NAVIGATING GROWTH CHALLENGES: STRENGTHENING FARMER PRODUCER ORGANIZATIONS IN ODISHA, INDIA

India’s aggressive promotion of farmer producer organizations, which allow participants to pool resources, engage with markets, and share profits, has driven the creation of 44,460 FPOs since 2013, following the enactment of a new law allowing 10 or more farmers to form a company.

Most of the expansion has occurred in this decade, with 35,259 FPOs formed between 2020 and September 2024, overshooting the government’s own goal of 10,000, part of a $750 million program—the Central Sector Scheme for Formation and Promotion of FPOs—launched in 2020.

The program aims to facilitate the formation and development of FPOs within specific agricultural clusters, thus enhancing farmers’ market access, productivity, and income by promoting collective action, value addition, and better market linkages, ultimately contributing to the socio-economic development of farm communities.

The government’s financial support for FPOs, and for Cluster-Based Business Organizations (CBBOs), which support FPO formation and development, has fueled this rapid growth. Under the Central Sector Scheme, FPOs receive 18 lakhs ($19,800) for three years and CBBOs 25 lakhs ($27,500) for five years to cover management costs.

This rapid scale-up has led to a number of serious problems. CBBOs have varied capacities, and some lack the institutional knowledge needed to effectively guide FPOs. This has led in turn to inappropriate selection of FPO leaders—giving preference to members with credentials to obtain the support payments, rather than those most capable of building organizational capacity. This in many cases has resulted in elite capture of company boards, making decisions non-transparent and non-inclusive. Another Central Sector Scheme feature, offering FPOs matching grants of up to ₹15 lakhs ($17,000) has exacerbated the problem, pushing up FPO participation while little attention is paid to the long-term business interests of members.

Recognizing the critical role of FPOs in economic development, IFPRI has undertaken research to understand these issues and other challenges they face. Conducted across two states—Bihar and Maharashtra—research efforts analyzed key factors influencing FPO performance, including size, composition, organizational design, and financial management.

A survey was conducted across randomly selected districts in Bihar and Maharashtra, covering all four agroclimatic zones in Bihar and three major agroecological regions in Maharashtra. A total of 575 farmers were surveyed in Maharashtra, including 400 FPO members and 175 non-members. The study used mixed methods, combining quantitative surveys, focus group discussions, and expert elicitation to collect data on demographics, farming experience, income sources, and expenditures.

The findings revealed that many FPOs struggle with issues such as short lifespans, misaligned incentives, negative selection of leaders and members due to over-emphasis on size, inadequate access to markets, and limited financial sustainability. These challenges often stem from weaknesses in organizational structure, governance, and management practices.

For example, the assumption that “bigger is better” regarding FPO size has caused challenges for members in terms of aggregation and sales of outputs to the FPO, internal conflicts, and inefficiencies. And though some FPOs formed through a diligent process have had good results, many are still facing challenges related to management and governance.  

Many FPOs are out of legal compliance and/or apparently not functioning; government data show that as of 2024 there were 26,938 active and legally compliant FPOs, and only 57% of those submitted financial documents in 2023 as required by law. The bigger FPOs like the 5,000-member Samarth Producer Company Limited in Madhya Pradesh face challenges in reaching out to all members, many of whom express discontent over limited membership benefits.

Addressing FPO challenges

To address the challenges they face in design and composition, FPOs need a strategic shift in focus. Key solutions discussed during the training include:

Optimizing composition: FPOs should ensure the right mix of staff to handle marketing, procurement, logistics, and accounting. An IFPRI analysis of 28 sample FPOs revealed a trend of hiring CEOs with development backgrounds, meaning less commercial orientation overall (Figure 1). Professional expertise is crucial for the growth of FPOs in terms of business, productivity, and profitability. Without a strong foundation in business understanding, CEOs may struggle to drive the growth of FPOs within the expected time frame.

Figure 1