ITC e-Choupal Weakness of e-choupal Although e-choupal helps eliminate the middleman and therefore allows farmers to get a better price for what they grow, it does nothing to solve the more fundamental problem of the inherent inefficiencies inefficiencies created by so many tiny farms. In addition, it relies on infrastructure, which is often lacking in rural communities. Electricity Electricity and telecommunication telecommunication services can sometimes be less than 100 percent reliable in some of the places where echoupal has been implemented. Finally, although there is no longer a middleman, e-choupal can be no more effective than the sanchalak (coordinator) in each community.
ITC in conjunction with local farmers created the e-choupal system that is acting as a catalyst in rural transformation by providing access to latest information of the agro sector, developing local leadership and creating a profitable distribution. It helps in alleviating rural isolation, improves productivity and income, create transparency for farmers - which improves the economic condition of rural a reas. This paper tries to identify the problem of mandi, need of e-choupal and challenges in development of e-choupal and derives with various conclusion and suggestions in ‘future strategy’ from initial finding and discusses direction for further investigation. Agriculture is the backbone of Indian economy producing 23 percent of GDP, and employs 66 percent of workforce. Because of the green revolution, India’s agricultural productivity has improves to the point that it is both self-sufficient self-s ufficient and a net exporter of a variety of food grains, yet most Indian farmers have remained poor. The causes include remnants of scarcity-era regulation and an agricultural system based on small, inefficient land holdings. The other constraints are weak infrastructure, numerous intermediaries, excessive dependence on the monsoon variation between different agro-climate zones, and many others. The unfortunate result is inconsistent quality and uncompetitive prices, making it difficult for the farmers to sell his produce in the world market. ITC’s trailblazing answer to these problem is the - e-choupal initiative; the single largest information technology-based intervention by a corporate entity in rural India that is transforming the Indian farmer into progressive knowledge-seeking netizens. Enriching the knowledge of farmers & elevating them to a new order of empowerment. ITC aims to confer the power of expert knowledge on even the smallest individual farmer enhancing its competitiveness in the global market. The traditional model Indian farmers rely on Department of Agriculture, govt. universities, insurance companies etc. for various inputs such as weather, modern and scientific farming practices and insurance cover. Farmers approach input retailers who source them from wholesalers who are in direct contact with manufacturers. After harvest, farmers bring these produce to mandis; in small multiple lots throughout the year, where beans are auctioned to the traders and agents of the processing companies in an open outcry method. The government facilitate fair price discovery and enable aggregation of goods, regulate these market yards. Successful bidders then bed the beans, weigh them, pay part cash to the farmers, and transport the cargo to the processing units.
But with every intermediary the cost of produce increases to the processor as intermediary adds his profit margin to the cost although the farmers get the lowest price and margin in the whole chain. e-choupal e-choupal is a Hindi word which means – “Village meeting place”. e-choupal is a virtual market place where farmers can transact directly with a processor and can realize better price for their produce. e-choupal makes use of the; physical transmission capabilities of current intermediaries & aggregation, logistics, counterparty risk and bridge financing. In June 2000, ITC Limited launched e-choupal in India and now e-choupal has become the largest Internet based intervention in rural India. e-choupal aims to provide farmers ready access to crop specific real-time information to improve the farmer’s decision making abil ity thereby helping them to better align their farm output to the projected demand in Indian market. e-choupal, the Webbased initiative of ITC’s IBD, offers the farmer all information about products and services they need to enhance farm productivity improve farm-gate price realization and cut transaction costs. Farmers can access the latest local and global information on weather, scientific farming practices and market prices at the village itself through the web portal in Indian languages – Hindi, Marathi, Kannada and T elegu. echoupal also facilitates the supply of high quality farm inputs as well as purchases of produce at the farmer’s doorstep. e-choupal and the traditional model The main attraction of e-choupal is that it connects large and small producer and users and eliminates the need of middlemen (who are essential in traditional market). e-choupal is a virtual market that brings together vendors and customers. Geographical distance no longer restricts participation of farmers. The main hurdle of traditional market is that information asymmetry is inherent in the market where as e-choupal provides for transparent transaction. The transaction time at the ITC hub is less than at the mandi i.e. 2 or 3 hours where as 1-2 days in mandi. Some more points are:• • • • • •
Customer centric and not dependent on intermediaries. Capable of being used for many commodities & multiple transactions. Easily scalable once it is verified. Uses local talent and local people to develop local leaders. Uses all the existing institutions and legal frameworks. Scientific way of inspection, testing and weighing.
