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Role of e-Choupal in Rural Marketing

Role of e-Choupal In Rural Marketing

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Role of e-Choupal in Rural Marketing

Executive Summary
E-choupal was a term introduced by the ITC, which has gained success and improved the status of rural farmers . For this, ITC has received The Corporate Social Responsibility Award 2004 from The Energy and Resources Institute (TERI) for its e-choupal initiative. In the first chapter, the meaning of e- choupal is explained i.e. an innovative technique of marketing in rural areas, mainly used for agricultural produce. Also there is a mention about agricultural marketing system that prevails in the rural areas. Then we trace the origin of e-choupal and how it has originated and developed as an effective distribution system for agricultural produce. The operation of the mandi system, its costs involvement and limitation gave vent to the success of e- choupal. Then we look into the vision and planning behind e-choupal. Then the business model of e- choupal is explained. This model is centered on a network of e-choupals, information centers equipped with a computer connected to the Internet, located in rural farming villages. EChoupals serve both as a social gathering place for exchange of information. The e- choupal system is studied

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Role of e-Choupal in Rural Marketing

and the re-engineered supply chain is discussed. ITCs vision for marketing via the e-choupal involved three features: benefits, superior process product benefits and distinctive functional (simplified transactions

between buyer and seller), and relationship benefits (farmers willingness to identify themselves and reveal their purchasing behavior). Hence we study, how echoupal actually works, what are its marketing channels, infrastructural development and its beneficiaries,the role it has played in transformation of rural market In the third chapter we take a look at initiatives taken by ITC in rural development. We see that the success of e- choupal in agricultural field has compelled ITC to expand other allied sectors in rural India like women employment, the dairy productivity. It aims at making rural India self reliant. The e-Choupal model shows that a large corporation can combine a social mission and an ambitious commercial venture; that it can play a major role in rationalizing markets and increasing the efficiency of an agricultural system, and do so in ways that benefit farmers and rural communities as well as company shareholders. E-Choupal has been most successful

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Role of e-Choupal in Rural Marketing

initiative to wire rural India and to involve the farmers in learning. ITC has been successful in making the farmer feel the sense of ownership and enthuse him to generate additional revenue by eliminating middleman. The success of e-Choupal has given new lessons to the corporates in the India and abroad. The gains from the novel initiative are manifold to ITC, the farmers and other companies. E-Choupal has helped the farmers to improve their productivity and get better prices, whereas ITC has benefited by better sourcing of raw materials and building a backbone to market the end products which is vital for the FMCG companies like ITC.

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Role of e-Choupal in Rural Marketing

Sr. No. 1 Introduction

TABLE OF CONTENT Chapter

Page No. 1 2 4 7 11 14 14 23 29 32 38 39 41 41 47 48 50 52 56 65

Origins of e-choupal Distribution Channels Prior To the e-

choupal Limitations of the Mandi System


Vision and Planning Behind the e-choupal

e-choupal and Profitable Rural Transformation The Business Model of e-choupal


e-choupal as a Marketing Channel Advantages of e-choupal to the Farmer

Infrastructural Development
The Social Impact of e-choupal

Impact on Other Agricultural Produce Other initiatives by ITC Rural Malls Womens Empowerment Livestock Development Primary Education

4 5 6

Conclusion Annexure Bibliography

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Role of e-Choupal in Rural Marketing

Chapter 1 INTRODUCTION
Rural India is a difficult business location. Transport, electric power, and information infrastructure are inadequate. Business practices are underdeveloped or outdated. Lack of access to modern resources has resulted in an under-trained workforce. Rural society is structured around subsistence and is unprepared for modern products and services. These constraints, along with many others, have dissuaded most companies from taking on the challenge of rural commerce. Yet such an engagement can serve a dual agenda: bridging rural isolation and the resulting disparities of education and economic opportunity, while at the same time creating a potentially large profit opportunity for the organization willing to tackle the inefficiencies. The key question is how modern resources and methods can be practically deployed to profitably overcome rural constraints. Also important are the social impacts of such an engagement. Meaning In Hindi choupal means a village place where people gather, gossip, smoke hukka, discuss or interact with each other. There may be a sanchalak or a leader who heads the proceedings when a choupal is equipped with computer and inter net connectivity; it is called e-choupal.

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Role of e-Choupal in Rural Marketing

ITCs e-Choupal initiative began by deploying technology to reengineer procurement of soya and other crops from rural India. It has lgone on to serve as a highly profitable distribution and product design channel. The effort holds valuable lessons in rural engagement and demonstrates the magnitude of the opportunity while illustrating the social and development impact of bringing global resources, practices, and remuneration to the Indian farmer.

Origins of e-choupal
The ITC group is one of Indias foremost private sector companies with a market capitalization of around US$4 billion and annual revenues of US$2 billion. ITC has a diversified presence in tobacco, hotels, paperboards, specialty papers, packaging, agri-business, branded apparel, packaged foods and other fast moving consumer goods. Spurred by Indias need to generate foreign exchange, ITC's International Business Division (IBD) was created in 1990 as an agritrading company aiming to offer the world the best of India's produce. Initially, the agricultural commodity trading business was small compared to international players. By 1996, the opening up of the Indian market had brought in international competition. Large international companies had better margin-to-risk ratios because of wider options for risk management and arbitrage. For an Indian company to replicate the operating model of such multinational corporations would have required

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Role of e-Choupal in Rural Marketing

a massive horizontal and vertical expansion. In 1998, after competition forced ITC to explore the options of sale, merger, and closure of IBD, ITC ultimately decided to retain the business. The Chairman of ITC challenged IBD to use information technology to change the rules of the game and create a competitive business that did not need a large asset base. Today, IBD is a US$150 million company that trades in commodities such as feed ingredients, food-grains, coffee, black pepper, edible nuts, marine products, and processed fruits. Corporate and social responsibility is an integral part of ITCs philosophy, and ITC is widely recognized as dedicated to the cause of nation building. Chairman Y. C. Deveshwar calls this source of inspiration a commitment beyond the market. ITC believes that its aspiration to create enduring value for the nation provides the motive force to sustain growing shareholder value. ITC practices this philosophy by not only driving each of its businesses towards international competitiveness but by also consciously contributing to enhancing the competitiveness of the larger value chain of which it is a part. This view of social consciousness allowed ITC to recognize the unique opportunity of blending shareholder value creation with social development. The social impact of the e-Choupals as envisioned by ITC ranges from the short-term provision of Internet access to the long-term development of rural India as a competitive supplier and consumer of a
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Role of e-Choupal in Rural Marketing

range of goods and services in the global economy. The sustainability of the engagement comes from the idea that neither the corporate nor social agendas will be subordinated in favor of the other. Distribution Channels Prior To the e-Choupal There are three commercial channels for soy: traders, governmentmandated markets (mandis), and producer-run cooperative societies for crushing in cooperative mills. In addition, farmers traditionally keep a small amount of their crops for their personal consumption and get the produce processed in a small-scale crushing-plant called a ghani. The system varies among states and districts, as does the percentage of produce going through each channel, but on average, 90% of soy crops are processed through traders and mandis. Operation of the Mandi Distribution System

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The Agricultural Products Marketing Act legislated the creation of mandis to enable a more equitable distribution of the gains from agriculture among producers, consumers, and traders. The mandi is central to the functioning of the marketing channel, and acts as delivery point where farmers bring produce for sale to traders. In the soy growing areas of Madhya Pradesh, a mandi typically serves around 700 square kilometers, although the area served by a mandi varies by state. With traditional grains, large portions are used by the farmer or bartered for different crops. But since soy is not native to the Indian palate, its major market is the crushing plant and nearly the entire crop must be exported. This makes the mandi a vital part of the soya chain. Mandi trading is conducted by commission agents called adatiyas (brokers who buy and sell produce). They are of two types: kachha adatiyas are purchasing agents that buy only on behalf of others and pukka adatiyas who finance trade as representatives of distant buyers and sometimes procure crops on their own account. All the adatiyas belong to the Agarwal and Jain community, an economic class distinct from farmers. This community manages grain trade across the entire country including south India, a remarkable feat considering the vast cultural and social diversity across the nation. The lack of professional competition combined with the communal stranglehold on rural trading has made commission agents extremely wealthy. Commission agents from medium sized mandis can possess assets and incomes in the millions of dollars. The adatiyas established and grew the soy industry on the basis of familial and community trust, with buying and selling based upon oral
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agreements. Their expansive personal networks within the industry and their financial influence make them a formidable presence. The operation of the Mandi consists of a number of different stages, from the logistics of transporting grain to the market to quality inspection, auction, bagging and weighing, and payment. Based upon local information within the village, farmers decide in which of the nearby mandis to sell. They transport their crops to the mandis in carts drawn by animals or tractors. Very often, to avoid peak-time crowds, farmers will arrive at the mandi the night before they intend to sell. When the mandi opens in the morning, farmers bring their carts to display areas within the mandi. The inspection by buyers is by sight. There is no formal method of grading the produce and the only instrument used is the moisture meter; the crop is not tested for oil content.

