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Economic impact of farmer Economic

impact of FPO
producer organisation (FPO)
membership: empirical evidence
from India
Rajiv Gurung Received 12 June 2023
Revised 2 October 2023
Department of Economics, Sikkim University, Gangtok, India and Accepted 15 November 2023
Department of Economics, Sri Sathya Sai Institute of Higher Learning,
Prasanthi Nilayam Campus, Puttaparthi, India, and
Manesh Choubey and Runa Rai
Department of Economics, Sikkim University, Gangtok, India

Abstract
Purpose – Farmer producer organisations (FPOs) are considered as a strategy to improve the livelihoods of
small farmers through economies of scale by providing collective strength to farmers for improved access to
production technology, value-addition services, high-quality inputs and marketing services for improving their
incomes. This study investigates the impact of FPO membership on organic farming household’s income in
Northeast India.
Design/methodology/approach – This study uses field survey data collected from all four districts of
Sikkim. Primary data were obtained from a survey of 560 organic farming households, 280 of which are FPO
members and the rest 280 are non-members. Propensity score matching (PSM) is used to estimate the impact of
FPO membership on net returns, return on investment (ROI) and profit margin.
Findings – Results show that the FPO members had, on average, Rs. 7,254–8,133 higher annual net returns,
4.6–4.8% higher ROI and 8–8.4% higher profit margin than the non-members. The findings confirm that FPO
membership has a positive and significant impact on net returns, return on investment and profit margin. Also,
heterogeneity analysis indicates that FPO membership has larger positive impact on relatively bigger farmers
and female-headed households.
Research limitations/implications – As the study was based on a cross-sectional survey, the findings may
be subjected to some limitations.
Originality/value – This study is based on a novel data set, collected specifically to examine the economic
impact of FPO membership on organic farming in India.
Peer review – The peer review history for this article is available at: https://publons.com/publon/10.1108/
IJSE-06-2023-0451
Keywords FPO, Propensity score matching, Sikkim, India, Organic farming, Smallholder
Paper type Research paper

1. Introduction
The majority of the agricultural households in developing countries are smallholder farmers
cultivating on less than two hectares of land. They are often faced with constraints like high
transaction costs, limited access to output and input markets, lack of access to improved
technology, dependence on obsolete production methods, low yields, expensive
transportation costs and inadequate profits leading to underdevelopment in the rural
areas (Meemken and Bellemare, 2020). With the small scale of operation and resulting low

The authors acknowledge the financial assistance from UGC, New Delhi in the form of UGC-NET JRF
and SRF provided to the first author. The authors are thankful to Mr. Rajesh Gupta, Management
International Journal of Social
Executive at M-CRIL for providing valuable assistance and information during the field survey. Economics
Data availability statement: The data used will be made available upon reasonable request. © Emerald Publishing Limited
0306-8293
Conflict of interest statement: The authors declare that they have no conflict of interest. DOI 10.1108/IJSE-06-2023-0451
IJSE marketable surplus, they face low bargaining power in both input and output markets. The
lack of post-harvest facilities compels them to dispose of their perishable produce at low
prices (Negi et al., 2018). Moreover, agricultural supply chains in developing countries are
characterised by a long chain of intermediaries who take away the major share of a farmer’s
produce. In contrast, the farmers get only a small fraction of what the final consumers pay,
thereby making agriculture an unremunerative business.
To overcome the constraints of smallholder agriculture, farmer organisations can be an
appropriate institutional intervention in developing countries like India, where around 88%
of agricultural households are small and marginal farmers (National Sample Survey
Organisation [NSSO], 2019). Organising farmers into farmer organisations can enable
smallholder farmers to overcome such constraints collectively (Ma et al., 2023; Grashuis and
Skevas, 2023; Neupane et al., 2022; Mojo et al., 2017). One such institutional innovation in
India, aimed at helping smallholders overcome all constraints and improve access to
resources and services to uplift them is farmer producer organisations (FPOs) (Bhanot
et al., 2021).
Considering the promotion and formation of FPOs in India, it is important to assess
whether existing FPOs have benefitted the farming community or not. Not much research
exist that conduct rigorous impact evaluation of FPO membership on farmers’ income. This
paper investigates the impact of FPO membership on organic farming household’s income
in Northeast India. It also contributes to the literature by investigating the heterogeneous
impact of FPO membership on farmers’ economic performance. It utilises a recent farm
household survey data of 560 organic farmers from East, West, North and South districts of
Sikkim, India to identify the determinants and economic impacts of FPO membership. The
paper proceeds as follows. The following section presents the existing literature and the
methodology we have followed. Data and descriptive statistics are presented in the next
section. Subsequently, the empirical results are discussed and the findings and relevant
policy recommendations are presented in the last section of the paper.

