role of e choupal in rural marketing
TRANSCRIPT
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Role of e-Choupal in RuralMarketing
Role of e-Choupal In Rural Marketing
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Executive Summary
E-choupal was a term introduced by the ITC, which
has gained success and improved the status of rural
farmers . For this, ITC has received “ The Corporate Social
Responsibility Award 2004” from The Energy and
Resources Institute (TERI) for its e-choupal initiative.
In the first chapter, the meaning of e- choupal is
explained i.e. an innovative technique of marketing in
rural areas, mainly used for agricultural produce. Also
there is a mention about agricultural marketing system
that prevails in the rural areas. Then we trace the origin of
e-choupal and how it has originated and developed as an
effective distribution system for agricultural produce. Theoperation of the mandi system, its costs involvement and
limitation gave vent to the success of e- choupal. Then we
look into the vision and planning behind e-choupal.
Then the business model of e- choupal is explained.
This model is centered on a network of e-choupals,
information centers equipped with a computer connected
to the Internet, located in rural farming villages. E-
Choupals serve both as a social gathering place for
exchange of information. The e- choupal system is studied
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and the re-engineered supply chain is discussed. ITC’s
vision for marketing via the e-choupal involved three
features: superior product and distinctive functionalbenefits, process benefits (simplified transactions
between buyer and seller), and relationship benefits
(farmers’ willingness to identify themselves and reveal
their purchasing behavior). Hence we study, how e-
choupal actually works, what are its marketing channels,
infrastructural development and its beneficiaries,the role
it has played in transformation of rural market
In the third chapter we take a look at initiatives taken
by ITC in rural development. We see that the success of
e- choupal in agricultural field has compelled ITC to
expand other allied sectors in rural India like women
employment, the dairy productivity. It aims at making
rural India self –reliant.
The e-Choupal model shows that a large corporation
can combine a social mission and an ambitious
commercial venture; that it can play a major role in
rationalizing markets and increasing the efficiency of an
agricultural system, and do so in ways that benefit
farmers and rural communities as well as company
shareholders. E-Choupal has been most successful
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initiative to wire rural India and to involve the farmers in
learning. ITC has been successful in making the farmer
feel the sense of ownership and enthuse him to generateadditional revenue by eliminating middleman.
The success of e-Choupal has given new lessons to
the corporates in the India and abroad. The gains from the
novel initiative are manifold to ITC, the farmers and other
companies. E-Choupal has helped the farmers to improve
their productivity and get better prices, whereas ITC has
benefited by better sourcing of raw materials and building
a backbone to market the end products which is vital for
the FMCG companies like ITC.
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TABLE OF CONTENT
Sr.
No.
Chapter Page
No.1 Introduction 1
Origins of e-choupal 2
Distribution Channels Prior To the e-choupal
4
Limitations of the Mandi System 7
Vision and Planning Behind the e-choupal 11
2 e-choupal and Profitable RuralTransformation
14
The Business Model of e-choupal 14
e-choupal as a Marketing Channel 23
Advantages of e-choupal to the Farmer 29
Infrastructural Development 32
The Social Impact of e-choupal 38 Impact on Other Agricultural Produce 39
3 Other initiatives by ITC 41
Rural Malls 41
Women’s Empowerment 47
Livestock Development 48
Primary Education 50
4 Conclusion 52
5 Annexure 56
6 Bibliography 65
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Chapter 1
INTRODUCTION
Rural India is a difficult business location. Transport, electric
power, and information infrastructure are inadequate. Business practices
are underdeveloped or outdated. Lack of access to modern resources has
resulted in an under-trained workforce. Rural society is structured around
subsistence and is unprepared for modern products and services. These
constraints, along with many others, have dissuaded most companies
from taking on the challenge of rural commerce. Yet such an engagement
can serve a dual agenda: bridging rural isolation and the resulting
disparities of education and economic opportunity, while at the same
time creating a potentially large profit opportunity for the organization
willing to tackle the inefficiencies. The key question is how modern
resources and methods can be practically deployed to profitablyovercome rural constraints. Also important are the social impacts of such
an engagement.
Meaning
In Hindi choupal means a village place where people gather,
gossip, smoke hukka, discuss or interact with each other. There may be a
sanchalak or a leader who heads the proceedings when a choupal is
equipped with computer and inter net connectivity; it is called e-choupal.
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ITC’s e-Choupal initiative began by deploying technology to re-
engineer procurement of soya and other crops from rural India. It has
lgone on to serve as a highly profitable distribution and product designchannel. The effort holds valuable lessons in rural engagement and
demonstrates the magnitude of the opportunity while illustrating the
social and development impact of bringing global resources, practices,
and remuneration to the Indian farmer.
Origins of e-choupal
The ITC group is one of India’s foremost private sector companies
with a market capitalization of around US$4 billion and annual revenues
of US$2 billion. ITC has a diversified presence in tobacco, hotels,
paperboards, specialty papers, packaging, agri-business, branded apparel,
packaged foods and other fast moving consumer goods.
Spurred by India’s need to generate foreign exchange, ITC's
International Business Division (IBD) was created in 1990 as an agri-
trading company aiming to “offer the world the best of India's produce.”
Initially, the agricultural commodity trading business was small
compared to international players. By 1996, the opening up of the Indian
market had brought in international competition. Large international
companies had better margin-to-risk ratios because of wider options for
risk management and arbitrage. For an Indian company to replicate the
operating model of such multinational corporations would have required
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a massive horizontal and vertical expansion. In 1998, after competition
forced ITC to explore the options of sale, merger, and closure of IBD,
ITC ultimately decided to retain the business. The Chairman of ITCchallenged 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. Today, IBD is a US$150 million company that trades in
commodities such as feed ingredients, food-grains, coffee, black pepper,
edible nuts, marine products, and processed fruits.
Corporate and social responsibility is an integral part of ITC’s
philosophy, and ITC is widely recognized as dedicated to the cause of
nation building. Chairman Y. C. Deveshwar calls this source of
inspiration “a commitment beyond the market.”
“ITC believes that its aspiration to create enduring value for the
nation provides the motive force to sustain growing shareholder value.
ITC practices this philosophy by not only driving each of its businesses
towards international competitiveness but by also consciously
contributing to enhancing the competitiveness of the larger value chain of
which it is a part.
This view of social consciousness allowed ITC to recognize the
unique opportunity of blending shareholder value creation with social
development. The social impact of the e-Choupals as envisioned by ITC
ranges from the short-term provision of Internet access to the long-term
development of rural India as a competitive supplier and consumer of a
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range of goods and services in the global economy. The sustainability of
the engagement comes from the idea that neither the corporate nor social
agendas will be subordinated in favor of the other.Distribution Channels Prior To the e-Choupal
There are three commercial channels for soy: traders, government-
mandated markets (mandis), and producer-run cooperative societies for
crushing in cooperative mills. In addition, farmers traditionally keep a
small amount of their crops for their personal consumption and get the
produce processed in a small-scale crushing-plant called a ghani. The
system varies among states and districts, as does the percentage of
produce going through each channel, but on average, 90% of soy crops
are processed through traders and mandis.
Operation of the Mandi Distribution System
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The Agricultural Products Marketing Act legislated the creation of
mandis to enable a more equitable distribution of the gains from
agriculture among producers, consumers, and traders. The mandi iscentral to the functioning of the marketing channel, and acts as delivery
point where farmers bring produce for sale to traders. In the soy growing
areas of Madhya Pradesh, a mandi typically serves around 700 square
kilometers, although the area served by a mandi varies by state. With
traditional grains, large portions are used by the farmer or bartered for
different crops. But since soy is not native to the Indian palate, its major
market is the crushing plant and nearly the entire crop must be exported.
This makes the mandi a vital part of the soya chain.
Mandi trading is conducted by commission agents called adatiyas
(brokers who buy and sell produce). They are of two types: kachha
adatiyas are purchasing agents that buy only on behalf of others and
pukka adatiyas who finance trade as representatives of distant buyers and
sometimes procure crops on their own account. All the adatiyas belong to
the Agarwal and Jain community, an economic class distinct from
farmers. This community manages grain trade across the entire country
including south India, a remarkable feat considering the vast cultural and
social diversity across the nation. The lack of professional competition
combined with the communal stranglehold on rural trading has made
commission agents extremely wealthy. Commission agents from medium
sized mandis can possess assets and incomes in the millions of dollars.
