Professional Documents
Culture Documents
On
“Success Story of
ITC- E- Choupal: A Rural Initiative”
In
By
Anurag Lalchandani
(BIMM-1618124)
Declaration
I also declare that it has not previously formed the basis for the award to me for any
degree/diploma associate ship, fellowship or other similar title, of any Institute/Society.
Place: Pune
Date: 28/02/2018
EXECUTIVE SUMMARY
INTRODUCTION
ITC's Agri Business Division, one of India's largest exporters of agricultural commodities,
has conceived e-Choupal as an efficient supply chain aimed at delivering value to its
customers around the world. The e-Choupal model has been specifically designed to tackle
the challenges posed by the unique features of Indian agriculture, characterised by
fragmented farms, weak infrastructure and involvement of numerous intermediaries.
'e-Choupal' also unshackles the potential of Indian farmer who has been trapped in a vicious
cycle of low risk taking ability, low investment, low productivity, weak market orientation,
low value addition, low margin, low risk taking ability. This made him and Indian
agribusiness sector globally uncompetitive, despite rich & abundant natural resources. Such a
market-led business model can enhance the competitiveness of Indian agriculture and trigger
a virtuous cycle of higher productivity, higher incomes, enlarged capacity for farmer risk
management, larger investments, higher quality and productivity.
'e-Choupal' leverages Information Technology to virtually cluster all the value chain
participants, delivering the same benefits as vertical integration does in mature agricultural
economies like the USA. 'e-Choupal' makes use of the physical transmission capabilities of
current intermediaries - aggregation, logistics, counter-party risk and bridge financing -while
disintermediating them from the chain of information flow and market signals. With a
judicious blend of click & mortar capabilities, village internet kiosks managed by farmers -
called sanchalaks - themselves, enable the agricultural community access ready information
in their local language on the weather & market prices, disseminate knowledge on scientific
farm practices & risk management, facilitate the sale of farm inputs (now with embedded
knowledge) and purchase farm produce from the farmers' doorsteps (decision making is now
information-based). Real-time information and customised knowledge provided by 'e-
Choupal' enhance the ability of farmers to take decisions and align their farm output with
market demand and secure quality & productivity. The aggregation of the demand for farm
inputs from individual farmers gives them access to high quality inputs from established and
reputed manufacturers at fair prices. As a direct marketing channel, virtually linked to the
'mandi' system for price discovery, 'e-Choupal' eliminates wasteful intermediation and
multiple handling, significantly reducing transaction costs. 'e-Choupal' ensures world-class
quality in delivering all these goods & services through several product / service specific
partnerships with the leaders in the respective fields, in addition to ITC's own expertise.
Launched in June 2000, 'e-Choupal', has already become the largest initiative among all
Internet-based interventions in rural India. 'e-Choupal' services today reach out to over 4
million farmers growing a range of crops - soyabean, coffee, wheat, rice, pulses, shrimp - in
over 40000 villages through 6100 kiosks across 10 states (Madhya Pradesh, Haryana,
Uttarakhand, Uttar Pradesh, Rajasthan, Karnataka, Kerala, Maharashtra, Andhra Pradesh and
Tamil Nadu). The problems encountered while setting up and managing these 'e-Choupals'
are primarily of infrastructural inadequacies, including power supply, telecom connectivity
and bandwidth, apart from the challenge of imparting skills to first time internet users in
remote and inaccessible areas of rural India. Several alternative and innovative solutions -
some of them expensive - are being deployed to overcome these challenges e.g. Power back-
up through batteries charged by Solar panels, upgrading BSNL exchanges with RNS kits,
installation of VSAT equipment, Mobile Choupals, local caching of static content on website
to stream in the dynamic content more efficiently, 24x7 helpdesk etc. Going forward, the
roadmap includes plans to integrate bulk storage, handling & transportation facilities to
improve logistics efficiencies. The enthusiastic response from farmers has encouraged ITC to
plan for extension of the 'e-Choupal' initiative to 15 states across India over the next few
years. Another path-breaking initiative - the 'Choupal Pradarshan Khet', brings the benefits
of agricultural best practices to small and marginal farmers. Backed by intensive research and
knowledge, this initiative provides Agri-extension services which are qualitatively superior
and involves pro-active handholding of farmers to ensure productivity gains. The services are
customised to meet local conditions, ensure timely availability of farm inputs including
credit, and provide a cluster of farmer schools for capturing indigenous knowledge. This
initiative, which has covered over 64,000 hectares, has a multiplier impact and reaches out to
around 70,000 farmers.