2. Literature review
Several studies have examined the vital role of FPOs in enabling smallholder farmers to
benefit from agriculture by assisting them in all stages of production, value-addition and
marketing. The existing literature on FPOs has shown that FPOs could be beneficial for
smallholder farmers in several ways. A scoping review by Bizikova et al. (2020) has
indicated that more than half of the studies in Africa and India have reported positive
impacts of FPOs. Organic chilly farmers in the Telangana state of India experienced higher
gross incomes and higher technical efficiency after joining FPOs (Manaswi et al., 2020). In a
comparative study of FPOs in Bihar and Maharashtra, Roy et al. (2020) found that
membership in FPOs boost farmers’ incomes by discovering new markets in Bihar and
higher prices realisation in Maharashtra. Transaction costs were successfully reduced and
incomes of member farmers improved supported by better access to markets and improved
bargaining power (Kumari et al., 2021). Furthermore, FPOs promote adoption of good farm
management practices and new technologies, sustainable farming practices, enhance
bargaining power and improve economic performance of members (Ma et al., 2023). FPOs
can provide valuable information, guidance on diverse activities, training and innovative
solutions to improve farm income Krishnan et al. (2021). FPOs have significant positive
impact on productivity of rice farmers Lin et al. (2022) and goat farmers (Neupane
et al., 2022).
However, there are some studies with contradictory results too. For example, Geffersa
(2023) did not observe a significant impact of FPOs on fertiliser use by resource-poor small
farmers. Shumeta and D’Haese (2016) indicated that FPO membership had no significant
impact on the price received for coffee in Ethiopia. Similarly, Bernard et al. (2008) reported Economic
insignificant impact of FPO membership on cereal production in Ethiopia. FPOs had no impact of FPO
significant impact on offering better prices (Chagwiza et al., 2016). Fischer and Qaim (2012)
reported modest effects of FPOs in providing better prices. Further, the impact of
membership is not even across different classes of farmers. Verhofstadt and Maertens (2014)
report that FPOs have larger income effects on bigger farmers than small farmers. On the
other hand, Ma and Abdulai (2016) indicated that economic impacts of FPO membership are
larger for relatively smaller farms. These studies indicate that the evidence on effect of FPOs
is mixed and context-specific. Also, literature lacks a study that examined the heterogeneous
impact of FPOs.

3. Research methodology
3.1 Study area
Sikkim is a small mountainous state in the northeastern part of India. It covers an area of
7,096 square kilometres. It is bordered by Bhutan on the east, China on the North, Nepal on the
west and the Darjeeling Hills in the south. Its landscape varies from mountains to plains
within a few kilometres. Agro-climatic zones in this state range from sub-tropical zones to
alpine and trans-Himalayan zones and presents a suitable condition for the cultivation of a
variety of horticultural, floriculture and agricultural products.
In the year 2016, Sikkim was declared the first fully organic state in the world as all 76
thousand hectares of agricultural land were certified organic (food and agriculture
organisation [FAO], 2018). In Sikkim, agriculture is the primary source of livelihood
engaging around 66.3% of rural households (NSSO, 2019). However, low yield, high
production costs, underdeveloped post-harvest facilities and limited market access are the
major constraints faced by the farmers. The small scale of operation on tiny landholdings
further makes transactions in input and output markets more expensive. The lack of a
properly organised market for agricultural produce in the state is another major challenge
that has forced the farmers to depend on middlemen for selling their products at minimal
prices. Thus, there is a need for the aggregation of agricultural products coupled with value-
addition to reach remunerative markets and fetch higher returns.
To help small farmers reach remunerative markets with their value-added agricultural
produce at lower transaction costs, FPOs were launched under a pilot scheme during
2011–2012 by the Government of India. The goal of FPOs is to increase farmers’ income by
aggregating them, improving their collective access to input and output markets,
enhancing access to technology and assisting in value-addition activities. In 2017, 30 FPOs
were registered in Sikkim but only 28 of them are active at present. Out of these 28 FPOs,
seven are in East Sikkim, eight are in West Sikkim, four FPOs in North and nine are in
South Sikkim. The major crops aggregated, processed and marketed by these FPOs
include large cardamom, ginger, turmeric, orange, buckwheat, pulses and fruits and
vegetables.

