Seminar Report

on

“E-Choupal experience of ITC”

Submitted By Major Guide:

Name:Chopda Arjun M Prof. Y. R.Ghodasara
Roll No:05
Reg No:06-0246-2017
Introduction:

India is second most populous country in the world. Majority of its

population lives in villages & earns their livelihood through farming.
Agriculture is the backbone of Indian economy. It contributes
around 26% of the total GDP. 65% of Indian population lives mainly
in its 600,000 villages. Agriculture is the mainstay of the majority of
the villagers as they are employed in agriculture or agriculture
related services. Presence of diverse agro climate zones and a
variety of soil and agro-climatic conditions have made possible the
cultivation of almost every item from cash crops to food grains.
Agriculture provides
livelihood to about 65% of the labor force and accounts for 8.56% of
India's exports. After USA, India has maximum area of arable land
but productivity per hectare is nowhere near the world best. India is
not in the top ten countries in terms of productivity of rice and
wheat. Despite green revolution Indian agriculture sector has not
been able to achieve the world level productivity. Cardinal reasons
behind this are highly fragmented nature of Indian farming with
close to 33% of arable land held in units of less than 2 hectares per
owner. It doesn’t let farmers enjoy the economies of scale in
operations and modern farming equipment proves very expensive
for them. Because of it quality is also a problem. The fragmented
farms are constraining the risk taking ability
of Indian farmer locking him up into a vicious cycle of low risk
taking ability > low investment > low productivity > weak market
orientation > low value addition > low margin > low risk taking
ability. So there is a need to look for interventions that can help the
farmers realize higher level of income. This is a case study of the
development of a rural market hub using a set of information
communication technologies. This is the largest e-market initiative
undertaken by any corporation in India and also it has been a
successful experience.

Objectives:
 e-choupal is a virtual market place where farmers can transact
directly with a processor and can realize better price for their
produce.
 The main attractiveness of e-choupal is that it can be used for
connecting large producers/small producers and small
users/large users, thereby eliminating the need for hierarchy
of brokers.
  The e-Choupal model has been specifically designed to tackle
the challenges posed by the unique features of Indian
agriculture, characterized by fragmented farms, weak
infrastructure and the involvement of numerous
intermediaries, who block critical market information from
passing to the farmers and use that information for getting a
big margin for themselves.
 It transmits Information (weather, prices, news),
 It transfers Knowledge (farm management, risk management)

Methodology:
Business Model: e-Choupal
The e-Choupal model has been specifically designed to tackle the
challenges posed by the unique features of Indian agriculture,
characterized by fragmented farms, weak infrastructure and the
involvement of numerous intermediaries, who block critical market
information from passing to the farmers and use that information
for getting a big margin for themselves. The intermediaries
capitalized on the economies of information and economies of
physical things, which are tied together in a bundle. Due to this, the
farmers does not get the proper price of its product & they continue
to live below the poverty line. But e-Choupal sets things in order as
it smoothens the flow of information to the farmers by disinter
mediating intermediaries from the chain of information flow and at
the same time leverages the physical transmission capabilities of the
them as they deliver critical value at every link for a very low cost in
a weak infrastructure environment. The structure of e-choupal is
shown in fig.

Fig: e-Choupal, a new business model

The project e-Choupal is ITC’s unique click & mortar initiative e-

Choupal is an ICT platform for carrying out trade at a number of
locations. In this, ITC sets up a back-up physical service support at
the village level, called Choupal, through Sanchalak: a lead farmer,
who acts as the interface between computer and the farmer. ITC
accumulates
information regarding weather, modern farming practices, and
market prices from sources like Meteorological Department, Agri-
universities, mandis (regional market) etc., and uploads all
information on to e-Choupal web site. All information is customized
according to local farmers requirements and provided into the local
language through computer set up by ITC in Sanchalak’s house.
Sanchalak access this information and facilitates its dissemination to
farmers. Information regarding weather and scientific farming helps
farmers to select the right crop and improve the productivity of
their farms. Availability of market information helps farmers to
become market oriented. They know what price ITC is quoting and
the price prevalent in the local market, thereby helping better price
realization for farmers. If farmer decides to sell to ITC, Sanchalak
works as the aggregator of small farmers produce to sell them to
ITC. Sanchalak also aggregates farmers input purchase orders for
various items like seeds, pesticides and places them directly with
the suppliers through internet and facilitate supply of high quality
farm inputs as well as purchase of farm produce at farmers doorstep
with thehelp of intermediaries as shown in Fig.
1. Procurement Efficiency in Soybeans: Using the case study of
soybean procurement, in section 2, we first highlight the
inefficiencies that characterize the current (pre-intervention
supply chain). Subsequently, we discuss ITC-IBD’s
reengineered supply chain and its key advantages for all
stakeholders involved. We highlight some general issues that
pertain to the operation of such supply chains in terms of
physical, information, and financial flows.
 Figure:e-Choupal regions for soybean, wheat,and coffee