The e-choupal business model The model is centred on a network of e-choupal, information centres equipped with computer connected to the Internet, locating in rural farming villages. e-choupal serves as choupal (gathering place) and an e-commerce hub. A local farmer acting as a Sanchalak (coordinator) runs the e-choupal and the computer usually is located
in the sanchalak’s home. ITC also incorporated a local commission agent known as the Samyojak (collaborator), into the system as the provider of logistical support. The critical element of the e-choupal system and the key to managing the geographical and cultural breath of ITC’s network by recruiting a local farmer is the sanchalak. Sanchalak create trust in society and all infrastructure set up is made in his house. Sanchalak receives commission for every transaction processed through the e-choupal and also benefited from increased social status that accompanies the position – a significant advantage in rural Indian life. Sanchalak act as public officer in ITC project. Sanchalak also aggregates farmers input as well as purchase orders. Sanchalak undergoes training of basic computer usage, basic business skills, quality inspection of crop product training etc. The samyojak or cooperating commisssion agents also play important role. He earn income by providing logistical services that substitute for the lack of rural infrastructure by providing information and market signals on trading transaction. Samyojak is involved in ongoing operation of echoupal system, allowing them revenue streams through providing services such as management of cash, bagging & labour at procurement hubs, handling of mandi paperwork as licensed principals for the retail transaction of the e-choupal. ITC has plans to saturate the sector in which it works with e-choupals, such that a farmer has to travel no more than 5kms. The company expects each e-choupal to serve about 10 villages. Conventional transaction vs. e-choupal Cost
Conventional Market
e-choupal
Trolley Freight
100
NIL
Filling & Weighing
70
NIL
Labour Khadi Karai
50
NIL
Handling loss
50
NIL
Sub total
270
NIL
Processor Incurs - Commission Agent
100
50
Cost of Bag
75
NIL
Labour (Stitching & loading)
35
NIL
Labour at factory (Unloading)
35
35
Freight to factory
250
100
Transit Losses
10
NIL
Sub Total
505
185
Grand Total
775
185
As percent of produce value
8 percent
2 percent
The e-choupal system The previous day’s mandi closing pr ice is used to determine the benchmark Fair Average Quality (FAQ) price at the e-choupal, which is static for a given day. The information of mandi price is communicated c ommunicated through e-choupal portal. If and when connection fails, sanchalak calls an ITC field representative. To initiate a sale the farmer brings a sample of his produce to the e-choupal. The sanchalak performs the quality test in the farmer’s presence & must justify any deduction to the far mer. These simple checks and balances ensure transparency in a process where quality testing and pricing happens at multiple levels. If the farmer chooses to sell his produce to ITC, the sanchalak gives him a note capturing his name, his village, quality test report, approx. quantity and c onditional price. The farmer takes the note from sanchalak and proceeds with his crop to the nearest ITC procurement hub. Some procurement hubs are simply ITC’s factories that also act as collection points. ITC’s goal is to have a processing centre with a 30 to 40 kms radius of each farmer. At the ITC hub, a sample of the farmer’s produce is taken and set aside for laboratory test. Laboratory testing of the sample for oil content is performed after the sale & does not alter the price. The reason for this is that farmers having historically being exploited are not immediately willing to trust a laboratory test. After such inspection, the farmer’s cart is weighed on an electronic weighbridge, first with the produce and then without produce. T he difference is used to determine the weights of his produce. After weighing, the farmer collects his payment in full at the payment counter. The farmer is also reimbursed for transporting his crop to the procurement hub. Every stage of the process is accompanied by appropriate documentation. The farmer is given copy of lab reports, agreed rates and receipts for his record. Sanyojaks, who are adept at handling large amount of cash, are