3.2 Data
This paper has utilised the primary data collected from a household survey conducted in the
East, West, North and South districts of Sikkim from November 2019 to August 2020. This
study has covered all 28 actively operating FPOs in the state. The lists of FPO members were
acquired from the offices of all 28 FPOs. From each FPO, a sample of 10 members was
selected using systematic random sampling technique. Thus, a total of 280 FPO members
were drawn from 4 districts of Sikkim. Similarly, 10 non-members, from the same villages,
were also drawn using systematic random sampling technique from the list [1] of farmers
IJSE yielding a total of 280 non-members. Therefore, the final sample size includes 560 sample
agricultural households, comprising 280 FPO members and 280 non-members. The
information was collected using a structured questionnaire. Finally, data were analysed
using STATA version 14.

3.3 Analytical framework

Our objective is to estimate the impacts of FPO membership on net returns, ROI and profit
margin. But, the challenge is our inability to observe the outcomes for members if they were
not members. Therefore, we need a counterfactual group which means a control group of
farmers who are not members of FPOs. For the comparison group, we can select non-
members of FPOs. However, members and non-members differ in several observable
characteristics like age, gender, education and land size. Therefore, a simple comparison of
these two groups will produce biased estimates (Caliendo and Kopeinig, 2008). Propensity
Score Matching (PSM) is the commonly used method to overcome this selection bias
(Chagwiza et al., 2016). Rosenbaum and Rubin (1983) suggest using PSM where the
observations are matched based on a single parameter, i.e. propensity scores.
In the present study, we employ the propensity score matching (PSM) method proposed by
Rosenbaum and Rubin (1983) to control for biases that may exist between the two groups
(FPO members and non-members). This technique has been commonly used to estimate the
impact of agricultural collectives on member farmers (Zou and Wang, 2022; Ma et al., 2018;
Sinyolo and Mudhara, 2018).
The first step in PSM involves estimating the propensity score to predict the probability of
a farmer’s decision to join FPOs. For this, the probit model is used as indicated in the
following equation:
prðXi Þ ¼ PðZ ¼ 1j Xi Þ

Where pr (Xi) is the propensity score of the ith individual; PðZ ¼ 1j Xi Þ is the probability of
treatment given the observable covariates (X) of ith individual. The propensity scores are
then used to construct a control group by matching FPO members to non-members. Second,
we applied three types of matching, namely, nearest neighbour matching (NNM), kernel-
based matching (KBM) and Caliper matching (CM) for robustness.
Thirdly, we check common support conditions to verify the presence of enough overlap in
the propensity score distribution of the treatment and comparison groups. We also perform
the balancing test to verify that the differences in covariates of two groups in the matched
sample have been eliminated.
Finally, after matching the FPO members with similar non-members, the average
treatment effects on treated (ATT) are computed. The matches should be restricted to
households with propensity scores that fall in the area of common support. Propensity scores
that fall out of this region are dropped from the sample on which matching is executed. FPO
members, for whom an appropriate match cannot be found and non-members not used as
matches are dropped from the further analysis. The average impact of FPO membership on
the performance of the members, known as the average treatment effect on the treated (ATT)
is estimated as follows:


