Give them empowerment first

The Hindu Business Line, 19 Nov 2004

Rasheeda Bhagat

The e-choupal initiative rests on the principle that what farmers need first is empowered
access to markets. If that is available, the awareness of rights will follow, says S. Sivakumar,
Chief Executive — Agri Business, ITC.

S. Sivakumar,
Chief Executive — Agri Business, ITC.

The ITC's e-choupal initiative has already reached 30 lakh of India's farmers and by 2010, it
hopes to reach 10 million farmers. On the insight this initiative has given him on India's
farmers, S. Sivakumar, Chief Executive — Agri Business, ITC, who has been involved with
this venture right from 2000 when it began, says it has three layers which put together can
effectively serve as a universal service-delivery mechanism for rural India.
The first is the e-choupal where ITC sets up a computer network at a cost of Rs 2 lakh at the
sanchalak's house. The second layer is the brick-and-mortar multiple services centre
managed by the traditional commission agent. The third layer is a "pan-Indian network of a
whole lot of collaborative institutions... more than 80 companies are now participating in an
initiative orchestrated by ITC." This is the Choupal Sagar or the mall where goods ranging
from motorcycles to home appliances, fertilisers to branded shirts and trousers are sold.

He explains how ITC has moved away from the traditional model of development in rural
areas that begins with setting up social infrastructure like self-help groups, co-operatives, etc.
Then comes the second layer of political awareness and rights, followed by providing the
linkage to the markets. "We believe that what makes more sense, and is probably more
sustainable and scalable, is to reverse this equation and provide an empowered access to
markets as a first step. When there is empowered access, the awareness of rights will follow."

He feels this is a more sustainable model because traditionally most of the self-help groups
— whether of farmers or women — even though they realised collective strength in terms of
rights and social awareness, were not able to scale up or sustain higher income levels,
because the market linkages were not good. But in the choupal model, the farmer is given
both information and linkage to the market at the same time.

Of course, ITC benefits on several counts. "If the farmer comes and delivers directly to my
warehouse, I save certain costs. Instead of getting what I need from the mandis, I buy directly
from the farmer. My cost comes down and the farmer gets a higher price through elimination
of wasteful intermediation."

Giving an example, he says that if under two years ITC's Aashirwad aata has become the No.
1 brand in the country with nearly 15 per cent of the market share in aata, it is primarily
because of quality, "which was a result of the choupal infrastructure. Because we now buy
from the farmer directly and we are able to store different varieties of wheat separately.
When farmers sell in mandis or the FCI, all the wheat gets aggregated. And after that it can't
be segregated. So sometimes the atta quality is very good, sometimes it is quite bad, and the
consumer has to deal with it. But today when we store wheat separately, we have different
blends.

"What is sold in Kolkata, Mumbai or Chennai is very different as consumer preference is

different in terms of level of coarseness, colour, usage — for pooris, chappatis or parathas,
the water absorption capacity, and so on. Earlier consumer preferences were not matched
with the wheat grown, and the farmer didn't get the right value for his produce. But that is
changing now."

Coming to the mall where a host of FMCG products and other consumer durables, insurance,
etc are being sold to rural people, he says that the mall stocks products of about 80
companies who pay a fee to ITC for using this channel. "The reason why it has to be a multi-
company marketing channel is because the purchasing power is quite low in rural areas. But
if you can reach the products at lower cost, volumes will come. With 80 companies making
use of this channel, the cost of distribution comes down and lower prices can be offered." So
you have Marico, Philips, TVS, Hero cycles, Usha, LG, Sonata, etc being sold through a
single mall in Sehore. At this point, the money ITC makes by allowing other corporates to
use this channel hasn't exceeded Rs 1 crore yet, but that will grow substantially over a period
of time.

Here the 7,000-sq-ft mall is housed in an eight-acre complex, which includes the ITC
procurement centre, complete with an electronic weighing platform where the farmer's grain
is first weighed along with the vehicle. This eliminates wastage through handling of
individual bags.

By end-2005, Madhya Pradesh will have 25 such malls, and another 25 will be put up in
Rajasthan, Uttar Pradesh and Maharashtra.

On the crucial question regarding the increase in farmer's income due to this initiative,
Sivakumar says that there is both a direct and indirect benefit due to empowerment; farmers
are able to demand better services, and sell at better rates because of transparency, and there
is no cheating on weight. "People typically respond saying `our incomes have gone up
between 20 and 40 per cent because of this initiative', directly or indirectly. But to get an
accurate picture, some more time is needed."

He agrees that the ultimate objective of any venture is to raise incomes; "it's not enough to be
aware of rights and feel good about it. In India, at least 50 years of development effort has
gone into the model of social awareness first, followed by infrastructure and economic
development. While things have improved, it is not in consonance with the kind of resources
put in. "We still have a whole lot of poor people, gender and social inequity. And obviously
there are other agencies perusing that sequence. But as a commercial enterprise, we are
attempting to enmesh the two — business activity with general development. The well
accepted and articulated definition of development is one of freedom of choice; you should
have more choices and be able to act on those choices. Also, you should be able to build and
enhance your capabilities to live your life the way you want. If these are accepted, then we
believe it can be done in a more sustainable and scalable fashion through this model. If in
four years we're able to touch the lives of 30 lakh farmers and going strong, it is because we
have provided them access to markets in an empowered manner and out of choice. If a price
is given to a farmer in a village we're not saying that just because you got my price free of
cost, come and sell to me. If you get a better price elsewhere, you have the freedom to go
there." Of course, earlier too he had the choice of going to the mandi, not sell and bring back
the product if he was not happy with the price. But having gone to the mandi — incurring a
cost, very rarely would he bring back the product for fear of multiple transaction cost.

Another crucial factor on which the success of the choupal initiative hinges is the increase in
modal and not mean income, says Sivakumar. The threshold income of more farmers needs
to go up rather than the rich farmers getting richer. "In a village, out of 100 farmers, if the top
10 farmers' income increases substantially and not that of the other 90, your consumption
will not increase in the same proportion. But in an integrated model like ours, where you also
rely on the consumption of goods and services, it's a two-way channel and depends on modal
income increase."

Another ITC initiative in different stages of piloting is Sunehra kal (Golden tomorrow).
Under this initiatives, not necessarily directly linked to ITC's business, are on. "Because the
platform is there and we have traditionally been spending CSR money, we are using this
mechanism for improving the lives of rural people," says Sivakumar. One initiative is on
cattle, which is a source of income in most rural homes. Another is on linking some
livelihood activity for women to the markets or the banks. Water harvesting and water
management is another area where ITC puts in money to revive the traditional water body in
the village.

http://www.itcportal.com/about-itc/newsroom/press-reports/PressReport.aspx?
id=523&type=C&news=Give-them-empowerment-first
 Grain revolution
The Hindu Business Line, 19 Nov 2004
Rasheeda Bhagat

What touches your heart at ITC's sprawling Choupal Sagar in Sehore is that along with the
larger farmers, it has time... and space... for the small farmer who might have on offer just
two bags of grains transported in a small cart.

Mangelal Verma, e-choupal sanchalak in

Kakarkheda near Sehore, Madhya Pradesh.

Kailash Pathdhar is a farmer from a village near Ujjain and has come to attend a workshop
for e-choupal sanchalaks held at Bhopal by the ITC. Here sanchalaks (farmers trained to
operate the computer and offer a myriad of services to fellow farmers) will rub shoulders
with bureaucrats, agricultural officials and researchers, and discuss ways of improving their
yield. All the farmers grow soyabean — widely known as sona (gold) in this region, wheat,
channa, and sugarcane.
As the meeting resembling a mela is on, Pathdar's mobile phone is buzzing. Rahul, his 13-
year-old nephew, has good news for him. Even though Pathdhar is away, his choupal (the
centre that provides free information on agri-product prices) is active, and Rahul has clinched
seven deals in which farmers from his choupal will sell their soyabean produce to ITC that
day, at a price of Rs 1,200 per quintal. On each trolley the sanchalak will make around Rs
200 to Rs 250 as his commission.

