ITC e-Choupal

Weakness of e-choupal
Although e-choupal helps eliminate the middleman and therefore allows farmers to get a better price for
what they grow, it does nothing to solve the more fundamental problem of the inherent inefficiencies
created by so many tiny farms.

In addition, it relies on infrastructure, which is often lacking in rural communities. Electricity and
telecommunication services can sometimes be less than 100 percent reliable in some of the places where e-
choupal has been implemented. Finally, although there is no longer a middleman, e-choupal can be no more
effective than the sanchalak (coordinator) in each community.

ITC in conjunction with local farmers created the e-choupal system that is acting as
a catalyst in rural transformation by providing access to latest information of the
agro sector, developing local leadership and creating a profitable distribution. It
helps in alleviating rural isolation, improves productivity and income, create
transparency for farmers - which improves the economic condition of rural areas.
This paper tries to identify the problem of mandi, need of e-choupal and challenges
in development of e-choupal and derives with various conclusion and suggestions in
‘future strategy’ from initial finding and discusses direction for further investigation.

Agriculture is the backbone of Indian economy producing 23 percent

of GDP, and employs 66 percent of workforce. Because of the green
revolution, India’s agricultural productivity has improves to the point
that it is both self-sufficient and a net exporter of a variety of food grains, yet most
Indian farmers have remained poor. The causes include remnants of scarcity-era
regulation and an agricultural system based on small, inefficient land holdings. The
other constraints are weak infrastructure, numerous intermediaries, excessive
dependence on the monsoon variation between different agro-climate zones, and
many others. The unfortunate result is inconsistent quality and uncompetitive prices,
making it difficult for the farmers to sell his produce in the world market. ITC’s trail-
blazing answer to these problem is the - e-choupal initiative; the single largest
information technology-based intervention by a corporate entity in rural India that is
transforming the Indian farmer into progressive knowledge-seeking netizens.
Enriching the knowledge of farmers & elevating them to a new order of
empowerment. ITC aims to confer the power of expert knowledge on even the
smallest individual farmer enhancing its competitiveness in the global market.

The traditional model

Indian farmers rely on Department of Agriculture, govt. universities, insurance

companies etc. for various inputs such as weather, modern and scientific farming
practices and insurance cover. Farmers approach input retailers who source them
from wholesalers who are in direct contact with manufacturers. After harvest,
farmers bring these produce to mandis; in small multiple lots throughout the year,
where beans are auctioned to the traders and agents of the processing companies in
an open outcry method. The government facilitate fair price discovery and enable
aggregation of goods, regulate these market yards. Successful bidders then bed the
beans, weigh them, pay part cash to the farmers, and transport the cargo to the
processing units.
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 chain.

e-choupal

e-choupal is a Hindi word which means – “Village meeting place”. e-choupal is a

virtual market place where farmers can transact directly with a processor and can
realize better price for their produce. e-choupal makes use of the; physical
transmission capabilities of current intermediaries & aggregation, logistics, counter-
party risk and bridge financing. In June 2000, ITC Limited launched e-choupal in
India and now e-choupal has become the largest Internet based intervention in rural
India.

e-choupal aims to provide farmers ready access to crop specific real-time information
to improve the farmer’s decision making ability thereby helping them to better align
their farm output to the projected demand in Indian market. e-choupal, the Web-
based initiative of ITC’s IBD, offers the farmer all information about products and
services they need to enhance farm productivity improve farm-gate price realization
and cut transaction costs. Farmers can access the latest local and global information
on weather, scientific farming practices and market prices at the village itself through
the web portal in Indian languages – Hindi, Marathi, Kannada and Telegu. e-choupal
also facilitates the supply of high quality farm inputs as well as purchases of produce
at the farmer’s doorstep.

e-choupal and the traditional model

The main attraction of e-choupal is that it connects large and small producer and
users and eliminates the need of middlemen (who are essential in traditional
market).

e-choupal is a virtual market that brings together vendors and customers.

