Constraints in Operationalizing FPOs in Punjab and Strategies to Mitigate Them

Small and marginal farmers constitute the largest group of cultivators in India (Singh, 2012). This group of farmers is facing problems of fragmented land-holdings, lack of quality and timely supply of inputs, output marketing, inadequate storage and transport facilities etc. (Ravichandran, 1997). Further, due to low-risk bearing capacity and poor decision-making small farmers are afraid of adopting innovative technologies and strategies to enhance their livelihood. Therefore, policy makers felt the need to unite the small farmers by organising them into formal management entities for benefitting them to realise the economies of scale, enhancing benefit-cost ratio, to initiate collective decision making etc. (Trebbin and Hassler, 2012; Singh, 2012).

It was assumed that farmers’ collectives will decrease the negative consequences of unfavourable agrarian structure especially for small holder farmers. Therefore, a new form of farmers’ collective came into existence with the amendment of the Indian Company Act 1956 in 2002 that recommended a new type of formal farmers’ organisation known as Farmer Producer Organizations (FPOs). The idea behind the FPOs is that farmers who are primary producer can form a group and register themselves under the Indian Company Act. The aggregation of small and marginal farmers under these FPOs can emerge as an effective group to address the challenges of big investments, advanced technologies, quality inputs, better performance in the markets and mitigate the migration from rural areas (Anonymous 2013; Anonymous 2015; Patil et al., 2019; Singh et al., 2022).

With the amendment of the Indian Company Act 1956 many farmer interest groups, cooperatives and societies are able to register them as farmer producer companies (FPCs) in India. The states of Tamil Nadu, Maharashtra, Karnataka, Orissa and West Bengal have been able to form large number of FPOs whereas the Punjab state is lagging behind with just 74 FPOs registered till June 2019 (Sfac, 2021). Even out these 74 FPOs many have become non-functional due to poor management and faulty practices. The FPOs have come a long way in past some years, success and failure cases show that these institutions require a strong handholding and capacity building initiatives. Farmers do face managerial, socio-psychological, economic and marketing challenges in functioning of FPOs. It had therefore, become pertinent to conduct a study on the constraints faced by the members of these organizations to attain sustainability and reap optimal benefits for its shareholders.

This study was conducted for the state of Punjab and the research work was carried out at PAU Ludhiana and ICAR-Agricultural Technology Research Institute, Ludhiana. List of registered FPOs in Punjab was obtained from the Small Farmers Agribusiness Consortium (SFAC) and the National Bank for Agriculture and Rural Development (NABARD). At the time of data collection (June 2019) a total of 74 FPOs were registered under SFAC and NABARD. All FPO representatives were personally contacted in order to check the exact status of FPOs. Based on the information obtained, FPOs were classified as functional and non-functional. From this final list 5 functional and 5 non-functional FPOs were selected randomly, thus a total of 10 FPOs were selected for the present study. From each selected FPO 15 members were randomly selected regardless of their designation/positions in the FPO. Thus, in all a total of 150 member farmers constituted the sample of the study.

An interview schedule incorporating all the variables pertaining to the objectives was developed and data were collected through personal interview with the selected respondents. To study the challenges and problems faced by the stakeholders during the formation, registration, information flow within the FPO, sharing of dividends, marketing of produce etc. were classified under social, economic, technical, managerial and marketing constraints. To find out the most influential factors, Garrett ranking technique was employed. As per this method, respondents were asked to allocate the rank for all factors and the outcomes of such ranking were converted into score value with the help of the following formula:
 

 

 
Where,
R_ij=Rank given for ith variable by j^th respondents.
N_j=Number of the variable ranked by j^th respondents.

With the help of Garrett Table, the percent position estimated was converted into scores. Then for each factor, the scores of each individual were added and total mean values of scores were calculated. The factors having the highest mean value was considered as the most important factor.

To study the mitigation strategies followed by the top management of the FPOs, efforts were made to enlist various strategies adopted by the executives to avoid and overcome the challenges. The enlisted strategies in the form of items were presented to the respondents to ascertain whether these were actually in the place or not. It was measured on a dichotomous response as Yes or No and results were interpreted.

To study the suggestions of the stakeholders for promotion of FPOs, open ended comments were solicited from the respondents. The total comments received were classified on the basis of frequency of their occurrence and results were interpreted accordingly.

