The ITC eChoupal

Converting Challenges into Opportunities

Challenge of Inclusive Growth

People Level

Low purchasing power, low investment, low consumption, less productivity

Policy Level
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The challenge lies in sustaining high rates of economic growth with equitable benefit
sharing in order to convert the worlds largest pool of economically disadvantaged
people into viable consumers
Project Level
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Lack of Clarity of Objectives

Lack of Community Participation
Blunt Cutting Edge
Rentier System
Over Centralized and Complicated Procedures
Weak Inter-Departmental Linkages
Opaqueness in Functioning
Economies in Management

ITCs Goal
Commitment Beyond the Market
ITC consciously exercises the strategic choice of
contributing to and securing the competitiveness of
the entire value chain of which it is a part.

Creative use of information technology through the

eChoupal initiative has enabled the company to bring
together diverse agencies, each with specialized
competencies, in a bid to empower the Indian farmer.

At Village : Choupal
A meeting place is choupal. The choupal constitute an
informal assembly, a forum that villagers could call
their own, a place where knowledge are shared and
captured.
Village Dhobal- Located 25 kms south of Bhopal in
Madhya Pradesh
In village soybean farmers since generation
harvesting their crop and selling it in the local marketmandi.

At International Business Division (IBD)

ITC -Hyderabad
IBD was the agricultural commodities export division of ITC,
and, by March 1999, it was clear that it was lagging behind the
with other divisions of the company.
In 1998, IBD had gross Rs. 450 crore ($100 million) in
agricultural commodities sales, a marginal addition to the total
Rs. 7701 crore ($2 billion) in sales generated by ITCs other
divisions, which included tobacco, paperboard, retail,
hospitality, and foods, among others.
In the corporate offices of IBD, Chief Executive S. Sivakumar
pondered the choupal concept.

The Area Soyabowl

Madhya Pradesh (MP) had been dubbed Indias soyabowl, as its
farmers contributed 4 million of Indias 5 million tons of soybean
crop.
The soybean and its derivatives comprised two-thirds of ITCs
agricultural export business. ITC sourced soybeans from farmers
located throughout rural Madhya Pradesh.
ITC had a 100-year relationship with farmers (based originally on
the tobacco industry)- gave it an integrated presence along the
entire value chain, from procuring soybeans from farmers and
processing the beans in exclusively hired processing plants, to
exporting the processed soymeal via vessel loads and container
shipments.

Soya as commodity
When soybeans were processed, about 80% of the crushed bean
was turned into soymeal, a high-protein extract that was added to
poultry and cattle feed.
The remaining 20% of the soybean material became edible oil,
highly valued for its nutritional content and a very popular
cooking medium in the domestic market.
ITC exported soymeal to countries such as China, Pakistan,
Bangladesh, and the United Arab Emirates, as well as other parts
of Southeast Asia.
ITC had been successful in selling soybean oil domestically and processed
soymeal internationally, but both the input and output sides of the
agricultural supply chain in India were still far from efficient.

The Challenge
Limited technological resources in India had constrained the dissemination of
know-how in rural farming communities.
Farmers did not have access to quality inputs, such as sowing seeds, herbicides,
and pesticides, or information, such as accurate weather reports, that would help
them improve their crop quality as well as the process of bringing it to market.
Did not reap financial benefits from any profits made off the valuable soybeanderived materials.
In fact, farmers were losing 60-70% of the potential value of their crop, with
agricultural yields only a third to a quarter of global standards.
Similarly, on the output side, middlemen clogged the supply chain, reducing
profit margins for both farmers and buyers such as ITC.
Unfair practices affected the way the farmers were paid, the weighing of the
produce, and the amount of time taken by the process.
This drastically increased transaction costs, slashing potential profits for the

Prior to ITC
1.

Farmers in Madhya Pradesh made their living in much the same style as their
predecessors 50 years earlier.

2.

The process of getting crops to market began with farmers harvesting the
soybeans and loading them onto tractors and bullock carts.

3.

Farms varied in size from under five acres for a smallfarmer to greater than
12 acres for a large farmer. An average farmer, with about 9 acres of
farmland, could expect an annual net income of approximately Rs. 20,000
($443) from soybeans and wheat together.

4.

After the harvest, farmers hauled their loads of produce 30-50 kilometers to
the closest mandi and then waited for the crop to be auctioned.

5.

The auction began when a government appointed bidder valued the produce
and set the initial bid. From here, government-licensed buyers called
commission agents (CAs) bid upwards until the crop was sold.

In March 1999
Both farmers and soybean processors were
locked in an unproductive cycle.
Farmers had limited capacity for risk and
therefore tended to minimize their investment in
crops, in case of inclement weather or pests
destroy their investment.
This meant a lower-value crop, which translated into
slim margins for both the processor and the farmer.
With such risk aversion, farmers were also loath to
experiment with new farming methods.

Two Questions
Sivakumar knew a host of factors

Fragmented farms,
Overdependence on monsoons, and
Lack of sophisticated inputs and
Farming practices undermined the competitiveness of Indian
agriculture

1. What can we do to secure the competitiveness of the entire value

chain, so that this business achieves its full potential?
2. How could a small business think of investing large sums
towards such a goal?
3. Sivakumar began to rethink the soybean supply chain. He studied the
farmers villages and market yards to identify pieces of the supply chain that
could be improved, so that IBD might reach its goal of Rs. 2,000 crore
($442.6 million) in revenue by the year 2005.