entrusted with the responsibility of payment except at procurement centres. Samyojaks also handle much of the hub logistics, including labour management at hub, bagging, storage mgmt., transportation from hub to factors and handling mandi paperwork for the crops procured at the hub and for all this he is paid a 0.5 percent commission. Benefits of e-choupal “A quiet digital revolution is reshaping the lives of farmers in remote Indian villages.” e-choupal delivers real-time information and customized knowledge to farmer’s decision making ability, securing better quality & price. The e-choupal initiative also creates a direct marketing channel, eliminating wasteful intermediation and multiple handling, thus reducing transaction cost and making logistics efficient. •
Digital transformation - ITC began e-choupal with Soya grower in the villages of M.P. e-choupal tried to change the stereotype image of farmers of bullock cart. Farmers now log on to the site through internet kiosks to order high quality input, get information on best farming practices, prevailing market prices for their crops at home and abroad for the weather forecast all in the local language. The e-choupal site is also helping the farmers discover
•
•
the best price of their quality at the village itself. The site also provides farmers with specialized knowledge for customizing their produce to the right consumer segments. The new storage and handling system preserves the identity of different varieties right through the ‘farm gate to dinner plate’ supply chain. Thus, encouraging the farmers to raise their quality standards and attract higher price. Credit and Insurance - Farmers’ low income and difficulty in accessing credit limits the capacity to pursue opportunities within and outside the agriculture sector. ITC e-choupal proposes the solution of this problem by making partnership with financial institutions. e- choupal provide various types of loans like non-cash loans for farm inputs, loans to sanchalak (sanchalak can better manage credit risk & have better access to farmers), direct loans to farmers based on sanchalak recommendation, Insurance & risk management services etc. Local leadership development - ITC uses involvement of farmers in content creation helps to easily customize the information as per the local requirements. Participation of local farmers ensures provision of adequate and decipherable information to e-choupal, which can be employed into the farming, or pricing of the produce. The increased participation in e-choupal develops local leadership quality in farmers. The farmers get attracted towards e-choupal due to increased profits, added services that he could get, saving in time and the ability to use e-choupal for many transactions. echoupal delivers relevant technologies in the hands of the farmers, which can improve the economic condition of the entire village. e-choupal is one of the very few ICT projects in India that has effectively utilized e-commerce transactions for poverty alleviation. ICT also reduced the number of middlemen between producers and consumers. Now, simple technology solutions are available to create networks in rural areas, which can function as virtual marketplaces. e-choupal at a glance States covered
9 States [M.P., Haryana, Uttaranchal, Karnataka, A.P., U.P., Maharashtra, Rajasthan and Kerala]
Village covered
36,000
e-choupal e-choupal info kiosks
6,400
Empowered e-farmers
3.5 million
Other benefits to farmers Farmers are reimbursed for transport to the procurement hub of e-choupal. The transaction time at the ITC hub is also much faster than mandi. ITC has given recognition to integral partner in the supply process & not mere as agricultural producer and thus elevating the level of respect of farmers. Similarly providing shaded seating area while waiting for their paperwork shows ITC really care for farmers.
References •
www.echoupal.com
Cost and revenue Stream
•
e-choupal has been successful. It has reduced the cost of procurement and the cost of transit and the material handling cost. Procurement transaction costs are reduced from the industry standard of 8 percent (farmers incurs 3 percent and the processor incurs 5 percent) to 2 percent (with farmer saving all his 3 percent, and the processor ITC – saving 3 percent).
Case study on 'ITC's e-choupal & profitable rural transformation' by Kuttayan, Annamalai & Rao.