Pathdhar says that the last time his computer went on the blink, "Rahul came with me to the
ITC hub in Ujjain. By the time I finished my work, Rahul had been briefed by the engineer
on how to get the computer working, and he set it right after reaching home."

ITC's 5,050 e-choupals have ushered in a revolution of sorts in the six States of Madhya
Pradesh, Uttar Pradesh, Maharashtra, Andhra Pradesh, Rajasthan and Karnataka, servicing
the integrated needs of 30 lakh farmers. While the core activity is to tell the farmer the price
at which ITC will buy soya or wheat that day, the choupals have quickly expanded their
activities to help the farmer with soil testing, combating pests, weather forecasts and
improving yield through research inputs. Whether it is spreading awareness on consuming
iodised salt — something that helps ITC's Aashirwad brand of salt — or getting life
insurance (LIC and ICICI Prudential) the choupal plays a role.

Waiting for best price

Some of the smarter sanchalaks keep a sharp eye on the trend in future prices by looking at
the price of deoiled soya cake at the Chicago Board of Trade and advise the farmers whether
to sell that day or hang on for a better rate. The housewife too has an assured supply of LPG
as ITC's choupals have tied up with BPCL for LPG supply. The sanchalak aggregates the
demand and once in 15 days LPG cylinders are supplied.

If ITC's choupals are giving the traditional mandis (quasi-government agricultural marketing
centres) a run for their money and taking away farmers' patronage, it is not without reason.
As Pradeep Bhargav, a sanchalak from Ujjain points out, not only does the choupal give the
farmer the price information and the freedom to decide whether he'll sell his produce that day
or wait for a better price, the weighment at ITC's procurement centres is accurate and there is
no wastage. "In the mandi, when the farmer took his produce, the trader would typically pick
out a handful of grain, look at it and fling it, saying scornfully: What kind of grain have you
brought.. yeh tau bekar hai (This is useless). What this does to the self-respect of a farmer,
who has toiled for months to harvest his crop, can be best understood by another farmer.
More than being shortchanged in the price or weight, such arrogant behaviour shatters him."

S. Sivakumar, Chief Executive, Agri Business, ITC, says that what started as an agriculture
supply chain initiative for ITC in 2000, has evolved into something which can not only
empower the farmer through information and freedom to sell as and when he decides, but
also service a whole host of needs. The `malls', known as Choupal Sagar, will eventually
become a one-stop halt for the farmer... a place where he can bring his produce in a
trailer/trolley, sell it, get cash on the spot, buy whatever fertiliser or pesticide he might
require, pick up diesel from the BPCL outlets at the malls, load the vehicle and make the
journey back home.

The festival season is of course an ideal time to buy the consumer durables, provisions,
clothes and so on, that the glittering mall is stacked with. But with a farmer getting an
average of Rs 50,000 for a trolley loaded with soyabean, and that too in cash, there is bound
to be some impulsive shopping at the mall.

So how difficult was it to train the sanchalak, essentially a rural farmer, to operate the
computer?

"We had no hesitation about their ability; the only question was on time. In June 2000, while
training the first batch of sanchalaks, we kept aside two days but they took in the whole thing
in two hours and said what next? They have business acumen; if you can demonstrate value
and benefit for them, they catch on very fast. If something has no value, they are not
bothered; for us too it has been an educating experience to find out what they are not
interested in!"
 A farmer in Sehore near Bhopal.

Farmer after farmer in the villages we visited around Sehore, about 38 km from Bhopal, said
he had stopped going to the traditional mandi to sell his produce, and was happy selling his
ware to the ITC, where he not only got the right weight and price for his produce, but also
cash on the spot and agricultural inputs like fertiliser or pesticide at a discounted rate. But it
would be incorrect to presume that everything is hunky-dory and the Indian farmer is having
it good as never before.

Hard-nosed business venture

After all, ITC's initiative is a hard-nosed business venture that has eliminated the middlemen
as far as procurement of raw material for its branded products and exports is concerned. So
unless the farmer is able to provide quality product in ample quantity, the choupal venture
will not be a success. Unless the farmer has a bumper crop, the white goods in the glittering
mall will not move.

Take soya cultivation in MP; it is largely rain fed and requires well-distributed rainfall for the
dana (grain) to be like sona. While there was a bumper soya crop in India last year at 6.8
million tonnes, the highest ever, this time thanks to erratic rainfall, the tonnage came down to
6.1 million. Even though the second largest ever in India, the yield per acre came down from
4-5 quintals last year to around 2.5-3 quintals. Considering that the average landholding of an
MP farmer is between one and two acres, this would mean an income of around Rs 7,200 for
six quintals.

But, as Mangelal Verma, the sanchalak of Kakarkheda, about 48 km from Bhopal — the last
few km of which is accessed through a back-breaking ride on an apology of a road — points
out, the cost of agricultural inputs continues to go up. "We were promised six hours of power
supply by the BJP government in MP, but we hardly get two hours of electricity, we have to
depend wholly on diesel. The hike in diesel prices will kill the farmers." He has 40 acres of
land and at a stretch needs to get diesel worth Rs 3,000.
Ghisilal Verma, a farmer from the same village with a landholding of 30 acres, says he got
only 1.5 to 2 quintals of soya per acre this year. And yet he is sitting on his entire crop,
waiting for the price to reach Rs 1,500 a quintal before he will sell!

Even though he might be aiming for the moon, it was heartening to find a farmer who hopes
to dictate his price to the market and obviously has the financial muscle to wait for it. "I'm
prepared to wait till April by which time my wheat crop will be ready. At that time I'll sell
everything, whatever be the price".

But on the whole this Diwali was good for soya farmers. "It was not like last time of course,
but I was able to buy fertiliser, diesel and some clothes for my servants. I told my family to
wait for their share of new clothes for a few more months."

But Mangelal, the sanchalak, is happy with his income. "I did buy clothes worth Rs 2,000 for
my family from the Choupal Sagar at Sehore. I found the clothes not only of better quality
but cheaper compared to the store in Sehore where we normally buy our clothes."

Obviously the sanchalaks are better off compared to the other farmers, as their new role gives
them additional income. And, typically, the sanchalak has more land. He is also more
educated — both Mangelal and Ghulab Singh, sanchalak of Bhavkhedi, are graduates — and
well respected in the village. As L.V.L.N. Murty, Business Development Manager of ITC,
Bhopal, puts it, "The sanchalak is the karta - dharta of the village in good times and bad. As
we also sell insurance through the choupal, in times of death, he assists farmers in getting the
claim and in good times helps them get the best possible price for his produce, helps out with
advice on his crop, pests, etc."

Suvesh Kumar Suresh, ITC's co-ordinator for social initiative, admits that this year profit
margins have come down for farmers because of the rising cost of agri inputs. "Hence we've
started low-cost agricultural services in the region; we give them vermin compost and other
inputs mainly for organic manure production." The farmers of these villages have pinned a
lot of hope on the artificial insemination centre for cattle put up by ITC in Bhavkhedi village
and, after two years, when the new stock is ready, they hope their milk production will more
than double.

From labs to fields

Emerson Nafziger, Professor of Crop Sciences at the University of Illinois, who is in Bhopal
to participate in the farmers' workshop, has been coming to Madhya Pradesh for four years
after the India Soya Forum first invited him in 2001. He sees "a lot of promise in this
venture. Anything that brings farmers and researchers closer together should work. But one
of the unknowns here is how neutral companies can be."

When it is pointed out that ITC does not shy away from its interest in this venture vis-à-vis
procurement for its business ventures, he says, "Oh yes, and lack of neutrality is a problem
only if it results in less production and lower profitability of farmers and that's not in
anyone's interest."

