E-Volution: Technology as a Driver of Rural Retail in India – a Case of Itc’s Foray Into the Rural Market.
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| E-VOLUTION: TECHNOLOGY AS A DRIVER OF RURAL RETAIL IN INDIA – A CASE OF ITC’S FORAY INTO THE RURAL MARKET. | Ms Smita Singh, Research Scholar, Department of Business Administration, University of Lucknow, Lucknow(M) 098395-01035e-mail: smita_saggi@rediffmail.com |
Ms. Smita Singh
Ms. Singh is a visiting faculty at Institute of Management Sciences, University of Lucknow and Distance Learning Centre for Punjab Technical University. She has been associated with academics for the past 2½ years and is enrolled for PhD research at the Department of Business Administration, University of Lucknow. She has worked with Wigan and Leigh College, Lucknow as Programme Manager and Academic Head, Management. A NTSE (NCERT) and HRD Ministry scholarship holder, she has qualified SLET in Anthropology. With over 8 years of industry experience, her current affiliation as Human Resource Consultant is with the Lucknow based project centre of Johns Hopkins University of Public Health and Hygiene, which she earlier served for 4 years as Manager HR and Research Associate.
DECLARATION
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ABSTRACT
E-VOLUTION: TECHNOLOGY AS A DRIVER OF RURAL RETAIL IN INDIA – A CASE OF ITC’S FORAY INTO THE RURAL MARKET.
70 % of India's population lives in rural areas in its 627000 villages. Technopak’s estimated size of the Indian rural market at USD 300 billion shows the rural-urban split in the ratio 55 – 45 and the FMCG and durables consumption in the rural market at about 53% and 59% of all India figures respectively. Organised retail, in recognition of this potential has started offering products and services to the rural consumers, but find inadequate infrastructural facilities, numerous intermediaries, information gaps, prevalence of spurious brands and seasonal demand as some of the stumbling blocks they have to contend with.
Information technology, however, has the potential to address the unmet needs of Indian villagers. Indian Tobacco Company has successfully pioneered a silent e-volution by linking farmers to information using technology through the innovative concepts of E-Choupal and Chaupal Sagar. While e-Choupal adds critical value to the existing supply chain through application of IT, Chaupal Sagar, initiated as rural shopping-cum-information centre, is being touted as a rural mall. Technology undoubtedly has played a vital role in the success of ITC’s e-Choupal and it needs to be explored whether the concept can survive and will it spawn new retail formats specific to rural areas.
Key words: e-volution, information gap, critical value, rural mall, information technology
Ms. Smita Singh, Research Scholar, Department of Business Administration, University of Lucknow, Lucknow
E-VOLUTION: TECHNOLOGY AS A DRIVER OF RURAL RETAIL IN INDIA – A CASE OF ITC’S FORAY INTO THE RURAL MARKET.
“Internet will extend electronic marketplace and make it the ultimate go-between, the universal middleman.” - Bill Gates
70 % of India's population lives in rural areas in its 627000 villages. Technopak’s estimated size of the Indian rural market at USD 300 billion shows the rural-urban split in the ratio 55 – 45 and the FMCG and durables consumption in the rural market at about 53% and 59% of all India figures respectively. Organised retail, in recognition of this potential has started offering products and services to the rural consumers, but find inadequate infrastructural facilities, numerous intermediaries, information gaps, prevalence of spurious brands and seasonal demand as some of the stumbling blocks they have to contend with.
Intermediaries play a crucial role in rural marketing. They are instrumental in blocking information and making the food supply chain uncompetitive. On an average the intermediaries in the food and vegetable sector take away 65% of the MRP without adding any value to the produce. [EXHIBIT I] Indian farmers get just 25% of the final consumer price compared to the 60-70% price earned by farmers in developed and developing countries in South East Asia.
The situation is aggravated due to the fragmented nature of rural markets; lack of information, poor transport and infrastructural facilities which makes reaching their produce to the urban markets an arduous problem. This forces the farmer to accept the price being offered by the traders. This disadvantage stems from lack of avenues to compare the prevailing prices in the local markets as also from inability to use information on urban market prices to negotiate with traders since farmers have no realistic idea of the costs incurred by traders while travelling to their farm. What is needed is a market where all buyers and sellers can meet, where prices and produce can be compared and quality of the choices evaluated.
