SCTL, July 2004 ITC's eChoupal Initiative

Going Direct to the Farmer:

ITC’s eChoupal initiative

Ravi Anupindi
Michigan Business School
University of Michigan, Ann Arbor, MI 48105
([email protected])

SCTL Roundtable, July 2004

Background and Credits …

Ø 1st year MBA project course at Michigan
• 1st phase (Mar-Apr, `03): documentation of eChoupal concept
[C.K. Prahalad and MBA students]
• 2nd phase (Mar-Apr, `04): Rural retail [myself w/ MBA students]
Ø Client site:
• Mr. S. Sivakumar, CEO (International Business Division)
• Several others … employees, farmers
Ø Presentation material
• S. Sivakumar (talk at Michigan at the Asia Business Conference,
Feb. `04)
• Report of the 1st phase MBA project
• Dave Upton (HBS case / draft teaching note)

Anupindi / MBS
SCTL, July 2004 ITC's eChoupal Initiative

The New Indian Economy

Ø Forex Reserves : $ 100 Bn

Ø GDP Growth : 7%

Ø Emergence of Indian MNCs

Ø India as a Destination of Choice

• For Outsourcing

• Billion People Market

Rural India: The Real India

Ø 720 Million Consumers
• Potentially a Huge Market
è Greater than 70% of population; less than 30% GDP
• Small Wallets
Ø 156 Million Hectares of arable land in 36 rich & diverse agro-
ecological zones
• Potentially Food Factory to the World
Ø Government(s) spend a lot of money in developmental activities
• Results not consistent with the resources

Indian Farmer as a producer & consumer …

Anupindi / MBS
SCTL, July 2004 ITC's eChoupal Initiative

Bottom of the Pyramid

Is there a Fortune here? Or just some Minor Change?

Source: Prahalad and Hammond, “Serving the World’s Poor Profitably”, HBR, September 2002.

Typical Character of Rural India

u Plight of a rural Indian farmer
Ø Fragmented (avg. 1.5 hectares)

Ø Geographically Dispersed

Ø Heterogeneous

and

Ø Weak Infrastructure
Ø Monsoon Dependent
Ø Numerous Intermediaries

Anupindi / MBS
SCTL, July 2004 ITC's eChoupal Initiative

Traditional Soybean Supply Chain

Price discovery Authorized price
(by word -of-mouth)

Farmer Mandi* ITC Processing

Commission Agents

Other buyers

Inbound Display and Auction Bagging and Payment Outbound

Logistics Inspection Weighing Logistics

Mandi: A government mandated market-yard where farmers sell their crops; [Agricultural Products Marketing Act of India]

…Created a Cycle of Low Equilibrium

Low risk
Taking ability

Low Low
Incomes Investment

Low
Productivity
ØNumerous intermediaries…
•…necessary, as they make up for lack of infrastructure
•…evil, as they block flow of information and run an exploitative cycle
of dependency through linked transactions

Anupindi / MBS
SCTL, July 2004 ITC's eChoupal Initiative

Farmer Mandi ITC Processing

Other buyers
ITC Limited

Ø The ITC Group is one of India’s largest private sector companies with a market
capitalization of approximately US $ 4 billion and annual sales of US $ 2
billion.

Ø ITC has a diversified presence in cigarettes, hotels, paperboards, specialty

papers, packaging, agricultural products, branded apparel, packaged foods &
confectionery, greeting cards and other fast moving consumer goods (FMCG).

Ø The International Business Division (IBD) of ITC, started in 1990, exports

agricultural commodities such as soybean meal, rice food grains (basmati &
non basmati), wheat & wheat products, lentils, and coffee
• Liberalization, Competition, Commodity Markets, Low margin busin ess
• Corporate Challenge: GROW THE BUSINESS or EXIT

Go Direct to Farmer … eChoupal

concept
Choupal: a village gathering place

Ø eChoupal: IT-enabled choupal

Anupindi / MBS
SCTL, July 2004 ITC's eChoupal Initiative

Reengineered Supply Chain via

eChoupal
e-choupal
Market Conditions, (Internet kiosk)
Weather, Best Practices,
Community, etc.
Price discovery Sanchalak

Farmer ITC Processing

Commission Agents
Authorized price

Mandi Other buyers

Initial Inbound Inspection & Weighing Payment Outbound

Inspection & Logistics Grading Logistics
Pricing

Value for the Farmer through Unbundling !!

Ø The Traditional Alternative : Mandi

• Auction – an Ideal price discovery mechanism for
fragmented operations, but gets the wrong end of the
stick due to sunk transportation cost
Ø The eChoupal Alternative
• Farmer knows the sale price for his produce even
before he leaves the village through online real-time
information

ü Empowerment through unbundling information from

transaction

Anupindi / MBS
SCTL, July 2004 ITC's eChoupal Initiative

…And through Bundling !

Ø That bundled
• Knowledge (what to use) and
• Information (when to use), with
• Transaction (ordering an input)
to deliver unique value to the farmer

ü “Customised” Knowledge despite Heterogeneity

ü “Real-time & Relevant” Information
notwithstanding Geographical Dispersion
ü “Low-Cost” Transaction even for Small Scale

The Privileged Assets of eChoupal

e-choupal
(Internet kiosk)

1. Farmer’s Trust Farmer ITC Processing

2. Technology Infrastructure:
Other
Mandi
a. Computer Buyers

b. Internet
c. Multimedia
d. Broadband

3. Physical Reach:
a. eChoupals within walking distance of a farmer
b. Multipurpose warehouse hubs within tractorable distance

4. Key Relationships:
a. Sanchalak (1 per cluster of 5-6 villages) 2000/state
b. Samyojak (1 per group of 40 echoupals ) 50/state

Anupindi / MBS
SCTL, July 2004 ITC's eChoupal Initiative

Ø Today:
eChoupal : The Scale • 3300 Kiosks / 20,000 Villages /
2m Farmers
e-choupal • 2003 Transactions : US$ 100
(Internet kiosk)
e-choupal
(Internet kiosk)
e-choupal million
(Internet kiosk)

Farmer
Farmer
Farmer ITC (Hub) Ø Adding Six New Kiosks Every
Mandi
Day
Other
Buyers
e-choupal Processing
(Internet kiosk)
e-choupal
(Internet kiosk)
e-choupal
(Internet kiosk)

Farmer
Farmer
Farmer ITC (Hub)

Mandi
Ø Tomorrow:
Other
• 100,000 Villages / 10 million
Buyers Farmers
• 2010 Transactions: US$ 2.5 Bn

Anupindi / MBS