In recent years, Farmer Producer Organizations (FPOs) have emerged as a transformative force in the agricultural landscape, particularly as aggregators in agri-commodity markets. This case study delves into the success story of an FPO in Gujarat state, showcasing how it has played a pivotal role in empowering farmers and enhancing their bargaining power.

             Located in the heartland of rural India, the Saurashtra FPO was formed by a group of smallholder farmers in Rural Gujarat in 2016 with 990 members facing challenges such as limited access to markets, fluctuating commodity prices, and a lack of bargaining power. Recognizing the potential of collective action, these farmers joined hands to establish the FPO, aiming to improve their socio-economic status.

               As the whole purpose of forming FPO was to bring in economies of scale through aggregation of produce, Saurashtra FPO started to look for new marketing avenues. In the process, they got to know about NCDEX’s futures platform. After due research and training board members of Saurashtra FPO vetted for hedging through NCDEX futures platform and thus made the first purchase in May 2018.

Most of our farmer members have cows and buffalos and purchase cow cud from local markets as animal feeds. In May we decided to try the NCDEX platform to purchase it as we heard about cow cud with low price and better quality there. I inquired and found it was selling at around Rs.1100 in May while the local market price for it was Rs.1400-1450 per quintal,” told Dilip Bhai Bayal, CEO of the FPO. But, at the same time, the FPO also realized it was not possible for it to take the benefit by the way of delivery as according to the Exchange’s rule, it was not certain if they would get it from Kadi or Akola. If they had to take it from Akola instead of Kadi, they would have lost the saving of around Rs.300 per bag available at NCDEX in comparison to Kadi's local market. So, the FPO devised another way to save the money using NCDEX’s platform. They actually moved forward with the trade and bought 1 lot of cow cud contract just to square off their hedge position as prices went up. By doing so they saved around Rs.11,000 on their buy hedge or long hedge, as it is commonly known, position and bought cow cud from a local market.

More and more FPOs are understanding the benefits of the derivatives market ecosystem to lock in the price of their produce with reasonable success. But when the beginning of Saurashtra FPC Ltd is taken into consideration with the challenges it was pitted against, the real achievement of this historic development shines. The FPO witnessed a remarkable transformation.

Learning Objectives

1. What is the role of Farmer farmer-producer organisations in bringing farmers together for participation in Commodity exchanges?

2. What are the advantages of hedging in commodity derivatives?

3. Why can’t individual farmers take part in Commodity Derivative markets?