When asked about the choupal initiative benefiting farmers, Dr P.S. Bhatnagar, former
Director of the Soyabean Research Institute, and now an advisor to ITC, says that
traditionally in Indian agriculture there is a disconnect between the farmers and the
researchers and "my dream is that farmers should be able to harness the potential of
researchers. That is happening here. Our objective is to increase the profitability of farmers,
but that will happen only when the yield goes up and their cost of production decreases. But
the farmers are certainly benefiting; they are buying tractors and two-wheelers, and the
children of many farmers are now going to private schools, a sign of progress."

A factor crucial to the growth of the choupal concept — ITC hopes to eventually reach at
least one-tenth or 10 million of India's 110 million farmers through the choupal — is the
response from middlemen. In October the grain merchants of MP observed a one-day hartal
against the MP government allowing "multinationals" like the ITC to buy grains directly
from the farmers, bypassing the traditional mandis. That the squeezing out of the middemen
or traders is a concern with the government could be seen at the Bhopal workshop, where MP
Chief Minister Babulal Gaur asked the farmers if they thought the traders too should be
involved in some way in such initiatives. The resounding `No' was a clear indicator of what
the farmers thought.

So will the middlemen make trouble? "They are of course trying to incite the farmers against
the ITC and the choupal. But the Indian farmer is not a fool; he will sell his produce only
where he benefits the most. Sometimes in mandis, by the time we found the price and
reached it, the price would suddenly drop by Rs 20 to Rs 25. Now the farmer who has
invested his time and money to hire a vehicle and take his grains to the mandi, can hardly
bring it all back. So he did not have the choice that the choupal system, which is very
transparent, gives him."

Sivakumar says that some of the middlemen in the mandis will get absorbed in the malls as
samyojak (co-ordinator) but only a small percentage. "So they will still be unhappy but they
cannot sabotage something that benefits millions of farmers. Also, they have a fear of the
unknown; the response of farmers to the choupal is so extraordinary that they worry if
tomorrow anyone will come to the mandi at all. Of course this is an incorrect assumption
because in no way can we handle 100 per cent of the Indian produce; we have only so much
of the market share, so it's a lack of understanding."

But as more Indian corporates come into such ventures, as is already happening, more and
more traders will get absorbed into the system. "Also, thanks to competition the mandis will
have to get more efficient and the traders will have to complete. With their monopoly ending
the days of free lunch are over... . millions of farmers cannot be held to ransom anymore."

http://www.itcportal.com/about-itc/newsroom/press-reports/PressReport.aspx?
id=526&type=C&news=Grain-revolution
 CHAUPAL SAGAR - Unlocking rural markets
Businessworld, 20 Sep 2004
CHAUPAL SAGAR - Unlocking rural markets

ITC flags off its first rural mall in Madhya Pradesh. What is its gameplan?

inside Chaupal Sagar: A new shopping

experience for the rural folk in Rafiqganj

IN Madhya Pradesh, all roads lead to potholes. Despite that, over the past month, a string of
senior corporate executives from FMCG and durable companies alike have been making a
car-rattling, bone-jarring 40-odd kilometres journey from Bhopal towards Sehore. Another
four-odd kilometres beyond the town, just before the village of Rafiqganj, stands a freshly
painted long, squat building that looks like a hangar. It is this cream, blue and green edifice
that is attracting all the attention.

Sometime back, ITC chairman Yogi Deveshwar promised his shareholders that the company
would open 1,000 rural malls in India. This is the first one to have come up. As such,
Chaupal Sagar is one of the first organised retail forays into the hinterland. It was soft-
launched on 15 August. Early last week, when BW travelled to Rafiqganj, only the mall was
up. But the rest of the infrastructure was expected to be ready only by the first or second
week of October.

Walk into the building and the first thing you notice is the high ceiling. That is because the
building is actually a sprawling warehouse for storing the farm produce that ITC buys
through its e-chaupals. The mall has come up in one part of this warehouse.

As you walk around, you realise that Chaupal Sagar cannot be shoehorned into any of the
retailing categories we are familiar with. At 7,000 square feet, it is too small to be a mall.
And while it has opted for self service, stocking its merchandise on shelves lining the neat
aisles, it stocks a breadth of products no supermarket can. It offers almost everything - from
toothpastes to televisions, hair oils to motorcycles, mixer-grinders to water pumps, shirts to
fertilisers... It defies pigeon-holing. It is just a very sharply thought-out rural store.

Most of the brands it sells are national. You see Marico, LG, Philips, torches from Eveready,
shirts from ITC's apparel business, bikes from TVS, and tractors from Eicher. We will look
at this part of the equation in greater detail later. ITC is offering a very compelling
proposition to these companies. But first, a look at how this place came up next to the
warehouse.

It works like this. With its network of e-chaupals , ITC communicates its latest commodity
prices to the farmers via the Internet or VSAT lines. If they find these attractive, they sell
their produce to ITC. Listen to Rajesh Nigodia. He is the sanchalak (the person who operates
an e-chaupal; most of them are farmers) of a small village called Mangawali, about 14 km
away from Rafiqganj. He reckons that half the farmers in his village deal only with ITC.
Now, by setting up the mall next to the warehouse, ITC is trying to monetise the footfalls
from farmers. Agrees R. Nandkishore, director (marketing), Philips Lighting, which is selling
its products in the mall:

"ITC realised that the farmers had just got money, that they would spend it anyway, and that
they had an empty vehicle with which they could lug the stuff back."

As it were, prosperity in this area has been rising steadily. According to officials at the
Nabard office in Bhopal, prosperity in this region has been rising for the past ten years - ever
since farmers began switching to soya bean cultivation. Thanks to the information revolution
catalysed by the chaupals, says a former ITC-IBD (international business division) employee,
farmers are beginning to hold their stocks, knowing that there is an advantage in selling later.
It helps that most of them grow soya, which is very inexpensive to store.

In that sense, what ITC is doing with this warehouse is similar to what it did with its kiosks.
In the first phase, having wired up the hinterland, it began using the network to enable a two-
way flow of products and services to the rural economy. Working through the sanchalaks,
ITC first pushed its own products, like salt, into the hinterland, and then invited others like
Parachute and Philips to ride on this distribution chain. Today, it plans to similarly create
revenue streams around its warehouses.

Products unlimited
The rural mall sells everything from
fertilisers and hair oil to mixer-grinders
and tractors

This time around, ITC is hoping to capture the rural folks' out-of-village shopping. The
warehouse is one bulwark of its strategy, obviously. But the farmers will come here only
after every harvest. To ensure that they keep coming to Chaupal Sagar even at other times,
the company is offering a slew of other goodies. Another building is coming up next to the
main warehouse. When completed, it will house a bank, a cafeteria, apart from an insurance
office and a learning centre. ITC has tied up with agri-institutes to offer farmer training
programmes. Then, plots of land have been earmarked to display large agricultural
machinery like threshers. Other parcels of land have been earmarked for pesticide and
fertiliser companies for demonstrating their products. A petrol pump is coming up as well.

The Great Rural Roadblock

From his office in Delhi, rural marketing consultancy MART's Pradeep Kashyap has been
keeping careful tabs on ITC's rural initiatives. "It (e-chaupal) is a very far reaching
development. People don't appreciate just how important it is yet," he says, referring to the
distribution model that the sanchalaks represent.

Mind you, ITC has solved one of the biggest bugbears Indian rural marketers face. Take
Philips Lighting. Riding on its own distribution network, it had reached all Indian villages
with a population of 20,000, but could not go any deeper.

It is simple arithmetic. Assume, says Nandkishore, that a village needs 200 bulbs. At an MRP
of Rs 10 per bulb, that works out to Rs 2,000 and the company makes a gross margin of 5-7
per cent on these. Trouble is: to go deeper into the country, beyond the 20,000-population
villages, Nandkishore would have to hire a van. Costing another Rs 50, that would blow a
hole in his economics. It is a conundrum that all rural marketers are familiar with.

And then, Philips got a call from ITC, which was looking for other companies to ride on its
chain. Today, Philips' dealers in the 20,000-population villages supply to ITC, which sends a
van to all its sanchalaks once every 15 days, dropping off their orders. Now, Philips'
coverage is up to 50-60 per cent in these areas - up from 20 per cent two years ago. On their
part, the sanchalaks either sell the goods directly, or, more often, sell them to the village's
shopkeepers.

