Harvesting bytes for a tastier bite

The agriculture sector constitutes close to 13.5% of India’s GDP and provides employment to 60% of the population. With increasing population there is a pressure to increase farm productivity and overall food production. Despite this, till date, Indian agriculture continues to be plagued by problems like small farms, uninformed and ill-literate farmers, weak infrastructure, numerous intermediaries, excessive dependence on rains etc.

ITC, a fast moving consumer good (FMCG) conglomerate in India has tried to address these problems through a unique initiative – e-choupal (choupal is a Hindi word that means ‘gathering place’. 

To understand the functioning of e-Choupal’s business model 47 MBA students at IIM Indore (One year full time Executive Post Graduate Program) visited the e-Choupal and Choupal-Sagar (rural hypermarkets) at Dewas – a town 60 kms away from Indore, the commercial capital of Madhya Pradesh (India’s largest state) in India. 

e-Choupal is an initiative of ITC Limited to link directly with rural farmers via the Internet for procurement of agricultural and aquaculture products like soybeans, wheat, coffee, and prawns. e-Choupal tackles the challenges posed by Indian agriculture by installing computers with Internet access in rural areas of India to offer farmers up-to-date marketing and agricultural information. Farmers can access latest and global information on weather, scientific farming practices, and market prices at the village itself through this web portal in regional languages.

One of the students who visited the e-Choupal said “this was a great opportunity to understand the concept of creating and leveraging an electronic market place in the low-margin agri-commodity business. The power of a direct procurement channel can create a win-win situation for both businesses and farmers.”

How does it work?

Each ITC Limited kiosk with Internet access is run by a sanchalak — a trained farmer. The computer is housed in the sanchalak’s house and is linked to the Internet via phone lines or by a VSAT connection. Each installation serves an average of 600 farmers in the surrounding ten villages within about a 5 km radius. The sanchalak bears some operating cost but in return earns a service fee for the e-transactions done through his e-Choupal. The warehouse hub is managed by the same traditional middle-men, now called ‘samyojaks’, but with no exploitative power due to the reorganisation. These middlemen make up for the lack of infrastructure and fulfill critical jobs like cash disbursement, quantity aggregation and transportation.

EPGP students at ITC Choupal Sagar

The benefits to farmers

Since the introduction of e-Choupal services, farmers have seen a rise in their income levels because of a rise in yields, improvement in quality of output, and a fall in transaction costs. Even small farmers have gained from the initiative.

Farmers can get real-time information despite their physical distance from the mandis (markets). The system saves procurement costs for ITC Limited. The farmers do not pay for the information and knowledge they get from e-Choupals; the principle is to inform, empower and compete. e-market place for spot transactions and support services to futures exchange. Farmers across India have benefited from this initiative. Interference by middlemen in the marketing of products has been nullified because of transparency in information about market rates which are updated daily. Farmers now make an informed decision on selling their produce and maximize profits.

There are 6,500 e-Choupals in operation. ITC Limited plans to scale up to 20,000 e-Choupals by 2012 covering 100,000 villages in 15 states, servicing 15 million farmers.

How does it benefit ITC?

The e-Choupal programme’s roots run all the way back to 1999. That was the time when ITC’s then agribusiness division was facing serious challenges to its very existence. The division was into agricultural products trading – commodities trading. The country was opening up and trading majors were seriously considering local operations. Also, commodities trading did not offer may barriers to entry, with commodities (say, Soya) from one region being easily replaceable by the same commodity from another region of the same specifications. To entrench its position, ITC decided to treat the business as a service business, and to look for non-standard needs of customers. This gave birth to the e-Choupal initiative.

By building a network of warehouses near the production centres and by providing inputs to the farmers and test output at the individual farm level, ITC was able to preserve the source and quality information of produce purchased. By helping the farmer identify and control his inputs and farming practices and by paying better for better quality, ITC was able to improve the quality of produce that it purchased. In the commodities market, these two combine to help ITC create the differentiator that it set out to establish in the beginning.

The effort has paid rich dividends in the domestic markets as well. ITC is able to customize its products to local tastes as it is able to identify the source of inputs. For example, the Aashirvaad brand of atta that is sold in New Delhi has a different combination, compared to the one sold in the South.

The e-Choupal network is now being used to sell ITC as well as third-party products to the villages. It is also being used to provide services like rural market research to those interested. “The next stage of the project,” in the words of Chief Executive of the IBD, S Sivakumar, “is to provide IT-enabled services to the villages, services like health advisories, education and e-governance.”

Saurabh a student of EPGP added, “It was amazing to see how a simple idea of direct procurement helped ITC as well as the farmers grow. A simpler procurement process, small quality checks and instant trade settlements have empowered so many people. Treating farmers with dignity and respect like the ITC folks are doing is commendable”

An ad in Times of India – e-Choupal makes for good PR too

e-Choupal 2.0

Visiting EPGP students outlined ways to add value to this initiative. Students noted that the e-Choupal initiative has been taken up only in few states and that the type of farm produce is restricted by its usability in manufacturing existing ITC brand products. They suggested the initiative can be extended by:

Increase the procurement base for existing brands – ITC can explore opportunities in other states from which produce like tobacco/cotton can be procured through the e-Choupal mechanism, which can be used in manufacturing existing ITC brands like ‘Cigarettes’ (tobacco), ‘Clothes’ (cotton) etc

Extend the product line – ITC can explore opportunities in procuring other farm-produce like rice and manufacturing new brands like rice-powder etc. A feasibility study is required to understand the prevailing market conditions for new verticals.

Warehousing – India faces chronic food storage problems due to a lack of infrastructure which leads to immense wastage of food. New revenue opportunities could be explored by sharing warehouses depending on the availability of free space.

Prof Jayasimha, EPGP Chair said, “The Madhya Pradhesh Government’s wheat procurement program is efficient and puts more money in the hands of growers. It’s time for version 2.0 of ITC e Choupal. Most supplementary services at Sagar Choupal have not made a mark”