aa62fITC -e Choupal

8/8/2019 aa62fITC -e Choupal

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Amity Business School

Pooja Sehgal TabeckRAM 1

ITC e Choupal


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ITC conglomerate has interest in cigarettes andtobacco, packaging, specialty papers, hotel,

retailing, IT, and agri-exports

Agri-exports business is run underInternationalBusiness Division(IBD) of ITC

With a turnover of Rs. 7.5 bn it emerged as

Indias second largest exporter

But profit margin were very thin


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Problems

Less control over agricultural supply chain

Traders and Agents not aware about quality of

agri products needed by international buyers

Lack of infrastructure for handling, storage and

transportation

Middlemen often exploited their position and

blocked information at both ends

They also caused delay resulting in the

deterioration in the quality of agri-produce


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FARMER

Input CostSeed

Fertilizers

Chemicals

Farming

Practices

Met Dep.Insurance

Weather

Agri Input

Retailer

NGOs

AgriUniversities

Money

Lender


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Solution

e-Choupal initiative

Objective

It aimed to improve quality of agricultural

products by breaking the whole vicious cycle of

low investment, low productivity, weak market

orientation and low value addition in which theIndian farmer found himself trapped.


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A

RMER

PuccaAhratia

KacchaAhratia

Trader Broker P

R

O

C

E

S

S

O

R


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ITC-IBDs top executives had a major brainstormingsession. ITC was looking for a business model that iscustomer centric but uses existing infrastructure.Questions like the following were pondered upon:

Whats the best corporate business model for rural India?

Does it require a new breed of leaders?

What are the challenges that these leaders are facing?

Will they have to work within new organizationalstructures


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Initially ITC thought to remove the

intermediariesBut it was not possible as some performed the

important channel flow activity of collecting the

produce

Obstruction in information flow to farmers was

the main concern

Farmers didnt got the fair share of profits as

they were dependent on intermediaries

Intermediaries got good price from the Mandi

which they never communicated to farmers


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Hence the model

aimed at.

Leveraging the physical transmission

capability of the intermediaries

At the same time disintermediatethem from the flow of information


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The basic idea

Utilize IT tools to network the

villages.

Leverage the internet to provideinformation to the farmers.

In June 2000, the project Symphony was

launched in the villages of M.P. forSoyafarmers.

Later, it was re-christened as e-Chaupal .


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Farmers

Farmers

Farmers

Sanchalaks

PC

&

Internet

Uses the Net to

provide spot quotes

after examining

product sample

If the price is right,farmers take the

produce to the ITC

collection centre

+

ITCFactory

Samyojak

Co-ordinates a

group of villages

Performs

documentation

works

Supplies farm inputs

from ITC and

partner companies

to Sanchalaks

Builds relationship

with Sanchalaks and

farmers


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For Information

Sanchalak was to co-ordinate the activities at e-

Choupal

PC was installed and trained to run PC

ITC covered the fixed cost cost of equipment,

maintenance

Sanchalakspaid day-to-day operating cost of

electricity and the internet connection

Helped farmers in checking theprevailing pricesof commodities and farming practices

Sanchalaks werepaid 0.5% of the procurement

price for each tonne ofSoya procured by IBD


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Creation & Availability of Database at e-Choupal hub

All information required by the farmers like

the daily Mandi prices, weather reports, global

prices, best farming practices.Mandi Prices, weather reports and global

prices via internet

Best farming practices via CDsContent was written in simple words


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Commission Agents felt cheated

Commission agents were the vital link

between the the Mandi and the farmers

Samyojaks were created

Samyojak were responsible for the identification

of the Sanchalaks

Documentation ofinformation from Mandi

Collection of produce from the farmers to Hubs

Received 1% commission for his services

Compensated through increase in volumes


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Problems and Challenges cont..

The Agricultural Produce Marketing CommitteeAct(APMC Act) prohibited co.s from purchasing

certain specified commodities from any other

source than Govt. designated Mandis

Items included soyabean, wheat and coffee

all products that ITC dealt with

ITC persuaded state govts.explaining how

farmer gained

Some states did amendment and few other

gave some exemptions for ITC


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On an expansion spree

To increase its revenues ITC began to look toexpand its e-Choupal network into different crops

ITC observed .

Although characteristic of agriculture production is

similarall over the country

value chains differed from one crop to another

depending primarily on two factors

i) Commodity the farmer traded in

ii) Socio-economic strata they belonged to


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AfterSoya in Madhya Pradesh.

ITC aimed at coffeeplanters in Karnataka,

Andhra Pradesh and U.P.

Coffee is a plantation crop and growers aremore sophisticated and knowledgeable

Agents role was very crucial, particularly

because marketprice tended to be volatilePlanterspreferred to trade with dealers

they had got to know well


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Value chain for coffee was strong and

efficient,

thus there was less role of eliminating the

role of intermediaries

Different Strategy position website as

single source of knowledge

Information here was more sophisticated

related to coffee futures

ITC here relied on ABN Amro, theworlds largest futures player

Computers were placed in clubs and co-

operatives of various farmers


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Company launched Aquachoupal in Andhra

Pradesh in 2001

Operated 55 kiosks covering 10,000 shrimp

farmers in more than 300 villages

Aqua farming involves higher costs than

traditional farming

Highly perishable but returns are high


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Nov. 2001 - ITC started forwheat farmers of

U.P.

180 Kiosks were opened to reach more than

3,75,000 wheat farmers in over 1,500 villages

Many cigarette distributors became Samyojaks

ITC saved upto Rs. 55-65 per tonne of wheat

and upto 10% of the procurement cost throughthis programme


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Beyond Commodity Trading

ITC realized that it can further leverage its

existing infrastructure

It decided to use its kiosks forreverse trading

It brought companies like MONSANTO( a US

giant dealing in seeds), BASF India

Ltd.(agrochemicals),Nagarjuna Fertilizers &

Madhya Pradesh State Seeds Corporation.

Took orders, market their products, displayed

their products, trained farmers on product usage


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Goods were delivered through Sanchalaks

ITC was paid 10% of the transaction value. Half

of it was paid to Sanchalaks

In 2002, company started selling vegetable oilChoupal and gas lanterns mfg. by third parties

Also started selling Life Insurance of LIC and

other companies

Thus ITC leveraged the power of Meta Market


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ITC's Choupal Sagar at Sehore, about 38 km from Bhopal, put

up primarily for the shopping convenience of farmers

It is part of a huge complex, spread over eight acres, thatincludes the ITC's procurement centre for soyabean, wheat and

other grains.


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It is here that farmers in the Sehore belt and surrounding

areas bring theirproduce packed in huge trucks/trolleys

for sale sometimes pooling their produce in one

vehicle

Receives the payment in cash, pick up their requirement

of fertiliser, pesticide and even diesel packed in huge

drums.


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As the place where they wait for their money islocated tantalizingly in the middle of the mall, a lot of

impulsive shopping can take place

Every day it has about 1,100 to 1,200 footfalls, and inthe week before Diwali, this number went up to 1,600

to 1,800, with daily sales exceeding Rs 2 lakh.

Documents

aa62fITC -e Choupal