ITC’s e-Choupal: Bridging gap between haves and have nots

Introduction
The potential for universal computer access is something we must all believe in and strive for before our global village can be truly blind to difference. As the work force becomes more specialized, the technology gap between those who have access to communication technologies and those who do not becomes a critical issue. Computer equity and the technology gap are increasingly becoming an issue because of a fundamental change in the social fabric. Economic movement has shifted from industrial/national to information/global. A paradigm shift from the industrial age to an information-based society has led to the rapid increase in technology.

The Issues
Agriculture is vital to India as it contributes 23% to GDP, feeds a billion people, and employs 66% of the workforce. Due to Green Revolution, India’s agricultural productivity has improved to the point that it is both self-sufficient and a net exporter of a variety of food grains. Yet most Indian farmers have remained quite poor. The causes include remnants of scarcity-era regulation and an agricultural system based on small, inefficient landholdings. The agricultural system has traditionally been unfair to primary producers. Soybeans, for example, are an important oilseed crop that has been exempted from India’s Small Scale Industries Act to allow for processing in large, modern facilities. Yet 90% of the soybean crop is sold by farmers with smallholdings to traders, who act as purchasing agents for buyers at a local, government-mandated marketplace, called a mandi. Farmers have only an approximate idea of price trends and have to accept the price offered to them at auctions on the day that they bring their grain to the mandi. As a result, traders are well positioned to exploit both farmers and buyers through practices that sustain system-wide inefficiencies.

ITC’s Initiative
ITC is one of India’s leading private companies, with annual revenues of around Rs. 10,000 crores. Its International Business Division was created in 1990 as an agricultural trading company; it now generates Rs. 750 crores in revenues annually. The company has initiated an e-choupal effort that places computers with Internet access in rural farming villages; the e-choupals serve as both a social gathering place for exchange of information (choupal means gathering place in Hindi) and an e-commerce hub. What began as an effort to re-engineer the procurement process for soy, tobacco, wheat, shrimp, and other cropping systems in rural India has also created a highly profitable distribution and product design channel for the company—an e-commerce platform that is also a low-cost fulfillment system focused on the needs of rural India. The e-Choupal system has also catalyzed rural transformation that is helping to alleviate rural isolation, create more transparency for farmers, and improve their productivity and incomes.

BUSINESS MODEL
A pure trading model does not require much capital investment. The e-Choupal model, in contrast, has required that ITC make significant investments to create and maintain its own IT network in rural India and to identify and train a local farmer to manage each e-Choupal. The computer, typically housed in the farmer’s house, is linked to the Internet via phone lines or, increasingly, by a VSAT connection, and serves an average of 600 farmers in 10 surrounding villages within about a five kilometer radius. Each e-Choupal costs between Rs. 1,50,000 and Rs. 3,00,000 to set up and about Rs. 5,000 per year to maintain. Using the system costs farmers nothing, but the host farmer, called a sanchalak, incurs some operating costs and is obligated by a public oath to serve the entire community; the sanchalak benefits from increased prestige and a commission paid him for all e-Choupal transactions. The farmers can use the computer to access daily closing prices on local mandis, as well as to track global price trends or find information about new farming techniques—either directly or, because many farmers are illiterate, via the sanchalak. They also use the e-Choupal to order seed, fertilizer, and other products such as consumer goods from ITC or its partners, at prices lower than those available from village traders; the sanchalak typically aggregates the village demand for these products and transmits the order to an ITC representative. At harvest time, ITC offers to buy the crop directly from any farmer at the previous day’s closing price; the farmer then transports his crop to an ITC processing center, where the crop is weighed electronically and assessed for quality. The farmer is then paid for the crop and a transport fee. “Bonus points,” which are exchangeable for products that ITC sells, are given for crops with quality above the norm. In this way, the e-Choupal system bypasses the government-mandated trading mandis.

The Samyojaks, or cooperating commission agents play a secondary, but still important, role. Samyojaks earn income from ITC by providing logistical services that substitute for the lack of rural infrastructure, by providing information and market signals on trading transactions to the e-Choupal system. In effect, ITC uses agents as providers of essential services, not as principals in a trading transaction. They play an especially important role in the initial stages of setting up the e-Choupals, because they know which farmers grow soya, what kind of families they have, what their financial situation is, and who is seen as “acceptable” in the villages and might thus make a good sanchalak. ITC is strongly committed to involving samyojaks in the on-going operation of the e-Choupal system, allowing them revenue streams through providing services such as management of cash, bagging and labor in remote ITC procurement hubs, handling of mandi paperwork for ITC procurement, and as licensed principals for the retail transactions of the e-Choupal.