Geographical distance no longer restricts participation of farmers. The main hurdle of
traditional market is that information asymmetry is inherent in the market where as
e-choupal provides for transparent transaction. The transaction time at the ITC hub
is less than at the mandi i.e. 2 or 3 hours where as 1-2 days in mandi. Some more
points are:-

• Customer centric and not dependent on intermediaries.

• Capable of being used for many commodities & multiple transactions.
• Easily scalable once it is verified.
• Uses local talent and local people to develop local leaders.
• Uses all the existing institutions and legal frameworks.
• Scientific way of inspection, testing and weighing.

The e-choupal business model

The model is centred on a network of e-choupal, information centres equipped with

computer connected to the Internet, locating in rural farming villages. e-choupal
serves as choupal (gathering place) and an e-commerce hub. A local farmer acting
as a Sanchalak (coordinator) runs the e-choupal and the computer usually is located
in the sanchalak’s home. ITC also incorporated a local commission agent known as
the Samyojak (collaborator), into the system as the provider of logistical support.

The critical element of the e-choupal system and the key to managing the
geographical and cultural breath of ITC’s network by recruiting a local farmer is the
sanchalak. Sanchalak create trust in society and all infrastructure set up is made in
his house. Sanchalak receives commission for every transaction processed through
the e-choupal and also benefited from increased social status that accompanies the
position – a significant advantage in rural Indian life. Sanchalak act as public officer
in

ITC project. Sanchalak also aggregates farmers input as well as purchase orders.
Sanchalak undergoes training of basic computer usage, basic business skills, quality
inspection of crop product training etc. The samyojak or cooperating commisssion
agents also play important role. He earn income by providing logistical services that
substitute for the lack of rural infrastructure by providing information and market
signals on trading transaction. Samyojak is involved in ongoing operation of e-
choupal system, allowing them revenue streams through providing services such as
management of cash, bagging & labour at procurement hubs, handling of mandi
paperwork as licensed principals for the retail transaction of the e-choupal.

ITC has plans to saturate the sector in which it works with e-choupals, such that a
farmer has to travel no more than 5kms. The company expects each e-choupal to
serve about 10 villages.

Conventional transaction vs. e-choupal

Cost Conventional e-choupal

Market

Trolley Freight 100 NIL

Filling & Weighing 70 NIL

Labour Khadi Karai 50 NIL

Handling loss 50 NIL

Sub total 270 NIL

Processor Incurs - Commission 100 50

Agent

Cost of Bag 75 NIL

Labour (Stitching & loading) 35 NIL

Labour at factory (Unloading) 35 35

Freight to factory 250 100

Transit Losses 10 NIL

Sub Total 505 185

 Grand Total 775 185

As percent of produce value 8 percent 2 percent

The e-choupal system

The previous day’s mandi closing price is used to determine the benchmark Fair
Average Quality (FAQ) price at the e-choupal, which is static for a given day. The
information of mandi price is communicated through e-choupal portal. If and when
connection fails, sanchalak calls an ITC field representative. To initiate a sale the
farmer brings a sample of his produce to the e-choupal. The sanchalak performs the
quality test in the farmer’s presence & must justify any deduction to the farmer.
These simple checks and balances ensure transparency in a process where quality
testing and pricing happens at multiple levels. If the farmer chooses to sell his
produce to ITC, the sanchalak gives him a note capturing his name, his village,
quality test report, approx. quantity and conditional price. The farmer takes the note
from sanchalak and proceeds with his crop to the nearest ITC procurement hub.
Some procurement hubs are simply ITC’s factories that also act as collection points.

ITC’s goal is to have a processing centre with a 30 to 40 kms radius of each farmer.
At the ITC hub, a sample of the farmer’s produce is taken and set aside for
laboratory test. Laboratory testing of the sample for oil content is performed after
the sale & does not alter the price. The reason for this is that farmers having
historically being exploited are not immediately willing to trust a laboratory test.
After such inspection, the farmer’s cart is weighed on an electronic weighbridge, first
with the produce and then without produce. The difference is used to determine the
weights of his produce. After weighing, the farmer collects his payment in full at the
payment counter. The farmer is also reimbursed for transporting his crop to the
procurement hub.