OVERVIEW
Problems Identified
How does ITC’s e-Choupal initiative fit into the overall strategy of the organization,
this would mean does ITC believe e-Choupal is a CSR initiative or a revenue
generating business process?
ITC has to have a trade off perspective between economic profitability and socio-
cultural development of the Indian farmer. This does give rise to the question whether
the earnings are enough to sustain the e-Choupal as a business model.
ITC’s International Business Division (IBD) oversees the e-Choupal. Can the
revenues earned be used for cross funding growth of ITC’s other divisions,
considering the fact that e-Choupal itself requires huge investments if important goals
and objectives have to be achieved?
Another challenge for ITC is how to allocate IBD resources effectively? These would
be physical, financial, human and intellectual resources.
ITC’s e-Choupal gives the company an access into the rural hinterland, but going
forward what are the different entities of their revenue stream is the key issue. So
what are the criteria which can evaluate the new business opportunities?
ITC’s e-Choupal model has been an effective tool farmers can utilize during various
stages of agri-input and output supply chain linkages, but has this venture done
enough to generate overall socio-economic upliftment? The issues of concern here
are:
o Has it generated enough employment?
o Is it prepared to face competition from agri-retailing?
o Is ITC’s IBD focused enough to face any risks?
Product/service
ITC’s e-Choupal initiative is taking the choupal one step further by using technology as an
enabler and a backbone. We need to have a look at the hierarchy of needs of the farmer in
question, when we talk of hierarchy of needs; these range across the agri-supply chain.
Across the supply chain would mean that these would be needed to be provided to the farmer
at different points of the supply chain.
Sorting
Agri Implements
Hierarchy of
Needs Agri Inputs
Crop Insurance
Storage
Information/Advice
Credit
Market Access
ITC’s e-Choupal when started initially laid emphasis on a particular commodity i.e.
Soyabean. The needs of the farmer are taken care by providing inputs related to sowing,
weather and more crucially providing the right mechanisms for market access. Agri inputs
like fertilizers; information in the form of weather, price discovery, market conditions
(mandi prices/volume/international state of the crop) and this information culminates in the
form of market access to the end farmer.
The e-Choupal in the villages acted as a bridge to fill the gap between the farmer and him
getting the best price for his product/grain. ITC too had a business motive behind this; the
spill over effect of this help mechanism was
ITC would get a better price for their exports because the end result would be that the
farmers output is of a better quality.
The services mentioned above are provided by ITC with the help of the village
Sanchalak who holds a very good rapport with the farmer as well as ITC. Hence this
helps in having a better span of control and at the same time building the brand equity
of ITC.
Place/Distribution
Limitations of the traditional Mandi system
o Issues in the agri supply chain, farmers not having access to quality inputs like
sowing seeds and fertilizers, and pesticides.
Mandi e-Choupal
Farmer Processor (ITC) Farmer Processor (ITC)
Transport Commission to CA Trolley Freight Commission to Sanchalak
Freight to hub
(reimbursed)
Labour at Transport Costs Storage & Handling at Hub
Mandi
Handling Handling at Mandi Cash disbursement costs to
Loss Samyojak
(spills)
The new supply chain formulated by ITC’S e-Choupal model brings in considerable cost
reduction and is beneficial to the farmer as well as processor.
These entities spoken of are major players in the business model. Hence, the company
should keep them at the center or the apex of the business model.
Secondly if ITC looks at the model from a development perspective, it should endeavour to
balancing economic profitability and assuming social responsibility at the same time.
Sanchalak margins-3% gross margins over 3 months.
Samyojak margins-4-5% margins over the entire year.
The Sanchalaks and Samyojaks are important blocks in the supply chain ensuring delivery
and pickup. However, if we look at the economic viability they do take away a considerable
chunk of the operating margins of the company. Can the company do away with one of the
intermediaries by reworking the processes.
