1. ITC’s e-Choupal Experience DAIICT Gandhinagar, 17 Dec 2004
ICT in Agriculture:
ITC’s e-Choupal Experience
DAIICT Gandhinagar, 17 Dec 2004

2. Agri Business Sourcing from India
Pre-1999
Only Commodity Trading
Sourcing out of 14 States
Markets : Worldwide
1000+ Crores
Customers : B2B Chain intermediaries
Risks : Customers are ‘Risks’ to be managed
Counterparty risks, Credit risks, Country risks
Landscape of the business
24/7
Global
Volatile

3. Business Changes on the Sell Side Well the Landscape itself !!!
Opened to global trade meant entry of giant MNCs ( e.g, 26 bn USD / 80+ country operations is the size of smallest MNC player)
their leverage of information, play across geographies and volumes is formidable
Large part of the trade is unorganized meant other sources of profit
Source of margin is typically from ‘other’ practices – not really are ‘best practices’ for a corporate to emulate
Shifting customer preferences and perspectives about India as a source meant emerging Niche markets
“Low Quality – unreliable supplier” to “Customized solutions – somewhat reliable supplier”

4. On the Buy Side: The Global Context & The Canvas of Indian Agriculture
Globalisation
Privatization
Concerns about Food Safety, Ecological Security
India
2nd largest arable land
Huge mismatch in Potential and Performance
Lowest yields
Highest cost of production
Means, export value chain competitiveness is an issue

5. And on the ground…there are millions of farmers in rural India resigned to fate
Because most of them are small (1.5 ha average holding)
They do not have bargaining power
Because all of them live in hinterlands (600,000 villages)
They do not have access to real time information (prices, weather)
Because the circumstance of each one is very different (agro-ecological conditions, resources)
They cannot get customized knowledge advise (on farm practices, risk management)

6. How are they still delivering ?
With the help of several middlemen
Who make up for lack of infrastructure and deliver various services (aggregation, logistics, financing) at low cost
But these middlemen also end up exploiting these farmers
By blocking flow of information and market signals
and creating a cycle of dependency (for cash, inputs, selling output)
This locks the farmer into a vicious cycle
Low risk taking ability > Low investment > Low productivity > Low margins > Low risk taking ability

7. The Farmer’s Vicious Cycle
Low Risk Taking Ability
Low Margin
Low Investment
Low Value Addition
Low Productivity
Weak market Orientation
Answer : Leverage the power of collaborative business models

8. Back to the Drawing Board
Revisit the Business Vision and Strategic Intent
Amongst the cornucopia of regulations, inefficient systems, highly protected environment because of its sensitivity and looming intense competitive landscape…

9. … We saw Bigger Opportunities
… We saw Bigger Opportunities !!! to create a sustianable model with overlay of three businesses
Commodity Business
Eliminate inefficiencies in the value chain
Create and capture the emerging Niche Markets
Value Added Commodities
Sourcing Partner
Become a supply chain partner to ‘select’ customers through supply chains that are
Information intensive
Transaction efficient
Customer led
Rural Marketing
Distribution of products / services
Retailing

10. income generating capacity
Our response to seize the opportunity: unlock value first through elimination of inefficiencies
Enhance farmer’s
income generating capacity
in agriculture

11. The Insight - 1
We have seen inefficiency in value chain is chiefly due to the intermediation at various legs. Actually, these numerous intermediaries makeup for weak infrastructure, and deliver critical value in each leg at very low cost
It is their aggregate cost that makes the chain uncompetitive
And by blocking flow of information & market signals, they are able to extract more profits for themselves than the value they are delivering
A more effective business model must be able to leverage the physical transmission capabilities of these intermediaries, yet disintermediate them from the flow of information and market signals
Answer > Virtual Vertical Integration

12. Rapid Developments in IT make such a model feasible
Eliminate inefficiencies
and/ or create new value
in a range of commodities

13. IT is the Enabler!
Delivering real time information to many farmers directly across geographies
Facilitating informed choices
Provide customized solutions for a farmer’s specific need with the help of experts
Improving farm yields
By virtually aggregating the small farmers and linking them to various entities in the supply chain
Improving transaction efficiency

14. The Insight - 2
Realtime multicasting, seamless workflow and one-to-one interactive capabilities of IT and Internet gave us the power to design a new model
But physically reaching the nook & corner of India, and facilitating Net access to the largely illiterate farmers at low cost, and delivering effective service is still a challenge…
The only historical success stories we could rely on were cross-industry !
Wide & Deep penetration of the FMCG retail channel
Low cost reach & effective customer servicing by PCOs and Cable TV Operators
Common Theme : Unleashing the power of small scale entrepreneur & technology to unlock value for equitable distribution across the chain

15. Delivering ICTs in Rural India
Cost Barrier
Computer in the house of a designated farmer (Sanchalak)
Shared access for lower cost
Literacy and ‘high technology’ operating barriers
Facilitated access overcomes these barriers
Huge investment in trainings, operating and maintenance skills
Infrastructure Constraints
Self sufficiency of infrastructure
Power
Connectivity to Internet

16. The Hardworking Indian Farmers are Constrained…
…because most of them are small (1.5 ha average holding)
They do not have bargaining power
…because all of them live in hinterlands (600,000 villages)
They do not have access to real time information (prices, weather)
…because the circumstance of each one is very different (agro-ecological conditions, resources)
They cannot get customized knowledge advise (on farm practices, risk management)