Encouraging Local Participation

The market-led business enhances the competitiveness and triggers
a virtuous cycle of higher productivity, higher incomes, enlarged
capacity for farmer risk management, larger investments and higher
quality and productivity. This is the reverse of vicious cycle =
operating in Indian agriculture. Further, a growth in rural incomes
will also unleash = the latent demand for industrial goods, which
are necessary for the continued growth of the Indian economy. This
will create another virtuous cycle propelling the economy into a
higher growth. For realization of these goals it is essential that the
participation of rural community be ensured. ITC uses inputs from
farmers to create the content for website. Involvement of farmers in
content creation helps to easily customize the information as per the
local requirements[6]. Farmers at ITC do the focus group discussion
to identify the information required by the farmers in village. Layout
of website, language of information, contents all are decided on the
advise of the farmers. 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 has been due to the
creation of win-win situation in which both the firm and the farmer
benefits equally. The farmer gets attracted towards e-choupal due to
increased profits, added services that he could get, saving in time,
and the ability to use the e-choupal for many transactions. e-choupal
operation has been successful. It has reduced the cost of
procurement and the cost of transit and the material handling cost.
Procurement transaction costs are reduced from the industry
standard of 8% (farmer incurs 3% and the processor incurs 5%) to
2% (with farmer saving all his 3%, and the processor – ITC – saving
3%) .

Results:
The project has come a long way since its inception, and is today
recognized as India’s largest Internet-based initiative, covering
1,300 choupals, linking 7,500 villages, and serving almost 1 million
farmers. Madhya Pradesh is host to 1,045 e-choupals, spread over
6,000 villages covering 600,000 farmers. E-choupal has also
established its presence in other states, such as Uttar Pradesh,
Andhra Pradesh, and Karnataka. ITC, which exports US$140 million
worth of agricultural commodities, sourced US$15 million worth of
commodities from e-choupals in 2001. The substantial quantity
(120,000 metric tons of various commodities) already procured
through this channel has resulted in overall savings of more than
US$1 million. These savings are shared between ITC and the
farmers. Web-enabled, real-time data on crop prices gives farmers
an accurate picture of the prices they can expect from ITC and from
different mandis. This information enables them to become
informed decisionmakers and thereby sell their produce at a price
that gives them a higher profit margin. With the participation of
agricultural supplies companies in ecommerce, the farmers now can
also conveniently order agricultural inputs. Although the prices
offered by ITC are not higher than those at the mandi, the farmer
chooses ITC because the transactions are done closer to home and
the practices of weighing and quality assessment are more efficient
and transparent. Farmers save on travel time and costs and incur
less wastage. Their savings have been estimated at Rs 400 to Rs 500
(US$8 to US$10) per ton of soybeans. It is important to note that the
final decision to sell their crops to the mandi or to ITC rests with the
farmers themselves. The farmers can transact with the company
directly and deal orders on the Internet. In the process, the farmers
save about Rs 250–500 per ton, depending on their location relative
to the collection center. ITC gains in terms of assured supply and
savings of more than Rs 200 per ton by avoiding the transportation
of the crop from the mandi to the collection center and other
intermediary costs in the supply chain. Altogether, more than Rs 1
billion (US$21 million) in transactions have occurred so far, and the
company plans to extend the initiative to 15 other states across the
country over the next few years.
Discussion:
e-choupal
e-choupal is a Hindi word which means “village meeting place”.
Market is a meeting place where vendors and customers come
together to do transactions. 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 has the advantages of the
market but spans very large varieties of vendors and customers.
Geographical distances do not restrict participation in the e-choupal.
The main disadvantage of conventional market is that information
asymmetry is inherent in the market where as e-choupal provides
for transparent transactions. This enables the participation of
smaller as well as larger players. Elimination of some layers of
intermediaries allows for larger share of profits to reach the lower
end of value chain. The main attractiveness of e-choupal is that it
can be used for connecting large producers/small producers and
small users/large users, thereby eliminating the need for hierarchy
of brokers. Internet is used as a low transaction cost backbone for
communication. Physical delivery of produce to the processor is still
done through the existing intermediaries. e-choupal does not
attempt total elimination of intermediaries, as intermediaries are
indispensable in economy like India where intermediaries are
adding value to the every step of value chain at a low cost.
Intermediaries have the expertise in storage, transportation, quality
assessment and counter party risk reduction, which are difficult to
replicate. e-Choupal provides farmers with all the market
information and this helps them to become market oriented. In e-
choupal intermediaries are leveraged but they are disintermediated
from the market information flowing to the farmers.