Physical Evidence
The e-Choupal set up in the various villages; gave the villagers a platform to come
and avail the services with the help of the Sanchalak. His home is where they used as
a meeting place earlier. Hence, the familiarity and comfortability aspect with the
environment was definitely there.
The ITC hubs wherein the farmers had to take their produce for selling; had a tent
provided and also a rest place; these were in stark contrast to the amenities provided
at the Mandi.
Promotion
There were no visible aspects of promotion in the traditional formats of mass media.
But ITC e-Choupal was based on trust and holistic development of the farmers
involved. Hence it relied more on word of mouth or references.
The farmer, Sanchalak and the Samyojak act as influencers; because in a rural setup
these are the people whom the villagers trust and hence it becomes necessary for ITC
to focus on these important individuals.
Sustainability of the ITC e-Choupal Model
We believe that sustainability would be achieved when economic, social and institutional
sustainability is achieved. We would like to examine the sustainability of the e-Choupal
business model
Economic Sustainability
This is achieved when a given level of expenditure can be maintained over time.
o The critical element is whether this model/venture is profitable and does your
organization have the financial resources to sustain the initial years of not
being able to breakeven.
o As discussed earlier new revenue streams have to be added. Mr. Sivakumar
has to leverage the reach of the e-Choupal model to act as an efficient
marketing channel for ITC’s own products or other companies products
o The options in mind have to be evaluated keeping in mind the resources and
the capabilities that it has or can be acquired:
The options mentioned are mostly agri-inputs in the form of seeds and
fertilizers. There would be issues related to channel conflicts with the
traditional distribution channels. This could result in undercutting
among the various players. Hence, it would be detrimental in the long
run.
Credit and Insurance are moving the farmer up the value chain in terms
his needs. This does hold immense potential as there is a huge potential
in terms of tapping the savings of the rural consumers. The insurance
density is very low and introduction of new products in the form of
weather insurance could definitely generate revenue in the form of
commissions and brokerages. There would be issues in the form of
credit risks and hence there have to be mechanisms by which the
receivables could be routed through another organization (like FMCG/
consumer durables).
Social sustainability
This is achieved when social exclusion is minimised and social equity maximized.
ITC’s e-Choupal has done remarkably well to include the farmers at every step of the
supply chain; this has been done by providing them information and more
importantly market access. This has reduced exploitation by the traditional
intermediaries and bought about their social upliftment.
We believe every new project or a business model has to have performance metrics in
mind; we believe the success of the e-Choupal at the moment more than monetary is the
ability to get farmers in its fold. This is the biggest indicator of social sustainability and
this venture we believe is not only a combination of volume game but also one of
margins. The reason being you are selling a differentiated service accompanying a very
generic commodity (food grains and volatile.
Institutional sustainability
This is achieved when prevailing structures and processes have the capacity to
continue to perform their functions over the long term.
o At the moment there are existing structures and processes in place; but going
ahead it is important to note that scalability would give rise to issues. The
model has worked very well with the Soyabean crop; but considering that ITC
would have limited exposure to other regions and their vegetation, these
structures and processes would have to be modified or altered to suit local
requirements.
o A very good example of institutional sustainability was the incorporation of
the CA into the business model.
o We feel going forward ITC has to keep the following points in mind:
Well-defined processes and rules in place.
Participatory policy formulation and decision making processes.
Effective organisational structure that creates a framework within
which the livelihoods of the stakeholders can be continuously
improved.
Conclusion
India holds tremendous potential in the rural retailing front. Providing market access to
farmers and information is just one of the means of generating revenue. ITC’s e-Choupal
initiative is more of a CSR initiative. The competition would also be more potent in the years
to come; but then I feel that the ITC e-Choupal initiative is sustainable and scalable and
achieve overall economic development of the farmers in the rural countryside. But going
forward ITC’s focus should be on leveraging the strength of its rural reach to cross sell other
products thereby achieving volumes and adding value to the stakeholders involved.
This model is sustainable if economic sustainability is achieved with the help of
both value and volume. Hence, it is necessary to scale the number of outlets;
get into various states with diverse crops.