The adatiyas established and grew the soy industry on the basis of
familial and community trust, with buying and selling based upon oral
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agreements. Their expansive personal networks within the industry and
their financial influence make them a formidable presence.
The operation of the Mandi consists of a number of different
stages, from the logistics of transporting grain to the market to quality
inspection, auction, bagging and weighing, and payment. Based upon
local information within the village, farmers decide in which of the
nearby mandis to sell. They transport their crops to the mandis in carts
drawn by animals or tractors. Very often, to avoid peak-time crowds,
farmers will arrive at the mandi the night before they intend to sell. When
the mandi opens in the morning, farmers bring their carts to display areas
within the mandi.
The inspection by buyers is by sight. There is no formal method of
grading the produce and the only instrument used is the moisture meter;
the crop is not tested for oil content.
Once potential buyers have inspected the produce, a mandi
employee conducts the auction, where commission agents place bids. The
auctions are typically open oral auctions with incremental bidding. The
auction represents a stark contrast from the buyer’s and seller’s
perspectives. For the farmer, the moment is pivotal: a scant 30 seconds
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assesses the results of six months of investment and hard work and
establishes the value of one of only two or three paydays he will have in
the year. For the commission agent, on the other hand, the moment isroutine; he has many more carts of produce to buy and his margin is
assured irrespective of the price.
Once the price has been established by the auction, the farmer
moves the cart to the weighing area run by the buying commission agent.
In most cases, the weighing area is in the mandi complex. In some cases,
especially if the mandi is small, the weighing area may be at the
commission agent’s home near the mandi. Here, the produce is
transferred from the cart into individual sacks. The sacks are then
weighed, one at a time, on a manual scale. After weighing, the full value
of the grain is calculated. The farmer goes to the agent’s office to collect
a cash payment. The agent pays a mandi fee (1% of purchase value in
Madhya Pradesh) to the mandi. The bagged produce is then loaded on to
the buyer’s trucks and transported to the processing plant.
Limitations of the Mandi System
The mandi system does not serve the farmer well, and is burdened
by inefficiency. Because the farmer does not have the resources to
analyze or exploit price trends, the timing of the sale may not result in the
optimal price for the crop. Moreover, since the actual sale price is
determined at the auction, by the time the farmer gets the price, it is too
late to go to another mandi to make his sale. Other expenses and
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inefficiencies exist: the overnight stay near the mandi costs the farmer
money; most crops are displayed in open air courtyards, and are therefore
subject to being negatively affected by the weather; the inspection process is unscientific and often arbitrary, tending to favor the buyer, and
generally does not provide an incentive to farmers to invest in better seed
or farming practices that lead to higher quality—even though quality,
especially oil content, matters to soy processors.
In addition, farmers find the auction process demeaning. Agents
belong to a close-knit community that is socially and economically
distinct from the farmers’ community. While they may not collude in
pricing, they do collude in establishing the practices of the trade that
uniformly favor agents and exploit the farmers’ situation. The farmers
also bear the cost of bagging and weighing the crop, which is done by
mandi laborers—part of whose compensation is the sale of spilled
produce. Needless to say, these laborers ensure that some portion of each
lot is spilled.
Farmers feel that the weighers consistently under-weigh their
produce by applying practiced and timely nudges to the scale. Historical
intimidation and long queues waiting behind them dissuade the farmers
from protesting. To add to this exploitation, the farmer is never paid the
full purchase price up front but is paid a partial amount and asked to
return to the mandi later for the remainder. Farmers are not paid interest
on the remaining sum—although crushers pay agents usurious rates for
the privilege of delayed payment—and repeating the trip to the mandi
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costs farmers time and money. Since the crop has already been delivered,
however, the farmers are at the agents’ mercy.
Apart from the exploitation of the farmer, there are other
inefficiencies in the system. The multiple points of handling in the
supply-chain require the produce to be bagged, which takes four to five
times longer to be unloaded at the processing plant than untagged
produce. Traders generally do not have the capacity to store and manage
different qualities and grades of produce, inhibiting efforts to produce
better crop grades. Pricing is set locally at the mandis, and is not reliably
tracked or reported nationally, resulting in a lack of information that
reduces the opportunity for arbitrage and leads to market inefficiency. In
addition, regulator restrictions tend to limit arbitrage to small geographic
areas.
The mandi system also does not serve trading companies such as
ITC well; its inefficiencies make the mandi far from an optimal
procurement channel. From the company’s point of view, the key
problem is the agent’s control of the market and the resulting distortions
of price and quality. Agents purchase grain on a trading company’s
behalf. Some of the produce they buy is of good quality and therefore
commands a premium price, while other crops are of poor quality and
therefore sell at a discount. In any given day, an agent purchases produce
with a range of crop quality at a range of prices. The agent often mixes
the different quality crops together and charges the trading company a
single price near the higher end of the price spectrum.
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Not only does the agent inflate the price to trading companies, he
also inflates the price at the mandi. As we have seen, high-quality produce is used to make an entire lot of lower quality produce
acceptable.Because of its value to agents, agents pay an inflated premium
for high-quality produce, which drives up the high crop price at the
mandi for the day. Very few farmers actually get the price for top-quality
produce, but this price acts as a benchmark for the next day’s pricing,
thereby inflating the mandi price over a period of time and increasing
costs for trading companies.
Additionally, the trading company establishes a daily price range
for its agent to buy within. If the agent’s average buy price that day is
lower than the low end of the established price, the agent sells the grain
to the trading company at the established low price and pockets the
difference. If, however, the average buy price is higher than the trading
company’s established high price, the agent will still buy the produce but
will report to the company that since its price was not high enough, no
grain could be bought. The agent will store the grain and sell it to the
trading company the next day when the established price has been raised
to make-up for the previous day’s procurement shortfall. Commission
agents therefore capture the entire benefit of intra-day price shifts. The
agents therefore operate without risk of loss of profit. Officially, the
agents’ commission is 1% of ITC’s price. In reality, ITC estimates that
the agents’ operating margin is around 2.5-3%.As a result of the
commission agent structure in the traditional mandi system, ITC had no
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direct interaction with the farmer. This gap created a range of supply-
chain issues, including limiting ITC’s knowledge of its crops, suppliers,
and supply risks, as well as limiting the company’s ability to improvecrop quality and quantity by bringing modern agricultural practices to the
farmers.
The company developed its e-Choupal strategy as a way to
communicate directly with the farmer and to bypass the inefficiencies
arising out of the agents’ intermediation, thereby achieving “virtual
vertical integration.”
Vision and Planning Behind the e-Choupals
Implementing and managing e-Choupals is a significant departure
from commodities trading. Through its tobacco business, ITC has worked
in Indian agriculture for decades, from research to procurement to
distribution. ITC’s translation of the tactical and strategic challenges it
faced and its social commitment into a business model demonstrates a
deep understanding of both agrarian systems and modern management.
Some of the guiding management principles are:
• Re-engineer, Not Reconstruct
The conventional view of transforming established business
systems begins with the failures of the current system and develops
means to change it. ITC took a different approach by looking at the
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successes of the current system and identifying what they could build on.
ITC not only retained the efficient providers within the mandi system but
also created roles for some inefficient providers. This philosophy has two benefits. First, it avoids “reinventing the wheel” in areas where ITC
would not be able to add value through its presence. Second, it recruits
and engages members of the rural landscape thereby making their
expertise available to ITC while preventing their expertise from being
shared with ITC’s competition.
• Address the Whole, Not Just One Part
The farmers’ various activities range from procuring inputs to
selling produce. Currently, the village trader services the spectrum of
farmers’ needs. He is a centralized provider of cash, seed, fertilizer,
pesticides, and also the only marketing channel. As a result, the trader
enjoys two competitive benefits. First, his intimate knowledge of the
farmer and village dynamics allow him to accurately assess and manage
risk. Second, he reduces overall transaction costs by aggregating services.
The linked transactions reduce the farmers’ overall cost in the short term,
but create a cycle of exploitative dependency in the long-term. Rural
development efforts thus far have focused only on individual pieces
rather than what the entire community needs. Cooperatives have tried to
provide agricultural inputs, rural banks have tried to provide credit, and
mandis have tried to create a better marketing channel. These efforts
cannot compete against the trader’s bundled offer. Functioning as a
viable procurement alternative, therefore, must eventually address a
range of needs, not just the marketing channel.
