Only a third of nearly 33K registered FPOs financially viable: Icar body

Average equity capital support for FPOs at 45 per cent of optimal levels; credit access only 37 per cent of optimal levels, a paper by an Icar body shows

As the Central government looks to re-invigorate the Farmer-Producer Organisation (FPO) ecosystem in the country, a recent paper from the Indian Council on Agricultural Research's (Icar) National Institute of Agricultural Economics and Policy Research (NIAP) reveals that only a third of India's nearly 33,000 registered FPOs are financially viable at present.

 

The paper ‘Enhancing Financial Viability of FPOs’, authored by Icar-NIAP's P S Birthal, director, Vinayak Nikam, senior scientist, Kiran Kumara, scientist, and Samarth Godara, scientist at the Icar-Indian Agricultural Statistics Research Institute (IASRI), New Delhi, was released as a policy brief analysing the financial viability of FPOs in India, highlighting their potential to improve agri-food systems, and the challenges they face in achieving long-term sustainability.

 

The paper drew on a sample of 1,069 FPOs, all supported by National Bank for Agriculture and Rural Development (Nabard), categorising them into three groups based in annual turnover: low (turnover of less than Rs 10.5 lakh/year), moderate (Rs 10.6-Rs 35.7 Rs lakh/year), and high-performing (more than Rs 35.8 lakh/year).

 

“On an average, high- performing FPOs experience significantly higher turnover, at least 15 times greater than that of low-performing FPOs and three times higher tha n that of moderately- performing,” the study found, adding that high-performing FPOs cover more villages, have larger memberships, and engage in diverse activities, benefiting from economies of scale.

 

Not only that, high-performing FPOs also mobilise more equity and secure greater credit, enabling investments in infrastructure and market competitiveness. They also have efficient governance structures, such as smaller boards with diverse expertise, enhance decision-making and reduce administrative costs.

 

Interestingly, and contrary to popular perception, the report suggests there may be a positive link between success and distance from markets, finding that such FPOs achieve financial success using innovative strategies.

 

“This finding challenges the traditional notion of the benefits of being close to a market. This unexpected result implies that successful FPOs may have devised innovative strategies to turn this apparent drawback into a strategic advantage by reaching a wider consumer base and potentially accessing more profitable opportunities,” the report said.

 

As for challenges that FPOs face, the paper said they require more than the current three-year government support to achieve financial stability, which typically takes eight years, and should include technical, procedural, and marketing assistance

 

The paper also said that limited equity capital support (averaging around Rs 8 lakh as against the optimal level of Rs 18 lakh) and credit access (averaging around Rs 28 lakh as against the optimal level of Rs 75 lakh) also hinders growth.

 

“This higher credit limit would enable FPOs to make substantial investments in processing units and cold storage facilities, which are vital for adding value, reducing post-harvest losses, exploring new markets, or diversifying their product lines,” the paper said.

 

“The insights derived from this analysis can assist policymakers and institutional promoters in making informed decisions to implement mid-course corrections, developing appropriate interventions to enhance financial health, and leveraging the potential of FPOs to transform agri-food systems,” the paper said.

 

It also recommends expanding the membership of FPOs to over 1,000 for financial stability and access to government grants, increasing awareness of financing schemes, and improving access to institutional credit.

 

The paper also calls for optimising governance by reducing an FPO's board size to six, with the composition including diverse expertise, and balancing inclusiveness and efficiency by leveraging the strengths of disadvantaged communities.

 

It also emphasised the need for tailored interventions to enhance the financial health of FPOs and their transformative potential in agri-food systems.