Akansha Trehan

Ashutosh Agrawal
Anisha Rani
Amit Kumar
.

EXECUTIVE SUMMARY

ICT has potential to make significant inroads in a traditional agrarian economy like India. Indian
agro-sector has been exploiting the benefits to ICT. Innovative ICT application platforms are
being created by private sector players in conjunction with local farmers. One such private
initiative has been by ITC Ltd in the state of Madhya Pradesh. It has helped the farmers in many
ways, such as developing of local leadership, shared ownership of the assets created in this
initiative, access to the latest knowledge for the agro-sector, sustainable income levels and skill
development for productivity improvement. This initiative from ITC[1] has become a benchmark
today in the ICT initiatives in agro-sector. Several best practices can be learned from this
initiative, namely:

 ease of replicability and scalability

 customization to meet the specific local needs and
 organizational commitment.

The success of e-choupal has heralded a new era in the Indian agro-sector. The work needs to be
carried forward and replicated in the other untapped areas. Creating business channels that can
create a win-win situation both business and farming community has enormous economies of
scope. Once a channel is created it could be used for many products and services as shown in this
case study. The main reasons for the success of the platform have been the involvement of local
farmers and maintenance of the rural IT network by the corporate entity.
 RURAL MARKET A GLOBAL OPPORTUNITY

Stop thinking of the poor as victims or as a burden and start recognizing them as resilient and
creative entrepreneurs and value- conscious consumers, a whole new world of opportunity will
open up. Four billion poor can be the engine of the next round of global trade and prosperity. It
can be a source of innovations. Serving the rural consumers will demand innovations in
technology, products and services, and business models. More importantly, it will require large
firms to work collaboratively with civil society organizations and local governments. Market
development at the BOP will also create millions of new entrepreneurs at the grass roots level-
from women working as distributors and entrepreneurs to village- level micro enterprises. These
micro enterprise will be an integral part of the market based ecosystem. It will require
organizational and governance innovations as well.

Although there are opportunities for growth in the rural market these opportunities
attractive enough for large firms including MNC’s to go through the changes that are required in
their internal systems and processes. Based on emerging evidence, we can identify four distinct
sources of opportunity for large firm that invests the time and energy to understand and cater to
the rural market.

 Rural Markets are larger and attractive as stand alone entities.

 Many local innovations can be leveraged across other rural markets creating a global
opportunity for local innovations.
 Some innovations from the rural markets will find applications in developed markets.
 Lessons from the rural markets can influence the management practices of global firms.

The benefits of operating in the rural market therefore do not just accrue in the local markets it
creates opportunities even bigger and better.
 INDIAN TOBACCO COMPANY LIMITED
ITC was incorporated on August 24, 1910 under the name Imperial Tobacco Company of India
Limited. As the Company's ownership progressively Indian by nature, the name of the Company
was changed from Imperial Tobacco Company of India Limited to India Tobacco Company
Limited in 1970 and then to I.T.C. Limited in 1974. In recognition of the Company's multi-
business portfolio encompassing a wide range of businesses - Cigarettes & Tobacco, Hotels,
Information Technology, Packaging, Paperboards & Specialty Papers, Agri-business, Foods,
Lifestyle Retailing, Education & Stationery and Personal Care - the full stops in the Company's
name were removed effective September 18, 2001. The Company now stands rechristened ITC
LIMITED.

ITC is one of India's foremost private sector companies with a market capitalization of over US $
22 billion and a turnover of US $ 6 billion.* ITC is rated among the World's Best Big
Companies, Asia's 'Fab 50' and the World's Most Reputable Companies by Forbes magazine,
among India's Most Respected Companies by BusinessWorld and among India's Most Valuable
Companies by Business Today. ITC ranks among India's `10 Most Valuable (Company) Brands',
in a study conducted by Brand Finance and published by the Economic Times. ITC also ranks
among Asia's 50 best performing companies compiled by Business Week.

As one of India's most valuable and respected corporations, ITC is widely perceived to be
dedicatedly nation-oriented. Chairman Y C Deveshwar calls this source of inspiration "a
commitment beyond the market". In his own words: "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 larger

Value chain of which it is a part.

