Developing a Rural Market e-hub

The case study of e-Choupal experience of ITC

B. Bowonder, Vinay Gupta and Amit Singh

Abstract

ICT has potential to make significant inroads in a traditional agrarian economy like India.

Indian agro-sector has been exploiting the benefits to ICT. Innovative ICT application

platforms are being created by private sector players in conjunction with local farmers.

One such private initiative has been by ITC Ltd in the state of Madhya Pradesh. It has

helped the farmers in many ways, such as developing of local leadership, shared

ownership of the assets created in this initiative, access to the latest knowledge for the

agro-sector, sustainable income levels and skill development for productivity

improvement. This initiative from ITC[1] has become a benchmark today in the ICT

initiatives in agro-sector. Several best practices can be learned from this initiative,

namely:

▪        ease of replicability and scalability

▪        customization to meet the specific local needs and

▪        organizational commitment.

The success of e-choupal has heralded a new era in the Indian agro-sector. The work

needs to be carried forward and replicated in the other untapped areas. Creating

business channels that can create a win-win situation both business and farming

community has enormous economies of scope. Once a channel is created it could be

used for many products and services as shown in this case study. The main reasons for

the success of the platform have been the involvement of local farmers and maintenance

of the rural IT network by the corporate entity.

Keywords

Rural e-market, Shared Ownership, Local Leadership, Meta Market

Biographical notes

Dr. B. Bowonder


is a Dean, Tata Management Training Centre, No. 1, Mangaldas

Road, PUNE – 411 001, India, Tel: 91-20-612 0141,  

E-Mail: [email protected]

Mr. Vinay Gupta        is a Research Associate, Administrative Staff College of India,

Hyderabad his contact address is Bella Vista: Hyderabad.

Tel: 23310952 Fax: 23312954. E-mail: [email protected]

Mr. Amit Singh        is a Research Associate,        Administrative Staff College of India,

Hyderabad his contact address is Bella Vista: Hyderabad.

Tel: .23310952 Fax: 23312954. E-mail: [email protected]


Rural Market e-Choupal

Internet will extend electronic marketplace and make it the ultimate go-between, the

universal middleman.”

- Bill Gates

Introduction

India is second most populous country in the world. Majority of its population lives in

villages & earns their livelihood through farming. Agriculture is the backbone of Indian

economy. It contributes around 26% of the total GDP. 65% of Indian population lives

mainly in its 600,000 villages.  Agriculture is the mainstay of the majority of the villagers

as they are employed in agriculture or agriculture related services. Presence of diverse

agro climate zones and a variety of soil and agro-climatic conditions have made possible

the cultivation of almost every item from cash crops to food grains.  Agriculture provides

livelihood to about 65% of the labor force and accounts for 8.56% of India's exports.

After USA, India has maximum area of arable land but productivity per hectare is

nowhere near the world best. India is not in the top ten countries in terms of

productivity of rice and wheat. Despite green revolution Indian agriculture sector has not

been able to achieve the world level productivity. Cardinal reasons behind this are highly

fragmented nature of Indian farming with close to 33% of arable land held in units of

less than 2 hectares per owner. It doesn’t let farmers enjoy the economies of scale in

operations and modern farming equipment proves very expensive for them. Because of

it quality is also a problem. The fragmented farms are constraining the risk taking ability

of Indian farmer locking him up into a vicious cycle of low risk taking ability > low

investment > low productivity > weak market orientation > low value addition > low

margin > low risk taking ability. So there is a need to look for interventions that can help

the farmers realize higher level of income. This is a case study of the development of a

rural market hub using a set of information communication technologies. This is the

largest e-market initiative undertaken by any corporation in India and also it has been a

successful experience. Many others are tying to replicate this.

