ITC eChoupal Mr. Rohit Bhatla - unctad.orgunctad.org/sections/wcmu/docs/c1EM32p17.pdf · ITC...
Transcript of ITC eChoupal Mr. Rohit Bhatla - unctad.orgunctad.org/sections/wcmu/docs/c1EM32p17.pdf · ITC...
UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT
UNCTAD Expert Meeting
"Enabling small commodity producers in developing countries to reach global markets"
Organized by UNCTAD Commodities Branch
Email: [email protected], Web: http://r0.unctad.org/commodities/
11 - 13 December 2006
ITC eChoupal
by
Mr. Rohit Bhatla
Branch Manager - Rajasthan, e-Choupal
International Business Division, ITC Limited
The views expressed are those of the author and do not necessarily reflect the views of the UNCTAD Secretariat, nor do they imply the expression of any opinion whatsoever on the part of the secretariat of UNCTAD concerning the legal status of any country, territory, city or area, or of this authorities or concerning the definition of its frontiers or boundaries.
Ramdeo speaks for 57% of India’s workforce –The Farmer!
He underscores the imperative of Inclusive Growth in an otherwise Shining India !!!
Why are farmers like Ramdeo resigned to fate ?
Because most of them are small (1.5 ha average holding)…
. …they do not have bargaining powerBecause all of them live in hinterlands (600,000 villages)…
. …they do not have access to real time information (prices, weather)Because the circumstance of each one is very different (agro-ecological conditions, resources)…
. …they cannot get customized knowledge advise (on farm practices, risk management)
Every Area of Strength of Indian Agricultureis Neutralised by a Constraint
Large Arable Land X Fragmented farm sizes
Rich & Diverse Agro- X Heavy Dependence on Monsoon Climatic zones
Strong institutional base X Poor Extension work at the farm level in R&D
Large domestic X Numerous Intermediaries consumption base
Attractive export X Weak infrastructure &inconsistentMarkets Quality
Demands of the globalising trade
1. Transition from Supply driven to Demand driven value chains• Quality as per customer needs (& changing diets)• Traceability to farms & farm practices
2. Competitiveness in Price /Value equation• Increased farm yields• Lower transaction costs along the chain
Further accentuating the need for…• Customised knowledge• Real-time & relevant information• Access to quality inputs at competitive prices• Effective vertical coordination of the value chain• Efficient Price discovery & risk management
The Insight - 1
Actually, these numerous intermediaries makeup for weak infrastructure, and deliver critical value in each leg at very low cost
But their aggregate cost makes the chain uncompetitive
And many times, by blocking flow of information & market signals, they are able to extract more profits for themselves than the value they are delivering
A more effective business model must be able to leverage the physical transmission capabilities of these intermediaries, yet disintermediate them from the flow of information and market signals
Answer : Leverage the power of Information Technology
The Insight - 2
Low Risk Taking Ability
Low Investment
Low ProductivityLow Value Addition
Low Margin
Weak market Orientation
Answer : Leverage the power of collaborative business models
The Insight - 3Information Technology and Collaborative Business Models gave us the power to design a new model
But physically reaching the nook & corner of India, and facilitating Net access to the largely illiterate farmers at lowcost, and delivering effective service is still a challenge…
The only historical success stories we could rely on were cross-industry !
Wide & Deep penetration of the FMCG retail channelRapid scale-up of Public Telephone BoothsLow cost reach & effective customer servicing by Cable TV Operators
Answer: Unleash the power of small scale entrepreneur
Our Alternative Solution Theme
Provide an end-to-end solution……with farmer having the freedom of choice, .. who should be able to take an informed decision…which delivers an effective servicenotwithstanding the fragmentation, dispersion, heterogeneity and weak infrastructure ! at low cost !!!This will create substantial incremental value through a virtuous cycle
The eChoupal Delivery System
ICT Kiosk with Internet AccessIn the house of one trained farmer, SanchalakWithin walking distance of target farmers
Warehousing Hub / Store Managed by the erstwhile middleman, SanyojakWithin tractorable distance of target farmers
Collaborative Network of CompaniesOrchestrated by ITC With a Pan-Indian presence
The eChoupal Services
Relevant & Real-time Information• Commodity prices, Local Weather, NewsCustomised Knowledge• Farm Management, Risk ManagementSupply Chain for Farm Inputs• Screened for Quality, Demand Aggregation for Competitive Prices & Efficient LogisticsDirect Marketing Channel for Farm Produce• Lower Transaction Costs, Better Value through Traceability
The Imperative
Freedom of choice to the farmer, by design, means that we cannot expect a preferential treatment from him just because we are providing information to him !
We need to compete for business on merits !!Requiring new value capture mechanisms !!!