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• An IT-Driven Solution
From the conception of the model, an IT-based solution was
recognized as fundamental to optimizing effectiveness, scalability, and
cost. Information technology is 20% of all the effort of ITC’s e-Choupal
business model, but is considered the most crucial 20%. The two goals
envisioned for IT are:
• Delivery of real-time information independent of the
transaction. In the mandi system, delivery,pricing, and sales happen
simultaneously, thus binding the farmer to an agent. E-Choupal was seen
as a medium of delivering critical market information independent of the
mandi, thus allowing the farmer an empowered choice of where and
when to sell his crop.
• Facilitate collaboration between the many parties required
to fulfill the spectrum of farmer needs. As a communication mechanism,
this goal is related to the commitment to address the whole system, not
just a part of the system. It should be noted that ITC did not hesitate to
stall expensive IT infrastructure in places where most people would be
wary of visiting overnight. It is a manifestation of the integrity of rural
value systems that not a single case of theft, misappropriation, or misuse
has been reported among the almost 2,000 e-Choupals.
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Chapter 2
E-Choupal and Profitable Rural Transformation
The Business Model of e-choupal
The model is centered on a network of e-Choupals, information
centers equipped with a computer connected to the Internet, located in
rural farming villages. E-Choupals serve both as a social gathering place
for exchange of information (choupal means traditional village gathering
place in Hindi) and an e-commerce hub. A local farmer acting as a
sanchalak (coordinator) runs the village e-Choupal, and the computer
usually is located in the Sanchalak’s home. ITC also incorporate a local
commission agent, known as the samyojak (collaborator), into the system
as the provider of logistical support.
ITC has plans to saturate the sector in which it works with e-
Choupals, such that a farmer has to travel no more than five kilometers to
reach one. The company expects each e-Choupal to serve about 10
villages within a five kilometer radius. Today its network reaches more
than a million farmers in nearly 25,000 villages through 5,000 e-
Choupals in six states (Madhya Pradesh, Karnataka, Andhra Pradesh, and
Uttar Pradesh, Maharashtra, Gujarat), and the network is expanding
rapidly. Of the e-Choupals in Madhya Pradesh, the one in Hared services
about 500-700 farmers in 10 villages; another e-Choupal in Dahod
services 5,000 farmers in 10 villages. The average usage is about 600
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farmers per e-Choupal in the soy cropping area, with fewer in wheat,
coffee, and shrimp.
The critical element of the e-Choupal system, and the key to
managing the geographical and cultural breadth of ITC’s network, is the
sanchalak. ITC channels virtually all its communication through the local
sanchalak. Recruiting a local farmer from the community for this role
serves several purposes:
• For generations, the Indian farmer has been betrayed by
individuals and institutions. Trust is the most valuable commodity in
rural India. No transaction will happen without trust, irrespective of the
strength of the contract. The sanchalak is selected to provide this vital
component in ITC’s system.
• ITC need not invest in building and securing a physical
infrastructure such as a kiosk for housing the e-Choupal computer. The
sanchalak is trained in computer operation and can act as a familiar and
approachable human interface for the often illiterate farmers and other
villagers.
• ITC expects to leverage the profit-making power of the
small-scale entrepreneur.
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Sanchalaks indicate three equally-weighted motivations for
assuming their role: a means to help their community, a profitable
business for themselves, and a means of getting access to a functionalcomputer. The sanchalaks receive a commission for every transaction
processed through the e-Choupal and also benefit from increased social
status that accompanies the position—a significant advantage in rural
Indian life. ITC insists that sanchalaks should not give up farming, for
this would compromise the trust that they command. To help ensure that
sanchalaks serve their communities and not just themselves, ITC projects
the role as a public office: hence the title “sanchalak,” and a public oath-
taking ceremony where the sanchalak takes an oath to serve the farming
community through the e-Choupal. Successful sanchalaks usually have a
number of common characteristics, including risk-taking ability and the
willingness to try something new, ambition, and the aspiration of earning
additional income through the e-Choupal. Sanchalaks undergo training at
the nearest ITC plant. They receive education on basic computer usage,
the functions of the e-Choupal Web site, basic business skills, as well as
quality inspection of crops. For the sale of products through e-Choupal,
the sanchalaks receive product training directly from the manufacturer
with ITC involving itself only in product design and facilitation.
Nonetheless, their role requires considerable entrepreneurial initiative
and entails some operational costs, between US$60 and US$160 per year,
for electricity and phone-line charges; the latter of which are gradually
declining as ITC replaces phone-based Internet connections with a VSAT
system.
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Selecting and training the sanchalaks is just the first step. Most do
not have retail experience and may lack motivation to actively promote
ITC products. ITC employs a variety of motivation techniques toencourage sales. One technique is to hold a ceremony where sanchalaks
are presented with their annual commission checks and public
announcements of earnings are made. Stories how sanchalaks spent past
commissions serve to demonstrate the income potential and spur non-
performers to work. The zeal to perform sometimes leads to territorial
disputes, but ITC does not interfere in their resolution because it
encourages sanchalaks to better serve their customer-base.
A secondary, but still important, role is played by the samyojaks,
or cooperating commission agents. Samyojaks earn income from ITC by
providing logistical services that substitute for the lack of rural
infrastructure, by providing information and market signals on trading
transactions to the e-Choupal system. In effect, ITC uses agents as
providers of essential services, not as principals in a trading transaction.
They play an especially important role in the initial stages of setting up
the e-Choupals, because they know which farmers grow soya, what kind
of families they have, what their financial situation is, and who is seen as
“acceptable” in the villages and might thus make a good sanchalak. ITC
is strongly committed to involving samyojaks in the on-going operation
of the e-Choupal system, allowing them revenue streams through
providing services such as management of cash, bagging and labor in
remote ITC procurement hubs, handling of mandi paperwork for ITC
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procurement, and as licensed principals for the retail transactions of the
e-Choupal.
Since the e-Choupal system by-passes the agent-controlled mandis
and has considerably reduced commission income, why do agents agree
to cooperate with ITC? First, the company has made it clear that they will
continue to buy produce through the mandis. Second, the company offers
significant commissions for samyojak services. Finally, the agents are
fragmented and fear that if they do not agree to work with ITC, another
agent will gain the promised e-Choupal revenues. One samyojak reported
that he saw globalization as an irresistible trend, and although he saw loss
of revenue in the short-term, his long-term interest lay in cooperating
with an international company.
The E-Choupal System
The re-engineered supply chain looks very different from the
existing system and has the following stages:
Pricing
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The previous day’s mandi closing price is used to determine the
benchmark Fair Average Quality (FAQ) price at the e-Choupal. The
benchmark price is static 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.
Inspection and Grading
To initiate a sale, the farmer 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 soy 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.
Weighing and Payment
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The farmer takes the note from the sanchalak and proceeds with
his crop to the nearest ITC procurement hub, 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. ITC’s goal is to have a
processing center within a 30 - 40 kilometer radius of each farmer. There
are currently 16 hubs, but there will eventually be 35 in the state of
Madhya Pradesh.
At the ITC procurement hub, a sample of the farmer’s produce is
taken and set aside for laboratory tests. A chemist visually inspects the
soybean and verifies the assessment of the sanchalak. It is important to
note that this is the only test assessment before the sale. Laboratory
testing of the sample for oil content is performed after the sale and does
not alter the price. The reason for this is that farmers, having historically
been exploited, are not immediately willing to trust a laboratory test.
Therefore pricing is based solely upon tests that can by understood by the
farmer. The farmer accepts foreign matter deductions for the presence of
stones or hay, based upon the visual comparison of his produce with his
neighbors. He will accept moisture content deductions based upon the
comparative softness of his produce when he bites it.
ITC is working to change farmer attitudes towards laboratory
testing. It is developing an appreciation of better quality by using the
subsequent lab tests to reward farmers with bonus points if their quality
exceeds the norm. At the end of the year, farmers can redeem their
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accumulated bonus points through thee-Choupal for farm inputs, or
contributions toward insurance premiums.
Hub Logistics
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.
Samyojaks, who are adept at handling large amounts of cash, are
entrusted with the responsibility of payment, except at procurement
centers near large ITC operations where ITC is handles cash
disbursement. Samyojaks also handle much of the procurement hub
logistics, including labor management at the hub, bagging (if necessary),
storage management, transportation from the hub to processing factories,
and handling mandi paperwork for the crops procured at the hub. For his
services in the procurement process, the samyojak is paid a 0.5%
commission.