ATT ¼ E Yi1  Yi0

Where ATT is the average treatment effects on the treated; E(Yi) is the expected value of the
impact indicator; 1 represents the treated, 0 otherwise. A positive (negative) value of ATT
indicates that FPO members have higher (lower) outcome variable Y (here, net return, ROI
and profit margin) than non-members.
3.4 Explanatory, treatment and control variables Economic
The treatment variable is a binary FPO membership, with a value of 1 if a farmer has impact of FPO
membership in an FPO and 0 otherwise. The three focused explanatory variables include net
returns, ROI and profit margin which are used to capture the economic impact of FPO
membership on farmers. In particular, net returns refer to the difference between the gross
revenue of agriculture and investment costs measured in Rupees/acre. The investment costs
include all actual expenses in cash and kind incurred in production by owners like
expenditure on seeds, organic manure, pesticides, irrigation, machinery, and hired and family
labour. ROI refers to the ratio of net returns to investment costs and is calculated as follows:
Return  Investment
ROI ¼
Investment
ROI from crop production and marketing measures the profitability of the investment made
by the farmer in agriculture Profit margin refers to the ratio of net returns to gross revenue.
Guided by previous empirical literature on farmer organisations (Geffersa, 2023; Neupane
et al., 2022; Manda et al., 2020; Ma and Abdulai, 2017) and FPOs in India (Verma et al., 2019),
we have included a set of explanatory variables. These variables include age, gender,
education, household size, farming experience, landholding size, farming as the primary
occupation, ownership of phone and cattle, distance to market, agricultural credit and
extension services.

4. Results and discussion

4.1 Descriptive statistics
Table 1 illustrates the definition and summary statistics of the variables used in the study.
Around 77% of the sample households were headed by males. Females have fewer economic

Variables Definition Mean SD

Output variables
Net returns Gross income from farming minus investment costs (Rs/acre/annum) 37.98 28.35
ROI Return on investment (%) 1.60 0.56
Profit margin The ratio of net returns to gross revenue 0.59 0.11
Treatment variable
FPO membership Farmer is a member of an FPO (1 5 yes, 0 5 no) 0.50 0.50
Control variables
Age Age of household head (years) 45.92 9.37
Gender Gender of the HH head (1 5 male, 0 5 female) 0.77 0.42
Education Formal schooling of HH head (years) 6.78 3.93
Household size Number of HH members 5.26 1.44
Farming experience Experience of farming of the HH head (years) 16.26 9.78
Landholding size Size of landholding of the HH (acres) 1.04 0.96
Primary occupation Primary occupation is farming (1 5 yes, 0 5 no) 0.65 0.48
Phone Mobile phone ownership (1 5 yes, 0 5 no) 0.90 0.30
Cattle Number of cows and oxen owned by the HH 4.31 3.60
Distance to market Distance to the nearest market (km) 22.87 12.27
Agricultural credit Access to agricultural credit (1 5 yes, 0 5 no) 0.17 0.37 Table 1.
Extension Access to extension service (1 5 yes, 0 5 no) 0.48 0.50 Variable definitions
Note(s): SD 5 standard deviation and descriptive
Source(s): Authors’ estimates statistics
IJSE opportunities and economic power in terms of asset ownership and decision making in
developing countries. On average, the household heads were 46 years old and had attained
seven years of formal schooling. The average household size was 5.26 members while the
average landholding was just above one acre. On average, the sample respondents had been
farming for 16.26 years. Around 65% of the sample respondents identified farming as their
primary occupation in the study area and 90% owned a mobile phone. On average, each
household owned 4.31 cattle. The mean distance from the respondents’ residence to the
nearest market was 22.87 km. Only 17% of the respondents had availed of agricultural credit.
About 48% had interacted with the extension officials in the last year.
Table 2 presents the mean differences in the selected variables between FPO members
and non-members. It shows that FPO members tend to earn 30% higher net returns per
acre per annum than non-members. Both ROI and profit margins for FPO members are also
significantly higher than those for non-members. However, these observations cannot be
used to conclude that FPO members are economically performing better than non-
members as these comparisons are only descriptive and do not control for other
confounding factors.
Further, Table 2 shows that FPO members and non-members are systematically different
in terms of several observed characteristics. For example, education was higher for FPO
members than for non-members. Also, FPO members tend to possess more experience in
farming. Members also tend to own larger landholding sizes and mobile phones. Compared
with non-members, FPO members are also more likely to have farming as their primary
occupation. These findings suggest that FPO members and non-members differ significantly
in terms of several covariates, justifying the usage of a matching method like PSM to estimate
the true impact of FPO membership on the economic performance of the farmers.

