E Choupal

ITC’s e-Choupal: A Commitment Beyond The Market Agriculture is vital to India. It produces 23% of GDP, feeds a billion people, and employs 66% of the workforce. Because of the 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. Soyabeans, 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 soyabean crop is sold by farmers with small holdings to traders, who act as purchasing agents for buyers at a local, governmentmandated marketplace, called a mandi. Farmers have only an approximate idea of price trends and have to accept the price offered 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 is one of India’s leading private companies, with annual revenues of US$2 billion. Its International Business Division was created in 1990 as an agricultural trading company; it now generates US$150 million 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 soya, 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.

Origins of e-Choupal

The ITC group is one of India’s foremost private sector companies with a market capitalization of around US$4 billion and annual revenues of US$2 billion. ITC has a diversified presence in tobacco, hotels, paperboards, specialty papers, packaging, agri-business, branded apparel, packaged foods and other fast moving consumer goods. Spurred by India’s need to generate foreign exchange, ITC's International Business Division (IBD) was created in 1990 as an agri-trading company aiming to “offer the world the best of India's produce.” Initially, the agricultural commodity trading business was small compared to international players. By 1996, the opening up of the Indian market had brought in international competition. Large international companies had better margin-to-risk ratios because of wider options for risk management and arbitrage. For an Indian company to replicate the operating model of such multinational corporations would have required a massive horizontal and vertical expansion. In 1998, after competition forced ITC to explore the options of sale, merger, and closure of IBD, ITC ultimately decided to retain the business. The Chairman of ITC challenged IBD to use information technology to change the rules of the game and create a competitive business that did not need a large asset base. Today, IBD is a US$150 million company that trades in commodities such as feed ingredients, food-grains, coffee, black pepper, edible nuts, marine products, and processed fruits. Corporate and social responsibility is an integral part of ITC’s philosophy, and ITC is widely recognized as dedicated to the cause of nation building. Chairman Y. C. Deveshwar calls this source of inspiration “a commitment beyond the market.” “ITC believes that its aspiration to create enduring value for the nation provides the motive force to sustain growing shareholder value. ITC practices this philosophy by not only driving each of its businesses towards international competitiveness but by also consciously contributing to enhancing the competitiveness of the larger value chain of which it is a part.” This view of social consciousness allowed ITC to recognize the unique opportunity of blending shareholder value creation with social development. The social impact of the e-Choupals as envisioned by ITC ranges from the short-term provision of Internet access to the long-term development of rural India as a competitive supplier and consumer of a range of goods and services in the global economy.

Problems Before eChoupal was introduced

Traditionally, commodities were procured in “mandis” (major agricultural marketing centers in rural areas of India), where the middleman used to make most of the profit. These middlemen used unscientific and sometimes outright unfair means to judge the quality of the product to set the price. Difference in price for good quality and inferior quality was less, and hence there was no incentive for the farmers to invest and produce good quality output. With eChoupal, the farmers have a choice and the exploitative power of the middleman is neutralized. ICT platform that facilitates flow of information and knowledge, and supports market transactions on line. * It transmits Information (weather, prices, news), * It transfers Knowledge (farm management, risk management) * It facilitates sales of Farm Inputs (screened for quality) and * It offers the choice of an alternative Output-marketing channel (convenience, lower transaction costs) to the farmer right at his doorstep * It is an interlocking network of partnerships (ITC + Met Dept + Universities + Input COs + Sanyojaks, the erstwhile Commission Agents) bringing the best-in class in information, knowledge and inputs. e-Choupal is, thus, distributed transaction platform that brings together sellers, buyers along with information and service providers. e-Choupal is a model with a number of non-conventional characteristics namely: * customer centric * capable of being used for many commodities and multiple transactions * easily scalable once it is verified * uses local talent and local people and develops local leaders * can be extended to local as well as global procurers * stimulates local entrepreneurs to extend their innovativeness * uses all the existing institutions and legal frameworks and * many others can join the market as transaction time is low.\

Critical Success Factors

Some of the elements that helped the e-Choupal to work successfully are discussed below: Comprehensive knowledge of rural markets: Rural markets are both economic and social networks and there is a strong connection between the operation of social and economic transactions. Understanding the operations is vital before the systems are conceptualized. Use of local population, as much as possible helped the network to get the acceptance closely. Designing a Win-Win transaction model: The success of e-Choupal comes from the condition in which both the farmer and the processor share the benefits coming out of the elimination of middle men and hence due to timely information availability. Leveraging the logistics channels: The existing logistics of the rural markets are leveraged but they are not able to exploit the information asymmetry (unlike that in a conventional market). In that sense e-Choupal uses the local institutions but eliminates the information asymmetry that they used previously. Selection of Sanchalak: Both the selection of Sanchalak and the acceptance of Sanchalak by the community are very critical for the success of e-Choupal. ITC used a trial and error method for developing the procedure for selecting Sanchalaks. In the platform terminology Sanchalak is the interface for maintaining the platform. For the farmer the Sanchalak is the e-Choupal. Training and sensitizing him for the crucial role has been the main reason for the acceptance of the Sanchalak by the farmers. Sanchalak, thus, acts as the coordinator of the knowledge community, and a representative of farming community. Evolving an appropriate user interface: The Technology interface used in rural areas has to be very simple. Interface has to be tried for rural settings and only after its validation it has to be used. Firstly, one has to understand the user pattern and secondly, it has to be tried, tested and validated. For example, farmers do not understand the concept of insurance. e-Choupal evolved a simple interfacing arrangement that a farmer can understand. Bottom-up model for entrepreneurship: e-Choupal encourages enormous amount of creativity at the local level along with local entrepreneurship stimulation. The farmer and Sanchalak are free to use the e-Choupal and develop new uses. e-Choupal unleashes the creative spirit in the rural India.

Statistics:

Today 4 million farmers use e-Choupal to advantage – bargaining as virtual buyers’ cooperatives, adopting best practices, matching up to food safety norms. Being linked to futures markets is helping small farmers to better manage risk. e-Choupal has been specially cited in the Government of India’s Economic Survey of 2006-07, for its transformational impact on rural lives.