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E-Choupal as a Marketing Channel
ITC’s vision for marketing via the e-Choupal involved threefeatures: superior product and distinctive functional benefits, process
benefits (simplified transactions between buyer and seller), and
relationship benefits (farmers’ willingness to identify themselves and
reveal their purchasing behavior). ITC had conceived ideas for various
input items that could be developed for new business given this
framework. The company believed that these products could be made
available to farmers through the EChoupal, thus increasing the value of
the farmer’s product as well as generating additional revenue for ITC.
Deveshwar called this philosophy a “commitment beyond the market.”
Fertilizers
Farmers spent an average of Rs. 26,000 crore ($5.7billion)
annually on urea, diammonium phosphate (DAP), and muriad of potash
(MOP). Still, farmers could not easily access the fertilizers they needed.
35% of DAP and 100% of MOP was imported. Logistics had proved to
be complicated for most companies. They were unable to access many
rural markets because of fragmented, or nonexistent, distribution
channels.
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Agrichemicals
Farmers also spent Rs. 3,500 crore ($774.5million)/year oninsecticides, herbicides, and fungicides. The agrichemical market was
highly fragmented and consolidated by multinational corporations such
as Dupont, Novartis, and Cyanamid. New chemicals were introduced
frequently; however their life cycles in the market were only 2 or 3 years.
Given the short product cycle, big companies needed immediate market
access. Farmers, too, suffered when they could not access these products.
High costs of labor, for example, hurt soy and wheat farmers whose
fields could have been covered with herbicides, instead of weeding
workers, at a lower cost.
Seeds
This was a relatively small, fragmented market of Rs. 3,000 crore
($663.9million)/year, but only 4% of farms used commercial seed.
Government-promoted Seed Corporations made different types of seeds
available though cooperatives and large multinational companies had
entered the market with better quality material. Still, there were lead
times of up to 3 years to make seed varieties available to rural farmers.
Insurance
Currently, Indians were collectively paying Rs. 50,000 crore
($11million) in yearly life insurance premiums, and that market was
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expected to reach Rs. 150,000 crore ($33billion) by 201019. Life
Insurance Corporation (LIC) was a government-run insurance provider
that had already taken a shine to rural markets. Even in the relatively poor states of West Bengal and Bihar, 6 million rural farmers had taken
out policies. In 2000, private insurance companies were allowed to enter
the market, and, as a result, at least 12 new companies were seeking to
expand their business into rural India to compete with LIC. By 2004,
rural business comprised 16% of LIC’s portfolio, but only 9% of private
companies’ portfolios. These markets were largely untapped because of a
lack of trustworthy intermediaries. ITC believed that it could create a
relationship of trust and help farmers understand the rules and benefits of
insurance plans. Eventually, ITC envisioned Sanchalaks being able to
offer the eChoupal infrastructure to LIC agents for a fee or to set up its
own insurance brokerage company.
An opportunity also existed for other types of insurance policies,
covering fire, marine, motor, and workmen’s compensation. Insurers,
however, had been biased towards larger accounts, leaving less
prosperous farmers unable to participate. Insurers lacked quality data on
risks and parameters of farm life and were hesitant to insure rural
customers. With ITC as a liaison, however, data on rural farmers could
be delivered to insurance companies, thus demystifying and uncovering
the rural market.
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Credit
A national survey in 2001 had shown that Indians were savingabout 30% of their annual income, though not through financial
institutions. Both private and public sector banks lacked a customer-
friendly approach and were often avoided by rural farmers. One of
the main reasons that farmers avoided saving through banks was that they
were often linked to a loan20. If a farmer had savings in the same bank
he had borrowed from, the bank could demand that he use those savings
to pay back the loan.
ITC believed that a system of trust engendered through the
Sanchalak would facilitate financial transactions. It could channel rural
farmers into the mutual fund arena and earn a commission from banks on
farmers’ investments, using the technology introduced in the eChoupal.
Choupal discussions would create data on likelihood to invest, and the
results would be stored in a data warehouse for future campaigns.
Farmers’ low income and difficulty in accessing credit severely
limits their capacity to pursue opportunities within and outside the
agriculture sector. Access to credit has long been considered a major
poverty alleviation strategy in India. Demand for rural credit is estimated
at US$31.6 billion (Rs 1.43 trillion). The Indian government has
implemented a number of subsidized credit-related programs. Among
such programs, the Integrated Rural Development Program (IRDP),
started in 1978, was a major national rural poverty alleviation program
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with a large credit component. Under the IRDP, nearly 53 million
families were assisted with bank credit of US$684 million (Rs. 31
billion) and subsidy of US$231 million (Rs. 10.5 billion). But its impacthad not matched the resources expended. The loans were not
tailored to meet individual needs and it lacked the support systems
necessary to help farmers.
Many financial institutions are hesitant to serve rural India due to
lack of credit history, high delivery, transaction, and administration costs,
and a perception of high risk that leads to high borrowing costs imposed
on farmers. ITC proposes to address these problems through e-Choupals
and partnerships with financial institutions to capture needed information
and offer new products:
• Capturing Credit History. Farmers in rural India borrow
money from local moneylenders, through government incentives, friends,
relatives, or traders. Local moneylenders and intermediates are aware of
farmers’ creditworthiness and are therefore willing to loan money, albeit
at a high interest rate. Through e-Choupal, ITC now has the capability to
manage credit risk through its sanchalak network which can be used not
only to verify creditworthiness of individual farmers but also to
continuously monitor credit risk. ITC will be able to create a consolidated
farmers’ database with information pertaining to their holdings and
transactions that can be used as a source of credit report profiles.
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• Transaction and Administration Costs. For major
financial institutions, transaction costs involved in servicing the rural
market have been high because of the difficulty in reaching the market.E-Choupal can help overcome this problem by leveraging the IT
infrastructure and the sanchalak network, thereby lowering administrative
costs. ITC plans to partner with larger bank such as ICICI to design
products for rural India. Some of the products being designed include:
• Non-cash loans for farm inputs. Instead of giving cash to the
farmer directly, the financial institutions will purchase farm inputs on
behalf of the farmer. Farmers are expected to pay back loans for the
purchase price to the financial institution.
• Loans to sanchalaks. Instead of giving loans directly to farmers,
loans will be given to sanchalaks who, in turn, will loan money to
farmers. Sanchalak can manage credit risk better than financial institution
because they have better access to the farmer, and therefore more
accurate information.
• Direct loans to farmers based on sanchalak recommendations. In
this case, sanchalaks’ commissions are based on the loan recovery and
therefore the have incentive to monitor the risk on a continuous basis.
• Insurance and Risk Management Services. Insurance products
have been designed to deal with rural cash-cycles. There is recognition
that in bad years, farmers may not be able to pay the insurance premium.
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Rather than penalize the farmer when his policy, ITC allows for catch-up
payments in later years or, as an alternative, the reduction of the final
payout. ITC uses the e-Choupal Web infrastructure to set up and issueelectronic reminders for premium payments. This addresses a major
weakness of the current insurance system. The agents currently selling
insurance have little incentive to encourage renewals and the lapse rate
among policy is high. A system of interlocking instruments has been set
up so that insurance premiums can be credited with quality bonus points
from the farmer’s soy sale. The sanchalak is assisted in making the sales
pitch by informational Web-casts and video presentations.
Advantages of e-Choupal to the Farmer
Prior to the introduction of e-Choupal, farmers’ access to
agricultural information was incomplete or inconsistent. The only sources
of information were word of mouth within the village and the
commission agent. E-Choupal allows farmers daily access to prices at
several nearby mandis. Some e-Choupal sanchalaks have taken this a
level further by accessing external pricing sources such as prices on the
Chicago Board of Trade, in order to track global trends and determine the
optimum timing of sales. Moreover, through e-Choupal, farmers have
access to prices and make the critical decision of when and where to sell
his crop. Both factors work together to provide the farmers a better price
for their crops.
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Under ITC’s system, farmers no longer bear the cost of
transporting their crops to the mandi and are instead reimbursed for
transport to the procurement hub. The transaction at the hub is alsomuch faster than at the mandi, usually taking no more than two or three
hours. The electronic weighing scales are accurate and not susceptible to
sleight of hand like the manual weighing system at the mandi. The
system also does not require produce to be bagged, which avoids the
associated loss of produce by intentional spillage. Thus the e-Choupal
system has logistical and transaction efficiencies.
