Page 190 - DMGT509_RURAL MARKETING

Unit 9: Pricing Strategies

at auctions on the day that they bring their grain to the mandi. As a result, traders are well Notes
positioned to exploit both farmers and buyers through practices that sustain system-wide
inefficiencies.
ITC is one of India's leading private companies, with annual revenues of US$2 billion. Its
International Business Division was created in 1990 as an agricultural trading company; it
now generates US$150 million in revenues annually. The company has initiated an
e-Choupal effort that places computers with Internet access in rural farming villages; the
e-Choupals serve as both a social gathering place for exchange of information (choupal
means gathering place in Hindi) and an e-commerce hub. What began as an effort to
re-engineer the procurement process for soy, tobacco, wheat, shrimp, and other cropping
systems in rural India has also created a highly profitable distribution and product design
channel for the company, an e-commerce platform that is also a low-cost fulfillment
system focused on the needs of rural India. The e-Choupal system has also catalyzed rural
transformation that is helping to alleviate rural isolation, create more transparency for
farmers, and improve their productivity and incomes. This case analyzes the e-Choupal
initiative for soy; efforts in other cropping systems (coffee, wheat, and shrimp aquaculture),
while different in detail, reflect the same general approach.
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, as well as to track global price trends or find information about new farming
techniques, either directly or, because many farmers are illiterate, via the sanchalak. They
also use the e-Choupal to order seed, fertilizer, and other products such as consumer
goods from ITC or its partners, at prices lower than those available from village traders;
the sanchalak typically aggregates the village demand for these products and transmits
the order to an ITC representative. At harvest time, ITC offers to buy the crop directly
from any farmer at the previous day's closing price; the farmer then transports his crop to
an ITC processing center, where the crop is weighed electronically and assessed for quality.
The farmer is then paid for the crop and a transport fee. "Bonus points," which are
exchangeable for products that ITC sells, are given for crops with quality above the norm.
In this way, the e-Choupal system bypasses the government-mandated trading mandis.

Farmers benefit from more accurate weighing, faster processing time and prompt payment,
and from access to a wide range of information, including accurate market price knowledge,
and market trends, that help them decide when, where, and at what price to sell. Farmers
selling directly to ITC through an e-Choupal typically receive a higher price for their
crops than they would receive through the mandi system, on average about 2.5% higher
(about US$6 per ton). The total benefit to farmers includes lower prices for inputs and
other goods, higher yields and a sense of empowerment. The e-Choupal system has had a
measurable impact on what farmers chose to do: in areas covered by e-Choupals, the

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