Every stage of the process is accompanied by appropriate documentation. The

farmer is given copy of lab reports, agreed rates and receipts for his record.
Sanyojaks, who are adept at handling large amount of cash, are entrusted with the
responsibility of payment except at procurement centres. Samyojaks also handle
much of the hub logistics, including labour management at hub, bagging, storage
mgmt., transportation from hub to factors and handling mandi paperwork for the
crops procured at the hub and for all this he is paid a 0.5 percent commission.

Benefits of e-choupal

“A quiet digital revolution is reshaping the lives of farmers in remote Indian villages.”

e-choupal delivers real-time information and customized knowledge to farmer’s

decision making ability, securing better quality & price. The e-choupal initiative also
creates a direct marketing channel, eliminating wasteful intermediation and multiple
handling, thus reducing transaction cost and making logistics efficient.

• Digital transformation - ITC began e-choupal with Soya grower in the

villages of M.P. e-choupal tried to change the stereotype image of farmers of
bullock cart. Farmers now log on to the site through internet kiosks to order
high quality input, get information on best farming practices, prevailing
 market prices for their crops at home and abroad for the weather forecast all
in the local language. The e-choupal site is also helping the farmers discover
the best price of their quality at the village itself. The site also provides
farmers with specialized knowledge for customizing their produce to the right
consumer segments. The new storage and handling system preserves the
identity of different varieties right through the ‘farm gate to dinner plate’
supply chain. Thus, encouraging the farmers to raise their quality standards
and attract higher price.
• Credit and Insurance - Farmers’ low income and difficulty in accessing
credit limits the capacity to pursue opportunities within and outside the
agriculture sector. ITC e-choupal proposes the solution of this problem by
making partnership with financial institutions. e-choupal provide various types
of loans like non-cash loans for farm inputs, loans to sanchalak (sanchalak
can better manage credit risk & have better access to farmers), direct loans
to farmers based on sanchalak recommendation, Insurance & risk
management services etc.
• Local leadership development - ITC uses involvement of farmers in
content creation helps to easily customize the information as per the local
requirements. Participation of local farmers ensures provision of adequate and
decipherable information to e-choupal, which can be employed into the
farming, or pricing of the produce. The increased participation in e-choupal
develops local leadership quality in farmers. The farmers get attracted
towards e-choupal due to increased profits, added services that he could get,
saving in time and the ability to use e-choupal for many transactions. e-
choupal delivers relevant technologies in the hands of the farmers, which can
improve the economic condition of the entire village. e-choupal is one of the
very few ICT projects in India that has effectively utilized e-commerce
transactions for poverty alleviation. ICT also reduced the number of
middlemen between producers and consumers. Now, simple technology
solutions are available to create networks in rural areas, which can function as
virtual marketplaces.

e-choupal at a glance

States covered 9 States [M.P., Haryana, Uttaranchal,

Karnataka, A.P., U.P., Maharashtra,
Rajasthan and Kerala]

Village covered 36,000

e-choupal info kiosks 6,400

Empowered e-farmers 3.5 million

Other benefits to farmers

Farmers are reimbursed for transport to the procurement hub of e-choupal.

The transaction time at the ITC hub is also much faster than mandi.

ITC has given recognition to integral partner in the supply process & not mere as
agricultural producer and thus elevating the level of respect of farmers. Similarly
providing shaded seating area while waiting for their
paperwork shows ITC really care for farmers. References

