Evolution of farmer producer organisations in India: Policies, reforms, and future directions

Introduction

Indian agriculture remains central to livelihoods, yet is structurally characterised by highly fragmented landholdings, pervasive market asymmetries and smallholder vulnerability. Small and marginal farmers constitute over four-fifths of holdings while cultivating less than half of the operational area, limiting economies of scale in input procurement, mechanisation and marketing (Hema et al., 2025; Arahant et al., 2025) [3,7] . These farmers face volatile prices, rising input costs and increasing exposure to climatic and market risks, which conventional extension and subsidy-based approaches have only partially mitigated (Biswas et al., 2025; Jose & Chathukulam, 2025) [4,12] . Fragmentation also weakens bargaining power vis-à-vis traders, processors and retailers. Individual farmers transact in small lots, often at the village gate, where information asymmetries and dependence on local intermediaries depress farm-gate prices and restrict access to quality inputs and technology (Yazhini et al., 2025; Lalitha et al., 2022) [1,11] . This structural predicament has prompted policymakers and development agencies to search for institutional mechanisms that aggregate production and demand, reduce transaction costs and strengthen smallholders' position in value chains.

Collectivisation and global parallels

Collective action in agriculture is a long-standing response to smallholder issues. In India, cooperatives, self-help groups, common interest groups and commodity-based associations have provided platforms for joint input purchase, credit access and marketing (Yazhini et al., 2025; Kumari et al., 2022) [14,18] . Globally, comparable models such as agricultural cooperatives in Canada and the European Union, tea and dairy cooperatives in Kenya, and producer organisations linked to high-value export chains, demonstrate how farmer collectives can improve access to inputs, technology and markets, and capture value through processing and branding (Anand et al., 2025) [17] . However, experience with traditional cooperatives in India and elsewhere reveals recurring problems: excessive state control, political patronage, elite capture, weak member orientation and low business professionalism, often resulting in financial fragility and limited innovation (Malik & Kajale, 2024) [10] . These limitations have spurred experimentation with new organisational forms that combine the mutuality and democratic ethos of cooperatives with the efficiency and capital-raising capacity of corporate entities. www.extensionjournal.com

Emergence of FPOs as hybrid institutions

Farmer Producer Organisations, particularly Producer Companies created through amendments to the Companies Act following the Alagh Committee represents a deliberate attempt to craft a hybrid model that blends cooperative principles (member ownership, one member one vote, patronage-based benefits) with corporate legal structures, professional management and explicit market orientation (Biswas et al., 2025) [4] . FPOs are designed to provide a broad suite of services, including input supply, aggregation, primary processing, storage, marketing, technical advice and sometimes credit intermediation, while operating as member-centric agribusinesses (Bikkina et al., 2018) [5] . Recent institutional analyses conceptualise FPOs not merely as aggregators but as socio-economic institutions embedded in agrarian systems, mediating between state, market and community, and addressing transaction costs, collective governance, inclusion, risk management and ecological concerns (Jose & Chathukulam, 2025; Saxena et al., 2024) [12, 13] . This perspective underscores their potential role in wider rural transformation and sustainability transitions rather than only in price realisation.

Research gap

Over the last decade, a rich body of empirical and review literature has emerged on FPOs, covering governance, behavioural drivers, impact on income, gender dynamics, sustainability and policy design (Yazhini et [1,2,3,5,8,10,11,14,17,20] . Several studies review impact factors or challenges, while others focus on specific regions or case studies, such as Sahyadri Farmers Producer Company or FPOs in North India (Bikkina et al., 2018; Lalitha et al., 2022; Trivedi et al., 2022) [5,11,20] . Yet there remains limited synthesis that systematically links the historical evolution of farmer collectives, the changing policy and legal trajectory, and the emerging reform agenda, including the Central Sector Scheme for 10,000 FPOs, evolving national policies and state-level innovations into a coherent narrative of institutional development and future directions. In particular, the interplay between central schemes, state ecosystems, financial instruments, behavioural factors and digital transformations is often examined in isolation.

Objectives

• To review the evolution of FPOs in India.

• To analyse key policies, institutional reforms, and implementation frameworks. • To highlight challenges and identify future directions.

Historical Evolution of FPOs in India

Early collectivisation: cooperatives and their limitations • Cooperative movement (from 1904) provided early institutional architecture for farmer collectives, enabling credit access and some marketing functions. • Over time, many cooperatives suffered from politicisation, bureaucratic control, weak accountability, and limited responsiveness to market opportunities, constraining innovation and member benefits.

• Parallel experiments with SHGs, joint liability groups and commodity interest groups extended financial inclusion and social capital but often lacked scale, professional management and strong market linkages (Yazhini et al., 2025) [1] .

Post-liberalisation reforms and shift toward Producer Companies

• Economic reforms of the 1990s exposed smallholders to greater price and market risk while also opening new opportunities in high-value chains, prompting calls to rethink agrarian institutions at the state-market community interface. [4,6,7] .