Constraints faced by the members of FPOs
 
Entrepreneurship development is a complex and time taking process as it entails several dimensions and specificities (Shirur et al., 2017; 2018; 2019). Adoption of any new concept or practice might accompany certain constraints such as technical, psychological, managerial, economic and marketing constraints. Beside these constraints some individuals still continue with the adoption of the concept/practice but there are others who discontinue the concept/practice. Study of these factors can help the researchers, extension workers and governmental agencies to find out the ways to overcome these constraints for the sustained adoption of the idea. The respondents were asked to rank various constraints faced by them on a five point continuum ranging from ‘least important’ to ‘very important’ with a score of 5, 4, 3, 2 and 1, respectively. The data collected were coded, tabulated and ranked using Garrett Ranking technique.

The information given in Table 1 shows the mean score and Garrett ranking of various constraints faced by the respondents of functional and non-functional FPOs. Although, the members of functional and non-functional FPOs had given diverse weightage to different constraints, yet the efforts were made to compare these responses in a single table in order to know a holistic view for various bottlenecks in adoption of the concept. It is evident from the Table that, ‘heavy competition with the products available in the market’ ranked as the first constraint with an average mean score of 97.37 under the managerial constraints followed by ‘distant market and high cost of transportation’ (96.56) under marketing constraints, ‘lack of well-developed storage facilities’ (84.00) and ‘lack of processing facilities’ (82.67) under technical constraints, ‘diverse needs of individual members’ (77.37) under managerial constraints were the major constraints encountered by the members of the functional FPOs.



The constraints like lack of trained man power, lack of ICT skills, perishable nature of products, non-availability of timely credits, exploitation by middleman etc. were also the major bottlenecks faced by the members of functional FPOs. However, it is clear from the data that the social and economic factors like cooperation and team work, trust among members, adequate profit to individual member and timely sharing of profits etc. were some of the prominent strengths which were the driving force behind the sustainability of the functional FPOs. From the data, it is evident that the members of functional FPOs did face the managerial and marketing challenges in smooth functioning of their organisations so we need to build capacity of the members in these sectors of the functional FPOs so that they can further evolve and compete in the market.

In case of non-functional FPOs, ‘lack of cooperation and team work’ ranked the first constraint with an average mean score of 98.43 followed by ‘lack of trust among the members’ (96.67), ‘ineffective group leadership’ (85.78), ‘outlets without adequate market’ (82.67), ‘distrust on Producer Organisation Promoting Institute (POPI) regarding proper disbursement of the grants received’ (79.77) were the major constraints which may have led to dis-functioning of these FPOs. Moreover, the constraints like mismanagement of accounts, lack of transparency in functioning, non-availability of timely credits, apprehensions about field-worthiness of FPOs, back tracking of POPI after registration etc. were other weaknesses that lead to the failure of these FPOs. The success of farmers’ organisations is mostly dependent upon the group cohesiveness (cooperation/ commitment of the members), effective leadership, suitable market availability and proper capacity building of the members.

These results are in conformity with Singh (2012), Ampaire et al., (2013), Chlebicka (2015), Michalek et al., (2018), Singh et al., (2018a) Salokhe (2019), Devi et al., (2021), Verma et al., (2021) and Singh et al., (2021b) as they mentioned that lack of capacity building programmes, unfavourable attitude of the farmers, lack of co-operation for various group activities, lack of awareness among farmers and socio-cultural barriers were the major constraints faced by the resource institution or POPI during the formation of FPO. These studies further state that inadequate storage facilities, FPOs created for the sole purpose of taking benefits from the supporting agencies by the POPI, ineffective monitoring, non-inclusion of local leaders, lack of policy initiatives by the government to support marketing mechanism, non-availability of credit, high cost of labour and poor utilization of funds etc. were other constraints perceived by the members of FPOs in the country.

Further, data given in the Table clearly reveals that constraints like non availability of timely credits, lack of business skills, inadequate profit to individual members, delayed payments etc. were ranked very closely by the members of functional as well as non-functional FPOs. It clarifies that there were common challenges that are faced by the members of functional as well as non-functional FPOs and such challenges need to addressed aptly in order to ensure functional sustainability of the FPOs.
 
Constraint mitigation strategies adopted by executives of the FPOs
 
Various constraints faced by the members can be addressed through ensuring proper cooperation, confidence building, conflict management and timely addressal of problems, promoting transparency in day-to-day functioning, capacity building through trainings and exposure visits etc. (Table 2).



