Farmer Producer Organisation
Why has there been limited success amongst farming cooperatives in India besides milk?
In the 1980s, milk shortages were usual in India. It was also normal to describe European nations as places where “doodh ki nadiyan behti hain” (rivers of milk flow). Not that there were rivers of milk, it was just that you could walk into a store at any time of the day and buy milk.
I remember standing with my dad at a store designated by the Delhi Milk Scheme (DMS) to distribute milk and buying half a litre per person in the household. You had to show the ration card as proof of the number of individuals in the household.
India unleashed the white revolution from a small town in Gujarat called Anand. A cooperative called the Gujarat Cooperative Milk Marketing Federation created a brand, Anand Milk Union Limited or AMUL. AMUL, helmed by Verghese Kurian, ushered in an era of milk sufficiency in India.
Having witnessed this success, the Government of India decided that organising Indian farmers into cooperatives will help unleash the latent potential within the Indian agri-ecosystem and generate greater wealth for those living in Rural India.
The farmer producer organisations (FPO) were born.
The FPO is a company where the farmers who supply to the FPO are shareholders. They are supposed to have board meetings, et al., like any company would.
Now, before we even go into the state of the FPO sector, problems surface. The government of India reports that there are 8875 FPOs as of Aug 2024. But the government’s figures are based on how many companies have availed of government programs.
How many of you have availed of every government program you are eligible for?
There is another report by the Tata Cornell Institute in October 2024. They ran a search on the MCA database.
The table below highlights the results of the search query for 2003-2024 and 2003-2021. The results identified 45,097 FPOs, and once we removed producer companies involved in nonagricultural activities, 44,460 producer companies registered were identified. 18,723 of them contain the term ‘farmer’ in 2024.
Source: Tata Cornell Institute
So, the jury is still out. There is no source of truth about the number of FPOs in the country.
If you do not even know how to count, what are the odds you would know how to help them?
If you asked 10 organisations how many startups exist in India, you would get approximately similar answers (+/-10%). It shows the degree of understanding of the industry.
Across the board, there is a poor understanding of the FPO market on the whole.
Even though NGOs do not understand how to run a business, they are the only ones attempting to aid FPOs and their support may not be entirely useful.
FPOs are set up in villages to aggregate farmers. Most of these farmers are smallholders. The FPO is supposed to aggregate this produce and, therefore, have better negotiation power in the market. The larger volume also allows them to negotiate directly with companies and disintermediate the supply chain.
Also, every farmer who is a part of the FPO is a proportionate shareholder in the company.
Now, to a person immersed in business, this would sound simple.
Recently, at an event, I heard a question: “What if the FPO ends up exploiting the farmer?”
But the farmer has a proportionate shareholding in the organisation. It would be akin to taking money from one pocket and putting it in another. NGOs tend to approach every problem through an equity lens and do not understand businesses well enough. This kind of support is detrimental, if anything.
Different businesses have different growth models. Milk is homogenous and can be combined to deliver scale, not all tomatoes are the same size and grade.
The scaling model that worked for milk was aided by the nature of the product itself. AMUL was able to source the same product from lacs of farmers and throw it all together and pasturise it because of the nature of the product. The same may not be possible for every farm produce.
The growth model for different products would be different. In many cases, these have to be discovered. This may require some process innovation and business innovation.
Who delivers it?
Success at scale comes down to having the right processes and systems. Professionals understand how to establish them. They seem to be completely absent from the FPO landscape.
Verghese Kurian of AMUL fame was a mechanical engineer from the University of Michigan. His education was critical in helping set up the automated milk processing units that made the scale of AMUL possible. More broadly, high-calibre talent was necessary for AMUL to succeed.
The CEOs, if such a position even exists at many of the FPOs, are not of such calibre. Often, one of the farmers is asked to serve in the position.
All of the IIMs in India have been around since the 1970s. Have you wondered why they suddenly became cool in the 1990s?
Family-run businesses such as Tata, Birla, Dabur, etc., went out looking for talent to bring into the businesses. They hired “professionals”. Professional CEOs, CMOs, and other executive functions. This was triggered by Indian liberalisation. Business success was no longer a function of who they knew and how many licenses were to be issued. They needed to compete.
15 years ago, if you had gone looking for an MBA program on entrepreneurship in India, you could have counted them off on one hand. Today, every major university and even non-educational actors offer deep programs on entrepreneurship.
Of course, Flipkart’s ability to build a “not-for-profit” aided the cause significantly.
The excitement, interest and organisation of knowledge played a crucial role in the successful growth of the startup ecosystem. It created an influx of talent into the ecosystem.
Bharat Matrimony was a startup in the late 90s, startups were not cool! They were made cool by the action of several actors. We need to make FPOs cool by proselytising their importance to the Indian economy and the rural landscape. We need more professionals to enter the ecosystem.
FPOs should be run with the aim of wealth creation for farmers, not poverty alleviation.
There is a need to bring business rigour into FPOs. They need to see themselves as more than the sum of all the crops that they produce. It is impossible for anyone to realise their potential unless they understand what can be achieved.
We need to celebrate FPOs that have made it big. To highlight the successes and the possibilities. The news media needs to be encouraged to cover this segment more significantly.
There is also a potential need to engage with successful FPOs and help them story-tell so more attention can be brought to this industry.
The talent will follow, and so will success.