In the poorest parts of rural India, a
business giant is boosting the earning power of peasant farmers. But this is not corporate
philanthropy. It's part of a bigger plan to sell its own--and other companies'--products
right back to them
By Cris Prystay/KAMLAPUR, MADHYA PRADESH
WHY IS INDIA'S largest tobacco
company making a massive effort to boost income growth in rural India?
It's not charity work. ITC Ltd. has big
plans to profit from an e-commerce platform it's building in poor villages across India's
vast countryside. The system allows farmers to sell their produce--wheat, soya, coffee,
even shrimp--directly to ITC, which is also one of the nation's biggest agricultural
trading firms, saving the farmers the cut middlemen usually take at local auctions.
Farmers also get free and timely agricultural information that helps boost their
productivity. What does ITC get? A perfect opportunity to sell its and other companies'
goods, such as seeds, flour and life insurance, right back to the farmers.
Rural incomes in India are rising slowly,
and companies are getting smarter about marketing to the poorer segments of the
population. But in many parts of the country, people still need to make more money before
they can spend any.
"If you can enable more people to
afford what you're producing, you're at another level," says Arun Maira, managing
partner at the Boston Consulting Group in Mumbai. Many companies in India are marketing
goods to poor people and running a corporate philanthropy fund for small charitable
projects. ITC's approach is very different. It's using technology to deliver more profit
to farmers as part of its broader business plan. At the same time, it's marketing a
growing range of nonagricultural products to those farmers to tap into incomes that it has
helped grow.
To help the earning power of its potential
customers, over the last three years ITC has set up 2,100 kiosks, or e-choupals--a Hindi
word meaning "gathering place"--in four states, Madhya Pradesh, Karnataka,
Andhra Pradesh and Uttar Pradesh. But first, it had to overcome computer illiteracy, shaky
phone lines and intermittent electricity by supplying training, solar panels and even
satellite-phone connections in some villages. It adds five more kiosks per day, at a cost
of $3,400 each, and ultimately plans to wire up 100,000 villages.
It's a huge investment, but one the company
is betting it will recover in two years. First, by getting more commodities that it can
sell overseas; next, by selling other goods back to the farmers. By then, ITC could
dominate consumer access and information in these remote places. Already, companies like
South Korea's LG Electronics, TVS--India's third-largest motorcycle and moped maker--and
India's Bharat Petroleum are talking to ITC about getting their goods sold through the
e-commerce link to the farmers, says S. Sivakumar, chief executive of ITC's international
business division.
ITC, meanwhile, now buys about 25% of its
commodities, worth about $50 million last year, through the e-choupals, and has generated
about $200 million in sales of products such as seeds and fertilizers back to the
villages.
Villages such as Kamlapur, in Madhya
Pradesh, one of India's poorest states. Here, bullock carts ply the dirt roads and
weathered bicycles line the streets. It's little more than a cluster of tiny clay and
brick houses. Farmer Sanjay Sharma's house has become the centre of village life since ITC
hired him two years ago to run an e-choupal. Sharma, who had never touched a computer
before ITC came along, now has an Internet-connected PC in a corner of his house. He still
works his 35-acre soya farm, as well as helping farmers with several dozen inquiries a
day. His three teenage children help, too, checking local auction prices on-line and
downloading agricultural research--crucial information that's often hard to come by in
India's more remote villages.
Nearly every farmer here now sells most of
his crop to ITC and orders seeds from the company the same way.
That shaves 6% off the transaction cost for
both buyer and seller. In the old-fashioned way, farmers first must drive their produce to
an auction market, where they pay for bagging and loading and then wait two days to get
paid after they sell their goods.
Not through the e-choupal. If they like the
on-line price offered by ITC, they drive to a local warehouse and get paid for their crops
right away. ITC also offers better prices. On one recent day, Sharma helped local farmers
sell four tonnes of soya to ITC for 1,450 rupees ($31) per 100-kilogram bag; the rate that
day at the nearest market town was 1,430 rupees.
The company also provides low-cost
soil-testing services. That, plus access to top-quality seeds and advice on timely
application of fertilizers, has helped improve yields. ITC estimates production per acre
in this town has gone up by 5%-10% in the past two years.
