E-Chaupal - An Structured Retail Chain Model For Rural India


By

Ashish Chandra
Lecturer
Amity Business School
Amity University, Lucknow Campus

Adesh Chandra Bhatele
Sr. Lecturer
Department of Business Management
Manglytan University
Aligarh
 


Indian agriculture is bouncing back. It is scripting its own success story, thanks to rising private investment, which will lead to a faster growth. Faster growth in agriculture tomorrow will happen because of rising private investment in agriculture today.. .

              Y C Deveshwar Chairman, ITC and Chairman, CII.s Agriculture Council

Introduction

The growth story of India is spreading itself to hinterlands where rural India  is the seventh largest country by geographical area and  is a parliamentary republic consisting of 28 states and 7 union territories with a population of 1.13 billion, being the world 's second most populous country accounts for 70 %  for the present population . The increase in has been shown in consumption and production pattern as well as to the income of rural population. Almost Major agricultural crops include rice, wheat, oilseed, cotton, jute, tea, sugarcane, and potatoes. The agricultural sector accounts for 17% of GDP while the service and industrial sectors make up 54% and 29% respectively.

The Union Budget for 2009-10 hiked the allocation for the National Rural Employment Guarantee Act (NREGA) to US$ 8.03 billion, giving a boost to the rural economy. This is in addition to the ambitious Bharat Nirman Programme with an outlay of US$ 34.84 billion for improving rural infrastructure. According to a study on the impact of the slowdown on rural markets commissioned by RMAI and conducted by MART, the rural economy has not been impacted by the global economic slowdown. The rural and small town economy which accounts for 60 per cent of India's income has remained insulated from the economic slowdown. Moreover, rural incomes are on the rise driven largely due to continuous growth in agriculture for four consecutive years. Further, the rural consumer market, which grew 25 per cent in 2008 when demand in urban areas slowed due to the global recession, is expected to reach US$ 425 billion in 2010-11 with 720-790 million customers, according to a white paper prepared by CII-Technopak. That will be double the 2004-05 market size of US$ 220 billion.

According to the study of  AC Nielsen,  the durables market shrunk in urban India while the rural market is seeing a 15 per cent growth rate for "Fast moving consumer goods(FMCG)"  for which the  sales are up by  23 per cent and telecom is growing at 13 per cent accordingly . Moreover, the  demand for personal care products which grew faster in rural areas thanurban areas during the period April-September 2009.The  FMCG companies such as Godrej Consumer Products, Dabur, Marico and Hindustan Unilever (HUL) have increased their hiring in rural India and small towns in order to establish a local connect and increase visibility. GlaxoSmithkline Consumer Healthcare (GSK) and Nestle are now launching products specifically for rural markets. Anand Ramanathan, an analyst from KPMG, said, "Till recently, most FMCG companies used to treat rural markets as adjuncts to their urban strongholds and rural consumers as a homogeneous mass without segmenting them into target markets and positioning brands appropriately."

The Indian  rural retail market is currently estimated at US$ 112 billion which is  around 40 per cent of the US$ 280 billion of total Indian retail market(according to the study paper, 'The Rise of Rural India', by the Associated Chambers of Commerce and Industry of India (ASSOCHAM).Major domestic retailers like AV Birla, ITC, Godrej, Reliance and many others have already set up rural  farm linkages such as  Hariyali Kisan Bazaars (DCM) and Aadhars (Pantaloon-Godrej JV), Choupal Sagars (ITC), Kisan Sansars (Tata), Reliance Fresh, Project Shakti (Hindustan Unilever) and Naya Yug Bazaar are  being established for rural retail hubs.

Jump In Rural Retailing

In India for a long time a large chunk of retail outlets were grocery shop. This pattern had been changing in recent years, in urban and rural markets. Of late, India's largely rural population has also caught the eye of retailers looking for new areas of growth. A slew of supermarket chains, including those of the Tata and ITC, are set to storm the rural areas of the country as corporate realize the huge potential of the untapped market ITC launched the country's first rural mall 'Chaupal Sagar', offering a diverse product range from FMCG to electronic appliances to automobiles, attempting to provide farmers a one-stop destination for all of their needs. Companies such as Godrej and DCM Shriram Consolidated are launching `one-stop shops' for farmers and their communities. Godrej Agrovet, for instance, is planning to set up 1,000 Aadhar stores across rural India by 2010. DCM Shriram plans to set up 35 rural/semi-urban utility marts over 2006-07. Positioned as a one-stop shop, the Hariyali Kisaan Bazaar Chain which will cater to a variety of farmers' needs by providing access to retail banking, LPG outlets and even a motorcycle showroom.

As clear from the story on Reliance Fresh and Metro, organized retail sector can bring a revolutionary change in rural India unless it goes for quick short-term gains. With Wal-Mart famous for its 'Always Low Prices' coming in India with Bharati as equal partner, Indian farmers and rural craftsmen can hope for a better direct deal to the entire  Indian economy. International Business division  of ITC  started a new initiative namely a E- CHUPAL ( VILLAGE MEETING PLACE ON AN ELECTRONIC PLATFORM).