Bottom line for the farmer
• Higher Incomes through
• Increased Yields
• Improved Quality
• Reduced Transaction Costs
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Transaction cost under mandi and E Choupal System
In the mandi system, there was a mark up of 7-8% on the price of
soybean from the farm gate to the factory gate. Of this mark up, 2.5%
was borne by the farmer while 5% was borne by ITC. With e-Choupal,
ITC’s costs are now down to 2.5%. Figure 4 shows transaction costs
incurred by the farmer and ITC per metric ton of soy procured in the
mandi and e-Choupal. In absolute numbers, both the farmers and ITC
save about US$6 (Rs 270) per metric ton.
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Infrastructural Development
Characteristics of the Operating Environment
Understanding the constraints imposed by the physical and social
environment in e-Choupals operate is necessary to provide the context for
understanding the system design.
Overcoming Power Constraints
Power availability in rural India is unreliable and the quality of
power is sub-standard. As power is usually available for only a few hours
a day and at on a sporadic schedule, the e-Choupal computer cannot
always be accessed when information is needed. Access to information in
a timely manner is critical to the success of the business model. ITC has
overcome the problem of local power supply by providing a battery-
based UPS (uninterrupted power supply) backup. With the reliability
of a battery backup, the sanchalak can use the system at least twice a day
—in the morning to check the prevailing mandi prices, and again in the
evening to check the rate ITC is offering the next day. While the battery
backup addresses the power supply issue, insufficient line power during
the day poses the challenge of not having enough power to charge the
backup battery. This has caused ITC to explore other power sources and
ultimately ITC decided to use solar battery chargers. One full day of
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sunlight is enough to charge the battery for 70 to 80 minutes of computer
usage.
The second problem with power is quality. Voltage fluctuations are
endemic. The UPS unit is the most affected component. As a result of the
erratic power supply, fuses are susceptible to being blown. To overcome
this problem, ITC plans to install specially designed UPS units that
remain effective between 90V and 300V. 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.
Transportation
Most e-Choupal villages lack proper roads, limiting vehicle access.
As such, public transportation access to many of the villages is
infrequent. Some villages are served only once or twice a day by rural
taxis. The population relies on two-wheeled bicycles and motorbikes and
bullock carts as the main means of transportation. Moving equipment
into and out of the villages is not an easy task. Providing system support
and maintenance requires the technician to travel from outside areas to
visit the e-Choupal. For these, and other reasons ITC initially placed e-
Choupals in villages that are within a ten to fifteen kilometer radius
of a city.
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Telecom Infrastructure
Telecommunication infrastructure in villages is poor. Telephone
exchanges are subject to sporadic power supply and have limited battery
backup. When power is lost, phones cease to function. In addition, there
is no local support staff to maintain or troubleshoot telephone exchanges.
The support team at the main exchange typically is responsible for eight
to ten villages and is short-staffed. The turn-around time for fixing
problems is often measured in days, not hours. Overhead telephone lines
are exposed to the elements and run alongside high voltage power lines
which can cause transmission quality problems. Currently, village
telecommunication infrastructure is designed to carry voice traffic only
and transmission speed is so slow that it renders Internet access
impractical.
Customer Base
Before the arrival of e-Choupal, most villagers had never seen a
computer. ITC realized the importance of appropriate user interfaces.
They organized meetings and focus groups of farmers to gather
information about potential user groups. The main focus of these
meetings was to determine what information farmers wanted to see, how
the information would need to be presented (graphics or text), and how
often each page would need to be refreshed. The feedback that was
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collected from these focus groups was used in the design of the
functionality and user interface of the application.
System Specification
The IT infrastructure can be comprehensively understood in the
four layers
E-Choupal System Technology Specification
1. Organization Architecture – Training, support, planning, people, and processes
2. Information Architecture – Data gathered and managed
3. Application Architecture – Applications, goals, resources
occupied, performance metrics
4. Technical Architecture – Servers, Clients, Network, System
Software
The four layers are distinct but deeply interconnected and share
goals and constrains.
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Organizational Architecture
Training
Training the sanchalaks to use a computer effectively is deemed
vital to the success of E-Choupal. Sanchalaks function as the human
interface of the e-Choupals and therefore must be able to both operate the
computer and access the information requested by farmers.
The computer installed in the e-Choupals is usually the first
computer in most villages. Immediately after sanchalaks are recruited,
they are invited to the nearest ITC plant for a day-long training program.
The majority of this training is centered around getting the sanchalaks
comfortable with the equipment. This first phase of training is comprised
of the following:
• The fundamentals: What is a computer? What is its purpose and
practical applications?
• Basic equipment training: Turning the computer on and off, using
the mouse, keyboard, printer etc.
• Software training:
Word processing:
How to use Ankur
How to type in Hindi
How to open, close, and save files
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Web Browsing: How to use a Web browser and find
information on the Internet.
E-Choupal Applications: How to use the soya choupal
Web site. What information is available on the Web site and how can it
be accessed?
At the time of installation, a coordinator usually accompanies the
vendor who installs the system. The sanchalak is given some of the same
basic training by the vendor. ITC then leaves allows the sanchalak to
experiment with the computer for about a week. During this time,
typically the younger members of his family also get to use the computer.
ITC has observed that children are quick learners and are eager to learn
more.
After the first week, the sanchalaks are invited to the hub or the
plant for the second phase of training. In order to gauge their level of
comfort, they are asked to operate the computer. Based on observation,
customized training is then provided to raise each user’s comfort and
competency level. Sanchalaks may also bring their children or other
members of the family that are interested in learning about the computer.
During this phase sanchalaks are trained use the e-Choupal Web
site and to access information from the site. Sanchalaks are given the
opportunity to voice their concerns and ask questions during training.
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Sanchalaks are generally enthusiastic about learning the computer skills
required to carry out their work.
The Social Impact of e-Choupal
A major impact of the e-Choupal system comes from bridging the
information and service gap of rural India. Agricultural research centers
(such as the Indian Council for Agricultural Research), universities, and
other agencies in India have developed several practices and
technologies to improve productivity and crop quality. The
impediment to implementation has been affordable, large-scale
dissemination of this knowledge. The e-Choupal system leverages
technology that can reach a wide audience literally at the click of a
mouse. The constant presence of sanchalaks, who themselves are farmers
who apply these techniques, ensures that the practices actually make their
way from the Web site to the field.
A second major area of impact stems from the ability of the e-
Choupal system to open a window on the world and thus impact the
future of the villages in which they operate. Computers are bringing the
same resources to villages as they brought to urban India, and their
impact is no less dramatic. This, coupled with higher incomes and
changes in farmers’ attitudes, is causing several shifts in the social fabric
of village life.
Some accounts from villages include:
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• Children are using computers for schoolwork and games. A
particularly poignant story is that of Khasrod, where 2,000 local students
used the local e-Choupal to print their grade sheets, saving them days of waiting and travel time.
• Sanchalaks use the Internet to chat extensively among themselves
about the status of operations and agriculture in their villages.
• Villagers access global resources to learn about agriculture in
other parts of the world and are taking action to compete in the world
outside, not merely in the local mandi.
• Youngsters in the village use computers to research the latest
movies, cell-phone models, and cricket news.
Impact on other agricultural produce
The concept of e-choupal is applicable to any agricultural & allied
activity in rural India. The basic character of agriculture is the same
across India, but value chains of different crops have their own intricate
dynamics. So are the socio economic characteristics of different regions.
These complexities must be factored in, while making e-choupal
operational. Consequently the supply chain efficiencies/revenue models
vary across commodities & geographies. ITC has identified e-choupal as
its major corporate initiative and making substantial investments.
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Apart from original utility of e-choupal for procurement of farm
produce it is gradually tested for effectiveness into distribution of range
of goods and services those rural communities. This business model hasopened up an entirely new and more effective channel for distribution
and marketing of a range of goods & services into rural India. eChoupal
is also being tested marketed for new services these include selling home
appliances, consumer goods etc apart from farm inputs like pesticides,
seeds and fertilizers. It would not only facilitate consumer and insurance
company’s entry into unexplored and complex Indian rural markets but
also simultaneously improve the living standard of people. Sanchalak or
an intermediary from the village would take orders from the farmers and
villagers for all the above-mentioned items. He would aggregate the
orders into a big order and this order would directly be placed through
network with the manufacturer of goods or services. All the products and
services would directly deliver to the village.