4.2 Determinants of participation

A probit model was fitted to estimate the propensity scores for matching the FPO members
with non-members (Table 3). The dependent variable assumed a value of 1 if the respondent

Particulars FPO member (N 5 280) Non-member (N 5 280) Mean difference

Output variables
Net returns 42.88 (28.98) 33.09 (26.88) 9.78***
ROI 1.84 (0.48) 1.36 (0.52) 0.48***
Profit margin 0.64 (0.08) 0.55 (0.11) 0.08***
Independent variables
Age 46.24 (9.48) 45.60 (9.28) 0.65
Gender 0.79 (0.41) 0.76 (0.43) 0.03
Education 7.11 (3.86) 6.46 (3.99) 0.65*
Household size 5.26 (1.51) 5.25 (1.37) 0.02
Farming experience 17.21 (10.09) 15.30 (9.38) 1.91**
Landholding size 1.11 (1.05) 0.96 (0.86) 0.14*
Primary occupation 0.73 (0.45) 0.57 (0.50) 0.16***
Phone 0.96 (0.19) 0.84 (0.37) 0.13***
Cattle 4.31 (3.48) 4.30 (3.73) 0.02
Table 2.
Mean differences in the Distance 23.08 (13.01) 22.66 (11.51) 0.43
selected outcome and Agriculture credit 0.19 (0.39) 0.15 (0.35) 0.04
explanatory variables Extension 0.59 (0.49) 0.38 (0.48) 0.21***
between FPO members Note(s): Figures in parentheses are the standard deviation. ***p < 0.01, **p < 0.05 and *p < 0.10
and non-members Source(s): Estimates based on field survey
Variables Coefficients Marginal effects
Economic
impact of FPO
Age 0.008 (0.009) 0.003 (0.003)
Gender 0.008 (0.135) 0.003 (0.048)
Education 0.053 (0.016)*** 0.019 (0.006)***
Household size 0.017 (0.042) 0.006 (0.015)
Experience 0.022 (0.009)*** 0.008 (0.003)***
Landholding size 0.077 (0.061) 0.027 (0.021)
Primary occupation 0.339 (0.120)*** 0.119 (0.041)***
Phone 0.923 (0.218)*** 0.325 (0.074)***
Cattle 0.007 (0.016) 0.002 (0.005)
Market distance 0.014 (0.005)*** 0.005 (0.002)***
Agricultural credit 0.275 (0.152)* 0.097 (0.053)*
Extension 0.521 (0.112)*** 0.184 (0.037)***
Constant 2.174 (0.486)***
Pseudo R2 0.1093
LR χ 2(13) 84.820
Prob>χ2 0.0000 Table 3.
No of observations 560 Determinants of FPO
Note(s): Standard deviation in parentheses. ***p < 0.01, **p < 0.05 and *p < 0.10 membership: probit
Source(s): Estimates based on field survey estimation