ITC's diversified status originates from its corporate strategy aimed at creating multiple drivers
of growth anchored on its time-tested core competencies: unmatched distribution reach, superior
brand-building capabilities, effective supply chain management and acknowledged service skills
in hotel industry. Over time, the strategic forays into new businesses are expected to garner a
significant share of these emerging high-growth markets in India.
 ITC E CHAUPAL

ITC’s Agri Business Division, one of India’s largest exporters of agricultural commodities, has
conceived e-Choupal as a more efficient supply chain aimed at delivering value to its customers
around the world on a sustainable basis. The ITC E Chaupal initiative began by deploying
technology to re engineer procurement of soya from rural India. The E Chaupals, information
centers linked to the Internet, represent an approach to seamlessly connect subsistence farmers
with large firms, current, agricultural research, and global markets. The network of these, each
operated by a local farmer in each community called the sanchalak, allow for a virtual
integration of the supply chain and significant efficiencies in the traditional system. The farmers
benefit by realizing better prices for their crops, better yield through better practices, and a sence
of dignity and confidence in being connected with the rest of the world.

The e-Choupal model has been specifically designed to tackle the challenges posed by the unique
features of Indian agriculture, characterized by fragmented farms, weak infrastructure and the
involvement of numerous intermediaries, among others.

The Value Chain- From Farm To Factory

Indian farmers rely on Department of Agriculture for various inputs such as weather,
modern and scientific farming practices and insurance cover. All these are accumulated
by the VLW of Department of Agriculture from various sources like Government
Universities Meteorological department, insurance companies etc. For seeds, fertilizers etc.
farmers approach input retailer who source them from wholesalers who are in direct contact with
the manufacturers. After harvest, farmers bring their produce to Mandis (regional market yards)
in small multiple lots throughout the year, where the beans are auctioned to the traders and
agents of the processing companies in an open outcry method. The Government, to facilitate fair
price discovery and enable aggregation of goods, regulates these market yards. Successful
bidders then bag the beans, weigh them, pay cash to the farmers, and transport the cargo to the
processing units (to whom it would have been sold through a broker). Many intermediaries carry
out this whole activity, each one acting as a principal with the next leg in the transaction chain as
shown in Fig 1. But with every intermediary the cost of produce increases to the processor as
intermediary adds his profit margin to the cost although the farmers get the lowest price and
margin in the whole value chain. Apart from this, intermediaries also block the flow of market
information to the farmers and use that information for their own good. Here poor farmers are
squeezed to the maximum without the benefits of their labor accruing to them but to the
intermediaries. International Business Division of ITC started the new initiative namely e-
choupal (village meeting place on an electronic platform).

E Chaupal Objective
The project was initiated with the objective of achieving a win-win situation for both farmers and
the company. So on the one hand more profits and larger share of commodity exports were
ensured for the company and on the other hand farmers realized better prices for their produce
and improved the productivity of their farms.
Initial goals were following:

Helps enhance farm productivity by

 latest information on district level weather forecasts for short & medium terms.
 Best practices in farming (generic as well as specific)
 Supply of quality inputs (seed, herbicide, fertilizer, pesticides etc) in the village itself

Helps improve price realization for farm produce by

  Making available live data on markets viz. Location / Buyer wise prices offered
 International market prices of relevant agri-commodities
 Historical & Up-to-date information on supply & demand
 Expert opinion on expected future price movements
Helps minimize transaction costs in marketing farm produce by
 Buying output at the farmers’ doorstep
 Through transparent pricing & weight management practices

