THERE’s every chance that you would miss his single-storied house-cum-office in Mendki village. Except for the nondescript 2’x1’ ft signboard placed above the entrance with a cryptic `Soya choupal, Mendki’ written on it, there’s little evidence of what’s inside. In fact, till the end of 2000, few of his neighbours knew about Yugalkishore’s latest endeavour. But now, at least 800-1,000 farmers in the village have joined Yugalkishore’s e-choupal community. And for ITC’s International Business Division (IBD), which began the initiative in June 2000, Mendki is one among 2,500-odd villages in Madhya Pradesh (MP) where a quiet digital revolution is reshaping the lives of farmers.

So has ITC jumped onto the Internet bandwagon too? Well, not exactly. ITC, which exports Rs700 crore worth of agricultural commodities (and hopes to increase this to Rs2,000 crore by 2005), has discovered a way to bypass the age-old mandi system and buy directly from farmers. Till the end of last year, it picked up almost Rs50 crore worth of soyabean crop from farmers in MP. In the next couple of years, it expects the offtake to pick up to about Rs150-200 crore. By buying directly from farmers, ITC derives two primary benefits. It can source produce of a far better quality. This commands a higher price in the international market. That’s because most farmers tend not to mix impurities the way a middleman would. Besides, by avoiding the intermediaries, ITC is able to save an estimated Rs250 a tonne. The farmer, too, stands to gain much more than he would if he sold through the mandi. For a long time, farmers had no other option but to hit the local mandis, where they realised only 70-75% of the end prices. But now they can hope to do better. For India’s antiquated agricultural system, that’s a big deal.

On the face of it, it didn’t take much. Inside Yugalkishore’s house, all that ITC set up was a battery-powered Internet-enabled Pentium desktop computer along with a printer. It takes him long to log on – connections are just as bad in Mendki as they are in the cities or even worse. But eventually the screen flickers into life with the itcibd.com portal.

The portal carries the mandi prices across the state, which is fed in daily by each of the mandi commission agents who have joined the ITC system. It also offers the prices that ITC hopes to buy at. So, once the farmers of e-choupal know the prevailing prices at the mandi as well as at the choupal, they can choose to either go to the mandi or take their produce directly to ITC’s processing plant 25 km away. Last year, Yugalkishore, who is designated as a sanchalak or lead farmer, persuaded a few to try the latter.

Since then, Yugalkishore’s make-shift Internet cafe has been humming with activity. The reason? It isn’t as if they get better prices. On the contrary, most of the time, ITC’s prices are almost the same as those prevailing in the mandi.

Sohan, a young 30-year old farmer, tells us why he prefers to stick to the e-choupal. "At the mandi, we are made to wait for hours on end and treated very shabbily". If the mandi is crowded, it takes him two days to dispose off his produce. So he has to spend money to stay the night. Then he has to pay for the cost of bagging his produce (Rs15 a tonne), transportation (another Rs15), and on loading and unloading (Rs3 per tonne). "Besides, as the commission agent at the mandi uses a small tol kata (weighing balance), very often I end up getting paid far less. I also lose a fair deal because the agents tend to throw a lot of my beans away while evaluating quality," says Sohan.

So are the tangible savings in the choupal model significant? Mohit Arora, ITC’s manager of the e-choupal initiative in Indore, says savings range between Rs400 and Rs500 a tonne for an average farmer depending on how far he is from the nearest processing centre or storage point. At ITC’s huge processing centre in Devas, the motto is customer relationship management. The layout at the factory has been designed so that waiting times are reduced to two hours. Material handling systems ensure that tractors, trolleys or trucks can directly unload their produce without spilling a single grain, a modern weighbridge ensures precise weighing and cash is paid to the farmer in less than 10 minutes.

That’s not all. Based on the tests done on the produce in the plant, ITC is quickly able to assess quality standards across the various choupals. "We then advise the sanchalak, who, in turn, is able to get the farmers in his community to improve their yield and quality standards", says Arora. Through the same portal, ITC also provides information on weather, soil conditions, online diagnostics of pests and diseases, information on the crop status across different districts and a few advisory services, such as what fertilisers are best.

"Very often, the farmer is unable to figure out price movements. So, by the time he reaches the mandi, the price may have come down," Arora says. Through the choupal, that uncertainty is removed. And due to the improved realisations, the farmer can now invest in better inputs like seeds, fertilisers and pesticides. IBD CEO S. Sivakumar says he hopes to provide more customised information soon so that individual farmers have greater incentives to log on.

When ITC began experimenting with the model, the masterstroke was to appoint a lead farmer as the community leader for each choupal. This way, ITC did not have to invest in separate kiosks; farmers accepted the concept better if the coordination was done by `one of them’. Sivakumar says: "Of course, we had to choose the sanchalak very carefully. He couldn’t be too big a farmer. Otherwise, his interest levels in making the choupal work would be low. If it was a small farmer, he wouldn’t be accepted by the rest". Now, ITC invests Rs60,000 – 80,000 on the IT infrastructure, while the sanchalak pays for the operations (telephone and power), and the local canvassing. For the sale of soyabeans, he earns a 0.5% commission.

Of course, there has been the issue of the role of the mandi commission agents. Once the asymmetry of information was knocked out, his power in the channel would reduce. "We were clear from the outset that intermediaries had a role to play and that e-biz couldn’t disintermediate them", says Sivakumar. So a new role was envisaged for them: they would be samayojaks, or coordinators. Not only would they use their ties in the villages to nominate sanchalaks, they would also be responsible for the relevant mandi documentation. In far-flung villages, situated miles from ITC’s processing centres, the samayojak would also aggregate the grain and bring it to ITC. For this, he would get a 1% commission. Initially, most commission agents were understandably apprehensive. Just about a dozen agents among the 150-odd agreed to join the system, while about 100 said that they would prefer to wait and watch. But, over time, they too began to see that the change was inevitable. "We told them that if they were doing five units of profit on five units of transactions, that would come down to one unit of profit. The upside was that he would now do as many as 50 transactions".

After the network was put in place, ITC began exploring how to tap into the farm inputs market through it. In late 2000, it tied up with Monsanto to sell seeds directly. This year, it has looked at gas lanterns and other assorted items. The sanchalak collects the money from farmers and places firm orders. The relevant company then ensures delivery. For this service the sanchalak earns about 2-3% commission. The samayojak, in turn, receives around 1-3% depending on the product sold.

For ITC, this is an important revenue stream (it gets 2-3% commission from each transaction). The participating company gets a direct channel to the customer that is entirely pull-based. As one farmer told us, he is now aware of what to buy and when, and not depend on the dealer, who is prone to giving incorrect information that sometimes ruins the crop. But the key for ITC is to preserve the integrity of the relationship with the farmer and carefully monitor the products that flow through the channel.

Sivakumar says he is treading carefully. "We won’t do anything to damage our relationship with these farmers." That explains why the placard ITC has put up just above the entrance to Yugalkishore’s house almost meshes with the rest of the rustic surrounding.