ITC-International Business

ITC Limited with an annual sale of US$ 2 billion from its diversified businesses is one of India's largest corporations with its presence in tobacco, hotels, paper boards, foods fashion retailing and commodity export. International Business Division (IBD) started in 1990, a division of ITC is engaged in exports of a range of agricultural commodities. It contributes over 60% of ITC Group's total foreign exchange earnings. ITC-IBD has a focused approach on strengthening its core competencies in select commodities. Today, IBD continues to deliver agri-commodities like Feed Ingredients - Soyameal, Rapeseed Meal; Foodgrains - Rice (Basmati & Non Basmati), Wheat & Wheat Products, Pulses; Coffee , Black Pepper; Edible Nuts - Sesame Seeds, HPS Groundnuts, & Marine products like Shrimps and Prawns. ITC IBD's largest item for exports is soybean meal which are exported to the animal feed mills around the world, competing with several transnational trading companies, mainly from the USA, Brazil, and Argentina.

E-Choupal  Model

e-choupal is a Hindi word which means "village meeting place". Which place where vendors and customers come together to do transactions or it is a virtual market place where farmers can transact directly with a processor and can realize better price for their produce , has the advantages of the market but spans very large varieties of vendors and customers. The main disadvantage of conventional market is that information asymmetry is inherent in the market where as e-choupal provides for transparent transactions. This enables the participation of smaller as well as larger players. Elimination of some layers of intermediaries allows for larger share of profits to reach the lower end of value chain. The main attractiveness of e-choupal is that it can be used for connecting large producers/small producers and small users/large users, thereby eliminating the need for hierarchy of brokers. Internet is used as a low transaction cost backbone for communication. Physical delivery of produce to the processor is still done through the existing intermediaries. e-choupal does not attempt total elimination of intermediaries, as intermediaries are indispensable in economy like India where intermediaries are adding value to the every step of value chain at a low cost. Intermediaries have the expertise in storage, transportation, quality assessment and counter party risk reduction, which are difficult to replicate. e-Choupal provides farmers with all the market information and this helps them to become market oriented. In e-choupal intermediaries are leveraged but they are disintermediated from the market information flowing to the farmers .

THE BUSINESS MODEL OF ECHAUPAL

The modelof business for e-chaupal has been narrated with the help of flow diagram as under:-


The model is centered on a network of e-Choupals. Information centers equipped with a computer connected to the Internet, located in rural villages. E-Choupals serve both as a social gathering place for exchange of information  with the help of  E-commerce hub. A local farmer acting as a sanchalak (coordinator) runs the village e-Choupal with the help of computer usually located in the sanchalak's home. ITC also incorporate 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, as a farmer has to travel no more than five kilometers to reach at one. The company expects each e-Choupal has to serve about 10 villages within a five kilometer radius. Today its network reaches more than a million farmers in nearly 11,000 villages through 2,000 e-Choupals in four states like Madhya Pradesh, Karnataka, Andhra Pradesh, and Uttar Pradesh and the network is expanding rapidly. The e-Choupals in Madhya Pradesh serves about  about 500-700 farmers in 10 villages while another such e-Choupal serve about 5,000 farmers in 10 villages. The average usage is about 600 farmers per e-Choupal in the soy cropping area, with fewer in wheat, coffee, and shrimp areas.

The critical element of the e-Choupal system, and the key to managing the geographical and cultural breadth of ITC's network, is the sanchalak. ITC channels virtually run all its communication through the local sanchalak . Recruiting a local farmer from the community for this role to serves several other purposes as under:

1. For generations, the Indian farmer has been betrayed by individuals and institutions. Trust is the most valuable commodity in rural India. No transaction will happen without trust, irrespective of the strength of the contract. The sanchalak is selected to provide this vital component in ITC's system.

2. ITC need not invest in building and securing a physical infrastructure such as a kiosk for housing the e-Choupal computer.

3. The sanchalak is trained in computer operation and can act as a familiar and approachable human interface for the often illiterate farmers and other villagers.

4. ITC expects to leverage the profit-making power of the small-scale entrepreneur.

Sanchalaks undergo training at the nearest ITC plant. They receive education on basic computer usage, the functions of the e-Choupal Web site, basic business skills, as well as quality inspection of crops. For the sale of products through e-Choupal, the sanchalaks receive product training directly from the manufacturer with ITC involving itself only in product design and facilitation. Nonetheless, their role requires considerable entrepreneurial initiative and entails some operational costs, between US$60 and US$160 per year, for electricity and phone-line charges; the latter of which are gradually declining as ITC replaces phone-based Internet connections with a VSAT system.

A secondary, but still important, role is played by the samyojaks, or cooperating commission agents.Samyojaks earn income from ITC by providing logistical services that substitute for the lack of rural infrastructure, by providing information and market signals on trading transactions to the e-Choupal system. In effect, ITC uses agents as providers of essential services, not as principals in a trading transaction. They play an especially important role in the initial stages of setting up the e-Choupals, because they know which farmers grow soya, what kind of families they have, what their financial situation is, and who is seen as "acceptable" in the villages and might thus make a good sanchalak. ITC is strongly committed to involving samyojaks in the on-going operation of the e-Choupal system, allowing them revenue streams through providing services such as management of cash, bagging and labor in remote ITC procurement hubs, handling of mandi paperwork for ITC procurement, and as licensed principals for the retail transactions of the e-Choupal

RE-ENGINEERED SUPPLY CHAIN SYSTEM OF E-CHAUPAL-

The re-engineered supply chain looks very different from the existing system and has the following stages:-


 

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Source: E-mail January 6, 2011

          

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