21657981 itc-e-choupal-analysis


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21657981 itc-e-choupal-analysis

  1. 1. ITC e-ChoupalWeakness of e-choupalAlthough e-choupal helps eliminate the middleman and therefore allows farmers to get a better price forwhat they grow, it does nothing to solve the more fundamental problem of the inherent inefficienciescreated by so many tiny farms.In addition, it relies on infrastructure, which is often lacking in rural communities. Electricity andtelecommunication services can sometimes be less than 100 percent reliable in some of the places where e-choupal has been implemented. Finally, although there is no longer a middleman, e-choupal can be no moreeffective than the sanchalak (coordinator) in each community.ITC in conjunction with local farmers created the e-choupal system that is acting asa catalyst in rural transformation by providing access to latest information of theagro sector, developing local leadership and creating a profitable distribution. Ithelps in alleviating rural isolation, improves productivity and income, createtransparency for farmers - which improves the economic condition of rural areas.This paper tries to identify the problem of mandi, need of e-choupal and challengesin 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 pointthat it is both self-sufficient and a net exporter of a variety of food grains, yet mostIndian farmers have remained poor. The causes include remnants of scarcity-eraregulation and an agricultural system based on small, inefficient land holdings. Theother constraints are weak infrastructure, numerous intermediaries, excessivedependence on the monsoon variation between different agro-climate zones, andmany 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 trail-blazing answer to these problem is the - e-choupal initiative; the single largestinformation technology-based intervention by a corporate entity in rural India that istransforming the Indian farmer into progressive knowledge-seeking netizens.Enriching the knowledge of farmers & elevating them to a new order ofempowerment. ITC aims to confer the power of expert knowledge on even thesmallest individual farmer enhancing its competitiveness in the global market.The traditional modelIndian farmers rely on Department of Agriculture, govt. universities, insurancecompanies etc. for various inputs such as weather, modern and scientific farmingpractices and insurance cover. Farmers approach input retailers who source themfrom 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 inan open outcry method. The government facilitate fair price discovery and enableaggregation of goods, regulate these market yards. Successful bidders then bed thebeans, weigh them, pay part cash to the farmers, and transport the cargo to theprocessing units.
  2. 2. But with every intermediary the cost of produce increases to the processor asintermediary adds his profit margin to the cost although the farmers get the lowestprice and margin in the whole chain.e-choupale-choupal is a Hindi word which means – “Village meeting place”. e-choupal is avirtual market place where farmers can transact directly with a processor and canrealize better price for their produce. e-choupal makes use of the; physicaltransmission capabilities of current intermediaries & aggregation, logistics, counter-party risk and bridge financing. In June 2000, ITC Limited launched e-choupal inIndia and now e-choupal has become the largest Internet based intervention in ruralIndia.e-choupal aims to provide farmers ready access to crop specific real-time informationto improve the farmer’s decision making ability thereby helping them to better aligntheir farm output to the projected demand in Indian market. e-choupal, the Web-based initiative of ITC’s IBD, offers the farmer all information about products andservices they need to enhance farm productivity improve farm-gate price realizationand cut transaction costs. Farmers can access the latest local and global informationon weather, scientific farming practices and market prices at the village itselfthrough the web portal in Indian languages – Hindi, Marathi, Kannada and Telegu. e-choupal also facilitates the supply of high quality farm inputs as well as purchases ofproduce at the farmer’s doorstep.e-choupal and the traditional modelThe main attraction of e-choupal is that it connects large and small producer andusers and eliminates the need of middlemen (who are essential in traditionalmarket).e-choupal is a virtual market that brings together vendors and customers.Geographical distance no longer restricts participation of farmers. The main hurdle oftraditional market is that information asymmetry is inherent in the market where ase-choupal provides for transparent transaction. The transaction time at the ITC hubis less than at the mandi i.e. 2 or 3 hours where as 1-2 days in mandi. Some morepoints 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 modelThe model is centred on a network of e-choupal, information centres equipped withcomputer connected to the Internet, locating in rural farming villages. e-choupalserves as choupal (gathering place) and an e-commerce hub. A local farmer actingas a Sanchalak (coordinator) runs the e-choupal and the computer usually is located
