ITC Limited

Enduring Value. For the Nation. For the Shareholder.

6th July2005 APT World Bank Leveraging Private Investment for Rural ICT Development Chiang Rai, Thailand

Some of the ideas we heard in the earlier sessions«
Rural is different Affordability Large Population Ability to Pay Rural is same Low Incomes Reduce Costs Obligations Excluded Illiteracy Market-led Development Unviable Obligations Government-led Development Gaps in Legislation Sustainability New Technologies Community Acceptance Empowerment Content Integrated Solutions Speed OBA Usage Insufficient Research

Reality Check : Wallet size in Rural areas is still small !!!

The Context

Indian Agriculture has Excellent Resources 
   Plenty of arable land Rich & Diverse Agro-climatic Zones Strong Agricultural Research Large & growing markets

Indian Farmer¶s Resourcefulness is also Legendary 
Works very hard (whole family is on the farm)  Takes risk (on weather, yield, price)  Is innovative (technology adoption)

Yet majority of the Indian Farmers are Poor 
Because,  most of them are small (1.5 ha average holding) ‡ They do not have bargaining power  all of them live in hinterlands (600,000 villages) ‡ They do not have access to real time information  the circumstance of each one is very different (agro-ecological conditions, resources) ‡ They cannot get customized knowledge advise  Further compounded by weak infrastructure Physical, Social, Institutional  To access markets, these farmers have to take the help of the Devil or swim through the Deep Sea

The Devil 
The Middleman  Lends money, sells inputs, buys output Spins an exploitative cycle of dependency  But, he is an indispensable link in the value chain  because he makes up for lack of infrastructure, and delivers critical value at low cost  Normally the devil is a devil, because he is able to block information flow & market signals and extract larger profit for himself

The Deep Sea 
Unbundled Market Institutions  Operating as silos, adversely impact the transaction costs & quality of services  Institutional Credit: Constrained by difficult counterparty risk management  Govt Agri Extension Worker: High Cost & Low Impact  Agri Input Companies: Typically just product focus  Multi purpose Cooperatives: Benefits cornered by a few  Market Yards (Mandis) : ‡ Ideal Price Discovery, but sunk cost of transport adds pressure on farmer to sell ‡ High transaction costs & malpractices

Farmer caught between the Devil & the Deep Sea
Low risk Taking ability

Low Incomes


Low Investment

Low Productivity

ITC eChoupal Premise
A Commitment Beyond the Market
It is possible to create and sustain business models that can enmesh shareholder value creation with the goal of making substantial contribution to society

Increased Productivity Farming Best Practices Transparency Trust Increased Price Realisation

Enhance Incomes

eChoupal + Services
Increased Productivity Farming Best Practices Create Markets Increased Price Realisation

Enhance Incomes Create Surplus
Serve Markets Aggregate Demand Information on Products/ Usage

Low Prices

µe¶ makes it possible to build such a Model
Illustration ITC eChoupal Transactions 
The eChoupal Price Discovery  Farmer now Empowered Vs Being @ Receiving End  Value through Unbundling what was bundled together (Information & Transaction) earlier  The Input Transaction  Value through Bundling (Information, Knowledge, Transaction) what was available unbundled earlier

The eChoupal Infrastructure 
ICT Kiosk with Internet Access  In the house of one trained farmer, Sanchalak  Within walking distance of target farmers  Warehousing Hub / Store  Managed by the erstwhile middleman, Samyojak  Within tractorable distance of target farmers  Collaborative Network of Companies  Orchestrated by ITC  Within talking distance of target population

The eChoupal Services 
Relevant & Real-time Information  Commodity prices, Local Weather, News  Customised Knowledge  Farm Management, Risk Management  Supply Chain for Farm Inputs  Screened for Quality, Demand Aggregation for Competitive Prices & Efficient Logistics  Direct Marketing Channel for Farm Produce  Lower Transaction Costs, Higher Prices because of Traceability

Bottomline for the Farmer 
Higher Incomes through Increased Yields Improved Quality Reduced Transaction Costs
Power of Scale to the Small Farmer Customised Knowledge despite Heterogeneity Real-time Information despite Distances

The eChoupal Network

Current (6 States)
5050 Choupals, 33000 Villages

By 2010 (16 States)
100,000 Villages

What¶s in it for ITC? 
Better supply chain for ITC¶s Food & Agri Businesses  Costs, Quality, Traceability  Access to the Underserved Rural Markets  Through a Virtuous Cycle created by ³Larger Incomes´, and founded on ³Trust´ that is built  New ITES Business Opportunities  Health, Education, Entertainment, eGovernance

Who Pays for the Services? 
Not the farmer !  Information & Knowledge are free of cost  Transactions only if the farmer chooses at free will  Not subsidised !  ITC shareholder looks for a competitive return, like all shareholders do  No Government money involved  Instead, latent value in the typically unevolved markets of an emerging economy is captured

Multiple Value Capture Mechanisms 
The Need: 
Market dynamics of different agri commodities vary, requiring multiple business models  Markets keep evolving, requiring models for different stages of market evolution  Sources of value become obsolescent with the passage of time. There is a need to anticipate and plan for successive sources of value 

The eChoupal Solution:
1. 2. 3. 4. Elimination of Non-Value Adding Activities Differentiated Products through Identity Preservation Value-added Products Traceable to Farm Practices eMarketplace & Support Services to Futures Exchanges

In Other Words« 
Empowerment of the Community through realtime information & customised knowledge  Community responsive grassroots organization through freedom of choice & local management  Efficiency through Competition  Power of Scale through Virtual Aggregation  Integrated Solutions Multiple Partnerships through Collaboration and 

Continuous Innovation because of the Network Orchestrator

ITC Limited



Thank You

Additional Services being Piloted through the new Delivery Mechanism 
Watershed Development  Livestock Quality Improvement  Integrated Health Services  Supplementary Education  IT enabled Services

New Delivery Mechanism 
Sanchalak in the Village + Farmer Empowerment through unbundling information from transactions, through µe¶ together with freedom of choice to transact, creates a Customer-responsive grassroots organisation  Blends risk-taking and competitive approach of entrepreneurs with the downward accountability benefits of a democratic producers¶ organisation  Collaborating yet competing network of institutions orchestrated by a for-profit enterprise  Provide the power of scale and world-class specialisation, and  Create innovative value capture mechanisms

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