Now, how does the mall change this equation? Well, for one, Philips only distributes its 60W
and 100W bulbs through the sanchalaks. It is hard to get the more costly products, like
energy-saving bulbs, placed in the village shops. They are too costly, and block up too much
of the village kirana's working capital. Ergo, Philips plans to use the mall to showcase its
entire range. At the same time, the basic products will continue to go to the village. As
Nandkishore says: "Bulbs are bought only when the previous one fails. These need to be sold
through the village."

The bigger picture

Next to Chaupal Sagar, ITC is setting up a
bank, a cafeteria and a learning room to
offer more services to farmers

Other companies are similarly gung-ho. To solve a similar problem in reach, Eicher Tractors
evolved a rental model. It gave about 50 tractors to the sanchalaks, who in turn lease them
out to farmers. This is generating awareness, says the company's deputy general manager, N.
Subramanian. Now, like Philips, Eicher plans to use the mall to showcase its entire range.
TVS is also doing something similar. On its part, ITC is accepting stocks on a consignment
basis.

Carrying It Forward

ITC is tentatively planning to open another 4-6 malls this year. No more than that. It will
wait and see how the malls are received.

According to BW sources, so far, the store has done OK. On the day before we visited the
store, a Sunday, about 900 people had walked into the store. On weekdays, footfalls were
ranging around 700. On the first day, says a senior manager at a company using the ITC
network, the store notched up a business of about Rs 70,000-80,000. But, unlike the kiosks,
higher investment goes into these stores. While ITC refused to comment on this article,
investment on a rural mall is estimated to be around Rs 3 crore-5 crore.

A lot is riding on how well ITC has gauged the rural consumer's buying patterns. It is hard to
change villagers' buying habits, says a senior manager at one of the firms partnering ITC.
Which is the point that Subramanian also makes. For the first six months after the company
began offering tractors on rent, there was no offtake. They just sat dormant. But eventually,
some people used them, word of mouth got generated, and rentals picked up gradually.

Back at the store, it is late noon. In the shade, the temperature is around 35 degrees Celsius.
Inside, a few men are walking around. It is interesting to watch them in the middle of their
shopping experience - picking up FMCGs, biscuits, toothpastes and the like.

Is it true what people say about the rural consumer? That it is the men who do all the
shopping? And that the women aren't allowed to go out? And then, just as we are about to
pack up and leave, a group of village women descend on the store. They spread out across
the shop. Examining the FMCGs, then the cooking utensils, the refrigerators, the plastic-
ware, and so on.

And that is why Chaupal Sagar is an important experiment. It will throw up a lot of valuable,
real-life data about the rural consumer. In the months to come, a lot of assumptions and
myths will be tested here.

http://www.itcportal.com/about-itc/newsroom/press-reports/PressReport.aspx?
id=627&type=C&news=CHAUPAL-SAGAR-Unlocking-rural-markets
 The Village People
The Economic Times (Brand Equity), 14 Jan 2004
NIDHI NATH SRINIVAS

They say if at first you do succeed, try something harder. For ITC, it is the only way to live.
After its ambitious e-choupal project which involves connecting 100,000 small villages to
one Internet-based network, the cigarettes and hotels conglomerate now wants to enter the
no man’s land of bricks-and-mortar rural retailing. No more simply buying soya, shrimps,
wheat and coffee from VSAT-savvy growers. ITC wants to sell to them too.

As chairman YC Deveshwar summarises it: "ITC wants to create a high-quality low-cost

fulfilment channel for rural India." The plan may seem overly ambitious but Deveshwar is
not backing down. "The e-choupal was the first step in the last mile towards complete
backward integration. But it’s also the first mile on a new information highway around
which multiple suppliers and buyers can converge. It is transformational in its implications
and can make a huge contribution towards rural well-being," he says.

No other company is ready yet to invest in a multi-store chain selling a variety of items
under one roof to Indian villages, so why is ITC going into overdrive? Says Deveshwar,
"We have created a market. Now we are going to reap it. We are creating an entry barrier
for everyone else."

Two way traffic

These lofty ambitions have not come easy or cheap. It has taken ITC three years and Rs 80
crore to journey this far down the dusty roads of rural marketing. Combining information
technology, focused interaction, and eager villagers looking for income opportunities, the
company has created a complex three-tier structure for selling.

Establishing the first two tiers was the easy bit. The last — and also the most visible — is
the new tier ITC is now adding to get farmers to go ‘shopping’ outside their villages. The
idea germinated when ITC realised that every time ‘sanchalaks’ — the local point man in
ITC-speak — and farmers visit its soybean factories in MP to sell their produce, they also
have the opportunity to spend their freshly earned cash.

Encouraged by its image as a fair and reliable buyer of farm produce, ITC decided to invest
in 5-acre malls, costing between Rs 3-5 crore each, across 15 states. The first five — four in
Madhya Pradesh and one in UP — will be inaugurated by March 2004, says S Sivakumar,
chief executive of ITC’s International Business Division and the mastermind behind e-
choupal.

ITC wants to use these malls for products like bikes, tractors, clothing, cement, steel, diesel
and financial products. To keep its own investment to the minimum, ITC is encouraging the
‘samyojak’ — a local broker or middleman co-opted by ITC — to pick up equity and
manage these shops as part-owners. Assisted by four ITC salesmen, the samyojaks will
assess demand, ensure just-in-time delivery, manage customer service and keep accounts.

ITC claims that the model’s uniqueness lies in the fact that it works equally well for ITC as
the buyer of farm produce and ITC as the seller of desirables. "Because it is a fundamentally
profitable business model, it has the ability to be scaled up," says Sivakumar.

Even experts in retailing are giving it the thumbs-up, at least for now. Says Anil Rajpal,
manager at KSA Technopak, "It is definitely a pioneering venture because no other Indian
company has yet entered rural retailing with the all-under-one-roof concept."

But simply building a mall is not enough to bring in customers. So ITC is trying to position
itself with farmers as the much-needed alternative to the network of local dealers or
wholesalers, peddling over-priced products of suspect quality. Village grocers will get
delivery at their doorstep, minus the hassle of quality checks.

For companies finding it hard to reach out more than once in six months to customers in
small villages, ITC is offering a ready-made channel for niche advertising, micro-marketing
and distribution. It is just as attractive for companies who want to provide customer service
minus the cost. Eicher, for instance, will be training sanchalaks in motorcycle repair and
maintenance in their village itself. Pesticide and seed companies will be training them on
proper usage. ITC will also be selling its e-choupal data to interested food and beverage
companies.

Impressed by the potential of the enterprise and ITC’s own confidence, 55 companies have
already signed up for pilot projects in different states. Says PS Dravid, president, JK
Genetics Seeds, "We are using e-choupal as an additional marketing channel because of its
proximity to farmers and the accurate information it generates about farmer preferences.
This allows us to position the right quantities at the right time."

But while everyone agrees that ITC’s rural retailing model is brilliant in theory, the crucial
question is whether it will work in practice. After all, a rural customer base is not just the
number of villages multiplied by their population. The economic health of the area is a
major factor — unless malls are located in high-income agricultural corridors, profits are
likely to be distant.

More importantly, everything hinges on the probity and enterprise of the sanchalaks ITC
selects. Ultimately, it is this last mile connectivity where ITC is most vulnerable. Given that
the sanchalak is not an ITC employee, it might be difficult to exercise control over him. ITC
is also assuming that if you have their hearts and minds, wallets will follow. But that may
not necessarily be true. "When it comes to once-in-a-while purchases like motorcycles,
tractors and even steel, villagers don’t mind going to the nearest big town to shop around.
ITC will be offering just a couple of brands of each item and is unlikely to be the first stop
for these purchases," say industry watchers. Another problem that ITC could face is that
while farmers may come in to sell their produce, for eight months of the year, that won’t
happen. Plus, given its fixed costs, there is the additional anxiety of generating adequate
volumes. Lastly, for suppliers there is the issue of flexibility in pricing and the danger of
alienating existing distribution. A company wholesaler or dealer can offer spot discounts or
create an attractive package for a loyal customer or reel in new buyers. ITC malls will have
no such flexibility.