Once potential buyers have inspected the produce, a mandi employee conducts the auction, where commission agents place bids. The auctions are typically open oral auctions with incremental bidding. The auction represents a stark contrast from the buyers and sellers perspectives. For the farmer, the moment is pivotal: a scant 30 seconds
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assesses the results of six months of investment and hard work and establishes the value of one of only two or three paydays he will have in the year. For the commission agent, on the other hand, the moment is routine; he has many more carts of produce to buy and his margin is assured irrespective of the price. Once the price has been established by the auction, the farmer moves the cart to the weighing area run by the buying commission agent. In most cases, the weighing area is in the mandi complex. In some cases, especially if the mandi is small, the weighing area may be at the commission agents home near the mandi. Here, the produce is transferred from the cart into individual sacks. The sacks are then weighed, one at a time, on a manual scale. After weighing, the full value of the grain is calculated. The farmer goes to the agents office to collect a cash payment. The agent pays a mandi fee (1% of purchase value in Madhya Pradesh) to the mandi. The bagged produce is then loaded on to the buyers trucks and transported to the processing plant. Limitations of the Mandi System The mandi system does not serve the farmer well, and is burdened by inefficiency. Because the farmer does not have the resources to analyze or exploit price trends, the timing of the sale may not result in the optimal price for the crop. Moreover, since the actual sale price is determined at the auction, by the time the farmer gets the price, it is too late to go to another mandi to make his sale. Other expenses and
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inefficiencies exist: the overnight stay near the mandi costs the farmer money; most crops are displayed in open air courtyards, and are therefore subject to being negatively affected by the weather; the inspection process is unscientific and often arbitrary, tending to favor the buyer, and generally does not provide an incentive to farmers to invest in better seed or farming practices that lead to higher qualityeven though quality, especially oil content, matters to soy processors. In addition, farmers find the auction process demeaning. Agents belong to a close-knit community that is socially and economically distinct from the farmers community. While they may not collude in pricing, they do collude in establishing the practices of the trade that uniformly favor agents and exploit the farmers situation. The farmers also bear the cost of bagging and weighing the crop, which is done by mandi laborerspart of whose compensation is the sale of spilled produce. Needless to say, these laborers ensure that some portion of each lot is spilled. Farmers feel that the weighers consistently under-weigh their produce by applying practiced and timely nudges to the scale. Historical intimidation and long queues waiting behind them dissuade the farmers from protesting. To add to this exploitation, the farmer is never paid the full purchase price up front but is paid a partial amount and asked to return to the mandi later for the remainder. Farmers are not paid interest on the remaining sumalthough crushers pay agents usurious rates for the privilege of delayed paymentand repeating the trip to the mandi
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costs farmers time and money. Since the crop has already been delivered, however, the farmers are at the agents mercy. Apart from the exploitation of the farmer, there are other inefficiencies in the system. The multiple points of handling in the supply-chain require the produce to be bagged, which takes four to five times longer to be unloaded at the processing plant than untagged produce. Traders generally do not have the capacity to store and manage different qualities and grades of produce, inhibiting efforts to produce better crop grades. Pricing is set locally at the mandis, and is not reliably tracked or reported nationally, resulting in a lack of information that reduces the opportunity for arbitrage and leads to market inefficiency. In addition, regulator restrictions tend to limit arbitrage to small geographic areas. The mandi system also does not serve trading companies such as ITC well; its inefficiencies make the mandi far from an optimal procurement channel. From the companys point of view, the key problem is the agents control of the market and the resulting distortions of price and quality. Agents purchase grain on a trading companys behalf. Some of the produce they buy is of good quality and therefore commands a premium price, while other crops are of poor quality and therefore sell at a discount. In any given day, an agent purchases produce with a range of crop quality at a range of prices. The agent often mixes the different quality crops together and charges the trading company a single price near the higher end of the price spectrum.
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Role of e-Choupal in Rural Marketing

Not only does the agent inflate the price to trading companies, he also inflates the price at the mandi. As we have seen, high-quality produce is used to make an entire lot of lower quality produce acceptable.Because of its value to agents, agents pay an inflated premium for high-quality produce, which drives up the high crop price at the mandi for the day. Very few farmers actually get the price for top-quality produce, but this price acts as a benchmark for the next days pricing, thereby inflating the mandi price over a period of time and increasing costs for trading companies. Additionally, the trading company establishes a daily price range for its agent to buy within. If the agents average buy price that day is lower than the low end of the established price, the agent sells the grain to the trading company at the established low price and pockets the difference. If, however, the average buy price is higher than the trading companys established high price, the agent will still buy the produce but will report to the company that since its price was not high enough, no grain could be bought. The agent will store the grain and sell it to the trading company the next day when the established price has been raised to make-up for the previous days procurement shortfall. Commission agents therefore capture the entire benefit of intra-day price shifts. The agents therefore operate without risk of loss of profit. Officially, the agents commission is 1% of ITCs price. In reality, ITC estimates that the agents operating margin is around 2.5-3%.As a result of the commission agent structure in the traditional mandi system, ITC had no
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Role of e-Choupal in Rural Marketing

direct interaction with the farmer. This gap created a range of supplychain issues, including limiting ITCs knowledge of its crops, suppliers, and supply risks, as well as limiting the companys ability to improve crop quality and quantity by bringing modern agricultural practices to the farmers. The company developed its e-Choupal strategy as a way to communicate directly with the farmer and to bypass the inefficiencies arising out of the agents intermediation, thereby achieving virtual vertical integration. Vision and Planning Behind the e-Choupals Implementing and managing e-Choupals is a significant departure from commodities trading. Through its tobacco business, ITC has worked in Indian agriculture for decades, from research to procurement to distribution. ITCs translation of the tactical and strategic challenges it faced and its social commitment into a business model demonstrates a deep understanding of both agrarian systems and modern management. Some of the guiding management principles are: Re-engineer, Not Reconstruct

The conventional view of transforming established business systems begins with the failures of the current system and develops means to change it. ITC took a different approach by looking at the
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Role of e-Choupal in Rural Marketing

successes of the current system and identifying what they could build on. ITC not only retained the efficient providers within the mandi system but also created roles for some inefficient providers. This philosophy has two benefits. First, it avoids reinventing the wheel in areas where ITC would not be able to add value through its presence. Second, it recruits and engages members of the rural landscape thereby making their expertise available to ITC while preventing their expertise from being shared with ITCs competition. Address the Whole, Not Just One Part

The farmers various activities range from procuring inputs to selling produce. Currently, the village trader services the spectrum of farmers needs. He is a centralized provider of cash, seed, fertilizer, pesticides, and also the only marketing channel. As a result, the trader enjoys two competitive benefits. First, his intimate knowledge of the farmer and village dynamics allow him to accurately assess and manage risk. Second, he reduces overall transaction costs by aggregating services. The linked transactions reduce the farmers overall cost in the short term, but create a cycle of exploitative dependency in the long-term. Rural development efforts thus far have focused only on individual pieces rather than what the entire community needs. Cooperatives have tried to provide agricultural inputs, rural banks have tried to provide credit, and mandis have tried to create a better marketing channel. These efforts cannot compete against the traders bundled offer. Functioning as a viable procurement alternative, therefore, must eventually address a range of needs, not just the marketing channel.
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An IT-Driven Solution

From the conception of the model, an IT-based solution was recognized as fundamental to optimizing effectiveness, scalability, and cost. Information technology is 20% of all the effort of ITCs e-Choupal business model, but is considered the most crucial 20%. The two goals envisioned for IT are:

Delivery of real-time information independent of the

transaction. In the mandi system, delivery,pricing, and sales happen simultaneously, thus binding the farmer to an agent. E-Choupal was seen as a medium of delivering critical market information independent of the mandi, thus allowing the farmer an empowered choice of where and when to sell his crop. Facilitate collaboration between the many parties required

to fulfill the spectrum of farmer needs. As a communication mechanism, this goal is related to the commitment to address the whole system, not just a part of the system. It should be noted that ITC did not hesitate to stall expensive IT infrastructure in places where most people would be wary of visiting overnight. It is a manifestation of the integrity of rural value systems that not a single case of theft, misappropriation, or misuse has been reported among the almost 2,000 e-Choupals.