Observing the success of e-choupal and its huge potential for
setting up a electronic market, several other players are also
contemplating building portals and setting up of kiosks and operating e-
choupal kind of business model. Ruchi, the largest player in soyabean
exports, has made a beginning with 15 villages. The Tata group too has
stepped in with its own plans and that too with dual foray, one by the
Tata Chemicals the other by Rallis India. Both these Tata group
companies have their own set of Kisan Kendras, which total to around
200-plus across various villages. Tata Kisan Kendras (TKK) set up
earlier, have roped in the National Remote Sensing Agency (NRSA) for
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using its satellite imagery service, to be known as ‘precision farming’.
The service combines the use of information technology along with
satellite mapping techniques to advice farms to adopt farming practicesthat maximizes agricultural yields. NRSA will supply to the TKK
satellite images for soil patterns and crop distribution while the TKK’s
will in turn interpret the data and superimpose it on the digitized image of
the village maps. Tata group has also taken up farm management services
at Chitradurga in Karnataka to support pomegranate growers and
according sources, plans are in the pipeline to undertake contract farming
for fruits and vegetables in Andhra Pradesh, wheat in Madhya Pradesh
and Basmati rice in the northern states.
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Chapter 3
Other Initiatives by ITC
ITC’s has won many prestigious awards for its e-choupal initiative
that enhanced its international competitiveness of the smallest Indian
farmer by giving him ready access to expert knowledge through a unique
click model. This success has compelled ITC to undertake the following
initiatives post e-choupal.
Rural Malls
Call it the second wave of India’s retail revolution. While retail
giants and mall operators are sweating it out to gain a foothold in B and
C class towns, India’s first rural hypermarket has silently opened its
doors in October 2004. Courtesy, the tobacco to hospitality giant ITC.
The latter calls this the ‘second layer’ of its e-Choupal initiative. ITC has
launched the first rural mall-Choupal Sagar at Rafiqganj that is a little
village about four kilometres from Sehore town in Madhya Pradesh. In
continuation with its project e-Choupal, Choupal Sagar is the first rural
mall in the country and stands on an eight-acre plot with a shopping area
of 7,000 square feet.
The farmers can buy soaps, detergents and toothpaste, almost
everything they need for the family including TVs, DVD players,
pressure cookers, room heaters, watches, sewing machines and grinders
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and, of course, cigarettes. Motorbikes or even tractors are also available.
The company is marketing a new range of clothing’s and shoes too for
the rural customers. And the plans are very ambitious. The daily sale isalready between Rs 70,000 to 80,000.
Choupal Sagar is a bit different from city malls. What had started
four years ago as an experiment to use IT tools to enable farmers find the
best price for their produce has now metamorphosed into this shopping
idea. The scenario ITC foresees is something like this: post-harvest, the
farmer, with his family, drives into Choupal Sagar in a tractor trolley
laden with the grain he proposes to sell. He parks the tractor on the
digital weighing bridge close to the entry point. His grain weighed, he
drives on to the godown where the produce is unloaded and he gets his
money.
Meanwhile, his kids can enjoy the swings and video games and his
wife may be going around the shopping mall mentally drawing up a
shopping list. Cash in hand, the farmer family can then make its
purchases and drive back by evening, with the tractor laden with the
goodies. If they like, they can have a bite in the cafeteria. And the farmer
may even carry fertilisers and pesticides for the next crop and get his
tractor fuelled at the diesel pump. The main idea is to create one stop
destination
The villagers are delighted at the new shopping experience. But the
key question will be whether they will show interest once the novelty
factor wears out. "I will definitely come here with my family," says 65-
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year-old Kaluram from Piparia who has come just to "have a look."
Sunil, 12, walks confidently to one of the racks where his favourite
biscuits are stacked. Sunil is no city-bred kid; he lives in a small hamlet.If he is not overawed by the sprawling mall, it is because he is a regular
visitor. "I come here practically everyday while on my way back from
school," he says.
The shopping area is only a part of the vast Choupal Sagar. At the
back of the mall is a godown where ten thousand tonnes of grain can be
stored. Then, the entertainment area with video games and swings. A
diesel pump, a cafeteria and a soil-testing laboratory are also coming up
and so is a sale point for fertilizers, pesticides and other agro-inputs. A
bank, an insurance company office and a training centre for farmers will
complete the set-up. If he needs to, the farmer can consult a doctor who
will be available on the premises.
According to ITC, the Choupal Sagar is the logical culmination of
the e-choupal scheme launched by the company in Madhya Pradesh.
These e-choupal were small units set up to help farmers. Typically, each
unit has a Rs 2 lakh infrastructure including a computer, a ups and a
telephone line for logging on to the internet. A room in the house of a
medium-level farmer usually served as the e-choupal. The sanchalak —
as this farmer would be designated— provides free information to the
others about the prices and demand for agriculture produce in different
mandis.The sanchalaks got a commission when a farmer sold his produce
to ITC.
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The experiment started with four e-choupals. Presently there are
1,700 units in 26 districts. It is the success of these farmer-run centres
that made ITC think about launching the Sagar Choupal which wouldserve as an organised retail outlet. According to ITC, fast moving
consumer goods and white goods manufacturers are keen to tap the fast
prospering rural markets. If the Choupal Sagar set up at a princely cost of
Rs 4.5 crore succeeds, then ITC has plans to set up five rural malls in
Madhya Pradesh by next March. But the proof will be in the volume of
sales. In the metros many malls are doing slack business with more
window-shoppers than buyers. Will the rural populace of Sehore be any
different? Expectedly, ITC now plans to open about 50 such stores,
spread across rural Madhya Pradesh and Uttar Pradesh over the next 12
months. Investments will hover in the range of Rs 2-4 crore for each such
store.
The person managing the mall at Sehore is the samyojak (coordinator). He is a traditional middleman who is the buyer in the
mandi. He was earlier a principal to transactions... he used to buy from
someone and sell to somebody else, and his profit was made out of
blocking information and market signals about the price of the farmer's
produce. Even though the farmer can now get that information at the e-
choupal, these middlemen play a very critical role in an economy like
ours where infrastructure is limited."
The samyojak at the Sagar is in charge of storage, transportation
and other logistics, and management of bridge financing. "He pays first
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and later collects the money from us in the evening. While we have
invested Rs 4 crore in setting up the mall, he invests the working capital
of about Rs 2 crore."
If the Indian farmer is not happy with the price he gets and the
Indian consumer is not happy about the price he pays for his food grains
or vegetables, it is because the middlemen have traditionally made huge
profits. The ITC's mall model tries to absorb this trader who can provide
critical services at low cost. Earlier ITC would buy from him at a price;
but now that it buys directly from the farmer for its agri-business
ventures, "they are told to provide the following services efficiently and
collect a fee. So from being a principal he's become a service provider.
This is a more sustainable job for him because this way his skill and
resources are used better, even though his commission is reduced.
But his fee will get larger because he is now involved in the selling
of consumer goods, household provisions, etc. Moreover, earlier his staff
found work for only four months in a year when the crop gets harvested;
now he has an opportunity to deploy them round the year.
ITC should also consider , bringing in more products in the
personal care segment, and also be open to setting up multi-brand outlets
and hypermalls in the urban areas to generate more revenue and reinvest
in Choupal Sagars.
With prosperity coming to the rural areas, these malls may become
a great success and may change the rural areas significantly and will go a
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long way in meet the requirement of PURA. The mall may be used by
other manufacturers too to market their produce in rural areas. The idea
needs a close watch and the government should be wise enough to
support the entrepreneurs.
Women’s Empowerment
- Home Makers to income builders
ITC believes that economic empowerment of women transforms
them into powerful agents of social change.
The need of the hour is to diversify rural livelihoods. Towards this
end, ITC has forged an empowering partnership with rural women – the
most effective development workers. ITC’s intervention leverages micro-
credit and skills training to generate alternate employment opportunities.
Increased income in the hands of rural women means better nutrition,
health care and education for their children.
Working with NGOs, ITC has organised village women into micro-credit
groups. Group members make monthly contributions to create a savings
corpus. The corpus is used to extend soft loans to group members,
thereby eliminating the stranglehold of the moneylender. The system of
mandatory contribution further strengthens the savings habit, leading to
capital augmentation.
