SUCCESS STORY: Making rural development big business in India

Posted: 10 November 2003

Author: Curtis Runyan

Author Info: Curtis Runyan is the managing editor of WRI Features, a monthly international news features service on environment and development issues.

A large number of farmers in rural India are breathing a little bit easier these days. For three or four decades, they have been locked into a government-organized trading scheme that nearly ensures they get fleeced by the middlemen when they sell their grains at auction.

But in just a couple of years, with the help of a few thousand computers hooked up to the internet, more than a million farmers have started to track fair grain prices, bypass middleman traders, and increase profit margins on their crops - by an average of 2.5 per cent or about US$6 per ton.

Gathering at an e-Choupal_Source: ITC
Gathering at an e-Choupal_Source: ITC
Gathering at an e-ChoupalSource: ITC

The computer network has sparked a series of changes, allowing farmers to get more accurate weather forecasts, to communicate with distant farmers about techniques, as well as empowering illiterate farmers in remote villages with more tools and information.

The most striking part of this transformation is that no charity, international aid organization, or government agency is involved. Instead, the e-Choupal computer network, as it is called, was started up by one of India's largest corporations, ITC. And the corporation is profiting from the deal as well as the farmers.

"The World Bank or a foreign aid organization just couldn't pull anything like this off on this scale and in less than two years," said Dr Allen Hammond, vice president for innovation at the World Resources Institute. He is tracking scenarios around the world where profitable business ventures have provided significant social and environmental benefits to local communities.

Win-win solutions

"Right now businesses tend to gravitate toward selling goods and services to more affluent markets," said Dr Hammond. "But there are a lot of profitable, win-win business solutions out there for innovative groups willing to work with poor, rural communities and to address pressing development problems."

ITC's agricultural trading division began paying to have computers and internet connections installed in rural villages as a way to streamline their distribution and supply-chain system.

After a deadly famine in the 1960s, the Indian government enacted measures designed to move the country to self-sufficiency in growing grain. These changes also locked agricultural communities into an archaic trading system, whereby farmers had no choice but to sell their crops in an auction at a government-mandated marketplace, or a mandi.

Unfair system

The system has left farmers at the mercy of the traders who operate the mandi. Because the grain is sold by auction, once farmers go to a mandi they cannot go elsewhere if a final bid from a purchasing agent is low or unfair. Also, weighing scales are often rigged to favour the traders. "Even if we weigh it before hand, there will definitely be a 20 kilogram difference in a load of 2 tons ... the farmer loses heavily," complained Manmohan Gaur, a farmer from Khasrod.

In addition, farmers must pay for the traders to bag and weigh crops, which they habitually spill and retain as additional compensation. "Sometimes an agent simply loots a farmer," said Navneet Gupta, a mandi employee in Sonkach. And farmers are rarely paid in full for their crops, instead they must return later for the remainder.

But farmers are not the only ones losing out. Under the mandi system, trading companies like ITC pay extra for crops. The agents often artificially inflate prices for the companies, or dilute high-quality crop yields with lesser produce, to receive a larger commission than they deserve. While the agents earn an official commission of one per cent, ITC estimates that they actually earn a margin of 2.5 to 3 per cent.

Higher price

In response, the company launched its computer plan, to help sidestep the mandi system. Each e-Choupal computer serves about 600 farmers in a five kilometre radius. The farmer who agrees to house the computer, the sanchalak, is obliged by a public oath to serve the entire community. Farmers selling directly to ITC through an e-Choupal receive a higher price for their crops than they would if they had gone to a mandi.

But the computers also provide other benefits to rural villages. Distant farmers exchange information about growing techniques, they look up global price trends to determine when to sell their produce at the highest prices, they can track closing prices at local mandis, and they also use the e-Choupal to order seed, fertilizer, and even consumer goods from ITC - all at prices lower than those available from village traders, because the orders are aggregated.

"Our business model has truly converged the shareholder value with social causes," said Shiv Sivakumar, chief executive of ITC's International Business Division. "ITC has profitably provided technology to villages."

11,000 villages

So far, e-Choupals serve about 1.5 million farmers in 11,000 villages. ITC has spent between US$3,000 and US$6,000 to buy and set up each computer, and spends about US$100 per year on maintenance. The company reports that it recovers the equipment costs from an e-Choupal in the first year of operation. By eliminating the middleman, ITC has more control over quality and pays 2.5 per cent less than it does for grain from the mandi.

For both ITC and the farmers, the e-Choupal is just the beginning. Poor, illiterate villagers are getting the benefits of increased information and communication; rural communities, women, and children are getting exposure to the internet; and farmers are looking into new seeds, technologies, and crops that may help them boost yields.

For its part, ITC hopes to expand its commercially viable distribution system throughout rural India. "They want to be the Wal-mart of India," said Dr. Hammond.