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Role of e-Choupal in Rural Marketing

Chapter 2 E-Choupal and Profitable Rural Transformation


The Business Model of e-choupal
The model is centered on a network of e-Choupals, information centers equipped with a computer connected to the Internet, located in rural farming villages. E-Choupals serve both as a social gathering place for exchange of information (choupal means traditional village gathering place in Hindi) and an e-commerce hub. A local farmer acting as a sanchalak (coordinator) runs the village e-Choupal, and the computer usually is located in the Sanchalaks home. ITC also incorporate a local commission agent, known as the samyojak (collaborator), into the system as the provider of logistical support. ITC has plans to saturate the sector in which it works with eChoupals, such that a farmer has to travel no more than five kilometers to reach one. The company expects each e-Choupal to serve about 10 villages within a five kilometer radius. Today its network reaches more than a million farmers in nearly 25,000 villages through 5,000 eChoupals in six states (Madhya Pradesh, Karnataka, Andhra Pradesh, and Uttar Pradesh, Maharashtra, Gujarat), and the network is expanding rapidly. Of the e-Choupals in Madhya Pradesh, the one in Hared services about 500-700 farmers in 10 villages; another e-Choupal in Dahod services 5,000 farmers in 10 villages. The average usage is about 600

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farmers per e-Choupal in the soy cropping area, with fewer in wheat, coffee, and shrimp. The critical element of the e-Choupal system, and the key to managing the geographical and cultural breadth of ITCs network, is the sanchalak. ITC channels virtually all its communication through the local sanchalak. Recruiting a local farmer from the community for this role serves several purposes: For generations, the Indian farmer has been betrayed by

individuals and institutions. Trust is the most valuable commodity in rural India. No transaction will happen without trust, irrespective of the strength of the contract. The sanchalak is selected to provide this vital component in ITCs system.

ITC need not invest in building and securing a physical

infrastructure such as a kiosk for housing the e-Choupal computer. The sanchalak is trained in computer operation and can act as a familiar and approachable human interface for the often illiterate farmers and other villagers. ITC expects to leverage the profit-making power of the

small-scale entrepreneur.

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Sanchalaks indicate three equally-weighted motivations for assuming their role: a means to help their community, a profitable business for themselves, and a means of getting access to a functional computer. The sanchalaks receive a commission for every transaction processed through the e-Choupal and also benefit from increased social status that accompanies the positiona significant advantage in rural Indian life. ITC insists that sanchalaks should not give up farming, for this would compromise the trust that they command. To help ensure that sanchalaks serve their communities and not just themselves, ITC projects the role as a public office: hence the title sanchalak, and a public oathtaking ceremony where the sanchalak takes an oath to serve the farming community through the e-Choupal. Successful sanchalaks usually have a number of common characteristics, including risk-taking ability and the willingness to try something new, ambition, and the aspiration of earning additional income through the e-Choupal. Sanchalaks undergo training at the nearest ITC plant. They receive education on basic computer usage, the functions of the e-Choupal Web site, basic business skills, as well as quality inspection of crops. For the sale of products through e-Choupal, the sanchalaks receive product training directly from the manufacturer with ITC involving itself only in product design and facilitation. Nonetheless, their role requires considerable entrepreneurial initiative and entails some operational costs, between US$60 and US$160 per year, for electricity and phone-line charges; the latter of which are gradually declining as ITC replaces phone-based Internet connections with a VSAT system.

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Selecting and training the sanchalaks is just the first step. Most do not have retail experience and may lack motivation to actively promote ITC products. ITC employs a variety of motivation techniques to encourage sales. One technique is to hold a ceremony where sanchalaks are presented with their annual commission checks and public announcements of earnings are made. Stories how sanchalaks spent past commissions serve to demonstrate the income potential and spur nonperformers to work. The zeal to perform sometimes leads to territorial disputes, but ITC does not interfere in their resolution because it encourages sanchalaks to better serve their customer-base. A secondary, but still important, role is played by the samyojaks, or cooperating commission agents. Samyojaks earn income from ITC by providing logistical services that substitute for the lack of rural infrastructure, by providing information and market signals on trading transactions to the e-Choupal system. In effect, ITC uses agents as providers of essential services, not as principals in a trading transaction. They play an especially important role in the initial stages of setting up the e-Choupals, because they know which farmers grow soya, what kind of families they have, what their financial situation is, and who is seen as acceptable in the villages and might thus make a good sanchalak. ITC is strongly committed to involving samyojaks in the on-going operation of the e-Choupal system, allowing them revenue streams through providing services such as management of cash, bagging and labor in remote ITC procurement hubs, handling of mandi paperwork for ITC

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procurement, and as licensed principals for the retail transactions of the e-Choupal. Since the e-Choupal system by-passes the agent-controlled mandis and has considerably reduced commission income, why do agents agree to cooperate with ITC? First, the company has made it clear that they will continue to buy produce through the mandis. Second, the company offers significant commissions for samyojak services. Finally, the agents are fragmented and fear that if they do not agree to work with ITC, another agent will gain the promised e-Choupal revenues. One samyojak reported that he saw globalization as an irresistible trend, and although he saw loss of revenue in the short-term, his long-term interest lay in cooperating with an international company. The E-Choupal System The re-engineered supply chain looks very different from the existing system and has the following stages:

Pricing

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The previous days mandi closing price is used to determine the benchmark Fair Average Quality (FAQ) price at the e-Choupal. The benchmark price is static for a given day. This information and the previous day mandi prices are communicated to the sanchalak through the e-Choupal portal. The commission agents at the mandi are responsible for entering daily mandi prices into the e-Choupal. If and when the Internet connection fails, the sanchalak calls an ITC field representative. Inspection and Grading To initiate a sale, the farmer brings a sample of his produce to the e-Choupal. The sanchalak inspects the produce and based on his assessment of the quality makes appropriate deductions (if any) to the benchmark price and gives the farmer a conditional quote. The sanchalak performs the quality tests in the farmers presence and must justify any deductions to the farmer. The benchmark price represents the upper limit on the price a sanchalak can quote. These simple checks and balances ensure transparency in a process where quality testing and pricing happen at multiple levels. If the farmer chooses to sell his soy to ITC, the sanchalak gives him a note capturing his name, his village, particulars about the quality tests (foreign matter and moisture content), approximate quantity and conditional price. Weighing and Payment

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The farmer takes the note from the sanchalak and proceeds with his crop to the nearest ITC procurement hub, ITCs point for collection of produce and distribution of inputs sold into rural areas. Some procurement hubs are simply ITCs factories that also act as collection points. Others are purely warehousing operations. ITCs goal is to have a processing center within a 30 - 40 kilometer radius of each farmer. There are currently 16 hubs, but there will eventually be 35 in the state of Madhya Pradesh. At the ITC procurement hub, a sample of the farmers produce is taken and set aside for laboratory tests. A chemist visually inspects the soybean and verifies the assessment of the sanchalak. It is important to note that this is the only test assessment before the sale. Laboratory testing of the sample for oil content is performed after the sale and does not alter the price. The reason for this is that farmers, having historically been exploited, are not immediately willing to trust a laboratory test. Therefore pricing is based solely upon tests that can by understood by the farmer. The farmer accepts foreign matter deductions for the presence of stones or hay, based upon the visual comparison of his produce with his neighbors. He will accept moisture content deductions based upon the comparative softness of his produce when he bites it. ITC is working to change farmer attitudes towards laboratory testing. It is developing an appreciation of better quality by using the subsequent lab tests to reward farmers with bonus points if their quality exceeds the norm. At the end of the year, farmers can redeem their
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accumulated bonus points through thee-Choupal for farm inputs, or contributions toward insurance premiums.