Information technology, however, has the potential to address the unmet needs of Indian villagers. Indian Tobacco Company has successfully pioneered a silent e-volution by linking farmers to information using technology through the innovative concepts of E-Choupal and Chaupal Sagar. Information technology, by making available updated knowledge on crop cultivation methods, weather forecast, commercial information related to prices of grains, fruits, vegetables, processed foods, government schemes and polices on agriculture and agri-business, water management, use of technology in agriculture, can create a big impact on the food supply chain’s vertical co-ordination.
INDIAN TOBACCO COMPANY – AN INTRODUCTION
Incorporated in August 1910 as the Imperial Tobacco Company of India Ltd. by BAT, a UK based tobacco company, cigarettes and leaf tobacco remained its primary focus for the next six decades. It was in 1974, that the company’s name was changed to Indian Tobacco Company (ITC) and it soon diversified into several businesses like hotel industry in 1975, textiles in 1977, paper in 1979 and cement in 1981. ITC with a market capitalisation of nearly US $ 18 billion, a turnover of over US $ 4.75 billion thus, has a presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business, Packaged Foods & Confectionery, Information Technology, Branded Apparel, Personal Care, Stationery, Safety Matches and other FMCG products.
ITC, one of India’s largest exporters of agricultural products, formed its International Business Division in 1990 as an agricultural trading company which today generates annual revenues to the tune of US$150 million. With the opening up of the Indian market in 1996, international competition geared up, with MNCs enjoying better margin-to-risk ratios, forced ITC to rethink its ITC-IBD strategy and ‘use information technology to change the rules of the game’.
The e-Choupal initiative of the company works for empowering famers through the usage of internet. The e-Choupal project was initiated by ITC with the intention of leveraging information technology to improve the global competitiveness of Indian agriculture. The aim was to transfer value to the farmers through near disintermediation of the supply chain, thereby consolidating the food supply chain. The premise was that since the intermediaries wielding socio-political powers in their respective regions could not be completely dis-intermediated, the best course open was to dis-intermediate them from the flow of information to the farmers. This however could be possible only through the use of information technology.
E-CHOUPAL – THE BEGINNINGS
The concept of the e-Choupal, which took off in the year 2000, marries technology with rural market providing the farmers with opportunities. The word ‘Choupal’ means ‘village meeting place’ and the idea has been leveraged by ITC to form a virtual, electronic market place. E-Choupal aims at bringing the buyers and the sellers together, virtually, eliminating the dependence on physical movement and the requirement of a market place. It creates an online, cyber market where interactions are real time, with data on market prices prevailing in the mandis and there are no geographical boundaries to restrict information flow. The e-Choupals were designed to address the rural problems of: 1. Fragmented farms, dispersion and heterogeneity: most of the farm holdings are small in size, the average holding being 1.5ha. This severely impacts the bargaining power of the farmer as does the lack of information. Owing to the diverse agro-ecological conditions and the heterogeneity in resources, absence of customised knowledge inputs about the farming practices and procedures is acutely felt. 2. Weak institutions and infrastructure: Though there are institutions to help the farmer, the quality of service and transaction costs leave much to be desired. Institutional credit is constrained by the difficult counterparty risk management clause, the agri-input companies have products as their primary focus, market yards (mandis) are best with high transaction costs and malpractices while the benefits offered by the multi-purpose cooperatives are monopolised by a few. 3. Involvement of numerous intermediaries: They are instrumental in blocking market signals and information flow to the farmers for their vested interests and thus run an exploitative cycle of dependency through linked transactions. Since, they make up for the lack of infrastructure, the farmers have no choice but to depend on them. 4. Information Asymmetry: Absence of an authentic source of real time, accurate information leaves the farmer at the mercy of the intermediaries.
The entire scenario builds up into a system where the farmer is caught in the vicious circle of a weak market orientation causing low value additions and thus low margins, thereby leading to low risk taking ability restricting investment and hence giving rise to low productivity. [EXHIBIT II] Such incomplete market structures lock the farmers into a low income – low expenditure mode. It is this mould that the e-Choupal breaks with the help of technology.