was an FPO member and 0, if not. Marginal effects along with the coefficients are included to
aid us in interpretation.
Table 3 reports the results of the probit model estimated. The estimated probit regression
was statistically significant. The marginal effect of education is positive and statistically
significant, suggesting that better-educated farmers are 1.9% more likely to join FPOs
compared to their uneducated counterparts. Educated farmers are more likely to be aware of
the potential benefits of farmer organisations and thus, are more likely to become members of
farmer organisations, consistent with Grashuis and Skevas (2023) and Wang et al. (2019).
Consistent with the findings of Mojo et al. (2017), our study found that the farming
experience positively affects FPO membership. The marginal effect of farming as the primary
occupation is also positive and statistically significant, indicating that farmers for whom
farming is the primary occupation are 11.9% more likely to join FPOs. This may be because
they expect to benefit more from FPOs as FPOs are farmer organisations that provide several
kinds of services beneficial for farmers. This finding is consistent with that of Verma
et al. (2019).
From the results, we find that FPO membership is positively and significantly influenced
by the distance to the nearest market. It indicates that farmers closer to the market are less
dependent on farmer groups as they have better access to markets and several marketing
options. On the other hand, farmers residing far from the market face higher transaction costs
in accessing the markets as transportation costs increase with distance. FPOs collectivise the
farmers and reduce these transaction costs. Thus, farmers are more likely to join FPOs with a
view to reduce transaction costs. This finding is in line with Fischer and Qaim (2012) and
Ahmed and Mesfin (2017).
Our results suggest that FPO membership is positively and significantly influenced by
mobile phone ownership also. Mobile phones make it easy to contact and inform farmers
about various group activities and their benefits (Fischer and Qaim, 2012; Ma and Abdulai,
2016). It facilitates effective communication, especially in a hilly state like Sikkim, where
farmers are located in highly remote villages.
IJSE The positive and statistically significant marginal effect of agricultural credit suggests that
farmers who have availed credit for agricultural purposes are 9.7% more likely to join FPOs.
Higher credit for agriculture implies higher investment. Thus, farmers are required to earn
higher returns from agriculture so that they can pay back their loans and save themselves
from getting into debt. Through FPOs, members can get inputs at lower prices and sell their
produce at higher prices, thereby earning higher profits. Thus, farmers with agriculture credit
prefer to join FPOs (Manda et al., 2020). Farmers who have access to extension workers are
more informed about agricultural policies and thus are more likely to join groups (Gurung and
Choubey, 2023; Manda et al., 2020). Extension officials explain to farmers about importance
and benefits of farmer groups and encourage them to join. The remaining variables; age,
gender, family size, landholding size and number of cattle were found statistically
insignificant.
Additional qualitative insights regarding non-participation of farmers were also gathered
from field interactions. It was learnt that farmers must pay an initial amount of Rs.1100 [2] to
join an FPO. Group Discussions with farmers revealed that in rural economy (where
monetary transactions are minimal), it is a significant amount for farmers to pay. The FPO
Board members informed that even a provision was made for farmers to pay the share capital
amount in instalments so that the burden of payment is reduced. However, farmers had one
more reason for not joining FPOs. Few years back, an attempt was made to form a farmers’
group where money was collected from farmers. But the farmer organisation was never
formed and their money were not refunded. Such bitter experience in the past related to
farmer organisation also had discouraged farmers’ participation in FPOs.

4.3 Robustness and validity of matching estimates

The visual inspection of the density distribution of the propensity scores indicate sufficient
overlap. Propensity scores that fall outside the common support regions are shown on the
graph as “treated off support” indicating that appropriate match could not be found for
them and are dropped from further analyses. The common support assumption is satisfied
and ATT is estimated using only those observations under the common support region (see
Figure 1).

Figure 1.
Distribution of 0 0.2 0.4 0.6 0.8 1
propensity scores for Propensity Score
FPO members (treated Untreated Treated: On support
group) and non- Treated: Off support
members
(control group)
Source(s): Authors’ own creation
Table 4 shows that the Pseudo-R2 drops significantly from 10.9% before matching to 0.7%, Economic
0.3% and 0.4% for NNM, KBM and CM, respectively, verifying the appropriateness of the impact of FPO
model as a whole. The p-value is also not significant after matching, implying that the
covariate means of the two groups are not significantly different after matching. The mean
absolute standardised bias (MASB) also reduces to 4.8%, 2.3% and 4% respectively for NNM,
KBM and CM indicating a good match of the treated and control groups.