Hub Logistics After the inspection and weighing are complete, the farmer then 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 a copy of lab reports, agreed rates, and receipts for his records. Samyojaks, who are adept at handling large amounts of cash, are entrusted with the responsibility of payment, except at procurement centers near large ITC operations where ITC is handles cash disbursement. Samyojaks also handle much of the procurement hub logistics, including labor management at the hub, bagging (if necessary), storage management, transportation from the hub to processing factories, and handling mandi paperwork for the crops procured at the hub. For his services in the procurement process, the samyojak is paid a 0.5% commission.

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E-Choupal as a Marketing Channel ITCs vision for marketing via the e-Choupal involved three features: superior product and distinctive functional benefits, process benefits (simplified transactions between buyer and seller), and relationship benefits (farmers willingness to identify themselves and reveal their purchasing behavior). ITC had conceived ideas for various input items that could be developed for new business given this framework. The company believed that these products could be made available to farmers through the EChoupal, thus increasing the value of the farmers product as well as generating additional revenue for ITC. Deveshwar called this philosophy a commitment beyond the market. Fertilizers Farmers spent an average of Rs. 26,000 crore ($5.7billion) annually on urea, diammonium phosphate (DAP), and muriad of potash (MOP). Still, farmers could not easily access the fertilizers they needed. 35% of DAP and 100% of MOP was imported. Logistics had proved to be complicated for most companies. They were unable to access many rural markets because of fragmented, or nonexistent, distribution channels.

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Agrichemicals Farmers also spent Rs. 3,500 crore ($774.5million)/year on insecticides, herbicides, and fungicides. The agrichemical market was highly fragmented and consolidated by multinational corporations such as Dupont, Novartis, and Cyanamid. New chemicals were introduced frequently; however their life cycles in the market were only 2 or 3 years. Given the short product cycle, big companies needed immediate market access. Farmers, too, suffered when they could not access these products. High costs of labor, for example, hurt soy and wheat farmers whose fields could have been covered with herbicides, instead of weeding workers, at a lower cost. Seeds This was a relatively small, fragmented market of Rs. 3,000 crore ($663.9million)/year, but only 4% of farms used commercial seed. Government-promoted Seed Corporations made different types of seeds available though cooperatives and large multinational companies had entered the market with better quality material. Still, there were lead times of up to 3 years to make seed varieties available to rural farmers. Insurance Currently, Indians were collectively paying Rs. 50,000 crore ($11million) in yearly life insurance premiums, and that market was
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expected to reach Rs. 150,000 crore ($33billion) by 201019. Life Insurance Corporation (LIC) was a government-run insurance provider that had already taken a shine to rural markets. Even in the relatively poor states of West Bengal and Bihar, 6 million rural farmers had taken out policies. In 2000, private insurance companies were allowed to enter the market, and, as a result, at least 12 new companies were seeking to expand their business into rural India to compete with LIC. By 2004, rural business comprised 16% of LICs portfolio, but only 9% of private companies portfolios. These markets were largely untapped because of a lack of trustworthy intermediaries. ITC believed that it could create a relationship of trust and help farmers understand the rules and benefits of insurance plans. Eventually, ITC envisioned Sanchalaks being able to offer the eChoupal infrastructure to LIC agents for a fee or to set up its own insurance brokerage company. An opportunity also existed for other types of insurance policies, covering fire, marine, motor, and workmens compensation. Insurers, however, had been biased towards larger accounts, leaving less prosperous farmers unable to participate. Insurers lacked quality data on risks and parameters of farm life and were hesitant to insure rural customers. With ITC as a liaison, however, data on rural farmers could be delivered to insurance companies, thus demystifying and uncovering the rural market.

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Credit A national survey in 2001 had shown that Indians were saving about 30% of their annual income, though not through financial institutions. Both private and public sector banks lacked a customerfriendly approach and were often avoided by rural farmers. One of the main reasons that farmers avoided saving through banks was that they were often linked to a loan20. If a farmer had savings in the same bank he had borrowed from, the bank could demand that he use those savings to pay back the loan. ITC believed that a system of trust engendered through the Sanchalak would facilitate financial transactions. It could channel rural farmers into the mutual fund arena and earn a commission from banks on farmers investments, using the technology introduced in the eChoupal. Choupal discussions would create data on likelihood to invest, and the results would be stored in a data warehouse for future campaigns. Farmers low income and difficulty in accessing credit severely limits their capacity to pursue opportunities within and outside the agriculture sector. Access to credit has long been considered a major poverty alleviation strategy in India. Demand for rural credit is estimated at US$31.6 billion (Rs 1.43 trillion). The Indian government has implemented a number of subsidized credit-related programs. Among such programs, the Integrated Rural Development Program (IRDP), started in 1978, was a major national rural poverty alleviation program
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with a large credit component. Under the IRDP, nearly 53 million families were assisted with bank credit of US$684 million (Rs. 31 billion) and subsidy of US$231 million (Rs. 10.5 billion). But its impact had not matched the resources expended. The loans were not tailored to meet individual needs and it lacked the support systems necessary to help farmers. Many financial institutions are hesitant to serve rural India due to lack of credit history, high delivery, transaction, and administration costs, and a perception of high risk that leads to high borrowing costs imposed on farmers. ITC proposes to address these problems through e-Choupals and partnerships with financial institutions to capture needed information and offer new products:

Capturing Credit History. Farmers in rural India borrow

money from local moneylenders, through government incentives, friends, relatives, or traders. Local moneylenders and intermediates are aware of farmers creditworthiness and are therefore willing to loan money, albeit at a high interest rate. Through e-Choupal, ITC now has the capability to manage credit risk through its sanchalak network which can be used not only to verify creditworthiness of individual farmers but also to continuously monitor credit risk. ITC will be able to create a consolidated farmers database with information pertaining to their holdings and transactions that can be used as a source of credit report profiles.

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Transaction and Administration Costs. For major

financial institutions, transaction costs involved in servicing the rural market have been high because of the difficulty in reaching the market. E-Choupal can help overcome this problem by leveraging the IT infrastructure and the sanchalak network, thereby lowering administrative costs. ITC plans to partner with larger bank such as ICICI to design products for rural India. Some of the products being designed include: Non-cash loans for farm inputs. Instead of giving cash to the farmer directly, the financial institutions will purchase farm inputs on behalf of the farmer. Farmers are expected to pay back loans for the purchase price to the financial institution. Loans to sanchalaks. Instead of giving loans directly to farmers, loans will be given to sanchalaks who, in turn, will loan money to farmers. Sanchalak can manage credit risk better than financial institution because they have better access to the farmer, and therefore more accurate information. Direct loans to farmers based on sanchalak recommendations. In this case, sanchalaks commissions are based on the loan recovery and therefore the have incentive to monitor the risk on a continuous basis. Insurance and Risk Management Services. Insurance products have been designed to deal with rural cash-cycles. There is recognition that in bad years, farmers may not be able to pay the insurance premium.
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Rather than penalize the farmer when his policy, ITC allows for catch-up payments in later years or, as an alternative, the reduction of the final payout. ITC uses the e-Choupal Web infrastructure to set up and issue electronic reminders for premium payments. This addresses a major weakness of the current insurance system. The agents currently selling insurance have little incentive to encourage renewals and the lapse rate among policy is high. A system of interlocking instruments has been set up so that insurance premiums can be credited with quality bonus points from the farmers soy sale. The sanchalak is assisted in making the sales pitch by informational Web-casts and video presentations. Advantages of e-Choupal to the Farmer Prior to the introduction of e-Choupal, farmers access to agricultural information was incomplete or inconsistent. The only sources of information were word of mouth within the village and the commission agent. E-Choupal allows farmers daily access to prices at several nearby mandis. Some e-Choupal sanchalaks have taken this a level further by accessing external pricing sources such as prices on the Chicago Board of Trade, in order to track global trends and determine the optimum timing of sales. Moreover, through e-Choupal, farmers have access to prices and make the critical decision of when and where to sell his crop. Both factors work together to provide the farmers a better price for their crops.

