FPOs: A Vital Institution for Indian Farmers

India's agricultural landscape is dominated by small and marginal farmers (86%), many of whom struggle with limited resources and bargaining power due to small landholdings. To address these issues, the Indian government has encouraged the formation of Farmer Producer Organizations (FPOs), which serve as legal entities aimed at improving farmers' market access, resource pooling, and bargaining power. However, FPOs face several challenges that hinder their effectiveness. In this brief article, I state some of those aspects and suggest ways for improving their performance and impact.

But first, some context:
1. An FPO is an economic entity operating in a social setup. It is structured to improve the economic well-being of farmers while functioning within the community-driven, cooperative nature of rural settings. 
a. As an economic entity: FPOs focus on economic activities like collective purchasing, production, processing, and marketing of agricultural products. By pooling resources, they enhance profitability and sustainability for their members. Operating as businesses, FPOs generate revenue and, in some cases, distribute profits to members, contributing to rural economic growth by boosting farmers' incomes and overall productivity.
b. Social setup: FPOs are embedded in the social fabric of rural areas, focusing on the collective welfare of small and marginal farmers. They aim to reduce poverty, promote sustainable agriculture, and enhance local capacity. FPOs encourage cooperation, shared decision-making, and mutual support among members, offering training on sustainable practices. Additionally, FPOs help address social challenges such as rural unemployment, gender inequality, and rural-to-urban migration by creating local opportunities.
2. FPOs and cooperatives: FPOs and cooperatives share a common foundation in collective farming, but they differ in focus and structure. While cooperatives are strong in areas like crop loans, lending, and agricultural inputs, FPOs tend to specialize in value addition, product diversification, and aggregation—areas where cooperatives have less of a presence. This distinction makes FPOs more relevant for modern agricultural needs such as processing and marketing, while cooperatives excel in more traditional functions.
3. Self-help groups (SHGs) are mostly informal groups, but FPOs are legal entities: They are typically not legal entities by default and formed through mutual agreement by members who share common financial or social goals, such as saving, lending, or small-scale entrepreneurship. However, there are ways for SHGs to gain legal recognition if they wish to formalize their structure. An FPO, on the other hand, is a legal entity registered under the Companies Act, 2013. In many states, members under SHGs come together to form the foundation of an FPO.
4. Financial support for the FPOs: Under the 10,000 FPO Scheme launched by the Indian government, each Farmer Producer Organization (FPO) receives substantial financial support to help with initial setup, operational expenses, and capacity building.

This support typically includes:
a. Up to Rs. 18 lakh per FPO for initial setup and operations;
b. Credit guarantee of up to Rs. 2 crore for easier access to loans;
c. Seed capital of Rs. 15,000 per SHG member (if applicable);
d. Training and capacity building support through POPI/CBBOs.
Apart from the rent of the FPO’s office, the salary of the CEO is also paid for the initial three years of the FPO’s operations. Under the scheme, the salary is typically set around Rs. 25,000 per month, depending on the region, size of the FPO, and other factors.

Opportunities or Challenges?
There were about 44,460 FPOs created between 2003 and September 2024 (TCI 2024). As per data from Ministry of Corporate Affairs (MCA), about 40% are not active today. Of the remaining 26,938 active FPOs, 42% did not submit their financial statements in 2023. In other words, only about one-third registered FPOs are active and compliant. What could be the issues? Are they more structural or operational in nature? In our study of FPOs across Bihar, Maharashtra, Odisha, and Madhya Pradesh, we identified some:
1. Overemphasis on grant-funded startups: Many FPOs, particularly those formed under the 10,000 FPO scheme, were driven more by the pursuit of government grants than by sustainable business models. After the initial funding phase, these FPOs struggle to operate without further financial support, leading to performance challenges or even closure. Ironically, older FPOs that have operated without grants before the scheme's launch receive no similar support, despite having successfully sustained operations.
2. Lack of long-term vision and mismanagement: Many new FPOs were established without proper planning, market research, or leadership training, resulting in poor management. This lack of clear strategy and technical expertise often led to operational failures, with some FPOs failing to develop viable income-generating models and becoming overly dependent on grants.
3. Focus on quantity over quality: The government's target to establish 10,000 FPOs created a focus on numbers rather than quality. Many FPOs were formed just to meet these targets, without adequate support systems or plans for member engagement, leading to weak operational foundations.
4. Sustainability challenges: After initial funding, many FPOs struggle with market access, value addition, and aggregation. Without strong market linkages or infrastructure for processing and storage, many FPOs are unable to diversify products or improve profitability. This makes long-term sustainability difficult.
5. Insufficient capacity building and training: Many FPOs lack essential training in business management, marketing, and organizational skills. The FPO’s Producer Organization Promotion Institution (POPI) or cluster-based business organizations (CBBOs) do assist with training, but practical application remains a challenge for many FPOs.
6. Limited market access: A significant hurdle for many FPOs is securing reliable market access, often selling at low prices or through middlemen. This limits their ability to offer better earnings for members and hampers growth potential.
7. Inadequate member participation: Many FPOs struggle with low member engagement, which hampers decision-making and weakens overall support for organizational activities. Without active participation, executing plans becomes challenging.
8. Regulatory and administrative challenges: Navigating complex administrative requirements and legal frameworks can be burdensome, especially for smaller FPOs with limited management experience. These hurdles discourage some from maintaining active status.
9. Infrastructure and logistics shortages: Inadequate infrastructure, including storage, transportation, and processing facilities, particularly in remote areas, affects FPOs' ability to add value to products, avoid spoilage, or reduce costs.
10. Leadership challenges: The task of an FPO’s CEO is tough and often leads to disincentives and burnout. The existing salary for CEOs (often Rs. 25,000/month) is low making it difficult to attract or retain skilled leadership. This further affects the effectiveness of FPOs.

Here are some key policy suggestions to improve the effectiveness of FPOs:
1. Create a digital decision dashboard: A national-level repository for all FPOs can track key data such as area of operation (crop types, fisheries, etc.), financial performance, and membership demographics. This dashboard would facilitate two-way communication between the government and the FPOs, help monitor performance, provide feedback, and align government schemes more effectively.
2. Customize support to FPOs using analytics: By assessing FPOs based on age, turnover, and turnover per member, analytics can determine the type of support required (capacity building, credit, and market linkages). This would ensure targeted interventions like business development for older FPOs with low turnover and financial support for younger ones with high turnover.
3. Focus areas for FPOs: Metrics derived from the dashboard can categorize FPOs based on geography, commodity, and policy focus (e.g., sustainability, income generation, and climate resilience). This would guide policy decisions and provide snapshots at both state and national levels.
4. Review FPO member criteria: Rethinking the minimum number of farmers per FPO and FPOs per block could help align with local agricultural contexts. The focus should shift from strict member counts to land-based criteria, and regional discussions on block-level distribution should be encouraged to avoid competition and operational challenges.
5. Formulate award and reward systems: A tiered reward system for FPOs, based on factors like productivity, innovation, and social impact, can motivate excellence and best practices. This system would recognize both small and large FPOs, fostering a culture of continuous improvement.
6. Incentive systems for leadership sustainability: Providing competitive remuneration and performance-based incentives for CEOs and Board of Directors (BODs) will help ensure leadership stability and active participation in FPO management. Regularly reviewing the compensation structure can align it with the needs and goals of each FPO.
Addressing these operational and structural issues is crucial for transforming FPOs into sustainable, thriving organizations.

(Shweta Saini is an Agricultural Economist, Founder & CEO, Arcus Policy Research. Pulkit Khatri is an Agricultural Economist, Lead (Local Voices), Arcus Policy Research)