But the company is confident its formula will work. "We are telling our suppliers not to get
caught in the dealer’s game of higher and higher discounts," says marketing head,
Shailendra Tyagi. Experts say the hurdle of customer choice can be overcome with
significantly superior customer service. "ITC offers trust and service to villagers which
could compensate for lack of choice," says Rajpal of KSA Technopak.

Meanwhile, what about ITC’s shareholders? The company is reluctant to talk numbers yet.
ITC is prepared for a long gestation period, says chairman Deveshwar. "There is no crystal
ball. I’m simultaneously patient and impatient. I know it will take a while before results
show. But I’m also impatient to see its transformational impact on rural well-being," he
points out.

According to Sivakumar, ITC is expecting a four-year pay-back period. "Though the

venture as a whole may take a while to become profitable, individual stores will definitely
break even faster," he says.

But market analysts are not so sanguine. After all it is impossible to ignore the fate of ITC’s
recent forays into segments like clothing, greeting cards, and foods. "ITC has no strength in
retailing and this is another questionable move by the company," say analysts at a leading
brokerage house.

Deveshwar, however, believes that as it did with paper, ITC will once again prove the
Cassandras wrong. "We are quite clear it is a worthwhile venture. It also has the potential to
reward shareholders for their trust," he says. Who knows, it could be a runaway success like
Wills cigarettes, or a flop like its ready-to-eat meals. But success or failure, one thing is
certain, if it’s to do with ITC, either would be equally spectacular.

Two Tiers Down

Today, ITC’s first contact with consumers is at the village level, where the ‘sanchalak’ – the
local point man in ITC-speak – aggregates demand for products through orders placed by
his neighbours. The sanchalak then emails the order to ITC, and the items are either picked
up by the sanchalak at the ITC warehousing hub, or delivered by the samyojak – a local
broker or middleman co-opted by ITC – to the villages.

The sanchalak then collects cash payments from his neighbours and remits them to ITC.
Seed and fertilisers of companies like JK Genetics, Mahyco and BASF, to name a few, are
being sold in this way.

"To avoid clogging up our channels with too many or irrelevant agri-inputs, ITC chooses
from the range being offered by these companies. So in MP we are selling seeds of wheat,
soya, hybrid rice and vegetables only," says Shailendra Tyagi, head of marketing in ITC’s
International Business Division.

The second tier does not involve any prior orders. Instead, the sanchalak buys products
based on estimated demand and stocks them in his home. They are later sold to both the
local grocer and village households. Products sold this way are again procurred by either
sanchalak pickup or samyojak delivery. This system is most effective for consumer goods
such as salt, matchboxes, soyabean oil, and confectionery items. So ITC brands like
Aashirvaad salt and atta, Candyman and Minto confectionery, and Aim matchboxes are all
being sold through this route and both the company and the sanchalak earn a fee from any
sales.

http://www.itcportal.com/about-itc/newsroom/press-reports/PressReport.aspx?
id=621&type=C&news=The-Village-People

The Crop Shop - From toothpaste to tractors, this

rural mall has it all
Outlook, 04 Oct 2004

Rafiqganj, about four kilometres from Sehore town

in Madhya Pradesh, is not a city, nor even a one-
horse town. It is a little village...except that it boasts
of having the first rural shopping mall in the country.
Chaupal Sagar, set up by cigarette giant ITC, stands
on an eight-acre plot with a shopping area of 7,000
square feet.

Along with soaps, detergents and toothpaste, the

mall sells almost everything — TVs, DVD players,
pressure cookers, room heaters, watches, sewing machines and grinders. And, of course,
cigarettes. Farmers can also buy motorbikes, or even tractors. ITC has launched its own
rural range of clothing and shoes too — trousers at Rs 166 a pair tailored for the village
folk.

The mall seems to be doing brisk business. Though its launch is in the first week of October,
it has informally opened its doors to buyers. ITC says the daily sales is already between Rs
70,000 to 80,000. TVs and DVD players are among the costlier items that have found rural
customers. "The idea is to create a one-stop destination for farmers," says S. Shivkumar,
chief executive officer of ITC.

Chaupal 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 Chaupal 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 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-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 Chaupal 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 fertilisers, 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 Chaupal Sagar is the logical

culmination of the e-chaupal scheme launched by
the company in Madhya Pradesh. These e-chaupals
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-chaupal. 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.

The experiment started with four e-chaupals. 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
Chaupal which would serve as a 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 Chaupal 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?
http://www.itcportal.com/about-itc/newsroom/press-reports/PressReport.aspx?
id=565&type=C&news=From-toothpaste-to-tractors

ITC plans to up rural market penetration

Economic Times, 25 Aug 2007
BETTING big on the farm sector, ITC is planning to increase its penetration in the rural areas.
As part of this plan, the company will introduce a small hypermarket format in select states
with an investment of around Rs 80 crore. It will also open more e-choupal kiosks.

The company believes that these initiatives will help farmers in less developed markets like
Uttar Pradesh, Madhya Pradesh, Rajasthan and Maharashtra to get a better return for their
produce.

“We are planning to increase our farmer service centres in rural areas (e-choupal kiosks) from
the present 6,450 to 20,000 by 2012. We are looking at setting up 40 small hypermarkets in
the first phase on the similar lines of our existing hypermarket model — Choupal Sagar next
year at an investment of Rs 2 crore each. In the second phase we will add 30 new small
hypermarkets,” said, S Sivakumar, chief executive (agri business division), ITC.

While the big format Choupal Sagar occupies an area of about 6 acres to 10 acres, the small
centres will be spread about 2 acres. This is expected to help marginal farmers as it will
provide them a smaller catchment area to market their produce. The model will also help
bring down operational cost, said Sivakumar.

Talking to reporters on the sidelines of Custommerce, an industry event focusing on customer

management, he said, the new initiatives will be targeting states, where the back-end
operations and farm marketing are yet to evolve.

“For states such as Andhra Pradesh, Punjab and Karnataka, we have a different strategy. In
these states, our focus will be on horticulture and Choupal Sagars and kiosks will help us
improving the farm to market lineage. Besides, in coastal districts of AP, we are also helping
farmers to take up aquaculture,” he said.

These initiatives, he said, would also help the company achieve higher export returns. “These
kiosks are mainly information centres, where farmers can access information on foreign
market requirements, traceability norms and other quality criteria. Also, we sell financial
products including crop insurance to farmers. This will trigger them to adopt slightly risky but
high return crops and farming practices like organic cultivation methods,” he said.

The company had earmarked to spend Rs 5,000 crore on its echoupal division since its
inception in 2,000. It is still ploughing back money into the system though some of these
centres have become selfsustainable. The plan is to continue to invest till 2012.

“We expect this venture to bring in returns after the expansion is completed,” he said.

http://www.itcportal.com/about-itc/newsroom/press-reports/PressReport.aspx?
id=374&type=C&news=ITC-plans-rural-market-penetration

E-Choupal
The Big Picture:

ITC's Agri Business Division, one of India's largest exporters of agricultural commodities,
has conceived e-Choupal as a more efficient supply chain aimed at delivering value to its
customers around the world on a sustainable basis.

The e-Choupal model has been specifically designed to tackle the challenges posed by the
unique features of Indian agriculture, characterised by fragmented farms, weak infrastructure
and the involvement of numerous intermediaries, among others.

The Value Chain - Farm to Factory Gate:

'e-Choupal' also unshackles the potential of Indian farmer who has been trapped in a vicious
cycle of low risk taking ability > low investment > low productivity > weak market
orientation > low value addition > low margin > low risk taking ability. This made him and
Indian agribusiness sector globally uncompetitive, despite rich & abundant natural resources.