Cost and revenue Stream • www.echoupal.com

• Case study on 'ITC's e-
choupal & profitable
e-choupal has been successful. It has reduced the cost rural transformation' by
of procurement and the cost of transit and the material Kuttayan, Annamalai &
handling cost. Procurement transaction costs are Rao.
reduced from the industry standard of 8 percent • Case study on
(farmers incurs 3 percent and the processor incurs 5 'Developing a rural e-
hub' by Bowonder,
percent) to 2 percent (with farmer saving all his 3 Gupta & Singh.
percent, and the processor ITC – saving 3 percent).
• Papers in Digital
The total cost incurred on the initiatives so far has been Opportunities.
Rs.50 million (Rs.35 million as capital cost towards
computers and other hardware at the kiosks as well as central servers and Rs.15
million revenue expenditure incurred towards portal development, people overhead
etc.). But ITC has gain benefit Rs. 20 million, which is the equivalent of full
investment on 40 percent of the Choupals (Kiosks). In terms of future revenue, the
outflow is 52.1 million in 2001-02 which reduces to 3.90 million in 2005-2006 and for
2006-07 is estimated as 2.70 million. Where as inflow in 2001-02 is 15.3 million
where as 65.0 million in 2005-2006 and estimated as 85.0 million in 2006-2007. The
internal rate of return (IRR) on the project works out to be 21.55 percent.

In the mandi system, there was a mark up of 7-8 percent on the price of soybean
from the farm gate to the factory gate of this mark-up 2.5 percent was born by the
farmer while 5 percent was borne by ITC with e-choupal, ITC cost are down to 2.5
percent. In absolute terms, both the farmers and ITC save about $ 6 per metric ton.

Challenges

As the power is usually available for only a few hours a day at on a sporadic
schedule, the e-choupal computer cannot always be accessed when information is
needed. Phase imbalances leads to damage of equipments. Telecommunication
infrastructure in villages is poor. Telephone exchange also have limited battery
backup. In addition, there is no local support staff to maintain or troubleshoot
telephone exchanges. The support team is also short-staffed.

Other challenges are: -

• Illiteracy about computer in rural areas as well as rural population has low
trust on electronic system.
• Selection of an educated, intelligent, reliable and matured person as a
sanchalak.
• Improper knowledge about rural market.
• Vicious circle of intermediaries (Adatiya & Brokers).
• Improper and complex user interface on e-choupal.
• Lack of rules and regulation related to electronic choupal.
• Mistrust about inspection, testing and weighing of produce on centres.
ITC’s example show the key role of IT in providing and maintaining by a corporation,
but used by local farmers – to bring transparency, to increase access to information,
and to catalyze rural transformation, while enabling efficiencies and low cost
distribution that make the system profitable and sustainable . 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 to the existing production system,
including retaining the integral importance of local partners. ITC e-choupal is
committed to transparency and respect and fairness towards farmers as well as local
partners.

The author is currently working as Assistant Professor in an MBA college in Pune (NIFEM). She is an M.Phil
- University topper from DAVV, Indore, MP and is currently pursuing her PhD on e-Governance under the
guidance of Prof. (Dr.) Pankaj Trivedi.

The ITC e-choupal has attracted global attention. Says David Upton, professor, Harvard Business School, who flew down to India to
write this case study for his students, "This is a supply chain innovation that is local to India but has broad applications to the
world. What is interesting is the social good it brings in the wake to the small, marginal farmer."

Upton points out several issues which the company has addressed.

Firstly, it is not just tweaking around but a greater efficiency in the supply chain. One of the problems in redesigning supply chains
is how to use different tools, thus making the various players still own the chain. Here, the farmer and the team are involved in
painting the big picture, so there is enthusiasm and a feeling of ownership.

Further, how do you avoid a channel conflict by finding space for the middle-men? Upton also points out that the 'roll out, fix it,
scale up' model is a new approach to strategic management. The philosophy here is that the terrain has so many uncertainties that
gaps will exist. So, unlike in the past, where focus was on well-laid strategic plans, here you give experimentation-based strategies
more weightage.

Says Upton: "Admitted I do not have all the answers but I will not wait for them; instead build safety nets while I roll it out, learn
lessons and then fix it. This means you are not attached to your design and are sensitive to lessons from the outside world."

The company's target is to eventually have 50,000 choupals to cover 200,000 Indian villages which means covering one-fifth of the
country. With this infrastructure, ITC targets Rs 2000 crore (Rs 20,000 million) by the year 2005 from its international exports.