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Under ITCs system, farmers no longer bear the cost of transporting their crops to the mandi and are instead reimbursed for transport to the procurement hub. The transaction at the hub is also much faster than at the mandi, usually taking no more than two or three hours. The electronic weighing scales are accurate and not susceptible to sleight of hand like the manual weighing system at the mandi. The system also does not require produce to be bagged, which avoids the associated loss of produce by intentional spillage. Thus the e-Choupal system has logistical and transaction efficiencies. Bottom line for the farmer Higher Incomes through Increased Yields Improved Quality Reduced Transaction Costs

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Transaction cost under mandi and E Choupal System

In the mandi system, there was a mark up of 7-8% on the price of soybean from the farm gate to the factory gate. Of this mark up, 2.5% was borne by the farmer while 5% was borne by ITC. With e-Choupal, ITCs costs are now down to 2.5%. Figure 4 shows transaction costs incurred by the farmer and ITC per metric ton of soy procured in the mandi and e-Choupal. In absolute numbers, both the farmers and ITC save about US$6 (Rs 270) per metric ton.
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Role of e-Choupal in Rural Marketing

Infrastructural Development Characteristics of the Operating Environment Understanding the constraints imposed by the physical and social environment in e-Choupals operate is necessary to provide the context for understanding the system design. Overcoming Power Constraints Power availability in rural India is unreliable and the quality of power is sub-standard. As power is usually available for only a few hours a day and at on a sporadic schedule, the e-Choupal computer cannot always be accessed when information is needed. Access to information in a timely manner is critical to the success of the business model. ITC has overcome the problem of local power supply by providing a batterybased UPS (uninterrupted power supply) backup. With the reliability of a battery backup, the sanchalak can use the system at least twice a day in the morning to check the prevailing mandi prices, and again in the evening to check the rate ITC is offering the next day. While the battery backup addresses the power supply issue, insufficient line power during the day poses the challenge of not having enough power to charge the backup battery. This has caused ITC to explore other power sources and ultimately ITC decided to use solar battery chargers. One full day of

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sunlight is enough to charge the battery for 70 to 80 minutes of computer usage. The second problem with power is quality. Voltage fluctuations are endemic. The UPS unit is the most affected component. As a result of the erratic power supply, fuses are susceptible to being blown. To overcome this problem, ITC plans to install specially designed UPS units that remain effective between 90V and 300V. In order to control voltage spikes, they have introduced spike suppressors and filters. Phase imbalances, which lead to damage of equipment, have been addressed through the use of isolation transformers to correct neutral voltages. Transportation Most e-Choupal villages lack proper roads, limiting vehicle access. As such, public transportation access to many of the villages is infrequent. Some villages are served only once or twice a day by rural taxis. The population relies on two-wheeled bicycles and motorbikes and bullock carts as the main means of transportation. Moving equipment into and out of the villages is not an easy task. Providing system support and maintenance requires the technician to travel from outside areas to visit the e-Choupal. For these, and other reasons ITC initially placed eChoupals in villages that are within a ten to fifteen kilometer radius of a city.

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Telecom Infrastructure Telecommunication infrastructure in villages is poor. Telephone exchanges are subject to sporadic power supply and have limited battery backup. When power is lost, phones cease to function. In addition, there is no local support staff to maintain or troubleshoot telephone exchanges. The support team at the main exchange typically is responsible for eight to ten villages and is short-staffed. The turn-around time for fixing problems is often measured in days, not hours. Overhead telephone lines are exposed to the elements and run alongside high voltage power lines which can cause transmission quality problems. Currently, village telecommunication infrastructure is designed to carry voice traffic only and transmission speed is so slow that it renders Internet access impractical. Customer Base Before the arrival of e-Choupal, most villagers had never seen a computer. ITC realized the importance of appropriate user interfaces. They organized meetings and focus groups of farmers to gather information about potential user groups. The main focus of these meetings was to determine what information farmers wanted to see, how the information would need to be presented (graphics or text), and how often each page would need to be refreshed. The feedback that was
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collected from these focus groups was used in the design of the functionality and user interface of the application. System Specification The IT infrastructure can be comprehensively understood in the four layers E-Choupal System Technology Specification

1. Organization Architecture Training, support, planning, people, and processes 2. Information Architecture Data gathered and managed

3. Application Architecture Applications, goals, resources occupied, performance metrics

4. Technical Architecture Servers, Clients, Network, System Software

The four layers are distinct but deeply interconnected and share goals and constrains.

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Organizational Architecture Training Training the sanchalaks to use a computer effectively is deemed vital to the success of E-Choupal. Sanchalaks function as the human interface of the e-Choupals and therefore must be able to both operate the computer and access the information requested by farmers. The computer installed in the e-Choupals is usually the first computer in most villages. Immediately after sanchalaks are recruited, they are invited to the nearest ITC plant for a day-long training program. The majority of this training is centered around getting the sanchalaks comfortable with the equipment. This first phase of training is comprised of the following: The fundamentals: What is a computer? What is its purpose and practical applications? Basic equipment training: Turning the computer on and off, using the mouse, keyboard, printer etc. Software training: Word processing: How to use Ankur How to type in Hindi How to open, close, and save files

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Web Browsing: How to use a Web browser and find information on the Internet. E-Choupal Applications: How to use the soya choupal Web site. What information is available on the Web site and how can it be accessed?

At the time of installation, a coordinator usually accompanies the vendor who installs the system. The sanchalak is given some of the same basic training by the vendor. ITC then leaves allows the sanchalak to experiment with the computer for about a week. During this time, typically the younger members of his family also get to use the computer. ITC has observed that children are quick learners and are eager to learn more. After the first week, the sanchalaks are invited to the hub or the plant for the second phase of training. In order to gauge their level of comfort, they are asked to operate the computer. Based on observation, customized training is then provided to raise each users comfort and competency level. Sanchalaks may also bring their children or other members of the family that are interested in learning about the computer. During this phase sanchalaks are trained use the e-Choupal Web site and to access information from the site. Sanchalaks are given the opportunity to voice their concerns and ask questions during training.

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Sanchalaks are generally enthusiastic about learning the computer skills required to carry out their work. The Social Impact of e-Choupal A major impact of the e-Choupal system comes from bridging the information and service gap of rural India. Agricultural research centers (such as the Indian Council for Agricultural Research), universities, and other agencies in India have developed several practices and technologies to improve productivity and crop quality. The impediment to implementation has been affordable, large-scale dissemination of this knowledge. The e-Choupal system leverages technology that can reach a wide audience literally at the click of a mouse. The constant presence of sanchalaks, who themselves are farmers who apply these techniques, ensures that the practices actually make their way from the Web site to the field. A second major area of impact stems from the ability of the eChoupal system to open a window on the world and thus impact the future of the villages in which they operate. Computers are bringing the same resources to villages as they brought to urban India, and their impact is no less dramatic. This, coupled with higher incomes and changes in farmers attitudes, is causing several shifts in the social fabric of village life. Some accounts from villages include:
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Children are using computers for schoolwork and games. A particularly poignant story is that of Khasrod, where 2,000 local students used the local e-Choupal to print their grade sheets, saving them days of waiting and travel time. Sanchalaks use the Internet to chat extensively among themselves about the status of operations and agriculture in their villages. Villagers access global resources to learn about agriculture in other parts of the world and are taking action to compete in the world outside, not merely in the local mandi. Youngsters in the village use computers to research the latest movies, cell-phone models, and cricket news. Impact on other agricultural produce The concept of e-choupal is applicable to any agricultural & allied activity in rural India. The basic character of agriculture is the same across India, but value chains of different crops have their own intricate dynamics. So are the socio economic characteristics of different regions. These complexities must be factored in, while making e-choupal operational. Consequently the supply chain efficiencies/revenue models vary across commodities & geographies. ITC has identified e-choupal as its major corporate initiative and making substantial investments.

