ITC’S E-CHOUPAL

Taking E- business to farmers

1910

1971

1975

Incorporated under the

name Imperial Tobacco Company

of India Limited

Entered into the marine

products export business

• Name changed to ITC Ltd.

• Started diversifying into various

businesses

• Emerged as one of ITC’s star performer by 2002

• 4 Main categories :

Feed Ingredients-Soyameal

Aqua Products-Shrimps, Prawns

Edible Nuts- Sesameseeds, Groundnuts

Foodgrains- Wheat, Pulses, Rice, Coffee,

Pepper

PROBLEMS ASSOCIATED WITH TRADITIONAL METHOD

Lack of control over supply chain of agricultural produce

Lack of Infrastructure

Problem of Middlemen

Low Investment

Low Productivity

Weak Market

Orientation

Low Value Addition

Low Margin

Low Risk Taking Ability

EMERGENCE OF E-CHOUPAL

Choupal – Village meeting point e - Choupal

The purpose of the e-choupal is to empower farmers with real time information on weather and prices

so that they can insulate themselves from unpredictable climate conditions and price fluctuations.

- Y C Deveshwar , Chairman, ITC, in Dec 2002

1. DISCUSS THE ROLE OF I.T. IN BUILDING A FAST AND EFFICIENT PROCUREMENT MODEL IN THE LIGHT OF E-CHOUPAL INITIATIVE

AND THE BUSINESS RATIONALE BEHIND THE IDEA

• Elimination of hitches in the information flow

• Get information to the farmers

• Business Model

- Cost effective

- Scalable

- Penetrative

- Reduced dependencies on intermediaries

• ‘Click and Mortar model’

• Introduced I.T. tools in the Traditional Model

• Diffusion of Information

• Use of internet for procurement

• Best farming practices

• Transparency

1. DISCUSS THE ROLE OF I.T. IN BUILDING A FAST AND EFFICIENT PROCUREMENT MODEL IN THE LIGHT OF E-CHOUPAL INITIATIVE

AND THE BUSINESS RATIONALE BEHIND THE IDEA

• 2.a. Discuss how ITC went about the implementation of E – choupal in the villages of INDIA. What were the difficulties that the company had to face in the process and how did it overcome them ?

VALUE CHAIN ( AGRIBUSINESS )

• Farmers

• Small Traders

• Large Traders

• Commission Agents

• Processors

• Retailers

• Consumers

DIFFICULTIES AND SOLUTIONS

2. Flow of Information

• Collecting the produce

• Taking care of logistics• Providing transportation

1. Intermediaries

“Intermediaries has greater information and thus extract higher margin”

• Weather Report

• Mandi Prices

IMPLEMENTATION OF E-CHOUPAL

• E-choupal • PC

• Internet connectivity

• Soya Processing centers

• Collection centers

IMPLEMENTATION OF E-CHOUPAL

• “Sanchalak” ( Convener) Roles of “Sanchalak”

• Dynamic information• Mandi prices • Weather reports• Global prices • PCR testing

• Static information• Best farming practices• Soil information

DIFFICULTIES AND SOLUTIONS

3. Selection of “Sanchalak” • Big Farmers

• Small Farmer

• Person of Reasonable stature

• Appointment by public oath ceremony

• Operating cost:

• Electricity

• Internet charges

• Rs. 2900 to Rs. 7600 p.a./ unit

• Fixed cost: • Cost of equipment

• Miscellaeous travelling expences

• Maintenance equipment

• Training cost

• Rs. 4800 p.a./ unit

0.5% of procurement price for each ton of soya procured

DIFFICULTIES AND SOLUTIONS

4. Commission agents

DIFFICULTIES AND SOLUTIONS

Role of “Sanyojak” (Coordinators)

• Documentations of relevant information from mandis.

• Collecting produces from villages that were located far from Processing centers & collection center.

• Arranging transportation.

• Helped in selection of “Sanchalak”.

1% of procurement price for each ton of soya sold to ITC

DIFFICULTIES AND SOLUTIONS

5. Outdated Telephone Exchange

DIFFICULTIES AND SOLUTIONS

• Upgraded the telephone lines• RNS kits ( Rural Automatic exchange – RAX Synchronization )• VSAT bypassing the telephone lines

DIFFICULTIES AND SOLUTIONS

6. Sporadic Electricity Supply

DIFFICULTIES AND SOLUTIONS

• Use of backup batteries

• Which could be charged with solar panels.