E-CHOUPAL: MODE OF BUSINESS OPERATIONS
The mode of functioning of the e-Choupal has been kept simple in line with the requirements of the farmers. [EXHIBIT III] The concept is managed by the local farmers, themselves, thus ensuring the sustainability, replicability and scalability of the venture. The Pentium desktops with printers are installed in the house of the Sanchalak and are linked to the internet via phone lines or through a VSAT connection. Each connection has an approximate catchment area of 600 farmers in about 10 nearby villages within a five kilometre radius. Information regarding weather, best farming practices, latest technical know-how, farming inputs, prevailing market prices, insurance are all uploaded to the e-Choupal website. There are different sources which are tapped for getting this information and include inputs from the Meteorological Department, regional markets, and agricultural universities, thus bringing the required knowledge to the farmer at the click of the mouse. Further, all information is customised by ITC and disseminated by the Sanchalak using the local language. A central repository of information, ‘Manthan’ has been created by ITC-IBD to cater to the needs of the farmers. The operation of the internet kiosks is in the hands of a lead farmer, the Sanchalak, who is trained by ITC in manning computers. There are three distinct activities which a Sanchalak is guided to perform. These are: (i) Knowledge and Information Dissemination (KID) (ii) Virtual aggregation of demand and supply (iii) Retailing opportunities for agri-inputs, other products and services
The Sanchalak works as an interface between the farmer and ITC and his selection is critical to the ultimate success of the e-Choupal as it is he who is the e-Choupal for the farmer, the knowledge community’s coordinator as also the representative of the farming community. The Sanchalak, ‘obligated by a public oath to serve the entire community’ is trained in the operating the computer and accessing the internet, by the ITC staff. He aggregates the produce of the small farmers, which are then sold to ITC and also aggregates the requirements and orders for farming inputs of the farmers, placing them with the suppliers and manufacturers. The farmers get the facilities free of cost but the Sanchalak incurs operating cost. To cover these expenses, the Sanchalak is paid a commission (0.5%) for all the e-Choupal transactions. Other than the monetary benefit, the Sanchalak is motivated by the increased prestige and importance that stems from being the information provider.
ITC offers farmers the option of selling directly to it at harvest. The previous day’s closing prices are applicable. The farmer transports his produce to the ITC processing center where it is electronically weighed, assessed for quality and the farmer paid a transport fee over and above the price of his crop. The farmers stand to benefit in the form of ‘bonus points’ in case their crops surpass the quality norms. Products sold by ITC can be had in exchange of these ‘bonus points’. Thus, the e-Choupal system successfully bypasses the government mandated trading mandis by providing online access and transaction across remote locations.
In fact, as stated by ITC in its website, the “‘e-Choupal’ makes use of the physical transmission capabilities of current intermediaries – aggregation, logistics, counter-party risk and bridge financing –while dis-intermediating them from the chain of information flow and market signals.”
The e-Choupal re-engineers the supply chain to tap value and this network has 4 distinct stages: [EXHIBIT IV]
Pricing
The prices prevailing in the mandis are entered into the e-Choupal by the commission agents, daily. The previous day’s mandi closing prices are used for determining the benchmark Fair/Average/Quality (FAQ) prices at the e-Choupal and these are communicated to the Sanchalak via the e-Choupal portal. In case the internet fails, the Sanchalak calls up an ITC field representative for the information.
Inspection and Grading
The produce has to be inspected and graded before a price for the same can be quoted. The farmer gets a sample of his produce to be inspected and graded by the Sanchalak, who gives the famer a conditional quote on the basis of his quality assessment. Quality test are performed by the Sanchalak in the presence of the farmer, ensuring transparency in the process. The benchmark price marks the upper limit of the price that a Sanchalak can quote for the produce. If the farmer wishes to sell to ITC, he is given a note by the Sanchalak giving his name, village, details of the quality tests (including moisture content and presence of foreign matter), approximate quantity and the quoted conditional price.
Weighing and Payment
After receiving the note from the Sanchalak, the farmer proceeds to the nearest ITC procurement hub for selling off the crop. The procurement hubs are collection and distribution points for the produce and are either ITC factories or warehousing operations. ITC aims at having a processing center within a 30-40 kilometer radius of each farmer. At present there are 16 such hubs. At the hub, the sample from the produce is taken for laboratory test. While technology has been employed to verify the assessment of the produce made by the Sanchalak, currently tests performed for pricing before the farmer are those which can be understood by him. Subsequent lab tests are used for awarding the farmers with crops exceeding the set quality norms. ITC is using this method to gradually change the farmers’ attitude and remove their distrust towards laboratory tests. The weight of his produce is determined by calculating the difference in the weight of his cart with and without the produce.