Such a market-led business model can enhance the competitiveness of Indian agriculture and
trigger a virtuous cycle of higher productivity, higher incomes, enlarged capacity for farmer
risk management, larger investments and higher quality and productivity.

Further, a growth in rural incomes will also unleash the latent demand for industrial goods so
necessary for the continued growth of the Indian economy. This will create another virtuous
cycle propelling the economy into a higher growth trajectory.

The Model in Action:

Appreciating the imperative of intermediaries in the Indian context, 'e-Choupal' leverages

Information Technology to virtually cluster all the value chain participants, delivering the
same benefits as vertical integration does in mature agricultural economies like the USA.

'e-Choupal' makes use of the physical transmission capabilities of current intermediaries -

aggregation, logistics, counter-party risk and bridge financing -while disintermediating them
from the chain of information flow and market signals.

With a judicious blend of click & mortar capabilities,

village internet kiosks managed by farmers - called sanchalaks - themselves, enable the
agricultural community access ready information in their local language on the weather &
market prices, disseminate knowledge on scientific farm practices & risk management,
facilitate the sale of farm inputs (now with embedded knowledge) and purchase farm produce
from the farmers' doorsteps (decision making is now information-based).

Real-time information and customised knowledge provided by 'e-Choupal' enhance the

ability of farmers to take decisions and align their farm output with market demand and
secure quality & productivity. The aggregation of the demand for farm inputs from individual
farmers gives them access to high quality inputs from established and reputed manufacturers
at fair prices. As a direct marketing channel, virtually linked to the 'mandi' system for price
discovery, 'e-Choupal' eliminates wasteful intermediation and multiple handling. Thereby it
significantly reduces transaction costs.
'e-Choupal' ensures world-class quality in delivering all these goods & services through
several product / service specific partnerships with the leaders in the respective fields, in
addition to ITC's own expertise.

While the farmers benefit through enhanced farm productivity and higher farm gate prices,
ITC benefits from the lower net cost of procurement (despite offering better prices to the
farmer) having eliminated costs in the supply chain that do not add value.

The Status of Execution:

Launched in June 2000, 'e-Choupal', has already

become the largest initiative among all Internet-based interventions in rural India. 'e-Choupal'
services today reach out to over 4 million farmers growing a range of crops - soyabean,
coffee, wheat, rice, pulses, shrimp - in over 40,000 villages through 6500 kiosks across ten
states (Madhya Pradesh, Haryana, Uttarakhand, Karnataka, Andhra Pradesh, Uttar Pradesh,
Rajasthan, Maharashtra, Kerela and Tamil Nadu).

The problems encountered while setting up and managing these 'e-Choupals' are primarily of
infrastructural inadequacies, including power supply, telecom connectivity and bandwidth,
apart from the challenge of imparting skills to the first time internet users in remote and
inaccessible areas of rural India.
 Several alternative and innovative solutions - some of
them expensive - are being deployed to overcome these challenges e.g. Power back-up
through batteries charged by Solar panels, upgrading BSNL exchanges with RNS kits,
installation of VSAT equipment, Mobile Choupals, local caching of static content on website
to stream in the dynamic content more efficiently, 24x7 helpdesk etc.

Going forward, the roadmap includes plans to integrate bulk storage, handling &
transportation facilities to improve logistics efficiencies.

As India's 'kissan' Company, ITC has taken care to involve farmers in the designing and
management of the entire 'e-Choupal' initiative. The active participation of farmers in this
rural initiative has created a sense of ownership in the project among the farmers. They see
the 'e-Choupal' as the new age cooperative for all practical purposes.

This enthusiastic response from farmers has encouraged ITC to plan for the extension of the
'e-Choupal' initiative to altogether 15 states across India over the next few years. On the anvil
are plans to channelise other services related to micro-credit, health and education through
the same 'e-Choupal' infrastructure.

Another path-breaking initiative - the 'Choupal Pradarshan Khet', brings the benefits of
agricultural best practices to small and marginal farmers. Backed by intensive research and
knowledge, this initiative provides Agri-extension services which are qualitatively superior
and involves pro-active handholding of farmers to ensure productivity gains. The services are
customised to meet local conditions, ensure timely availability of farm inputs including
credit, and provide a cluster of farmer schools for capturing indigenous knowledge. This
initiative, which has covered over 70,000 hectares, has a multiplier impact and reaches out to
over 1.6 million farmers.

http://www.itcportal.com/itc-business/agri-business/e-choupal.aspx
 e-Choupal: Networking rural India
NDTV.com, 17 May 2007
Agriculture is vital to India. It produces 23 per cent of the GDP, feeds a billion people, and
employs 66 per cent of the workforce.

Because of the Green Revolution, India's agricultural productivity has improved to the point
that it is both self-sufficient and a net exporter of a variety of food grains. Yet most Indian
farmers have remained quite poor.

The causes include remnants of scarcity-era regulation and an agricultural system based on
small, inefficient landholdings.

The agricultural system has also traditionally been unfair to primary producers.

Farmers have only an approximate idea of price trends and have to accept the price offered to
them at auctions on the day that they bring their grain to the mandi. As a result, traders are
well positioned to exploit both farmers and buyers through practices that sustain system-wide
inefficiencies.

One of India's foremost private sector companies, which has a diversified presence in tobacco,
hotels, paperboards, specialty papers, packaging, agri-business, branded apparel,
packaged foods and other fast moving consumer goods, initiated e-choupal in 2000.

The effort placed computers with Internet access in rural farming villages. The e-choupals
serve as both a social gathering place for exchange of information (choupal means gathering
place in Hindi) and an e-commerce hub.

Industry background

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 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 ITC challenged IBD to use information technology to change the rules of the
game and create a competitive business that did not need a large asset base.

Today, IBD is over Rs 700 crore company that trades in commodities such as feed
ingredients, food-grains, coffee, black pepper, edible nuts, marine products, and processed
fruits.

What began as an effort to re-engineer the procurement process for soy, tobacco, wheat,
shrimp, and other cropping systems in rural India has also created a highly profitable
distribution and product design channel for the Company.

E-choupal has also established a low-cost fulfillment system focused on the needs of rural
India that has helped in mitigating rural isolation, create more transparency for farmers, and
improve their productivity and incomes.

The business model

The model is centered on a network of e-Choupals that serve both as a social gathering place
for exchange of information 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 incorporated 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 the Mandi, the following operational process was followed: Inbound logistics > Display
and Inspection > Auction > Bagging and weighing > Payment > Outbound logistics.

E-choupal brought about a strategic chage to the process: Pricing > Inbound logistics >
Inspection and grading > Weighing and payment > Hub logistics.

Goals envisioned

Two goals were envisioned for information technology in the e-Choupal process.

The first was the deelivery 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.

The second was to 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 is noteworthy that ITC did not hesitate to install 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 thousands of e-Choupals.

Sustainability through mutual respect

The e-Choupal model has shown that a large corporation can combine a social mission and an
ambitious commercial venture; that it can play a major role in rationalising 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 catalyse 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.

The sustainability of the engagement comes from the idea that neither the corporate nor social
agendas will be subordinated in favor of the other.
http://www.itcportal.com/about-itc/newsroom/press-reports/PressReport.aspx?
id=392&type=C&news=e-Choupal-Networking-rural-India

Lintas Media arm, e-choupal join to launch Bharat

Barometer

blonnet.com, 08 Aug 2006

Primary info source of all aspects of rural consumer behaviour

Farmers on Net

e-choupals serve as a social gathering place for exchange of information and also an e-
commerce hub for over 3.5 million farmers.

Mumbai

ITC's e-choupal and Intellect, the research and technologies wing of the Lintas Media Group,
have joined hands to launch the Bharat Barometer - the primary information source on all
aspects of rural consumer behaviour.

The Bharat Barometer is a research channel for exploring various rural consumer and market
matters.