FEATURES OF E-CHOUPAL
The e-Choupal model has been specially designed to tackle the
challenges posed by the unique features of Indian agriculture,
characterized by fragmented farms, weak infrastructure and the
involvement of numerous intermediaries among others. The e-
Choupal also unshackles the potential of Indian Farmers who has
been trapped in a vicious cycle of low risk taking ability.
e-Choupal directly links with farmers for procurement of agriculture
produce like soybeans, wheat, coffee and Prawans. Traditionally
these commodities were procured in “mandi” [major Agricultural
marketing centers in rural areas], where the middleman used to
make most of the profit. These middlemen used unscientific means
to judge the quality of the product to set the price. Difference in
price for good quality and inferior quality was less and hence there
was no incentive for the farmers to invest and produce good quality
output. With e-Choupal, the farmers have a choice and the
exploitative power of the middleman is neutralized.
ITC has now established computers and Internet access in rural
areas across several agricultural important regions of the country,
where the farmers can directly negotiate the sale of their produce
with ITC. A personal Computer [PC] with Internet access at these
centers enable the farmers to obtain information on mandi process,
good farming practices and place orders for agricultural inputs like
seeds and fertilizers. This helps farmers in improving the quality of
produce and also helps in realizing better price. Each e-Choupal is
run by a sanchalak [facilitator] who is a trained farmer or a youth of
the village. The computer is linked to the Internet via phone lines or
by a VSAT connection and serves an average of 600 farmers in the
surrounding ten villages within about a 5 km radius. The sanchalak
bears some operating cost but in return earns services fee for the e-
transactions done through his e-Choupal. The warehouse hub is
managed by the same traditional middle-men, now called samyojaks
but with no exploitative power due to their reorganized role.

PRINCIPLE OF THE E-CHOUPAL

The principle of the e-Choupal is to inform, empower and complete.
At the same time ITC has also extracted value in four steps to make
the model sustainable and scaleable:
1] Elimination of non-value added activities.
2] Differentiated product through identity preserved supply chains.
3] Value added products traceable to farm, practices.
4] e-market place for spot transactions and support services to
future exchange.

ADVANTAGES OF E-CHOUPAL
E-Choupal has the advantages of their own market facilities for
purchasing the farmers produce. Geographical distances do not
restrict participation in the e-Choupal. The main disadvantage of
conventional market is that information asymmetry is inherent in
the market whereas e-Choupal provides for transparent
transactions. This enables the participation of smaller as well as
large farmers. Elimination of some layers of intermediaries allows
for large share of profits to reach the lower end of value chain. The
main attractiveness of e-Choupal is that it can be used for
connecting large producers/ small producers and small users/large
users thereby eliminating the need for hierarchy of brokers/
middleman. Internet is used as a low transaction cost backbone for
communication. Indian market has inadequate physical, social and
institutional infrastructure that is substituted by intermediaries and
they also value to the chain ion every step.
The e-Choupal model demonstrates that a large business
corporation can play a major role in recognizing rural markets and
increasing the efficiency of an agricultural system, while doing so in
ways that benefit farmers and rural communities as well as
shareholders. The e-Choupal model also shows the key role of
information technology provided and maintained by a corporation,
but used by local farmers-in helping bring about transparency,
increased access to information and rural transformation, critical
factors in the apparent success of the venture are:
1] ITC’s extensive knowledge of agriculture.
2] The efforts ITC has made to retain many aspects of the existing
production system.
3] Including maintenance of local partners are treated.
PROBLEMS BEFORE E-CHOUPAL WAS INTRODUCED:
Traditionally, these commodities were procured in “mandis” (major
agricultural marketing centers in rural areas of India), where the
middleman used to make most of the profit. These middlemen used
unscientific and sometimes outright unfair means to judge the
quality of the product to set the price. Difference in price for good
quality and inferior quality was less, and hence there was no
incentive for the farmers to invest and produce good quality output.
With e-Choupal, the farmers have a choice and the exploitative
power of the middleman is neutralised.