Hub Logistics
Once the inspection and weighing are complete, the farmer can collect his payment at the payment counter. Each stage is supported by appropriate paper work. Documentation works in building trust and the farmer has a copy of lab reports, agreed rates and receipts for his future records. The commission agents have been made a part of the system as Samyojaks. These Samyojaks, who are adept at handling large amounts of cash, are entrusted with the responsibility of payment, except at procurement centers near large ITC operations where ITC is handles cash disbursement. Samyojaks also handle much of the procurement hub logistics, including labor management at the hub, bagging (if necessary), storage management, transportation from the hub to processing factories, and handling mandi paperwork for the crops procured at the hub. For his services in the procurement process, the Samyojak is paid a 0.5% commission.
E-CHOUPAL – THE TECHNOLOGY DRIVER OF RURAL RETAIL
The e-volution of the chaupal into an effective instrument for empowering farmers by overcoming the constraints in the physical and social environment of rural marketing is the result of the usage of technology. In fact, technology is the pivot on which the e-Choupals have been conceived. Hence, it is imperative that the context in which technology operates be explored.
Power constraints
Power supply in rural India is not only sporadic and unreliable but also of sub-standard quality. Timely access to information is crucial for the success of the e-Choupal initiative. To overcome this problem, ITC provided the Sanchalak with a battery based UPS power backup. Further, it was realised that insufficient line power was creating problems in charging the backup battery. To overcome this, solar battery chargers (one full day of sunlight being sufficient to charge a battery to provide power for 70 to 80 minutes of computer usage) were introduced. Quality of power was the other issue that needed to be resolved and this was dealt with by installing spike suppressors and filters to control voltage spikes and through use of isolation transformers to correct phase imbalances. Also in the pipeline are specially designed UPS units that would remain effective between 90V and 300V.
Providing internet connectivity
Rural telephone exchanges too are plagued with the problem of sporadic power supply and limited battery backup. With no power, the phones cease to function. There is a problem of transmission quality as over head phone lines run alongside high voltage power lines and are exposed to the elements. To make matters worse, the exchanges in rural areas are mostly understaffed leading to poor maintenance and trouble shooting. Apart from these, the telecommunication infrastructure in rural areas is designed to carry only voice traffic, rendering its use for internet access impractical due to the slow speeds of transmission. Hence, ITC worked with C-DoT for installation of RNS kits in the village exchanges. These kits were further modified to deliver a 40Kbps throughput from their original 12 Kbps. However, the erratic power supply, posed problems for the dial-up connectivity and other options needed to be explored. It was then decided to adopt the satellite based (VSAT) technology, which though expensive at Rs. 120,000 per installation ensured a throughput rate of up to 256 Kbps leading to a connectivity e-volution at the e-Choupal from dial-up to VSAT. [EXHIBIT V]
Technology used in the E-Choupal
Application architecture: The Web site www.soyachoupal.com is the gateway for the farmer and requires a user ID and password to login. Upon recruitment a Sanchalak’s account is created and he is given a user ID and password to access the system. As of now Sanchalaks are the only registered users.
Information available * Weather : Information on weather conditions, with farmer advisory is available as 24-72 hour forecasts. The data, presented on regions within a 25 kilometer range, is obtained from the Indian Meterological Department, which has a presence in even the small towns and is equipped to make forecasts for the rural areas as well. * 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. * News: The website presents agricultural news relevant to the farmer as also sections on sports, local and entertainment. * Best practices: Farming best practices are documented by the crop and presented in an action-based format. * Q & A: This feature enables two-way communication between the ITC experts, fellow Sanchalaks and farmers. Any questions related to agriculture that need an answer can be posted here by the farmer.
System Support: ITC has about 15 engineers in place to provide field infrastructure support to the e-Choupals. Each e-Choupal is visited twice every month and the support costs have been estimated at Rs. 300 per visit. On an average, the engineers make one or two calls daily. ITC has future pans of utilising remote help desk tools and network automation to improve service and lower the costs of infrastructural support.
Information architecture:
The information architecture of the e-Choupal system is designed such that over a period of time it will give rich insights on the rural customer. Data related to the rural customers location, credit worthiness, consumer preferences, financial position, and spending patterns represents the first link between the vast untapped and underserved rural market and the urban conglomerates. Information of this nature will enable planning, marketing and development of a range of products specifically suited to rural consumption. While initial information on the Sanchalak is gathered at the time of registration itself, the web database tracks the Internet usage patterns at e-Choupals. This database along with the records maintained by the Sanchalak provides ITC details on peak usage periods, preferred Internet destinations, information most sought after, information least sough after etc. this information would help ITC understand the customer better and hence, explore ways for serving him efficiently.
