e-Choupal

Introduction

In India the agricultural system has traditionally been unfair to primary

producers even though it contributes 23% of GDP, feeds a billion plus
people, and employs 66% of the workforce of India. Traditionally farmers
with small holdings sell their crops to local traders, who act as purchasing
agents for buyers at a local, government-mandated marketplace, called a
mandi. They take advantage of farmers’ ignorance of actual market price of
the crop thereby exploit them while buying from them. Farmers do not get
right price of their produce. On the other hand these traders make a small,
local union and exploit the buyers, too, to maximize on their own profit.
The complete nexus grows on system-wide inefficiencies. e-Choupal is an
ideal model of vertical integration of agri-economy. Based on the direct
marketing model it saves substantially on many intermediary and
transaction costs. This saving, eventually, gets shared among the farmers,
the primary producers of the commodities.

About ITC

ITC is one of India’s leading private companies, with annual revenues of US

$ 5.1 billion. Its International Business Division (IBD; renamed as Agri
Business Division, ABD in 2008) was created in 1990 as an agricultural
trading company; which has now grown up to US $ 523 million in revenues
annually. ITC has a diversified presence in tobacco, hotels, paperboards,
specialty papers, packaging, agri-business, branded apparel, packaged
foods and other fast moving consumer goods. The Chairman of ITC, Mr. Y.
C. Deveshwar, in 1998 challenged IBD to use information technology to
change the rules of the game and create a competitive business that did
not need a large asset base. That was the transformation of IBD and today
it trades in commodities such as feed ingredients, food-grains, coffee, black
pepper, edible nuts, marine products, and processed fruits, which was
initially started with the business model for oilseeds only. What began as an
effort to re-engineer the procurement process for soy, tobacco, wheat,
shrimp, and other cropping systems in rural India has also created a highly
profitable distribution and product design channel for the company—an e-
commerce platform that is also a low-cost fulfillment system focused on the
needs of rural India. The e-Choupal system has also catalyzed rural
transformation that is helping to alleviate rural isolation, create more
transparency for farmers, and improve their productivity and incomes.

Technology

The e-Choupal model has been specifically designed to tackle the

challenges posed by the unique features of Indian agriculture, characterised
by fragmented farms, weak infrastructure and the involvement of
numerous intermediaries, among others.

The company has initiated an e-Choupal effort that places computers with
Internet access in rural farming villages; the e-Choupals serve as both a
social gathering place for exchange of information (choupal means
gathering place in Hindi) and an e-commerce hub.

Challenges in Technology

 Poor power supply in rural areas (solution – shift to complete solar

energy based electrical system)
 Fluctuation in power supply (solution – designed own UPS that
performs stable in the range of 90-300 V. In order to control voltage
spikes, they have introduced spike suppressors and filters. Phase
imbalances, which lead to damage of equipment, have been
addressed through the use of isolation transformers to correct
neutral voltages)
 Poor road infrastructure in many rural areas (could not reach a
village which is situated at a distance more than 15-20 kms from a
city)

Current village telecommunication infrastructure is designed to carry voice

traffic only and transmission speed is so slow that it renders Internet
access impractical. But situation is improving rapidly as private service
providers have come to the rural areas for setting up their own backbone of
network. The initial model was started on a mere 12 Kbps speed that was
improved to 40 Kbps throughput with the help of C-DOT by setting up RNS
kits in the rural exchanges. Now it has migrated to a more reliable
connectivity with better throughput by adopting a satellite-based
technology (VSAT) which enables a throughput rate of up to 256 Kbps. This
is, however, an expensive solution, costing about US $ 2,650 (Rs.120,000)
per installation.

Application Architecture

The application layer represents the logical gateway of technical

infrastructure. The Web site www.echoupal.com is the gateway for the
farmer. The Web site is protected and requires a user ID and password to
login. As of now only sanchalaks are the registered users. Immediately
after recruitment, an account is created for the sanchalak and he is given a
user ID and password to access the system. Farmers can get information
through sanchalaks only. e-Choupal website provides services related to
Weather, Pricing, News, entertainment, sports, local news, Best farming
practices, Q & A, Education, email, Chat etc.