Farmers benefit from more accurate weighing, faster processing time, and prompt payment, and from access to a wide range of information, including accurate market price knowledge, and market trends, which help them decide when, where, and at what price to sell. Farmers selling directly to ITC through an e-Choupal typically receive a higher price for their crops than they would receive through the mandi system, on average about 2.5% higher (about Rs. 300 per ton). The total benefit to farmers includes lower prices for inputs and other goods, higher yields, and a sense of empowerment. The e-Choupal system has had a measurable impact on what farmers chose to do: in areas covered by e-Choupals, the percentage of farmers planting soy has increased dramatically, from 50 to 90% in some regions, while the volume of soy marketed through mandis has dropped as much as half. At the same time, ITC benefits from net procurement costs that are about 2.5% lower (it saves the commission fee and part of the transport costs it would otherwise pay to traders who serve as its buying agents at the mandi) and it has more direct control over the quality of what it buys. The system also provides direct access to the farmer and to information about conditions on the ground, improving planning and building relationships that increase its security of supply. The company reports that it recovers its equipment costs from an e-Choupal in the first year of operation and that the venture as a whole is profitable.

In mid-2003, e-Choupal services reached more than 1 million farmers in nearly 11,000 villages, and the system is expanding rapidly. ITC gains additional benefits from using this network as a distribution channel for its products (and those of its partners) and a source of innovation for new products. For example, farmers can buy seeds, fertilizer, and some consumer goods at the ITC processing center, when they bring in their grain. Sanchalaks often aggregate village demand for some products and place a single order, lowering ITC’s logistic costs. The system is also a channel for soil testing services and for educational efforts to help farmers improve crop quality. ITC is also exploring partnering with banks to offer farmers access to credit, insurance, and other services that are not currently offered or are prohibitively expensive. Moreover, farmers are beginning to suggest—and in some cases, demand—that ITC supply new products or services or expand into additional crops, such as onions and potatoes. Thus farmers are becoming a source of product innovation for ITC.

DEVELOPMENT BENEFIT
The e-Choupal system gives farmers more control over their choices, a higher profit margin on their crops, and access to information that improves their productivity. By providing a more transparent process and empowering local people as key nodes in the system, ITC increases trust and fairness. The increased efficiencies and potential for improving crop quality contribute to making Indian agriculture more competitive. Despite difficulties from undependable phone and electric power infrastructure that sometimes limit hours of use, the system also links farmers and their families to the world. Some sanchalaks track futures prices on the Chicago Board of Trade as well as local mandi prices, and village children have used the computers for schoolwork, games, and to obtain and print out their academic test results. The result is a significant step toward rural development.

Features of the E-Choupal Web Site

1. Weather

Users can select their district of interest by clicking on the appropriate region of a

map. Localized weather information is presented on regions within a 25 kilometer

range. Typically 24- to 72-hour weather forecasts are available along with an

advisory. Advisories are pieces of information directly related to the farmer—

information he can put to use. For instance, during the sowing season, a weather

forecast for days following heavy rains may include an advisory that instructs the

farmer to sow seeds while the soil is still wet. Weather data is obtained from Indian Meteorological Department, which has a presence even in small towns and can provide forecasts for rural areas.

2. Pricing

The e-Choupal Web site displays both the ITC procurement rate and the local mandi rates. ITC’s next day rates are published every evening. The prices are displayed prominently on the top of the Web page on a scrolling ticker.

3. News

For the soyachoupal Web site, relevant news is presented from various sources. In addition to agriculture related news, this section also includes entertainment, sports, and local news.

4. Best Practices

Best farming practices are documented by crop. Here again, the information

presented is action-based. For instance, this section not only highlights what kind of fertilizers to use but also how and when to use them.

5. Q & A

This feature enables two-way communication. Here a farmer can post any

agriculture related question he needs answered.

Other Internet Resources Accessed at the E-Choupal

1. News: Dainik jagran, Web Dunia.
2. Market Prices: One sanchalak actually followed Chicago board of Trade (CBOT) prices for a month and arrived at a correlation with the local market prices. He used this information and helped other farmers decide when to sell.
3. Entertainment

· Rent CDs to watch movies on the computer.

