Transcript No Slide Title

ICT in Agriculture:
ITC’s e-Choupal Experience
DAIICT Gandhinagar, 17 Dec 2004
Agri Business
Sourcing from India
• Pre-1999
 Only Commodity Trading
 Sourcing out of 14 States
 Markets : Worldwide
 1000+ Crores
 Customers : B2B Chain intermediaries
 Risks : Customers are ‘Risks’ to be managed
 Counterparty risks, Credit risks, Country risks
 Landscape of the business
 24/7
 Global
 Volatile
Business Changes on the Sell Side
Well the Landscape itself !!!
• Opened to global trade meant entry of giant MNCs ( e.g,
26 bn USD / 80+ country operations is the size of
smallest MNC player)
 their leverage of information, play across geographies and
volumes is formidable
• Large part of the trade is unorganized meant other
sources of profit
 Source of margin is typically from ‘other’ practices – not
really are ‘best practices’ for a corporate to emulate
• Shifting customer preferences and perspectives about
India as a source meant emerging Niche markets
 “Low Quality – unreliable supplier” to “Customized
solutions – somewhat reliable supplier”
On the Buy Side: The Global Context &
The Canvas of Indian Agriculture
• Global
 Globalisation
 Privatization
 Concerns about Food Safety, Ecological Security
• India
 2nd largest arable land
 Huge mismatch in Potential and Performance
 Lowest yields
 Highest cost of production
– Means, export value chain competitiveness is an issue
And on the ground…there are millions of
farmers in rural India resigned to fate
• Because most of them are small (1.5 ha average holding)
 They do not have bargaining power
• Because all of them live in hinterlands (600,000 villages)
 They do not have access to real time information (prices,
weather)
• Because the circumstance of each one is very different
(agro-ecological conditions, resources)
 They cannot get customized knowledge advise (on farm
practices, risk management)
How are they still delivering ?
• With the help of several middlemen
 Who make up for lack of infrastructure and deliver various
services (aggregation, logistics, financing) at low cost
• But these middlemen also end up exploiting these
farmers
 By blocking flow of information and market signals
 and creating a cycle of dependency (for cash, inputs,
selling output)
• This locks the farmer into a vicious cycle
 Low risk taking ability > Low investment > Low productivity
> Low margins > Low risk taking ability
The Farmer’s Vicious Cycle
Low Risk Taking Ability
Low Margin
Low Investment
Low Value Addition
Low Productivity
Weak market Orientation
 Answer : Leverage the power of collaborative business models
Back to the Drawing Board
Revisit the Business Vision and Strategic Intent
Amongst the cornucopia of
regulations, inefficient
systems, highly
protected environment
because of its
sensitivity and looming
intense competitive
landscape…
… We saw Bigger Opportunities !!!
to create a sustianable model with overlay of
three businesses
• Commodity Business
 Eliminate inefficiencies in the value chain
 Create and capture the emerging Niche Markets
 Value Added Commodities
• Sourcing Partner
 Become a supply chain partner to ‘select’ customers
through supply chains that are
 Information intensive
 Transaction efficient
 Customer led
• Rural Marketing
 Distribution of products / services
 Retailing
Our response to seize the opportunity: unlock value
first through elimination of inefficiencies
Enhance farmer’s
income generating capacity
in agriculture
The Insight - 1
• We have seen inefficiency in value chain is chiefly due to
the intermediation at various legs. Actually, these
numerous
intermediaries
makeup
for
weak
infrastructure, and deliver critical value in each leg at
very low cost
 It is their aggregate cost that makes the chain
uncompetitive
 And by blocking flow of information & market signals, they
are able to extract more profits for themselves than the
value they are delivering
• A more effective business model must be able to
leverage the physical transmission capabilities of these
intermediaries, yet disintermediate them from the flow of
information and market signals
 Answer > Virtual Vertical Integration
Rapid Developments in IT
make such a model feasible
Eliminate inefficiencies
and/ or create new value
in a range of commodities
IT is the Enabler!
• Delivering real time information to many
farmers directly across geographies
 Facilitating informed choices
• Provide customized solutions for a farmer’s
specific need with the help of experts
 Improving farm yields
• By virtually aggregating the small farmers and
linking them to various entities in the supply
chain
 Improving transaction efficiency
The Insight - 2
• Realtime multicasting, seamless workflow and oneto-one interactive capabilities of IT and Internet gave
us the power to design a new model
 But physically reaching the nook & corner of India, and
facilitating Net access to the largely illiterate farmers at
low cost, and delivering effective service is still a
challenge…
• The only historical success stories we could rely on
were cross-industry !
 Wide & Deep penetration of the FMCG retail channel
 Low cost reach & effective customer servicing by
PCOs and Cable TV Operators
• Common Theme : Unleashing the power of small
scale entrepreneur & technology to unlock value for
equitable distribution across the chain
Delivering ICTs in Rural India
• Cost Barrier
 Computer in the house of a designated farmer
(Sanchalak)
 Shared access for lower cost
• Literacy
barriers
and
‘high
technology’
operating
 Facilitated access overcomes these barriers
 Huge investment in trainings, operating
maintenance skills
• Infrastructure Constraints
 Self sufficiency of infrastructure
 Power
 Connectivity to Internet
and
The Hardworking Indian Farmers
are Constrained…
• …because most of them are small (1.5 ha average holding)
 They do not have bargaining power
• …because all of them live in hinterlands (600,000 villages)
 They do not have access to real time information (prices, weather)
• …because the circumstance of each one is very different (agroecological conditions, resources)
 They cannot get customized knowledge advise (on farm practices,
risk management)
ITC eChoupal, by Leveraging Information
Technology, Overcomes these Constraints
• By virtually aggregating the small farmers and linking them to
various entities in the supply chain
• Improving transaction efficiency
• Delivering real time information to many farmers directly across
geographies
• Facilitating informed choices
• Provide customized solutions for a farmer’s specific need with
the help of experts
• Increasing farm yields
Ingredients of ITC eChoupal
Leverage IT, in order to
a.
deliver real-time information and customised knowledge to improve
farmers’ decision making ability to align farm output with market
demands, and to improve productivity
b.
aggregate demand like a virtual producers’ cooperative and access
high quality farm inputs at lower cost
c.
act as a direct marketing channel with more efficient price discovery
and lower transaction costs in output marketing
Reaching eChoupal to the Farmer
•
‘Sanchalak’, a lead farmer selected from within the
village and trained to interface between the
computer (placed in his house) and the other
farmers, is designed as a 3-in-1 solution to
a. Overcome the literacy barrier
b. Keep the costs low
c. Effectively manage the relationships in the village
Best Farming Practices & Localised
Weather Information at His Doorstep
Taking IT to the Farmer
•
•
eChoupal @ Village Level (Within 5 KM of all target farmers)
•
Sanchalak, a farmer selected from within the village &
trained, interfaces between Computer and the
Community
•
Computer with Multimedia & Internet Access
Hub @ Area Level (Within 30 KM of all Choupals)