How ICT helps:
Technology adds value by unbundling together information and transaction which was earlier bundled. The unbundling has lead to easy and real time availability of accurate information at the door step with no need to go to the mandi. The option of fixing prices at the village itself, gives the farmer the freedom to choose between selling to ITC or at the mandi, if he believes he would get a better bargain there.
Value addition is also created through bundling information, knowledge and transaction that was earlier in the unbundled form. Bundling of information on weather and best farming practices, knowledge on farming techniques and procedures from the experts and efficiencies of scale enabled due to aggregation of supply of inputs and outputs are all the result of effective use of technology.
SUSTANAIBILITY AND SCALABILTY OF THE MODEL The e-chaupal already has a powerful reach across the nine states of Madhya Pradesh, Haryana, Uttaranchal, Karnataka, Andhra Pradesh, Uttar Pradesh, Maharashtra, Rajasthan and Kerala through its 6500 odd kiosks covering around 4 million farmers in 38,500 villages, involved in soyabean, wheat, rice, pulse, coffee and shrimp cultivation. For its reach to widen further, it is important to assess the sustainability and scalability of the initiative. Its sustainability depends on the following factors: * The cost of establishing an e-Choupal is between Rs 120,000 and Rs 200,000 while it costs about Rs 5000 per year to maintain. [EXHIBIT VI] * While using the system does not cost the farmer anything, the Sanchalaks incur some operating costs against usage of electricity and telephone charges, but these are easily recovered. * Farmers benefit by ordering seed, fertilizer, and other products (such as consumer goods) from ITC or its partners through the net at prices lower than those being offered by the village traders. * Farmers also gain when selling directly to ITC through an e-Choupal as they receive a higher price for their crops than they would have got had they sold the crop through the mandi system, where the intermediary would take away a substantial portion. * The system is sustaining itself, because ITC too benefits, saving about 2.5 percent in commission fees and transport costs that it would otherwise pay to buying agents at the mandis. Thus, the company is able to recover its equipment costs from an e-Choupal in the first year of its operations.
ITC has itself identified two factors which would aid the scalability of the e-Choupals. * Crop Specific Intervention: ITC recognizes that agrarian systems vary by crop, implying that the e-chaupal model as well as the payback streams, call for customization to the region of operation. * Low-Cost Last Mile: The same channel can be utilized for both sourcing produce from the villages as well as transferring goods to the villages. The channel usage extends far beyond its original application in agriculture to consumer goods and services.
Scalability of the model has also been demonstrated by its rapid spread and acceptance by the farming community in different states of India. * The e-Choupal network covers six states, Madhya Pradesh, Karnataka, Andhra Pradesh, Uttar Pradesh, Maharashtra, and Rajasthan, and reaches more than 4 million farmers in nearly 38,500 villages through 6,500 e-Choupals. * ITC plans to expand the reach of e-Choupals from nine to 15 states, to reach 100,000 villages, and to benefit a total population of 10 million farmers by 2012. The vision is the result of its successful implementation. * On the anvil is an expansion of the scope of E-Choupal aiming to support the rural communities through its network to deliver a broader range of services and forging a partnership with government agencies and civil society organizations in watershed development, animal husbandry, human-capacity development, education, health care, and gender empowerment.
IMPLICATIONS FOR ICT
It is not only technology that has contributed to the success of ITC e-Choupal, it’s contribution to ICT cannot be discounted. E-Choupal has helped in identifying factors that can contribute to and assist in successful ICT operations. Thus, it may be seen: * E-Choupal, being an initiative specifically designed for a particular business, has seen a successful application of technology which has also been scaled, replicated and sustained. * Customization, validation and then expansion to operational phase can be termed as the key to its popularity. This approach ensured e-Choupal’s acceptance in all the business areas it ventured into.
* E-Choupal has spread the economic benefits of its operations not only to the big but also very much to the small and marginal farmers. A larger group of beneficiaries has aided its easy and rapid adoption.
* The selection of Sanchalaks, the main operators of the program, has been a crucial step. They are members of the same village, with the same background and facing the same issues. It is their nonpartisan approach and participative style of functioning that has been able to generate a feeling of involvement and build trust in the community. This trust has worked in sustaining relationships.
