Considerable policy push has been observed in the formation and promotion of Farmer-Producer Organisations (FPOs), thanks to the central sector schemes, namely village initiative for urban clusters and integrated development of 60,000 pulse villages in rainfed areas implemented in 2011–12, and 10,000 FPO promotion and formation scheme rolled out in 2020–21.

What is the outcome of this policy support? Empirical research shows that 43-49 per cent of promoted FPOs continue to operate after the withdrawal of government support, while more than 50 per cent struggle to survive and scale up.

Against this backdrop, the Centre drafted the national policy on FPOs in 2024 to infuse the logic of consolidation, capability, and capital in the FPO ecosystem. The framework proposed a three-tier structure similar to the AMUL model, with primary-level FPOs at tier 1, secondary-level FPO unions at tier 2, and tertiary-level FPO federations at tier 3. Furthermore, to overcome FPOs’ marketing and capital-base challenges, the central government, in 2025, extended the 10,000 FPO promotion and formation scheme for an additional five years, replicating the AMUL model.

Now, a fundamental question arises: Why is a federated structure needed, and can this overcome FPOs’ marketing and capital-base problems?

Evidence and policy suggestions

First, more than 50 per cent of FPOs are in the initial phase of their lifecycle, engaging in agri-input trading and aggregation with very low profit margins, which are insufficient to improve their capital base. A few FPOs are involved in processing and marketing, and their implementation partners handhold them through business planning and execution.

Therefore, region- and commodity-specific FPO federations can enhance the growth and consolidation of small FPOs, thereby boosting sectoral efficiency and generating farmer well-being. For example, member farmers of federated FPCs realize average returns on investment 4.6-4.8 per cent higher and profit margins 8-8.4 per cent higher than non-members (Bharti & Kumari, 2025).

Second, FPOs’ nature of business, turnover, profit margin, and member base influence their capital base, which comprises paid-up capital, reserves, and surpluses. Tata-Cornell Institute (2026) reported that 79% of 11,423 sample FPOs had paid-up capital of less than ₹1 lakh to less than ₹10 lakh, while only 21% had paid-up capital of more than ₹10 lakh (see Table 1).

Though the Centre provides matching equity grants of up to ₹15 lakhs to eligible FPOs, this could partly improve their capital base. Also, FPOs’ poor financial performance weakens their capital base. Only 2.47 per cent of 44,547 FPOs achieved ₹1 crore sales turnover, and less than 1 per cent (340 FPCs) surpassed ₹10 crore turnover in 2025–26. Large FPOs outperform smaller ones across financial performance metrics, including liquidity, profitability, leverage, solvency, and activity. Compliance is also a serious concern for FPOs’ existence as legal entities; for example, 63 per cent of 44,547 FPOs lapsed in their status, and 2 per cent were struck off the register of companies (see Table 2).

So, the federated structure can overcome tier 1 and tier 2 FPOs’ scale, market, and credit access problems by partnering with value chain organizations and financial institutions, and enabling the sale of tier 2 FPO unions’ products through digital platforms.

Geographic clustering of performing or successful FPOs must be identified to promote district-level FPO unions (tier 2) and state-level FPO federations (tier 3), thereby unlocking the business potential of tier 1 FPOs, enhancing their patronage centrality, and building their capital base.

For example, with ₹34 crores of equity capital, ₹8.93 crores in sales turnover, and ₹0.23 crores in profits reported in 2024–25, MahaFPC emerged as one of the most active federations for its 600-odd member FPOs.

Madhya Bharat consortium of FPCs reported higher returns on assets and annual turnover of ₹14.60 crore in 2022–23, though profitability varies across its 180-odd member FPOs. Federated Mahi milk producer company clocked a profit of ₹28.35 crore in 2024-25 by processing and selling milk and milk products.

Tamil Nadu state-level federation reported annual revenue growth of about 70%, while profitability remained low due to initial operational costs. The federation helped FPCs finance their operations through government mezzanine capital and equity grants.

Third, as FPOs’ business expansion without investment is a pipedream, the concerned federations need to influence policymakers to introduce the necessary amendments, such as changes in organisational design and fundraising options, into the Companies Act, 2013. To sum up, cross-learning among the federations must occur to ensure that member FPOs graduate well-managed, viable farmer enterprises.

The author is an Associate Professor of IIM Lucknow. Views expressed are personal.

Published on May 17, 2026