4.4 Impact of FPO membership on economic performance

The effect of FPO membership on farmers’ economic performance was estimated using the
average treatment effect on the treated (ATT). To check the robustness of the PSM
estimates, ATT from three different alternative matching methods (NNM, KBM and CM)
were computed, compared and tested. The results of all three techniques are presented in
Table 5.
Using NNM, KBM and CM techniques, the ATT was computed to assess the impact of
FPO membership on the selected performance indicators: net returns, ROI and profit margin.
It is observed that the FPO membership has a significant impact on all three outcome
variables. The ATT value for the net returns was large and quite similar across all three
matching techniques. It implies that FPO membership had a significant positive impact on
the net returns of the farmers. This finding is in line with Verma et al. (2019) and Roy et al.
(2020) who found a positive impact of FPO membership on net returns. This increase in
farmers’ income can be attributed to better prices offered by FPOs, provision of inputs at
discounted rates, training, value-addition activities and lower transportation costs.
FPO membership had a significant impact on members’ ROI also. The results are
significant and similar across three matching algorithms. These findings suggest that
relative to non-members, being a member of an FPO increases ROI by 46.3%, 48% and 46%
in NNM, KBM and CM techniques respectively. This result is consistent with those of Ma et al.
(2021) and Ma and Abdulai (2017), who reported that membership in farmer organisations
had a positive impact on farmers’ return on investment. The impact estimates also indicate

After matching
Test Before matching NN (3) Kernel (0.06) Radius (0.01)
2
Pseudo R 0.109 0.007 0.003 0.004
Table 4.
LR χ 2 84.82 5.26 2.1 3.22 Indicators satisfying
Prob>χ2 0.000 0.969 1 0.997 balancing property
Mean standardised bias 16.7 4.8 2.3 4 before and after
Source(s): Authors’ estimates matching

ATT
Outcome NN Kernel Radius

Net Returns 7.521 (3.043)*** 8.133 (2.676)*** 7.254 (2.945)*** Table 5.

ROI 0.463 (0.056)*** 0.480 (0.049)*** 0.460 (0.053)*** Average impact of FPO
Profit margin 0.080 (0.114)*** 0.084 (0.009)*** 0.081 (0.011)*** membership on the
Note(s): Figures in parentheses indicate standard error. ***p < 0.01, **p < 0.05 and *p < 0.10 economic performance
Source(s): Authors’ estimates of farmers
IJSE that the impact of FPO membership on profit margin is positive and statistically significant
for the members.
Profit margin is the ratio of net returns to gross revenue. Therefore, by applying three
matching algorithms, we find that FPO members receive 8.0, 8.4 and 8.1% higher profit for
each Rupee of sales generated compared to non-members.
Overall, the results suggest that FPO membership had a significantly positive impact on
the economic performance of the members. This finding is consistent with the findings of
previous studies (Roy et al., 2020; Manaswi et al., 2020; Verma et al., 2019; Ma et al., 2018)
which imply that these new form of farmer organisations play an important role in improving
farmer’s incomes. This significant impact of FPOs comes from the services that FPOs provide
in maximising earnings through higher prices and minimising costs by securing inputs in
bulk at lower prices (Gurung, 2020).

4.5 Heterogeneous impact of FPO membership on economic performance

To gain an insight into the impact of FPO membership on different groups of farmers, we also
examined the impact of membership on the three outcome variables for different farmer
classes and gender.
First, we follow Grashuis and Skevas (2023), Ji et al. (2019) and Hoken and Su (2018) to
explore the heterogeneity in the treatment effect of FPO membership in terms of farm size. We
categorise the agricultural households into two sub-groups based on the median for the farm
size variable. The median is a more robust measure of central tendency than the mean
because of outliers on the right side of the distribution (Grashuis and Skevas, 2023). In
particular, one group contains the farmers who have less than the median farm size, and the
other group has farmers who have more than the median farm size.
The results in Table 6 reveal that even with different farm sizes, FPO membership
tends to positively and significantly affect farmers’ economic performance. In particular,
belonging to an FPO increases Net Returns by 15.6% when farm size is less than 0.73
acres. However, net returns increase by 43.5% for the relatively bigger farm sizes, when
they belong to FPOs. It also reveals that the effects of FPO membership on ROI and profit
margin increase as the farm size increases. Generally, large scale farmers stand to benefit
more from FPOs than small farmers. These findings are in line with Ahmed and Mesfin
(2017) and Verhofstadt and Maertens (2014) who indicated that FPO membership benefits
large farmers. But it contradicts the findings of Ma and Abdulai (2016) and Ito et al. (2012),
who found that relatively smaller farmers benefit more from FPO membership. A possible
explanation for our findings lies in the fact that bigger farmers already have higher
marketable surplus and better resource endowment than small farmers. Their only need