UNIQUE BUSINESS MODEL

The e-Choupal model has been specifically designed to tackle the challenges posed by the unique
features of Indian agriculture, characterized by fragmented farms, weak infrastructure and the
involvement of numerous intermediaries, who block critical market information from passing to
the farmers and use that information for getting a big margin for themselves. The intermediaries
capitalized on the economies of information and economies of physical things, which are tied
together in a bundle. Due to this, the farmers does not get the proper price of its product & they
continue to live below the poverty line. But e-Choupal sets things in order as it smoothens the
flow of information to the farmers by disinter mediating intermediaries from the chain of
information flow and at the same time leverages the physical transmission capabilities of the
them as they deliver critical value at every link for a very low cost in a weak infrastructure
environment. The structure of e-choupal is shown
The project e-Choupal is ITC’s unique click & mortar initiative e-Choupal is an ICT platform for
carrying out trade at a number of locations. In this, ITC sets up a back-up physical service
support at the village level, called Choupal, through Sanchalak: a lead farmer, who acts as the
interface between computer and the farmer. ITC accumulates information regarding weather,
modern farming practices, and market prices from sources like Meteorological Department,
Agri-universities, mandis (regional market) etc. and uploads all information on to e-Choupal web
site. All information is customized according to local farmers requirements and provided into the
local language through computer set up by ITC in Sanchalak’s house. Sanchalak access this
information and facilitates its dissemination to farmers. Information regarding weather and
scientific farming helps farmers to select the right crop and improve the productivity of their
farms. Availability of market information helps farmers to become market oriented. They know
what price ITC is quoting and the price prevalent in the local market, thereby helping better price
realization for farmers. If farmer decides to sell to ITC, Sanchalak works as the aggregator of
small farmers produce to sell them to ITC. Sanchalak also aggregates farmers input purchase
orders for various items like seeds, pesticides and places them directly with the suppliers through
internet and facilitate supply of high quality farm inputs as well as purchase of farm produce at
farmers doorstep with the help of intermediaries. A pure trading model does not require much
capital investment. The e-Choupal model, in
contrast, has required that ITC make significant investments to create and maintain its own IT
network in rural India and to identify and train a local farmer to manage each e-Choupal. The
computer, typically housed in the farmer’s house, is linked to the Internet via phone lines or,
increasingly, by a VSAT connection, and serves an average of 600 farmers in 10 surrounding
villages within about a five kilometer radius. Each e-Choupal costs between US$3,000 and
US$6,000 to set up and 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 is obligated
by a public oath to serve the entire community; the sanchalak benefits from 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, as well as to track global price trends
or find information about new farming techniques—either directly or, because many farmers
are illiterate, via the sanchalak. They also use the e-Choupal to order seed, fertilizer, and
other products such as consumer goods from ITC or its partners, at prices lower than those
available from village traders; the sanchalak typically aggregates the village demand for these
products and transmits the order to an ITC representative. At harvest time, ITC offers to buy
the crop directly from any farmer at the previous day’s closing price; the farmer then
transports his crop to an ITC processing center, where the crop is weighed electronically and
assessed for quality. The farmer is then paid for the crop and a transport fee. “Bonus points,”
which are exchangeable for products that ITC sells, are given for crops with quality above the
norm. In this way, the e-Choupal system bypasses the government-mandated trading mandis.
Farmers benefit from more accurate weighing, faster processing time, and prompt payment, and
from access to a wide range of information, including accurate market price knowledge, and
market trends, which help them decide when, where, and at what price to sell. Farmers selling
directly to ITC through an e-Choupal typically receive a higher price for their crops than they
would receive through the mandi system, on average about 2.5% higher (about US$6 per ton).
The total benefit to farmers includes lower prices for inputs and other goods, higher yields, and a
sense of empowerment. The e- Choupal system has had a measurable impact on what farmers
chose to do: in areas covered by e-Choupals, the percentage of farmers planting soy has
increased dramatically, from 50 to 90% in some regions, while the volume of soy marketed
through mandis has dropped as much as half. At the same time, ITC benefits from net
procurement costs that are about 2.5% lower (it saves the commission fee and part of the
transport costs it would otherwise pay to traders who serve as its buying agents at the mandi) and
it has more direct control over the quality of what it buys. The system also provides direct access
to the farmer and to information about conditions on the ground, improving planning and
building relationships that increase its security of supply. The company reports that it recovers its
equipment costs from an e-Choupal in the first year of operation and that the venture as a whole
is profitable.In mid-2003, e-Choupal services reached more than 1 million farmers in nearly
11,000 villages, and the system is expanding rapidly. ITC gains additional benefits from using
this network as a distribution channel for its products (and those of its partners) and a source of
innovation for new products. For example, farmers can buy seeds, fertilizer, and some
consumer goods at the ITC processing center, when they bring in their grain. Sanchalaks often
aggregate village demand for some products and place a single order, lowering ITC’s logistic
costs. The system is also a channel for soil testing services and for educational efforts to help
farmers improve crop quality. ITC is also exploring partnering with banks to offer farmers
access to credit, insurance, and other services that are not currently offered or are
prohibitively expensive. Moreover, farmers are beginning to suggest—and in some cases,
demand—that ITC supply new products or services or expand into additional crops, such as
onions and potatoes. Thus farmers are becoming a source of product innovation for ITC.