· Music downloads from the Internet.

· Movie Trivia.

4. Sports: Cricket related news.
5. Education: Students use the Internet to check their exam results and grades online.
6. Communication

Email: The samchalaks have an email account at yahoo.

Chat: Some samchalaks use chat room to chat with other samchalaks and ITC managers.

7. General Interest/Other: Information about cell phones.

KEY LESSONS
The e-Choupal model demonstrates that a large corporation can play a major role in recognizing markets and increasing the efficiency of an agricultural system, while doing so in ways that benefit farmers and rural communities as well as shareholders. The case also shows the key role of information technology—in this case provided and maintained by a corporation, but used by local farmers—in helping bring about transparency, increased access to information, and rural transformation. 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 of the existing production system, including maintenance of local partners, the company’s commitment to transparency, and the respect and fairness with which both farmers and local partners are treated.

e-Choupal, the unique web based initiative of ITC's International Business Division, offers the Farmers of India all the information, products and services they need to enhance farm productivity, improve farm-gate price realisation and cut transaction costs. Farmers can access latest local and global information on weather, scientific farming practices as well as market prices at the village itself through this web portal - all in Hindi. Choupal also facilitates supply of high quality farm inputs as well as purchase of commodities at their doorstep.

Given the literacy and infrastructure constraints at village level, this model is designed to provide physical service support through a Choupal Sanchalak - himself a lead farmer - who acts as the interface between computer terminal and the farmers. Full contents of this site are therefore made available to the registered sanchalaks only.

ITC is looking forward to offer a whole range of products and services through its e-choupal network now extended to over 12,000 villages. While marketing of insurance products has already been finalised, the company plans to offer even healthcare and family planning services to the rural population.

STRATEGY FOR THE FUTURE
ITC recognizes the limitations of today’s e-Choupals as a vehicle of procurement efficiency. Not every crop lends itself to such an intervention. In crops such as soy where value can be maximized, followers will soon imitate ITC and eliminate the company’s competitive advantage. ITC’s vision for e-Choupal extends many generations as e-Choupal evolves into a full-fledged orchestrator of a two-way exchange of goods and services between rural India and the world. The soy e-Choupal is “Wave 1,” with several more to follow.

• Wave 2. The source of value in this generation will be identity preservation through the chain. This is a significant source of value in crops such as wheat, where the grade of the grain determines its end use. The ability to separate different grades from field to consumer will command a price premium. E-Choupals in Uttar Pradesh have already started wheat procurement.

• Wave 3. This wave takes identity a step further by building the concept of traceability into the supply chain. This is vital for perishables where traceability will allow ITC to address food safety concerns and once again provide a value that the customer is willing to pay for. Shrimp is a good example of a crop for which Wave 3 will be important. ITC’s intervention in such products will occur level of production. ITC will define standards that producers must adhere to and work with farmers to ensure product quality. Farmers in turn will get the best price from ITC because ITC commands the traceability premium.

• Wave 4. The first three waves fill institutional voids while Wave 4 creates institutions. The first three waves apply to environments in which ITC is the sole buyer in the e-Choupal channel. In commodities where the underlying markets have reached a high degree of efficiency, such basic sources of value will not exist. In crops such as these, e-Choupal will serve as the market-place where multiple buyers and sellers execute a range of transactions. A good example of this is coffee. ITC’s source of value will be the sunk cost of the IT infrastructure and the transaction fees.

• Wave 5. While the first four waves related to sourcing from rural India, the fifth wave elaborates the rural marketing and distribution strategy. This is not the same as the rudimentary distribution of agri-inputs that is being done today. ITC plans to bring together knowledge of the customer, knowledge of the business, deployed infrastructure, its reputation, and experience gained over the first four waves, with an organization of people, processes, and partners. This base will allow ITC to bring value-added products and services to rural India.

• Wave 6. After the sourcing of goods from rural India, ITC’s last wave has the ambitious vision of eventually sourcing IT-enabled services from rural India. Telemedicine, eco-tourism, traditional medicine, and traditional crafts are some of the services that can be sourced from rural India. While still a ways off, it is an agenda that inspires scale of the vision and potential impact on development in rural India.