ICT platform that facilitates flow of information and knowledge, and

supports market transactions on line.
 It transmits Information (weather, prices, news),
 It transfers Knowledge (farm management, risk management)
 It facilitates sales of Farm Inputs (screened for quality) and
 It offers the choice of an alternative Output-marketing channel
(convenience, lower transaction costs) to the farmer right at
his doorstep
 It is an interlocking network of partnerships (ITC + Met Dept
+ Universities + Input COs + Sanyojaks, the erstwhile
Commission Agents) bringing the best-inclass in information,
knowledge and inputs.

e-Choupal is, thus, distributed transaction platform that brings

together sellers, buyers along with information and service
providers. e-choupal is a model with a number of non-conventional
characteristics namely:
 customer centric
  capable of being used for many commodities and multiple
transactions
 easily scalable once it is verified
 uses local talent and local people and develops local leaders
 can be extended to local as well as global procurers
 stimulates local entrepreneurs to extend their innovativeness
 uses all the existing institutions and legal frameworks and
 many others can join the market as transaction time is low.

CRITICAL SUCCESS FACTORS

The e-Choupal experience highlights that ICT platforms can provide
rural connectivity and e-commerce support. These platforms have
enormous potential provided they are conceptualized for the
specific needs of the community and business. Some of the elements
that helped the e-Choupal to work successfully are discussed below:
Comprehensive knowledge of rural markets: Rural markets are both
economic and social networks and there is a strong connection
between the operation of social and economic transactions.
Understanding the operations is vital before the systems are
conceptualized. Use of local population, as much as possible helped
the network to get the acceptance closely.
Designing a Win-Win transaction model: The success of e-Choupal
comes from the condition in which both the farmer and the
processor share the benefits coming out of the elimination of middle
men and hence due to timely information availability.
Leveraging the logistics channels: The existing logistics of the rural
markets are leveraged but they are not able to exploit the
information asymmetry (unlike that in a conventional market). In
that sense e-choupal uses the local institutions but eliminates the
information asymmetry that they used previously.
Selection of Sanchalak: Both the selection of Sanchalak and the
acceptance of Sanchalak by the community are very critical for the
success of e-Choupal. ITC used a trial and error method for
developing the procedure for selecting Sanchalaks. In the platform
terminology Sanchalak is the interface for maintaining the platform.
For the farmer the Sanchalak is the e-Choupal. Training and
sensitizing him for the crucial role has been the main reason for the
acceptance of the Sanchalak by the farmers. Sanchalak, thus, acts as
the coordinator of the knowledge community, and a representative
of farming community.
Evolving an appropriate user interface: The Technology interface
used in rural areas has to be very simple. Interface has to be tried
for rural settings and only after its validation it has to be used.
Firstly, one has to understand the user pattern and secondly, it has
to be tried, tested and validated. For example, farmers do not
understand the concept of insurance. e-Choupal evolved a simple
interfacing arrangement that a farmer can understand.
Bottom-up model for entrepreneurship: e-Choupal encourages
enormous amount of creativity at the local level along with local
entrepreneurship stimulation. The farmer and Sanchalak are free to
use the e-choupal and develop new uses. e-Choupal unleashes the
creative spirit in the rural India.

EFFECTS OF E-CHOUPAL
ITC Limited has now established computers and Internet access in
rural areas across several agricultural regions of the country, where
the farmers can directly negotiate the sale of their produce with ITC
Limited. The PCs and Internet access at these centres enable the
farmers to obtain information on mandi prices, good farming
practices and place orders for agricultural inputs like seeds and
fertilizers. This helps farmers in improving the quality of produce,
and also helps in realizing a better price. Each ITC Limited kiosk
having an access to Internet is run by a sanchalak – a trained farmer.
The computer housed in the sanchalak’s house is linked to the
Internet via phone lines or by a VSAT connection and serves an
average of 600 farmers in the surrounding ten villages within about
a 5 km radius. The sanchalak bears some operating cost but in
return earns service fee for the e-transactions done through his e-
Choupal. The warehouse hub is managed by the same traditional
middle-men, now called samyojaks, but with no exploitative power
due to the reorganised role. Indeed these middlemen make up for
the lack of infrastructure and fulfill critical jobs like cash
disbursement, quantity aggregation and transportation.
Due to the eChoupal services, farmers have seen a rise in their
income levels because of rise in yields, improvement in quality of
output and a fall in transaction costs. Even small farmers have
gained from the initiative. Customized and relevant knowledge is
offered to the farmers despite heterogeneous cultures, climates and
scales of production. Farmers can get real-time information despite
their physical distance from the “mandis”. The system saves
procurement costs for ITC Limited. The model is quite different from
the other models, as the farmers do not pay for the information and
knowledge they get from e-Choupals. The principle of the e-
Choupals is to inform, empower and compete. At the same time ITC
Limited also has extracted value in four steps to make the model
sustainable and scaleable:
 elimination of non-value added activities
  differentiated product through identity preserved supply
chains
 value added products traceable to farm practices
 e-market place for spot transactions and support services to
futures exchange
One of the factors leading to e-Choupal’s success is ITC’s managerial
expertise in executing complex projects and managing costs. ITC
Limited adopted a flexible project management approach called “roll
out, fix it, and scale up” to deal with uncertainties in a pioneering
model.
There are 6,500 eChoupals today. ITC Limited plans to scale up to
20,000 eChoupals by 2012 covering 100,000 villages in 15 states,
servicing 15 million farmers.