1


Input

companies

Speed

fertilizers

practices


VLW


(Registered dealer)

(Unregistered dealer)


Rural Market e-Choupal

Background


Figure 1: Conventional value chain

Indian farmers rely on Department of Agriculture for various inputs such as weather,

modern and scientific farming practices and insurance cover. All these are accumulated

by the VLW of Department of Agriculture from various sources like Government

Universities, Meteorological department, insurance companies’ etc. For seeds, fertilizers

etc. farmers approach input retailer who source them from wholesalers who are in direct

contact with the manufacturers. After harvest, farmers bring their produce to Mandis

(regional market yards) in small multiple lots throughout the year, where the beans are

auctioned to the traders and agents of the processing companies in an open outcry

method. The Government, to facilitate fair price discovery and enable aggregation of

goods, regulates these market yards. Successful bidders then bag the beans, weigh

them, pay cash to the farmers, and transport the cargo to the processing units (to whom

it would have been sold through a broker).  Many intermediaries carry out this whole

activity, each one acting as a principal with the next leg in the transaction chain as

shown in        Fig 1. But with every intermediary the cost of produce increases to the

processor as intermediary adds his profit margin to the cost although the farmers get the

lowest price and margin in the whole value chain. Apart from this, intermediaries also

block the flow of market information to the farmers and use that information for their

own good. Here poor farmers are squeezed to the maximum without the benefits of their

labor accruing to them but to the intermediaries. International Business Division of ITC

started the new initiative namely e-choupal        (village meeting place on an electronic

platform).

2


About ITC-Inter Business


Rural Market e-Choupal

ITC Limited with an annual sale of US$ 2 billion from its diversified businesses is one of

India’s largest corporations with its presence in tobacco, hotels, paper boards, foods

fashion retailing and commodity export. International Business Division (IBD) started in

1990, a division of ITC is engaged in exports of a range of agricultural commodities. It

contributes over 60% of ITC Group's total foreign exchange earnings. ITC-IBD has a

focused approach on strengthening its core competencies in select commodities. Today,

IBD continues to deliver agri-commodities like Feed Ingredients - Soyameal, Rapeseed

Meal;        Foodgrains


- Rice (Basmati & Non Basmati), Wheat & Wheat Products, Pulses;

Coffee, Black Pepper;        Edible Nuts        - Sesame Seeds, HPS Groundnuts, &        Marine

products like Shrimps and Prawns. ITC IBD’s largest item for exports is soybean meal

(a rich source of protein) which are exported to the animal feed mills around the world,

competing with several transnational trading companies, mainly from the USA, Brazil,

and Argentina.

e-choupal concept

e-choupal is a Hindi word which means “village meeting place”. Market is a meeting

place where vendors and customers come together to do transactions. e-choupal  is a

virtual market place where farmers can transact directly with a processor and can

realize better price for their produce. e-choupal has the advantages of the market but

spans very large varieties of vendors and customers. Geographical distances do not

restrict participation in the e-choupal. The main disadvantage of conventional market is

that information asymmetry is inherent in the market where as e-choupal provides for

transparent transactions. This enables the participation of smaller as well as larger

players. Elimination of some layers of intermediaries allows for larger share of profits to

reach the lower end of value chain. The main attractiveness of e-choupal is that it can be

used for connecting large producers/small producers and small users/large users,

thereby eliminating the need for hierarchy of brokers. Internet is used as a low

transaction cost backbone for communication. Physical delivery of produce to the

processor is still done through the existing intermediaries. e-choupal does not attempt

total elimination of intermediaries, as intermediaries are indispensable in economy like

India where intermediaries are adding value to the every step  of value chain at a low

cost. Intermediaries have the expertise in storage, transportation, quality assessment

and counter party risk reduction, which are difficult to replicate. e-Choupal provides

farmers with all the market information and this helps them to become market oriented.  

In e-choupal intermediaries are leveraged but they are disintermediated from the market

information flowing to the farmers.

3


Idea Generation


Rural Market e-Choupal

The idea of creating and leveraging an electronic market place came from the

brainstorming session done by senior executives of ITC-IBD. ITC believes in using a

business model that does good to society and helps in improving the standard of living of

stakeholders as well as add value to the shareholder wealth. He also believed that to tap

the Indian rural market opportunity, and to reach across a wide range in rural India, the

leaders have to understand and unleash the power of the small-scale entrepreneur in

Join now!

village communities.

Idea Initiation

The challenge of servicing the changing needs of global customers, competing with the

aggressive transnational trading behemoths in a low margin agri-commodity business,

operating from a high cost economy like India and looking for alternative markets in the

period of recession were the basic business driver behind the new business model. Apart

from this ITC was increasingly looking to introduce service element in its activities and

improve the customer centricity. Service element was never tried in commodity business

in India before. ITC was aiming to introduce new lots, new varieties, new packaging and

non-standardized ...

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