TARGET AUDIENCE THE RURAL FARMERS

“India lives in villages.” This axiom is as true today

as it was 60 years ago. Agriculture has been one of the fundamental foundations of the Indian
economy, as it accounts for 23% of the Gross Domestic Product (GDP) and feeds a billion
people and employs over 65% of the workforce (Kothari, 1992; 1994; Sehgal et al., 1992;
Ramakrishnan, 1992). Despite a steady decline of its share in the GDP, it is still the largest
economic sector and plays a significant role in the overall socio-economic development of India.
In reality, the role of agriculture in India has been not just to produce food but to sustain and
contribute towards overall socio-economic development in rural societies. Overregulation of
agriculture along with promotion of unsustainable high input technologies in tiny, fragmented
unproductive landholdings has increased costs, price risks and uncertainty. The agricultural
system has traditionally been unfair to farmers. Farmers by law cannot trade directly with
consumers and have to route their produce through traders at a local, government-mandated
marketplace, called a mandi. Farmers have only a rough idea of price trends and have to
acknowledge the price offered to them at auctions on the day 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.The Indian region is in fact one of the world’s
eight centers of crop plant origin. At least 166 crop species and 320 wild relatives of crops have
originated here (Kothari, 1992; 1994; Menon, 2007). But it is the genetic diversity within each
species which is even more mind-boggling. For example one species of mango has diversified
into over 1000 varieties of varying sizes (Kothari, 1994).India perhaps also has the world’s
largest diversity of livestock, with some 30 breeds of cattle, 40 of sheep, 20 of goats and 18 of
poultry (Sahai, 1993; Bhat, 1994; Kothari, 1994).Over generations, Indian farmers have
continuously adapted and modified the rich genetic material available to them from nature. The
diversity of crops and livestock is the result of millenniums of deliberate selection, planned
exposure to a range of natural conditions, field-level cross-breeding and other experiments
conducted by farmers. In other words, a single wild species of rice has diversified into 50,000
varieties as a result of the ingenuity and innovative skills of the farming communities (Kothari,
1992; 1994). Different crop varieties and livestock breeds were adapted for diverse local
conditions of growth and survival that were available in the country. The diversity is spread over
both time (seasonal) and space (geographical) within the same field and both within and between
species. Adaptation to localized environments has only been one mechanism or reason for
diversification.

Advertising Challenges And Strategies Adopted

The model is centered on a network of e- Choupals, which are information centers armed with a
computer connected to the Internet. The name is derived from the Hindi word choupal meaning a
traditional village gathering place. The e-Choupals where meant to act as an ecommerce hub as
well as a social gathering place. A local farmer called the sanchalak (coordinator) runs the
village e- Choupals. The commission agent has been in corporate into this process as the
provider of logistical support. He is known as the samyojak.
The e- Choupals where initially rolled out as gathering spot where agrarian information would be
made available to farmers while familiarity and trust were developed for the ITC brand. The fear
at this time was that the village was not ready to accept IT.

With in 3 months a farmer asked how long ITC expected it’s representative to this in person and
sad he had heard a something called computer that could be used to achieve this purpose. This
triggered the roll out of IT and the scale of e-Choupals.

ITC manage the geographical and cultural a breadth of it’s network by channeling
communication through a local farmer called the sanchalak.