* Training has a major contribution in facilitating acceptance of technology, which forms the backbone of e-Choupal. Training, support and problem solving has helped reduce disparities and empower the rural population. They are developing the needed confidence in the use and benefits of technology, thanks to e-Choupal!
E-Choupal has been a pioneering effort by ITC at harnessing technology for improved market and information access, thus, reducing the dependence on intermediaries and transferring the accruing benefit to the participating farmers. The model works not only for the big farmers but as well or more so for the small and marginal farmers. [EXHIBIT VII] However, issues contributing to or taking away from its success in the future need to be identified for its continued success. [EXHIBIT IX]
E-CHOUPAL - THE WAY AHEAD
While e-Choupal adds critical value to the existing supply chain through application of IT, Chaupal Sagar, initiated as rural shopping-cum-information centre, is being touted as a rural mall. Technology undoubtedly has played a vital role in the success of ITC’s e-Choupal and it needs to be explored whether the concept can survive and will it spawn new retail formats specific to rural areas.
ITC recognises the fact that other corporate players like DSCL, Hindustan Unilever Limited, Tata, Godrej and Reliance, too are eyeing the rural sector and would be working real hard at imitating its success and taking away its competitive advantage. With this scenario in mind, ITC has its future course of action chalked out to include: * Generate value by identifying preservation through supply chain * Introduce concept of traceability in the supply chain, thereby defining standards and product quality that producers must adhere to. * Leverage e-Choupal as a market-place where multiple buyers and sellers execute a range of transactions. * Bundle together knowledge of the customer and business, deployed infrastructure, goodwill and experience gained to introduce value-added products and services to rural India. * 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.
DISCUSSION POINTS - CONCERNS TO BE ADDRESSED
E-Choupal has seen resounding success but it continues to face multiple challenges: * With rapid changes in technology and computer access, there are chances that the present community-based business models are radically altered. ITC seeks to deal with this scenario by designing, operating and controlling its own ICT infrastructure.
* There remains a latent threat of Sanchalaks becoming dissatisfied with the commissions being paid to them by ITC. In this case they may unionize and exercise their increased clout over the villagers to extract additional illegitimate payments.
* There are already indications that ‘hierarchy of access’ has started forming around the e-Choupals, thereby restricting certain sections from gaining access to the benefits of the system or even to the Sanchalak. This if allowed to happen could assume gigantic proportions, defeating the very spirit of e-Choupals and destroying the non-partisan nature of the model.
* ITC has laid open before the farmers a sea of opportunities, raising their expectations and awakening aspirations. It needs to continually reinvent and reinforce its offerings to avoid losing its customer base (farmer) to its competitors. ITC would need a more nimble and responsive customer service to retain its customers.
* In spite of its best efforts, there are sections in the villages which are still deprived of access to the system. The issue is embedded in structure of the society and does not reflect on the efforts of ITC but will surely impact the same. Simply taking technology to the villages will not work and it calls for a concerted effort to remedy this
* Samyojaks are unwilling partners in ITCs venture and it is highly possible that a more aggressive, better remunerating competitor weans them away and uses them for gaining market share.
* Rural market is an upcoming and rapidly expanding pie and there are several players eyeing it. With innovative ideas, better reach and stronger presence, they might more than match ITC in its quest for supremacy in the rural markets. The company needs to keep its eyes and ears open to potential threats and pre-empt competition.
ITC has shown that technology can work in bringing prosperity to the door step of the farmer, empowering him with choices and opportunities, equipping him with the tool of knowledge. Now it has to look up, recognise the future prospects and challenges and work on safeguarding its competitive advantage.
REFERENCES 1. Gopalaswamy, T.P. (1997). Rural marketing: Environment, problems and strategies. New Delhi: Vikas Publishing House 2. Krishnamacharyulu, C.S.G & Ramkrishnan, L. (2002). Rural marketing: Text and cases. Delhi: Pearson Education (Singapore) Pte. Ltd., Indian Branch 3. Srinivas Rao, M. (2008). Empowering Farmers through ICT - Lessons from ITC e-Choupal. National Conference on e-Governance -2008, Panchkula 4. Rajasekhar, V.V. (2005). Grassroot Deployment: ITC eChoupal Experience. ELITEX 2005; New Delhi 5. Philip, A. & Bose, A. E -Kiosks for Socio- Economic Development: A Critical view of the e-Choupal Mode 6. Annamalai, K. & Rao, S. (2003). What works: ITC’s e-Choupal and profitable rural transformation – Web-based information and procurement tools for Indian farmers 7. Assisi, C. & Gupta, I. (2003). “ITC’s Rural Symphony.” Businessworld, January 20, 2003. 8. Deveshwar, Y.C. (Chairman of ITC, the Indian Tobacco Company). 2002. “ITC to Connect One-Sixth of India through e-Choupals.” Express Computer, December 23, 2002. URL: <http://www.express-computer.com/20021223/indnews1.shtml>.