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Apart from original utility of e-choupal for procurement of farm produce it is gradually tested for effectiveness into distribution of range of goods and services those rural communities. This business model has opened up an entirely new and more effective channel for distribution and marketing of a range of goods & services into rural India. eChoupal is also being tested marketed for new services these include selling home appliances, consumer goods etc apart from farm inputs like pesticides, seeds and fertilizers. It would not only facilitate consumer and insurance companys entry into unexplored and complex Indian rural markets but also simultaneously improve the living standard of people. Sanchalak or an intermediary from the village would take orders from the farmers and villagers for all the above-mentioned items. He would aggregate the orders into a big order and this order would directly be placed through network with the manufacturer of goods or services. All the products and services would directly deliver to the village. Observing the success of e-choupal and its huge potential for setting up a electronic market, several other players are also contemplating building portals and setting up of kiosks and operating echoupal kind of business model. Ruchi, the largest player in soyabean exports, has made a beginning with 15 villages. The Tata group too has stepped in with its own plans and that too with dual foray, one by the Tata Chemicals the other by Rallis India. Both these Tata group companies have their own set of Kisan Kendras, which total to around 200-plus across various villages. Tata Kisan Kendras (TKK) set up earlier, have roped in the National Remote Sensing Agency (NRSA) for
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using its satellite imagery service, to be known as precision farming. The service combines the use of information technology along with satellite mapping techniques to advice farms to adopt farming practices that maximizes agricultural yields. NRSA will supply to the TKK satellite images for soil patterns and crop distribution while the TKKs will in turn interpret the data and superimpose it on the digitized image of the village maps. Tata group has also taken up farm management services at Chitradurga in Karnataka to support pomegranate growers and according sources, plans are in the pipeline to undertake contract farming for fruits and vegetables in Andhra Pradesh, wheat in Madhya Pradesh and Basmati rice in the northern states.

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Chapter 3 Other Initiatives by ITC


ITCs has won many prestigious awards for its e-choupal initiative that enhanced its international competitiveness of the smallest Indian farmer by giving him ready access to expert knowledge through a unique click model. This success has compelled ITC to undertake the following initiatives post e-choupal. Rural Malls Call it the second wave of Indias retail revolution. While retail giants and mall operators are sweating it out to gain a foothold in B and C class towns, Indias first rural hypermarket has silently opened its doors in October 2004. Courtesy, the tobacco to hospitality giant ITC. The latter calls this the second layer of its e-Choupal initiative. ITC has launched the first rural mall-Choupal Sagar at Rafiqganj that is a little village about four kilometres from Sehore town in Madhya Pradesh. In continuation with its project e-Choupal, Choupal Sagar is the first rural mall in the country and stands on an eight-acre plot with a shopping area of 7,000 square feet. The farmers can buy soaps, detergents and toothpaste, almost everything they need for the family including TVs, DVD players, pressure cookers, room heaters, watches, sewing machines and grinders

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and, of course, cigarettes. Motorbikes or even tractors are also available. The company is marketing a new range of clothings and shoes too for the rural customers. And the plans are very ambitious. The daily sale is already between Rs 70,000 to 80,000. Choupal Sagar is a bit different from city malls. What had started four years ago as an experiment to use IT tools to enable farmers find the best price for their produce has now metamorphosed into this shopping idea. The scenario ITC foresees is something like this: post-harvest, the farmer, with his family, drives into Choupal Sagar in a tractor trolley laden with the grain he proposes to sell. He parks the tractor on the digital weighing bridge close to the entry point. His grain weighed, he drives on to the godown where the produce is unloaded and he gets his money. Meanwhile, his kids can enjoy the swings and video games and his wife may be going around the shopping mall mentally drawing up a shopping list. Cash in hand, the farmer family can then make its purchases and drive back by evening, with the tractor laden with the goodies. If they like, they can have a bite in the cafeteria. And the farmer may even carry fertilisers and pesticides for the next crop and get his tractor fuelled at the diesel pump. The main idea is to create one stop destination The villagers are delighted at the new shopping experience. But the key question will be whether they will show interest once the novelty factor wears out. "I will definitely come here with my family," says 65-

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year-old Kaluram from Piparia who has come just to "have a look." Sunil, 12, walks confidently to one of the racks where his favourite biscuits are stacked. Sunil is no city-bred kid; he lives in a small hamlet. If he is not overawed by the sprawling mall, it is because he is a regular visitor. "I come here practically everyday while on my way back from school," he says. The shopping area is only a part of the vast Choupal Sagar. At the back of the mall is a godown where ten thousand tonnes of grain can be stored. Then, the entertainment area with video games and swings. A diesel pump, a cafeteria and a soil-testing laboratory are also coming up and so is a sale point for fertilizers, pesticides and other agro-inputs. A bank, an insurance company office and a training centre for farmers will complete the set-up. If he needs to, the farmer can consult a doctor who will be available on the premises. According to ITC, the Choupal Sagar is the logical culmination of the e-choupal scheme launched by the company in Madhya Pradesh. These e-choupal were small units set up to help farmers. Typically, each unit has a Rs 2 lakh infrastructure including a computer, a ups and a telephone line for logging on to the internet. A room in the house of a medium-level farmer usually served as the e-choupal. The sanchalak as this farmer would be designated provides free information to the others about the prices and demand for agriculture produce in different mandis.The sanchalaks got a commission when a farmer sold his produce to ITC.

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The experiment started with four e-choupals. Presently there are 1,700 units in 26 districts. It is the success of these farmer-run centres that made ITC think about launching the Sagar Choupal which would serve as an organised retail outlet. According to ITC, fast moving consumer goods and white goods manufacturers are keen to tap the fast prospering rural markets. If the Choupal Sagar set up at a princely cost of Rs 4.5 crore succeeds, then ITC has plans to set up five rural malls in Madhya Pradesh by next March. But the proof will be in the volume of sales. In the metros many malls are doing slack business with more window-shoppers than buyers. Will the rural populace of Sehore be any different? Expectedly, ITC now plans to open about 50 such stores, spread across rural Madhya Pradesh and Uttar Pradesh over the next 12 months. Investments will hover in the range of Rs 2-4 crore for each such store. The person managing the mall at Sehore is the samyojak (coordinator). He is a traditional middleman who is the buyer in the mandi. He was earlier a principal to transactions... he used to buy from someone and sell to somebody else, and his profit was made out of blocking information and market signals about the price of the farmer's produce. Even though the farmer can now get that information at the echoupal, these middlemen play a very critical role in an economy like ours where infrastructure is limited." The samyojak at the Sagar is in charge of storage, transportation and other logistics, and management of bridge financing. "He pays first

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and later collects the money from us in the evening. While we have invested Rs 4 crore in setting up the mall, he invests the working capital of about Rs 2 crore." If the Indian farmer is not happy with the price he gets and the Indian consumer is not happy about the price he pays for his food grains or vegetables, it is because the middlemen have traditionally made huge profits. The ITC's mall model tries to absorb this trader who can provide critical services at low cost. Earlier ITC would buy from him at a price; but now that it buys directly from the farmer for its agri-business ventures, "they are told to provide the following services efficiently and collect a fee. So from being a principal he's become a service provider. This is a more sustainable job for him because this way his skill and resources are used better, even though his commission is reduced. But his fee will get larger because he is now involved in the selling of consumer goods, household provisions, etc. Moreover, earlier his staff found work for only four months in a year when the crop gets harvested; now he has an opportunity to deploy them round the year. ITC should also consider , bringing in more products in the personal care segment, and also be open to setting up multi-brand outlets and hypermalls in the urban areas to generate more revenue and reinvest in Choupal Sagars. With prosperity coming to the rural areas, these malls may become a great success and may change the rural areas significantly and will go a

