The ITC E-Choupal Story

The ITC e-Choupal Story
Business with Rural

Transformation
Importance of Agriculture
Quite vital both from the point of view of
food security for the poor and meeting
consumption demands of growing middle
class
It produces 23% of GDP, feeds more than
billion people, and employs 66% of the
workforce.
Despite attaining food self-sufficiency, the
typical Indian farmers have remained
quite poor.
Cont…
Agriculture system has traditionally been unfair to
primary producers of high value cash crops like
oil seeds, pulses, cotton, spices, medicinal crops,
Soybeans, 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 soybean crop is sold by farmers
with small holdings to traders, who act as
purchasing agents for buyers at a local
government-mandated marketplace, called a
MANDI
There are system-wide inefficiencies which favour
traders who tend to exploit both farmers and
buyers
The Issues
Location is a disadvantage for business
Business practices are underdeveloped
Under-trained workforce
Subsistence incomes
– But rural engagement is a social necessity

– Such engagement may result in win-win
situation
– It can bridge rural isolation while creating new
profit opportunity for firms willing to tackle
inefficiencies.
ITC Initiative
Leading private company
Its International Business Division was
created in 1990 as an agriculture trading
company
The e-Choupal initiative of the company
involves placing computers with internet
access in rural farming villges
It acts as a social gathering place for
exchange of information and e-commerce
hub.
Cont…
What began as an effort to re-engineer
the procurement process for soy, tobacco,
wheat, shrimp and other cropping systems
in rural India
Turned out to be a highly profitable
distribution and product design channel of
the company – an e-commerce platform
that is also a low-cost fulfillment system
focused on the needs of rural India
Cont…
e-Choupal has catalyzed rural
transformation that is helping to
alleviate
– Rural isolation
– Create transparency for farmers
– Improve their productivity and incomes
What did the company think?
How modern resources and methods
can be practically deployed
commercially to overcome rural
constraints?
What are the social impacts of such
an engagement?
The Business Model
A trading model does not require much
investment
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 with internet connectivity through
telephone/VAST serves an average of 600
farmers in 10 surrounding villages with a five
kilometer radius
Each e-Choupal costs around 25000 to 50000.
Using the system costs farmers nothing, but the
host farmer.
Cont…
Sanchalak incurs some operating cost and is
obliged by a public oath to serve the entire
community.
The Sanchalk benefits from increased prestige
and a commission paid to him for all e-Choupal
transactions
Farmers can use the computer to access daily
closing prices in local mandi, track global price
trends or find information about new farming
techniques.
They also use Choupal to order seeds, fertilizers
and other products such as consumer goods from
ITC.
At harvesting time, ITC offers to buy crop directly
from any farmer at previous days closing price
Cont…
Farmer then transports the crop to an ITC
processing centre, where the crop is
weighed electronically and assessed for
quality
The farmer is then paid for the crop and a
transport fee.
In this way, the e-Choupal system
bypassed the government-mandated
trading mandis.
Accurate weighing, faster processing time,
prompt payment, access to wide range of
information including accurate market
price and market trends which help them
decide.
Gains to farmers
Get about 2.5% higher price
Lower prices of inputs and other goods
Higher yields
Sense of empowerment
Area increased under Soya crop from 50 – 90 %
e-Choupal services have reached more than 1
million farmers in about 11,000 villages and the
system is expanding rapidly
Sanchalaks are now becoming distributor of ITC
products
Increased trust and fairness
The Innovation
The e-Choupals, information centres linked
to internet, represent an approach to
connect subsistence farmers with large
firms, agriculture research and global
markets.
Local unit is run by a SANCHALAK
Network of these centres represent virtual
integration of the value chain activities
with efficiencies in the external
environment
Farmers benefit in term of better prices for
crops, better yield through new practices,
and sense of dignity
Agriculture as a social cause
Agriculture in vital and yet it is
under-performing in terms of
productivity, income and gainful
employment;
Sustainable commercial engagement

serves as a foundation for the
greater social agenda.
The case of oilseed production,
marketing, and processing
Till 80s, 32% of the domestic
consumption was imported
This was undesirable and therefore
there was a policy shift for
– Doubling of production though
introduction of new crops (Soya and
Sunflower)
– Ensuing reliability of supply
– This was an important innovation in the
Post-Green Revolution period.
Marketing before e-Choupal
Agriculture Products Marketing Act
(APMC) legislated the creation of
MANDI for equitable distribution of
gains to producers, consumers and
traders. Mandi is vital part of soya
chain.
The Commission Agents. Buying and
selling are based on oral
agreements, mutual understanding
and community norms.
Sources of Inefficiency
No knowledge of price trends
No adequate knowledge of buyers
Overnight stay costly at the Mandi
Display and inspection is not farmer
friendly
Lack of scientific grading (no reward for
better produce)
Auction is quite often insulting to farmers
as they cannot refuse the sale at the
auctioned price
Agents are close-kit community
Cont…
Bagging and weighing is again not farmer
friendly
The spilled produce is shared by the mandi
labourers.
Weighing managed by workers is again
faulty
Payments are delayed
Bagged produce is then loaded onto the
end buyer’s trucks and transported.
ITC: IBD and Soya Business
IBD was created as an agri-trading
company aiming to offer the world
the best of India’s produce.
To begin with the company used
traditional channel for procurement
They felt a need for greater presence
in the chain to better understand
product dynamics
Initiatives
Tactical
– Mandi was not an optimal procurement channel
due to price and quality distortions
Strategic
– Competition increased in agriculture
commodity trading
– The challenge was to create competitive
business that did not need massive assets
– ITC leveraged IT for improving value chain
operation
– e-Chaupal network was a virtual vertical
integration by extending ITC engagement with
farmers
Cont…
Social Imperatives
– The social agenda is an integral part of
ITC’s philosophy.
Nation-building as a cause
Creating value for the nation leads to
growing shareholder value
Opportunity to blend shareholder value
creation with social development
Key Lessons
Large cooperation can play a major role in
recognizing markets and increasing the
efficiency of an agriculture system, while
doing so in ways that benefits farmers and
rural communities as well as shareholders
The key role of information technology in
helping bring about transparency,
increased access to information, and rural
transformation.
Respect and fairness with which farmers
and local partners are treated.

The ITC E-Choupal Story

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The ITC e-Choupal Story

Business with Rural

– But rural engagement is a social necessity

Sustainable commercial engagement

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