Untapped sector

Ms Lynn de Souza, Director, Lintas Media Group, of which Intellect is the Research wing,
said, "Today in the competitive rush for new customers - brands are exploiting new
segments, attempting new strategies, pushing to increase the product usage and bringing out
new variants.
"The difficult to reach rural masses are gaining importance each day.

Brands heading in the direction are confronted with limited knowledge that places obstacles
in their path to success in the rural market place.

"With this initiative, it will become very simple to track and obtain crucial inputs from this
rural segment and I'm sure this will become a very important fact-finding tool for marketers
across."

Fact-finding tool

According to Mr Shailendra Tyagi, Vice-President - Marketing, ITC Ltd-IBD, "ITC's e-

choupal carries with it a rich legacy of trust and transparency with rural India.

It is this unique relationship and e-choupal's credibility with Indian farmers that enables us to
gather critical information which otherwise isn't readily shared through traditional research."

ITC's e-choupal is an Internet-based information sharing network inspired from the

traditional choupal concept where villagers would meet for knowledge sharing.

Multipurpose

Today the e-choupals serve as both a social gathering for exchange of information and an e-
commerce hub for over 3.5 million farmers. Each choupal network is looked after by a host
farmer called the "Sanchalak" and coordinates with an average of 600 farmers in four or five
surrounding villages in a five km radius.

Currently there are over 6,000 e-choupal networks spread across seven States.

http://www.itcportal.com/about-itc/newsroom/press-reports/PressReport.aspx?
id=419&type=C&news=Lintas%20Media%20arm,%20e-choupal%20join%20to%20launch
%20Bharat%20Barometer
 Fuelling latent rural
demand
Economic Times, 07 Jul 2006
ITC’S e-choupal, a universal platform for
rural India, is a very successful case study
taught at Harvard and Michigan Schools.
Management gurus CK Prahalad and Venkat
Swami cite the e-choupal example to explain
co-creation. Almost every other day, an ITC
executive is making a presentation on this
initiative somewhere in the world. The
initiative has won the Stockholm Challenge award apart from several others.

What was conceived as an effective supply chain delivery for its agri commodity business
soon evolved into a universal platform for rural India with a basket of goods, services and
most critical of all, information access. All these have capabilities to bring about life-altering
changes. The e-choupal model has helped to meet challenges posed by Indian agriculture,
characterised by fragmented farms, weak infrastructure and the involvement of numerous
intermediaries.

Today, the platform literally connects rural India to the world. It gives the farmer access to
weather reports customised for his region, lends best farming practices, provides goods and
services like farm implements, fertilisers to banking and insurance products at his doorstep.
And the basket of services continues to expand.

The problems encountered by ITC in setting up and managing these echoupals included
inadequacies in power supply, telecom connectivity and bandwidth. Resistance from
middlemen and imparting skills to firsttime internet users in remote areas were the other
difficulties. ITC (agri business division) CEO S Sivakumar, who is the chief architect of the
echoupal project, said: “The challenge now is to sustain this innovation.”

The scope of e-choupal has gone way beyond its blueprint like Choupal Sagar, the rural retail
chain, which was not part of the original plan. Going forward, the role and shape of echoupal
will continue to evolve in line with the ideations of the e-choupal community of end-users
itself, he added. In the future, services like health, education and business process outsourcing
could be added to the e-choupal ambit. Mr Sivakumar chose to call the e-choupal a business
initiative with a social collateral. The echoupal, which has witnessed capex of Rs 200 crore
and revenue expenditure of Rs 150 crore, could see outlays of Rs 5,000 crore over the next
five to seven years.

Unlike a traditional organisation where the top management is the visionary and junior
management executes the mission, the e-choupal community of 40,000 frontline beneficiaries
and end users work together. New business models and services have been added to the basket
as a result of an unmet need expressed by the community.

ITC’s key role is to provide ‘orchestration infrastructure’ or synthesising these experiments.

Mr Sivakumar said the e-choupal essentially works on four pillars of digital infrastructure (IT,
internet access), physical infrastructure (Choupal Sagars), human infrastructure (sanchalaks
and sanyojaks) and network orchestration by ITC. As an intermediary, ITC has brought a
network of insurance companies, banks, micro-finance entities, seed and fertiliser companies,
FMCG, elearning and training organisations to the doorstep of rural India.

Launched in June 2000, e-choupal is largest initiative among all internetbased interventions in
rural India. Its services reach out to over 3.5 million farmers growing a wide range of crops —
soyabean, coffee, wheat, rice, pulses, shrimp — in over 31,000 villages through 5,200 kiosks
across six states of Madhya Pradesh, Karnataka, Andhra Pradesh, Uttar Pradesh, Maharashtra
and Rajasthan.

http://www.itcportal.com/about-itc/newsroom/press-reports/PressReport.aspx?
id=430&type=C&news=Fuelling%20latent%20rural%20demand

ITC holds out mall hope for villagers

The Telegraph, 04 Jul 2005

SAMBIT SAHA

Swanky malls and hypermarts have changed the way urban India shops today. However,
millions of rural people still depend on kirana shops. But not any more. If ITC is ready to
walk the talk, miniature malls will dot the rural landscape of our country. The Calcutta-based
conglomerate has already introduced the model in a little-known place in Madhya Pradesh. It
now wants to ramp up the number to 30 in the next 12-18 months.

Spread out over 7,000 square feet, Choupal Sagar - as the hypermarket is called - has created
ripples with new shopping experience for rural consumers. The model is unique as the place
will double up as a shopping centre and a farmer facilitation unit providing facilities like
training, soil testing, health clinics, cafeteria, bank, investment counters and fuel stations.

The company will spend about Rs 5 crore on each of these establishments. The rural malls are
linked to its e-choupal network. So far, it has set up 5,200 e-choupals for over 3 million
villagers living in 31,000 villages. The e-choupal network has been set up in Madhya Pradesh,
Uttar Pradesh, Rajasthan, Karnataka, Maharastra, Andhra Pradesh and Kerala. The first
hypermart in Madhya Pradesh is connected to an e-choupal.

A farmer, who comes to sell his agricultural produce through the e-choupal also has the option
to buy almost anything he wants. The rural mall sells everything from fertilisers and hair oil to
mixer-grinders and tractors. To make sure that farmers keep coming to the mall even when
they do not have to sell any produce, support services are in place like health clinics, cafeteria,
bank, and investment counters.

http://www.itcportal.com/about-itc/newsroom/press-reports/PressReport.aspx?
id=437&type=C&news=ITC-holds-out-mall-hope-for-villagers

Rewarding resourcefulness, lifting lives

The Hindu Business Line, 02 Jul 2005

G. Ramachandran

Distance, social discrimination and formal regulations often keep small and poor farmers out
of the market. The e-choupal scheme initiates a reversal in this trend and empowers the
farmer by providing reliable information and access to markets where they can get
competitive prices for their produce says G. Ramachandran.
The e-choupal scheme: Empowering the small farmer instead of exploiting poverty.

INDIA'S farm sector is a source of explicable embarrassment as well as unbounded

opportunity. The causes for the embarrassment are obvious. The farm sector is wholly rural;
the rural economy is starkly poor. And, most Indian households are simultaneously rural and
poor. They constitute 72 per cent of the population and account for 75 per cent of the poor.
Moreover, rural households account for 75 per cent of the country's workforce. The principal
descriptors and indicators given above have changed for the better over the last four decades,
but only marginally. There is little evidence of any tidal wave of improvement or
development.

This is embarrassing given that the Green Revolution is about four decades old. So, India's
poor, India's farmers and India's villagers need something that generates hope and incomes.
They need something that goes beyond arcane issues such as food security and genetics.
They need something with which they can tap their resourcefulness and lift their livelihoods.
They need something simple, local and people-friendly to heave themselves out of a deep
hole.

If you have known all along or have inferred that the poor, the farmers and the villagers are
the same people, then it is easy to regard the farm sector as the source of unbounded
opportunity. ITC's e-choupal has done exactly this since June 2000. It regards poverty,
farming and rural livelihoods as interrelated issues. It regards rural poverty as the result of
how rural society and the rural economy are structured.