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long way in meet the requirement of PURA. The mall may be used by other manufacturers too to market their produce in rural areas. The idea needs a close watch and the government should be wise enough to support the entrepreneurs. Womens Empowerment - Home Makers to income builders ITC believes that economic empowerment of women transforms them into powerful agents of social change. The need of the hour is to diversify rural livelihoods. Towards this end, ITC has forged an empowering partnership with rural women the most effective development workers. ITCs intervention leverages microcredit and skills training to generate alternate employment opportunities. Increased income in the hands of rural women means better nutrition, health care and education for their children. Working with NGOs, ITC has organised village women into micro-credit groups. Group members make monthly contributions to create a savings corpus. The corpus is used to extend soft loans to group members, thereby eliminating the stranglehold of the moneylender. The system of mandatory contribution further strengthens the savings habit, leading to capital augmentation. ITC provides training to group members to handle bank accounts and understand the nuances of government development programmes. Empowered groups function autonomously and take their own decisions, including sanction of loans to fellow-members and collection of

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repayments. Well-managed micro-credit groups with no default records receive further support from ITC in the form of seed money for self employment activities. Venture funds provided by ITC have already spawned hundreds of women entrepreneurs. Their earnings, ranging from Rs 70 to Rs 150 per day, not only supplement household incomes but also significantly enhance their self-esteem. ITC also conducts skills training to enhance employability. Picklemaking, fish-processing, vermicomposting, spice processing and agarbatti-rolling in rural areas and chikankari, garment-sewing, driving and computer-aided secretarial training in semi-urban areas are some of the examples. ITC goes a step further to help find employment for these trained women in areas related to its operations. This programme is helping women across Andhra Pradesh, Karnataka, Madhya Pradesh, Uttar Pradesh and Bihar. Livestock Development - Enhancing Dairy Productivity To significantly enhance the milk yield, ITC is assisting farmers to cross-breed their low milk-yielding cattle with high-yielding breeds. India has the largest cattle population in the world. Almost every rural household in India, whether landed or landless, owns livestock. However, average milk yield at 300 kg per lactation is abysmally low due to severe genetic erosion and fodder scarcity.
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Dairy farming requires low investment and has the potential to create attractive livelihood opportunities for the economically challenged sections of rural India, provided livestock can be genetically upgraded through systematic and scientific animal husbandry. In a concerted endeavour to increase milk yield, ITC is spearheading a Livestock Development programme in Bihar, Uttar Pradesh and Madhya Pradesh. In collaboration with BAIF Development Research Foundation, a national NGO specialising in livestock development, ITC assists small and landless farmers to cross-breed their low milk-yielding cattle with high-yielding breeds like Jersey and Holstein-Friesian. The Company provides a basket of services at the farmer's doorstep to facilitate cross-breeding. The range of services that ITC offers includes:

Artificial Insemination (AI), using high quality frozen semen from BAIF's state-of-the-art production centre in Pune Regular follow-up like investigation of diseases, vaccination and nutritional advice Pre and post-natal care for artificially inseminated cattle and the progeny ITC trains diploma and degree holders in agriculture and animal science to become Artificial Insemination technicians to enhance livestock management skills in rural areas. The technicians provide service to the farmers right at their doorstep. ITC also promotes low-cost

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"complete feed," helping reduce the pressure on invaluable forest resources and pastures. Cross-bred cattle yield about 2100-2700 kg of milk per lactation, as compared to the current level of 300 kgs. ITC's Livestock Development programme is reaching out every year, to 12,000 farmers in 600 villages, inseminating 15,000 cattle through 30 Insemination Centres. The programme has a resultant beneficial impact on the ecosystem as well. Improved cattle feed significantly boosts dung production, thereby producing much more farm manure and biogas. Even small farmers are consequently able to install biogas plants, reducing their dependence on fuel wood, thereby conserving precious forests. Primary Education -Dropouts to self reliant citizens ITC provides poor children the greatest asset that they can aspire to education for a brighter future. Nobel Laureate Amartya Sen has pointed out that the opportunities promised by market-based reforms are critically circumscribed in a nation where large numbers cannot read or write or count. ITC's education support programmes are aimed at overcoming the lack of opportunities available to the poor. ITC believes that the extensive network of government-supported schools must be made more

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Role of e-Choupal in Rural Marketing

attractive to children. It provides critical support to state-run schools to maximise enrolment and minimise dropouts. Its initiatives include improving school buildings, constructing toilets, providing electricity connections and supplying fans and lights. ITC provides students with uniforms, satchels and books. So far, 10,000 children have benefited in 5 states.

ITC has financed the establishment of Supplementary Learning Centres to help poor students cope with their lessons and improve their scholastic abilities, thereby preventing dropouts. This scheme also benefits educated local youth who serve as tutors at these centres. ITCsponsored NGOs also conduct teacher training programmes to raise the standard of teaching in government-run primary schools. ITC helps NGOs to organise summer camps, sports and other extra-curricular activities as part of the overall development inputs for children.

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Conclusion
The e-Choupal model shows that a large corporation can combine a social mission and an ambitious commercial venture; that it can play a major role in rationalizing markets and increasing the efficiency of an agricultural system, and do so in ways that benefit farmers and rural communities as well as company shareholders. ITCs example also shows the key role of information technologyin this case provided and maintained by a corporation, but used by local farmersin helping to bring about 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 ITCs extensive knowledge of agriculture, the effort ITC has made to retain many aspects of the existing production system, including retaining the integral importance of local partners, the companys commitment to transparency, and the respect and fairness with which both farmers and local partners are treated.

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E-Choupal has been most successful initiative to wire rural India and to involve the farmers in learning. ITC has envisaged on various plans to replicate the success achieved to other states and expand the services offered to other commodities like spices. ITC has also identified e-Choupal as an important driver for exports, which are targeted at $ 400 million by 2005. E-Choupal has also attracted attention from the renowned academicians, since e-Choupal has managed to innovate the supply-chain, and model applied by ITC has enough potential to be replicated in the under-developed and developing countries. ITC has been successful in making the farmer feel the sense of ownership and enthuse him to generate additional revenue by eliminating middleman. ITC through e-Choupal has bought various accolades such as Golden Star Trading House for showing impressive track record in exports of agricultural commodities. Participating farmers have been able to enhance their income and eliminate the delay in getting the payment once the product is sold. It has helped in reducing debt burden of the farmers. The success of e-Choupal has given new lessons to the corporates in the India and abroad. The gains from the novel initiative are manifold to ITC, the farmers and other companies. E-Choupal has helped the farmers to improve their productivity and get better prices, whereas ITC has benefited by better sourcing of raw materials and building a backbone to market the end products which is vital for the FMCG companies like ITC.
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Study of e-choupal helps in identifying the factors that contributed to the success of the ICT platform in many states: E-choupal has been one of the best ICT application platforms that has been scaled replicated and sustained. This is due to the fact that it was specifically designed for that specific business. The Sanchalaks are selected carefully and they have been able to work as nonpartisan coordinators. Sanchalaks have been able to induce the feeling of involvement. This participative style helped ICT to build trust at the local level. 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.

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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 many inputs provides for economies of scope. In spite of the success, it must be noted that, not everyone has benefited from the introduction of e-choupals. Indeed, lost income and jobs is directly connected to the overall increase in efficiency in the echoupal system. Some of the players in the mandi system have suffered loss of revenue. They include: Commission agents Mandi laborers Bazaars near the mandi E-choupal has been heralded as the attempt at making ICT platforms enhance the market access, by eliminating the use of middlemen. ITC had the vision to conceptualize and implement this procurement cum marketing platform. It is a low cost/multi business model operated by the farmer representative. It has been validated, scaled and sustained for many businesses by ITC. By embarking on this initiative, ITC has shown that ICT platforms can benefit even for the marginal farmers.