Organic growth with an increase in the number of outlets. These outlets should have
revenue streams sustainable over the entire year. Some methodologies are :-
o ITC has to leverage its e-Choupal infrastructure to sell third-party products,
providing rural market research services, and in the social sector, to provide
services like health advisories and enable e-governance.
o ITC’s e-Choupal should provide best of the class retailing and shopping
experiences to the rural consumers by building retail shopping complexes that
provide integrated facilities under one roof. There exists potential to brand
these outlets providing all the facilities under one roof.
o I believe the ITC hubs have tremendous potential in the form of rural health
care.
o ITC e-Choupal has the potential of delivering quality education services to the
rural areas leveraging the physical and digital infrastructure developed for
commodities sourcing and consumer retail services.
o Scaling up of the e-Choupal initiative by offering multiple services under one
roof for the rural population. This includes a marketing platform, storefront for
agri-equipment, personal consumption products, health centre and insurance
counters.
Technology platforms such as the mobile reach must be harnessed to improve services
and scale up operations.
Look out for external funding in the form of FDI in back end operations. This will
infuse much needed finance helping it scale its operations. We believe finance should
not be a problem as ITC as a parent company does have the power to up-scale further.
The Sanchalaks are selected carefully and they have been able to work as
coordinators. Sanchalaks have been able to induce the feeling of involvement. Trust is
essential in sustaining relationships at the community level.
E-choupal was customized and then validated and then expanded to the
operational phase. E-choupal has found acceptance in all three businesses they
have ventured into. The model of validating and then rolling it out has been an
effective way of implementing a new business model.
E-choupal has provided economic benefits even for the small farmers. Every
beneficiary gets benefit and the equitable benefits makes the adoption very
rapid.
Intensive training and distributed leadership concept facilitated the acceptance of
the platform concept. The empowerment of people through local action and
training reduces the disparities. The ability of the choupals to deal with manyinputs
provides for economies of scope. In implementing this project, the interests of a chain
of small and medium traders were hurt because of the process of disintermediation.
However, ITC recognized the resistancethat would be built up if the role of
intermediaries were completely eliminated. Inintroducing e-choupals, ITC has
redefined the role of the local intermediaries from that ofprocurement to that of
facilitation and information gathering. In the process, ITC hasensured that at least a
part of the income derived by intermediaries through trading
commissions is replaced by commissions or service charges paid by ITC to these
traders.
This has helped ITC in overcoming any resistance from these traders.Instead of
creating an entirely new mechanism of direct procurement, ITC has chosen to
strengthen an existing institution in rural areas, the choupal, which serves as the focal
point for the exchange of ideas and information by word of mouth in rural
communities.
By locating a PC and Internet access at such meeting points, ITC has enlarged the
scope and quality of information exchange.
References
o https://www.youthkiawaaz.com/2011/08/itc-e-choupal-empowering-rural-
india-research
o https://www.thebetterindia.com/126690/connects-corporate-farmers-
consumer-itc-e-choupal/
o https://www.scribd.com/document/45818465/Problems-in-Echoupal
o https://www.slideshare.net/amar1811/itc-echoupal-final-csr
o Assisi, Charles, and Indrajit Gupta. “ITC’s Rural Symphony.” Businessworld,
January20, 2003.
o Deveshwar, Y.C. (Chairman of ITC, the Indian Tobacco Company). 2002.
“ITC toConnect One-Sixth of India through e-Choupals.” Express Computer,
December 23,
o 2002. URL: <http://www.express-computer.com/20021223/indnews1.shtml>.
o Indian Tobacco Company, Website. URL: <http://www.itcportal.com>.
o ITC-IBD (International Business Division of the Indian Tobacco Company),
e-Choupal Website. URL: http://www.echoupal.com
o Reuters. “ITC Expands e-Choupal.”
URL:<http://www.sharekhan.com/Sharekhan/NewsViewpointsArticles/0,1567
,1315008021~NEWS,00.html>.
o Integration as a Forward-Looking Strategy for India’s Rural Markets.” Digital
Dividend.Website.URL:<http://www.digitaldividend.org/knwldge_bank/knwl
dge_bank_01_echoupal.htm>.