Another Insight : Unevolved markets in emerging economies provide interesting opportunities
Elimination of non-value adding activitiesCreation of new value through identity preservationScope for two-way flow of goods & services
Bottomline for the Farmer
Higher Incomes through• Increased Yields• Improved Quality• Reduced Transaction Costs
. Power of Scale to the Small Farmer
. Customised Knowledge despite Heterogeneity
. Real-time Information despite Distances
The Other Innovation: Who Pays?
Not the farmer !
Information & Knowledge are free of cost
Transactions only if the farmer chooses at free will
Not subsidised !
ITC shareholder looks for a competitive return, like all shareholders do
No Government money involved
Instead, latent value in the typically unevolved markets of an emerging economy is captured
Transaction Costs in APMC ChainSoybeans Example
Farmer Incurs
Trolley Freight to Mandi = 120Labour = 50Kacchha Adat = 150Handling Loss = 50
Rs per MT
370
ProcessorIncurs
Commission to Agent = 100Cost of Gunny Bags (net) = 75Freight to Factory = 120Handling at Mandi = 40
335
Total Chain 705
Soybeans Example
Farmer Incurs
Trolley Freight to ITC Hub = 120Labour = 50Kacchha Adat = 150Handling Loss = 50
Rs per MT
370
ProcessorIncurs
Commission to Sanchalak = 100Cost of Gunny Bags (net) = 75Freight to Factory = 120Storage & Handling at Hub = 40
335
Total Chain 705
120
50
Cash Disbursement Costs = 50
215
335
Transaction Costs in Choupal Chain
Bottomline for ITC
Better supply chain for ITC’s Food & Agri Businesses• Costs, Quality, TraceabilityAccess to the Underserved Rural Markets• Through a Virtuous Cycle created by “Larger Incomes”, and founded on “Trust” that is builtNew ITES Business Opportunities• Health, Education, Entertainment, eGovernanceShareholder Value through Serving Society• Also, the infrastructure serves as a reliable delivery mechanism for resource development initiatives (e.g. water management)
The Roadblocks in Execution
• Convincing farmers (Weighment, Mandi Prices)
• Aligning Middlemen (Cost, Effort, Risk Vs Margin Equation)
• Sanchalak Capability Building (IT, Communication, Entrepreneurial)
• Changing Government Regulations (APMC)
• Dealing with Poor Infrastructure (Power, Connectivity)
• Empowering the Frontline (Loner on the field, Subjective Decisions)
• Dealing with Competition (Computers Vs Motorcycles)
From ‘trading commodities’ to ‘sourcing raw material’ for select customers
Customer-specific structured offers based on arbitrage opportunities in any or all of
aggregated or disaggregated lot size
delivery point
storage time
pricing mechanism
quality segregation
credit etc.
Soybeans, Wheat, Coffee
From ‘selling what is produced’to ‘help producing what is wanted’
through demand driven value chains traceable to farms and farm practices in the high value segment in the agri produce portfolio
Aquaculture
Horticulture
Organic products
Dairy
with appropriate intermediate processing activity at the hub
Leveraging Capacity
of existing eChoupal areas to expand presence in additional commodities produced in those agro-climatic zones, e.g.
Maize
Millets
Sorghum
Pulses
Mustard etc.
No additional infrastructure is required for these,
and our interface with the farmers will also be year round
From Trading Commodities to Laying Highways
Our ringside view of rural India, while we were trading commodities, gave us some key insights
The resultant business model, ITC eChoupal, is transforming our traditional commodity trading business into a commodity services business…
…delivering more stable profits through higher margin & lower risk business portfolio on an increasing volume base
The Story in Short – Part 1
The “3 layers x 3 elements” eChoupal infrastructure, managed through “3” business principles”, has built a “Universal Business Platform”
that can efficiently carry any product / service into & out of rural India…
…that offers an “increasing returns” network orchestration opportunity to ITC
From Trading Commodities to Laying Highways
The Story in Short – Part 2
The 3 Business Principles
Information & Knowledge Free of Cost
Freedom of Choice in Transactions
Only source of income for the Sanchalak is a fee on transactions
The Size
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 more than 3.5 million farmers growing a
range of crops - soyabean, coffee, wheat, rice, pulses,
shrimp - in over 36,000 villages through nearly 6400
kiosks(e-Choupals) across nine states
The Resultant Network Organisation
1. Empowerment of the Community through realtimeinformation & customised knowledge
2. Community responsive grassroots organization through freedom of choice and local management with self interest
3. Efficiency through competition
4. Power of Scale through Virtual Aggregation
5. Benefits of Specialisation through Collaboration
6. Increasing Returns Ecosystem because of anchor business support by ITC, the Network Orchestrator