Benefits :
Overall, the reengineered supply chain reduced several non-value
added tasks in the traditional chain thereby improving the efficiency
of the procurement. Next we describe the benefits – direct as well as
indirect – to the various stakeholders. Direct selling to ITC provided
the farmer with several benefits. The first benefit was the monetary
savings in transaction costs including savings on commissions and
the elimination of costs of handling and other losses. Second, by
virtually being guaranteed a same-day transaction, the “sales-to-
cash” cycle for the farmer was reduced from several days (when
selling at the mandi) to a few hours. Third, ITC eliminated the
uncertainty in the price for the farmer by announcing the price for
direct purchase the previous evening before he left the village.
Fourth, the farmer was assured that his produce will get proper
quality evaluation. Finally, logistically, selling direct to ITC involved
no greater travel than going to a mandi. The web-portal, in addition,
also acted as a knowledge delivery mechanism. It provided
information on farming best-practices, localized weather
information, general statistics on commodity production and
consumption, links to commodity markets, discussion groups, etc.
Such knowledge increases the awareness of the farmer allowing him
to make more informed choices. ITC benefited from the direct-
transaction by reduction in freight from the mandi to its processing
facility or the warehouse location and elimination of the
commissions. Finally, as an incentive to facilitate direct
procurement, ITC paid a commission to the village level e-Choupal
Sanchalak. Table 3 lists the e-Choupal procurement advantage to the
farmer as well as to ITC. By building a physical presence in the
villages, ITC now had direct contact with the farmers and the ability
to influence their farming practices through information and
knowledge delivered via e-Choupal. This has potential longterm
impact on improving the quality and productivity of Indian soy
farming, gains from which will partially be captured by ITC through
its direct-procurement infrastructure.
Mandi Supply Chain e-Choupal model
Transaction Farmer ITC Farmer ITC
Freight 120 120 120 0
Labor / 50 40 0 40
Handling
Commission 150 100 0 50
Handling Loss 50 0
Bagging 75 75
Cash 50
Disbursement
Costs
Total (for each 370 335 120 215
Stage)
Total for the 750 335
Chain
Table : The e-Choupal Procurement Advantage (All prices are in
Rupees per metric Ton)
Conclusion
The e-Choupal has applied information and Communication technology to the
advantage of India’s small, marginal and resource-poor farmers who have
hitherto operated and transacted in unorganized markets. Distance, social
discrimination and formal regulations often keep small and marginal and
resource-poor farmers out of the market. The e-Choupal scheme initiates a
reversal in this trend and empowers the farmers by proving reliable
information and access to markets where they can get competitive prices for
their produce. Besides, e-Choupal has favorably impacted the supply-chain
activities related to agriculture. Produce quality and volumes have risen.
Prices of farm inputs have declined and quality of input has risen. Prices of
farm output have risen. Small and poor farmers have been the principle
beneficiaries. Their cost of transactions has declined. Their incomes have
risen. What is more significant is that, the small marginal and resource-poor
farmers have typically derived these in their locales. e-Choupal ensures world
class quality in delivering all these goods and services through several
products/ services specific partnership with the larders in the respective
fields in additions to ITC’s own expertise. While the farmers benefit through
enhanced farm productivity and higher farm gate price, ITC benefits from the
lower net cost of procurement [despite offering better prices to the farmers]
having eliminated costs in the supply chain that do not add value.

References:
1. http://www.itccorporate.com/agri_exports/e-
choupal.html#top.
2. http://agricoop.nic.in/stats.htm.
3. http://pdf.wri.org/dd_echoupal.pdf
4. http://www.echoupal.com
5. http://www.fao.org/rdd/doc/ITC%20e-Choupal.pdf