•
Case study on 'Developing a rural e-hub' by Bowonder, Gupta & Singh.
The total cost incurred on the initiatives so far has been Papers in Digital Opportunities. Rs.50 million (Rs.35 million as capital cost towards computers and other hardware at the kiosks as well as central servers and Rs.15 million revenue expenditure incurred towards portal development, people overhead etc.). But ITC has gain benefit Rs. 20 million, which is the equivalent of full investment on 40 percent of the Choupals (Kiosks). In terms of future revenue, the outflow is 52.1 million in 2001-02 which reduces to 3.90 million in 2005-2006 and for 2006-07 is estimated as 2.70 million. Where as inflow in 200102 is 15.3 million where as 65.0 million in 2005-2006 and estimated as 85.0 million in 2006-2007. The internal rate of return (IRR) on the project wor ks out to be 21.55 percent. •
In the mandi system, there was a mark up of 7-8 percent on the price of soybean from the farm gate to the factor y gate of this mark-up 2.5 percent was born by the farmer while 5 percent was borne by ITC with e-choupal, ITC cost are down to 2.5 percent. In absolute terms, both the farmers and ITC save about $ 6 per metric ton. Challenges As the power is usually available for only a few hours a day at on a sporadic schedule, the e-choupal computer cannot always be accessed when information is needed. Phase imbalances leads to damage of equipments. Telecommunication infrastructure in villages is poor. Telephone exchange also have limited battery backup. In addition, there is no loca l support staff to maintain or tr oubleshoot telephone exchanges. The support team is also short-staffed. Other challenges are: •
•
• • • • •
Illiteracy about computer in rural areas as well as rural population has low trust on electronic system. Selection of an educated, intelligent, reliable and matured person as a sanchalak. Improper knowledge about rural market. Vicious circle of intermediaries (Adatiya & Brokers). Improper and complex user interface on e-choupal. Lack of rules and regulation related to electronic choupal. Mistrust about inspection, testing and weighing of produce on centres.
ITC’s example show the key role of IT in providing and maintaining by a corporation, but used by local farmers – to bring transparency, to increase access to information, and to catalyze rural transformation, while enabling efficiencies and low cost
distribution that make the system profitable and sustainable . Critical factors in the apparent success of the venture are ITC’s extensive knowledge of agriculture, the effort ITC has made to retain many aspects to the existing production system, including retaining the integral importance of local partners. ITC e-choupal is committed to transparency and respect and fairness towards farmers as well as local partners. The author is currently working as Assistant Professor in an MBA college in Pune (NIFEM). She is an M.Phil - University topper from DAVV, Indore, MP and is currently pursuing her PhD on e-Governance under the guidance of Prof. (Dr.) Pankaj Trivedi.
The ITC e-choupal has attracted global attention. Says David Upton, professor, Harvard Business School, who flew down to India to write this case study for his students, "This is a supply chain innovation that is local to India but has broad applications to the world. What is interesting is the social good it brings in the wake to the small, marginal farmer."
Upton points out several issues which the company has addressed.
Firstly, it is not just tweaking around but a greater efficiency in the supply chain. One of the problems in redesigning supply chains is how to use different tools, thus making the various players still own the chain. Here, the farmer and the team are involved in painting the big picture, so there is enthusiasm and a feeling of ownership.
Further, how do you avoid a channel conflict by finding space for the middle-men? Upton also points out that the 'roll out, fix it, scale up' model is a new approach to strategic management. The philosophy here is that the terrain has so many uncertainties that gaps will exist. So, unlike in the past, where focus was on well-laid strategic plans, here you give experimentation-based strategies more weightage.
Says Upton: "Admitted I do not have all the answers but I will not wait for them; instead build safety nets while I roll it out, learn lessons and then fix it. This means you are not attached to your design and are sensitive to lessons from the outside world."