ITC has 63 engineers who provide field infrastructure support to the e-

Choupals. They on an average handle about one or two calls a day. Each e-
Choupal is visited about in two months for infrastructure support. In order
to overcome transportation problems, ITC purchased a fleet of
approximately 25 motorcycles for its support staff. The support cost is
estimated at US $ 10 (Rs. 500) per visit.

Implementation

e-Choupal is implemented on the model of a Self-Sustaining Business.

Unlike a pure trading model the e-Choupal model required significant
investments from ITC to create and maintain its own IT network in rural
India and to identify and train a local farmer, called Sanchalak, to manage
each e-Choupal. It needs a computer which is typically housed in the
Sanchalak’s house. The Internet connection is established over phone lines
or a VSAT connection. The initial hiccups of connectivity issues was
ultimately sorted out by numerous alternatives and innovative solutions –
some of them expensive – are being deployed to overcome these
challenges, e.g., power back-up through batteries charged by Solar panels,
upgrading BSNL exchanges with RNS kits, installation of VSAT equipment,
Mobile Choupals, local caching of static content on website to stream in the
dynamic content more efficiently, 24x7 helpdesk etc. It provides
information to an average of 600 farmers covering a cluster of 10 or so
surrounding villages within almost a five kilometer radius. The one time
investment of an e-Choupal is between US $ 3,000 - 6,000 (Rs 1.5 to 3.0
lacs) and about US $ 100 – 200 (Rs. 5,000 to 10,000) per year of recurring
cost for maintenance. The sanchalak benefits from increased prestige and a
commission paid to him for all e-Choupal transactions. The IT infrastructure
provides farmers information

 On daily closing prices on local mandis of all crops/commodities

 to track global price trends
 to find information about new farming techniques.

To make the model self-sustaining it has been provided that farmers may
order seed, fertilizer, and other products such as consumer goods from ITC
or its partners, at prices lower than those available from village traders. To
save on logistics/transportation cost, sanchalak normally forwards these
orders collectively to the nearest ITC processing centre or representative.

The Supply-Chain Management Model of the e-Choupal

The IT infrastructure at Sanchalak’s end provides an access to a wide range

of information which helps a farmer decide when, where, and at what price
to sell. As per the transparent policy, ITC offers to buy the crop directly
from any farmer at the previous day’s closing price, called the benchmark
Fair Average Quality (FAQ) price of the e-Choupal. The benchmark price
remains fixed for a given day. This information and the previous day mandi
prices are communicated to the sanchalak through the e-Choupal portal.
The commission agents at the mandi are responsible for entering daily
mandi prices into the e-Choupal. If and when the Internet connection fails,
the sanchalak calls an ITC field representative. If the rate suits the farmer,
he brings a sample of his produce to the e-Choupal. The sanchalak inspects
the produce and based on his assessment of the quality makes appropriate
deductions (if any) to the benchmark price and gives the farmer a
conditional quote. The sanchalak performs the quality tests in the farmer’s
presence and must justify any deductions to the farmer. The benchmark
price represents the upper limit on the price a sanchalak can quote. These
simple checks and balances ensure transparency in a process where quality
testing and pricing happen at multiple levels. If the farmer chooses to sell
his crop to ITC, the sanchalak gives him a note capturing his name, his
village, particulars about the quality tests (foreign matter and moisture
content), approximate quantity and conditional price. If the farmer decides
to sell it on the said price, he takes the note and the crop to the nearest
ITC procurement hub. These are ITC’s point for collection of produce and
distribution of inputs sold into rural areas. Some procurement hubs are
simply ITC’s factories that also act as collection points. Others are purely
warehousing operations. For example in MP, ITC’s goal is to have one
processing center within each 30 - 40 kilometer radius of each farmer.
Currently there are 101 hubs. At the ITC procurement hub, a sample of the
farmer’s produce is taken and set aside for laboratory tests. In front of the
farmer a visual inspection is done by a Chemist who verifies the
assessment of the sanchalak. The subsequent lab test is aimed to reward
farmers with bonus points if their quality exceeds the norm. At the end of
the year, farmers can redeem their accumulated bonus points through the
e-Choupal for farm inputs, or contributions toward insurance premiums.
After the inspection, the farmer’s cart is weighed on an electronic
weighbridge, first with the produce and then without. The difference is used
to determine the weight of his produce. After the inspection and weighing
are complete, the farmer then collects his payment in full at the payment
counter. The farmer is also reimbursed for transporting his crop to the
procurement hub. Every stage of the process is accompanied by
appropriate documentation. The farmer is given a copy of lab reports,
agreed rates, and receipts for his records. Thus the Procurement Hub
ensures:

 more accurate weighing using electronic weighing machines

 faster processing time of rates and quality check of the produce
 prompt payment through auto-generated database

The e-Choupal is an ideal example of win-win case. This process protects

the farmers from their age-old exploitation by the traders. A farmer selling
directly to ITC through an e-Choupal typically receives a higher price for his
crops than they would receive through the mandi system because he is now
well informed before proceeding for the selling centre. It also increments a
sense of empowerment among the farmer community. It motivates them to
harvest more and more. In turn, ITC benefits from net procurement costs
that are about 2.5% lower (it saves the commission fee and part of the
transport costs it would otherwise pay to traders who serve as its buying
agents at the mandi) and it has more direct control over the quality of what
it buys..

Impact

The e-Choupal outreached more than 1 million farmers in nearly 11,000

villages within five years of its implementation, and the system is
expanding rapidly. Now it has penetrated over 4 million farmers growing a
range of crops - soyabean, coffee, wheat, rice, pulses, shrimp - in over
40,000 villages through nearly 6200 kiosks across ten states (Madhya
Pradesh, Haryana, Uttarakhand, Karnataka, Andhra Pradesh, Uttar Pradesh,
Maharashtra, Rajasthan, Kerala and Tamil Nadu). ITC offers many
secondary services, too, such as

 Farmers can buy seeds, fertilizer, and some consumer goods at the
ITC processing center, when they bring in their grain.
 Weather forecast
 Sanchalaks earn bonus point by placing a single order hence lowering
ITC’s logistic costs.
 Offers soil testing services
 Supports through educating farmers on ways to improve crop
quality, scientific farm practices & risk management
 Engaging banks to offer farmers access to credit, insurance, and
other services
 Services related to micro-credit, health and education

Some creative sanchalaks also offer electronic links between the farmers
and their families to the world around. Some track futures prices on the
Chicago Board of Trade as well as local mandi prices for comparison. The
village children may use the computers for schoolwork, games, and to
obtain and print out their academic test results. The result is a significant
step toward rural development. Further, a growth in rural incomes will also
unleash the latent demand for industrial goods so necessary for the
continued growth of the Indian economy. This will create another virtuous
cycle propelling the economy into a higher growth trajectory.

Recognition

ITC's e-Choupal has won numerous awards, some of them are:

 United Nations Industrial Development Organisation (UNIDO) Award

2008
 The Ashoka - Changemakers ‘Health For All’ Award 2006 for delivery
of health services through the e-Choupals
 The Stockholm Challenge 2006 award, Innovation for India Award
2006
 e-Choupal was declared as one of ‘India’s Best Innovations’
 The Development Gateway Award 2005. ITC is the first Indian
company to win this prestigious award
 The 'Golden Peacock Global Award for Corporate Social Responsibility
(CSR) in Emerging Economies for 2005'
 The ‘Enterprise Business Transformation Award’ for Asia Pacific
(Apac), instituted by Infosys Technologies and Wharton School of the
University of Pennsylvania
 The NASSCOM award for 'Best IT User in FMCG' in 2003. The Award
is a recognition of ITC's successful integration of its IT usage with its
business processes
 The Seagate Intelligent Enterprise of the Year 2003 Award, for the
most innovative usage of Information Technology.