17. ITC eChoupal, by Leveraging Information Technology, Overcomes these Constraints
By virtually aggregating the small farmers and linking them to various entities in the supply chain
Improving transaction efficiency
Delivering real time information to many farmers directly across geographies
Facilitating informed choices
Provide customized solutions for a farmer’s specific need with the help of experts
Increasing farm yields

18. Ingredients of ITC eChoupal
Leverage IT, in order to
deliver real-time information and customised knowledge to improve farmers’ decision making ability to align farm output with market demands, and to improve productivity
aggregate demand like a virtual producers’ cooperative and access high quality farm inputs at lower cost
act as a direct marketing channel with more efficient price discovery and lower transaction costs in output marketing

19. Reaching eChoupal to the Farmer
‘Sanchalak’, a lead farmer selected from within the village and trained to interface between the computer (placed in his house) and the other farmers, is designed as a 3-in-1 solution to
Overcome the literacy barrier
Keep the costs low
Effectively manage the relationships in the village

20. Best Farming Practices & Localised Weather Information at His Doorstep

21. Taking IT to the Farmer
Village Level (Within 5 KM of all target farmers)
Sanchalak, a farmer selected from within the village & trained, interfaces between Computer and the Community
Computer with Multimedia & Internet Access
Area Level (Within 30 KM of all Choupals)
Samyojak, a trader appointed by ITC, provides various services under ITC supervision
Quality Testing, Electronic Weighment, Storage, Payments

22. Speed Breaker 1: Connectivity

23. Speed Breaker 2: Power

24. Speed Breaker 3 : First Time Net Usage
Significant amount of time & effort on training

25. Issues in Execution Hard Issues: Soft Issues:
Appropriate systems for quality testing, pricing, logistics, manifold transactions
Equipment suitable for rural environment
Special needs for Power, Connectivity, Delivery over Low Bandwidth, Help Desk, Training
Bulk Storage & Handling Hubs
Soft Issues:
Viable Village, Right profile of sanchalak, community building processes
The touch (different kind of interface at factory; Written Contract Vs Public Oath) Oath

26. Finally, the ITC eChoupal
One-stop-shop, offering…
Information (weather, prices, news) + Knowledge (farm management, risk management) + Inputs (screened for quality) + Output (convenience, lower transaction costs)
Interlocking Network of Partnerships to bring in “best in class” in all offers
(ITC+IMD+Universities+Input Cos etc.)
Physical Net Access & Community Interface through a lead farmer identified from within the village and appointed as Choupal Sanchalak
Sanchalak has a transaction based income stream
Thus the delivery mechanism in addition to being a low cost option, is also more effective because the sanchalak is one among the community

27. eChoupal benefits the farmer, by
Enhancing farm productivity
Through bundling knowledge with input deliveries
Increasing farm gate price realization
Through bundling information with cropping & output marketing decisions
Through unbundling produce delivery, cash flow and pricing
Through supply chain efficiencies

28. eChoupal benefits ITC, by
Cutting down net cost of procurement, despite offering better prices to the farmers
By eliminating non-value adding costs in the value chain
By better quality segregation
Creating a manageable and visible supply chain for delivering highly tailor-made services to customers
Value added services – packaging, documentation etc
Traceability services – ‘high sensitive’ food items e.g, marine products, organic foods, GMO produce

29. Who Pays ?
It will still cost a lot of money ! So who will pay for it ?
Not the farmer… while the market research does show that farmer will be willing to pay, it will not sufficient for viability
Not the Agri Companies… every company thinks that someone else will do it
Not the Governments… while the intention exists, resources are an issue
Unevolved markets in emerging economies provide interesting opportunities
Elimination of non-value adding activities
Creation of new value through quality / tracability
Answer: Discover the latent value in emerging economies

30. Revenue Models vary across Commodities, though the underlying model is the same
Grains (Wheat & Rice)
Field Crops like Soya, but relatively higher level of inputs and output ; grown under assured irrigation conditions ; Govt buying support & large subsidies
Scope in additional margins through quality segregation
Aquaculture
High investment, high risk (diseases) farming, knowledge intensive, perishable product
Greater profit potential in knowledge transfer and sourcing traceable products for sophisticated global markets
Coffee
Plantation crop, highly volatile prices, more sophisticated grower profile, better knowledge of farm practices
Revenue model in delivering personalised risk management advisory services, backed by an electronic transaction platform among all key market participants

31. Offering a new & efficient channel distribution of goods & services
into the large rural markets
Growth in rural incomes
unleashing the
latent demand potential
of various goods & services
which can be addressed at incremental cost

32. e-Choupal as a marketing channel
As an interactive transaction channel, together with the front-end service through sanchalaks, e-Choupal offers
Process benefits (which make transactions between buyer & seller easier, quicker, less expensive and more pleasant)
Relationship benefits (which reward the willingness of consumers to identify themselves and to reveal their purchasing behaviour)
Using the low-cost physical distribution infrastructure
Source of advantage because it is at an incremental cost

33. Our Vision
Rural India’s largest & most effective Interactive Transaction & Fulfillment Channel
Covering 100,000 villages across 14 States through 20,000 choupals
While delivering shareholder value sustainably
Also contributing to
Enhancing global competitiveness of Indian Agriculture
And, adding to the quality of life in Indian villages

34. To Sum Up A Story of Practice – ITC eChoupal
Understand and Fulfill needs
Build deep relationships
Biz model built on market principles
Variety of ingredients
Execution is the key
“There is no silver bullet. It’s really a game of execution.”
– Michael Dell
Chairman and CEO Dell Computer Corp.

35. THANK YOU