Says Sivakumar, "Even while we set up choupals all over India, we have offers from international organisations to replicate this in
Africa and other developing countries."

The eChoupal advantage

ITC's eChoupal project is a winner—for farmers who get better remuneration and for
the company that's assured quality inputs for its business

Imagine an illiterate farmer in a remote village in Madhya Pradesh

sitting at a desktop wired up to the WWW through a small VSAT link,
powered by a tiny power generator by the side, and surfing away to
glory downloading invaluable information about weather forecasts and
sowing trends.
V V R Babu
Imagine farmers checking prices for soya beans at the nearest government-run
market, or even on an international commodities exchange. “A few years ago such a
scenario would have seemed outlandish but today it’s a reality,” says V V R Babu,
CIO, ITC (eChoupal Project).

IT for the Masses

The eChoupal project covers over 35,000 villages in Madhya Pradesh, Uttar Pradesh,
Maharashtra, Karnataka, Andhra Pradesh, Rajasthan, Haryana and Uttaranchal
providing millions of farmers with critical information on farming. The Choupal
services are being delivered by over 6,000 Sanchalaks and over 17,000 Upa
Sanchalaks to these remotest areas.

Multiple Benefits

Farmers can look at weather forecasts, order fertiliser and herbicide, and consult an
agronomist by e-mail when their crops turn yellow. At some eChoupals they can even
buy life insurance, apply for loans and also check their children’s exam results.

While much has been written about the social benefits of ITC’s eChoupal, the matter
of the fact is that the project was conceptualised with a pure business focus to create
farmer communities in villages to facilitate sourcing of high-quality farm produce for
the company’s fast growing agribusiness.

Better Payment

In IT parlance, eChoupal is an intelligent blend of applications like CRM and supply

chain management. For instance, by helping the farmer identify and control his
inputs and farming practices, and by paying more for better quality, ITC has been
able to preserve the source and improve the quality of produce.

The project was built using .NET. The first implementation of a Soya Choupal took
eight months but later extensions like the Aqua Choupal for aquamarine farmers took
between six and eight weeks.

Today eChoupal is a flexible, easy to deploy solution. ITC Infotech provided an in-
house team of 25 to 30 people in the initial stage and this gradually came down to
around 20 people, and finally a five-member team to maintain the project.

The portfolio of commodities sourced has been vastly expanded to include maize,
barley, sorghum, and pulses, and the sourcing cycle is extended almost around the
year. In the commodities market, these two factors are helping ITC create a definite
competitive advantage.

The Problems

“Initially we thought that we would work with DoT to upgrade rural telephone
exchanges. The department was proactive in upgrading many rural exchanges to
electronic ones. After 15 months we found that the experience was not satisfactory,”
explained Babu.
Power cuts in rural areas can run for eight to 10 hours. ITC even went so far as to
provide gensets at a few locations hoping to spur DoT to doing the same. It didn’t
work out and in 2001 ITC shifted its focus to using Ku Band VSATs. Power remained
a problem and it was solved by using solar panels.

The EChoupal Roadmap

ITC now plans to leverage its eChoupal infrastructure to sell third-party products,
provide rural market research services, and in the social sector, to provide services
like health advisories and enable e-governance.

ITC eChoupal has embarked in on providing best of the class retailing and shopping
experiences to the rural consumers by building retail shopping complexes that
provide integrated facilities under one roof. Under the brand ‘Choupal Sagar,’ these
shopping complexes house—a procurement centre, retail store, food court, farmer
facility centre and healthcare clinic.

In healthcare services, a pilot project has been launched along with leading
corporate healthcare service providers, to extend reliable and quality healthcare
services to the remotest villages. Several health camps conducted during the pilots
are encouraging and the project is in the midst of scaling up to other locations.

ITC eChoupal is currently piloting delivery of quality education services to the rural
areas leveraging the physical and digital infrastructure developed for commodities
sourcing and consumer retail services.