Mean outcome Change

Outcomes Category N Members Non-members ATT t-value %

Net returns (Rs.) Small 292 41.52 35.91 5.61** 1.98 15.6
Big 268 44.31 30.88 13.42*** 3.29 43.5
RoI (%) Small 292 1.82 1.36 0.45*** 6.04 33.6
Big 268 1.86 1.38 0.47*** 5.96 35.0
Profit margin (%) Small 292 0.63 0.55 0.08*** 5.13 13.5
Table 6. Big 268 0.64 0.56 0.07*** 4.98 14.1
Heterogeneous impact Note(s): The two groups are formed on the basis of the median value of the farm size variable. The median
of FPO membership by value of farm size is 0.73 acre. ***p < 0.01, **p < 0.05 and *p < 0.10
farm size Source(s): Authors’ estimates
for an appropriate institution to enable them to overcome the constraints faced by Economic
individual farmers is fulfilled by the FPOs. Second, landholdings are very small in our impact of FPO
study area; on average, households own only 1.04 acres (0.4 hectare) of agricultural land.
Therefore, small farmers with such small landholdings cannot produce enough
marketable surplus. Thus, they are unable to utilise the services of FPOs to earn
higher farm incomes.
Second, the above process is repeated for two sub-samples (male and female) based on
gender of the farmers (Table 7). The results are consistent across the three outcome
variables. Generally, female-headed households tend to derive the most benefit in terms of
net returns, ROI and profit margin. This larger impact of FPO membership might be
because FPOs bring several tangible and intangible improvements among female members
(Ingutia and Sumelius, 2022; Ferguson and Kepe, 2011) and help them make better use of
social associations or collective actions. Our findings contradict those of Sinyolo and
Mudhara (2018) who found that male farmers benefit more from farmer organisations in
South Africa.

5. Conclusion
This study examined the economic impact of FPO membership using cross-sectional
household survey data from Sikkim in Northeast India. First, farmers’ decisions to join FPOs
were mainly determined by their education, farming experience, farming as the primary
occupation, phone ownership, distance to the nearest market, agriculture credit and extension
services. FPO membership had a positive and significant impact on net returns, ROI and
profit margin. Non-members had lower net returns, ROI and profit margin than a member.
Furthermore, the analysis also indicates that FPO membership has a heterogeneous impact
on economic performance among its members. Heterogeneity analyses show that larger
farmers, obtaining resources and services would benefit more from FPO membership. The
findings of this study show that FPOs can contribute to the improvement of farmers’
economic performance.
Thus, farmers should be encouraged to join FPOs to reap the benefits of collective action.
FPOs should be more inclusive of female farmers. Information transmission and awareness
campaigns about FPOs and their benefits may educate the farmers in the hilly states.
Existing FPOs may be provided forward and backward linkages to enhance FPO members’
earnings from agriculture. Conducting value-addition activities may fetch higher incomes for
their produce. Thus, policymakers and FPO-promoting resource institutions should enhance
the formation and development of FPOs to use them for improving the economic condition of
farming households.

Mean outcome Change

Outcomes Category N Members Non-members ATT t-value %

Net returns (Rs.) Male 432 43.33 34.11 9.21** 2.57 27.0
Female 128 41.20 29.67 11.53** 2.46 38.8
RoI (%) Male 432 1.79 1.31 0.48*** 7.58 36.6
Female 128 2.01 1.34 0.65*** 7.33 50.0
Profit margin (%) Male 432 0.62 0.53 0.09*** 6.84 16.9 Table 7.
Female 128 0.67 0.55 0.11*** 6.12 21.8 Heterogeneous impact
Note(s): ***p < 0.01, **p < 0.05 and *p < 0.10 of FPO membership by
Source(s): Authors’ estimates gender
IJSE Notes
1. A list of farmers in each village is maintained by Village Level Workers (VLW) and Field Assistants
under the Department of Agriculture, Government of Sikkim.
2. Rs. 1,000 is the share capital and Rs. 100 is the registration fee.

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Corresponding author
Rajiv Gurung can be contacted at: rajivgurung@sssihl.edu.in

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