Managing FPOs. To succeed, an FPO should tick a few boxes

The government’s 10,000 Farmer Producer Organisation scheme has given a major thrust to the FPO movement. From corporates to public service organisations, everyone has committed towards promotion of FPOs.

In simple terms, FPOs are collective enterprises formed by farmers (primarily rural producers) to enable better connect between market and rural agricultural produce. FPOs are the latest addition to the family of cooperatives organisations and the verdict on their success is still awaited. Organisational research has extensively focused on survival challenges of new ventures and here are some hurdles that could derail FPOs.

Liability of newness

A young venture has a higher propensity to fail because it is new to the ecosystem. This liability of newness occurs due to multiple battles that the new venture must tackle at a single point of time.

FPOs, in their formative years, are required to strengthen their governance mechanism, engagement with producer members, and liaising with external agencies (like buyer, and input providers) for securing resources, etc. Thus, the liability of newness may arise both from internal processes and external acceptance.

One of the easy ways of increasing the liability is by founding an FPO without investing anything in the groundwork. Many collectives begin without doing the requisite homework on issues such as on the modalities of the conduct of boards meetings, the technical expertise required for better procurement process, and identifying the potential buyers and their requirements. As a result, efficiency is compromised resulting in rising coordination costs and early failure of the FPO.

Lack of distinctiveness

Novelty is a central aspect of entrepreneurship and with no novelty to offer, it is often challenging for FPOs to compete in the market. Why should a member/farmer sell his produce to an FPO, why should the board members commit their time in governance of FPOs? These are the issues that would bring distinctiveness to FPOs while dealing with internal stakeholders.

Similarly, issues like why any buyer should be attracted to FPOs and why a financial institution should come forward to help FPOs would make the external stakeholders aware their distinctiveness. Mature FPOs would find ways to create distinctiveness and attract loyalty from stakeholders, whereas a new one would find it difficult.

Audience diversity

FPOs need to derive support from different group of stakeholders (farmer, government, buyers, NGOs etc), each with different norms and expectations. Hence it is crucial for them to understand how different groups perceive their venture and act accordingly.

For example, the expectation of a government certifying agency for organic produce would be very different from a that of a corporate buyer. The certifying agency would focus on diligence while the buyer would be driven by reliability and quality.

Most FPOs identify the farmer as their customer. This is both good and bad news. Good, because as a member-driven collective enterprise, centrality of the farmer member is vital for its existence. Bad, because single-minded focus on farmer as producer blinds an FPO from the reality of the market and makes it insensitive towards external demand. So focussing solely on procurement from farmers while ignoring the buyers and regulators will harm an FPO.

Ambiguous market category

Ventures become risky when they have few or no precedent for their operations. For FPOs getting into a new crop or a new process without any precedence is always riskier than doing something more routine. FPOs operating in a new business environment are often incompletely informed. FPOs promoting organic cultivation for the first time in a given district often fail to collect sufficient information on what changes would be required in farming practices, and how the authenticity of product would be certified by credible authority.

The lack of clarity on the market category creates hurdles for the FPO at two levels. First at the level of inter-organisational relationship, the buyers would find it challenging to engage with FPO since there is little precedence for the same. In its formative years, many FPOs fail to meet the demand of buyers in terms of quantity requirement of a certain quality.

As a result, the inter-organisational relationship often becomes weak and buyers would often start viewing FPOs as inefficient. Second, at the level of members there is a mismatch of expectations. FPOs, often in a hurry, would make unrealistic promises to members to increase their membership.

Such strategy soon backfires as members stopped their transactions once they see the mismatch. So, if you could put efforts in preserving ambiguity in your market category during the period of your operation, this can be a sure shot to failure.

Multiple thresholds for success

How do you measure the success of FPOs? The most common answer is giving a better price to farmers for their produce or offering input services at reasonable cost. Again, the single-minded focus on one stakeholder can be harmful. FPOs are required to internalise that different stakeholders have different yardsticks to measure the success of their venture.

While the farmer as member may be looking at receiving timely credit from the FPO as the vital indicator for success, the corporate buyer may measure a FPO’s success based on quality of the product. The expectations and subsequent indicators for success become increasingly complex for FPOs. The recipe for failure is to devise a strategy addressing the expectation of single set of stakeholders and continuing the measurement of success by accounting for only one stakeholder.

The aforementioned factors are only an indicative list that FPOs need to avoid to succeed. It is crucial for all stakeholders to make a collective effort for the success of an FPO.

The writer is Faculty Member, Institute of Rural Management Anand

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