Pilot initiatives and early promotion (1999-2010)

• Donor-and NGO-led pilots in the late 1990s and early 2000s supported by agencies such as IFAD and DFID experimented with producer collectives focused on high-value crops, dairy and horticulture, demonstrating benefits of aggregation and value-chain participation. [10,11,20] .

Scaling up: SFAC, NABARD and national guidelines (2011-2014)

• From around 2011-2012, the Department of Agriculture, Cooperation & Farmers Welfare launched a pilot programme for promoting member-based FPOs in partnership with states, implemented through SFAC (Kumari et al., 2022) [18] . • Comprehensive Policy and Process Guidelines for FPOs (2013) formalised the concept, roles of promoting institutions, financial instruments (equity grant schemes, credit guarantees) and governance standards. • NABARD began to support FPOs through dedicated schemes and grants, positioning them as instruments for financial inclusion, value-chain integration and income enhancement (Surendran-Padmaja & Ojha, 2023) [8] .

The 10,000 FPO mission and post 2019 central scheme [7] . [6] .

Evolution of legal and institutional frameworks

Role of Central vs State governments

• The Union government has taken the lead in national guidelines, financial instruments (equity grants, credit guarantees), and the 10,000 FPO scheme, largely implemented via SFAC, NABARD, NCDC and CBBOs. • States vary widely in their enabling ecosystems some (e.g., Maharashtra, Andhra Pradesh, Tamil Nadu) have supportive policies, convergence with rural livelihoods missions, and dedicated state-level agencies, contributing to denser and more vibrant FPO landscapes (Hema et al., 2025) [3] . • Emerging policy drafts and the 2024 draft national policy envision a more federated governance model, integrating credit facilitation, digital infrastructure and value-chain ecosystems across central and state levels (Arahant et al., 2025) [7] .

Policy and Institutional Landscape Key stakeholders and their roles

• SFAC: early pioneer; implements central promotion schemes; manages equity grant and credit guarantee funds; produces success stories and guidelines (Gautam & Mallaiah, 2024) [16] . • NABARD: finances and hand-holds FPOs; supports capacity building, national seminars and case-study documentation; positions FPOs within broader financial inclusion and rural development strategies (Hema et al., 2025) [3] .

• NCDC: leverages cooperative sector infrastructure to promote producer collectives and link them with processing, marketing and storage investments (Arahant et al., 2025) [7] . • NABCONS and other technical agencies: provide consultancy, business planning and monitoring services, often acting as CBBOs (Surendran-Padmaja & Ojha, 2023) [8] . • State Rural Livelihoods Missions (SRLMs): build on SHG federations to incubate FPOs, especially in women-centred and tribal contexts, aligning with livelihood and inclusion goals (Anand et al., 2025) [17] . • NGOs, producer networks and private partners: mobilise members, provide social intermediation, experiment with sustainable agriculture models and value-chain partnerships (Malik & Kajale, 2024) [10] .

Policy instruments and support systems

• Equity Grant Schemes: enable FPOs to strengthen their capital base, match member equity and attract external finance (Jose & Chathukulam, 2025) [6] . • Credit Guarantee funds: reduce banks' risk perception and encourage lending to young FPOs, addressing chronic working-capital constraints (Aditi et al.).

• Cluster-Based Business Organisations (CBBOs):

under the 10,000 FPO scheme, CBBOs are mandated to support formation, governance, business planning and market linkage, often over a 3-5-year period (Arahant et al., 2025) [7] .

• Training and capacity building: programmes focus on governance, bookkeeping, business skills, market intelligence and technical production practices, though coverage and quality remain uneven (Naik et al2025) [2] . • Governance structures: policy guidelines emphasise democratic boards, clear bye-laws, and member patronage links, professional CEOs and transparent accounting, seeking to avoid earlier cooperative pathologies (Kumari et al., 2022) [18] Major national policy documents [6] . • Formation & Promotion of 10,000 FPOs Scheme (2020-2025): sets numeric targets, cluster strategies, dedicated budget and multi-agency roles; focuses on commodity clusters, market integration and professional management (Yazhini et al., 2025) [1] .

Convergence with other schemes such as Doubling Farmers' Income strategy, PM-FME (processing), ATMA www.extensionjournal.com (extension), MIDH (horticulture), and rural livelihoods and cooperation initiatives is increasingly highlighted as essential to embed FPOs in a broader agribusiness ecosystem.

Comparative state-level approaches

• States with strong histories of collective action, cooperative networks and agribusiness support (e.g., Maharashtra, Gujarat, Andhra Pradesh, Tamil Nadu) exhibit higher densities of FPOs and more successful business models. • State-specific incentives include support for processing units, marketing federations, dedicated FPO cells, collaboration with KVKs and agricultural universities, and preferential procurement policies. • Variations in state cooperative laws, registration processes, land-leasing regulations and agricultural marketing acts (including e-NAM participation and direct marketing provisions) significantly shape FPO opportunities and constraints (Trivedi et al., 2022) [20] .