7. Bandwidth Problem

• Specially devised Technical solutions to manage • Data with• New imaging Technique.

DIFFICULTIES AND SOLUTIONS

8. Problem of Illiteracy and Unfamiliarity with Computers & internet

DIFFICULTIES AND SOLUTIONS

• Training given to sanchalaks and sanyojaks

• Information were made available in local languages

• Help by Sanchalaks

• Use of videos

DIFFICULTIES AND SOLUTIONS

9. Government Regulatory Problems

DIFFICULTIES AND SOLUTIONS

• Explaining Benefits of the project to the farmers

• Explaining how the act was impeding the growth of a free market system, direct marketing and competition.

Agricultural produce Marketing committee Act(APMC Act)

RESULTS

• Farmers could deliver Directly to Collection center.

• Reduction in Transaction Time.

• Reduction in total cost of procurement by Rs. 500 per ton (to Rs. 200)

RESULTS

• Procurement transaction costs reduced from the industry standard of 8%

• Farmers incurred 3% and

• The processor incurred 5%

• To 2%• Farmers saved all his 3% and

• The processors (ITC) – saved 3%

RESULTS

•Higher margin to farmers.

•More number of farmers started coming to the center.

• By the end of 2002

• 976-E-choupals spread in 7000 villages in Madhya Pradesh

• Covered 0.6 million farmers

• ITC traded Soyabean worth Rs. 1.6 Billion

RESULTS

EXPANSION

• ITC implemented the same concept in Karnataka, Andhra Pradesh, Uttar Pradesh.

• Launched a website “Plantersnet” to deal with coffee farmers in Karnataka.

• Positioned the website as single source of knowledge.

• Company also developed E-Trading platform with special features.

• ITC setup 75 kiosks to cover 6000 coffee farmers in 125 villages.

EXPANSION

• Launching of “Aquachoupal” in Andhra Pradesh in 2001.

• ITC launched 55 kiosks covering 10000 shrimp farmers in more than 300 villages.

• In November 2001, ITC started its E-Choupal in Uttar Pradesh.

• ITC opened 180 kiosks covering 3,75,000 farmers in more than 1500 villages.

• Made use of its Cigarette Distribution channel.

•2b. In your opinion what were the factors that contributed to the success of E – choupal ?

FACTORS CONTRIBUTING TO THE SUCCESS OF E-CHOUPALS

• Designing marketing plan for all stakeholders

• Designing a Win-Win transaction model

• Avoiding channel conflicts by finding space for the intermediaries

• Selection of intermediaries

ITC

E-COUPAL

Farmers

Intermediaries

GovernmentCommunity

Customers

•3a. Discuss how e-choupals can be used as distribution superhighways for products other than agricultural commodities? Critically comment on ITC’s decision to limit the e-choupals to India for the time being.

• Kiosks were used for reverse trading by companies like BASF and Monsanto

• In late 2002 ITC leveraged choupals distribution system to sell FMCG goods

• They also started selling life insurance policies through e-choupal network

• The e-choupal network serves as back end source for raw materials that go into ITC’s personal care products and packaged foods

• Today ITC internally evaluates its e-Choupal capabilities before foraying into any new category with a differentiated offering.

• Today, more than 160 companies ride on the e-Choupalnetwork including Bayer, BASF, State Bank of India,BharatPetroleum, Nokia, TVS Motors, Maruti Suzuki India, Tata Motors and Monster.com.

• Use of E-choupal as medium for advertising.

• Q3.b. What do you think the future has in store for the E-Choupals considering the failure of initiatives undertaken by companies such as Mahindra & Mahindra, Rallis?

• One stop shop for agricultural products like seeds,

Fertilizers and extension services for farmers

• Shubhlabh venture - M&M

REASONS FOR FAILURE

• No trust between farmers & intermediaries

• High Fixed Cost & variable cost

• Not enough knowledge on procurement

• Lack of information & knowledge among workforce

FUTURE OF E-CHOUPALS

• Plans to expand at rate of 3-4 choupals a day & establish choupals covering 100000 villages in 11 more states (approximately 1/6th of rural India)

• Expansion into other crops (like spices) besides the ones covered till now

• Expansion in other developing countries