E-choupal is simple and people-friendly. But the e-choupal initiative is not local. It includes
5,250 e-choupals in 31,000 villages in six States. It serves three million farmers. It has
brightened their prospects of higher incomes. It has delivered on all the promises made.
Thereby, it has enabled more than three million households to lift themselves out of poverty
over the last five years.

Lightning quick

E-choupal is characterised by a high-impact, low-inertia business model. It is significant in

that its economic vigour is wholly predicated on the resourcefulness of the people it serves.
Its relevance is unrelated to resources. Therefore, it has rapidly impacted the whole
agricultural chain — seed to harvest to prices to market to money in the bank — in the
locales it serves.

Since e-choupal is people-friendly and dependent on resourcefulness, the intended benefits

have reached its beneficiaries at lightning speed. The first round of empirical analysis of the
impact of e-choupal shows that incomes from farming and support services have risen by
over 38 per cent since 2000. In particular, a survey by Prof Sanjiv Phansalkar of the Institute
for Rural Management, Anand shows that incomes from farming have risen by about 10 per
cent in 2004 alone in locales served by e-choupal.

Depressing contrast

By contrast, India's agricultural sector has grown at less than 1.5 per cent in the first three
years of the Tenth Plan, which had set an ambitious growth target of 4 per cent for
agriculture.

The Prime Minister, Dr Manmohan Singh, has drawn attention during the 51st meeting of the
National Development Council, to the depressing deceleration in growth since the mid-
1990s. Agriculture had grown at 3.2 per cent between 1980 and 1996. It slowed down to 2.1
per cent during the Ninth Plan. The Prime Minister has said that it is not surprising that a
perception has grown that the benefits of growth have bypassed a substantial section of our
people. It may be fair to add that agricultural growth may have bypassed locales not served
by e-choupal.

Candid and ambitious

The Prime Minister has chosen to discuss the problems facing agriculture squarely and
boldly. To start with, he has not blamed the monsoons. He has asserted that the problems
with agriculture go beyond weather and that there has been a loss in momentum. He is of the
view that a deeper problem affects India's agricultural strategy. He has asserted that
correcting the deeper problemmust be accorded highest priority.

Though the Prime Minister has not explicitly presented poverty, agriculture and rural
livelihoods as interrelated issues, he has presented agriculture as a chain of related activities.
He has called for action on several fronts for overcoming the stagnation in agriculture. He
has called for focus and attention. Quite unsurprisingly, he has presented the case for an
increase in investments in the entire chain of activities related to agriculture — the supply of
inputs and credit, diversification of crops, better production practices and improved post-
harvest management. The Prime Minister has called for toning up the agricultural credit
system towards ensuring supply of adequate credit at a reasonable cost.

Problem redefined

It is an old habit in India to see every economic problem as the result of a shortage of capital
and investments. If the availability of capital is not the issue, the interest rate is. So, the
prescription for solving every economic problem is the same: Massive investments at low
interest rates. It is not surprising that many economic problems have remained unsolved for
decades.

E-choupal does not see India's agrarian and rural poverty as the result of capital shortage. It
does not place any significant emphasis on massive investments for solving the problem of
rural and agrarian poverty. E-choupal has correctly regarded India's agrarian and rural
poverty as the result of a cruel situation faced by India's small and poor farmers, which forces
them to operate and transact in `un-evolved' markets. Farmers and rural households remain
uninformed or inadequately informed in these un-evolved markets because of adverse
societal and economic structures.

Two examples come to mind. First, many farmers do not have access to information on the
lowest price to pay for an input. Second, most do not have access to information on the
highest price at which they can sell their output. Farmers and rural households lose out in the
information dimension. So, farmers pay higher prices for their inputs and receive lower
prices for their output compared with the best. The result is lower incomes and listless
livelihoods. Farmers lose out in the transaction dimension too. Again, two examples come to
mind. First, many farmers may not have access to the markets that sell inputs at the lowest
prices. Distance, informal social codes and formal regulations often keep small and poor
farmers out of the markets for low-cost, high-quality inputs. Second, many farmers may not
have access to the markets that pay them the highest prices. Distance, social discrimination
and formal regulations often keep small and poor farmers out of the markets that pay the
highest prices for their high-quality output. So, once again, farmers buy inputs at very high
prices. They sell their output at very low prices.

The mandi exacerbates the latter problem (see Business Line, December 28, 2004). The
result is lower incomes, crushed hopes and poor growth.

Problem solved

E-choupal applies information technology to the advantage of India's small and poor farmers
who have hitherto operated and transacted in un-evolved markets. It solves the value-sapping
problems caused by distortion of information and distance to markets. First, it provides
access to reliable and high-quality information on the weather, inputs, produce, markets and
prices free of cost to farmers. Second, it provides access to markets that sell high-quality
inputs at the lowest possible prices. Third, it provides access to markets where buyers pay the
highest possible prices for farm produce.

Shining results

E-choupal has favourably impacted the chain of activities related to agriculture. Produce
quality and volumes have risen. Prices of farm inputs have declined and quality of inputs has
risen. Prices of farm output have risen. Small and poor farmers have been the principal
beneficiaries. Their cost of transactions has declined. Their incomes have risen.

What is more, small and poor farmers have typically derived these benefits within three
months of the arrival of the e-choupal in their locales. They have not had to wait for plans,
approvals, massive investments and mid-term appraisals.

The reasons are obvious. E-choupal rewards resourcefulness. It does not exploit
poverty. It empowers the small farmer. It has reversed the traditional sequence
of development. The traditional sequence of development has plans, approvals,
massive investments, mid-term appraisals, poor growth and frustration. By
contrast, e-choupal begins with frustration with the traditional sequence and
ends with hope, fulfilment and growth.

http://www.itcportal.com/about-itc/newsroom/press-reports/PressReport.aspx?
id=439&type=C&news=Rewarding-resourcefulness-lifting-lives

e-choupal to cast the rural Net wide

Business-standard.com, 02 Jun 2005
The ITC e-choupal network aims to cover over 100,000 Indian villages, representing a sixth
of rural India and linking up more than 10 million farmers, over the next decade.

ITC today won the 'Corporate Social Responsibility Award 2004' from The Energy and
Resources Institute (Teri) for its e-choupal initiative. The award is designed to encourage
social responsibility processes within the corporate sector.

ITC e-choupal, an information technology-based intervention in rural India, has already

received several national and international awards as a transformation model for rural India.
ITC e-choupal has earlier won the 'World business award' instituted in support of the United
Nations' Millennium Development Goals and also the Wharton-Infosys 'Enterprise business
transformation award 2004' for the Asia-Pacific region.

The curriculum of the Harvard Business School now includes a case study on the ITC e-
choupal movement and how it is transforming Indian agriculture. ITC, as one of the first
Indian companies to pioneer the concept of triple bottomline reporting, covering not only
economic dimensions, but also the environmental and social dimensions of business.

ITC said in a relase that its sustainability report was the only one in India certified to be fully
in accordance with global reporting initiative (GRI) guidelines. The ITC e-choupal network
empowers over 3.1 million farmers at present, enabling them to readily access crop-specific,
customised and comprehensive information in their native language via vernacular websites,
on each agricultural crop that ITC deals in and even to marginal farmers.

Farmers can access prevailing Indian and international prices and price trends for crops, along
with expert knowledge on best farming practices and micro-level weather forecast. This
improves decision-making ability at the rural level, helping align agricultural production
better to market demand and upgrade quality and productivity.

The e-choupal model also helps aggregate demand and creates a virtual producers' co-
operative, which in turn allows access to higher quality farm inputs at lower costs. The ITC e-
choupal network has also created a two-way direct marketing channel for rural India,
eliminating wasteful intermediation and multiple handling. The reduces transaction costs and
improve logistical efficiency.

http://www.itcportal.com/about-itc/newsroom/press-reports/PressReport.aspx?
id=452&type=C&news=e-choupal-cast-rural-net-wide