 ITC contracted with a specific CA in each mandi to bid on behalf of the

company.
Prices were authorized by ITCs office in Bhopal, MP.
ITC employed a team of traders who followed the global market.
CA knew what price ITC would pay, nothing prevented him from buying from
the farmer at a much lower price, selling to ITC at market price, and pocketing
the difference.
Once a CA won an auction, the farmer brought his tractor to that CAs shop in the
mandi and waited for the produce to be weighed on a manually operated balance
scale that accommodated only small increments of the lot.
The actual weight of the crop was often manipulated at this point because of the
inaccuracy of the crude beam scales. For example, if the farmer brought 20 quintals
of loose soybeans to the mandi
Farmers could expect to lose about 10 kilograms total during the transactions, or
0.5% of his original lot. This translated to a loss of about 100 Rs. ($2.22) per lot.
After the weighing process, the product was bagged and the farmer was paid.

village A - mandi B - factory C cycle

Knowledge shared and captured in the traditional choupal could be
extraordinarily useful to farmers, but it had traditionally been limited to verbal
communication.
At village level: Sanchalak
In the evening, 15-20 people at a time showed up at the Sanchalaks home for the
usual choupal gathering.
The ITC computer system that had been put in place offered new impetus to the
discussions.
In addition to the regular chatter, the Sanchalak would use his 15 assigned user
name and password to access <www.soyachoupal.com> and share with his
neighbors the interactive features of the site.

At Mandi Level Samyojaks

ITC mandated that its CAs become Samyojaks if an eChoupal was being set up in
their geographic area.
In most cases the transformation was achieved by convincing CAs of the potential
revenue to be gained through the transactions in the eChoupal.
The Samyojak role comprised three major areas of responsibility: 1) setting up the
eChoupals; 2) facilitating ITCs purchasing transactions; and 3) helping with ITCs
selling transactions.

The eChoupal

At the May 1999 meeting, Sivakumar and his team conceived ITCs eChoupal
initiative.

The eChoupal was based on the knowledge sharing found in the traditional choupal
model, but took the concept one step further.
ITC supplied a computer kit to each village with the following components:

A PC with a Windows/Intel platform, multimedia kit, and connectivity interface

Connection lines, either telephone (with bit rate between 28.8 and 36 Kbps) or, more
commonly, VSAT12 (in 75% of eChoupals; average 2003 usage 64 Kbps inbound, 1
Mbps outbound)
A power supply consisting of UPS13 and solar-powered battery backup
A dot-matrix printer

The total setup cost to ITC was Rs. 170,000 ($3,762) per choupal. Another Rs.
100,000 ($2,213) was spent on people, travel, communication, software, and
training.

With the arrival of these components, choupals at the home of Kamal Chand Jain
were no longer limited to stories and gossip of the village. Farmers were instead
accessing the World Wide Web through a site dedicated specifically to them, ITCs
<www.soyachoupal.com>.

www.soyachoupal.com
The site opened up by welcoming farmers into the community of
the eChoupal
On the left side of the screen, there were 8 links to the areas of key
information that comprised the eChoupal:
1.
2.
3.
4.
5.
6.
7.
8.

weather,
best practices,
crop information,
market information,
FAQs,
news,
feedback, and
information about ITC.

The feature set had been developed progressively with full

involvement of the farmers using the system.

3 Systems enabled ITC

Three systems enabled ITC to sell and deliver goods to farmers
through the eChoupal.
The first was at the village level, where the Sanchalak aggregated
demand for products through orders placed by his fellow farmers.
This was done during the traditional choupal time.
The Sanchalak then emailed the order to ITC, and the items
were either
a) picked up by the Sanchalak at the ITC warehousing hub, or
b) delivered by the Samyojak to the villages.
In either case the Sanchalak collected cash payments from his
neighbors and remitted them to ITC. Seeds and fertilizers were
sold in this way.

 The second system did not involve any prior orders.

Instead, the Sanchalak bought products based on estimated
demand and stocked them in his home.
Products sold this way were again procured by either Sanchalak
pickup or Samyojak delivery.
This system was most effective for consumer goods such as
salt, matchboxes, soybean oil, and confectionary items.
These were all ITC products, and both the company and the
Sanchalak earned a fee from any sales.

The third system for selling additional goods through the eChoupal was
shopping for the products at the ITC processing facility.
When Sanchalaks and farmers visited the ITC facility to sell their
produce, they also had the opportunity to peruse the warehousing hubs
for items on which they might like to spend their freshly earned cash.
Samyojaks managed these warehouses, assisting ITC in creating retail
storefronts in the setup for 2003.
This interactive feature of the eChoupal system created an opportunity for
ITC, the Sanchalak, and the Samyojak to turn profits that were simply not
possible under the traditional system.
The Sanchalaks job of arranging and mobilizing the farmers to take their
soybeans directly to the ITC processing facility meant greater revenue for
the company and commission for the Sanchalak.
It was estimated that ITC saved $5/ton on freight cost; from those
savings, ITC would reimburse the farmer for the time it took to travel to
the ITC facility.

Increasing Value in the System

Clarity of Objectives
Active Community Participation
Sharp Cutting Edge
No Rentier System
Decentralized & Simplified Procedures
Strong Inter-tier Linkages
Transparent Functioning
Economies in Management