The company's target is to eventually have 50,000 choupals to cover 200,000 Indian villages which means covering one-fifth of the country. With this infrastructure, ITC targets Rs 2000 crore (Rs 20,000 million) by the year 2005 from its international exports.
Says Sivakumar, "Even while we set up choupals all over India, we have offers from international organisations to replicate this in Africa and other developing countries."
The eChoupal advantage ITC's eChoupal project is a winner—for farmers who get better remuneration and for the company that's assured quality inputs for its business Imagine an illiterate farmer in a remote village in Madhya Pradesh sitting at a desktop wired up to the WWW through a small VSAT link, powered by a tiny power generator by the side, and surfing away to glory downloading invaluable information about weather forecasts and sowing trends. V V R Babu
Imagine farmers checking prices for soya beans at the nearest government-run market, or even on an international commodities exchange. “A few
years ago such a scenario would have seemed outlandish but today it’s a reality,” says V V R Babu, CIO, ITC (eChoupal Project). IT for the Masses The eChoupal project covers over 35,000 villages in Madhya Pradesh, Uttar Pradesh, Maharashtra, Karnataka, Andhra Pradesh, Rajasthan, Haryana and Uttaranchal providing millions of farmers with critical information on farming. The Choupal services are being delivered by over 6,000 Sanchalaks and over 17,000 Upa Sanchalaks to these remotest areas. Multiple Benefits Farmers can look at weather forecasts, order fertiliser and herbicide, and consult an agronomist by e-mail when their crops turn yellow. At some eChoupals they can even buy life insurance, apply for loans and also check their children’s exam results. While much has been written about the social benefits of ITC’s eChoupal, eC houpal, the matter of the fact is that the project was conceptualised with a pure business focus to create farmer communities in villages to facilitate sourcing of high-quality farm produce for the company’s fast growing agribusiness. Better Payment In IT parlance, eChoupal is an intelligent blend of applications like CRM and supply chain management. For instance, by helping the far mer identify and control his inputs and farming practices, and by paying more for better quality, ITC has been able to preserve the source and improve the quality of produce. The project was built using .NET. The first implementation of a Soya Choupal took eight months but later extensions like the Aqua Choupal for aquamarine farmers took between six and eight weeks. Today eChoupal is a flexible, ea sy to deploy solution. ITC Infotech provided an inhouse team of 25 to 30 people in the initial stage and this gradually came down to around 20 people, and finally a five-member tea m to maintain the project. The portfolio of commodities sourced has been vastly expanded to include maize, barley, sorghum, and pulses, and the sourcing cycle is extended almost around the year. In the commodities market, these two factors are helping ITC create a definite competitive advantage. The Problems “Initially we thought that we would work with DoT to upgrade rural telephone exchanges. The department was proactive in upgrading many rural exchanges to electronic ones. After 15 months we found that the experience was not satisfactory,” explained Babu. Power cuts in rural areas can run for eight to 10 hours. ITC even went so far as to provide gensets at a few locations hoping to spur DoT to doing the same. It didn’t
work out and in 2001 ITC shifted its focus to using Ku Band VSATs. Power remained a problem and it was solved by using solar panels. The EChoupal Roadmap ITC now plans to leverage its eChoupal infrastructure to sell third-party products, provide rural market research services, and in the social sector, to provide services like health advisories and enable e-governance. ITC eChoupal has embarked in on providing best of the class retaili ng and shopping experiences to the rural consumers by building retail shopping complexes that provide integrated facilities under one roof. Under the brand ‘Choupal Sagar,’ these shopping complexes house—a procurement centre, retail stor e, food court, farmer facility centre and healthcare clinic. In healthcare services, a pilot project has been launched along with leading corporate healthcare service providers, to extend reliable and quality healthcare services to the remotest villages. Several health camps conducted during the pilots are encouraging and the project is in the midst of scaling up to other locations. ITC eChoupal is currently piloting delivery of quality education services to the rural areas leveraging the physical and digital infrastructure developed for commodities sourcing and consumer retail services.
