Echoupal Case Study
ITC's motivation for creating the eChoupal: Initially, the eChoupal initiative was designed to encourage the growth of IBD, ITC’s agricultural commodities export division, who was lagging behind the other company’s divisions, aiming to reach $442.6m revenues in. Benefiting not only ITC’s shareholders, this commercial venture also combined a social mission catering to ITC’s strategy to secure competitiveness of all players in its value chain, by creatively leveraging IT to re-engineer procurement of crops to solve rural India to supply-chain inefficiencies:
• From the input side: farmers had low risk taking ability {resulting from small size (weak bargaining power), lack of real-time information on prices, weather and knowledge of new processing methods, and over dependence on exploitive middlemen}. The result- low investment in crops, causing low production of poor quality (1/3-1/4 of global standards, losing 60%-70% potential crop value), leading to low income & margins. eChoupal could break this unproductive cycle, overcoming the existing limited technological resources. By distributing information and quality inputs it will encourage investments and promote new farming methods. This would improve crop quality and yield, enabling both ITC and farmers higher margins and competitiveness on international markets.
• From the output side: eChoupal could create virtual vertical integration, bypassing the inadequacies arising from use of intermediate agents in the mandi system, including: (i) redundant commission expense for ITC, (ii) use of unfair trading habits- effecting price & quality for ICT, and lowering profits for the exploited farmers, and (iii) no direct interaction with the farmer (limiting ITC’s knowledge on its crops & suppliers). Eliminating non value-added activities saved logistic costs between the farmer and the factory (lower net transaction costs for both sides (~2.5% to ITC). Further, the new network provided ITC enhanced control over the quality
• From the input side: farmers had low risk taking ability {resulting from small size (weak bargaining power), lack of real-time information on prices, weather and knowledge of new processing methods, and over dependence on exploitive middlemen}. The result- low investment in crops, causing low production of poor quality (1/3-1/4 of global standards, losing 60%-70% potential crop value), leading to low income & margins. eChoupal could break this unproductive cycle, overcoming the existing limited technological resources. By distributing information and quality inputs it will encourage investments and promote new farming methods. This would improve crop quality and yield, enabling both ITC and farmers higher margins and competitiveness on international markets.
• From the output side: eChoupal could create virtual vertical integration, bypassing the inadequacies arising from use of intermediate agents in the mandi system, including: (i) redundant commission expense for ITC, (ii) use of unfair trading habits- effecting price & quality for ICT, and lowering profits for the exploited farmers, and (iii) no direct interaction with the farmer (limiting ITC’s knowledge on its crops & suppliers). Eliminating non value-added activities saved logistic costs between the farmer and the factory (lower net transaction costs for both sides (~2.5% to ITC). Further, the new network provided ITC enhanced control over the quality