What Works - Case Study


  Case Study.pdf (Size: 572.69 KB / Downloads: 2)

EXECUTIVE SUMMARY

Agriculture is vital to India. It produces 23% of GDP, feeds a billion people, and employs 66% 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 traditionally been unfair to primary
producers. Soybeans, for example, are an important oilseed crop that has been exempted from India’s
Small Scale Industries Act to allow for processing in large, modern facilities. Yet 90% of the soybean
crop is sold by farmers with small holdings to traders, who act as purchasing agents for buyers at a local,
government-mandated marketplace, called a mandi. Farmers have only an approximate idea of price
trends and have to accept the price offered 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.

THE BUSINESS MODEL

A pure trading model does not require much capital investment. The e-Choupal model, in contrast, has
required that ITC make significant investments to create and maintain its own IT network in rural India
and to identify and train a local farmer to manage each e-Choupal. The computer, typically housed in the
farmer’s house, is linked to the Internet via phone lines or, increasingly, by a VSAT connection, and
serves an average of 600 farmers in 10 surrounding villages within about a five kilometer radius. Each e-
Choupal costs between US$3,000 and US$6,000 to set up and about US$100 per year to maintain. Using
the system costs farmers nothing, but the host farmer, called a sanchalak, incurs some operating costs and
is obligated by a public oath to serve the entire community; the sanchalak benefits from increased
prestige and a commission paid him for all e-Choupal transactions. The farmers can use the computer to
access daily closing prices on local mandis.

DEVELOPMENT BENEFIT

The e-Choupal system gives farmers more control over their choices, a higher profit margin on their
crops, and access to information that improves their productivity. By providing a more transparent
process and empowering local people as key nodes in the system, ITC increases trust and fairness. The
increased efficiencies and potential for improving crop quality contribute to making Indian agriculture
more competitive. Despite difficulties from undependable phone and electric power infrastructure that
sometimes limit hours of use, the system also links farmers and their families to the world. Some
sanchalaks track futures prices on the Chicago Board of Trade as well as local mandi prices, and village
children have used the computers for schoolwork, games, and to obtain and print out their academic test
results. The result is a significant step toward rural development.

KEY LESSONS

The e-Choupal model demonstrates that a large corporation can play a major role in recognizing markets
and increasing the efficiency of an agricultural system, while doing so in ways that benefit farmers and
rural communities as well as shareholders. The case also shows the key role of information technology—
in this case provided and maintained by a corporation, but used by local farmers—in helping bring about
transparency, increased access to information, and rural transformation.