ITC insists that at no time should the sanchalak give up farming, for this would compromise the
trust the sanchalak commands. The fact that the sanchalak works on commission could
undermine his credibility. ITC mitigates this by projecting the roll as a public office as oppose to
a profitable venture. This is one reason he holds a title sanchalak. This image is reinforced by a
public oath taking ceremony where, in the presence of gathering of the local villagers, the
sanchalak takes an oath to serve the farming community through the e- Choupals.

The commission agent earned profit from two sources. The first was through provision of value
added logistical services that substituted from the lake of rural infrastructure. The second was by
blocking information flow and market signals on the trading transaction. Complete
disintermediation would result in the loss of a legitimate and essential service in the rural
context. The goal was selective disintermediation so that agents would participate, but only as
providers of essential services, not as principals in a trading transaction. In the incarnation, the
agent was christened the samyojak.

The sanchalak is used as the source by ITC to communicate the message of e-Choupal.The
initiative of e-Choupal change the entire brand image of ITC from a premium brand to a local
rural brand.
.

Critical Success Factors

The e-Choupal experience highlights that ICT platforms can provide rural connectivity and e-
commerce support. These platforms have enormous potential provided they are conceptualized
for the specific needs of the community and business. 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 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: Technology in used in rural areas have 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.

Future Generations
ITC recognizes the limitations of todays e chaupals in their manifestation as vehicles of
procurement efficiency. Not every crop lends itself to such an intervention. With crops such as
soya, where value is to be had, followers will soon imitate ITC and eliminate the competitive
advantage. ITC’s vision for the e chaupals extends many generations as the e chaupals evolves
into a full fledged orchestrator of a two way exchange of goods and services between rural

Key Lessons

The e-Choupal model demonstrates that a large corporation can play a major role in
recognizing markets and increasing the efficiency of an agricultural system, while doing so in
ways that benefit farmers and rural communities as well as shareholders. The case also shows
the key role of information technology—in this case provided and maintained by a corporation,
but used by local farmers—in helping bring about transparency, increased access to
Information, and rural transformation. Critical factors in the apparent success of the venture
are ITC’s extensive knowledge of agriculture, the effort ITC has made to retain many aspects
of the existing production system, including maintenance of local partners, the company’s
Commitment to transparency, and the respect and fairness with which both farmers and local
partners are treated.

Impact/Results

The project has come a long way since its inception, and is today recognized as India’s
largest Internet-based initiative, covering 1,300 choupals, linking 7,500 villages, and
serving almost 1 million farmers. Madhya Pradesh is host to 1,045 e-choupals, spread
over 6,000 villages covering 600,000 farmers. E-choupal has also established its presence
in other states, such as Uttar Pradesh, Andhra Pradesh, and Karnataka. ITC, which
exports US$140 million worth of agricultural commodities, sourced US$15 million worth
of commodities from e-choupals in 2001. The substantial quantity (120,000 metric tons
of various commodities) already procured through this channel has resulted in overall
savings of more than US$1 million. These savings are shared between ITC and the
farmers. Web-enabled, real-time data on crop prices gives farmers an accurate picture of the
prices they can expect from ITC and from different mandis. This information enables them to
become informed decision makers and thereby sell their produce at a price that gives them
a higher profit margin. With the participation of agricultural supplies companies in ecommerce,
the farmers now can also conveniently order agricultural inputs.Although the prices offered by
ITC are not higher than those at the mandi, the farmer chooses ITC because the transactions are
done closer to home and the practices of weighing and quality assessment are more efficient and
transparent. Farmers save on travel time and costs and incur less wastage. Their savings have
been estimated at Rs 400 to Rs 500 (US$8 to US$10) per ton of soybeans. It is important to note
that the final decision to sell their crops to the mandi or to ITC rests with the farmers themselves.
The farmers can transact with the company directly and deal orders on the Internet. In the
process, the farmers save about Rs 250–500 per ton, depending on their location relative to the
collection center. ITC gains in terms of assured supply and savings of more than Rs200 per ton
by avoiding the transportation of the crop from the mandi to the collection center and other
intermediary costs in the supply chain. Altogether, more than Rs 1 billion (US$21 million) in
transactions have occurred so far, and the company plans to extend the initiative to 15 other
states across the country over the next few years.