Impact and Performance Analysis (outline, 800-1000 words equivalent) Economic impact • Multiple empirical and review studies report income gains for FPO members driven by improved input access, bulk procurement savings, better prices and value addition (Kumari et al., 2022) [18] . • A large Tamil Nadu study finds FPO membership associated with around 15% higher income compared with non-members, linked to training and input provision (Yazhini et al., 2025) [1] . [5,11] . • However, national survey-based work highlights that overall farmer participation in FPOs remains low and that many members primarily use FPOs for technical advice or input procurement, not for marketing, limiting income impacts (Aditi et al.).

Social impact and inclusion

• FPOs can strengthen social capital, collective identity and bargaining power, particularly for smallholders and marginal groups. • Women-led FPOs and women's participation in mixed FPOs have expanded in several states, with evidence of improved access to resources, voice in decision-making and income control, though gender norms and workloads still constrain full empowerment (Biswas et al., 2025) [4] . • Behavioural reviews show that farmer innovativeness, risk tolerance, business orientation and communication skills significantly affect engagement with FPOs and their sustainability, suggesting the need for behavioursensitive extension and capacity-building strategies (Naik et al., 2025) [2] .

Institutional performance and governance

• Institutional analyses using frameworks such as transaction-cost and institutional economics identify strengths in governance and coordination in some FPOs but highlight gaps in inclusion, environmental sustainability and long-term financial viability (Jose & Chathukulam, 2025; Saxena et al., 2024) [12,13] [10,15] .

Challenges and Constraints

The literature consistently highlights several interlinked constraints discussed as below:

• Financial sustainability and business viability: chronic working capital shortages; limited collateral; high transaction costs; narrow product portfolios; difficulty reaching break-even without continuous subsidies (Chowdhury et al., 2024) [15] . • Managerial and marketing capacity deficits: scarcity of skilled CEOs and staff; limited understanding of branding, quality standards and contract negotiation; weak use of market intelligence (Naik et al., 2025) [2] . • Policy fragmentation and bureaucratic hurdles: multiple overlapping schemes; complex licensing and compliance requirements; inconsistent state regulations; lack of a unified, up-to-date national database of FPOs (Gautam & Mallaiah, 2024) [16] . • Weak forward and backward linkages: insufficient integration into processing, retail and export channels; inadequate storage and logistics; limited input-output service bundles (Lalitha et al., 2022) [11] .

• Dependence on external promoting institutions:

many FPOs remain reliant on NGOs, government agencies or donors for governance and market access, undermining autonomy and member ownership (Bikkina et al., 2018) [5] . • Digital and data challenges: limited adoption of digital platforms, traceability tools and real-time management information systems; fragmented and inconsistent data across agencies (Hema et al., 2025) [3] .

Future Directions and Policy Recommendations Institutional strengthening

• Intensive, multi-year capacity-building programmes for boards, CEOs and member leaders, integrating behavioural insights, governance skills and business analytics (Naik et al., 2025) [2] . • Development of incubators and specialised support organisations to handhold FPOs through early phases, as proposed in cross-case analyses (Surendran-Padmaja & Ojha, 2023) [8] .

• Promotion of federated structures and networks for peer learning, collective procurement and policy advocacy (Jose & Chathukulam, 2025) [6] .

Financial innovations

• Dedicated FPO-centric credit lines, blended finance mechanisms and risk-sharing instruments to address working-capital and investment constraints (Trivedi et al., 2022) [20] . • Support for invoice discounting, warehouse receipt finance and value-chain financing arrangements with buyers and processors (Lalitha et al., 2022) [11] .

Market integration

• Stronger integration with e-NAM, direct marketing channels, contract farming arrangements and processing units to enable FPOs to move up the value chain (Biswas et al., 2025) [4] . • Support for branding, certification and export facilitation, especially for high-value horticulture, organics and niche products, building on successful models like Sahyadri (Bikkina et al., 2018) [5] .

Technology and digital transformation

• Deployment of digital platforms for member management, procurement, inventory, payments and traceability; use of AI-based decision tools for crop and market advisory (Chowdhury et al., 2024) [15] . • Exploration of blockchain and other technologies to enhance transparency, trust and access to premium markets (Jose & Chathukulam, 2025) [6] .

Policy coherence

• Integration of FPO policy across agriculture, cooperation, food processing, rural development and digital ministries to reduce duplication and enhance convergence with schemes like PM-FME, ATMA and MIDH (Kumari et al., 2022) [18] . • Establishment of a single national FPO database, standard performance indicators and real-time dashboards to monitor financial health, governance quality, inclusion and value-chain integration (Arahant et al., 2025) [7] .

Conclusion

References

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