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e-Choupal: Networking rural India - 17 May 2007

Agriculture is vital to India. It produces 23 per cent of the GDP, feeds a billion people, and employs 66 per cent of the workforce.

Because of the Green Revolution, India's agricultural productivity has improved to the point that it is both self-sufficient and a net exporter of a variety of food grains. Yet most Indian farmers have remained quite poor.

The causes include remnants of scarcity-era regulation and an agricultural system based on small, inefficient landholdings.

The agricultural system has also traditionally been unfair to primary producers.

Farmers have only an approximate idea of price trends and have to accept the price offered to them at auctions on the day that they bring their grain to the mandi. As a result, traders are well positioned to exploit both farmers and buyers through practices that sustain system-wide inefficiencies.

One of India's foremost private sector companies, which has a diversified presence in tobacco, hotels, paperboards, specialty papers, packaging, agri-business, branded apparel,
packaged foods and other fast moving consumer goods, initiated e-choupal in 2000.

The effort placed computers with Internet access in rural farming villages. The e-choupals serve as both a social gathering place for exchange of information (choupal means gathering place in Hindi) and an e-commerce hub.

Industry background

Spurred by India's need to generate foreign exchange, ITC's International Business Division (IBD) was created in 1990 as an agri-trading 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 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 over Rs 700 crore company that trades in commodities such as feed ingredients, food-grains, coffee, black pepper, edible nuts, marine products, and processed fruits.

What began as an effort to re-engineer the procurement process for soy, tobacco, wheat, shrimp, and other cropping systems in rural India has also created a highly profitable distribution and product design channel for the Company.

E-choupal has also established a low-cost fulfillment system focused on the needs of rural India that has helped in mitigating rural isolation, create more transparency for farmers, and improve their productivity and incomes.

The business model

The model is centered on a network of e-Choupals that serve both as a social gathering place for exchange of information 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 sanchalak's home. ITC also incorporated 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 e-Choupals, 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 the Mandi, the following operational process was followed: Inbound logistics > Display and Inspection > Auction > Bagging and weighing > Payment > Outbound logistics.

E-choupal brought about a strategic chage to the process: Pricing > Inbound logistics > Inspection and grading > Weighing and payment > Hub logistics.

Goals envisioned

Two goals were envisioned for information technology in the e-Choupal process.

The first was the deelivery 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.

The second was to 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 is noteworthy that ITC did not hesitate to install 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 thousands of e-Choupals.

Sustainability through mutual respect

The e-Choupal model has shown that a large corporation can combine a social mission and an ambitious commercial venture; that it can play a major role in rationalising 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.

ITC's example also shows the key role of information technology - in this case provided and maintained by a corporation, but used by local farmers - in helping to bring about transparency, to increase access to information, and to catalyse 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 ITC's 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 company's commitment to transparency, and the respect and fairness with which both farmers and local partners are treated.

The sustainability of the engagement comes from the idea that neither the corporate nor social agendas will be subordinated in favor of the other.