The information given in the Table shows that majority of the respondents (75%) felt that the conflict management system was effective in case of functional FPO while this system was ineffective in case of the non-functional FPOs. However, other constraint mitigation strategies were provision of equal opportunities to work and earn profit in their organisation (FPO), timely problem solving by the executives, regular auditing of accounts and timely sharing of profits. Moreover, regular meetings, support to members in case of emergency, capacity building of member from time to time and democratic mode of functioning were some of the other strategies in place in case of functional FPOs. 

In case of non-functional FPOs large majority (75-92%) expressed that regular auditing of accounts was missing in their FPOs. Similarly, most of POPIs failed to handhold the organisations (FPOs). The majority of the respondents also expressed that democratic system of functioning was missing, mechanism of conducting regular meetings was not in place, members did not receive their profits share in time and conflict management mechanisms were not effective in the non-functional FPOs.

Thus, from these findings it can be concluded that transparency, proper and timely addressal to conflicts, regular auditing, regular meetings and strong handholding by the POPI are factors which can be helpful for sustainable and smooth functioning of these organisations in the State.

Ampaire et al. (2013) found in their study that democratic mode of leadership in the rural producer organisations (RPOs) was responsible for their higher management efficiency as well as size of the organisation. The effectiveness of such organisations requires dedication/commitment of the group members, effective rewards system to prevent conflicts and adoption of the practice of sub-committee meetings rather than the all-member meetings etc. Moreover, the existing documented examples of outstanding entrepreneurship development and adoption of innovative practices for ensuring sustainability of running enterprises (Singh et al., 2018b; Rana et al., 2019a; 2019c) also needs to be studied and aptly emulated. The role of quality training to their members has significant role in improving extension efficiency of the FPOs (Rana et al., 2019b).
 
Suggestions of the respondents for the improvement of FPOs
 
In this part of the investigation the respondents were asked to give their suggestion for the promotion of FPOs in Punjab and the findings are presented in Table 3. Majority of the respondents (64 to 55%) of selected FPOs wanted that accountability of the POPI must be fixed in case of failure of FPO, equity share must be paid directly to the FPO rather than to the POPI, proper capacity building of farmers is required before enrolling them in the organisation and FPOs should be given priority while assisting farmers through various government supported schemes and initiatives. More than one third of the respondents also suggested that capacity building in the area of maintenance and record keeping, product development and responsible marketing of the products developed by the FPOs must be imparted to the members in order to enhance their competencies. As stated by Salokhe (2019) and Singh et al. (2021a) responsible marketing and spatial range of the FPOs are important for attracting the consumers.

Majority of the farmers being small holders lack economies of scale to perform optimally in the inputs as well as the output markets. Though the cooperative movement provided solutions of the problems of small farmers yet the success stories were either sporadic or confined to some regions in the country. After finding the cooperative actions imperative for the socio-economic upliftment of such small holder farmers, the government of India has planned collective action by them through FPOs.

This process assumes generation of collective bargaining power for the group of farmers in buying inputs and selling their produce in the market. However, all such organisations were unable to perform up to the expectations of the policy makers due to lack of cooperative culture and conflict resolution abilities of the executives and members of FPOs in different parts of the country including the Punjab.

Lack of trust building, improper business plans, lack of effective leadership and inadequate hand holding by the resource institutions (POPIs) were other factors responsible for sub-optimal performance of the FPOs in Punjab. However, the FPOs those performed well they could have performed even better in the field of creation of the needed infrastructure, value addition, distant marketing and handling of perishable products. Hence, facilitating organisations should stress upon these points for ensuring sustainable growth and development of the FPOs not only in the study area but other parts of country too.

Important strategies like transparency in record keeping, timely profit sharing, strong association of resource institutes, adequate capacity building of the stake holders, participatory decision making, conducting regular meetings etc. have been found as the enabling factors for the sustainability of functional FPOs. Implementing and monitoring agencies should consider these points very strongly in the process of planning for revival of the non-functional FPOs in Punjab and anywhere else. In addition, the accountability of the resource institute or POPI should be ensured so that transparency in the process of funds transfer is confirmed. Direct benefit transfer to the FPOs rather than transferring funds through resource institute or POPI is one of the important suggestions from this study.  

None of the authors have reported any conflict of interest in this research and reported contents.