization. These FPOs fail to have business plans, account-keeping, or develop strong linkages with markets or financing entities. In areas such as Rayalaseema, a baseline survey reveals that there is a lack of integration of markets, unpreparedness for credit, as well as a lack of experience with managing businesses.

In addition, the increasing need for documentation, digital record keeping, credit scores, and compliance structures has increased the skill gap. The skill set is not provided by the conventional systems to the farmers, making them alien to the financial and market systems.

How These Challenges Can Be Tackled-Strengthening institutions
For smallholder farmers to thrive, it is necessary that strength through institutions equips rural farming. Having professionally run FPOs remains one of the most efficient ways to enhance farmers’ revenues. With the transition to the ‘FPO 2.0’ approach, federations of FPOs are becoming key enablers for such activities that include mass purchase, added-value, branding, risk mitigation, and market access.

International experience also reinforces this vision. For example, in Kenya and Ethiopia, it has been possible to integrate small farmers into value chains for exports through cooperatives. Also, agricultural cooperatives in Europe represent more than half of the supply of and marketing for agricultural inputs in a few countries, thereby providing a basis for farmer prosperity even in a competitive market (FAO Cooperative Studies).

The Indian government has chosen farmer collectives as its target area of intervention through its policies. The Central Sector Scheme for the establishment and promotion of 10,000 FPOs, which provides equity support in terms of grants, credit guarantees, and clustering facilitation services are offered. Other schemes include PM-KUSUM, PMFBY and PMKSY.

The digital services such as e-NAM platform also work towards mitigating climatic vulnerability and better irrigation, among other areas. These schemes work only when the farmer institutions have the capacity to benefit from them (NITI Aayog policy briefs).

FPO 2.0
The program draws insight into persistent issues within existing FPOs, like weak governance, low credit readiness, limited market integration, and inconsistent institutional support. To address these, the initiative focuses simultaneously on strengthening individual FPOs and building an ecosystem-level federation model.

At the FPO level, the intervention supports the development of opportunity-led business plans, strengthens leadership structures, and builds transparent financial and operational systems. It also encourages the adoption of digital tools such as Commons.farm and others for real-time transaction recording, farmer data management, and improved decision-making essential precursors to credit linkage and enterprise growth.

At the ecosystem level, the program aims to establish federations as Business Support Organizations. These entities will facilitate market linkages, enable value-chain development, support risk management and drive policy advocacy. They will also develop a cadre of professional human resources skilled in accounts, operations, marketing, and compliance, ensuring long-term sustainability.

It is expected that FPOs will strengthen their governance mechanisms, adopt digital systems, enhance credit readiness, expand business transactions, and integrate more deeply with markets and value chains. 

Towards a resilient agrarian future
The future of Indian agriculture will not be secured by productivity improvements alone. Rather, it will rely on the quality of institutions that will enable small farmers to pool risks and tap value in equal relationships with markets. This FPO 2.0 will provide insights into how India can have a more inclusive and ready-for-the-future agricultural sector. In the process, they not only focus on the weaknesses of small and marginal farmers but also their rightful position within the growth saga of the Indian economy.

Mondal is Head of  Livelihood and Entrepreneurship Accelerator Programme (LEAP) of SBI Foundation.