ITC has really made an all round impact socially with a win-win situation between the coporate and the farmer worlds.
ITC first aims to help improve farmers’ incomes by:
— Wiring rural communities with computer access to its e-trading platform
— Offering better on-line prices than auctions for produce
— Providing quality seeds and on-line agricultural advice
Next, it aims to help its own business by:
— Growing its commodities business overseas
— Gaining access to rural consumers
— Selling goods and services back to the farmers
How to Profit From the Poor: In the poorest parts of rural India, a business giant is boosting the earning power of peasant farmers; But this is not corporate philanthropy; It’s part of a bigger plan to sell its own — and other companies’ — products right back to them
WHY IS INDIA’S largest tobacco company making a massive effort to boost income growth in rural India?
It’s not charity work. ITC Ltd. has big plans to profit from an e-commerce platform it’s building in poor villages across India’s vast countryside. The system allows farmers to sell their produce — wheat, soya, coffee, even shrimp — directly to ITC, which is also one of the nation’s biggest agricultural trading firms, saving the farmers the cut middlemen usually take at local auctions. Farmers also get free and timely agricultural information that helps boost their productivity. What does ITC get? A perfect opportunity to sell its and other companies’ goods, such as seeds, flour and life insurance, right back to the farmers.
Rural incomes in India are rising slowly, and companies are getting smarter about marketing to the poorer segments of the population. But in many parts of the country, people still need to make more money before they can spend any.
“If you can enable more people to afford what you’re producing, you’re at another level,” says Arun Maira, managing partner at the Boston Consulting Group in Mumbai. Many companies in India are marketing goods to poor people and running a corporate philanthropy fund for small charitable projects. ITC’s approach is very different. It’s using technology to deliver more profit to farmers as part of its broader business plan. At the same time, it’s marketing a growing range of nonagricultural products to those farmers to tap into incomes that it has helped grow.
To help the earning power of its potential customers, over the last three years ITC has set up 2,100 kiosks, or e-choupals — a Hindi word meaning “gathering place” — in four states, Madhya Pradesh, Karnataka, Andhra Pradesh and Uttar Pradesh. But first, it had to overcome computer illiteracy, shaky phone lines and intermittent electricity by supplying training, solar panels and even satellite-phone connections in some villages. It adds five more kiosks per day, at a cost of $3,400 each, and ultimately plans to wire up 100,000 villages.
It’s a huge investment, but one the company is betting it will recover in two years. First, by getting more commodities that it can sell overseas; next, by selling other goods back to the farmers. By then, ITC could dominate consumer access and information in these remote places. Already, companies like South Korea’s LG Electronics, TVS — India’s third-largest motorcycle and moped maker — and India’s Bharat Petroleum are talking to ITC about getting their goods sold through the e-commerce link to the farmers, says S. Sivakumar, chief executive of ITC’s international business division.
ITC, meanwhile, now buys about 25% of its commodities, worth about $50 million last year, through the e-choupals, and has generated about $200 million in sales of products such as seeds and fertilizers back to the villages.
Villages such as Kamlapur, in Madhya Pradesh, one of India’s poorest states. Here, bullock carts ply the dirt roads and weathered bicycles line the streets. It’s little more than a cluster of tiny clay and brick houses. Farmer Sanjay Sharma’s house has become the centre of village life since ITC hired him two years ago to run an e-choupal. Sharma, who had never touched a computer before ITC came along, now has an Internet-connected PC in a corner of his house. He still works his 35-acre soya farm, as well as helping farmers with several dozen inquiries a day. His three teenage children help, too, checking local auction prices on-line and downloading agricultural research — crucial information that’s often hard to come by in India’s more remote villages.
Nearly every farmer here now sells most of his crop to ITC and orders seeds from the company the same way.
That shaves 6% off the transaction cost for both buyer and seller. In the old-fashioned way, farmers first must drive their produce to an auction market, where they pay for bagging and loading and then wait two days to get paid after they sell their goods.
Not through the e-choupal. If they like the on-line price offered by ITC, they drive to a local warehouse and get paid for their crops right away. ITC also offers better prices. On one recent day, Sharma helped local farmers sell four tonnes of soya to ITC for 1,450 rupees ($31) per 100-kilogram bag; the rate that day at the nearest market town was 1,430 rupees.
The company also provides low-cost soil-testing services. That, plus access to top-quality seeds and advice on timely application of fertilizers, has helped improve yields. ITC estimates production per acre in this town has gone up by 5%-10% in the past two years.
“The ultimate objective is to increase the productivity of the village. It’s crucial for the people,” says Ram Kumar, trading manager for ITC. “Ultimately, it’s the economy of the village that matters. Unless you help improve that, you can’t possibly sell anything here.”
Kamlapur is indeed poor. The average household income here is about 55,000 rupees per year, according to the National Council of Applied Economic Research. Poor farming households earn as little as 25,000 rupees. By comparison, the average household income in Punjab, which is blessed with good infrastructure and excellent irrigation, is 104,875 rupees per year.
One thing all Kamlapur villagers share is the desire for modernity. Many families have acquired black-and-white TV sets and phones in the past three years, and images of life in the city, and all its conveniences, are stoking desires.
Jalaluddin Quazi, 38, one of the first villagers to use the e-choupal, and one of the town’s wealthiest residents, is eager to snap up whatever new products ITC offers through the kiosk. His 10-acre farm, part of a larger family spread, has served him well: Children’s bicycles litter the driveway of his two-storey home. He owns a motorbike and a two-year-old car, while a colour TV, a Sony VCD player and an Aiwa mini-stereo adorn his living room. “I’ll buy whatever new gadgets come on the market,” says the father of three.
ITC has already begun to sell goods produced by other arms of the conglomerate, like cooking oil, salt, sugar, flour and lamps, through the system. “We’re also working on market research as another product area. Some products, like Coke and Pepsi, have pretty efficient distribution channels already. But they’re all looking for better market-research data on rural India,” says Sivakumar. ITC bets that people like Sharma, who’s liked and trusted by his peers, are in a better position to find out more about their neighbour’s daily lives than a researcher who “parachutes” in from Mumbai.
In February, ITC agreed with ICICI Bank to sell its life insurance on-line in a few villages, including Kamlapur. Sharma has placed on-line orders for 22 policies so far. His first insurance client, 24-year-old soya farmer Mohammed Ariff, was one of the first to use the e-choupal. Ariff then convinced his older brother, Mansoor, who runs their family farm, to try out the system. Now, they sell all their crops this way.
The e-choupal has helped Ariff’s cash flow, he says, by taking some of the guesswork out of crop sales and improving margins a little. “If things continue to improve, we’ll upgrade the house,” he says. He’s also starting to warm to new products, like insurance. He bought the life policy because he trusts Sharma, he says. “A lot of insurance people come through here, trying to sell policies. But we don’t know them, and they come and go. Not Sharma. He’s like family.”
The success of the insurance pilot scheme is encouraging, ITC’s executives say. ICICI is considering selling other financial products on-line. ITC has also agreed to sell and rent tractors for a local arm of international tractor company Eicher Tractors here and in a few other villages after the next monsoon. “We’ve really managed to increase the reach for our own business,” says ITC’s Kumar. “Now, it’s about leveraging the e-choupal to sell other products. And we’re already starting to see that the demand for this service, from consumers and companies, is already there.”