Determinants of financial performance of the farmer producer organization (FPOs)

Purpose Farmer producer organizations (FPOs) are cooperatives with farmers as members that come together for economies of scale. With the formation of FPOs, their viability and financial performance are constantly questioned. This study aims to answer which factors contribute to the economic performance of the FPOs. This study tries to analyze the factors responsible for the performance of FPOs and suggests the most important factors for the financial performance of these FPOs. Design/methodology/approach The study used a quantitative method, and the data were collected using a structured questionnaire. Maharashtra is one of the leading states in India in terms of the number of FPOs. Maharashtra was selected for this study because of the fast-growing number of FPOs in this state. The financial indicators have been identified as the dependent variable for the study, while other operational, marketing, institutional and organizational indicators have been identified as independent variables. Data analysis is done in two stages. In the first stage, multivariate analysis of variance (ANOVA) is performed using the FPO indicators as the independent variable and financial performance indicators as the dependent variable. In the second stage, the structural equation model is run with the important indicators for the financial performance. Findings Making the FPO financial statement and presenting it to the board of directors for approval is dependent upon the activities of FPO taking place at the right time, procurement of produce and timely adequate support from the chief executive officer (CEO) for the decision. It is found that marketing activities and institutional support significantly impact the financial performance of the FPOs. The effect size of the marketing activities of the FPO is 0.224, which shows that it has a large effect, and the effect size of institutional support is 0.482, which also has a large effect on financial performance. Research limitations/implications This study strengthens the collective theory by providing insights into the performance. The study develops a framework to validate the causal impact of financial performance and its determinants. This serves as an outcome for developing a scale for financial performance. Practical implications FPO’s role in sustainable agriculture development has been widely discussed in the literature. However, unless we have clarity on how to assess the performance of FPOs, it will be difficult to sustain the growth of these FPOs. This study has significant findings on the performance parameters for the FPOs. The findings of the study will be helpful for policymakers, lenders and FPOs in assessing their performance. Furthermore, they can identify the need for skill-building and work on it to be promoted as a sustainable model for promoting agriculture. This study strengthens the collective theory by providing insights into the performance. The study develops a framework to validate the causal impact of financial performance and its determinants. This serves as an outcome for developing a scale for financial performance. Originality/value To the best of the authors’ knowledge, this paper is unique as it explores various factors influencing the financial performance of FPOs.