Consequently
currently the sugarcane farmers affiliated to the Murugappa group
are a very happy lot !
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. 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 Rs75-200 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 was 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 practices.
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 fertilizers. 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 Fertilizers.
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 organizations to replicate this in
Africa and other developing countries."
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