Business India

Life is different for the 32-year-old Devaiah. A coffee planter and agent in Mercara, Coorg, his day begins by opening his computer and logging on to www.plantersnet.com [1]. His father, with whom he shares the office of Agro Input Consultancy Centre, is clear that he leaves these gadgets to his son to handle.

But he admits the office is busier these days. Planters, young and old, drop in to ask his son questions like the trends in coffee price or if they have a technical problem. Says Devaiah, "I have been an agent for ICT's trading house for some time. But this new facility is really like a one-stop shop for the planters and traders."

Shashank Joshi is a soya farmer in Mendki village, Madhya Pradesh, and holds two acres of land. Now he has a new status as a 'sanchalak' in the ITC's soya e-choupal. A computer was installed in his house which gives him information on prices, weather and technical issues.

Other farmers come and drop their soya bags at his home-cum-office. The days of hanging around the 'mandi', waiting for the agents to examine their stock and dictate prices, are over. Prices of major 'mandis' are transparently provided on the computer screen, giving the farmer the choice to sell his stock to ICT or a 'mandi' of choice.

The Rs 750-crore (Rs 7500 million) ITC International Business Division, a part of the ITC group, has four broad divisions. It exports bulk products like soya, wheat, sugar, oil and rice worth Rs 450 crore; aqua products worth Rs 100 crore; volatile products like coffee and pepper worth Rs 75-200 crore and small volumes of value-added items like fruit pulp and basmati rice worth Rs 25 crore.

Margins in this business are wafer thin; its net profit last year were at Rs 20 crore. But a greater crease on ICT's brow was a lack of control over the supply chain.

In Madhya Pradesh, the marginal soya farmers were located in far-flung villages. In coffee, there was a mixture of large and small planters, traders and agents. This resulted in the company not having any control over quality, which is of critical importance in exports, and caused a complete dependence on middlemen. Till, finally, a solution was found using information technology in a project called e-choupal launched one-and-a-half year ago.

Says S. Sivakumar, CEO, ITC Agribusiness and IBD, "We began with conceiving an alternative supply chain management model." The challenge for any corporate in the agri-business, he explains, is dealing with fragmented farms, infrastructure bottlenecks and numerous intermediaries.

These intermediaries make unreasonable profits for themselves by blocking market and price information. But they cannot be wished away as they add critical value at very low cost by substituting for the infrastructure gaps along the chain. Adds Sivakumar, "We used the power of the Internet, and worked out a model which not only leverages the physical transmission capabilities of these intermediaries, but also disintermediates them from flow of information and market signals."

The click and mortar model was first established in Madhya Pradesh for soya farmers. An Internet kiosk was set up in the house of an influential farmer known as the choupal sanchalak. The site provides farmers with real-time information on the latest weather report, prices in various 'mandis', global prices and the best farming practises.

All information based on the farmers' needs was gathered and the content rewritten in some cases by the farmers themselves for user-friendliness. Soil testing services offered at the sanchalak's office also provided ITC with a valuable database. Rather than leaving the middle-men completely out of the loop, a role was created for some of them in the logistics operations with the title of 'choupal samyojak'.

The oath-taking ceremony is public for transparency in the appointment of the 'samyojak' and 'sanchalak'. The farmers have the option of either bringing the produce to the ICT warehouse or factories and get reimbursed for transport costs, or they could give their supplies to one of the collection hubs or to the 'sanchalak'.

According to company officials, the farmer saves Rs 250 per tonne on soya bean since he no longer has to pay for bagging, transporting, loading and unloading, plus wastage and wrong weighting at the 'mandis'. For ITC, on the other hand, even after paying transport cost, it saves about Rs 200 a tonne and gives them direct access to the farmers.

The next step was converting the computer from a mere supply chain mechanism to a one-stop shop. This meant not just enabling the farmer to sell his product but also source his inputs and daily items for household use.

For instance, it has tied up with Monsanto and Madhya Pradesh's Seeds Corporation for seeds and BASF for fertilisers. ITC charges a 10 per cent commission on the percentage of sales accrued in the choupals, one half of which is passed on to the 'choupal' sanchalak who executes the sale. It also sells solar lanterns and cooking oil through the same chain. "The supply chain tool has actually become a delivery mechanism tool for FMCG and other items the farmer may want," says a spokesman of Nagarjuna Fertilisers.

Points out Sivakumar, "Having succeeded with soya, we decided to extend the concept to crops grown in four states with different socio-economic characteristics." As the company officials point out, while the basic character of agriculture is the same across India, the value chains of different crops have their own dynamics.

The zeroed-in were coffee in Karnataka, aqua in Andhra Pradesh and wheat in Uttar Pradesh. Setting up and managing choupals in these four diverse states and crops would give them the expertise to replicate the model in any part of the country.

Take for example coffee. It was a plantation crop with a more sophisticated grower profile. Market prices were highly volatile; the agent's role was crucial, since planters preferred to trade with known counterparts. The value chain was efficient and scope for disintermediation low.

The strategy was to set up one-stop shops for information, knowledge, inputs and outputs, and the interlocking of a network of partners. But the information was more sophisticated, like parity charts where raw to clean coffee conversion rates could be calculated. And knowledge was offered through specialist service providers like the Australia-based Future Source for future information. ABN Amro, which is the largest futures player in the world, provides a daily analysis on the volatile movements of the market.

Unlike soya, the computers had to be placed at different target groups like the agents' kiosks, clubs and cooperatives of smaller planters. ITC also created an e-trading platform with special features.

Says Lakshmi Venkatachalam, chairman, Coffee Board: "This Web site is a harbinger of better export prospects of coffee from India and could serve as a virtual extension of services for the cash-strapped small grower who have no information on scientific cropping and market information. It could also help build brands in international markets."

The ITC e-choupal has attracted global attention. Says David Upton, professor, Harvard Business School, who flew down to India to write this case study for his students, "This is a supply chain innovation that is local to India but has broad applications to the world. What is interesting is the social good it brings in the wake to the small, marginal farmer."

Upton points out several issues which the company has addressed.

Firstly, it is not just tweaking around but a greater efficiency in the supply chain. One of the problems in redesigning supply chains is how to use different tools, thus making the various players still own the chain. Here, the farmer and the team are involved in painting the big picture, so there is enthusiasm and a feeling of ownership.

Further, how do you avoid a channel conflict by finding space for the middle-men? Upton also points out that the 'roll out, fix it, scale up' model is a new approach to strategic management. The philosophy here is that the terrain has so many uncertainties that gaps will exist. So, unlike in the past, where focus was on well-laid strategic plans, here you give experimentation-based strategies more weightage.

Says Upton: "Admitted I do not have all the answers but I will not wait for them; instead build safety nets while I roll it out, learn lessons and then fix it. This means you are not attached to your design and are sensitive to lessons from the outside world."

The company's target is to eventually have 50,000 choupals to cover 200,000 Indian villages which means covering one-fifth of the country. With this infrastructure, ITC targets Rs 2000 crore (Rs 20,000 million) by the year 2005 from its international exports.

Says Sivakumar, "Even while we set up choupals all over India, we have offers from international organisations to replicate this in Africa and other developing countries."

Bytesforall list-serve July 4 2002.