About e-Choupal
ITC’s Agri Business Division, one of India’s largest exporters of agricultural commodities, has conceivede-Choupal as a more efficient supply chain aimed at delivering value to its customers around the world ona sustainable basis.The e-Choupal model has been specifically designed to tackle the challenges posed by the uniquefeatures of Indian agriculture, characterised by fragmented farms, weak infrastructure and theinvolvement of numerous intermediaries, among others.‘e-Choupal’ also unshackles the potential of Indian farmer who has been trapped in a vicious cycle of lowrisk taking ability - low investment - low productivity - weak market orientation - low value addition - lowmargin - low risk taking ability. This made him and Indian agribusiness sector globally uncompetitive,despite rich & abundant natural resources.Such a market-led business model can enhance the competitiveness of Indian agriculture and trigger avirtuous cycle of higher productivity, higher incomes, enlarged capacity for farmer risk management,larger investments and higher quality and productivity.Further, a growth in rural incomes will also unleash the latent demand for industrial goods so necessaryfor the continued growth of the Indian economy. This will create another virtuous cycle propelling theeconomy into a higher growth trajectory.The Model in Action:Appreciating the imperative of intermediaries in the Indian context, ‘e-Choupal’ leverages InformationTechnology to virtually cluster all the value chain participants, delivering the same benefits as verticalintegration does in mature agricultural economies like the USA.‘e-Choupal’ makes use of the physical transmission capabilities of current intermediaries – aggregation,logistics, counter-party risk and bridge financing –while disintermediating them from the chain of information flow and market signals.With a judicious blend of click & mortar capabilities, village internet kiosks managed by farmers – calledsanchalaks – themselves, enable the agricultural community access ready information in their locallanguage on the weather & market prices, disseminate knowledge on scientific farm practices & riskmanagement, facilitate the sale of farm inputs (now with embedded knowledge) and purchase farmproduce from the farmers’ doorsteps (decision making is now information-based).Real-time information and customised knowledge provided by ‘e-Choupal’ enhance the ability of farmersto take decisions and align their farm output with market demand and secure quality & productivity. Theaggregation of the demand for farm inputs from individual farmers gives them access to high qualityinputs from established and reputed manufacturers at fair prices. As a direct marketing channel, virtuallylinked to the ‘mandi’ system for price discovery, ‘e-Choupal’ eliminates wasteful intermediation andmultiple handling. Thereby it significantly reduces transaction costs.‘e-Choupal’ ensures world-class quality in delivering all these goods & services through several product /service specific partnerships with the leaders in the respective fields, in addition to ITC’s own expertise.
While the farmers benefit through enhanced farm productivity and higher farm gate prices, ITC benefitsfrom the lower net cost of procurement (despite offering better prices to the farmer) having eliminatedcosts in the supply chain that do not add value.The Status of Execution:Launched in June 2000, 'e-Choupal', has already become the largest initiative among all Internet-basedinterventions in rural India. 'e-Choupal' services today reach out to more than 4 million farmers growing arange of crops - soyabean, coffee, wheat, rice, pulses, shrimp - in over 40,000 villages through 6450kiosks across 8 states (Madhya Pradesh, Karnataka, Andhra Pradesh, Uttar Pradesh, Maharashtra,Rajasthan, Uttaranchal & Tamil Nadu).The problems encountered while setting up and managing these ‘e-Choupals’ are primarily of infrastructural inadequacies, including power supply, telecom connectivity and bandwidth, apart from thechallenge of imparting skills to the first time internet users in remote and inaccessible areas of rural India.
ITC e-Choupal
The Value Chain - Farm to Factory Gate:
Agriculture is vital to India. It produces 23% of GDP, feeds a billion people, andemploys 66% of the workforce. Because of the Green Revolution, India’s agriculturalproductivity has improved to the point that it is both self-sufficient and a netexporter of a variety of food grains. Yet most Indian farmers have remained quitepoor. The causes include remnants of scarcity-era regulation and an agriculturalsystem based on small, inefficient landholdings. The agricultural system hastraditionally been unfair to primary producers. Soybeans, for example, are an
important oilseed crop that has been exempted from India’s Small Scale IndustriesAct to allow for processing in large, modern facilities. Yet 90% of the soybean crop issold by farmers with small holdings to traders, who act as purchasing agents forbuyers at a local, government-mandated marketplace, called a mandi. Farmers haveonly an approximate idea of price trends and have to accept the price offered themat auctions on the day that they bring their grain to the mandi. As a result, tradersare well positioned to exploit both farmers and buyers through practices thatsustain system-wide inefficiencies.ITC is one of India’s leading private companies, with annual revenues of US$2billion. Its International Business Division was created in 1990 as an agriculturaltrading company; it now generates US$150 million in revenues annually. Thecompany has initiated an e-Choupal effort that places computers with Internetaccess in rural farming villages; the e-Choupals serve as both a social gatheringplace for exchange of information (choupal means gathering place in Hindi) and ane-commerce hub. What began as an effort to re-engineer the procurement processfor soy, tobacco, wheat, shrimp, and other cropping systems in rural India has alsocreated 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 theneeds of rural India. The e-Choupal system has also catalyzed rural transformationthat is helping to alleviate rural isolation, create more transparency for farmers, andimprove their productivity and incomes. This case analyzes the e-Choupal initiativefor soy; efforts in other cropping systems (coffee, wheat, and shrimp aquaculture),while different in detail, reflect the same general approach.
BUSINESS MODEL
A pure trading model does not require much capital investment. The e-Choupalmodel, in contrast, has required that ITC make significant investments to create andmaintain its own IT network in rural India and to identify and train a local farmer tomanage each e-Choupal. The computer, typically housed in the farmer’s house, islinked to the Internet via phone lines or, increasingly, by a VSAT connection, andserves an average of 600 farmers in 10 surrounding villages within about a fivekilometer radius. Each e-Choupal costs between US$3,000 and US$6,000 to set upand about US$100 per year to maintain. Using the system costs farmers nothing,but the host farmer, called a sanchalak, incurs some operating costs and isobligated by a public oath to serve the entire community; the sanchalak benefitsfrom 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, aswell as to track global price trends or find information about new farmingtechniques—either directly or, because many farmers are illiterate, via thesanchalak. They also use the e-Choupal to order seed, fertilizer, and other productssuch as consumer goods from ITC or its partners, at prices lower than thoseavailable from village traders; the sanchalak typically aggregates the villagedemand for these products and transmits the order to an ITC representative. At
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About e Choupal
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| Upload Date: | 08/04/2009 |
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