11. Gupta, S.D. (2002). ‘The choupal as a meta market’ Business standard, Strategist. 3. Dated 4/2/2002, ‘ITC e-choupal’, Businessworld.
12. Sivakumar, S. (CEO of ITC-IBD), dated 8/4/2002, ‘Collaboration Works’ Businessworld.
13. Shetty, A. & Mahalaxmi, B.V., dated 8/4/2002 ‘Corporates Enter to Cash in on the Agri
Potential’ The Financial Express.
14. Sharma, S. (Head Agri-inputs, ITC-IBD). (2006), Use of ICT in Agri Business: Prospects and Challenges. Fai Workshop on importance of ICT in the Fertiliser and Agriculture Sectors.
15. Matani, A.G., Information Technology Improving Retail Marketing In Agriculture. International Marketing Conference on Marketing & Society, 8-10 April, 2007, IIMK
16. Roy, A.K. Leveraging ICT for Rural Marketing., FICCI RURAL MARKETING SUMMIT, May 10th 2007, New Delhi
17. Singh, A. Bridging the Rural Digital Divide: Case-study: Community based information systems – India, ITC e-Choupal; http://www.fao.org/rdd/doc/ITC%20e-Choupal.pdf
18. Narang, R. and Singh, S. Empowering farmers through creation of a rural hub: A case study on Hariyali Kisaan Bazaar. Conference on Marketing to Rural Consumers– Understanding and tapping the rural market potential, 3- 5 April 2008, IIMK
19. Indian Tobacco Company, Website. URL: <http://www.itcportal.com>.
20. ITC-IBD (International Business Division of the Indian Tobacco Company), e-Choupal: Website. URL: http://www.echoupal.com
ANNEXURES
EXHIBIT I: MARK-UP IN THE FOOD SUPPLY VALUE CHAIN
Low Realisations High costs Village Commission Agent
Farmer
District Commission Agent
Wholesaler
Sub
Wholesaler
Retailer
Consumer
Intermediaries take 65% of MRP
% of MRP 15% 15% 10% 25% 10% 25% 100%
Source: Srivastava, R. (2006) Role of logistics in foods business; ISB, Hyderabad
EXHIBIT II: VALUE CHAIN - CONVENTIONAL Farmer
Input companies Seed, fertilizers practices S
T
O
C
K
I
S
T
Input Retailer
Pakka Adat
(Registered dealer)
Trader
B
R
O
K
E
R
P
R
O
C
E
S
S
O
R
Source: Narang, R. & Singh, S. Empowering farmers through creation of a rural hub: A case study on Hariyali Kisaan Bazaar. Conference on Marketing to Rural Consumers– Understanding and tapping the rural market potential, 3- 5 April 2008, IIMK MANDI OPERATION PROCESS
Source: Philip, A. & Bose, A. E -Kiosks for Socio- Economic Development: A Critical view of the e-Choupal Mode EXHIBIT V: TOPOLOGY OF E-CHOUPAL
Source: Sharma, S. (Head Agri-inputs, ITC-IBD). (2006), Use of ICT in Agri Business: Prospects and Challenges. Fai Workshop on importance of ICT in the Fertiliser and Agriculture Sectors.
EXHIBIT VI: COST ALLOCATION OF TECHNOLOGY IN E-CHOUPAL SYSTEMS
Source: Annamalai, K. & Rao, S. (2003). What works: ITC’s e-Choupal and profitable rural transformation – Web-based information and procurement tools for Indian farmers
EXHIBIT VII: COMPARATIVE OF TRANSACTION COSTS UNDER THE MANDI AND E-CHOUPAL SYSTEMS
In the mandi system, there was a mark up of 7-8% on the price of soybean from the farm gate to the factory gate. Of this mark up, 2.5% was borne by the farmer while 5% was borne by ITC.