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Annexure

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E-choupal in News E-Choupal to touch more lives

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Role of e-Choupal in Rural Marketing

The Secunderabad-based International Business Division, the international trading arm of ITC Ltd., will be expanding its e-Choupals, the Internet-based rural initiative to improve the supply chain for commodities, for the aquaculture trade in Andhra Pradesh from the current 50, the chief executive of IBD, S. Sivakumar, said. IBD was also considering setting up more aquaculture laboratories in the State, where it currently has only one such lab, in Kakinada. "The e-Choupal for aquaculture is important because Andhra Pradesh and West Bengal, the other state where shrimp farming is done on an industrial scale, are major exporters of shrimp. The e-Choupals help shrimp farmers with trends and prices in the major markets in real time," Mr. Sivakumar said. Mr. Sivakumar said the company had the Rs 35 lakh Aqua Center, the laboratory for testing shrimp seed, to ensure that farmers could test the quality of their shrimp seeds. "We hope to start more such labs in Andhra Pradesh and possibly West Bengal, because this will help buyers from abroad keep a track of the quality of the seeds used, and from which farm the shrimp was exported. Traceability of the product will increase export margins," he said. Shrimp exports accounted for about Rs 80 crores of IBDs total revenues of Rs 1,200 crores in 2004-05, he said. "Shrimp export is a high-margin commodity if we do some value-addition like individual quick freezing and cooked shrimp. For other commodities like wheat the margin is about one per cent, in line with

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Role of e-Choupal in Rural Marketing

international trends," he said. IBD produces IQF and cooked shrimp at a unit it has leased in Visakhapatnam. "We expect to increase the quantum of shrimp exports in future," he said. IBD supplies the wheat for its parent company, ITCs, foods division, and other food companies. Mr. Sivakumar said IBD was planning to set up e-Choupals which won the Enterprise Business Transformation Award for Asia Pacific, instituted by Infosys Technologies and the Wharton School of the University of Pennsylvania in 2004 for the horticulture segment, beginning in Maharashtra. International Business Division expects a 15 per cent increase in its revenues in 2005-06.

Source The Asian Age Dated April 11 2005

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Role of e-Choupal in Rural Marketing

ITC sees 60 % rise in e-choupal turnover ITC Ltd.'s agri-business division expects revenue of 10 billion rupees through its e-choupal venture by fiscal 2005-06, up 66% from a year-ago, Rajnikant Rai, vice-president (operations), ITC Ltd., said. The company also plans to expand the reach of e-choupals and focus on more activities, he said. ITC's e-choupal initiative provides real time information to farmers to improve their decision making abilities thereby better aligning farm output with market demands securing better quality, productivity and improved price discovery. The initiative also helps to create a direct marketing channel, eliminating wasteful intermediation and multiple handling, thus reducing transaction costs and making logistics more efficient. Currently, ITC's e-choupals are operational in Karnataka, Andhra Pradesh, Madhya Pradesh, Uttar Pradesh, Rajasthan, and Maharashtra. "We plan to soon start operations in Haryana and Uttaranchal," Rai said. The company hopes to increase the number of e-choupals in the country to more than 6,000 by end of March from current 5,300. "Every choupal needs a minimum initial investment of 300,000 rupees.

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Role of e-Choupal in Rural Marketing

The Kolkata-based company is planning to use the entire money to set up a rural development fund, instead of taking back the Rs 350 crore According to rough estimates, the fund could earn interest in the range of Rs 15 crore to Rs 18 crore, which will be used by ITC to finance its rural development projects like e-Choupal, wasteland development and afforestation of wastelands. Considered to be pet projects of ITC chairman YC Deveshwar, the rural development plans are now on the drawing board, even as the company awaits the refund of Rs 350 crore from the excise department. Earlier this month, the Supreme Court had ruled in favour of ITC in the case pertaining to alleged excise evasion to the tune of Rs 800 crore. The excise department is planning to file a review petition, but as of now, the department will have to refund the Rs 350 crore paid by ITC as deposit, unless the Supreme Court modifies its verdict . Apart from the e-Choupal project, which helps farmers access information from crop-specific websites created by ITC, the proposed rural development fund will also finance primary education in rural areas2

ITC sows seeds or hypermarkets in India


2

Source Business Standard Dated- November 15, 2009

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Role of e-Choupal in Rural Marketing

Call it the second wave of Indias retail revolution. While retail giants and mall operators are sweating it out to gain a foothold in B and C class towns, Indias first rural hypermarket has silently opened its doors. Courtesy, the tobacco to hospitality giant ITC. The latter calls this the second layer of its e-Choupal initiative. Spread over 5 acres of land at Sehore in Madhya Pradesh, ITC has softlaunched its first rural hypermarket about two weeks back. The initial response footfall of about 700-800 people on weekdays and soaring to 1,000 on weekends with conversion levels of 35%. Expectedly, ITC now plans to open about 50 such stores, spread across rural Madhya Pradesh and Uttar Pradesh over the next 12 months. Investments will hover in the range of Rs 2-4 crore for each such store. Features and facilities at these ITC malls can overshadow those in the metros. The ITC store sells everything that a rural consumer may ask for sarees to kurtapyjamas to shirts (in the range of Rs 99-500), footwear, groceries, electronic durable from TVs to microwaves, cosmetics and other accessories, farm consumption products like seeds, fertilisers, pumps, generators and even tractors, motorcycles and scooters There is even a fuel pump for which we have tied-up with BPCL and a cafeteria. There will be a primary healthcare facility to be serviced by a private healthcare service provider and banking facilities too. 3

Source- The Economic Times Dated- September 10,2005

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Role of e-Choupal in Rural Marketing

ITC to expand e-Choupals in 5 more Indian states

In an attempt to reach out to a wider target audience, Indian Tobacco Company (ITC) Ltd is extending its business model e-Choupal to another five Indian states including West Bengal, Himachal Pradesh, Punjab and Haryana in the current fiscal. At present, ITC Ltd has 5,150 e-Choupal telecentres covering 30,000 villages in Madhya Pradesh, Uttar Pradesh, Maharashtra and Rajasthan. It is also planning to extend its e-Choupal models to cover 1,00,000 villages across in the next two years and is looking at investing Rs 5 crore per 50e-Choupals.

ITC Ltd Agri business Chief Executive, S Sivakumar said that each eChoupal costs Rs 3 lakh. The company plans to set up Choupal Sagars, a multiple service centre for every cluster of 50 e-Choupals. He also said that they will be investing Rs 5 crore per each Choupal Sagar in the current fiscal. This multiple service centre will accommodate warehouses, retail stores, a fuel station, a training & health centre, he added. According to him, the companys field teams directly go to Indian villages to create awareness for its e-Choupals. With the help of audiovisuals, they show the mutual benefits of the project to villagers. After selecting a sanchalak in a particular village, they train him to run the Internet centre, he explained.4

Source - The Financial Express Dated May 4, 2005

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Role of e-Choupal in Rural Marketing

FDCF to promote rural insurance on e-Choupal

In a bid to provide integrated financial services to Indian farmers through e-choupals, ITC Limited has signed a contract with the Financial Deepening Challenge Fund (FDCF) to create awareness about insurance and provide best possible insurance services to farmers at their doorstep in the villages of Andhra Pradesh and Madhya Pradesh.

For this purpose, FDCF will provide grant of Rs 5.80 crore over a period of three years to enable ITC to reach out to and serve these farmers. The initiative would be pursued through ITC's associate company -- Megatop Insurance Services Limited (MISL).

ITC's e-choupal is the biggest IT intervention by any corporate in rural India. The e-choupal model is a value-driven mechanism where each participant derives benefits from his association. Similarly, FDCF is a pro-poor initiative with focus on commercial viability.

The FDCF is the UK Government's initiative aimed at developing publicprivate partnerships that benefit the poor. In July 2001 the DFID unveiled, for the first time in India, an initiative called the FDCF in Andhra Pradesh and Madhya Pradesh. This fund, with a corpus of 20 million, is working in 15 countries in South Asia and Africa.

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Role of e-Choupal in Rural Marketing

The project requires the creation of large-scale insurance awareness in the target markets, which will result in insurance penetration, creation of a network for direct marketing and the designing of customized products for future target segments.
5

Source The Times of India Dated January 11, 2005

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Role of e-Choupal in Rural Marketing

Bibliography
Magazines and Newspapers:

Business Standard- Dated 5/3/2002, The choupal as a meta market The Financial Express The Economic Times The Asian Age The Times of India Websites:

www.itcportal.com www.echoupal.com, www.digitaldividend.com www.worldisgreen.com


www.drishtikona.com/archives/rural_development/ www.smartmobs.com

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Role of e-Choupal in Rural Marketing

www.hindubusinessline.com- Project Symphony: ITC team inspired by Beethoven.

www.nytimes.com

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