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Give them empowerment first
The Hindu Business Line - 19 Nov 2004

Rasheeda Bhagat

The e-choupal initiative rests on the principle that what farmers need first is empowered access to markets. If that is available, the awareness of rights will follow, says S. Sivakumar, Chief Executive — Agri Business, ITC.

S. Sivakumar,
Chief Executive — Agri Business, ITC.

The ITC's e-choupal initiative has already reached 30 lakh of India's farmers and by 2010, it hopes to reach 10 million farmers. On the insight this initiative has given him on India's farmers, S. Sivakumar, Chief Executive — Agri Business, ITC, who has been involved with this venture right from 2000 when it began, says it has three layers which put together can effectively serve as a universal service-delivery mechanism for rural India.
The first is the e-choupal where ITC sets up a computer network at a cost of Rs 2 lakh at the sanchalak's house. The second layer is the brick-and-mortar multiple services centre managed by the traditional commission agent. The third layer is a "pan-Indian network of a whole lot of collaborative institutions... more than 80 companies are now participating in an initiative orchestrated by ITC." This is the Choupal Sagar or the mall where goods ranging from motorcycles to home appliances, fertilisers to branded shirts and trousers are sold.

He explains how ITC has moved away from the traditional model of development in rural areas that begins with setting up social infrastructure like self-help groups, co-operatives, etc. Then comes the second layer of political awareness and rights, followed by providing the linkage to the markets. "We believe that what makes more sense, and is probably more sustainable and scalable, is to reverse this equation and provide an empowered access to markets as a first step. When there is empowered access, the awareness of rights will follow."

He feels this is a more sustainable model because traditionally most of the self-help groups — whether of farmers or women — even though they realised collective strength in terms of rights and social awareness, were not able to scale up or sustain higher income levels, because the market linkages were not good. But in the choupal model, the farmer is given both information and linkage to the market at the same time.

Of course, ITC benefits on several counts. "If the farmer comes and delivers directly to my warehouse, I save certain costs. Instead of getting what I need from the mandis, I buy directly from the farmer. My cost comes down and the farmer gets a higher price through elimination of wasteful intermediation."

Giving an example, he says that if under two years ITC's Aashirwad aata has become the No. 1 brand in the country with nearly 15 per cent of the market share in aata, it is primarily because of quality, "which was a result of the choupal infrastructure. Because we now buy from the farmer directly and we are able to store different varieties of wheat separately. When farmers sell in mandis or the FCI, all the wheat gets aggregated. And after that it can't be segregated. So sometimes the atta quality is very good, sometimes it is quite bad, and the consumer has to deal with it. But today when we store wheat separately, we have different blends.

"What is sold in Kolkata, Mumbai or Chennai is very different as consumer preference is different in terms of level of coarseness, colour, usage — for pooris, chappatis or parathas, the water absorption capacity, and so on. Earlier consumer preferences were not matched with the wheat grown, and the farmer didn't get the right value for his produce. But that is changing now."

Coming to the mall where a host of FMCG products and other consumer durables, insurance, etc are being sold to rural people, he says that the mall stocks products of about 80 companies who pay a fee to ITC for using this channel. "The reason why it has to be a multi-company marketing channel is because the purchasing power is quite low in rural areas. But if you can reach the products at lower cost, volumes will come. With 80 companies making use of this channel, the cost of distribution comes down and lower prices can be offered." So you have Marico, Philips, TVS, Hero cycles, Usha, LG, Sonata, etc being sold through a single mall in Sehore. At this point, the money ITC makes by allowing other corporates to use this channel hasn't exceeded Rs 1 crore yet, but that will grow substantially over a period of time.

Here the 7,000-sq-ft mall is housed in an eight-acre complex, which includes the ITC procurement centre, complete with an electronic weighing platform where the farmer's grain is first weighed along with the vehicle. This eliminates wastage through handling of individual bags.

By end-2005, Madhya Pradesh will have 25 such malls, and another 25 will be put up in Rajasthan, Uttar Pradesh and Maharashtra.

On the crucial question regarding the increase in farmer's income due to this initiative, Sivakumar says that there is both a direct and indirect benefit due to empowerment; farmers are able to demand better services, and sell at better rates because of transparency, and there is no cheating on weight. "People typically respond saying `our incomes have gone up between 20 and 40 per cent because of this initiative', directly or indirectly. But to get an accurate picture, some more time is needed."

He agrees that the ultimate objective of any venture is to raise incomes; "it's not enough to be aware of rights and feel good about it. In India, at least 50 years of development effort has gone into the model of social awareness first, followed by infrastructure and economic development. While things have improved, it is not in consonance with the kind of resources put in. "We still have a whole lot of poor people, gender and social inequity. And obviously there are other agencies perusing that sequence. But as a commercial enterprise, we are attempting to enmesh the two — business activity with general development. The well accepted and articulated definition of development is one of freedom of choice; you should have more choices and be able to act on those choices. Also, you should be able to build and enhance your capabilities to live your life the way you want. If these are accepted, then we believe it can be done in a more sustainable and scalable fashion through this model. If in four years we're able to touch the lives of 30 lakh farmers and going strong, it is because we have provided them access to markets in an empowered manner and out of choice. If a price is given to a farmer in a village we're not saying that just because you got my price free of cost, come and sell to me. If you get a better price elsewhere, you have the freedom to go there." Of course, earlier too he had the choice of going to the mandi, not sell and bring back the product if he was not happy with the price. But having gone to the mandi — incurring a cost, very rarely would he bring back the product for fear of multiple transaction cost.

Another crucial factor on which the success of the choupal initiative hinges is the increase in modal and not mean income, says Sivakumar. The threshold income of more farmers needs to go up rather than the rich farmers getting richer. "In a village, out of 100 farmers, if the top 10 farmers' income increases substantially and not that of the other 90, your consumption will not increase in the same proportion. But in an integrated model like ours, where you also rely on the consumption of goods and services, it's a two-way channel and depends on modal income increase."

Another ITC initiative in different stages of piloting is Sunehra kal (Golden tomorrow). Under this initiatives, not necessarily directly linked to ITC's business, are on. "Because the platform is there and we have traditionally been spending CSR money, we are using this mechanism for improving the lives of rural people," says Sivakumar. One initiative is on cattle, which is a source of income in most rural homes. Another is on linking some livelihood activity for women to the markets or the banks. Water harvesting and water management is another area where ITC puts in money to revive the traditional water body in the village.