With e-Choupal, ITC’s costs are now down to 2.5%. Figure 4 shows transaction costs incurred by the farmer and ITC per metric ton of soy procured in the mandi and e-Choupal. In absolute numbers, both the farmers and ITC save about Rs 270 per metric ton.
Source: [Graph & accompanying text] Annamalai, K. & Rao, S. (2003). What works: ITC’s e-Choupal and profitable rural transformation – Web-based information and procurement tools for Indian farmers
EXHIBIT IX: E-CHOUPAL: THE GAINERS & LOSERS
HOW THE FARMER GAINS
1. Farmers have access to prices and can make critical decisions of when and where to sell 2. Saving on transportation costs from the field to the mandi 3. ITCs electronic weighing scales and transparent checks ensure ‘intentional spillage’ doesn’t occur 4. ITC’s agricultural inputs cost substantially less than those offered at the mandi 5. Farmers save almost 2.5% over the mandi system ( Rs.400 – 500 per ton of soy) thanks to a more efficient market system e.g. cultivation of soy has increased from 50 – 90% in e choupal areas 6. They can take advantage of services provided by the e-Choupal to improve their crop output and farming practices 7. Increased self respect as they are treated as co partners in a business relationship
HOW ITC GAINS 1. Lower transaction costs: ITC pays only a 0.5% commission to the Sanchalak as compared to the 2.5 – 3% paid to the agents under the mandi system (including true cost of inefficiency and intermediary costs) Has found it cheaper to reimburse farmers transportation costs that pay agents for transportation. (managed to save almost RS. 200 per ton) 2. Direct virtual vertical integration through e -choupal allows ITC to communicate directly with the farmers It gets excellent ‘bottom up information’ on pricing, product quality, soil conditions etc. from the Sanchalak Allows them to develop a long term supplier relationship with the farmers, ensuring supply security over time By providing quality agricultural inputs and buying quality crops, ITC can ensure a satisfied customer base
WHO LOSES
• Commission agents. Despite ITC’s best efforts to maintain mandi volumes and compensate commission agents for lost income, there is little doubt that on the whole they have lower incomes as a result of the introduction of e-Choupals.
• Mandi laborers. The workers in the mandi who weighed and bagged produce have been severely impacted by the drop in volume. In the Sonkach mandi, for example, some 28 tulavatis and 300 laborers have been affected. ITC’s long-term vision is to employ many of these people in the hubs in much the same functions as they perform in the mandi.
• Bazaars near the mandi. When farmers sold produce in the mandi, they would also make a variety of purchases at local bazaars. This revenue has now been diverted to shops near the ITC hubs. This, however, can be considered a diversion of revenue rather than elimination.
• Some mandi operations. ITC still pays mandi tax for all the crops procured through e-Choupals but it now pays the tax to the mandi nearest to the procurement center. As a result, taxes are being diverted from several mandis to the few mandis near procurement hubs. The result of this is that regional mandis have lost taxes that contribute to maintaining their infrastructure.
• Competing processors. Even before the advent of the e-Choupal, the soya crushing industry suffered from severe overcapacity (half of all capacity was excess). The efficiency pressures imposed by e-Choupal have spurred industry consolidation.
Source: Philip, A. & Bose, A. E -Kiosks for Socio- Economic Development: A Critical view of the e-Choupal Mode
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Annamalai, K. & Rao, S. (2003). What works: ITC’s e-Choupal and profitable rural transformation – Web-based information and procurement tools for Indian farmers
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[ 2 ]. United States Dollar
[ 3 ]. Fast Moving Consumer Goods
[ 4 ]. Maximum Retail Price
[ 5 ]. Multi-national Companies
[ 6 ]. Mandi is A government mandated market-yard where farmers sell their crops
[ 7 ]. Hectare
[ 8 ]. Sanchalak is the village farmer who runs the e-Choupal and acts as ITC’s representative in the village
[ 9 ]. VSAT is a very small aperture terminal that can be used for one-way or interactive communications via satellite and is used for internet connectivity in e-Choupals
[ 10 ]. Manthan is an Enterprise Resource Portal
[ 11 ]. Samyojak The commission agent in his role as a collaborator in the e-Choupal model
[ 12 ]. UPS stands for uninterrupted power supply
[ 13 ]. Center for Development of Telematics
[ 14 ]. RAX Network Synchronisation