  3. 3. in the sanchalak’s home. ITC also incorporated a local commission agent known asthe Samyojak (collaborator), into the system as the provider of logistical support.The critical element of the e-choupal system and the key to managing thegeographical and cultural breath of ITC’s network by recruiting a local farmer is thesanchalak. Sanchalak create trust in society and all infrastructure set up is made inhis house. Sanchalak receives commission for every transaction processed throughthe e-choupal and also benefited from increased social status that accompanies theposition – a significant advantage in rural Indian life. Sanchalak act as public officerinITC project. Sanchalak also aggregates farmers input as well as purchase orders.Sanchalak undergoes training of basic computer usage, basic business skills, qualityinspection of crop product training etc. The samyojak or cooperating commisssionagents also play important role. He earn income by providing logistical services thatsubstitute for the lack of rural infrastructure by providing information and marketsignals on trading transaction. Samyojak is involved in ongoing operation of e-choupal system, allowing them revenue streams through providing services such asmanagement of cash, bagging & labour at procurement hubs, handling of mandipaperwork 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 afarmer has to travel no more than 5kms. The company expects each e-choupal toserve about 10 villages. Conventional transaction vs. e-choupal Cost Conventional e-choupal Market Trolley Freight 100 NIL Filling & Weighing 70 NIL Labour Khadi Karai 50 NIL Handling loss 50 NIL Sub total 270 NIL Processor Incurs - Commission 100 50 Agent 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
  4. 4. As percent of produce value 8 percent 2 percentThe e-choupal systemThe previous day’s mandi closing price is used to determine the benchmark FairAverage Quality (FAQ) price at the e-choupal, which is static for a given day. Theinformation of mandi price is communicated through e-choupal portal. If and whenconnection fails, sanchalak calls an ITC field representative. To initiate a sale thefarmer brings a sample of his produce to the e-choupal. The sanchalak performs thequality test in the farmer’s presence & must justify any deduction to the farmer.These simple checks and balances ensure transparency in a process where qualitytesting and pricing happens at multiple levels. If the farmer chooses to sell hisproduce to ITC, the sanchalak gives him a note capturing his name, his village,quality test report, approx. quantity and conditional price. The farmer takes the notefrom 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 forlaboratory test. Laboratory testing of the sample for oil content is performed afterthe sale & does not alter the price. The reason for this is that farmers havinghistorically being exploited are not immediately willing to trust a laboratory test.After such inspection, the farmer’s cart is weighed on an electronic weighbridge, firstwith the produce and then without produce. The difference is used to determine theweights of his produce. After weighing, the farmer collects his payment in full at thepayment counter. The farmer is also reimbursed for transporting his crop to theprocurement hub.Every stage of the process is accompanied by appropriate documentation. Thefarmer 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 theresponsibility of payment except at procurement centres. Samyojaks also handlemuch of the hub logistics, including labour management at hub, bagging, storagemgmt., transportation from hub to factors and handling mandi paperwork for thecrops 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’sdecision making ability, securing better quality & price. The e-choupal initiative alsocreates a direct marketing channel, eliminating wasteful intermediation and multiplehandling, 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
  5. 5. 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. e- choupal 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 info kiosks 6,400 Empowered e-farmers 3.5 millionOther benefits to farmersFarmers 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 asagricultural producer and thus elevating the level of respect of farmers. Similarlyproviding shaded seating area while waiting for their paperwork shows ITC reallycare for farmers.
  6. 6. References • www.echoupal.comCost and revenue Stream • Case study on ITCs e-choupal & profitable rurale-choupal has been successful. It has reduced the cost of transformation byprocurement and the cost of transit and the material Kuttayan,handling cost. Procurement transaction costs are reduced Annamalai & Rao.from the industry standard of 8 percent (farmers incurs 3 • Case study onpercent and the processor incurs 5 percent) to 2 percent Developing a rural e-hub by(with farmer saving all his 3 percent, and the processor ITC Bowonder, Gupta &– saving 3 percent). Singh.The total cost incurred on the initiatives so far has been • Papers in DigitalRs.50 million (Rs.35 million as capital cost towards Opportunities.computers and other hardware at the kiosks as well ascentral servers and Rs.15 million revenue expenditure incurred towards portaldevelopment, people overhead etc.). But ITC has gain benefit Rs. 20 million, which isthe equivalent of full investment on 40 percent of the Choupals (Kiosks). In terms offuture revenue, the outflow is 52.1 million in 2001-02 which reduces to 3.90 millionin 2005-2006 and for 2006-07 is estimated as 2.70 million. Where as inflow in 2001-02 is 15.3 million where as 65.0 million in 2005-2006 and estimated as 85.0 millionin 2006-2007. The internal rate of return (IRR) on the project works out to be 21.55percent.In the mandi system, there was a mark up of 7-8 percent on the price of soybeanfrom the farm gate to the factory gate of this mark-up 2.5 percent was born by thefarmer while 5 percent was borne by ITC with e-choupal, ITC cost are down to 2.5percent. In absolute terms, both the farmers and ITC save about $ 6 per metric ton.ChallengesAs the power is usually available for only a few hours a day at on a sporadicschedule, the e-choupal computer cannot always be accessed when information isneeded. Phase imbalances leads to damage of equipments. Telecommunicationinfrastructure in villages is poor. Telephone exchange also have limited batterybackup. In addition, there is no local support staff to maintain or troubleshoottelephone 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
