ITC's e-chaupal project

Anil Kashid, a farmer in Yedgoan, is just an hour's drive away from Pune now that an excellent road network has been developed. He has a small tract of land where he grows fruit and vegetables. Over the past six months, he has been supplying his horticulture products to ITC for two Choupal Fresh stores in Pune. While working with ITC's managers in the area, he has discovered that he is not dependent on just one crop and just one growing season for his livelihood. On a single patch of land, he can grow more than five types of vegetables. He has also invested in a wire-mesh so that he can grow veggies like cucumber and brinjal, essentially creepers.

 

Farmers like Kashid are part of the second phase of ITC's e-choupal project. The first phase of the project consisted of sourcing grains like wheat, soya etc directly from farmers, but ITC has now turned to horticulture produce The company has entered this space directly because the grain sourcing business is facing an imminent problem of decreasing return to scale – it won't be able to increase grain sourcing exponentially like it did in the first few years. S Sivakumar, chief executive, agribusiness, ITC Ltd, says, "We found that the bulk dry-grain sourcing could only be increased marginally once most of the area we wanted to reach was covered.

 

Hence, we decided incorporate horticulture and expand the scope of the project." The project will begin with three pilots in Maharashtra, Andhra Pradesh and Chandigarh. The first phase marked a seven-year run of grain sourcing, a total of 1.5 million tonnes of wheat, soya and other grains in Madhya Pradesh and UP by benchmarking against the market and providing farmers a higher price than the local mandi.

 

More importantly, this phase of expansion would have a greater fit with ITC's foods, exports and retail businesses. While most of the grain in the first phase was used by ITC in its then fledgling foods operations, three businesses will get the benefit of fruit and vegetables sourcing – foods, retail and exports. In foods, the Bingo brand of snackfood will require a huge quantum of potatoes, running into thousands of tonnes annually.

 

Choupal Fresh, the retail initiative which is present in all three states where ITC is piloting this project from, will receive a bulk of the fresh produce on a daily basis as will Big Bazaar and TruMart, which have entered into a sourcing contract with ITC. Besides this, ITC's exports division will require both fresh and processed fruit procured from farmers.

 

So how will ITC go about this phase of e-choupal? The first three pilot clusters for the fresh project have been set up near Chandigarh, Pune and Chandigarh. The pilots have a distinct advantage over places like Mhow, where ITC set up one its early e-choupal projects, since they are much better equipped with basic infrastructure. Linkages with the three cities are very good; all of them have an excellent road network, leading to the villages nearby.

 

In and around Pune, for instance, ITC has set up a supply chain network that ensures that the two Choupal Fresh stores receive supplies twice a day, and warehousing is kept to a minimum. ITC's trucks pick up nearly 15 tonnes of vegetables twice a day from hundreds of farmers in the region. As a result, Choupal Fresh, the retail store, gets vegetables that are harvested barely four hours ago at the farm. These are sold at a premium after ITC's insight that customers might be willing to pay more for premium and fresh products.

 

Of the Rs 5,000 crore earmarked for the entire e-choupal project by ITC, Rs 1,000 crore will go into this phase. Most of the investments, according to Mr Sivakumar, will have to be in technological inputs to farmers, and a greater investment in cold-chain and storage compared to when ITC was just sourcing grains. The company is investing in bringing in more sanchalaks and samyojaks — the former a representative of the farmer and the latter a representative of the company.

 

For horticulture, it's the samyojak who will play a dominant role since he would be the aggregator and also play a huge part in transportation. Currently the IT investments aren't significant, partly because the project is yet to scale up but also because of lower connectivity costs compared to 2001 when e-choupal had first begun.

 

A big advantage that ITC would have from this phase is the higher output per hectare in horticulture. Soya harvests don't exceed more than 1 tonne per hectare while wheat yields are 3-4 tonnes per hectare, but fruit and vegetables yield anywhere between 10-15 tonnes per hectare. So ITC's realisations per hectare would also be much higher. Of the targeted 100,000 villages in which ITC wants to extend the e-choupal project, it'll add another 40,000 villages in addition to the existing 40,000 villages that it has covered for grain sourcing. The company is attempting to keep the horticulture and grain sourcing as separate as possible.

 

But as the project scales up, there will be some overlap. ITC anticipates that nearly 10,000 villages will provide both grains and horticulture, thus covering a total of 70,000 villages, and a farmer population of nearly 4 million.

 

ITC's managers work extensively with the farmers to improve agricultural practices beyond the traditional methods. For instance, ITC has educated farmers to reduce the gap between individual potato plants in a single row so that more seeds can be sown without hampering the crop. They've also provided farmers with new iron ploughs that decrease the space between two rows by 5-6 inches while the individual plants grow without hindrance.

 

Says Hemant Gaur, head of ITC's horticulture sourcing, "These practices increase total yield from a single patch of land for the farmers, potentially running into a few tonnes per farm." There will be some teething troubles initially considering the seasonality of fruit. Mr Sivakumar admitted that they would have to get some items from Bangalore to tide over the shortages in Hyderabad for the retail part of the business.