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Itc's Echoupal Initiative

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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

(anupindi@umich.edu)

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)

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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 agroecological 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 …

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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

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ITC's eChoupal Initiative

Traditional Soybean Supply Chain
Price discovery (by word -of-mouth) Authorized price

Farmer

Mandi*
Commission Agents

ITC Other buyers

Processing

Inbound Display and Logistics Inspection

Auction

Bagging and Weighing

Payment

Outbound 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 Incomes

Low 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

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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

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SCTL, July 2004

ITC's eChoupal Initiative

Reengineered Supply Chain via eChoupal
Market Conditions, Weather, Best Practices, Community, etc.

e-choupal (Internet kiosk)
Sanchalak

Price discovery

Farmer

ITC
Commission Agents
Authorized price

Processing

Mandi

Other buyers

Initial Inspection & Pricing

Inbound Inspection & Logistics Grading

Weighing

Payment

Outbound Logistics

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

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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. 2.

Farmer’s Trust Technology Infrastructure:
a. b. c. d. Computer Internet Multimedia Broadband

Farmer

ITC Mandi

Processing
Other Buyers

3.

Physical Reach:
a. b. eChoupals within walking distance of a farmer Multipurpose warehouse hubs within tractorable distance Sanchalak (1 per cluster of 5-6 villages) 2000/state Samyojak (1 per group of 40 echoupals ) 50/state

4.

Key Relationships:
a. b.

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ITC's eChoupal Initiative

Ø Today:

eChoupal : The Scale e-choupal (Internet kiosk) e-choupal (Internet kiosk) e-choupal (Internet kiosk)

• 3300 Kiosks / 20,000 Villages / 2m Farmers • 2003 Transactions : US$ 100 million

Farmer Farmer Farmer

ITC (Hub) Mandi
Other Buyers

Ø Adding Six New Kiosks Every Day
Processing

e-choupal (Internet kiosk) e-choupal (Internet kiosk) e-choupal (Internet kiosk)

Farmer Farmer Farmer

ITC (Hub) Mandi
Other Buyers

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

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