ITC provides training to group members to handle bank accounts
and understand the nuances of government development programmes.
Empowered groups function autonomously and take their own decisions,
including sanction of loans to fellow-members and collection of
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repayments. Well-managed micro-credit groups with no default records
receive further support from ITC in the form of seed money for self
employment activities.
Venture funds provided by ITC have already spawned hundreds of
women entrepreneurs. Their earnings, ranging from Rs 70 to Rs 150 per
day, not only supplement household incomes but also significantly
enhance their self-esteem.
ITC also conducts skills training to enhance employability. Pickle-making, fish-processing, vermicomposting, spice processing and
agarbatti-rolling in rural areas and chikankari, garment-sewing, driving
and computer-aided secretarial training in semi-urban areas are some of
the examples. ITC goes a step further to help find employment for these
trained women in areas related to its operations. This programme is
helping women across Andhra Pradesh, Karnataka, Madhya Pradesh,
Uttar Pradesh and Bihar.
Livestock Development
- Enhancing Dairy Productivity
To significantly enhance the milk yield, ITC is assisting farmers to
cross-breed their low milk-yielding cattle with high-yielding breeds.
India has the largest cattle population in the world. Almost every
rural household in India, whether landed or landless, owns livestock.
However, average milk yield at 300 kg per lactation is abysmally low due
to severe genetic erosion and fodder scarcity.
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Dairy farming requires low investment and has the potential to
create attractive livelihood opportunities for the economically challenged
sections of rural India, provided livestock can be genetically upgradedthrough systematic and scientific animal husbandry.
In a concerted endeavour to increase milk yield, ITC is
spearheading a Livestock Development programme in Bihar, Uttar
Pradesh and Madhya Pradesh. In collaboration with BAIF Development
Research Foundation, a national NGO specialising in livestock
development, ITC assists small and landless farmers to cross-breed their
low milk-yielding cattle with high-yielding breeds like Jersey and
Holstein-Friesian. The Company provides a basket of services at the
farmer's doorstep to facilitate cross-breeding.
The range of services that ITC offers includes:
• Artificial Insemination (AI), using high quality frozen semen from
BAIF's state-of-the-art production centre in Pune
• Regular follow-up like investigation of diseases, vaccination and
nutritional advice
• Pre and post-natal care for artificially inseminated cattle and the
progeny
ITC trains diploma and degree holders in agriculture and animal
science to become Artificial Insemination technicians to enhance
livestock management skills in rural areas. The technicians provide
service to the farmers right at their doorstep. ITC also promotes low-cost
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"complete feed," helping reduce the pressure on invaluable forest
resources and pastures.
Cross-bred cattle yield about 2100-2700 kg of milk per lactation,
as compared to the current level of 300 kgs. ITC's Livestock
Development programme is reaching out every year, to 12,000 farmers in
600 villages, inseminating 15,000 cattle through 30 Insemination
Centres.
The programme has a resultant beneficial impact on the ecosystemas well. Improved cattle feed significantly boosts dung production,
thereby producing much more farm manure and biogas. Even small
farmers are consequently able to install biogas plants, reducing their
dependence on fuel wood, thereby conserving precious forests.
Primary Education
-Dropouts to self reliant citizens
ITC provides poor children the greatest asset that they can
aspire to education for a brighter future.
Nobel Laureate Amartya Sen has pointed out that the opportunities
promised by market-based reforms are critically circumscribed in a
nation where large numbers cannot read or write or count.
ITC's education support programmes are aimed at overcoming the
lack of opportunities available to the poor. ITC believes that the
extensive network of government-supported schools must be made more
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attractive to children. It provides critical support to state-run schools to
maximise enrolment and minimise dropouts.
Its initiatives include improving school buildings, constructing
toilets, providing electricity connections and supplying fans and lights.
ITC provides students with uniforms, satchels and books. So far, 10,000
children have benefited in 5 states.
ITC has financed the establishment of Supplementary LearningCentres to help poor students cope with their lessons and improve their
scholastic abilities, thereby preventing dropouts. This scheme also
benefits educated local youth who serve as tutors at these centres. ITC-
sponsored NGOs also conduct teacher training programmes to raise the
standard of teaching in government-run primary schools. ITC helps
NGOs to organise summer camps, sports and other extra-curricular
activities as part of the overall development inputs for children.
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Conclusion
The e-Choupal model shows that a large corporation can combinea social mission and an ambitious commercial venture; that it can play a
major role in rationalizing markets and increasing the efficiency of an
agricultural system, and do so in ways that benefit farmers and rural
communities as well as company shareholders. ITC’s example also
shows the key role of information technology—in this case provided and
maintained by a corporation, but used by local farmers—in helping to
bring about transparency, to increase access to information, and to
catalyze rural transformation, while enabling efficiencies and low-cost
distribution that make the system profitable and sustainable. Critical
factors in the apparent success of the venture are ITC’s extensive
knowledge of agriculture, the effort ITC has made to retain many aspects
of the existing production system, including retaining the integral
importance of local partners, the company’s commitment to transparency,
and the respect and fairness with which both farmers and local partners
are treated.
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E-Choupal has been most successful initiative to wire rural India
and to involve the farmers in learning. ITC has envisaged on various
plans to replicate the success achieved to other states and expand theservices offered to other commodities like spices. ITC has also identified
e-Choupal as an important driver for exports, which are targeted at $ 400
million by 2005. E-Choupal has also attracted attention from the
renowned academicians, since e-Choupal has managed to innovate the
supply-chain, and model applied by ITC has enough potential to be
replicated in the under-developed and developing countries.
ITC has been successful in making the farmer feel the sense of
ownership and enthuse him to generate additional revenue by eliminating
middleman. ITC through e-Choupal has bought various accolades such as
“Golden Star Trading House” for showing impressive track record in
exports of agricultural commodities. Participating farmers have been able
to enhance their income and eliminate the delay in getting the payment
once the product is sold. It has helped in reducing debt burden of the
farmers.
The success of e-Choupal has given new lessons to the corporates
in the India and abroad. The gains from the novel initiative are manifold
to ITC, the farmers and other companies. E-Choupal has helped the
farmers to improve their productivity and get better prices, whereas ITC
has benefited by better sourcing of raw materials and building a
backbone to market the end products which is vital for the FMCG
companies like ITC.
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Study of e-choupal helps in identifying the factors that contributed
to the success of the ICT platform in many states:
• E-choupal has been one of the best ICT application platforms that
has been scaled replicated and sustained. This is due to the fact that it
was specifically designed for that specific business.
• The Sanchalaks are selected carefully and they have been able to
work as nonpartisan coordinators. Sanchalaks have been able to induce
the feeling of involvement. This participative style helped ICT to build
trust at the local level. Trust is essential in sustaining relationships at the
community level.
• E-choupal was customized and then validated and then expanded
to the operational phase. E-choupal has found acceptance in all three
businesses they have ventured into. The model of validating and then
rolling it out has been an effective way of implementing a new business
model.
• E-choupal has provided economic benefits even for the small
farmers. Every beneficiary gets benefit and the equitable benefits makes
the adoption very rapid.
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• Intensive training and distributed leadership concept facilitated the
acceptance of the platform concept. The empowerment of people through
local action and training reduces the disparities. The ability of thechoupals to deal with many inputs provides for economies of scope.
In spite of the success, it must be noted that, not everyone has
benefited from the introduction of e-choupals. Indeed, lost income and
jobs is directly connected to the overall increase in efficiency in the e-
choupal system. Some of the players in the mandi system have suffered
loss of revenue. They include:
Commission agents
Mandi laborers
Bazaars near the mandi
E-choupal has been heralded as the attempt at making ICT
platforms enhance the market access, by eliminating the use of
middlemen. ITC had the vision to conceptualize and implement this
procurement cum marketing platform. It is a low cost/multi business
model operated by the farmer representative. It has been validated, scaled
and sustained for many businesses by ITC. By embarking on this
initiative, ITC has shown that ICT platforms can benefit even for the
marginal farmers.
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Annexure
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E-choupal in News
E-Choupal to touch more lives
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The Secunderabad-based International Business Division, the international
trading arm of ITC Ltd., will be expanding its e-Choupals, the Internet-based rural
initiative to improve the supply chain for commodities, for the aquaculture trade in
Andhra Pradesh from the current 50, the chief executive of IBD, S. Sivakumar,
said.
IBD was also considering setting up more aquaculture laboratories in the
State, where it currently has only one such lab, in Kakinada.
