How FPO deals help quick commerce cut middlemen, lift farmer prices

Asked how the model can sustain paying above-mandi prices while staying competitive on the retail shelf, a sourcing executive at one of the platforms said the business is currently run on a no-profit-no-loss basis. “Eliminating all middlemen by procuring through an FPO and supplying directly to consumers help us to sell even at lower than market rates at times,” the executive said. The key, he added, is a “return to vendor” (RTV) clause and buying only grade A fruits and vegetables. For each vegetable the platform works with five to eight FPOs, and each FPO agrees to take back any quantity that fails quality checks. That forces the FPOs to supply only the best product.

Zepto, which has filed a draft red herring prospectus (DRHP) for an IPO, described its vertically integrated fresh-produce platform in the filing. It has a Farmer Partner Network, collection centres near growing hubs, and its own sourcing, packaging, cold storage and transportation logistics.

“By sourcing closer to FPOs, farmer partners and collection centres, the model reduces intermediary layers, handling delays and wastage,” a source familiar with the company's operations said. He said the intent is not to pay more in isolation but to ensure a larger share of value reaches the producer by removing avoidable leakage from the chain.

The structure is a direct answer to a long-standing problem in Indian horticulture: farmers often receive less than a third of the final retail price, with the rest captured by aggregators, commission agents and wholesalers. Quick commerce players, with their own logistics and tight inventory management, can absorb some of that spread and pass part of it back to the farmer.

The risk is that the model works only as long as volumes grow and rejection rates stay low. If quality slips or demand softens, the no-profit-no-loss equilibrium breaks. For now, the platforms are betting that scale and the RTV clause keep the math intact. Zepto's IPO filing will give investors a chance to see the numbers behind that claim.