Samyojak, a trader appointed by ITC, provides various
services under ITC supervision

Quality Testing, Electronic Weighment, Storage,
Payments
Speed Breaker 1: Connectivity
Speed Breaker 2: Power
Speed Breaker 3 : First Time Net Usage
Significant amount of time & effort on training
Issues in Execution
• Hard Issues:
 Appropriate systems for quality testing, pricing,
logistics, manifold transactions
 Equipment suitable for rural environment
 Special needs for Power, Connectivity, Delivery
over Low Bandwidth, Help Desk, Training
 Bulk Storage & Handling Hubs
• Soft Issues:
 Viable Village, Right profile of sanchalak,
community building processes
 The touch (different kind of interface at factory;
Written Contract Vs Public Oath)
Oath
Finally, the ITC eChoupal
• One-stop-shop, offering…
 Information (weather, prices, news) + Knowledge (farm
management, risk management) + Inputs (screened for
quality) + Output (convenience, lower transaction costs)
• Interlocking Network of Partnerships to bring in “best
in class” in all offers
 (ITC+IMD+Universities+Input Cos etc.)
• Physical Net Access & Community Interface through a
lead farmer identified from within the village and
appointed as Choupal Sanchalak
 Sanchalak has a transaction based income stream
 Thus the delivery mechanism in addition to being a low
cost option, is also more effective because the
sanchalak is one among the community
eChoupal benefits the farmer, by
• Enhancing farm productivity
 Through bundling knowledge with input deliveries
• Increasing farm gate price realization
 Through bundling information with cropping &
output marketing decisions
 Through unbundling produce delivery, cash flow
and pricing
 Through supply chain efficiencies
eChoupal benefits ITC, by
• Cutting down net cost of procurement, despite
offering better prices to the farmers
 By eliminating non-value adding costs in the value
chain
 By better quality segregation
• Creating a manageable and visible supply chain
for delivering highly tailor-made services to
customers
 Value added services – packaging, documentation etc
 Traceability services – ‘high sensitive’ food items e.g,
marine products, organic foods, GMO produce
Who Pays ?
 It will still cost a lot of money ! So who will pay for it ?
 Not the farmer… while the market research does show that farmer
will be willing to pay, it will not sufficient for viability
 Not the Agri Companies… every company thinks that someone
else will do it
 Not the Governments… while the intention exists, resources are an
issue
 Unevolved markets in emerging economies provide interesting
opportunities

Elimination of non-value adding activities
 Creation of new value through quality / tracability

Answer: Discover the latent value in emerging economies
Revenue Models vary across Commodities,
though the underlying model is the same
 Grains (Wheat & Rice)
 Field Crops like Soya, but relatively higher level of inputs and
output ; grown under assured irrigation conditions ; Govt buying
support & large subsidies
 Scope in additional margins through quality segregation
 Aquaculture
 High investment, high risk (diseases) farming, knowledge
intensive, perishable product
 Greater profit potential in knowledge transfer and sourcing
traceable products for sophisticated global markets
 Coffee
 Plantation crop, highly volatile prices, more sophisticated grower
profile, better knowledge of farm practices
 Revenue model in delivering personalised risk management
advisory services, backed by an electronic transaction platform
among all key market participants
Offering a new & efficient channel
distribution of goods & services
into the large rural markets
Growth in rural incomes
unleashing the
latent demand potential
of various goods & services
which can be addressed at
incremental cost
e-Choupal as a marketing channel
• As an interactive transaction channel, together
with the front-end service through sanchalaks, eChoupal offers
 Process benefits (which make transactions between
buyer & seller easier, quicker, less expensive and more
pleasant)
 Relationship benefits (which reward the willingness of
consumers to identify themselves and to reveal their
purchasing behaviour)
• Using the low-cost physical distribution
infrastructure
 Source of advantage because it is at an incremental
cost
Our Vision
• Rural India’s largest & most effective
Interactive Transaction & Fulfillment Channel
 Covering 100,000 villages across 14 States through
20,000 choupals
• While delivering shareholder value
sustainably
• Also contributing to
 Enhancing global competitiveness of Indian
Agriculture
 And, adding to the quality of life in Indian villages
To Sum Up
A Story of Practice – ITC eChoupal
 Understand




and
Fulfill
needs
Build deep relationships
Biz model built on market
principles
Variety of ingredients
Execution is the key
•
“There is no silver bullet. It’s really a game of
execution.”
•
•
– Michael Dell
Chairman and CEO Dell Computer Corp.
THANK YOU