"The e-Choupal for aquaculture is important because Andhra Pradesh and
West Bengal, the other state where shrimp farming is done on an industrial scale,
are major exporters of shrimp. The e-Choupals help shrimp farmers with trends
and prices in the major markets in real time," Mr. Sivakumar said.
Mr. Sivakumar said the company had the Rs 35 lakh Aqua Center, the
laboratory for testing shrimp seed, to ensure that farmers could test the quality of
their shrimp seeds. "We hope to start more such labs in Andhra Pradesh and
possibly West Bengal, because this will help buyers from abroad keep a track of
the quality of the seeds used, and from which farm the shrimp was exported.
Traceability of the product will increase export margins," he said.
Shrimp exports accounted for about Rs 80 crores of IBD’s total revenues of Rs 1,200 crores in 2004-05, he said. "Shrimp export is a high-margin commodity if
we do some value-addition like individual quick freezing and cooked shrimp. For
other commodities like wheat the margin is about one per cent, in line with
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international trends," he said.
IBD produces IQF and cooked shrimp at a unit it has leased in
Visakhapatnam.
"We expect to increase the quantum of shrimp exports in future," he said.
IBD supplies the wheat for its parent company, ITC’s, foods division, and other
food companies.
Mr. Sivakumar said IBD was planning to set up e-Choupals – which won the‘Enterprise Business Transformation Award’ for Asia Pacific, instituted by Infosys
Technologies and the Wharton School of the University of Pennsylvania in 2004 –
for the horticulture segment, beginning in Maharashtra. International Business
Division expects a 15 per cent increase in its revenues in 2005-06.
1
1 Source – The Asian AgeDated – April 11 2005
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ITC sees 60 % rise in e-choupal turnover
ITC Ltd.'s agri-business division expects revenue of 10 billion
rupees through its e-choupal venture by fiscal 2005-06, up 66% from a
year-ago, Rajnikant Rai, vice-president (operations), ITC Ltd., said. The
company also plans to expand the reach of e-choupals and focus on more
activities, he said.
ITC's e-choupal initiative provides real time information to farmers
to improve their decision making abilities thereby better aligning farm
output with market demands securing better quality, productivity and
improved price discovery.
The initiative also helps to create a direct marketing channel,
eliminating wasteful intermediation and multiple handling, thus reducing
transaction costs and making logistics more efficient.
Currently, ITC's e-choupals are operational in Karnataka, Andhra
Pradesh, Madhya Pradesh, Uttar Pradesh, Rajasthan, and Maharashtra.
"We plan to soon start operations in Haryana and Uttaranchal," Rai said.
The company hopes to increase the number of e-choupals in the country
to more than 6,000 by end of March from current 5,300. "Every choupal
needs a minimum initial investment of 300,000 rupees.
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The Kolkata-based company is planning to use the entire money to
set up a rural development fund, instead of taking back the Rs 350 crore
According to rough estimates, the fund could earn interest in the range of Rs 15 crore to Rs 18 crore, which will be used by ITC to finance its rural
development projects like e-Choupal, wasteland development and
afforestation of wastelands. Considered to be pet projects of ITC
chairman YC Deveshwar, the rural development plans are now on the
drawing board, even as the company awaits the refund of Rs 350 crore
from the excise department.
Earlier this month, the Supreme Court had ruled in favour of ITC in the
case pertaining to alleged excise evasion to the tune of Rs 800 crore. The
excise department is planning to file a review petition, but as of now, the
department will have to refund the Rs 350 crore paid by ITC as deposit,
unless the Supreme Court modifies its verdict .
Apart from the e-Choupal project, which helps farmers access
information from crop-specific websites created by ITC, the proposed
rural development fund will also finance primary education in rural areas2
ITC sows seeds or hypermarkets in India
2 Source – Business StandardDated- November 15, 2009
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Call it the second wave of India’s retail revolution. While retail giants an
mall operators are sweating it out to gain a foothold in B and C class towns, India’
first rural hypermarket has silently opened its doors. Courtesy, the tobacco t
hospitality giant ITC. The latter calls this the ‘second layer’ of its e-Choupa
initiative.
Spread over 5 acres of land at Sehore in Madhya Pradesh, ITC has soft
launched its first rural hypermarket about two weeks back. The initial response —
footfall of about 700-800 people on weekdays and soaring to 1,000 on weekendwith conversion levels of 35%. Expectedly, ITC now plans to open about 50 suc
stores, spread across rural Madhya Pradesh and Uttar Pradesh over the next 1
months. Investments will hover in the range of Rs 2-4 crore for each such store.
Features and facilities at these ITC malls can overshadow those in the metros
The ITC store sells everything that a rural consumer may ask for — sarees to kurta
pyjamas to shirts (in the range of Rs 99-500), footwear, groceries, electronic durabl
from TVs to microwaves, cosmetics and other accessories, farm consumptio
products like seeds, fertilisers, pumps, generators and even tractors, motorcycles an
scooters
“There is even a fuel pump for which we have tied-up with BPCL and
cafeteria. There will be a primary healthcare facility to be serviced by a privat
healthcare service provider and banking facilities too. 3
3 Source- The Economic TimesDated- September 10,2005
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ITC to expand e-Choupals in 5 more Indian states
In an attempt to reach out to a wider target audience, Indian Tobacco
Company (ITC) Ltd is extending its business model e-Choupal to another
five Indian states including West Bengal, Himachal Pradesh, Punjab and
Haryana in the current fiscal. At present, ITC Ltd has 5,150 e-Choupal
telecentres covering 30,000 villages in Madhya Pradesh, Uttar Pradesh,
Maharashtra and Rajasthan. It is also planning to extend its e-Choupal
models to cover 1,00,000 villages across in the next two years and is
looking at investing Rs 5 crore per 50e-Choupals.
ITC Ltd Agri business Chief Executive, S Sivakumar said that each e-
Choupal costs Rs 3 lakh. The company plans to set up Choupal Sagars’, a
multiple service centre for every cluster of 50 e-Choupals. He also said
that they will be investing Rs 5 crore per each ‘Choupal Sagar’ in thecurrent fiscal. This multiple service centre will accommodate
warehouses, retail stores, a fuel station, a training & health centre, he
added. According to him, the company’s field teams directly go to Indian
villages to create awareness for its e-Choupals. With the help of audio-
visuals, they show the mutual benefits of the project to villagers. After
selecting a sanchalak in a particular village, they train him to run the
Internet centre, he explained.4
4 Source - The Financial ExpressDated – May 4, 2005
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FDCF to promote rural insurance on e-Choupal
In a bid to provide integrated financial services to Indian farmers through
e-choupals, ITC Limited has signed a contract with the Financial
Deepening Challenge Fund (FDCF) to create awareness about insurance
and provide best possible insurance services to farmers at their doorstep
in the villages of Andhra Pradesh and Madhya Pradesh.
For this purpose, FDCF will provide grant of Rs 5.80 crore over a
period of three years to enable ITC to reach out to and serve these
farmers. The initiative would be pursued through ITC's associate
company -- Megatop Insurance Services Limited (MISL).
ITC's e-choupal is the biggest IT intervention by any corporate in rural
India. The e-choupal model is a value-driven mechanism where each
participant derives benefits from his association. Similarly, FDCF is a
pro-poor initiative with focus on commercial viability.
The FDCF is the UK Government's initiative aimed at developing public-
private partnerships that benefit the poor. In July 2001 the DFID
unveiled, for the first time in India, an initiative called the FDCF in
Andhra Pradesh and Madhya Pradesh. This fund, with a corpus of £20
million, is working in 15 countries in South Asia and Africa.
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The project requires the creation of large-scale insurance awareness in
the target markets, which will result in insurance penetration, creation of
a network for direct marketing and the designing of customized productsfor future target segments.
5
5 Source – The Times of IndiaDated – January 11, 2005
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Bibliography
Magazines and Newspapers:
Business Standard- Dated 5/3/2002, ‘The choupal as a meta
market’
The Financial Express
The Economic Times
The Asian Age
The Times of India
Websites:
www.itcportal.com
www.echoupal.com,
www.digitaldividend.com
www.worldisgreen.com
www.drishtikona.com/archives/rural_development/
www.smartmobs.com
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www.hindubusinessline.com- ‘Project Symphony: ITC team inspired by
Beethoven’.
www.nytimes.com
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