"The ultimate objective is to increase
the productivity of the village. It's crucial for the people," says Ram Kumar,
trading manager for ITC. "Ultimately, it's the economy of the village that matters.
Unless you help improve that, you can't possibly sell anything here."
Kamlapur is indeed poor. The average
household income here is about 55,000 rupees per year, according to the National Council
of Applied Economic Research. Poor farming households earn as little as 25,000 rupees. By
comparison, the average household income in Punjab, which is blessed with good
infrastructure and excellent irrigation, is 104,875 rupees per year.
One thing all Kamlapur villagers share is
the desire for modernity. Many families have acquired black-and-white TV sets and phones
in the past three years, and images of life in the city, and all its conveniences, are
stoking desires.
Jalaluddin Quazi, 38, one of the first
villagers to use the e-choupal, and one of the town's wealthiest residents, is eager to
snap up whatever new products ITC offers through the kiosk. His 10-acre farm, part of a
larger family spread, has served him well: Children's bicycles litter the driveway of his
two-storey home. He owns a motorbike and a two-year-old car, while a colour TV, a Sony VCD
player and an Aiwa mini-stereo adorn his living room. "I'll buy whatever new gadgets
come on the market," says the father of three.
ITC has already begun to sell goods
produced by other arms of the conglomerate, like cooking oil, salt, sugar, flour and
lamps, through the system. "We're also working on market research as another product
area. Some products, like Coke and Pepsi, have pretty efficient distribution channels
already. But they're all looking for better market-research data on rural India,"
says Sivakumar. ITC bets that people like Sharma, who's liked and trusted by his peers,
are in a better position to find out more about their neighbour's daily lives than a
researcher who "parachutes" in from Mumbai.
In February, ITC agreed with ICICI Bank to
sell its life insurance on-line in a few villages, including Kamlapur. Sharma has placed
on-line orders for 22 policies so far. His first insurance client, 24-year-old soya farmer
Mohammed Ariff, was one of the first to use the e-choupal. Ariff then convinced his older
brother, Mansoor, who runs their family farm, to try out the system. Now, they sell all
their crops this way.
The e-choupal has helped Ariff's cash flow,
he says, by taking some of the guesswork out of crop sales and improving margins a little.
"If things continue to improve, we'll upgrade the house," he says. He's also
starting to warm to new products, like insurance. He bought the life policy because he
trusts Sharma, he says. "A lot of insurance people come through here, trying to sell
policies. But we don't know them, and they come and go. Not Sharma. He's like
family."
The success of the insurance pilot scheme
is encouraging, ITC's executives say. ICICI is considering selling other financial
products on-line. ITC has also agreed to sell and rent tractors for a local arm of
international tractor company Eicher Tractors here and in a few other villages after the
next monsoon. "We've really managed to increase the reach for our own business,"
says ITC's Kumar. "Now, it's about leveraging the e-choupal to sell other products.
And we're already starting to see that the demand for this service, from consumers and
companies, is already there."
MAKING MONEY
ITC first aims to help improve farmers'
incomes by:
Wiring rural communities with computer
access to its e-trading platform
Offering better on-line prices than
auctions for produce
Providing quality seeds and on-line
agricultural advice
Next, it aims to help its own business
by:
Growing its commodities business overseas
Gaining access to rural consumers
Selling goods and services back to the
farmers
Kids: A Bet on The Future
By Cris Prystay
When ITC selects a farmer to handle its
Internet kiosk, or e-choupal, it looks for people with at least a high-school
education--and teenage children. The thinking: Kids--even poor village kids who've never
seen a computer before--are fast adopters of technology. ITC has found that the lead
farmer's kids wind up helping their dad run the e-choupal. That's happening in Kamlapur
village, in Madhya Pradesh, where farmer Sanjay Sharma's eldest daughter often helps
neighbours log on in the e-choupal for information on weather and what pesticides to use
when Sharma is out working in his own field. ITC is also betting that, eventually, one of
the kids will take over the job, ensuring continuity in the e-commerce platform's
operation.
