ITC e-CHOUPAL:Taking Business to Farmers

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ITC-from tobacco to e-Choupal: The journey. Established in 1910 as the Imperial Tobacco Company. Started its trade in tobacco processing & products, especially cigarettes& is now capitalized at US $2 billion. For 90 years, ITC's Indian Leaf Tobacco Development Division has been working closely with farmers to grow quality cigarette tobacco The largest buyer, processor and exporter of cigarette tobaccos in India. Highly popular portfolio of brands includes India Kings, Gold Flake, Navy Cut, Scissors, Capstan, Berkeley and Bristol. In 1990, set up the International Business Division as an agro-trading company aiming to offer the world the best of Indias produce. By 1996, the effects of economic reforms opened up huge opportunities for horizontal & vertical expansion Entered gradually into Hotels (Fortune Hotels, Welcome Heritage, WelcomEnviron) ,paperboards & specialty papers (Barrier Poly coated, Cast coated &Graphic), packaging, FMCG (Bingo, Aashirvaad atta, John Players, Mangaldeep agarbattis etc are now household words) &in the Agri-business (Soya meal, Food grains - Rice (Basmati & Non Basmati), Wheat, Pulses, Coffee, Black Pepper, Edible Nuts ,Castor oil, Marine Products - Shrimps and Prawns, Processed Fruits - Mango, Papaya and Guava Products etc) E-choupals were initiated by the International Business Division as an alternate marketing & distribution channel for eliminating intermediaries & empowering rural farmers through an IT driven solution.

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About e-Choupal- Telling example of linking business purpose with a larger societal purpose Leverages the power of Internet to empower farmers Farmers can sell produce to ITC through e-Choupals at prevailing market rates Also serves as delivery channel for FMCG majors like HUL &Godrej &ITC itself, farm equipment suppliers &electronic consumer durables like Voltas Nodal information centers &provide credit & insurance services, education & healthcare services2/10/2013 3

Procurement channels prior to e-ChoupalThere were 3 main commercial processing channels before e-choupals were initiated Traders Mandis or government-mandated markets Producer run co-op societies In addition, small scale crushing plants called ghani existed for processing crops that farmers keep for personal consumption2/10/2013 4

Operations of the mandi distribution systemFARMER GHANI VILLAGE TRADER

WHOLESALER 20-80%

REGULATED MARKET (MANDIS) 15-75%

PRODUCER CO-OPS 3-5%

COMMISSION AGENT (KACHHA ADATIYA)

TRADER (PUKKA ADATIYA)

CO-OP MILL

PVT OIL MILLER

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The mandi operating process The Agricultural Products Marketing Act Mandis for more equitable grain distribution Mandi operations carried on by commission agents colloquially called adatiya Kachha adatiyapurchasing agents Pukka adatiya-finance trade as representatives of distant buyers2/10/2013

Stages in mandi operating process Logistics of grain transport, quality inspection, auction, bagging, weighing &payment Quality inspection is by sight-hence, unscientific Adatiyas place bids at auctions Payments are made-mostly partially to farmers

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Limitations of the mandi operating systemThe importance of the Choupal system lies in the drawbacks of the mandi operating framework: Lack of information about prices as prices are set locally at mandis Consequently farmers lose the opportunity for arbitrage Farmers needed to bear the cost of bagging & weighing Inspection procedures are unscientific Agents engage in collusion in establishing trade practices favorable to them but exploitative for farmers Farmers are paid, partially, the amount due &no interest is paid on the remainder Prices are determined at auctions due to which it is too late for farmers to approach other mandis Crops displayed in open air courtyards leading to damage& deterioration E-choupal strategy helped communicate directly with farmers &erased inefficiencies due to intermediation of agents-thereby achieving VERTICAL INTEGRATION2/10/2013 7

E-Choupal: an ITC initiative

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The e-Choupal complex-its functioning The re-engineered supply chain of the e-Choupal looks very different from the existing system. It has the following stages PRICING: The previous days mandi closing is used to determine the benchmark Fair Average Quality (FAQ) price at the e-Choupal that is static for the given day. INSPECTION&GRADING: The produce is inspected by the Sanchalak &decisions are made depending on its quality in the farmers presence. The deductions are explained &justified to them. WEIGHING &PAYMENT: At the ITC procurement hub, the produce is taken aside for laboratory tests where the assessment of the Sanchalak is verified HUB LOGISTICS : The farmer is paid in full &is duly reimbursed for transporting his crop to the procurement hub. Every stage is backed by proper documentation.

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The e-Choupal business model & supply chain The model is centered on a network of e-Choupals Information system equipped with a computer which has Internet facility A local farmer acts as a Sanchalak or coordinator who runs the village e-Choupal with help from his computer Samyojak or collaborator acts as the provider of logistical support &hence compensates for the inadequate rural infrastructure Most sanchalaks& samyojaks lack motivation to actively promote ITC products.2/10/2013 10

Financial services offered by echoupal Farmers low income &difficulty in accessing credit severely limits capacity to pursue opportunities Demand for rural credit estimated at US $ 31.6 billion (1.43 trillion INR) Financial institutions hesitant to serve rural farmers owing to lack of credit history &a high perception of risk associated with debt recovery ITC proposes to address these problems through the e-choupal framework &partnerships with financial institutions FINANCIAL & CREDIT SCHEMES NON CASH LOANS FOR FARM INPUTS LOANS TO SANCHALAKS

DIRECT LOANS TO FARMERS BASED ON SANCHALAKS RECOMMENDATIONS INSURANCE & RISK MANAGEMENT SERVICES11

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Training &system support to coordinatorsThe hardware &software systems used in the echoupal model needs people, processes &services to set up &run them. After recruitment, the sanchalaks are made to attend a day-long training programme at the nearest ITC plant for providing them with fundamental training in hardware &software (word processing, Web browsing & accessing the Choupal website) A weeks time is given for self-tried hands on experience. Customized training is provided for treating individual problems2/10/2013

After a month, a Training programme is conducted for troubleshooting common problems

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STRATEGIES FOR THE FUTURE: The future of e-Choupal is

perceived as bright &successful WAVE-I.