  7. 7. distribution that make the system profitable and sustainable . Critical factors in theapparent success of the venture are ITC’s extensive knowledge of agriculture, theeffort ITC has made to retain many aspects to the existing production system,including retaining the integral importance of local partners. ITC e-choupal iscommitted to transparency and respect and fairness towards farmers as well as localpartners.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 theguidance of Prof. (Dr.) Pankaj Trivedi.The ITC e-choupal has attracted global attention. Says David Upton, professor, Harvard Business School, who flew down to Indiato write this case study for his students, "This is a supply chain innovation that is local to India but has broad applications to theworld. 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 chainsis how to use different tools, thus making the various players still own the chain. Here, the farmer and the team are involved inpainting 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 thatgaps will exist. So, unlike in the past, where focus was on well-laid strategic plans, here you give experimentation-based strategiesmore 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, learnlessons and then fix it. This means you are not attached to your design and are sensitive to lessons from the outside world."The companys target is to eventually have 50,000 choupals to cover 200,000 Indian villages which means covering one-fifth of thecountry. 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 inAfrica and other developing countries."The eChoupal advantageITCs eChoupal project is a winner—for farmers who get better remuneration and forthe company thats 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 nearestgovernment-run market, or even on an international commodities exchange. “A few
  8. 8. 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 MassesThe eChoupal project covers over 35,000 villages in Madhya Pradesh, Uttar Pradesh,Maharashtra, Karnataka, Andhra Pradesh, Rajasthan, Haryana and Uttaranchalproviding millions of farmers with critical information on farming. The Choupalservices are being delivered by over 6,000 Sanchalaks and over 17,000 UpaSanchalaks to these remotest areas.Multiple BenefitsFarmers can look at weather forecasts, order fertiliser and herbicide, and consult anagronomist by e-mail when their crops turn yellow. At some eChoupals they caneven 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, the matterof the fact is that the project was conceptualised with a pure business focus to createfarmer communities in villages to facilitate sourcing of high-quality farm produce forthe company’s fast growing agribusiness.Better PaymentIn IT parlance, eChoupal is an intelligent blend of applications like CRM and supplychain management. For instance, by helping the farmer identify and control hisinputs and farming practices, and by paying more for better quality, ITC has beenable to preserve the source and improve the quality of produce.The project was built using .NET. The first implementation of a Soya Choupal tookeight months but later extensions like the Aqua Choupal for aquamarine farmerstook between six and eight weeks.Today eChoupal is a flexible, easy to deploy solution. ITC Infotech provided an in-house team of 25 to 30 people in the initial stage and this gradually came down toaround 20 people, and finally a five-member team 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 theyear. In the commodities market, these two factors are helping ITC create a definitecompetitive advantage.The Problems“Initially we thought that we would work with DoT to upgrade rural telephoneexchanges. The department was proactive in upgrading many rural exchanges toelectronic 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 toprovide gensets at a few locations hoping to spur DoT to doing the same. It didn’t
  9. 9. work out and in 2001 ITC shifted its focus to using Ku Band VSATs. Power remaineda problem and it was solved by using solar panels.The EChoupal RoadmapITC now plans to leverage its eChoupal infrastructure to sell third-party products,provide rural market research services, and in the social sector, to provide serviceslike health advisories and enable e-governance.ITC eChoupal has embarked in on providing best of the class retailing and shoppingexperiences to the rural consumers by building retail shopping complexes thatprovide integrated facilities under one roof. Under the brand ‘Choupal Sagar,’ theseshopping complexes house—a procurement centre, retail store, food court, farmerfacility centre and healthcare clinic.In healthcare services, a pilot project has been launched along with leadingcorporate healthcare service providers, to extend reliable and quality healthcareservices to the remotest villages. Several health camps conducted during the pilotsare 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 ruralareas leveraging the physical and digital infrastructure developed for commoditiessourcing and consumer retail services.