The soy e-Choupal is

Future strategies to be

WAVE-III: Builds the concept of traceability into the supply chain This is vital for perishables where traceability allows ITC to address food safety concerns WAVE IV: Creates institutions to fill voids WAVE V: Elaborates rural marketing &distribution strategies

implemented in 4 more phases

WAVE-II: The source of

value in this generation will be identity preservation through the chain

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e-Choupal: looking aheadStatistics Now 10 40,000 6,500 5yrs hence 15 1,00,000 20,000

The e-Choupal initiative is a revolutionary leap No. of states in the direction of bringing about rapid rural No. of villages empowerment in India Statistically, ITC No. of ehas also lofty Choupals ideals Farmers For the future of the affected initiative2/10/2013

40,00,000 100,00,00014

Compromises &sacrifices for the greater goodThough the social benefits from the e-choupal complex is myriad, far-reaching &overwhelming, certain segments of the society have had to make a few compromises for bringing success to this system. ADATIYAS- they have lower incomes on account of the introduction of e- Choupals, inspite of all attempts to compensate them MANDI LABORERS- ITC is seeking to employ the workers in the mandi who weighed &bagged the produce even under the modern structure of e-Choupal BAZAARS NEAR THE MALLS- when farmers sold produce in the mandi, they would make a variety of purchases at local bazaars. This revenue has now been diverted to shops near the ITC hubs SOME MANDI OPERATIONS- ITC still pays mandi tax for all crops procured through e-choupals but, it now pays the tax to the mandi nearest to the procurement center.

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ITC GAINS True cost of intermediation under the mandi system was between 2.5%- 3% of the total procurement cost whereas it falls somewhere around 0.5% under the choupal system. Direct re-imbursement costs to farmers estimated to be 50% of what ITC had to pay to commission agents for transport of grains to factory. A mark-up of 7%-8% existed in the mandi model on the price of the produce from the farm gate to the factory gate, out of which ITC had to bear 5%. This is down by 2.5% due to savings in cost of intermediation Removal of manipulation of quality &ability to directly educate &rewards quality in the customer base results in higher profits through higher yields Allows to develop long term customer-relationships with farmers

In absolute terms, both ITC & the farmers save about Rs.270 per metric ton.

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Cost per metric ton (in INR)COST CENTRES Commission FARMER ITC (mandi) (mandi) 0 100 ITC (e-Choupal) 50

Handling& Transit loss Labor costBagging& Weighing 2/10/2013 Transportation

5050 70 100

1070 75 250

085 0 10017

Farmer gainsBefore e-Choupal was introduced, farmers access to agricultural information was incomplete, the only sources being word of mouth within the village &the commission agents Under ITCs system, farmers no longer bear the cost of transporting their crops to the mandi. They are now reimbursed for transport to the procurement hubs Faster transactions at procurement hubs (usually within 2-3 days) ITCs electronic weighing scales are accurate &not susceptible to sleight of hand E-choupal is a professionally run operation where the farmer is treated with respect & treated as a customer

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Benefits to the society at large:: Weather : e-Choupal websites provides localized weather information at district level. Other sources that give out only aggregated state-level weather information. Agricultural best practices : scientific practices organized by crop type are available on the Choupal Website. Customized quality solutions : feedback on how to improve crop quality given to farmers based on lab testing.

Intelligent product deployment : ITCs full-service approach couples the input sale (pesticides, fertilizers etc) to the information on the Website with critical services like soil testing.2/10/2013 19

Changes in social fabric: courtesy e-ChoupalChildren are using computers for schoolwork &games Sanchalaks use Internet to chat among themselves about weather& status of agricultural operations Learn about agriculture in other parts of the world & access global resources Youngsters use Internet to research recent movies, cricket news &new cell phone models

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Challenges faced by e-choupal system across India As no.& power of sanchalaks increase, they tend to unionize &extract rents (unwarranted additional payments) Farmers aspirations have been revoked &expected standard are to be matched Competitors with financial muscle are serious threats2/10/2013

Scope &diversity of activities required of every operative &the needed speed of expansion create problems Almost 90%of the adult rural female population unfamiliar with computer technology

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ITC's e-Choupal has won numerous awards

United Nations Industrial Development Organization (UNIDO) Award 2008 at Cairo The Ashoka - Change makers Health For All Award 2006 for the Rural Health Services model for delivery of health services through the eChoupals. The Stockholm Challenge 2006. This award is for using information technology for the economic development of rural communities. Innovation for India Award 2006 for ITC e-Choupal in the Social Innovations category for business organizations The Development Gateway Award 2005 for the trailblazing e-Choupal initiative The 'Golden Peacock Global Award for Corporate Social Responsibility (CSR) in Emerging Economies for 2005'. The inaugural 'World Business Award', instituted jointly by the International Chamber of Commerce (ICC), the HRH Prince of Wales International Business Leaders Forum (IBLF) and the United Nations Development Programme (UNDP).22

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thank you

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